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General Provisions: D. Pecuniary Value
General Provisions: D. Pecuniary Value
General Provisions: D. Pecuniary Value
Chapter 1
GENERAL PROVISIONS
Art. 1156
Definition of Obligation
-a juridical necessity to give, to do or not to do.
-a juridical relation whereby a person (called the creditor) may demand from another
(called the debtor) the observance of a determinate conduct (the giving, doing, or not
doing), and in case of breach, may demand satisfaction from the assets of the latter.
( Arias Ramos, p. 74)
Kinds of Obligations
1) From the viewpoint of sanction
a) civil obligation (perfect obligation) : defined in Art. 1156, Civil Code, and
sanctioned by judicial process
b) natural obligation: the duty not to recover what has voluntarily been paid
although payment was no longer required
: it is sanctioned by law, but only because conscience had originally motivated
the payment
Example: Knowing that it already prescribed, a debtor still paid his debt to the
creditor.
c) moral obligation: sanctioned by conscience or morality, or the laws of the
church.
Example: the duty of a catholic to hear mass on Sundays
2) From the viewpoint of subject matter
a) real obligation: the obligation to give
b) personal obligation: to obligation to do or not to do
3) From the affirmativeness and negativeness of the obligation
a) positive or affirmative obligation: the obligation to give or to do
b) negative obligation: the obligation not to give or not to do
4) From the persons obliged
a) unilateral: when only one of the parties is bound
b) bilateral: where both parties are or may be bound
i)
reciprocal: the performance of one is dependent upon the
performance of the other
ii)
non-reciprocal: the performance of one is not dependent on the
performance by the other
In Sagrada v. Naccoco, the Supreme Court held that the sources of obligation
in Art 1157 is exclusive. Many commentators believe, however that it should not
be. At present, there is one more possible source of obligations - PUBLIC OFFER
(Public Offer is in fact a source of obligation in the German Civil Code)
Chapter 2
NATURE AND EFFECT OF OBLIGATIONS
EFFECTS OF OBLIGATION
1. Obligation to give - obligation to deliver the thing agreed upon
2. Obligation to do/not to do - obligation to do/not to do the service agreed upon
ACCESSORY OBLIGATIONS:
1. Exercise diligence / Preserve the thing (Art. 1163) EDD
Art. 1163: The obligation of every person to take care of a DETERMINATE/SPECIFIC
THING with proper diligence of a GOOD FATHER OF A FAMILY.
standard of care: that of a good father of a family unless the law or stipulation
requires another standard of care
2. Delivery of fruits (Art. 1164)
Art. 1164: Nature of the rights of the creditor
The creditor has the rights to the fruits of the thing from the time the obligation to
deliver it arises. However, he shall acquire no real right over it until the same has been
delivered to him.
When does the right begin to exist : from the time to deliver arises
a) when there is no term/condition from the perfection of the contract
b) when there is a term/condition from the moment the term or condition arises
3. Delivery of accessories & accessions ( obligation to deliver determinate thing, even if
the stipulation does not mention delivery of accessories & accessions)
Accessories - those joined to or included with the principal for the latters better
use, perfection or enjoyment
Accessions additions to or improvements upon a thing
When does right to fruits arise? from the time the obligation to deliver arises
a) Conditional from the moment the condition happens
b) With a term/period upon the expiration of the term/period
c) Simple from the perfection of the contract
IT DEPENDS!
A. If there is no term or condition, then from the perfection of the contract
B. If there is a term or a condition, then from the moment the term arrives or the
condition happens.
PERSONAL RIGHT jus in personam or jus ad rem
Power demandable by one person of another (obligation to give, to do or not to
do)
REAL RIGHT jus in rem
A power over a specific thing and it is binding on the whole world.
KINDS OF DELIVERY
A. ACTUAL OR TRADITION physically, the property changes hands
B. CONSTRUCTIVE DELIVERY where the physical transfer is implied
1.
Traditio Simbolica (symbolical tradition) as when the keys to the
bodega are given
2.
Tradition Longa Manu (delivery by mere consent or the pointing out of the
object) like pointing out to the car, which is the object of a sale.
3.
Tradition Brevi Manu (delivery by short hand) a possessor of a thing not
as an owner, becomes the possessor as owner like when a tenant already in
possession buys the house he is renting.
