Académique Documents
Professionnel Documents
Culture Documents
AND
CONTRACTS
Block
B2014
Finals
Reviewer
Prof. Solomon Lumba
TABLE
CONTENTS
OF
CIVIL OBLIGATIONS
General
What is an obligation?.........................................................................2
Sources
of
Obligation.
.2
Duties of Obligor...
.5
Kinds of Obligations
Pure and Conditional.
14
Obligations
with
a
Period..19
Alternative..
.24
Joint
and
Solidary26
Divisible
and
Indivisible.
.28 Obligations with a Penal Clause..
.29
Extinguishment of Obligations
Payment
or
Performance.
.31
Loss
of
the
Thing
Due..34 Condonation or
Remission..35 Confusion or
Merger
of
Rights....37
Compensations.
..37
Novation.
.42
Prescription
47
Agreement.
53
Difficulty.
.54
Impossibility...
..55
Other Performance Excuses
Volenti Non Fit Injuria55
Fortuitous
Event..
.56
NATURAL OBLIGATIONS
What is a natural obligation?....................................................58
CONTRACTS
General
What is a contract?.............................................................................60
Kinds
of
contracts.
..69
Stipulation
Pour
Autrui.
..75
Tortious Interference
77
Essential Requisites
Consent....
.81
Object.
....87
Cause...
88
Reformation of Instruments
Defective Contracts
Rescissible..
.90
Voidable.
..96
Unenforceable..
.101
Void
104
CIVIL OBLIGATIONS
I. GENERAL
What is an obligation?
Art. 1156. An obligation is a juridical necessity to give, to do, or not to do.
JURIDICAL NECESSITY juridical tie; connotes that in case of noncompliance, there
will be legal sanctions.
-An obligation is nothing more than the duty of a person (obligor) to satisfy a
specific demandable claim of another person (obligee) which, if breached, is
enforceable in court.
-A contract necessarily gives rise to an obligation but an obligation does not
always need to have a contract.
KINDS OF OBLIGATION
A. From the viewpoint of sanction (a)CIVIL OBLIGATION that defined in Article 1156; an obligation, if not fulfilled when
it becomes due and demandable, may be enforced in court through action; based on
law; the sanction is judicial due process
(b)NATURAL OBLIGATION defined in Article 1423; a special kind of obligation which
cannot be enforced in court but which authorizes the retention of the voluntary
payment or performance made by the debtor; based on equity and natural law. (i.e.
when there is prescription of duty to pay, still, the obligor paid his dues to the obligee
the obligor cannot recover his payment even there is prescription) the sanction is
the law, but only conscience had originally motivated the payment.
(c) MORAL OBLIGATION the sanction is conscience or morality, or the law of the
church.
B. From the viewpoint of subject matter REAL OBLIGATION the obligation to give
PERSONAL OBLIGATION the obligation to do or not to do (e.g. the duty to paint a
house or to refrain from committing a nuisance)
C. From the affirmativeness and negativeness of the obligation POSITIVE OR AFFIRMATIVE OBLIGATION the obligation to give or to do
NEGATIVE OBLIGATION the obligation not to do (which naturally includes not to
give)
D. From the viewpoint of persons obliged - sanction -
PRESTATION (to give, to do, or not to do) object; subject matter of the
obligation; conduct required to be observed by the debtor;
Requisites of Prestation / Object:
pecuniary value
INJURY wrongful act or omission which causes loss or harm to another
DAMAGE result of injury (loss, hurt, harm)
d) EFFICIENT CAUSE the JURIDICAL TIE which binds the parties to the
obligation; source of the obligation.
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.
CONTRACT meeting of minds between two persons whereby one binds himself,
with respect to the other, to give, to do something or to render some service;
governed primarily by the agreement of the contracting parties. VALID CONTRACT
it should not be against the law, contrary to morals, good customs, public order, and
public policy. In the eyes of law, a void contract does not exist and no obligation will
arise from it.
OBLIGATIONS ARISING FROM CONTRACTS primarily governed by the
stipulations, clauses, terms and conditions of their agreements.
If a contracts prestation is unconscionable (unfair) or unreasonable, even if it does
not violate morals, law, etc., it may not be enforced totally. Interpretation of
contract involves a question of law.
COMPLIANCE IN GOOD FAITH compliance or performance in accordance with the
stipulations or terms of the contract or agreement.
Pertinent provisions of the RPC and other penal laws subject to Art 2177 Civil
Code [Art 100, RPC Every person criminally liable for a felony is also civilly liable]
omission
negligence
guardians
owners / managers of establishments for their employees
there exists a damage or injury which must be proved by the person claiming
recovery
GOOD FAITH.
HELD: A private hauler is not a common carrier and it was not proven that
the driver was negligent.
Driver may not be held liable since he was not a party to the contract of carriage
between petitioners principal and defendant. But, civil action may be filed against him
based on culpa aquiliana. Negligence must be proved first.
-Kinds of Interest:
Expectation interest - the interest of a party to a breached contract in receiving
the benefit of the bargain by being put in a position as good as that which would
have resulted had the contract been performed. It is based on the actual value the
contract would have had to the injured party if the contract had been performed.
- you pay 1 peso for a car that that should have been delivered. Person did not
deliver car. He owes you 1 peso for the car not delivered.
Reliance interest - the interest of a party to a breached contract in being
compensated for detriments suffered (as expenses incurred) in reliance on the
agreement
Reliance damages protect a party's reliance interest. Neal spent $100 in
reliance on the contract, which constituted Neal's reliance interest.
Since reliance damages equal to the value of the reliance interest of the injured
party, Matt owes Neal $100. This puts Neal in the same economic position as if the
contract never happened.
- another example would also be buying mags for a car which was not delivered
Restitution interest - interest in having restored to him any benefit that he has
conferred on the other party....
Example: A, a social worker, promises B to render personal services to C in return for
B's promise to educate A's children. B repudiates the contract after A has rendered
part of the services. A can get restitution from B for the services, even though they
were not rendered to B, because they conferred a benefit on B.
COCA COLA v. CA
J. Davide Jr.
HELD: Liability for quasi delicts may exist even with a contract if the
nature that breaks the contract may also be a tort. Existence of a contract does
not preclude the action for quasi delicts
LRTA v NAVIDAD
J. Vitug
FACTS: Man and guard had an altercation. Man fell on the railway tracks of
LRT just as the train was approaching. He died.
HELD: Agency can never be liable if guard is not liable. Agency may be liable
if guard is liable except if it establishes that it exercised extraordinary diligence in
choosing employees. Obligation is based on quasi delict.
LRTAs liability is the contract of carriage and its obligation to indemnify the
victim arises from the breach of that contract by reason of its failure to exercise the
high diligence required of the common carrier.
LG FOODS v AGRAVIADOR
J. Garcia
FACTS: Boy died after being hit by the van of the petitioners. The driver who
was driving the van and an employee of the petitioners killed himself.
HELD: Civil liability arising from the criminal act. Judgement is required.
Since driver killed himself, Art 2180 was used (for persons for whom one was
responsible). LG foods is principally liable. It was sufficiently alleged that the death
of the son was caused by the drivers negligence. LG foods impliedly admitted the
action for quasi delicts by using the defense that they exercised extraordinary
diligence to choose its employees.
What are the duties of the obligor in obligations to give?
To take care of the thing with the diligence of a good father of a family
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.
Speaks of an obligation to care of a DETERMINATE thing (that is one which
is specific; a thing identified by its individuality) which an obligor is supposed to
deliver to another.
Reason: the obligor cannot take care of the whole class/genus
DUTIES OF DEBTOR:
Preserve or take care of the things due.
DILIGENCE OF A GOOD FATHER a good father does not abandon his family, he is
always ready to provide and protect his family; ordinary care which an average
and reasonably prudent man would do.
Negligence
KINDS of DILIGENCE:
DILIGENCE OF A GOOD FATHER a good father does not abandon his family,
he is always ready to provide and protect his family; ordinary care which an average
and reasonably prudent man would do.
Before the delivery, the creditor, in obligations to give, has merely a personal
right against the debtor a right to ask for
delivery of the thing and the fruits thereof.
Once the thing and the fruits are delivered, then he acquires a real right over
them.
- The remedy of the buyer when there is no delivery despite demand is to file a
complaint for SPECIFIC PERFORMANCE AND DELIVERY because he is not yet the
owner of the property before the delivery.
ACTUAL DELIVERY actual delivery of a thing from the hand of the grantor to the
hand of the grantee (personally), or manifested by certain possessory acts executed
by the grantee with the consent of the grantor (realty).
FRUITS:
NATURAL spontaneous products of the soil, the young and other products of
animals;
as a aanaral rulaa no parson saall aa rasponsaala aor taosa avants waaaa aoula not aa aorasaana or waaaaa
taouaa aorasaana ara anavataalaa axaapta aa an aasas axprassla spaaaaaaa aa taa law
aa waan at as stapulataa aa taa partaas
aa waan taa natura oa taa oalaaataon raquaras assumptaon oa rasa
an anaatarmanata taana aannot aa oaaaat oa aastruataon aa a aortuatous avant aaaausa aanus navar parasaasa
Art. 1477. The ownership of the thing sold shall be transferred to the vendee upon the actual or constructive delivery thereof. (n)
Art. 442. Natural fruits are the spontaneous products of the soil, and the young and other products of animals.
Industrial fruits are those produced by lands of any kind through cultivation or labor.
Civil fruits are the rents of buildings, the price of leases of lands and other property and the amount of perpetual or life
annuities or other similar income. (355a)
Art. 443. He who receives the fruits has the obligation to pay the expenses made by a third person in their production, gathering, and
preservation. (356)
Art. 444. Only such as are manifest or born are considered as natural or industrial fruits.
Art. 445. Whatever is built, planted or sown on the land of another and the improvements or repairs made thereon, belong to
the owner of the land, subject to the provisions of the following articles.
Art. 447. The owner of the land who makes thereon, personally or through another, plantings, constructions or works with the
materials of another, shall pay their value; and, if he acted in bad faith, he shall also be obliged to the reparation of damages. The
owner of the materials shall have the right to remove them only in case he can do so without injury to the work constructed, or
without the plantings, constructions or works being destroyed. However, if the landowner acted in bad faith, the owner of the
materials may remove them in any event, with a right to be indemnified for damages.
Art. 459. Whenever the current of a river, creek or torrent segregates from an estate on its bank a known portion of land and transfers it
to another estate, the owner of the land to which the segregated portion belonged retains the ownership of it, provided that he removes
the same within two years.
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
all
INCIDENTAL FRAUD (applicable provisions are Arts. 1170 & 1344) committed in the
performance of an obligation already
existing because of a contract; incidental fraud obliges the person employing it to
pay damages.
CAUSAL FRAUD (Art. 1338) employed in the execution of contract in order to
secure consent; remedy is annulment because of
vitiation of consent.
Art. 1172. Responsibility arising from negligence in the performance of
every kind of obligation is also demandable, but such liability may be
regulated by the courts, according to the circumstances. (1103)
Courts discretion because:
negligence depends upon the circumstances of a case good or bad faith of the
obligor may be considered as well as the conduct or misconduct of the obligee;
it is not as serious as fraud.
Negligence lack of foresight or knowledge
Imprudence lack of skill or precaution
TEST OF NEGLIGENCE
Did the defendant, in doing the alleged negligent act, use the reasonable care
and caution which an ordinary prudent man would
have used in the same situation?
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.
Two Types of Negligence:
Culpa
Aquiliana
Basis
(Quasi
Delict)
Definition
Negligence between
parties
not
so
related by
Culpa Contractual
(Breach of Contract)
Negligence in the
performance of
contractual
pre-existing contract obligation
Direct, substantive
Nature of Negligence and
Incidental to the
independent
performance of the
obligation
Complete
and
Good Father of the
proper
Not complete and
family defense
defense (parents,
proper defense in the
guardians,
selection
of
employers)
employees
There is presumption
Presumption of
No presumption
of
negligence by the
negligence
injured party must
fact
prove negligence of
the
that the contract was
defendant
breached. Must show
that they are not
negligent and breach
was caused by
fortuitous events.
Ex, Bus with passengers bumps a car. A was a passenger of the bus. B was the
driver of the car. There is culpa contractual with regards to A and the bus driver
and culpa aquiliana with regards to the car driver and bus driver.
Question: Does the employer still have to prove extraordinary diligence in choosing
his employees in an action for culpa aquiliana if it was proven that the driver was not
negligent? NO!
Art. 2199. Except as provided by law or by stipulation, one is entitled to an
adequate compensation only for such pecuniary loss suffered by him as he
has duly proved. Such compensation is referred to as actual or
compensatory damages.
Art. 2200. Indemnification for damages shall comprehend not only the
value of the loss suffered, but also that of the profits which the obligee
failed to obtain. (1106)
Art. 2201. In contracts and quasi-contracts, the damages for which the
obligor who acted in good faith is liable shall be those that are the natural
and probable consequences of the breach of the obligation, and which the
parties have foreseen or could have reasonably foreseen at the time the
obligation was constituted.
In case of fraud, bad faith, malice or wanton attitude, the obligor shall be
responsible for all damages which may be reasonably attributed to the
non-performance of the obligation. (1107a)
Art. 2202. In crimes and quasi-delicts, the defendant shall be liable for all
damages which are the natural and probable consequences of the act or
omission complained of. It is not necessary that such damages have been
foreseen or could have reasonably been foreseen by the defendant.
Art. 2216. No proof of pecuniary loss is necessary in order that moral,
nominal, temperate, liquidated or exemplary damages, may be adjudicated.
The assessment of such damages, except liquidated ones, is left to the
discretion of the court, according to the circumstances of each case.
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failure of the opening of the letter of credit was the cause for the breach of contract
it is clear that what singularly delayed the opening of the stipulated letter of credit
and which, in turn, caused the cancellation of the allocation in Burma, was the inability of the
appellant corporation to meet the condition importation by the Bank for granting the same.
liability and culpability arises from the willful and deliberate assumption of
contractual obligations even as it was well aware of its financial incapacity to undertake the
prestation
NARIC knew the bank requirements for opening a letter of credit and that it could not
meet its requirement. Despite that, it still continued with the bidding. Hence , it must be
similarly held to have bound itself to answer for all and every consequences that would result
from the representation. aptly observed by the trial court.
Those who in the performance of their obligation are guilty of fraud, negligence,
or delay, and those who in any manner contravene the tenor thereof, are liable in
damages.
The NARIC would also have this Court hold that the subsequent offer to substitute
Thailand rice for the originally contracted Burmese rice amounted to a waiver by the appellee
of whatever rights she might have derived from the breach of the contract. We disagree.
Waivers are not presumed, but must be clearly and convincingly shown, either by express
stipulation or acts admitting no other reasonable explanation.
damages were based on estimates , cost studies, and evidence. Award should be
in Philippine peso. Exchange rate is to be when the obligation was incurred.
breach of contract of carriage -> upgrading the seats from business class
to first class is a breach of contract
breach of contract - failure without legal reason to comply with the terms of a
contract.*5+ It is also defined as the *f+ailure, without legal excuse, to perform
any promise which forms the whole or part of the contract
By insisting on the upgrade, Cathay breached its contract of carriage with the
Vazquezes even when the Vasquezs waived their privilege in not taking the
upgraded seats
the upgrading of the seats were not in bad faith. Bad faith is defined as a
dishonest purpose or some moral obliquity and conscious doing of a wrong, a breach
of a known duty through some motive or interest or ill will that partakes of the nature
of fraud
there was no bad faith since the Vasquez spouses were not induced by deceit
in upgrading their seats and it was not for a devious or evil purpose.
overbooking the business class section was not in bad faith since it is in
accordance with law (Section 3 of the Economic Regulation No. 7 of the Civil
Aeronautics Board)
there was good faith in Kee building the properties in the disputed lot.
Good faith consists in the belief of the builder that the land he is building on is
his and his ignorance of any defect or flaw in his title. And as good faith is presumed,
petitioner has the burden of proving bad faith on the part of Kee. At the time he built
improvements on Lot 8, Kee believed that said lot was what he bought from
petitioner. He was not aware that the lot delivered to him was not Lot 8. Thus, Kees
good faith. Petitioner failed to prove otherwise.
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provision on contract of sale regarding erosion is not applicable to the
negligence of the sellers agent.
principal is responsible for the acts of the agent, done within the scope of his
authority, and should bear the damage caused to third persons. cause of the issue
was the agents negligence.
all
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Art. 2201. In contracts and quasi-contracts, the damages for which the
obligor who acted in good faith is liable shall be those that are the
natural and probable consequences of the breach of the obligation, and
which the parties have foreseen or could have reasonably foreseen at the
time the obligation was constituted.
In case of fraud, bad faith, malice or wanton attitude, the obligor shall
be responsible for all damages which may be reasonably attributed to
the non-performance of the obligation. (1107a)
Art. 2202. In crimes and quasi-delicts, the defendant shall be liable for all
damages which are the natural and probable consequences of the act or
omission complained of. It is not necessary that such damages have been
foreseen or could have reasonably been foreseen by the defendant.
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.
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past event cannot be called a condition but rather, a basis of the contract.
Even when unknown to the parties, a past event is not a condition.
it is not the fact stated which serves as a condition but the proof of such fact;
the contract or obligation arises, not when the vent happened or the fact came into
existence , which would be in the past, but when the proof of such fact or event is
presented, which would be the future.
Resolutory Condition the happening of such extinguishes rights already
existing; obligation is treated as if it never came into existence
- mutual restitution happens not just for the object and the price but also for the
fruits and the interests
Suspensive Condition happening of such gives rise to an obligation
What is a resolutory condition?
Art. 1179. 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.
Every obligation which contains a resolutory condition shall also be
demandable, without prejudice to the effects of
the happening of the event.
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.
-Refers to the fulfillment of a resolutory condition.
-When the resolutory condition happened, the obligation is considered as if it did
not exist.
-The parties are bound to return or restore whatever they have received from each
other reciprocal restitution
-Donation by reason of marriage if the marriage does not happen, such
donation should be returned to the donor.
-Loss, deterioration and improvement governed by 1189.
-In obligations to do and not to do, the courts shall determine, in each case, the
retroactive effect of the condition that has been complied with.
What is a potestative condition?
Art. 1182. When the fulfillment of the condition depends upon the sole will
of the debtor, the conditional obligation shall be void. If it depends upon
chance or upon the will of a third person, the obligation shall take effect in
conformity with the provisions of this Code.