4.
Tradition Constitutum Possessorium opposite of Brevi Manu the
delivery whereby a possessor of a thing as an owner retains possession no longer of a
thing as an owner but in some other capacity.
5.
Tradition by the Execution of Legal Forms and Solemnities like the
execution of a public instrument selling land.
Art. 1165
DELAY in this article means LEGAL DELAY or DEFAULT
a. ORDINARY DELAY merely the non-performance at the stipulated time
b. LEGAL DELAY or DEFAULT that delay which amounts to a virtual nonfulfillment of the obligation. AS A RULE, to put a debtor in default, there must be a
JUDICIAL or EXTRAJUDICIAL DEMAND or fulfillment
WHEN THE DEBTOR FAILS TO COMPLY WITH HIS OBLIGATION, THE CREDITOR
CAN:
1. Demand specific performance or compliance
- Specific Performance- performance of the prestation itself
- Substitute Performance - someone else performs or something else is
performed at the expense of debtor
- Equivalent Performance demand for damages
a. If the thing is determinate compel obligor to deliver the thing
b. If the thing is generic demand obligor to comply with his obligation you
cannot compel him to deliver a specific thing.
2. Demand rescission or cancellation
3. Demand Damages
Art. 1166
ACCESSORIES those joined to or included in the principal for the latters better
use, perfection or enjoyment. (Example: keys to a house, jack of a car)
ACCESSIONS additions to improvements upon a thing (Examples: whatever is
built, planted or sown on a parcel of land).
If there is a stipulation to said effect, accessions and accessories do not have to be
included.
Art. 1167: The Obligation TO DO
If DEBTOR fails to Do something, CREDITOR can:
Have the obligation performed by himself or another at the debtors expense
(only if another can do the performance)
Obtain Damages only if personal or special, or if others or the creditor cant do
it
Specific performance is not a remedy in personal obligations, otherwise, this may
amount to involuntary servitude, which is prohibited under our Constitution
When a Thing May be Ordered Undone:
If poorly made performance by another and damages may be demanded
If the obligation is a negative one provided the undoing is possible
Art. 1168
When the obligation consists in not doing, and the obligor does what has been
forbidden him, it shall also be undone at his expense.
Table of Remedies in case of
FAILURE TO COMPLY WITH PERFORMANCE/REMEDIES:
Remedies
SPECIFIC
PERFORMANCE
EQUIVALENT
PERFORMANCE
SUBSTITUTE
PERFORMANCE
Obligation to give
(Real Obligation)
Specific Generic
X
Obligations to do
(Personal Obligation)
To do
Not to do
undo
the
things
X
already done
Can only be demanded
if obligation is not very
X
personal
Undo
the
things
X
already
done
at
debtor's expense
RESCISSION/
CANCELLATION
X
X
A. CAUSES ATTRIBUTABLE TO DEBTOR
1. Contravention of tenor
2. Delay/ Mora - Non performance with respect to time
a. Mora solvendi default on the part of the debtor;
2 kinds:
(1) Mora Solvendi Ex re default in real obligations
(2) Mora Solvendi Ex persona default in personal obligations
Elements:
(1) The obligation must be due, enforceable and already liquidated or
determinate in amount
(2) There must be non-performance
(1) There must be a demand, unless demand is not required
Effects:
a. if determinate thing - debtor bears risk of loss (even when there is
fortuitous event)
b. debtor liable for damages/interest
c. resolution (art 1170, in proper cases)
b. Mora accepiendi default on part of creditor; Creditor is guilty of default
when he unjustifiably refuses to accept payment or performance at the time
payment/performance can be done
Effects:
(1)
responsibility of debtor is reduced to fraud and gross negligence
(2)
debtor is exempted from risk of loss of thing / creditor bears risk of
loss
(3)
expenses by debtor for preservation of thing after delay is chargeable
to creditor
(4)
if obligation bears interest, debtor does not have to pay from time of
delay
(5)
creditor liable for damages
(6)
debtor may relieve himself of obligation by consigning the thing
c. Compensatio morae both parties are in default (in reciprocal obligations);
the effect: is as if there is no default
Art 1169
Those obliged to deliver or to do something incur in delay from the time the
obligee judicially or extra-judicially demands from them the fulfillment of their obligation.