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Art. 1308. The contract must bind both contracting parties; its validity
or compliance cannot be left to the will of one of them. (1256a)
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. (n)
Potestative condition one which depends upon the will of one of the
contracting parties
Casual condition depends exclusively upon chance or other factors and not
upon the will of the contracting parties
Mixed condition one which depends upon the will of one of the contracting parties
and other circumstances, including the will of a third person
2.) Purely Potestative depends solely and exlusively upon the will ( if I like it or if
I deem it proper)
it is only when the potestative condition depends exclusively upon the will
of
the debtor that the conditional obligation is void. It is valid if it depends partly on
the will of the debtor and the 3rd person,
applicable only when the condition is suspensive and cannot apply to resolutory
conditions
is found by the court that the obligor has done all in his power to comply with the
obligation, the other party may be ordered to comply with his part of the contract
NAGA TELEPHONE v CA
J. Nocon
Source of obligation: contract
Respondents answered:
probably because what is due to them from private respondent is more than its
claim against them.
telephone
service
had
been
categorized
by
the
National
and in the towns of Milaor, Canaman, Magarao and Pili, Camarines Sur and in other
places where petitioners use private respondent's posts, the sum of ten (P10.00) pesos
per post, per month, beginning January, 1989; and 2) private respondent to pay
petitioner the monthly dues of all its telephones at the same rate being paid by the
public beginning January, 1989. The peculiar circumstances of the present case, as
distinguished further from the Occea case, necessitates exercise of our equity
jurisdiction.
Issue of prescription - Article 1144 of the New Civil Code provides, inter alia, that
an action upon a written contract must be brought within ten (10) years from the time
the right of action accrues. Clearly, the ten (10) year period is to
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be reckoned from the time the right of action accrues which is not necessarily the
date of execution of the contract. This was when contract was studied since it was
disadvantageous (1982) , 10 years have not yet elapsed.
(a) That the term or period of this contract shall be as long as the party of the
first part (petitioner) has need for the electric light posts of the party of the
second part (private respondent) . . ..
is a potestative condition, is correct. However, it must have overlooked the
other conditions in the same provision, to wit:
. . . it being understood that this contract shall terminate when for any reason
whatsoever, the party of the second part (private respondent) is forced to stop,
abandoned (sic) its operation as a public service and it becomes necessary to
remove the electric light post (sic);
which are casual conditions since they depend on chance, hazard, or the will of a
third person. In sum, the contract is subject to mixed conditions, that is, they
depend partly on the will of the debtor and partly on chance, hazard or the will of
a third person, which do not invalidate the aforementioned provision.
POLOTAN v CA J. Romero
Admittedly, the contract containing standard stipulations imposed upon those who
seek to avail of its credit services was prepared by Diners Club. There is no way a
prospective credit card holder can object to any onerous provision as it is offered
on a take-it-or-leave-it basis. Being a contract of adhesion, any ambiguity in its
provisions trust be construed against private respondent.
these are considered ordinary binding contracts since the party to adheres
is the contract one sided? No . its parties agreed upon the stipulation
its not an escalation clause since it refers to the prevailing market rate.
as they are not solely potestative but based on reasonable and valid grounds. It is
beyond the control of any of the parties.
What is the effect of impossible conditions? Illegal conditions?
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Question: A promised B to give his car if B can hold the sun. Can B demand the
fulfillment of the donation?
Art. 727. Illegal or impossible conditions in simple and remuneratory
donations shall be considered as not imposed.
- impossibility may be physical or juridical
-physical if contrary to the laws of nature. Juridical if contrary to law, morals, good
customs, public policy and order
As soon as it has become certain that the EVENT WILL NOT TAKE PLACE
although the time specified has not yet expired.
Where no period stated 2nd paragraph of 1185 is applicable
Art. 1185. The condition that some event will not happen at a determinate
time shall render the obligation effective from the moment the time
when the act (voluntary), did not have for its purpose the prevention of the
condition, this article is not applicable
when the condition is resolutory but not dependent on the will of the debtor,
and he unjustifiably provokes or produces the condition, which would not have
happened without his doing so, uit will be considered as not having been fulfilled
and there will be no extinguishment of rights.
Does the fulfillment of a condition have retroactive effect?
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
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be inferred that the intention of the person constituting the same was
different.
In obligations to do and not to do, the courts shall determine, in each case, the
retroactive effect of the condition that has been complied with.
moment of the creation of the conditional obligation and the fulfillment of the
suspensive condition, the creditor enforce the obligation , right is a mere expectancy
cause of action for the enforcement of the obligation accrues, and the period
of prescription of the action has to be computed from that moment
increase in value which the thing may acquire before the happening of the
suspensive condition, inures to the benefit of the creditor
right to the fruits of the thing is not within the principle of retroactivity of
conditional obligations
to prevent the loss or deterioration of the things which are the objects of the
obligation by enjoining or restraining acts of alienation or destruction by the debtor
himself or by third persons
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as to fulfillment condition is uncertain , period must necessarily come
whther on a date known before hand or at a time which cannot be
predetermined
as to time period refers to the future while condition may refer to a past
event unknown to the parties
will of debtor condition which depends exclusively on the will of the debtor
annuls the obligation , period left to the debtors will merely empowers the court to
fix such period
Requisites of a period future, certain, possible
Kinds of terms
According to source legal, voluntary, judicial
Definite or indefinite
Express or tacit
Suspension of a period it only relieves the parties from the fulfillment of their
respective obligations during that time
Who is liable if the thing is that is the object of an obligation to give is lost prior to
the arrival of the period?
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.
LOSS
debtor without fault obligation is extinguished
debtor with fault obligation to pay damages
DETERIORATION
debtor without fault impairment is to be borne by the creditor
debtor with fault creditor chooses: rescission of obligation, fulfillment,
indemnity
IMPROVEMENT
by nature or time improvement: inure to the benefit of the creditor
at the expense of the debtor granted to the usufructuary
When is the court authorized to set a 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.
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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.
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.
- only refers to the period , not the obligation itself JUDICIAL
PERIOD period designated by the court.
If there is a period agreed upon by the parties and it has already lapsed or
expired.
From the very moment the parties give their acceptance and consent to the
period fixed by the court, it
becomes a law governing their contract.
INDICATIONS OF A TERM OR PERIOD: When the
debtor binds himself to pay -when his means
permit him to do so -little by little
-as soon as possible -from time to time
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GAI filed MFR but CFI denied. GAI appealed to the CA, contending that the relief
granted, i.e., fixing of a period, was not justified by the pleadings & not supported
by the facts submitted at the trial of the case in court below & that the relief
granted in effect allowed a change of theory after the submission of the case for
decision
CA upheld the CFI decision. Hence this petition for review by certiorari to the
SC
WON CFI may fix a period in the same pleading by PSEDC
NO. When GAI pleaded in its answer that the contract w/ PSEDC gave GAI
"reasonable time w/in w/c to comply with its obligation to construct & complete the
streets", what the answer put in issue was not whether the court should fix the time
of performance, but WON the parties agreed that the petitioner should have
reasonable time to perform its part of the bargain.
If the contract so provided, then there was a period fixed, a "reasonable time";
all that the court should have done was to determine if that reasonable time
had already elapsed when suit was filed. If it had passed, then the court should
declare that petitioner had breached the contract, as averred in the complaint,
fix the resulting damages. On the other hand, if the reasonable time had not
yet elapsed, the court perforce was bound to dismiss the action for being premature.
But in no case can it be logically held that under the plea above quoted, court
intervention to fix the period for performance was warranted, for Art. 1197 is
precisely predicated on the absence of any period fixed by the parties
Granting that the court shouldve found that no reasonable time/no period at all had
been fixed, still the complaint not having sought that the Court should set a period,
the court couldnt proceed to do so unless the complaint was first amended; for the
orig. decision is clear that the complaint proceeded on the theory that the period for
performance had elapsed already, that the contract had been breached & defendant
was already answerable in damages.
Granting further that it lay within the Court's power to fix the period of performance,
still the amended decision is defective in that no basis is stated to support the
conclusion that the period should be set at 2 yrs after finality of the judgment. Art.
1197 is clear that the period cannot be set arbitrarily.
All that TC's amended decision says in this respect is that "the proven facts
precisely warrant the fixing of such a period", a statement manifestly insufficient
to explain how the 2 year period given to petitioner herein was arrived at.
Art. 1197, CC involves a 2-step process.
Court must 1st determine that "the obligation does not fix a period" (or that the
period is made to depend upon the will of the debtor), "but from the nature & the
circumstances it can be inferred that a period was intended" (Art. 1197, pars. 1&2)
Secondly, it must decide what period was "probably contemplated by the
parties"
Ultimately, the Court can not fix a period merely because in its opinion it is or should
be reasonable, but must set the time that the parties are shown to have intended.
In this connection, contract shows that the parties were fully aware that the land
described therein was occupied by squatters, because the fact is expressly
mentioned therein. As the parties must have known that they could not take the law
into their own hands, but must resort to legal processes in evicting the squatters,
they must have realized that the duration of the suits to be brought would not be
under their control nor could the same be determined in advance. The parties must
have thus intended to defer the performance of the obligations under the contract
until the squatters were duly evicted, as contended by the GAI
CA objected that it would render the date of performance indefinite. Yet, the
circumstances admit no other reasonable view; & this very indefiniteness is what
explains why the agreement did not specify any exact periods or dates of
performance.
Holding: Reversed; Time for the performance is fixed at the date that all the
squatters on affected areas are finally evicted therefrom
CPU v CA
J. Bellosillo
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Iloilo, in 1939, Don Ramon Lopez by a deed of donation donated Lot No. 3174-B-1 of
the subdivision plan Psd-1144, then a portion of Lot No. 3174-B, for which Transfer
Certificate of Title No. T-3910A to CPU.
The deed of donation came with 3 annotations on the land:
1.should be used for a medical college with all its buildings as part of the
curriculum;
Under Art. 1181 of the Civil Code, on 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.
Thus, when a person donates land to another on the condition that the latter would
build upon the land a school, the condition imposed was not a condition precedent or
a suspensive condition but a resolutory one. Only after the donee didnt fulfill the
conditions will the rights be revoked. which brings us to the prescription
WON there is prescription. NO
The time from which the cause of action accrued for the revocation of the
donation and recovery of the property donated cannot be specifically determined
in the instant case. There being no stipulations in the deed, the time for the
fulfillment of the conditions lay in the will of the donee and prevented the statute
of limitations to affect
in this case.
And to compute for the time from which the cause of action accrued, it begins with
the expiration of a reasonable period and opportunity for petitioner to fulfill what has
been charged upon it by the donor.
And in this case, no exact time can really be surely stipulated in the deed,
considering the laws on construction, educational institutions etc. beyond the
control of the donee.
Thus, when the obligation does not fix a period but from its nature and
circumstances it can be inferred that a period was intended, the general rule
provided in Art. 1197 of the Civil Code applies, which provides that the courts may
fix the duration thereof because the fulfillment of the obligation itself cannot be
demanded until after the court has fixed the period for compliance therewith and
such period has arrived.
And yet, Art. 1197 cant be applied because the courts think that 50 years was enough
time for them to fulfill the conditions. CPU has slept on its obligations.
What applies is Art. 1191, when an obligor cant comply with what is expected of him, the
obligee may seek rescission unless the court fixes a period for a just
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cause. In this case, there is no just cause, to fix a period would be mere
technicality and would only result to a multiplication of suits.
Then the court said that since this is a gratuitous donation(contradiction, see
dissent) the court affirms the decision of the RTC and modifies that of the CA, CPU
is ordered to reconvey the property to the heirs.
Davide, J. dissenting (Modal Conditions in donations Important)
He agrees its an onerous obligation, but he sees the contradiction when the
ponente called it a gratuitous donation in the end.
He makes a distinction between conditions on the laws of obligation and donation
as different(Tolentino). The conditions spoken does not refer to uncertain events on
which the birth or extinguishment of a juridical relation as with conditional
obligations.
What we have in this case is modal condition, which requires a prestation.The
conditions Don Ramon made, are actually obligations. They are not resolutory
because the moment the obligations are fulfilled, the rights are not extinguished(in
fact strengthened).
The Parks(footnote in the original case) case do not apply here. Instead what
applies is the Barretto v City of Manila. Where the court said in cases where there
is no fixed period for the conditions, Art. 1197 applies. Don Ramon wouldnt have
intended for his land to be idle.
He also points out that Osmena v Rama doesnt apply here because in that case it is
the debtor who made the promise to do, thats why time was in his will to comply. So
here applying Parks and De Luna v Abrigo, even actions for revocation of donations
prescribe too. And the Art.1144 applies that the prescription of an action upon a
written contract which is what a deed of an onerous donation is, is 10 years from
the time the cause of action accrues. And the time must be determined by the
courts by virtue of Art. 1197.
Accion Pauliana (rescission) - Creditors have the right to set aside or revoke acts
which the debtor may have done to defraud them. All acts of the debtor which
reduce his patrimony in fraud of his creditors, whether by gratuitous or onerous
title, can be revoked by this action.
Accion Subrogata - Action which the creditor may exercise in place of the
negligent debtor in order to preserve or
recover for the patrimony of the debtor the product of such action, and then obtain
therefrom the
satisfaction of his own credit
When is the obligation immediately demandable prior to the arrival of the period?
Art. 1198. The debtor shall lose every right to make use of the period:
When after the obligation has been contracted, he becomes insolvent,
unless he gives a guaranty or security for the debt;
When he does not furnish to the creditor the guaranties or securities
which he has promised;
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;
When the debtor violates any undertaking, in consideration of which the
creditor agreed to the period;
When the debtor attempts to abscond (depart in a sudden and secret
manner)
The period is disregarded and the obligation becomes pure and immediately
demandable: [IGIVA]
[I] When debtor becomes i nsolvent ;
-The insolvency need not be judicially declared. It is sufficient that debtor could not
pay his debts due to lack of
money or funds.
[G] When the debtor does not furnish g uaranties or securities;
[I] When guaranties or securities given have been i mpaired or have
disappeared ;
If security was lost through debtors fault - impairment
If security was lost through fortuitous event disappearance
Ex. House was sold by A to B on an installment basis per month based on a period.
House became the mortgage (guaranty). A fire destroyed the house and it was
established that there was not negligence involved and it was a fortuitous event. In
the quiz, the accepted answer was that the obligation was extinguished due to
fortuitous events. However if we apply 1998, the period can no longer be used and A
can claim the whole amount (shall lose every right to use the period) unless debtor
gives a new guaranty equally satisfactory.
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years (A will benefit because he can pay anytime he wants as long as it is within 5
years; B will not benefit from the interests if A decides to pay early).
2. Term is for the benefit of the creditor He may demand fulfillment even before
the arrival of the term but the
debtor cannot require him to accept payment before the expiration of the
stipulated period.
The creditor may have reasons other than the maturity of interest, thats why,
unless the creditor consents, the debtor has no right to accelerate the time of
payment even if the premature tender includes an offer to pay the principal and
interest in full.
C. Alternative Obligations
Kinds of obligations that has many possible prestations to fulfil in order to
extinguish the obligation.
Obligations that require a debtor to perform completely one of the several
prestations provided as options in the stipulations of the contract.
o The prestations must be lawful and possible. (CC1200)
Fulfilment of one of the provided prestations extinguishes the obligation.
Partial fulfilment of any number of the provided prestations does not
fulfil the obligation. The creditor cannot be compelled to accept part of
one and part of another prestation. (CC1199)
The prestation to be fulfilled is dependent on whom the right to choose is
given. In default, the right to choose is given to the debtor. (CC1200)
The choice must be communicated before it becomes effective. The
choice will only produce effects upon communication. (CC1201)
o Until the choice is communicated, the person with the right to choose
can change his mind.
When an alternative obligation ceases? > What happens to the
obligation?
o When only one choice is practicable. (CC1202)
o When the choice has been communicated. (CC1201) (CC1205)
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of
the prestations are lost or
became impossible
the
remaining prestations what
the
debtor fulfil OR the price of
one
of the prestation/s lost due
to
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Joint Obligations
Requisites of a Joint Obligation:
Subject:
Shares are considered distinct from one another, subject to the rules
on multiplicity of suits. (CC1208)
credit.
Indivisible prestation: (CC1209)
Each joint creditor can only demand his share of the credit.
Each joint debtor can only be required to pay his share of the debt.
Solidary Obligations
Requisites of a Solidary Obligation:
Subject:
both)
Unity of prestation:
among debtors)
Distribution among solidary parties:
only be held liable until the extent that the liability is still not
paid.
Kinds of Solidarity based on subjects
each. (CC1211)
Effects of a Solidary Obligation:
Active: On debtors
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Debtors may pay any one of the solidary creditors but if applicable,
payment must be given to the creditor making demand. (CC1214)
Novation: any compensation, confusion or remission made by any of the
solidary creditors shall extinguish the obligation. (CC1215)
Active: On co-creditors
The creditors who may have executed any of the acts that will extinguish
the obligation shall be liable to the other co-creditors for the share in the
obligation corresponding to them. (CC1215)
Each of the solidary creditors may do whatever is useful to the other cocreditors but not anything that may prejudice the latter. (CC1212)
A solidary creditor may not assign his rights without the consent of the others
(CC1213)
Passive: On creditors
Passive: On co-debtors
The solidary debtor who made the payment may claim from
his co-debtors their share of the obligation. (CC1217)
But no share can be collected if the payment made by one
of the solidary debtor was made after the obligation has
prescribed or became illegal. (CC1218)
If a solidary debtor paid the obligation before the remission
of the debt of one debtor was done, the latter is still liable
to the former who made the payment to the extent of
payment made to the latters behalf. (CC1219)
Insolvency of one of the solidary debtors passes the
liability to the others in proportion to the debt of each.
(CC1217)
Defenses that the debtors may raise:
Nature of the obligation:
Prescription
Illegality
Nullity ab initio
Suspensive condition or period
Former payment
Compensation
Release
Compromise
Personal defenses:
o
Incapacity
Vice of consent
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The debtor may avail of such defense to the extent of the other debtors (the
one with excuse) liability.
(CC1222)
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Solidary Indivisible
Penal Clauses:
Stipulated to stimulate or induce performance by the debtor.
Penal Clauses are strictly construed against the creditor due to the nature
of the stipulation.
Kinds of Penal Clauses:
By its effect:
By the purpose:
Nullity of the principal obligation carries with it that of the penal clause.
(CC1230)
Nullity of the penal clause does not involve the nullity of the principal
obligation. (CC1230)
Where the plaintiff himself has contravened the terms of the contract
Where the plaintiff has derived some resulting benefit
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Where the defendant has tried his best to minimize the loss or injury
(CC2215)(CC2203)
The creditor cannot collect other damages in addition to the penalty, except:
o If the obligor refuses to pay the penalty. (CC2209)
o If the obligor is guilty of fraud in the fulfilment of the
obligation. (CC1171)(CC1226) o If it is expressly
stipulated.
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EXTINGUISHMENT OF OBLIGATIONS
A. Payment or Performance
When is an obligation paid?
Payment means: (a) Delivery of money, (b) Performance in any other
manner of an obligation [A1232]
Payment should be completely delivered or rendered [A1233]
But if substantially performed in good faith, debtor may recover as
though there had been a strict and complete fulfillment [A1234]
When creditor accepts incomplete or irregular performance knowingly,
without protest or objection, obligation is deemed fully complied with.
[A1235]
Payment to creditor after debtor has been judicially ordered to retain the debt
(garnishment) shall NOT be valid [A1243]
Debtor cannot compel creditor to receive a different thing, although the thing
may be of the same value as, or more valuable than that which is due.
[A1244]
When obligation is to deliver a determinate
or generic thing, whose quality and
consignees who fail to take delivery of their containerized cargo within the 10-day
free period are liable to pay demurrage charges.