However, the demand from the creditor shall not be necessary in order that delay
may exist:
a. When the obligation or the law expressly so declares. ONU
b. 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 to the service is to be
rendered was a controlling motive for the establishment of the contract
c. When demand would be useless, as when the obligor has rendered it beyond his
power to perform
In reciprocal obligations, neither party incurs in delay if the other does not comply or
is not ready to comply in a proper manner with what is incumbent upon him. From
the moment one of the parties fulfills his obligation, delay by the other begins.
Those liable under this Article should pay damages, only if prejudice or damage was
caused.
Kinds of Damages
a. Moral-for moral and physical anguish
b. Exemplary-corrective or to set an example
c. Nominal-to vindicate a right-when no other kind of damages may be recovered
d. Temperate-when the exact amount of damages cannot be determined
Art 1171
Responsibility arising from fraud is demandable in all obligations. Any waiver of
an action for future fraud is void.
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.
Art 1173
The fault or negligence of the obligor consists in that omission of the diligence
which is required by the nature of the obligation and corresponds with the circumstances
of the person, of the time and of the place. When negligence shows bad faith, the
provisions of Articles 1171 and 2201 paragraph 2, shall apply.
Kinds of Diligence Under the Civil Code
a. That agreed upon by the parties
b. In the absence of that agreed upon by the parties, that required by law
c. In the absence of that required by law, that expected of a good father of a family.
FRAUD DISTINGUISHED FROM NEGLIGENCE
FRAUD
There is deliberate intention to cause
damage.
Liability cannot be mitigated.
Waiver for future fraud is void.
NEGLIGENCE
There is no deliberate intention to cause damage.
Liability may be mitigated.
Waiver for future negligence may be allowed in
certain cases:
a) gross can never be excused in advance;
against public policy
b) simple may be excused in certain cases
Art 1174
Concept: Fortuitous Event - event which could not be foreseen, or which though
foreseen, were inevitable
Refers to as caso fortuito, act of God, force majeure, unavoidable accident
Eg. Natural calamities
Essential Characteristics of a fortuitous Event (Nakpil & Sons vs. CA)
1. The cause of the breach of the obligation must be independent of the will of
the debtor
2. The event must be either unforeseeable or unavoidable
3. The event must be such as to render it impossible for the debtor to fulfill his
obligation in a normal manner
4. The debtor must be free from any participation in, or aggravation of injury to
the creditor
Liability for fortuitous events
General Rule for Fortuitous Events- No person shall be liable for fortuitous events;
i.e., his obligation will be extinguished:
Exceptions to the General Rule- when the debtor shall be held liable for a
fortuitous event (Art. 1174)
a) when expressly declared by law ( bad faith, subject matter is generic,
debtor is in delay )
b) when expressly declared by stipulation or contract
c) when the nature of the obligation requires assumption of risk (eg.
obligation of an insurer)
The condition not to do an impossible thing shall be considered as not having been
agreed upon:
a. If condition is to do an impossible of illegal thing=condition and obligation are
void
b. If the condition is negative/not to do the impossible=just disregard the condition
but the obligation remain
c. If the obligation is negative/not to do= both condition and obligation are valid
Art. 1177 Remedies of creditor to enforce payment of his claims against debtor
1. Exact performance - specific, substitute, equivalent
2. Attach and execute debtor's property which is not exempt (art 2236)
- pursue the property in the possession of the debtor, except those exempt by
law.
3. Accion subrogatoria (Art 1171)- exercise all the rights and bring all the actions of
the debtor except those personal to him.
Requisites:
a. Creditor must have right of return against debtor
b. The debt is due and demandable
c. There is a failure of the debtor to collect his own debt from 3rd persons
either through malice or negligence
d. Debtor's assets are insufficient
e. The right of account is not purely personal
CHAPTER III
DIFFERENT KINDS OF OBLIGATIONS
CATEGORIES:
a.
b.
c.
d.
e.
Primary Classification
1. Pure obligation
2. Conditional Obligation
3. Obligation with a period
4. Alternative Obligation
5. Facultative Obligation
6. Joint Obligation
7. Solidary Obligation
8. Divisible obligation
9. Indivisible Obligation
10. Obligation with a Penal Clause
PURE AND CONDITIONAL OBLIGATIONS:
1. Pure obligation demandable at once, with no term and no condition Eg. I will give
you ten pesos.
2. Conditional Obligation- one whose demandability or extinguishment depends
upon the happening of a condition.
A condition is a future and an uncertain event or a past event unknown to the parties
eg. I will give you one million pesos if you pass the Bar.
Definition of Condition: It is an uncertain event which wields influence on a legal
relationship (Manresa)
Kinds of Condition
1. Suspensive and Resolutory
2. Potestative, Casual and Mixed
3. Possible and Impossible
4. Positive and Negative
5. Divisible and Indivisible
i. Suspensive happening of condition gives rise to obligation; also called as
condition antecedent or condition precedent.
Effects:
1. effectivity is retroactive
2. no retroactivity with reference to fruits or interest & prescription
3. creditor may preserve rights
4. debtor recovery of payment by mistake or even w/o mistake
ii. Resolutory happening of condition extinguishes the obligation, referred to
as condition subsequent
Effects:
1. no retroactive effect
2. obligation extinguished
3. restore to each other what was received plus interest/fruits
w/ debtors fault or
at
expense
of
obligor/ usufructuary
Liability in
Liability in case of Improvement
case of
Loss/
Impairme
nt
Indemnity
& specific performance, rescission & damages
damages
If it improved at the expense of the debtor, he
shall have no other right than that granted to
the usufructuary. (art 1189)
FACULTATIVE
a) Only one thing is due but a substitute may be
given to render payment/fulfillment easy
b) If principal obligations is void and there is no
necessity of giving the substitute; nullity of P
carries with it nullity of S
c) If it is impossible to give the principal, the
substitute does not have to be given; if it is
impossible to give the substitute, the principal
must still be given
d) The right of choice is given only to the debtor
(6). Joint presumption when 2 or more creditors or 2 or more debtors concur in one
and the same obligation
Effects:
a. Demand on one produces delay only with respect to the debt
b. Interruption in payment by one does not benefit or prejudice the other
c. Vices of one debtor to creditor has no effect on the others
d. Insolvency of one debtor does not affect other debtors
(7). Solidary must be expressed in stipulation or provided by law or by nature of
obligation
a. Active on the part of creditor or obligee
Effects:
1. Death of 1 solidary creditor transmits share to heirs (but collectively)
2. Each creditor represents the other in the act of recovery of payment
3. Credit is divided equally between creditors as among themselves
4. Debtor may pay any of the solidary creditors
b. Passive on the part of debtors or obligors
Effects:
1. Each debtor may be requested to pay whole obligation with right to recover
from co-debtors
2. Interruption of prescription to one creditor affects all
3. Interest from delay on 1 debtor is borne by all
c. Mixed on the part of the obligors and obligees, or the part of the debtors and
the creditors
d. Conventional agreed upon by the parties
e. Legal imposed by law
Instances where law imposes solidary obligation:
1. obligations arising from tort
2. obligations arising from quasi-contracts
3. legal provisions regarding obligation of devisees and legatees
4. liability of principals, accomplices, and accessories of a felony
5. bailees in commodatum
Effects:
a. payment made before debt is due, no interest can be charged, otherwise
interest can be charged
fault of any debtor every one is responsible price, damage & interest
Art 1184
The condition that some event will happen at a determinate time shall extinguish
the obligation as soon as the time expires or if it has become indubitable that the event
will not take place.
If the period is not fixed in the contract, the court, considering the parties intentions,
should determine what period was really intended.
Art 1185
The condition that some event will not happen at a determinate time shall ender
the obligation effective from the moment the time indicated has elapsed, or if it has
become evident that the event cannot occur.
If no time has been fixed, the condition shall be deemed fulfilled at such time as
may have been contemplated, bearing in mind the nature of the obligation.
Art 1186
The condition shall be deemed fulfilled when the obligor voluntarily prevents its
fulfillment (Doctrine of Constructive Fulfillment)
This Article deals with Constructive or Presumes Fulfillment.
Reason for the article: One must not profit by his own fault.