US Lines filed suit against petitioner alleging that between the years 1979 and 1980,
goods belonging to petitioner loaded on containers aboard respondents vessels
arrived in Manila from US ports. After the 10-day free period, petitioner still failed to
withdraw its goods.
Telengtan said that it has never entered into a contract nor signed an agreement to
be bound by any rule on demurrage. It likewise maintains that absent an obligation
to pay respondent who made no proper or legal demands in the first place, there is
justifiable reason to refuse payment. It also said that upon arrival of the vessels, it
presented the Bills of Lading and demanded the delivery of all goods, only to be
informed that respondent already unloaded the goods. It contends that respondent
violated its contractual obligation to deliver when, instead of delivering the goods to
the petitioner as consignee, it deposited the same in bonded warehouse/s.
Issue: WON Telengtan is liable for the demurrage charges
Held:
Petitioner is at fault when it did not take delivery of the goods prompting the
respondent to store it in bonded warehouses.
The withdrawal of goods from the ship was with authority of the Bureau of
Customs
Bill of Lading indicates that if the consignee does not take possession
or delivery of the goods as soon as the goods are at the disposal of the
consignee for removal, the goods shall be at their own risk and
expense, delivery shall be considered complete
Extraordinary inflation or deflation exists when there is an unusual increase or
decrease in the purchasing power of the Philippine peso which is beyond the
common fluctuation in the value of said currency, and such increase or
decrease could not have been reasonably foreseen or was manifestly beyond
the contemplation of the parties at the time of the establishment of the
obligation.
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There was allegedly an extraordinary devaluation of the peso when Ninoy Aquino was
assassinated
Should be computed as to the time when obligation is constituted
But in this case, evidence was not sufficiently established that inflation was
extraordinary
Example of evidence that may be used: NEDAs pronouncements of extraordinary
inflation
If the debtor changes his domicile in bad faith or after he has incurred in delay,
additional expenses shall be borne by him. [A1251]
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What are the rights of a third person who is able to pay for another?
Beneficial Reimbursement/ Right to reimbursement
If he has 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 [A1236]
He cannot compel creditor to subrogate him in his rights [A1237]
Exception:
Article 1302
Legal Subrogation
Assignment of credit
Subrogation
If he had paid with the consent of the debtor, he may demand from the
debtor what he has paid [A1236]
Payment made by a third person who does not intend to be reimbursed by the
debtor is deemed to be a donation, which requires the debtors consent. BUT
payment is valid as to the creditor who accepted it. [A1238]
Done emus accept the donation personally *A745+
When there are several debts, to which should payment be applied?
Declaration of debtor at the time of making the payment
General Rules:
creditor in satisfaction
of a
debt in money
thing
creditor
debt
to
satisfy
the debtor
creditors
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Held:
An assignment of credit is an agreement by virtue of which the owner of a
credit, known as the assignor, by a legal cause, such as sale, dacion en pago,
exchange or donation, and without the consent of the debtor, transfers his
credit and accessory rights to another, known as the assignee, who acquires
the power to enforce it to the same extent as the assignor could enforce it
against the debtor
In dacion en pago, as a special mode of payment, the debtor offers another
thing to the creditor who accepts it as equivalent of payment of an
outstanding debt.
The undertaking really partakes in one sense of the nature of sale, that
is, the creditor is really buying the thing or property of the debtor,
payment for which is to be charged against the debtors debt.
As such, THE VENDOR IN GOOD FAITH SHALL BE
NOTE: Lack of notice does not invalidate the consignation it simply makes the
debtor liable for the expenses
Debtor may now ask the judge to order the cancellation of the obligation
Notice of acceptance of consignation
Before the creditor has accepted the consignation OR
Before a judicial declaration that he consignation has been properly made,
Debtor may withdraw the thing or sum deposited In other
words, obligation is still in force.
If, the consignation having been made, the creditor should authorize the
debtor to withdraw the same, he shall lose every preference which he may
have over the thing. The co-debtors, guarantors and sureties shall be
released.
Consignation is always judicial.
B. Loss of the Thing Due
What are the requisites in order for loss of the thing to extinguish the
obligation?
Obligation consists in the delivery of a determinate thing
The determinate thing is lost or destroyed without the fault of the debtor,
and before he has incurred in delay
When the thing is lost in the possession of the debtor, it shall be presumed
that the loss was due to his fault
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General Rule
of heirs.
There is a basic amount of one-half () that is given to one heir or one group
Exception
Legitimate
children
alone
of estate, divided equally
Legitimate Children
Surviving Spouse
Legitimate Children
Illegitimate Children
LC
Surviving Spouse
1LC
One Legitimate Child
Illegitimate Child
LC
Surviving Spouse
Legitimate
Parents
Alone
Legitimate Parents
Illegitimate Children
Legitimate Parents
Surviving Spouse
Legitimate Parents
Illegitimate Children
1/
Surviving Spouse
8
Surviving
Spouse
alone
1/
Surviving Spouse
3
1/
Illegitimate Child
3
Surviving Spouse
Illegitimate Parents
Illegitimate
alone
Illegitimate
alone
children
parents
When 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
BUT the waiver of the accessory obligations shall leave the principal debt in
force
Pledge: presumed to have been remitted when the thing pledged is found
in the possession of the debtor, or of a third person who owns the thing.
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stands. Conversely, the presumption loses its legal efficacy in the face
of proof or evidence to the contrary.
There was no proof that the amounts paid by petitioner were inclusive of
interest.
debtor.
Requisites of Legal Compensation:
That each one of the obligors be bound principally, and that he be at the
same time a principal creditor of the other;
Examples:
A owes B P10,000, with C as guarantor. B owes C P10,000. There will be
no compensation between B and C because while B is principally liable
to C, C is merely subsidiarily liable to B. Hence, C can demand payment
from B.
A owes B P10,000. B owes A P10,000, the latter as guardian or
administrator.
There will be no compensation. In this case, A is personally liable to B,
while B is not principally liable to A. The real creditor of B is the ward
under guardianship or the estate under administration. A is creditor of B in
a representative capacity.
A owes B and C P10,000. B and C are partners in Partnership P.
Partnership P owes A P10,000.
A cannot set up compensation because B and C are not
principally liable to A.
Both debts consist in a sum of money, or of consumable things of the same
kind and quality
Examples:
A owes B P10,000. B owes A an electric range worth P10,000.
No compensation will take place.
A owes B 10 sacks of wagwag rice. B owes A any 10 sacks of rice.
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wagwag rice from A and then returned the same to A in payment of his
debt. But A cannot set up compensation if opposed by B. This is an example
of facultative compensation.
A owes B P10,000. B owes A P10,000 or a cow.
There can be no legal compensation because B may prefer to deliver a
cow.
But if the right of choice belongs to A, compensation will take place.
The two debts are due or demandable Notes:
When the obligation is payable on demand, the obligation is not yet due
where no demand has not been made.
A debt that has prescribed is no longer demandable and consequently, cannot be
compensated, unless the compensation has taken place before the lapse of the
period of prescription.
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This is the exception to requisite no. 3 under Art. 1279, viz., that only debts which
are due and demandable can be compensated.
Voluntary or conventional compensation includes any compensation which
takes place by agreement of the parties even if all the requisites for legal
compensation are not present. The absence of mutual creditor-debtor relation cannot
negate the conventional compensation.
The only requisites are:
Each of the parties has the right to disposed of the credit he seeks to
compensate
They agree to the mutual extinguishment of their credits
What are the kinds of compensation?
Art. 1281. Compensation may be total or partial. When the two debts are
of the same amount, there is total compensation.
Total compensation results when the two debts are of the same amount.
If they are of different amounts, compensation is total as regards the
smaller debt, and partial only with respect to the larger debt.
Kinds of Compensation:
By its effect or extent:
Total
Partial
By its cause or origin:
Legal when it takes place by operation of law when all the
requisites are present even without the knowledge of the parties.
Conventional or voluntary when it takes place by agreement
of the parties.
Judicial when it takes place by order from a court in a litigation. (This
is actually a form of legal or voluntary compensation, when declared by
courts by virtue of an action by on of the parties.)
Facultative when it can be set up only by one of the parties.
When will compensation not take place?
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.
Example:
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Both debts are extinguished up to the amount of P1,000. Hence, A still owes B
P2,000 today.
Now, if B assigns his right to C, the latter can collect only P2,000 from A. However, if A
gave his consent to the assignment before it was made or subsequently (par. 1), A loses
the right to set up the defense of compensation. So A will be liable to C for P3,000 but he
can still collect the P1,000 owed by B. In other words, the compensation shall be deemed
not to have taken place.
A assigned his right to C on November 12. A notified B but the latter did not
give his consent to the assignment. How much can C collect from B?
B can set up the compensation of debts on November 10 which was before
the cession on November 12. (par. 2) There being partial compensation, the
assignment is valid only up to the amount of P1,000.
But B cannot raise the defense of compensation with respect to the debt of
A due on November 15 which has not yet matured. So, on November 12, B
is liable to C for P1,000. Come November 15, A will be liable for his debt of
P1,000 to B.
Assignment without knowledge of the debtor
In the preceding example, let us suppose that the assignment was made
without the knowledge of B who learned of the assignment only on November
16.
In this case, B can set up the compensation of credits before and after the
assignment. The crucial time is when B acquired knowledge of the assignment
and not the date of the assignment. If B learned of the assignment after the
debts had already matured, he can raise the defense of compensation;
otherwise, he cannot.
Class discussion
In other words, the debtor can always set up compensation to extinguish his
obligation prior to the debtors knowledge of the assignment, unless the debtor
consents to the assignment.
Art. 1287. Compensation shall not be proper when one of the debts
arises from a depositum or from the obligation of a depositary or of a
bailee in commodatum.
Neither can compensation be set up against a creditor who has a claim
for support due by gratuitous title, without prejudice to the provisions of
paragraph 2 of Article 301.
Art. 1288. Neither shall there be compensation if one of the debts consists
in civil liability arising from a penal offense.
Where one of the debts arises from a depositum
A deposit is constituted from the moment a person receives a thing
belonging to another with the obligation of safely keeping it and of
returning the same. Note: A bank deposit is not a depositum as defined in
the Civil Code. It is really a loan which creates the relationship of debtor
and creditor.
*Article 1962. A deposit is constituted from the moment a person receives
a thing belonging to another, with the obligation of safely keeping it and of
returning the same. If the safekeeping of the thing delivered is not the
principal purpose of the contract, there is no deposit but some other
contract.
Example:
A owes B P10,000. B, in turn owes A the amount of P10,000 representing the
value of a ring deposited by A with B, which B failed to return.
In this case, B, who is the depositary, cannot claim legal compensation even if
A fails to pay his obligation. The remedy of B is to file an action against A for
the recovery of the amount of P10,000.
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delivers to another something not consumable so that the latter may use the
same for a certain time and return it.
*Article 1935. The bailee in commodatum acquires the use of the thing loaned
but not its fruits; if any compensation is to be paid by him who acquires the use,
the contract ceases to be a commodatum.
Example:
In the preceding example, if B borrowed the ring of A, B cannot refuse to return
the ring on the ground of compensation because no compensation can take place
when one of the debts arises from a commodatum.
The purpose of the law is to prevent a breach of trust and confidence on the part of
the borrower (or depositary in a depositum).
A, however, can assert compensation of the value of the ring against the credit
of B.
Where one of the debts arises from a claim for support due by gratuitous title
Support comprises everything that is indispensable for sustenance, dwelling,
clothing, medical attendance, education and transportation, in keeping with the
financial capacity of the family.
Examples:
A donates to B an allowance of P1,000 a month for five years for the latters
support. However, previous to the donations, B already owed A P10,000
which was due and unpaid.
In this case, A cannot say to B, Inasmuch as you owe me P10,000, I will not
pay your allowance for ten months.
Similarly, if A is the father of B, a minor, who under the law is entitled to be
supported by A, and B owes A P10,000, A cannot compensate his obligation to
support B by what B owes him because the right to receive support cannot be
compensated with
what the recipient (B) owes the obligor (A). However, if A failed to
support B for some months, the support in arrears may be compensated
with the debt of B. Compensation can take place because B no longer
needs the support in arrears as he was able to exist even without the
support of A during those months.
Where one of the debts consists in civil liability arising from a penal offence
Example:
A owes B P1,000. B stole the ring of A worth P1,000. Here,
compensation by B is not proper.
But A, the offended party, can claim the right of compensation. The
prohibition in Article 1288 pertains only to the accused by not to the victim
of the crime.
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.
Compensation may also take place when so declared by a final judgment of a court
in a suit (judicial compensation). A party may set off his claim for damages
against his obligation to the other party by proving his right to said damages and
the amount thereof.
Both parties must prove their respective claims. In the absence from both parties on
their claims, offsetting is improper. The right to offset may exist but the question of
how much is to be offset is factual in nature.
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.
Example:
A owes B P10,000. Subsequently, A, through fraud, was able to make B sign a
promissory note that B is indebted to A for the same amount.
The debt of A is valid but that of B is voidable. Before the debt of B is nullified, both
debts may be compensated against each other if all the requisites for legal
compensation are present.
Suppose Bs debt is later on annulled by the court, is A still liable considering that
compensation had already taken place? Yes. The effect of annulment is retroactive.
It is the same as if there had been no compensation.
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Slight modifications and variations when made with the consent of the parties,
they do not abrogate the entire contract and the rights and obligations of the
parties thereto, but the original contract continues in force except as the altered
terms and conditions of the obligation are considered to be the essence of the
obligation itself. This is especially true where the original contract expressly
provides that such modifications and alterations may be made.
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If objective novation is to take place, it is essential that the new obligation expressly
declare that the old obligation is to be extinguished, or that new obligation be on
every point incompatible with the old one. The will to novate, whether totally or
partially, must appear by express agreement of the parties, by their acts which are
too clear and unequivocal to be mistaken.
It is entirely clear to the court that the letter-agreement of 20 April 1982 did not
extinguish or alter the obligations of respondent Tropical and the rights of petitioner
Broadway under their lease contract dated 28 November 1980. Clearly, the
reduction of the monthly rentals was only provisional and temporary, as agreed to
by both parties. This was not to persist for the rest of the life of the Contract of
Lease.
Novation did not take place.
What is expromision?
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 new debtor gives him the rights mentioned in Articles 1236 and
1237. Expromision
This takes place when a third person of his own initiative and without the
knowledge or against the will of the original debtor assumes the latters obligation
with the consent of the creditor. It is essential that the old debtor be released from
his obligation; otherwise, there is no expromision. Novation is never presumed;
thus, the mere fact that the creditor receives a guaranty or accepts payment from
a third person who has agreed to assume the obligation, when there is not
agreement that the first debtor shall be released from responsibility, does not
constitute a novation, and the creditor can still enforce the obligation against the
original debtor.
Art. 1294. If the substitution is without the knowledge or against the will
of the debtor, the new debtors insolvency or non-fulfillment of the
obligation shall not give rise to any liability on the part of the original
debtor.
In expromision, the new debtors insolvency or non-fulfillment of the obligation will
not revive the action of the creditor against the old debtor whose obligation is
extinguished by the assumption of the debt by the new debtor. Remember that in
expromision, the replacement of the old debtor is not made at his own initiative.
What is delegacion?
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
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latter against the original obligor, except when said insolvency was already
existing and of public knowledge, or known to the debtor, when he
delegated his debt.
Delegacion
This takes place when the creditor accepts a third person to take the place of the
debtor at the instance of the latter. The creditor may withhold approval. The new
debtor is entitled to reimbursement and subrogation under Article 1297.
Article 1295 only speaks of insolvency. Hence, in delegacion, if the non-fulfillment of
the obligation is due to other causes, the old debtor is not liable. The general rule is
that the old debtor is not liable to the creditor in case of the insolvency of the new
debtor.
The exceptions are:
The said insolvency was already existing and of public knowledge (although
it was not known to the old debtor) at the time of the delegacion.
The insolvency was already existing and known to the debtor (although it
was not of public knowledge) at the time of the delegacion.
Article 1302. It is presumed that there is legal subrogation:
(2) When a third person, not interested in the obligation, pays with the
express or tacit approval of the debtor.
Example:
A owes B P1,000. C pays B with the express or implied consent of A. In this
case, C will be subrogated in the rights of B.
What is the effect of novation on accessory obligations?
Art. 1296. When the principal obligation is extinguished in consequence of
a novation, accessory obligations may subsist only insofar as they may
benefit third persons who did not give their consent.
The above article follows the general rule that the extinguishment of the
principal obligation carries with it that of the accessory obligations.
It provides, however, an exception in the case of an accessory obligation created
in favor of a third person which remains in force unless said third person gives his
consent to the novation. This is so because a person should not be prejudiced by
the act of another without his consent.
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The effect of legal subrogation as provided in Article 1303 may not be modified by
agreement.
What is partial 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.
The creditor to whom partial payment has been made by the new creditor remains a
creditor to the extent of the balance of the debt. In case of insolvency of the debtor,
he is given a preferential right under the above article to recover the remainder as
against the new creditor.
Example:
D is indebted to C for P10,000. X pays C P6,000 with the consent of D. There is
here partial subrogation as to the amount of P6,000. C remains the creditor with
respect to the balance of P4,000. Thus, two credits subsist. In case of insolvency of
D, C is preferred to X, that is, he shall be paid from the assets of D ahead of X.
Distinguish subrogation from assignment of credit.
Art. 1624. An assignment of credits and other incorporeal rights shall
be perfected in accordance with the provisions of Article 1475.
*Article 1475. The contract of sale is perfected at the moment there is a meeting of
minds upon the thing which is the object of the contract and upon the price.
From that moment, the parties may reciprocally demand performance,
subject to the provisions of the law governing the form of contracts.
Art. 1626. The debtor who, before having knowledge of the assignment,
pays his creditor shall be released from the obligation.
Art. 1627. The assignment of a credit includes all the accessory rights, such
as a guaranty, mortgage, pledge or preference.
Art. 1628. The vendor in good faith shall be responsible for the existence
and legality of the credit at the time of sale, unless it should have been
sold as doubtful; but not for the solvency of the debtor, unless it has been
so expressly stipulated or unless the insolvency was prior to the sale and of
common knowledge.
Even in these cases he shall only be liable for the price received and
for the expenses specified in No. 1 of Article 1616.
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The vendor in bad faith shall always be answerable for the payment of all
expenses, and for damages.
*Article 1616. The vendor cannot avail himself of the right of repurchase
without returning to the vendee the price of the sale, and in addition:
(1) The expenses of the contract, and any other legitimate payments made by
reason of the sale;
Art. 1629. In case the assignor in good faith should have made himself
responsible for the solvency of the debtor, and the contracting parties
should not have agreed upon the duration of the liability, it shall last for
one year only, from the time of the assignment if the period had already
expired.
If the credit should be payable within a term or period which has
not yet expired, the liability shall cease one year after the maturity.
Art. 1213. A solidary creditor cannot assign his rights without the
consent of the others.