Requisites:
a. Voluntarily made-intent to prevent must be present
b. Actually prevents-intention without prevention or prevention without intention is
not sufficient
Art 1187
The effects of a conditional obligation to give, once the condition has been
fulfilled, shall retroact to the day of the constitution of the obligation. Nevertheless, when
the obligation imposes reciprocal prestations upon the parties, the fruits and interests
during the pendency of the condition shall be deemed to have been mutually
compensated. If the obligation is unilateral, the debtor shall appropriate the fruits and
interests received, unless from the nature and circumstances of the obligation it should
be inferred that the intention of the person constituting the same was different.
Art 1188
The creditor may, before the fulfillment of the condition, bring the appropriate
actions fro the preservation of his rights.
The debtor may recover what during the same time he has paid by mistake in
case of suspensive condition.
Art 1189
When the conditions have been imposed with the intention of suspending the
efficacy of an obligation to give, the following rules shall be observed in case of the
improvement, loss or deterioration of the thing during the pendency of the condition:
a. If the thing is lost without the fault of the debtor, the obligation shall be
extinguished
b. If the thing is lost through the fault of the debtor, he shall be obliged to pay
damages, it is understood that the thing is lost when it perishes, or goes out of
b. If there be a just cause for fixing the period within which the debtor can comply,
the court will not decree rescission
c. If e property is now in the hands of an innocent 3 rd party who has lawful
possession of the same
Judicial approval for rescission is needed when there has already been delivery of
the object (unless there is a voluntary returning)
Judicial approval is not needed when there has been no delivery yet
Choice by the Injured Party
a. Fulfillment or specific performance with damages or
b. Rescission plus 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.
Breach of the second infractor provides mitigating effect to the liability of the first
infractor because of this, the courts shall temper/regulate/lessen the liability of the
first infractor.
Section 2 Obligations with a Period
Art 1193
Obligations for whose fulfillment a day certain has been fixed, shall be
demandable only when that day comes.
Obligations with resolutory period take the effect at once, but terminate upon
arrival of the day certain.
A day certain is understood to be that which must necessarily some, although it
may not be known when.
If the uncertainty consists in whether the day will come or not, the obligation is
conditional and it shall be regulated by the rules of the preceding Section.
Period ids a certain length of time which determines the effectively or the
extinguishment of the obligation (it must surely come)
Art 1194
In case of loss, deterioration or improvement of the thing before the arrival of the
day certain, the rules in Art 1189 shall be observed.
Art 1195
Anything paid or delivered before the arrival of the period, the obligor being
unaware of the period or believing that the obligation has become due and demandable,
may be recovered, with fruits and interests.
Art 1196
Whenever in an obligation a period is designated, it is presumed to have been
established for the benefit of both the creditor and the debtor, unless from the tenor of
the same or other circumstances it should appear that the period has been established
in favor of one or of the other.
General Rule: Term is for the benefit of the debtor or creditor. Meaning, the debtor
cannot prematurely pay and the creditor cannot demand prematurely.
This Article applies only to a contract with a period they fixed themselves.
Art 1197
If the obligation does not fix a period, but from its nature and the circumstances it
can be inferred that a period was intended, the courts may fix the duration thereof.
The courts shall also fix the duration of the period when it depends upon the will
of the debtor.
In every case, the courts shall determine such period as may under the
circumstances have been probably contemplated by the parties. Once fixed by the
courts, the period cannot be changed by them.
Art 1198
a.
b.
c.
d.
e.
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 guarantees or securities which he
has promised
When by his own acts he has impaired said guaranties and 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.
The debtor shall lose every right to make use of the period-it means that the term is
extinguished and the creditor can demand fulfillment at once.
Art 1199
A person alternatively bound by different prestations shall completely perform
one of them.
The creditor cannot be compelled to receive part of one and part of the other
undertaking.
Art 1200
The right of choice belongs to the debtor, unless if as been expressly granted to
the creditor.
The debtor shall have no right to choose from those prestations which are
impossible, unlawful, or which could not have been the object of the obligation.
General Rule-In the absence of any stipulations, the right if choice belongs to the
debtor.
Limitation on the Debtors Choice- the debtor shall have no right to choose
prestations which are:
a. Impossible
b. Unlawful
c. Which could not have been the object of the obligation
Art 1201
The choice shall produce no effect except from the time it has been
communicated.