Conventional Subrogation and Assignment of Credit Distinguished
Conventional
Subrogation
Assignment of Credit
A credit is extinguished and There is a transfer of same
another
credit
appears, which the new creditor which belonged to another and
which, upon being transferred,
claims as his own
is not
extinguished
The consent of the debtor is
required
The consent of the debtor is not
so that it may fully produce
legal
required, his knowledge thereof
effects
affecting only the validity of the
payment he might make. What
the
law requires is merely notice to
the
debtor as the assignment takes
effect
only from the time he has
knowledge
thereof.
Its effects begin from the time The effects with respect to the
of
debtor
begin
from
the
date
of
novation itself, that is, from the notification
moment all the parties have
given
their consent
The nullity or defects of the The nullity or defects of the
previous
obligation
are not remedied, because only
obligation may be cured by the the
correlative
right
of
the
novation
obligation is
transmitted
Class discussion
Article 1301 does not require payment for conventional subrogation to take place.
What is required is the consent of all parties. On the other hand, in Article 1302
(2), payment is necessary for legal subrogation to take place.
Licaros v Gatmaitan (2001) 362 SCRA 548
The threshold issue for the determination of [the] Court is whether the Memorandum
of Agreement between petitioner and respondent is one of assignment of credit or
one of conventional subrogation. This matter is determinative of whether or not
respondent became liable to petitioner under the promissory note considering that
its efficacy is dependent on the Memorandum of Agreement, the note being merely
an annex to the same memorandum.
Petitioner Licaros invested his funds with the Anglo-Asean Bank, an offshore bank,
but had difficulty retrieving not only the interests or profits, but even the very
investments he had put. Respondent Gatmaitan, a reputable banker and investment
manager, voluntarily offered to assume the payment of Anglo-Aseans indebtedness
to Licaros subject to certain terms and conditions. A Memorandum of Agreement was
executed and notarized to this effect. A promissory note was appended to the
Memorandum of Agreement representing the amount.
Contained in the Memorandum is the stipulation:
WHEREAS, the parties herein have come to an agreement on the nature, form and
extent of their mutual prestations which they now record herein with the express
conformity of the third parties concerned.
Hence, included in the signatories of the Memorandum of Agreement is Anglo-Asean,
as Conforme. The document, however, remained unsigned by the bank. Gatmaitan
was unable to collect from Anglo-Asean, resulting in the nonfulfillment of his promise
to pay Licaros the amount stated in his promissory note.
Licaros contends that he has a right to collect from Gatmaitan regardless of the
outcome of Gatmaitans efforts.
[The Court] agrees with the finding of the Court of Appeals that the Memorandum of
Agreement was in the nature of a conventional subrogation which requires the consent
of the debtor, Anglo-Asean Bank, for its validity.
The Memorandum stipulated that there should be express conformity of the third
parties concerned, this third party admittedly being Anglo-Asean Bank. The
consent of the third party being required by the Memorandum, the agreement
therefore is one of conventional subrogation, and not of assignment of credit.
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Exception: prescription runs between husband and wife who are legally
separated
Art. 1113. All things which are within the commerce of men are susceptible
of prescription, unless otherwise provided. Property of the State or any of
its subdivisions not patrimonial in character shall not be the object of
prescription. (1936a)
That which is not subject to appropriation cannot be acquired by prescription
Art. 1136. Possession in wartime, when the civil courts are not open, shall
not be counted in favor of the adverse claimant.
Art. 1154. The period during which the obligee was prevented by a
fortuitous event from enforcing his right is not reckoned against him. (n)
Can prescription be waived? Yes
Art. 1112. Persons with capacity to alienate property may renounce
prescription already obtained, but not the right to prescribe in the future.
Prescription is deemed to have been tacitly renounced when the
renunciation results from acts which imply the abandonment of the right
acquired. (1935)
Renunciation is unilateral, it does not require the acceptance of the person
benefitting
However, renunciation in advance is void; an agreement based on waiving future
prescription is nonbinding. Waiving of prescription by those without capacity or
by ones representatives is nonbinding.
Distinguish between ordinary and extraordinary prescription.
Art. 1117. Acquisitive prescription of dominion and other real rights may be
ordinary or extraordinary.
Ordinary acquisitive prescription requires possession of things in good faith
and with just title for the time fixed by law. (1940a)
Requisites of prescription:
Capacity to acquire by prescription
The thing is capable of acquisition by prescription
Possession of the thing under certain conditions
Lapse of time provided by law
While the first two are common of all prescriptions the latter two vary as to WON
the prescription is ordinary or extraordinary.
Ordinary prescription requires
Good faith possession
Just title
Possession for a period of time fixed by law
MOVABLES
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Art. 1505. Subject to the provisions of this Title, where goods are sold by a
person who is not the owner thereof, and who does not sell them under
authority or with the consent of the owner, the buyer acquires no better
title to the goods than the seller had, unless the owner of the goods is by
his conduct precluded from denying the seller's authority to sell.
Nothing in this Title, however, shall affect:
The provisions of any factors' act, recording laws, or any other provision of
law enabling the apparent owner of goods to dispose of them as if he were
the true owner thereof;
The validity of any contract of sale under statutory power of sale or under
the order of a court of competent jurisdiction;
Purchases made in a merchant's store, or in fairs, or markets, in
accordance with the Code of Commerce and special laws. (n)
Art. 719. Whoever finds a movable, which is not treasure, must return it to
its previous possessor. If the latter is unknown, the finder shall
immediately
deposit it with the mayor of the city or municipality where the finding
has taken place.
The finding shall be publicly announced by the mayor for two
consecutive weeks in the way he deems best.
If the movable cannot be kept without deterioration, or without expenses
which considerably diminish its value, it shall be sold at public auction
eight days after the publication.
Six months from the publication having elapsed without the owner having
appeared, the thing found, or its value, shall be awarded to the finder.
The finder and the owner shall be obliged, as the case may be, to
reimburse the expenses. (615a)
Art. 720. If the owner should appear in time, he shall be obliged to pay, as
a reward to the finder, one-tenth of the sum or of the price of the thing
found. (616a)
Art. 526. He is deemed a possessor in good faith who is not aware that
there exists in his title or mode of acquisition any flaw which invalidates it.
He is deemed a possessor in bad faith who possesses in any case contrary
to the foregoing.
Mistake upon a doubtful or difficult question of law may be the basis of
good faith. (433a)
Art. 1127. The good faith of the possessor consists in the reasonable belief
that the person from whom he received the thing was the owner thereof,
and could transmit his ownership. (1950a)
Art. 1128. The conditions of good faith required for possession in Articles
526, 527, 528, and 529 of this Code are likewise necessary for the
determination of good faith in the prescription of ownership and other real
rights. (1951)
Good faith
The well founded belief that the grantor is the owner.It is the belief in the
validity, and not merely ignorance of a defect.
The belief must be continuous
Any other defect will invalidate the title, and when there is no just title there can
be no prescription
Good faith is always presumed, the burden of proof rests on those claiming
otherwise.
There is a presumption that the possession continues to be enjoyed in the same
character in which it was acquired, until the contrary is
proven.
Art. 308. Who are liable for theft. Theft is committed by any person who,
with intent to gain but without violence against or intimidation of persons
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nor force upon things, shall take personal property of another without
the latter's consent.
Theft is likewise committed by:
Any person who, having found lost property, shall fail to deliver the same
to the local authorities or to its owner;
Any person who, after having maliciously damaged the property of
another, shall remove or make use of the fruits or object of the
damage caused by him; and
Any person who shall enter an inclosed estate or a field where trespass is
forbidden or which belongs to another and without the consent of its
owner, shall hunt or fish upon the same or shall gather cereals, or other
forest or farm products.
Art. 536. In no case may possession be acquired through force or
intimidation as long as there is a possessor who objects thereto. He who
believes that he has an action or a right to deprive another of the holding
of a thing, must invoke the aid of the competent court, if the holder should
refuse to deliver the thing. (441a)
Art. 537. Acts merely tolerated, and those executed clandestinely and
without the knowledge of the possessor of a thing, or by violence, do not
affect possession. (444)
In what concept must be the possession for prescription to run?
Art. 1118. Possession has to be in the concept of an owner, public, peaceful
and uninterrupted. (1941)
Art. 1119. Acts of possessory character executed in virtue of license or by
mere tolerance of the owner shall not be available for the purposes of
possession. (1942)
Concept of owner
necessary for possession
vs license: a positive act of owner in favor of a holder
vs tolerance: passive acquiescence by owner of acts of another which are
contrary to former.
Public - manifest and visible to all, the opposite of clandestine, there is the presumption
that the public and the owner are aware of the possession. Peaceful acquired and
maintained without violence whether physical or moral. Except that force may be used
to repel an unlawful physical invasion. Uninterrupted continuous, there must be no act
of deprivation of enjoyment of the thing by a third person or other act which interrupts
prescription. Interruption is a positive act of a third person. Uninterruption is distinct from
discontinuity, since the former is a positive act of a third person while the latter is a
negative act of the possessor.
Art. 541. A possessor in the concept of owner has in his favor the legal
presumption that he possesses with a just title and he cannot be obliged to
show or prove it. (448a)
How is prescription interrupted?
Art. 1120. Possession is interrupted for the purposes of prescription,
naturally or civilly. (1943)
Effect of interruption all the benefits acquired so far from the possession cease,
when it resumes the time lapsed will start anew.
Interruption is the opposite of suspension where in the past period is included in the
computation of the total time lapsed.
Art. 1121. Possession is naturally interrupted when through any cause it
should cease for more than one year.
The old possession is not revived if a new possession should be exercised
by the same adverse claimant. (1944a)
Art. 1122. If the natural interruption is for only one year or less, the time
elapsed shall be counted in favor of the prescription. (n)
Art. 1123. Civil interruption is produced by judicial summons to the
possessor. (1945a)
Art. 1124. Judicial summons shall be deemed not to have been issued and
shall not give rise to interruption:
If it should be void for lack of legal solemnities;
If the plaintiff should desist from the complaint or should allow the
proceedings to lapse;
If the possessor should be absolved from the complaint.
In all these cases, the period of the interruption shall be counted for the
prescription. (1946a)
In civil interruption, the effect of the recovery of the possession is that the period of
interruption is included in the computation of the prescription. Technically then, it is
as if there was no interruption and that the possession was continuous.
Art. 1125. Any express or tacit recognition which the possessor may make
of the owner's right also interrupts possession. (1948)
The recognition of the possessor of the owners rights will interrupt possession.
However, the declaration of a 3 rd person that the holder is not the owner will not
interrupt possession.
Art. 1126. Against a title recorded in the Registry of Property, ordinary
prescription of ownership or real rights shall not take place to the prejudice
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of a third person, except in virtue of another title also recorded; and the
time shall begin to run from the recording of the latter.
As to lands registered under the Land Registration Act, the provisions of
that special law shall govern. (1949a)
Recorded titles as to third persons
Third persons are those who acquire their rights subsequently, relying on the
registration of ownership in the registry. They cannot be prejudiced by a period of
possession prior to their acquisition. This will apply provided that the following
conditions are met:
acquisition is by onerous title
acquisition is from one who, accdg to the registry, can transmit the title
acquisition is registered
That the third person has no knowledge of the prescription. Registered lands
adverse possession may not be allowed to defeat the owners right to possession of
lands registered under the Torrens system, nor will it run against the owners
hereditary successors. But laches may be set up as to registered lands.
Art. 1127. The good faith of the possessor consists in the reasonable belief
that the person from whom he received the thing was the owner thereof,
and could transmit his ownership. (1950a)
Art. 1129. For the purposes of prescription, there is just title when the
adverse claimant came into possession of the property through one of the
modes recognized by law for the acquisition of ownership or other real
rights, but the grantor was not the owner or could not transmit any right.
(n)
Art. 1130. The title for prescription must be true and valid. (1953)
For prescription to run, the title must be just, true, valid, and proved.
The purpose of just title is the transmission of ownership which would have
transferred ownership if the grantor had really been the owner. The defect is cured by
prescription.
e.g. sale, donation, and dation transfer ownership. But lease, loan, and deposit do
not transfer ownership and therefore do not give rise just title
A true title is one that actually exists, as opposed to a simulated title which cannot be
the basis of prescription. A false title is one which does not exist but is believed to
exist. It will be sufficient of the mistake of fact is with regards to acts of a third
person. If the mistake refers to the act of the possessor himself, it will be considered
insufficient.
e.g purchasing from an insane party with knowledge of the vendors incapacity will
render the title insufficient. But purchasing without such knowledge of the incapacity
will render the title sufficient.
Valid title the title should be sufficient to transfer right if the grantor had been the
owner. Void titles are insufficient and cannot give rise to prescription. Voidable titles
are sufficient so long as it has not been annulled. For titles with suspensive condition,
prescription only runs from the fulfillment of such a condition. For titles with
resolutory conditions, prescription begins at once without prejudice to the fulfillment
of the condition
Art. 1131. For the purposes of prescription, just title must be proved; it is
never presumed. (1954a)
Proof of title: required for purpose of prescription. It is an exception to 541 which
refers to an existing fact of possession. This article refers to the acquisition of right of
ownership. Since a new right is sought to be created, the law becomes more exacting
How is prescription computed?
Art. 1138. In the computation of time necessary for prescription the
following rules shall be observed:
The present possessor may complete the period necessary for prescription
by tacking his possession to that of his grantor or predecessor in interest;
It is presumed that the present possessor who was also the possessor at a
previous time, has continued to be in possession during the intervening
time, unless there is proof to the contrary;
The first day shall be excluded and the last day included. (1960a)
Tacking means adding the period of possession of the predecessor to that of the
successor. Tacking of possession requireds:
The present possessor must have obtained it from previous possessor
There must be privity between them
Tacking is only possible with succession, usurpers cannot tack
Different characteristics of possession: from good to bad faith and vice versa When
the possession of the predecessor is in good faith and that of the successor is in bad
faith, tacking is permitted. The period of possession in good faith is computed in the
proportion that the period of extraordinary prescription bears to that of ordinary
prescription.
When the possession of the predecessor is in bad faith and that of the successor is in
good faith then tacking does not apply for ordinary prescription. However, if the period of
the predecessor is so long as to be beneficial to the successor, he may claim tacking for
extraordinary prescription.
Art. 544. A possessor in good faith is entitled to the fruits received before
the possession is legally interrupted.
Natural and industrial fruits are considered received from the time they are
gathered or severed.
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Civil fruits are deemed to accrue daily and belong to the possessor in good
faith in that proportion. (451)
What is the prescriptive period to recover movables and immovable?
Movables 8 years
Immovables 30 years
Art. 1140. Actions to recover movables shall prescribe eight years from the
time the possession thereof is lost, unless the possessor has acquired the
ownership by prescription for a less period, according to Articles 1132, and
without prejudice to the provisions of Articles 559, 1505, and 1133. (1962a)
Art. 1141. Real actions over immovables prescribe after thirty years.
This provision is without prejudice to what is established for the acquisition
of ownership and other real rights by prescription. (1963)
LOSS OF POSSESSION
Art. 555. A possessor may lose his possession:
By the abandonment of the thing;
By an assignment made to another either by onerous or gratuitous title;
By the destruction or total loss of the thing, or because it goes out of
commerce;
By the possession of another, subject to the provisions of Article 537, if the
new possession has lasted longer than one year. But the real right of
possession is not lost till after the lapse of ten years. (460a)
When is prescription interrupted?
Art. 1155. The prescription of actions is interrupted when they are filed
before the court, when there is a written extrajudicial demand by the
creditors, and when there is any written acknowledgment of the debt by
the debtor. (1973a)
Filing in court interruption of extinctive prescription commences upon the docketing
and continues during the pendency of the action. Upon dismissal, the prescription
runs anew. However, when an action is filed and the plaintiff desists in the
prosecution, the action is deemed never to have commenced.
Written extrajudicial demand must be in writing, verbal demand is insufficient.
Written acknowledgement of debt may be express or implied in writing. May be
made by an agent or legal representative. However, acknowledgement of a debt
after the prescription has expired does not amount to a renunciation of a prescription
already acquired. Partial payment does not interrupt prescription because although it
can be considered an acknowledgment of a debt, as long as it is not in writing, there
will be no interruption.
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The prescription issue is whether or not the carabao belonged to private respondent,
him being in possession of the carabao for more than 10 years. The possession in
good faith for four (4) years is not applicable, neither can possession in bad faith of
eight (8) years benefit respondents, for when the owner of a movable has lost or has
been illegally deprived of his property he can recover the same without need to
reimburse the possessor, as provided in Art. 559 of the Civil Code.
Neither can Art. 716 of the Civil Code apply, for this article evidently refers to a
possessor in good faith.
From the records it is clear that although the animal was branded ART in her front
and hind legs at the time she was acquired by respondent Eluna, said respondent did
not or could not register the transfer to him in accordance with Section 529 of the
Revised Administrative Code (which says that registration is necessary to validity of
transfer of cattle.)
The records show that respondents did not comply with this requirement.
Respondents are not possessors in good faith, as a possessor in good faith is one
not aware that there exists in his title or more of acquisition any flaw which
invalidates it.
Petitioners are the owners of the carabaos (the mestisa carabao and its
offsprings) in question.
Cajuigan v Natividad (1910) 14 Phil 734
Plaintiff Cajuigan is the administrator of the estate of Capricho and Morales. It
appears that three carabaos are in the possession of defendant Natividad. Plaintiff
commenced the action to recover the carabaos from the defendant, the carabaos
being part of the estate of the decedents.
The decedents had debts to the defendant worth P486.94. Upon death of the
decedents intestate, Sotero Morales, the first administrator, delivered the disputed
carabaos to the defendant to satisfy his claim.
The new administrator, plaintiff Cajuigan, now wants to recover the said carabaos,
contending that the first administrator had no authority to pay the claim of Natividad
against the estate, without the express permission of the court. He also contends that
it was the duty of the defendant, if he had a claim
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same began to run only on February 25, 1986, when the Aquino government too
power. It is true that under Art. 1154:
Article 1154. The period during which the obligee was prevented by a
fortuitous event from enforcing his right is not reckoned against him.
fortuitous events have the effect of tolling the period of prescription.
However, it cannot be say, as a universal rule, that the period from September 21,
1972 to February 25, 1986, involves force majeure. This claim should be taken on a
case-to-case basis.
*The Court+ is convinced, from petitioner Tans very behavior (of instituting actions
in court that did not involve the conveyance of shares), that his detention was not an
impediment to a judicial challenge, and the fact of the matter was that he was
successful in obtaining judicial assistance. Under these circumstances, [the Court]
cannot declare detention, or authoritarian rule for that matter, as a fortuitous event
insofar as he was concerned, that interrupted prescription.
Prescription was not interrupted. Tans action came too late.
H. Agreement
Saura vs. DBP
Facts:
Saura applied to Rehabilitation Finance Corporation (RFC), before its conversion
into DBP, for an industrial loan of P500,000 to be used as follows:
P250,000.00 for the construction of a factory building (for the manufacture
of jute sacks);
P240,900.00 to pay the balance of the purchase price of the jute mill machinery
and equipment; and - P9,100.00 as additional working capital.
The jute mill machinery had already been purchased by Saura on the strength of
a letter of credit extended by the Prudential Bank and Trust Co. and that to
secure its release without first paying the draft, Saura, Inc. executed a trust
receipt in favor of the said bank.
RFC passed Resolution No. 145 approving the loan application for P500,000.00, to
be secured by a first mortgage on the factory building to be constructed, the
land site thereof, and the machinery and equipment to be installed.
It appears, however, that despite the formal execution of the loan agreement the
reexamination contemplated in Resolution No. 736 proceeded. In a meeting of
the RFC Board of Governors on June 10,
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1954, at which Ramon Saura, President of Saura, Inc., was present, it was
decided to reduce the loan from P500,000.00 to P300,000.00.
Saura, Inc. had written RFC requesting that the loan of P500,000.00 be granted.
The request was denied by RFC.
Saura, Inc. took exception to the cancellation of the loan and informed RFC that
China Engineers, Ltd. "will at any time reinstate their signature as co-signer of
the note if RFC releases to us the P500,000.00 originally approved by you.".
RFC passed Resolution No. 9083, restoring the loan to the original amount of
P500,000.00, "it appearing that China Engineers, Ltd. is now willing to sign
the promissory notes jointly with the borrower-corporation," but with the
following proviso:
xx
That the raw materials (kenaf) needed by the borrowercorporation to carry out its operation are available in the immediate
vicinity;
xx
However, Saura stated that according to a special study made by the Bureau of
Forestry "kenaf will not be available in sufficient quantity this year or
probably even next year;"
Saura requested RFC to cancel the mortgage. RFC executed the deed of
cancellation and delivered it to Ramon F. Saura himself as president of Saura,
Inc.
Almost 9 years after the mortgage in favor of RFC was cancelled at the request of
Saura, Inc., the latter commenced the present suit for damages, alleging
failure of RFC (as predecessor of the defendant DBP) to comply with its
obligation to release the proceeds of the loan applied for and approved,
thereby preventing the plaintiff from completing or paying contractual
commitments it had entered into, in connection with its jute mill project.
The trial court rendered judgment for the plaintiff, ruling that there
was a perfected contract between the parties and that the defendant was
guilty of breach.
Issue: WON there was a perfected contract between Saura and DBP
WON Saura is entitled to damages
Held:
There was undoubtedly offer and acceptance in this case: the application of Saura,
Inc. for a loan of P500,000.00 was approved by resolution of the defendant, and
the corresponding mortgage was executed and registered. But this fact alone falls
short of resolving the
basic claim that the defendant failed to fulfill its obligation and the plaintiff
is therefore entitled to recover damages.
It should be noted that RFC entertained the loan application of Saura, Inc. on the
assumption that the factory to be constructed would utilize locally grown raw
materials, principally kenaf. Evidently Saura, Inc. realized that it could not
meet the conditions required by RFC stated that local jute "will not be able in
sufficient quantity this year or probably next year," and asking that out of the
loan agreed upon the sum of P67,586.09 be released "for raw materials and
labor." This was a deviation from the terms laid down in Resolution No. 145
and embodied in the mortgage contract, implying as it did a diversion of part
of the proceeds of the loan to purposes other than those agreed upon.The
action thus taken by both parties was in the nature cf mutual desistance
what Manresa terms "mutuo disenso" 1 which is a mode of extinguishing
obligations. It is a concept that derives from the principle that since mutual
agreement can create a contract, mutual disagreement by the parties can
cause its extinguishment.
Dispositive: Judgment appealed from is reversed and the complaint dismissed, with
costs against the plaintiff-appellee.
I. Difficulty
What is clausula rebus sic stantibus?
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. (n)
Occena vs. Jabson
Facts:
Tropical Homes, Inc. filed a complaint for modification of the terms and conditions
of its subdivision contract with petitioners (landowners of a 55,330 square
meter parcel of land in Davao City) alleging that due to the increase in price
of oil and its derivatives and the concomitant worldwide spiraling of prices,
further performance by the plaintiff under the contract, will result in situation
where defendants would be unjustly enriched at the expense of the plaintiff;
will cause an iniquitous distribution of proceeds from the sales of subdivided
lots in manifest actually result in the unjust and intolerable exposure of
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Dispositive: The resolution of respondent appellate court is reversed and the petition for
certiorari is granted and private respondent's complaint in the lower court is ordered
dismissed for failure to state a sufficient cause of action.
J. Impossibility
What is the effect of impossibility?
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. (1184a)
IV. Other Performance Excuses
K. Violenti Non Fit Injuria
What is violenti non fit injuria?
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. (1105a)
Latin: "to a willing person, no injury is done" or "no injury is done to a person
who consents"
General Rule: No liability for fortuitous event.
Exceptions: The debtor is responsible for a fortuitous event in the ff. cases:
o When expressly declared by law (such as when the possessor is in
bad faith or is in default).
o When expressly declared by stipulation or contract.
o When the nature of the oblig requires the assumption of risk (Doctrine
of Created Risk)
Essential characteristics of a fortuitous event
o The cause must be independent of the will of the debtor
o Impossibility of foreseeing or impossibility of avoiding it, even if
foreseen.
o The occurrence must be such as to render it impossible for the debtor to
fulfil his obligation in a normal manner.
Loss in a shipwreck
o As a general rule, the loss of the ship due to a fortuitous event should
be borne by the owner; the loss of the cargo, by their owners, unless
the captain lacked skill or there was malice or negligence.
Loss because of an act of government
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If the negligence was the proximate cause, the oblig is not extinguished
converted to a monetary oblig for damages.
L. Fortuitous Event
What are the acts of God?
Art. 1174- refer to 104
Art. 1262. An obligation which consists in the delivery of a determinate
thing shall be extinguished if it should be lost or destroyed without the
fault of the debtor, and before he has incurred in delay.
When by law or stipulation, the obligor is liable even for fortuitous events,
the loss of the thing does not extinguish the obligation, and he shall be
responsible for damages. The same rule applies when the nature of the
obligation requires the assumption of risk. (1182a)
Examples of instances when the law requires liability even in the case of a
fortuitous event:
o When the debtor is in default (mora)
o
When the debtor has promised to deliver the same thing to two or
more persons (parties) who do not have the same interest o When
the oblig arises from a crime
o When a borrower (of an object) has lent the thing to another who is not a
member if his own household.
o When the thing loaned has been delivered with appraisal of the value, unless
there is a stipulation exempting the borrower from
An act of God has been defined as an accident, due directly and exclusively to natural
causes without human intervention, which by no amount of foresight, pains or
care, reasonably to have been expected, could have been prevented. (1 Corpus
Juris 1174). (Nakpil and Sons vs.
CA)
The principle embodied in the act of God doctrine strictly requires that the act
must be one occasioned exclusively by the violence of nature and all human
agencies are to be excluded from creating or entering into the cause of the
mischief. When the effect, the cause of which is to be considered, is found to
be in part the result of the participation of man, whether it be from active
intervention or neglect, or failure to act, the whole occurrence is thereby
humanized, as it were, and removed from the rules
cannot claim exemption from liability. (Decision, Court of Appeals, pp. 3031).
In any event, the relevant and logical observations of the trial court as
affirmed by the Court of Appeals that "while it is not possible to state with
certainty that the building would not have collapsed were those defects
not present, the fact remains that several buildings in the same area
withstood the earthquake to which the building of the plaintiff was
similarly subjected," cannot be ignored.
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.
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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. (1183a)
The presumption of fault does not apply in the case if a natural calamity.
Although fire is not a natural calamity, if a tenant is able to prove that the fire
caused in his apartment was purely accidental, he is not liable.
Art. 1165. When what is to be delivered is a determinate thing, the creditor,
in addition to the right granted him by Article 1170, may compel the debtor
to make the delivery.
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Dispositive: The instant petition is hereby DENIED, with costs against the
petitioners.
Nakpil and Sons vs. CA
Facts:
The private respondent (Philippine Bar Association) hired the services of the
petitioner to make the plans and specifications for the construction of their
office building.
The building was completed by the contractor but subsequently, an earthquake
struck causing its partial collapse and damage.
After the protracted hearings, the Commissioner eventually submitted his report
with the findings that while the damage sustained by the PBA building was
Held:
NATURAL OBLIGATIONS
Distinguish civil and natural obligations.
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.
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to do so. In case of partial voluntary fulfilment, there has not yet been
created a legal oblig.
Undue payment distinguished from natural oblig
While there is a juridical tie in natural obligs, there is none in moral obligs.
Obligation to pay interest for use of money, even if not agreed upon in writing.
civil
obligs.
Ex.
Art. 1424. When a right to sue upon a civil obligation has lapsed by
extinctive prescription, the obligor who voluntarily performs the contract
cannot recover what he has delivered or the value of the service he has
rendered.
Effect of extinctive prescription- By virtue of extinctive prescription, a right to
property has been lost. Hence, the existence of the Article.
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.
Payment with debtors consent- If payment is made with the consent of the
debtor, a civil oblig arises.
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)
Contract by MinorsNo annulment yet
o Generally, annulment requires mutual restitution. Here, the oblige who has
spent or consumed the object in good faith is not
required to restore.
o Good faith of the oblige must be present at the time of the
spending or consuming.
o Note that the majority age today is 18. And fungible here really means
consumable.
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.
Winner in an action to enforce a civil obligationHere the defendant may have
realized that he should have lost the case, instead of winning it, this the
existence of the Article.
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.
Rule in case of payment of debts beyond value of the decedents estate
o Heirs inherit obligs only to the extent of the value of the inheritance.
This is the reason for the Article, coupled with the basis for the natural
oblig.
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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.
Payment of legacies despite the fact that the will is void
o If the will is void, the legacy would also be void and the deceased is
considered to have died without a will. This is the reason for the existence
of this Article.
Analogous cases
o By analogy, all alienations defective for lack of proper formalities may be
included under Art. 1430.
CONTRACTS
V. General
What is a contract?
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. (1254a)
Contract, defined
A contract, from the Latin contractus and from the French contract, is
a juridical convention manifested in legal form, by virtue of which, one or
more persons (or parties) bind themselves in favour of another or others,
or reciprocally, to the fulfilment of a prestation to give, to do, or not to do.
Elements of a contract
Consent
Subject matter
Cause or consideration
Form (some contracts)
Delivery (some contracts)
Warranty against eviction and against hidden defects in the contract of sale
Classification of contracts
of real rights.
Acc to cause or equivalence of the value of prestations
Onerous- where
consideration
there
is
an
interchange
of
equivalent
valuable
Accessory- depends for its existence upon another contract; ex. Loan; here the
principal contract is one of loan.
Unilateral- one of the parties has an oblig; ex. Commodatum (like the borrowing
of a bicycle)
Bilateral (or synalagmatic)- both parties are required to
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Executed- one contemplated at the time the contract is entered into, that is,
the oblig are complied with at this time; ex. Sale of property which has
already been delivered, and which has already been paid for
Executory- one where the prestations are to be complied with at some future
time; ex. A perfected sale, where the property has not yet been delivered and
where the price has not yet been given
Acc to subject matter
carriage>)
Acc to obligs imposed and regarded by the law
Ordinary- where two parties are represented by different persons; ex. Sale
Auto-contracts- where only one person represents two opposite parties, but in
different capacities; ex. An agent
Contract of adhesion- (like one prepared by a real estate company for the
sale of real estate; or one prepared by an insurance company)
Personal
Impersonal
Stages of a contract
The law speaks of a meeting of minds between two persons. The meeting of the
minds really refers to two parties. If at the time of supposed perfection, one of
the parties had already previously died, there can be no meeting of the minds;
hence no contract.
Relatively (Generally, it is binding only between the parties, their assign and
heirs)
Co-existence of a contract with a quasi-delict (tort)
The existence of a contract between the parties does not constitute a bar
to the commission of a tort by one against the other and the consequent
recovery of damages.
Legal effects of a contract
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The legal effects of a contract are determined by extracting the intention of the
parties from the language they used and from their contemporaneous and
subsequent acts. This principle gains more force when third parties are
concerned. To require such persons to go beyond what is clearly written in the
document is unfair and unjust. They cannot possibly delve into the
contracting parties minds and suspect that something is amiss when the
language of the instrument appears clear and unequivocal.
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. (1258)
This article stresses the CONSENSUALITY OF CONTRACTS (or perfection by mere
consent)
How contracts are perfected
o Consensual contracts- by mere consent (this is the general rule);
ex. Contract of sale
o Real contracts- perfected by delivery; ex. Deposit and pledge o Formal
or solemn contracts- here a special form is required for
perfection; ex. A simple donation inter vivos of real property, to be valid
and perfected must be in a public instrument
Perfection of consensual contracts
o Consensual contracts are perfected from the moment there is
agreement (consent) on the subject matter and the cause or
consideration
Consequences of perfection
o
The parties are bound to the fulfilment of what has been expressly
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They have occupied said spaces since 1935 and have been religiously paying
the rental and complying with all the conditions of the lease contract.
Defendants informed plaintiffs that they are offering to sell the premises and are
giving them priority to acquire the same; that during the negotiations, Bobby
Cu Unjieng offered a price of P6-million while plaintiffs made a counter offer
of P5-million; that plaintiffs thereafter asked the defendants to put their offer
in writing to which request defendants acceded.
In reply to defendant's letter, plaintiffs wrote them asking that they specify the
terms and conditions of the offer to sell.
Since defendants failed to specify the terms and conditions of the offer to sell and
because of information received that defendants were about to sell the
property, plaintiffs were compelled to file the complaint to compel defendants
to sell the property to them.
Defendants filed their answer denying the material allegations of the complaint and
interposing a special defense of lack of cause of action.
The court dismissed the complaint on the ground that the parties did not agree
upon the terms and conditions of the proposed sale, hence, there was no
contact of sale at all.
The Cu Unjieng spouses executed a Deed of Sale transferring the property in
question to Buen Realty and Development Corporation. Buen Realty, as the new
owner of the subject property, wrote to the
lessees demanding the latter to vacate the premises. In its reply, it stated
that Buen Realty and Development Corporation brought the property
subject to the notice of lis pendens.
Issue: WON there was a perfected contract between Ang Yu and Cu Unjieng
Held:
Until the contract is perfected, it cannot, as an independent source of obligation,
serve as a binding juridical relation. In sales, particularly, to which the topic
for discussion about the case at bench belongs, the contract is perfected
when a person, called the seller, obligates himself, for a price certain, to
deliver and to transfer ownership of a thing or right to another, called the
buyer, over which the latter agrees.
When the sale is not absolute but conditional, such as in a "Contract to Sell"
where invariably the ownership of the thing sold is retained until the
fulfillment of a positive suspensive condition (normally, the full payment of
the purchase price), the breach of the condition will
An accepted unilateral promise which specifies the thing to be sold and the price
to be paid, when coupled with a valuable consideration distinct and separate
from the price, is what may properly be termed a perfected contract of option.
This contract is legally binding, and in sales, it conforms with the second
paragraph of Article 1479 of the Civil Code.
Even on the premise that such right of first refusal has been decreed under a
final judgment, like here, its breach cannot justify correspondingly an
issuance of a writ of execution under a judgment that merely recognizes its
existence, nor would it sanction an action for specific performance without
thereby negating the indispensable element of consensuality in the
perfection of contracts. 11 It is not to say, however, that the right of first
refusal would be inconsequential for, such as already intimated above, an
unjustified disregard thereof, given, for instance, the circumstances
expressed in Article 19 of the Civil Code, can warrant a recovery for damages.
The final judgment, it must be stressed, has merely accorded a "right of first
refusal" in favor of petitioners. The consequence of such a declaration entails
no more than what has heretofore been said. In fine, if, as it is here so
conveyed to us, petitioners are aggrieved by the failure of private
respondents to honor the right of first refusal, the remedy is not a writ of
execution on the judgment, since there is none to execute, but an action for
damages in a proper forum for the purpose.
Regino vs. Pangasinan
Facts:
Petitioner Khristine Rea M. Regino was a first year computer science student at
Respondent Pangasinan Colleges of Science and Technology (PCST). Reared in
a poor family, Regino went to college mainly through the financial support of
her relatives. During the second semester of school year 2001-2002, she
enrolled in logic and statistics subjects under Respondents Rachelle A.
Gamurot and Elissa Baladad, respectively, as teachers.
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allows the State supervisory and regulatory powers over all educational
institutions. According to par 107 and 137 of the respondent schools
manual, a student is enrolled not just for one semester but for the entire
period necessary for the student to complete his/her course. BP Blg. 232
gives the students the right to continue their course up to graduation.
School said most of them had failing grades anyway. In answer students say they
are graduating students and if there are any deficiencies these do not
warrant non-readmission. Also there are more students with sores
deficiencies who are re-admitted. And some of the petitioners had no failing
marks.
The court held that the students were denied due process in that there was no
due investigation. In fact it would appear from the pleadings that the
decision to refuse them re-enrollment because of failing grades was a mere
afterthought.
Discipline may be warranted but penalty should be commensurate to the
offense committed with due process.
Dispositive: Petition GRANTED. Orders of RTC ANNULED. Mabini College ordered to
readmit and allow reenrollment of petitioners, without prejudice to its taking the
appropriate action, if shown that they have failed to satisfy the school's prescribed
academic standards.
What is freedom of contract?
Art. 1306. The contracting parties may establish such stipulations, clauses,
terms and conditions as they may deem convenient, provided they are not
contrary to law, morals, good customs, public order, or public policy.
(1255a)
Principle of Freedom
o The free entrance into contracts generally without restraint is one of the
liberties guaranteed to the people. However, the constitutional prohibition
against impairment of contractual obligs refers only to contracts which are
not legal, not to void or inexistent ones.
Limitations on the nature of the stipulations o The law
o Moral
o Good customs
o Public order
Public policy
Limitations imposed by law
Contracts must respect the law, for the law forms part of the contract.
Indeed the provisions of all laws are understood to be incorporated in the
contract.
Limitations imposed by morals
Morals deal with right and wrong and with human conscience.
Limitations imposed by good customs
Good customs are those that have received for a period time practical and
social confirmation. Acc to the Code Commission, good customs and morals
overlap each other; but sometimes they do not.
Limitations imposed by public order
Public order deals with the public weal and includes public safety.
Limitations imposed by public policy
The parties generally may agree on any contract but the name
that they give to it should not be controlling for a contract is what the parties
intended it to be not what they call it.
This is because a contract must be judged by its character, its nature and its
legal qualifications. The courts will therefore look not so much at the form of the
transaction as at its substance.
Section 10, Art. III, 1987 Constitution. No law impairing the obligation of
contracts shall be passed.
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The parties cannot be coerced to enter into a contract where no agreement had
between them as to the principal terms and conditions
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and those they are exported to the same market. The only difference
between the two companies is the method of doing the finishing work- the
manufacture of the embroidered material into finished garments.
Ollendorf commenced the action to prevent, by injunction, any further breach of that
part of defendant's contract of employment by plaintiff.
Simbol met Alma, also an employee of the company. When they got married,
Simbol resigned pursuant to the company policy of the ban of spouses
working in the same company.
Comia also resigned after being advised of the policy.
Estrella got herself pregnant by Zuniga, a co-worker who was married. She opted
to resign from the company.
The respondents each signed a Release and Confirmation Agreement. They
stated that they have no money and property accountabilities in the
company and that they release the latter of any claim or demand of
whatever.
Respondents offer a different version of their dismissal. Simbol and Comia allege
that they did not resign voluntarily; they were compelled to resign in view of
an illegal company policy.
Estrella alleged that Zuniga misrepresented himself himself as a married but
separated man. After she got pregnant, she discovered that he was not
separated. She then severed her relationship with him to avoid dismissal. She
met an accident which required her to recuperate for 21 days. When she
returned to work, she was denied entry. She was directed to proceed to the
personnel office where one of the staff handed her a memorandum stating
that she is dismissed for immoral conduct.
Respondents filed a complaint for unfair labor practice, constructive dismissal,
separation pay and attorney's fees.
The labor arbiter dismissed the complaint for lack of merit.
NLRC affirned the decision.
CA reversed decision of NLRC.
Issue: WON the policy of the employer banning spouses from working in the same
company violates the rights of the employee
Held:
The policy of petitioners prohibiting close relatives from working in the same
company takes the nature of an anti-nepotism employment policy.
Unlike in our jurisdiction where there is no express prohibition on marital
discrimination, there are 20 statutes in the US prohibiting marital
discrimination. In other statutes, they rule that unless the employer can
prove that the reasonable demands of the business require a distinction
based on marital status and there is no better available or acceptable
policy which would better accomplish the business purpose, an employer
may not discriminate against an
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The debt remained unpaid and as a consequence the Spouses Espiritu foreclosed
the mortgaged property. During the auction sale, the property was sold to the
Spouses Espiritu as the lone bidder.
The Spouses Landrito failed to redeem the property although they alleged that
they negotiated for the redemption of the property. While the negotiated price
for the land started at P1,595,392, it was allegedly increased by the Spouses
Espiritu from time to time. Spouses Espiritu increased the amount demanded
to P2.5M and gave them until July, 1992 to pay said amount. However, they
found out that on June 24, 1992, the spouses Espiritu had already executed an
Affidavit of Consolidation of Ownership and registered the mortgged property
in their name and that the TCT was already issued in the name of Spouses
Espiritu.
Spouses Landrito, represented by their son Zoilo Landrito, filed an action for
annulment or reconveyance of title with damages against Spouses Espiritu.
Trial court dismissed the complaint and upheld the validity of the foreclosure
sale.
CA reversed the decision. Hence, this instant petition.
Issue: WON the interest rates imposed are unreasonable
Held:
The real Estate Mortgage executed between the parties specified that the
"principal indebtedness shall earn interest at a legal rate". The agreement
contained no other provision on interest or any fees or charges incident to the
debt. The total interest and charges amounting to P559,125 on the original
principal of P350,000 was accumulated two years and one month. The records
fail to show any computation on how much interest was charged and what
other fees were imposed. Not only did lack of transparency that characterized
the agreements, the interest rates and the service charged imposed, at an
average 6.39% per month are excessive.
The omission of the Spouses Espiritu in specifying in the contract the interest
rate which was actually imposed, in contravention of the law, manifested bad
faith.
Stipulation authorizing iniquitous or unconscionable interests are contrary to
morals if not against the law. The debt due is to be considered without the
stipulation of the excessive interest. A legal interest of 12% per annum will
be added in place of the excessive interest formerly imposed.
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Since the Spouses Landrito, the debtors, were not given an opportunity to settle
their debt, at the correct amount and without the iniquitous interest imposed,
no foreclosure proceedings may be instituted. The foreclosure sale conducted
upon their failure to pay should be nullified since the amount demanded was
overstated.
For failure of Macalinao to settle her obligations, BPI filed with the MeTC a
complaint for a sum of money against her and her husband. In said complaint,
BPI prayed for the payment of the amount of P154,608.78 plus 3.25% finance
charges and late payment charges equivalent to 6% of the amount due.
For failure to file their answer, MeTC ruled in favor of BPI.
Macalinao appealed in the RTC which affirmed the decision. CA also affirmed,
hence this petition.
Issue: WON the stipulated interest rate was unscionable, and iniquitous
Held:
In its complaint, BPI originally imposed the interest and penalty charges at the
rate of 9.25% per month or 111% per annum. This was declared
unconscionable by the lower courts for being clearly excessive and was thus
reduced to 2% per month or 24% per annum. CA modified to 3% per month
and 36% per annum.
The interest rate and penalty charge of 3% per month should be equitably
reduced to 2% per annum.
Even if the Terms and Conditions contain the stipulated 3% interest rate, such
stipulation is void for being contrary to morals, if not against the law. Since
the stipulation on the interest rate is void, it is as if there was no express
contract. Hence, the court may reduce the interest as reason and equity
demand.
The records would reveal that Macalinao made partial payments to BPI, in
addition to the unconscionable interest rate. Under these circumstances, the
Court finds it equitable to reduce the interest rate in line with the prevailing
jurisprudence and in accordance with Art. 1229 of the Civil Code.
What are the kinds of contracts?
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. (n)
Nominate
Innominateno express name
o Governing rules for innominate contracts
Stipulations
Titles I and II of Book IV- Obligations and Contracts
Rules on the most analogous nominate contracts
Customs of the place
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. (1258)
This article stresses the CONSENSUALITY
perfection by mere consent)
How contracts are perfected
o
OF
CONTRACTS
(or
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consideration
Consequences of perfection
The parties are bound to the fulfilment of what has been expressly
stipulated and compliance thereof must be in good faith
The parties are also bound to all the consequences which, acc to their
nature may be in keeping with good faith, usage and law.
If the form is not complied with, Art. 1457 cannot be availed of.
Art. 1357. If the law requires a document or other special form, as in the
acts and contracts enumerated in the following article, the contracting
parties may compel each other to observe that form, once the contract has
been perfected. This right may be exercised simultaneously with the action
upon the contract. (1279a)
Right of one party to compel the other to execute the necessary form
The article applies only when form is needed only for convenience, not
for validity or enforceability
Perfected
Enforceable under the State of Frauds
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Acts and contracts which have for their object the creation, transmission,
modification or extinguishment of real rights over immovable property;
sales of real property or of an interest therein a governed by Articles 1403,
No. 2, and 1405;
The cession, repudiation or renunciation of hereditary rights or of those of
the conjugal partnership of gains;
The power to administer property, or any other power which has for its
object an act appearing or which should appear in a public document, or
should prejudice a third person;
The cession of actions or rights proceeding from an act appearing in a
public document.
All other contracts where the amount involved exceeds five hundred pesos
must appear in writing, even a private one. But sales of goods, chattels or
things in action are governed by Articles, 1403, No. 2 and 1405. (1280a)
Form for convenience
The necessity for the public document in the contract enumerated here
is only for convenience, not for its validity or enforceability.
Formal requirements are for the benefit of 3 rd parties. Noncompliance does not adversely affect the validity of the contract
not the contractual rights and obligs of the parties.
Purpose- to prevent fraud and not to encourage the same. Thus, certain
agreements are required to be in writing so that they may be enforced.
How the Statue of Frauds prevents fraud
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present, namely one who has received some benefits would be allowed to
defraud the grantor thereof.
The Statute of Frauds cannot apply if the action is neither for damages because of
the violation of an agreement nor for the specific performance of said agreement.
The Statute of Frauds is exclusive, that is, it applies only to the agreements or
contracts enumerated therein.
Contracts infringing the Statute of Frauds are not void; they are merely
unenforceable.
The Statute of Frauds is a Rule of Exclusion, i.e., oral evidence might be
relevant to the agreements enumerated therein and might therefore be
admissible were it not for the fact that the law or the statute excludes said
oral evidence.
The Statute of Frauds does not determine the credibility or weight of
evidence. It merely concerns itself with the admissibility thereof.
The Statute of Frauds does not apply if it is claimed that the contract does
not express the true agreement of the parties. As long as the rule or real
agreement is not covered by the Statute of Frauds, it is proved by oral
evidence.
It will be observed that while the Statute of Frauds makes no mention of it, still
under Art. 1443, no express trusts concerning an immovable or any interest
therein may be proved by parol (oral) evidence. Hence, we can safely
conclude that the Statute of Frauds also applies to such express
(conventional) trust.
Real
Art. 1316. Real contracts, such as deposit, pledge and Commodatum, are
not perfected until the delivery of the object of the obligation. (n)
Perfection of real contracts
Deposit
Pledge
Commodatum- a loan where the identical object must be
returned.
Future real contracts as consensual contracts
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The contract to carry (at some future time) is consensual and is perfected
by mere consent.
The contract of carriage is a real contract, for not until the carrier is
actually used can we consider the contract perfected, that is, til the
moment of actual use, the carrier cannot be said to have already
assumed the oblig of a carrier.
ALS and Litonjua filed civil case against BPIIC maintaining that they should not
be made to pay the amortization before the actual release of the P500,000
loan in August and September 1982.
Lower court rendered judgment in favor of ALS and Litonjua.
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The decision binds the parties only after it is made known to both.
Effect of stipulation regarding arbitration
o If in a contract, there is a stipulation for arbitration and one party, in case
of dispute, refuses to submit the matter to arbitration, the aggrieved
party whose goes to court to request it to order the other party to submit
the matter to arbitration, should not anymore present to the court the
merits of the disputed matters. The decision on said merits will be up to
the arbitrator. The only function of the Court in this case would be to
decide WON the parties should proceed to arbitration.
Art. 1182. When the fulfillment of the condition depends upon the sole will
of the debtor, the conditional obligation shall be void. If it depends upon
chance or upon the will of a third person, the obligation shall take effect in
conformity with the provisions of this Code. (1115)
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Contracts take effect only between the parties, their assigns and
heirs and therefore, generally, its terms cannot determine the rights of 3 rd
persons. The revocation, for example of a deed of sale is not conclusive on
those individuals who are parties thereto. However, a person who takes
advantage of a contract, although he
Reasons for the rule Res inter alios acta aliis neque nocet prodest. (The
act, declaration or omission of another, cannot affect another, except as
otw provided by law or agreement).
He must be a compulsory or forced heir for the simple reason that the
deceased could do with the property whatever he desired as long as
he respects the rights of his compulsory heirs.
Private respondent remonstrated that said credit card had yet to expire on
September 1990, as embossed on its face.
Private respondent and two of his guests approached the restaurant's cashier
who again passed the credit card over the verification computer. The same
information was produced, i.e., CARD EXPIRED. Private respondent and his
guests returned to their table and at this juncture, Professor Lirag, another
guest, uttered the following remarks: "Clody, may problema ba? Baka
kailangang maghugas na kami ng pinggan?"
Private respondent left the restaurant and got his BPI Express Credit Card from
his car and offered it to pay their bill. This was accepted and honored by the
cashier after verification.
De Jesus filed a suit for damages.
Lower Court renderd decision directing Mandarin Villa and BANKARD to pay
jointly and severally.
Upon appeal, CA found Mandarin solely responsible for damages. Issue: WON de Jesus is
entitled for damages
Held:
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Uy vs. CA
Facts:
Petitioners William Uy and Rodel Roxas are agents authorized to sell 8 parcels of
land by the owners. They offered to sell the lands to National Housing
Authority to be utilized and developed as a housing project.
NHA Board passed Resolution No. 1632 approving acquisition of said lands. The
parties executed a series of Deeds of Absolute Sale. Of the 8 parcels of lands,
only 5 were paid for by the NHA because of a report by DENR that the
remaining area is not suitable for a housing project.
NHA issued another resolution cancelling the sale over the 3 parcels of land.
Petitioners filed before RTC a Complaint for Damages against NHA and its General
Manager Balao.
RTC rendered a decision declaring the cancellation of the contract to be
justified.
CA reversed decision.
Issue: WON the agents are real parties-in-interest
Held:
of sale executed in behalf of the latter. Since a contract may be violated only by
the parties thereto as against each other, the real parties-in-interest, either as
plaintiff or defendant, in an action upon that contract must, generally, either be
parties to said contract.
Also, petitioners have not shown that they are assignees of their principals to the
subject contracts. While they alleged that they made advances and that they
suffered loss of commissions, they have not established any agreement
granting them the right to receive payment and out of the proceeds to
reimburse for advances and commissions before turning the balance over to
the principals.
It does not appear that petitioners are beneficiaries of a stipulation pour autrui
under the second paragraph of Article 1311 of the Civil Code. Indeed, there
is no stipulation in any of the Deeds of Absolute Sale clearly and
deliberately conferring a favor to any third person.
The fact that an agent who makes a contract for his principal will gain or suffer
loss by the performance or nonperformance of the contract by the principal
or by the other party thereto does not entitle him to maintain an action on
his own behalf against the other party for its breach. An agent entitled to
receive a commission from his principal upon the performance of a contract
which he has made on his principals account does not, from this fact alone,
have any claim against the other party for breach of the contract, either in
an action on the contract or otherwise. An agent who is not a promisee
cannot maintain an action at law against a purchaser merely because he is
entitled to have his compensation or advances paid out of the purchase price
before payment to the principal.
As petitioners are not parties, heirs, assignees, or beneficiaries of a stipulation pour
autrui under the contracts of sale, they do not, under substantive law, possess the
right they seek to enforce. Therefore, they are not the real parties-in-interest in
this case. Petitioners not being the real parties-in-interest, any decision rendered
herein would be pointless since the same would not bind the real parties-ininterest.
Baluyot vs. CA
Facts:
Petitioners Timoteo Baluyot, Jaime Benito, Benigno Eugenio, Rolando Gonzales, and
Fortunato Fulgencio are residents of Barangay Cruz-na-Ligas and members of The
Cruz-na-Ligas Homesite Association, Inc.
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On March 13, 1992, petitioners filed a complaint for specific performance and
damages against private respondent University of the Philippines before the RTC.
The complaint was later on amended to include private respondent Quezon City
government as defendant.
Plaintiffs and their ascendants have been in open, peaceful, adverse and
continuous possession in the concept of an owner since memory can no
longer recall of that parcel of riceland known as Sitio Libis, Barrio Cruz-naLigas.
In 1979, the UP Board of Regents approved the donation of about 9.2 ha directly
to the residents of Brgy. Krus na Ligas. Despite the willingness of UP to
proceed with the donation, execution of the legal instrument to formalize it
failed because of the unreasonbale demand of the residents for an area
bigger than 15.8 ha.
UP backed-out from the arrangement to donate directly to the Association,
instead it resumed to negotiate the donation thru Quezon City Government.
QC Government immediately prepared the groundworks, however, UP under
President Abueva had failed to deliver the certificate of title covering the
property to the donated to enable QC Government to register the said Deed of
Donation so that corresponding of title be issued under its name.
UP continuously refused despite requests from the QC Government.
Upon expiration of the period of 18 months, UP through Pres. Abueva issued
Administrative Order No. 21 declaring the deed of donation revoked and the
donated property be reverted to UP.
Trial Court ruled that petitioners did not have a cause of action for specific
performance on the ground that the deed of donation had already been
revoked.
Upon appeal, CA ordered the dismissal of the civil case.
Issue: WON the petitioners have a cause of action
Held:
While, admittedly, petitioners were not parties to the deed of donation, they
anchor their right to seek its enforcement upon their allegation that they are
intended beneficiaries of the donation to the Quezon City government. Art.
1311, second paragraph, of the Civil Code.
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.
Specific paragraphs of the complaint are sufficient to bring petitioners
action based on Art. 1311.
The contention of the respondents, based on the finding of the trial court, that the
donation has already been revoked has no merit. The trial court's ruling on
this point was made in connection with petitioners' application for a writ of
preliminary injunction to stop respondent from ejecting petitioners. The trial
court denied injunction on the ground that the donation had already been
revoked and therefore petitioners had no clear right to be protected. It is
evident that the trial court's ruling on this question was only tentative, without
prejudice to the final resolution of the question after the presentation by the
parties of their evidence.
Dispositive: Reviewed decision REVERSED and the case REMANDED to trial court for
trial on the merits.
Can a contract create a real right?
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. (n)
This article constitutes one of the exceptions to the general rule that a contract
binds only the parties.
A real right binds the property over which it is exercised.
Art. 712. Ownership is acquired by occupation and by intellectual creation.
Ownership and other real rights over property are acquired and transmitted
by law, by donation, by estate and intestate succession, and in
consequence of certain contracts, by tradition.
They may also be acquired by means of prescription. (609a)
Art. 415. The following are immovable property:
(10) Contracts for public works, and servitudes and other real rights over
immovable property. (334a)
What is tortuous interference?
Art. 1314. Any third person who induces another to violate his contract
shall be liable for damages to the other contracting party. (n)
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Espejo and partner from receiving and exhibiting film until further orders
from the court.
Issue: WON Espejo and his partner were liable for interfering with the contract
between Gilchrist and Cuddy
Held:
It is said that the ground on which the liability of a third party for interfering with
a contract between others rests, is that the interference was malicious. The
contrary view, however, is taken by the Supreme court of the United States.In
Angle vs. Railway, the only motive for interference was the desire to make a
profit to the injury of one of the parties of the contract. There was no malice in
the case beyond the desire to make an unlawful gain to the detriment of one
of the contracting parties.
In the case at bar, the only motive for the interference was a desire to make a
profit. There was no malice beyond this desire, but this fact does not relieve
them of the legal liability for interference with that contract and causing its
breach.
The liability of the appellants arises from unlawful acts and not from contractual
obligations, as they were under no such obligations to induce Cuddy to violate his
contract with Gilchrist to violate his contract with Gilchrist. Art. 1902 of the Civil
Code provides that a person whi, by act or omission, causes damage to another
when there is fault or negligence, shall be obliged to repair the damage so done.
But the fact that the appellant's interference was actionable did not of itself
entitle Gilchrist to sue out an injunction against them. The allowance of the
remedy must be justified under Sec. 164 of the Code of Civil Procedure. There
is nothing in Sec. 164 that before an injunction may issue, the strangers must
know the identity of both parties. Courts usually grant an injunction where the
profit of the injured person are derived from his contractual relations with a
large and indefinite number of individuals. Injunction against further
interference with the contract was properly issued.
Daywalt vs. La Corporacion
Facts:
Teodorica Endencia executed a contract where she obligated herself to convey
to Daywalt, a tract of land.
It was agreed that a deed should be executed as soon as the title is perfected in
the proceedings of the Court of Land Registration and a Torrens title
procured therefore in Endencia's name.
A decree recognizing the right of Endencia as owner was entered in said court
but the Torrens title certificate was not issued until later.
The parties made a new contract with a view to carrying their original agreement
into effect. The second was not immediately carried into effect for the reason
that the Torrens certificate was not yet obtainable.
The parties entered into another agreement, replacing the old.
The Torrens certificate was in time issued to Endencia but in the course of the
proceedings, it was found that the area of the tract in the contract was
about 1,248 ha instead of 452 ha as stated in the contract.
La Corporacion de los Padres de Recoletos was at this time the owner of a
property immediately adjacent to the land which Endencia had sold to
Daywalt.
Fr. Sanz, its representative whom Endencia is well acquainted with, was aware of
the 1st and 2nd contract. When the Torrens certificate was finally issued,
Endencia delivered it for safekeeping to the corporation where it was taken
to Manila where it remained in the custody of Labarga.
When La Corporacion sold the San Jose estate, some cattle were removed to the
estate of the corporation immediately adjacent to the property which the
plaintiff had purchased from Endencia.
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As Endencia still retained possession of said property, Father Sanz entered into
an arrangement with her where large number of cattle belonging to the
corporation were pastured upon said land.
one proposition upon which all must agree. A stranger cannot become more
extensively liable in damages for the non-performance of the contract than the
party in whose behalf he intermeddles. To hold the stranger liable for damages in
excess of those that could be recovered against the immediately party to the
contract would lead to results at once grotesque and unjust.
If a party enters into contract to go for another upon a journey to a remote and
unhealthful climate, and a third person with a bona fide purpose of benefiting
the one who is under contract to go dissuades him from the step, no action will
lie. But if the advice is not disinterested and the persuasion is used for the
indirect purpose of benefiting the defendant at the expense of the plaintiff, the
intermedler is liable if his advice is taken and the contract broken.
Facts:
When the contract expired, the parties did not renew the contracts, but Tek hua
continued to occupy the premises.
Tek Hua was dissolved. Later, the original members of Tek Hua formed Tek Hua
Enterprising Corp.
When So Pek Giok, managing partner of Tek Hua Trading died, his son So Ping Bun,
occupied the warehouse for his own textile business.
Tiong, president of Tek Hua, sent a letter demanding So Ping Bum to vacate the
premises.
So Ping Bun refused and instead requested formal contracts. DCCSI acceded to
the request.
Private respondents filed a petition for injunction for the nullification of the lease
contracts between DCCSI and petitioner with damages.
Trial court ruled in favor of the respodents. Upon appeal, the Court of Appeals
affirmed. Hence, this petition.
Issue: WON So Ping Bun is liable for tortuous interference of contract
Held:
A duty which the law of torts is concerned with is respect for the property of
others, and a cause of action ex delicto may be predicated upon an unlawful
interference by one person of the enjoyment by the other of his private
property. In the present case, petitioner's Trendsetter Marketing asked DCCSI
to execute lease contracts in its favor, and as a result petitioner deprived
respondent corporation of the latter's property right. This was a clear case of
tortuous interference.
Section 1314 of the Civil Code categorically provides that "Any third person who
induces another to violate his contract shall be liable for damages to the other
contracting party". While lack of malice precludes damages, it does not relieve
the interferer of the legal liability for entering into contracts and causing
breach of existing ones. The respondent appellate court correctly confirmed
the permanent injunction and nullification of the lease contracts between
DCCSI and Trendsetter Marketing without awarding damages. The injunction
saved the respondents from further damage or injury caused by petitioner's
interference.
Lacson
Tayag
vs.
Facts:
Respondents
Angelica
Tiotuyco Vda.
de
Lacson,
and
her
children
Amancia,
Antonio,
Juan, and
Teodosia,
all
surnamed
Lacson,
were the
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Where the alleged interferer is financially interested, and such interest motivates
his conduct, it cannot be said that he is an officious or malicious intermeddler.
Even if the respondents received an offer from the defendants-tenants to assign and
transfer their rights and interests on the landholding, the respondents cannot be
enjoined from entertaining the said offer, or even negotiating with the
defendants-tenants. The respondents could not even be expected to warn the
defendants-tenants for executing the said deeds in violation of P.D. No. 27 and
Rep. Act No. 6657. Under Section 22 of the latter law, beneficiaries under P.D. No.
27 who have culpably sold, disposed of, or abandoned their land, are disqualified
from becoming beneficiaries.
From the pleadings of the petitioner, it is quite evident that his purpose in having the
defendants-tenants execute the Deeds of Assignment in his favor was to acquire
the landholding without any tenants thereon, in the event that the respondents
agreed to sell the property to him. The petitioner knew that under Section 11 of
Rep. Act No. 3844, if the respondents agreed to sell the property, the defendantstenants shall have preferential right to buy the same under reasonable terms and
conditions.
Under Section 12 of the law, if the property was sold to a third person without the
knowledge of the tenants thereon, the latter shall have the right to redeem the
same at a reasonable price and consideration. By assigning their rights and
interests on the landholding under the deeds of assignment in favor of the
petitioner, the defendants-tenants thereby waived, in favor of the petitioner, who
is not a beneficiary under Section 22 of Rep. Act No. 6657, their rights of
preemption or redemption under Rep. Act No. 3844. The defendants-tenants
would then have to vacate the property in favor of the petitioner upon full
payment of the purchase price. Instead of acquiring ownership of the portions of
the landholding respectively tilled by them, the defendants-tenants would again
become landless for a measly sum of P50.00 per square meter.
The petitioners scheme is subversive, not only of public policy, but also of the letter
and spirit of the agrarian laws. That the scheme of the petitioner had yet to take
effect in the future or ten years hence is not a justification. The respondents may
well argue that the agrarian laws had been violated by the defendants-tenants
and the petitioner by the mere execution of the deeds of assignment. In fact, the
petitioner has implemented the deeds by paying the defendants-
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Despite petitioners claim that he signed the documents on March 28, way before
respondents withdrawal of the offer on April 4, still the letter of the petitioner
accepting the offer was received on April 7. By then, respondent had already
withdrawn its offer. Indubitably, there was no contract perfected by the parties.
It must also be underscored that there was no time frame fixed by respondent for
petitioner to accept or reject its offer. When the offeror had not fixed a period
for offeror to accept the offer, and the offer is made to a person present,
the acceptance must be made immediately. The respondent had the option to
withdraw or revoke the offer.
As regards the effectiveness of the withdrawal, the Court held that implicit in the
authority given to Philtectic Corporation to demand for and recover from the
petitioner the subject car and to institute the appropriate action against him to
recover possession of the car is the authority to withdraw the respondent's March
14, 1990 Letter-offer. It cannot be argued that respondent authorized Philtectic
Corporation to demand and sue for the recovery of the car and yet did not authorize
it to withdraw its March 14, 1990 Letter-offer to the petitioner. Besides, when he
testified, Senen Valero stated that the April 4, 1990 letter of Philtectic Corporation to
the petitioner was upon his instruction and conformably with the resolution of the
Board of Directors of the respondent.
When is there an offer? An offer is a unilateral proposition which one party makes
to the other for the celebration of a contract.
It must be:
Definite distinguished from mere communications indicating that a party is
disposed to enter into a certain contract, or inviting the other to make an offer
Ex. I will give you my watch if you buy it for P1, 500 as
opposed to
I am in position and willing to entertain the purchase of this watch under
the following conditions
Complete Sufficient clearness of the kind of contract intended and definitely
stating the conditions of the contract
Intentional Must be made with seriousness, not for fun or in jest, or out of
courtesy, or as an example in teaching
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Art. 1479. A promise to buy and sell a determinate thing for a price certain
is reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate thing for a
price certain is binding upon the promissor if the promise is supported by
a consideration distinct from the price. (1451a)
This article is NOT inconsistent with Art. 1324. If the option is not supported by
any independent consideration distinct from the price certain, the offer can
still be withdrawn even if the offer is already accepted.
Sanchez v. Rigos [June 14, 1972]
Ponente: C.J. Concepcion
Facts: On April 3, 1961, plaintiff Nicolas Sanchez and defendant Severina Rigos
executed an instrument entitled Option to Purchase where the latter agreed,
promised and committedto sell to the former a parcel of land situated in San Jose,
Nueva Ecija for P1, 510. It was further stipulated that the option shall be deemed
terminated if Sanchez fails to exercise his right to buy the property within 2 years.
Within the same period, Sanchez attempted to make several tenders of payment of
P1, 510 to no avail because Rigos rejected the same. Because of this, the former
deposited said amount with the CFI of Nueva Ecija and commenced an action for
specific performance and damages against the latter. The CFI rendered judgment for
Sanchez.
Issue: Whether or not the offer can still be withdrawn after Sanchez notified Rigos
of his acceptance of the option within the period agreed upon
Held: No.
Ratio: If the option is given without a consideration, it is a mere offer of a contract of
sale which is not binding until accepted. If, however, acceptance is made before a
withdrawal, it constitutes a binding contract of sale even though the option was not
supported by sufficient consideration.
The option did not impose upon Sanchez the obligation to purchase her property. The
instrument is not a contract to buy and sell; it is a mere option as evinced by the title
of the document itself.
Moreover, Art. 1324, CC provides the general rule regarding offer and acceptance
that, when the offerrer gives to the offeree a certain period to accept, the offer may
be withdrawn at any time before acceptance except when the option is founded
upon consideration. In other words, if the option is given without a consideration, it is
a mere offer of a contract of sale which is not binding until accepted. If, however,
acceptance is made before a withdrawal, it constitutes a binding contract of sale
even though the option was not supported by a sufficient consideration. The
concurrence of both
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Memorandum Order 24 conveyed that property from NDC to PUP which cancelled
NDCs obligation of P57 M. PUP then increased the rentals and demanded that the
occupants of the property vacate it immediately.
Lower court decision ordered PUP to sell to FIRESTONE the "2.6 hectare leased
premises or as may be determined by actual verification and survey of the actual size
of the leased properties where plaintiff's fire brick factory is located" at P1,500.00 per
square meter considering that, as admitted by FIRESTONE, such was the prevailing
market price thereof. FIRESTONE could exercise its option to purchase the property
until 2 June 1999 inasmuch as the 22 December 1978 contract embodied a covenant
to renew the lease for another ten (10) years at the option of the lessee as well as an
agreement giving the lessee the right of first refusal. CA affirmed the decision.
Issues:
Whether or not the transfer of the land from NDC to PUP was one for a sale or
was a mere paper transfer
Whether or not FIRESTONE can rightfully invoke its right of first refusal Held: The
transfer of land from NDC to PUP was one for sale. FIRESTONE has availed and
existing right of first refusal as lessee of the premises. The preponderance of
evidence shows that NDC sold to PUP the whole NDC compound, including the leased
premises, without the knowledge much less consent of private respondent
FIRESTONE which had a valid and existing right of first refusal. All three (3) essential
elements of a valid sale, without which there can be no sale, were attendant in the
disposition and transfer of the property from NDC to PUP consent of the parties,
determinate subject matter, and consideration therefor.
Consent to the sale is obvious from the prefatory clauses of Memorandum Order No.
214 which explicitly states the acquiescence of the parties to the sale of the property.
Furthermore, the cancellation of NDC's liabilities in favor of the National Government
in the amount of P57,193,201.64 constituted the "consideration" for the sale. The
conduct of petitioner PUP immediately after the transaction is in itself an admission
that there was a sale of the NDC compound in its favor which are the acts of
ownership in ordering the land to be vacated.
In the instant case, the right of first refusal is an integral and indivisible part
of the contract of lease and is inseparable from the whole contract. The
consideration for the right is built into the reciprocal obligations of the
parties. The stipulation is part and parcel of the contract of lease making the
consideration for the lease the same as that for the option.
It is a settled principle in civil law that when a lease contract contains a right of first
refusal, the lessor is under a legal duty to the lessee not to sell to anybody at any
price until after he has made an offer to sell to the latter at a certain price and the
lessee has failed to accept it. 39 The lessee has a right that the lessor's first offer
shall be in his favor.
The option in this case was incorporated in the contracts of lease by NDC for the
benefit of FIRESTONE which, in view of the total amount of its investments in the
property, wanted to be assured that it would be given the first opportunity to buy
the property at a price for which it would be offered. Consistent with their
agreement, it was then implicit for NDC to have first offered the leased premises of
2.60 hectares to FIRESTONE prior to the sale in favor of PUP. Only if FIRESTONE
failed to exercise its right of first priority could NDC lawfully sell the property to
petitioner PUP.
When does an offer become ineffective?
Incapacity of either party before acceptance (Death, Civil Interdiction, Insanity,
or Insolvency)
Lack of authority of offeror
Absence of any of the essential requisites
No acceptance/ Rejection of the offer
Time, manner and place of acceptance not complied with
Withdrawal of offer before acceptance
Art. 1323. An offer becomes ineffective upon the death, civil interdiction,
insanity, or insolvency of either party before acceptance is conveyed. (n)
The contract is not yet perfected at any time before acceptance is conveyed. The
disappearance or loss of capacity of either party before acceptance before
perfection prevents the contractual tie from being formed.
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. (1258)
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.
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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. (1259a)
If the contract is entered into in behalf of another who has not authorized it, such
contract is not valid and binding upon him unless he ratifies the transaction.
Art. 1318. There is no contract unless the following requisites concur:
Consent of the contracting parties;
Object certain which is the subject matter of the contract;
Cause of the obligation which is established. (1261)
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.
(1262a)
Art. 1320. An acceptance may be express or implied. (n)
Art. 1321. The person making the offer may fix the time, place, and manner
of acceptance, all of which must be complied with. (n)
Art. 1322. An offer made through an agent is accepted from the time
acceptance is communicated to him. (n)
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. (n)
Art. 1325. Unless it appears otherwise, business advertisements of things
for sale are not definite offers, but mere invitations to make an offer. (n)
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be oral or written. Hence, even without any written evidence of the Collective
Bargaining Agreement made by the parties, a valid agreement existed in this case
from the moment the minds of the parties met on all matters they set out to discuss.
Art. 1315 of the Civil Code states that contracts are perfected by mere consent, and
from that moment, the parties are bound not only to the fulfillment of what has been
expressly stipulated but also to all the consequences which, according to their
nature, may be in keeping with good faith, usage and law. The Secretary of Labor
found that "as early as January 14, 1993, well within the six (6) month period
provided by law, the Company and the Union have perfected their agreement." 7 The
claim of petitioner to the contrary notwithstanding, this is a finding of an
administrative agency which, in the absence of evidence to the contrary, must be
affirmed.
What is the effect of simulated consent? Void if absolute simulation, Can be valid if
it is relatively simulated
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. (n)
Simulation defect in declaration. It is a declaration of a fictitious will, deliberately
made by agreement of the parties, in order to produce, for purposes of deception, the
appearance of a juridical act which does not exist or is different from that which was
really executed.
Absolute Simulation (Simulados) the parties do not have any intention of being
bound by any contract
Ex. A deed of absolute sale of land, stating that possession has been transferred and
the price paid, when in reality there has been no agreement of sale between the
parties.
Relative Simulation (Disimulados) the parties have an agreement which they
conceal under the guise of another contract. There are two juridical acts involved:
Ostensible act contract that the parties pretend to have executed
Hidden act the true agreement between the parties
Ex: A deed of sale of a piece of land is executed by parties to conceal their true
agreement which is a donation
Note: If the concealed or hidden act is lawful, it is enforceable if the essential
requisites are present.
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
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Impossible Things not susceptible of existing, or are outside the commerce of men,
or personal services beyond the ordinary power of man.
Note: The impossibility must be actual and contemporaneous with the making of the
contract.
Kinds of Impossibility:
Absolute or Objective nobody can perform it. Effect:
Contract is nullified
Relative or Subjective it cannot be performed due to special conditions or
qualifications of the debtor
Effect: If permanent, contract is nullified
If temporary, contract is not nullified
Art. 1349. The object of every contract must be determinate as to its
kind. The fact that the quantity is not determinate shall not be an
obstacle to the existence of the contract, provided it is possible to
determine the same, without the need of a new contract between the
parties. (1273)
Determinate as to its kind or species Ex. A horse,
Carabao, a book
Not determinate as to its kind or species Ex.
Something, an animal
What is the status of a contract with an unlawful object? Void or Inexistent
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;
Those whose cause or object did not exist at the time of the transaction;
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. (1277)Art.
1350
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instrument does not express the true intention of the parties, the courts
may order that the instrument be reformed.
This article refers to mistake committed by the clerk or typist. Ex.
Typographical errors
Art. 1365. If two parties agree upon the mortgage or pledge of real or
personal property, but the instrument states that the property is sold
absolutely or with a right of repurchase, reformation of the instrument
is proper.
Rule 130 - Sec. 9 PAROL EVIDENCE RULE
Evidence of written agreements. When the terms of an agreement have been
reduced to writing, it is considered as containing all the terms agreed upon
and there can be, between the parties and their successors in interest, no
evidence of such terms other than the contents of the written agreement.
However, a party may present evidence to modify, explain or add to the
terms of written agreement if he puts in issue in his pleading:
(a)An intrinsic ambiguity, mistake or imperfection in the written
agreement; (b)The failure of the written agreement to express the true
intent and agreement of the parties thereto;
(c)The validity of the written agreement; or
(d)The existence of other terms agreed to by the parties or their successors
in interest after the execution of the written agreement.
The term "agreement" includes wills. (7a)
When may a contract not be reformed?
Simple donations inter vivos wherein no condition is imposed
Wills
Real agreement is void
Action to enforce instrument is instituted
Art. 1366. There shall be no reformation in the following cases:
Simple donations inter vivos wherein no condition is imposed;
Wills;
When the real agreement is void.
Rationale: An action to reform a written instrument is in the nature of an action for
specific performance and requires a valuable consideration, something that is lacking
in wills and donations.
Art. 1367. When one of the parties has brought an action to enforce
the instrument, he cannot subsequently ask for its reformation.
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valid
ANNULMENT
No real and valid contract was
made
third person, and which for equitable reasons may be set aside even if it is valid.
(Tolentino)
When are contracts rescissible?
Art. 1380. Contracts validly agreed upon may be rescinded in the cases
established by law. (1290)
Rescission A remedy granted by law to the contracting parties and even to third
persons, to secure the reparation of damages caused to them by a contract, by
means of the restoration of the restoration things to their condition prior to the
celebration of said contract. (Tolentino, quoting
Manresa)
Relief for the protection of one of the contracting parties AND third persons from all
injury and damages the contract may cause OR protect some incompatible and
preferent right created by the contract.
Implies a contract which, even if initially valid, produces a lesion or pecuniary
damage to someone.
Set asides the act or contract for justifiable reasons of equity.
Grounds for rescission can only be for legal cause.
Voidable contracts may also be rescinded.
KINDS OF RESCISSIBLE CONTRACTS
Art. 1381. The following contracts are rescissible:
1 and 2) Contracts entered into by GUARDIANS for their wards, or trustees or
administrators for the ABSENTEES, are rescissible if the party represented
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suffers lesion of by more than one-fourth of the value of the things which are
objects of the contract.
Lesion injury which one of the parties suffers by virtue of a contract which is
disadvantageous to him. (Tolentino)
EXCEPTION: Article 1386. Rescission referred to in Nos. 1 and 2 of Article 1381
shall not take place with respect to contracts approved by the courts. (1296a)
TEST of FRAUD:
The test as to whether or not conveyance is fraudulent is, does it prejudice the
rights of creditors?
Both elements must be present else a conveyance may be set aside as to
creditors
Founded on good consideration
made with bona fide intent
Good consideration - creditor is not prejudiced because the property was
merely replaced or substituted.
BADGES OF FRAUD (INDICIA OF FRAUD):
fictitous/ insufficient consideration
conveyance is after suit is filed and while it is pending
sale on credit by insolvent debtor
evidence of insolvency or large indebtedness
transfer of all or nearly all of debtor's property
transfer is between father and son when some of above is present
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Maria)
5) Provided for by law to be subject to rescission
Articles 1526, 1534, 1538, 1539, 1542, 1556, 1560, 1567 and 1659
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. (n)
GENERAL RULE:
Lesion or inadequacy of cause will not subject the contract to rescission.
EXCEPTION:
Those mentioned in Article 1381, or if attended by fraud, mistake or undue
influence.
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:
(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;
* Prior to the fulfillment of a suspensive condition, If the object of the prestation
deteriorates through the fault of the debtor, the creditor could choose to rescind
the contract with damages.
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)
Rescission Art 1380 Distinguished from Resolution Art 1191
1191
Similarities
Who may
demand
1380
Non-performance
tacit
Grounds
Scope
Judicial
of Court
sufficiency of
Control
Kind of
Obligation
determines
Sufficiency of reason
does not affect right
reason to justify
to
extension
of
time
to ask for rescission
perform
(cannot
obligation
be refused if all the
(whether slight or casual requisites
are
breach)
satisfied)
Only to reciprocal
applicable to
Character
Unilateral, reciprocal
Principal Remedy
Secondary/
Subsidiary
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)
* In alternative obligation, if the debtor is has been prevented from making a
choice due to the fault of the creditor, the debtor can ask for the rescission of the
contract with damages.
Art. 1192. In case both parties have committed a breach of the obligation, the
liability of the first infractor shall be equitably tempered by the courts. If it
cannot be determined which of the parties first violated the contract, the same
shall be deemed extinguished, and each shall bear his own damages. (n)
in pari delicto (in equal fault) both parties are equally at fault, the court may
deem the contract extinguished if it cannot determine who is the first infractor.
EFFECTS 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. (1295)
In restitution, the parties, shall be placed in the same position where they were
before they entered into the assailed contract. The objective is to restore the parties
to their original position. Not only should the parties return the object subject of the
rescissible contract but also the fruits or interest if any. If the object of the contract
cannot be restored because of loss, damages may be claimed from the person
responsible for the loss. (Sta. Maria)
A party cannot rescind the and at the same time retain the consideration, or part of
the consideration, received under the contract. One cannot have the benefits of
rescission without assuming its burdens.
When things, which are the object of a contract ,is legally in the possession of a third
person who acquired them in good faith, rescission cannot take place.
EXTENT OF RESCISSION
Art. 1384. Rescission shall be only to the extent necessary to cover
the damages caused. (n)
* The extent of the revocation is only to the amount of the prejudice suffered by the
creditor who instituted the action for rescission. As to the excess, the alienation is
maintained.
Who may bring action for rescission?
The creditor injured by the contract
The heirs of the creditor injured by the contract.
The creditors of the creditor injured by the contract by virtue of the right granted
by Article 1177 (accion subrogatoria)
PRESUMPTIONS OF FRAUD
Art. 1387. All contracts by virtue of which the debtor alienates property by
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Applies only when the there has been in fact an alienation or transfer or transfer.
Rebuttal by evidence that conveyance was made:
in good faith
for a sufficient cause
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. (1298a)
PRESCRIPTIVE PERIOD
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. (1299)
* prescriptive period begins to run after the aggrieved party has unsuccessfully
exhausted all possible remedies to enforce the obligation or to recover what has
been lost.
RATIO:
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thereafter did not require him to make any further disbursements on account
of the purchase price.
ISSUE: Was the petitioner authorized to forfeit the purchase price paid?
HELD: No.
RATIO:
The contract of sale contains no provision authorizing the vendor, in the event of
failure of the vendee to continue in the payment of the stipulated monthly
installments, to retain the amounts paid to him on account of the purchase
price. The claim therefore, of the petitioner that it has the right to forfeit said sums in
its favor is untenable. Under Article 1124 of the Civil Code, however, he may choose
between demanding the fulfillment of the contract or its resolution. These remedies
are alternative and not cumulative, and the petitioner in this case, having elected to
cancel the contract cannot avail himself of the other remedy of exacting
performance. As a consequence of the resolution, the parties should be restored, as
far as practicable, to their original situation which can be approximated only be
ordering the return of the things which were the object of the contract, with their
fruits and of the price, with its interest, computed from the date of institution of the
action.
U.P. v DELOS ANGELES, G.R. No. L-28602
FACTS:
On November 2, 1960, UP and ALUMCO entered into a logging agreement whereby the
latter was granted exclusive authority to cut, collect and remove timber from the Land
Grant for a period starting from the date of agreement to December 31, 1965, extendible
for a period of 5 years by mutual agreement.
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HELD: Yes.
RATIO:
In the first place, UP and ALUMCO had expressly stipulated that upon default by the
debtor, UP has the right and the power to consider the Logging Agreement of
December 2, 1960 as rescinded without the necessity of any judicial suit. As to such
special stipulation and in connection with Article 1191 of the Civil Code, the Supreme
Court, stated in Froilan vs. Pan Oriental Shipping Co:
There is nothing in the law that prohibits the parties from entering into agreement that
violation of the terms of the contract would cause cancellation thereof, even without court
intervention. In other words, it is not always necessary for the injured party to resort to
court for rescission of the contract.
Voidable or Annullable
a contract in which the consent of one party is defective, either because of want
of capacity or because it is vitiated, but which contract is valid until set aside by a
competent court. -Tolentino
KINDS OF VOIDABLE OR ANNULLABLE CONTRACTS
Art. 1390. The following contracts are voidable or annullable, even
though there may have been no damage to the contracting parties:
Those where one of the parties is incapable of giving consent to a contract;
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. (n)
There may have been be no damage to the contracting parties
want of capacity
vitiated consent
By 1904, Wenceslao died, his children files for the annulment of the sale
Luis Espiritu, who also died, so the case is filed against his son, Jose Espiritu.
ISSUES:
Whether or not the plaintiffs were minors at the date of the sale in 1894.
Whether or not the plaintiffs can ask for the nullification of the sale due to their
minority.
HELD:
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The Court of Appeals found them liable pursuant to the following reasoning:
. . . . These two appellants did not make it appears in the promissory note that they
were not yet of legal age. If they were really to their creditor, they should have
appraised him on their incapacity, and if the former, in spite of the information
relative to their age, parted with his money, then he should be contended with the
consequence of his act. But, that was not the case. Perhaps defendants in their desire
to acquire much needed money, they readily and willingly signed the promissory
note, without disclosing the legal impediment with respect to Guillermo and Rodolfo.
When minor, like in the instant case, pretended to be of legal age, in fact they were
not, they will not later on be permitted to excuse themselves from the fulfillment of
the obligation contracted by them or to have it annulled. (Mercado, et al. vs. Espiritu,
37 Phil., 215.)
ISSUE: WON Rodolfo and Guillermo Braganza could be legally bound by their
signatures in Exhibit A? No!
RATIO:
The Mecado case cited in the decision under review is different because
the document signed therein by the minor specifically stated he was of age; here
Exhibit A contained no such statement. In other words, in the Mercado case, the
minor was guilty of active misrepresentation; whereas in this case, if the minors
were guilty at all, which we doubt it is of passive (or constructive)
misrepresentation.
In order to hold infant liable, however, the fraud must be actual and not
constructure. It has been held that his mere silence when making a contract as
to age does not constitute a fraud which can be made the basis of an action of
decit.
The fraud of which an infant may be held liable to one who contracts with him in the
belief that he is of full age must be actual not constructive, and mere failure of the
infant to disclose his age is not sufficient.
Upon the other hand, these minors may not be entirely absolved from monetary
responsibility. In accordance with the provisions of Civil Code, even if their
written contact is unenforceable because of non-age, they shall make restitution
to the extent that they have profited by the money they received. (Art. 1340)
There is testimony that the funds delivered to them by Villa Abrille were used for
their support during the Japanese occupation. Such being the case, it is but fair
to hold that they had profited to the extent of the value of such money.
Wherefore, as the share of these minors was 2/3 of P70,000 of P46,666.66, they
should now return P1,166.67.3 Their promise to pay P10,000 in Philippine
currency, (Exhibit A) can not be enforced, as already stated, since they were
minors incapable of binding themselves. Their liability, to repeat, is presently
declared without regard of said Exhibit A, but solely in pursuance of Article 1304
of the Civil Code.
INCAPABLE OF GIVING CONSENT
Article 234. (Family Code). Emancipation takes place by the attainment
of majority. Unless otherwise provided, majority commences at the age
of twenty-one years. Emancipation also takes place:
By the marriage of the minor; or
By the recording in the Civil Register of an agreement in a public
instrument executed by the parent exercising parental authority and
the minor at least eighteen years of age. Such emancipation shall be
irrevocable. (397a, 398a, 400a, 401a)
Art. 1327. The following cannot give consent to a contract:
Unemancipated minors;
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(n)
minors
deaf-mutes who cannot write
insane
imbeciles or demented
under civil interdiction
hypnotized
intoxicated
VITIATED CONSENT
a) MISTAKE
Art. 1331. In order that mistake may invalidate consent, it should refer to
the substance of the thing which is the object of the contract, or to those
conditions which have principally moved one or both parties to enter into
the contract.
Mistake as to the identity or qualifications of one of the parties will
vitiate consent only when such identity or qualifications have been the
principal cause of the contract.
A simple mistake of account shall give rise to its correction. (1226a)
Art. 1333. There is no mistake if the party alleging it knew the doubt,
contingency or risk affecting the object of the contract. (n)
Mistake should refer to the substance of the thing which is the object of the contract,
or those conditions which principally induced the parties to enter into a contract.
Conditions must not be mere incidents to the consideration.
b) VIOLENCE and INTIMIDATION
Undue influence is unrighteous, illegal and designed to perpetrate wrong. The party
influenced must be deceived by some false representation, stratagem or by coercion,
physical or moral.
Not all influence is prohibited by law. Solicitations and entreaties, fair argument
and persuasion, or appeals to the emotions or affections will not amount to undue
influence unless they overcome the will of the person and take away his ability to
act as a free agent.
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d) FRAUD
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. (1269)
* Generally, fraud, either at law or in equity, is a false representation of a material
fact made by word or conduct with knowledge of its falsehood or in reckless disregard
of its truth, in order to induce and actually inducing another to act thereon to his
injury.
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. (n)
* The mere fact that one of the parties has superior knowledge of the value of the
property subject of the transaction than the other party does not per se constitute
fraud. There is only fraud when a legal or equitable duty is imposed upon the
dominant party to reveal certain facts material to the transaction or where there is a
confidential relationship between the parties.
Art. 1340. The usual exaggerations in trade, when the other party had an
opportunity to know the facts, are not in themselves fraudulent. (n)
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. (n)
Other party must know that he is an expert.
Other party relied on the opinion based on that knowledge
Art. 1342. Misrepresentation by a third person does not vitiate consent,
unless such misrepresentation has created substantial mistake and the
same is mutual. (n)
* Where both parties gave consent to a contract due to a substantial mistake caused
by a third party, the contract can be annulled.
Art. 1343. Misrepresentation made in good faith is not fraudulent but may
constitute error. (n)
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Extinctive prescription shall apply not only to action for annulment, but also the the
defense of nullity
applies to parties to the contract, but not to third parties.
OTHER INSTANCES WHERE AN ACTION FOR ANNULMENT IS EXTINGUISHED
Art. 1392. Ratification extinguishes the action to annul a voidable
contract. (1309a)
* Ratification the act of curing the defect which made the contract annullable
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. (1311a)
Art. 1394. Ratification may
incapacitated person. (n)
be
effected
by
the
guardian
of
the
* Ratification is a unilateral act. It is usually done by the injured party and not by the
party causing the injury. The consent of the injuring party is not required because
such party normally desires the effectivity of the contract anyway from its inception.
Art. 1396. Ratification cleanses the contract from all its defects from
the moment it was constituted. (1313)
* Ratification transforms the contract completely as one without infirmity. This curing
effect retroacts to the day when the contract was entered into. Hence, upon
ratification, it is as if the contract has never been visited by any infirmity or defect at
all.
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. (1314a)
It is a rule that no one can come to court with unclean hands. Hence, the injured
party lost the thing which is the object of the obligation by his fault, he cannot seek
the annulment of the contract as such right will be considered extinguished.
However, if the party is one who is incapacitated, the mere fact that the thing which
is the object of the obligation has been lost, the incapacitated person is not obliged
to make any restitution except when it has benefited him.
EFFECT OF ANNULMENT
Art. 1398. An obligation having been annulled, the contracting parties shall
restore to each other the things which have been the subject matter of the
contract, with their fruits, and the price with its interest, except in cases
provided by law.
In obligations to render service, the value thereof shall be the basis
for damages. (1303a)
* When the annulment of the contract has been decreed, the contracting parties
must be returned to their original position. Hence, whatever has been given must
be returned to the giver.
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. (1304)
* However, the law states that 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 has been benefited by the thing or price received by
him.
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. (1307a)
* When the object to be returned cannot be returned because it was lost by the
person obliged to return it due to fault of the said person, the value of the object, its
fruits, and interest shall be given instead to satisfy the order of restitution.
Art. 1402. As long as one of the contracting parties does not restore what
in virtue of the decree of annulment he is bound to return, the other
cannot be compelled to comply with what is incumbent upon him. (1308)
* Restitution requires the return by the parties of what each has received from the
other. If one of them cannot restore to the other what he has received from the said
other, such other person cannot be compelled to return what he, in turn, has
received. (However, Article 1399)
Unenforceable Contracts
Under Art. 1443, the Statute of Frauds also applies to express trusts
concerning an immovable or any interest therein.
Contracts where both parties are incapable of giving consent:
Upon ratification by one party, the unenforceable contract is converted to a
voidable one.
Ratification of Unenforceable Contracts
Mere lapse of time does not ratify an unenforceable contract.
Unenforceable
Contract
Ratification
Express or implied, by the
Unauthorized
person
on whose behalf the contract
has
been executed
Infringing the Statute of
Frauds
Failure to object to the
presentation of oral evidence
to
prove the contract OR
Acceptance of benefit under
the
contracts
Both parties are incapacitated Express or implied,
Voidable if by the parent or
the
guardian of one of the parties
Valid if by the parents or the
guardians of both parties
Ortega v. Leonardo (1958) Facts:
Ortega was occupying a parcel of land in San Andres, Malate. The said land was
assigned by the Government to the Rural Progress Administration. As occupant, she
asserted her right to purchase the land. Leonardo asserted the similar right,
alleging occupancy of the same land. He promised Ortega that he would sell to her a
portion of the lot if she would desist from pressing her claim. There were conditions
given by Leonardo. Ortega must: 1) pay for the surveying and subdivision of the Lot;
and 2) continue holding the lot as tenant by paying a monthly rental of P10.00 until
said portion shall have been segregated and the purchase price fully paid. Upon
Leonardos acquisition of the title, Ortega fulfilled all the conditions. She tendered to
him the purchase price which the latter refused to accept.
Issue: WON their oral agreement to sell the piece of land is covered by the
Statute of Frauds
Held:
No. The contract has been partially performed by Ortega. Partial payment of the purchase
price alone is not sufficient to constitute partial performance. However, in the case at bar,
there were several circumstances indicating partial performance: 1) relinquishment of
rights, 2) continued possession, 3) building of improvements on the land, 4) tender of
payment, 5) surveying of the lot at
Ortegas expense, 6) payment of rentals. None of these would separately suffice, but
the combination of relinquishment, survey and tender, is more than enough.
problem with the tenants, the sale would not push through anymore. They would no
longer be selling the property until all the problems had been settled.
Void Contract
Rescissible Contract
Defect inherent in the contract Defect in their effects, either to
itself
one of
the parties or a third party
Nullity a matter of law and Nullity based on equity and
public
more a
interest
matter of private interest
No legal effects even if no Remains valid and produces all
action is
its
effects if no action is taken to
taken to set it aside
set it
aside
Action to declare nullity never
Action to rescind prescribes
prescribes
Void Contract
Cannot be ratified
Generally,
effects
are
not
produced at
all
Ordinarily, the defect is that
public
policy is militated against
Void from the very beginning so
generally, no action is required
to set
it aside, unless the contract has
already been performed
Cannot be cured by prescription
Defense may be availed of by
anybody
whose
interest
is
directly
affected
Void Contract
Cannot be ratified
Voidable Contract
May be ratified
Produces effects until annulled
The defect is due to incapacity
or
vitiated consent
Valid until annulled
by
or
in
or
Unenforceable Contract
May be ratified
There is a contract but it cannot
No contract at all
be
enforced by a court action
Can be assailed by anybody Cannot be assailed by third
directly
parties
affected
But there can be valid contracts involving future property, e.g. sale
of future or after-acquired property
Those whose object is outside the commerce of men
Those which contemplate an impossible service
Those where the intention of the parties relative to the principal object of
the contract cannot be ascertained
Those expressly prohibited or declared void by law
On Labor:
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 (Art. 1418).
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 (Art. 1419).
of his fourth year law in Abad Santos University where he subsequently graduated.
For his application to take the bar exam, he requested his transcript of records from
Arellano University. The latter refused. Cui was asked to pay back the tuition refunded
to him, totaling P1,033.87. He paid the amount under protest. The Bureau of Private
Schools previously issued a memorandum on the subject of scholarship. It upheld
Cuis right to secure his transcript of records without being required to refund.
Issue: WON the contract signed by Cui, waiving his right to transfer to another
school without refunding to Arellano the equivalent of scholarships, is valid
Held:
No. The stipulation in question is contrary to public policy, and hence, null and void.
The memorandum issued merely incorporates a sound principle of public policy.
Scholarships are awarded in recognition of merit, and not to keep outstanding
students in school to bolster its prestige. The practice of awarding scholarships to
attract students and keep them in school is not good customs nor has it received
some kind of social and practical confirmation. Scholarships are granted not to
attract and to keep brilliant students in school for propaganda, but to reward merit
or help gifted students in whom society has an established interest.
If the act in which the unlawful or forbidden cause consists does not
constitute a criminal offense: (Art. 1412)
Facts:
Ong and Guan were married according to Chinese rites. Using her personal funds,
Ong purchased a parcel of land in Rizal, and registered it under her name. Using their
conjugal funds, the couple purchased a house and lot, registered in their names.
Guan abandoned his wife and three children. But before they got separated, Ong was
convinced by Guan to execute a Deed of Sale of her property in Rizal to him. In
return, Guan promised to construct a commercial building for their children. The
consideration for the simulated sale was a Deed of Absolute Sale to be executed in
favor of their children and that he would pay the loan he obtained. Guan did not pay
the consideration of P200,000 for the sale. Ong kept the new TCT to insure that Guan
would do what he promised.
Issue: WON the in pari delicto principle applies to absolutely simulated or
fictitious contracts
Held:
No. A deed of sale, where the stated consideration has not been paid, is null and
void. The sale in this case was absolutely simulated, thus, void. When the nullity
arises from the illegality of the consideration or the purpose of the contract,
recovery to the guilty parties is denied. But it is different with inexistent contracts
such as the simulated sale between Guan and Ong. In this case, Ong was not in pari
delicto with Guan. The contract was fictitious due to the lack of consideration. The
land in Rizal may be recovered by Ong who purchased the land using her personal
funds. The transfer certificate of title was cancelled, there being no legal basis for its
issuance.