Art 1204
The creditor shall have a right to indemnity for damages when, through the fault
of the debtor, all the things which are alternatively the object of the obligation have been
lost, or the compliance of the obligation has become impossible.
The indemnity shall be fixed taking as a basis the vale of the last thing which
disappeared, or that of the services which last become impossible.
Art 1205
When the choice has been expressly given to the creditor, the obligation shall
cease to be alternative from the day the selection has been communicated to the
debtor.
Until then the responsibility of the debtor shall be governed by the following rules:
a. If one of the things is lost through a fortuitous event, he shall perform the
obligation by delivering that which the creditor should choose from among the
remainder, or that which remains if only one subsists
b. If the lose of one of the things occurs through the fault of the debtor, the creditor
may claim any of those subsisting, or the price of that which, through the fault of
the former has disappeared, with a right to damages
c. If all the things are lost through the fault of the debtor, the choice by the creditor
shall fall upon the price of any of them, also with indemnity for damages.
Art 1206
When only one prestation has been agreed upon the obligor may render another
in substitution, the obligation is called facultative.
Facultative Obligation- one where only one prestation has been agreed upon but
the obligor may render another in substitution.
If the division is impossible, the rights of the creditors may be prejudiced only by
their collective acts, and the debt can be enforced only by proceeding against all the
debtors.
Characteristics
a. The obligation is joint but since the object is indivisible, the creditor may proceed
against all the joint debtors for compliance is possible only if all the joint debtors
would act together
b. Demand must therefore be made on all the joint debtors if anyone of the debtors
does not comply with his monetary obligation for damages
c. If any of the debtors shall be insolvent, the others shall not be liable for his share
d. If there be joint creditors, delivery must be made to all, and not merely to one,
unless that one be specifically authorized by others
e. Each joint creditor is allowed to renounce his proportionate credit
Art 1210
The indivisibility of an obligation does not necessarily give rise to solidarity. Nor
does solidarity of itself imply indivisibility.
Indivisibility- refers to the subject matter
Solidarity- refers to the tie between the parties
Art 1211
Different Ways by Which Two Debtors may be Bound:
a. Uniform-when the debtors are bound by the same stipulations and clauses
b. Otherwise-where the obligor, though liable for the same prestation are
nevertheless not subject to the same secondary stipulations and clauses
Art 1213 A solidary creditor cannot assign his rights without the consent of the others.
Art 1214 The debtor may pay any one of the creditors: but if any demand has been
made by any one of them, payment must be made to him.
Art 1215
The creditor who may have expected any of these acts, as well as he who has
collects the debt, shall be liable to the others for the share in the obligation
corresponding to them.
Novation- the modification of an Obligation by changing its object or principal conditions,
or by substituting the person of the debtor or by subrogating a third person in the rights
of the creditor
Compensation- that which takes place when 2 persons in their own right are creditors
and debtors of each other. Compensation may be Total or Partial depending upon the
amount involved
Confusion or Merger- That which takes place when the characters of the creditor and
debtor are merged in the same person
Remission or Waiver- that act of liberality whereby the creditor condones the obligation
of the debtor, that where the creditor tells the debtor to forget the whole thing
Payment- one of the ways by which the obligation is extinguished and consists in the
delivery of the thing or the rendition of the service which is the object of the obligation.
Art 1218 Payment by a solidary debtor shall not entitle him to reimbursement from his
co-debtors if such payment is made after the obligation has prescribed or become illegal.
Art 1220 The remission of the whole obligation, obtained by one of the solidary
debtors, does not entitle him from reimbursement from his co-debtors.
Art 1221
If the thing has been lost or 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.
A solidary obligation implies mutual agency and mutual confidence.
Art 1222
A solidary debtor may, in actions filed by the creditor, avail himself of all defenses
which are derived from the nature of the obligation and of those which are personal to
him, or pertain to his own share. With respect to those which personally belong to the
others, he may avail himself thereof only as regards that part of the debt for which the
latter are responsible.
Kinds of Defense
a. Those derived from the nature of the obligation
- Lack of consideration or cause
- Absolute simulation-as when the contract is totally fictitious
- Illegal consideration
- Extinguishment of the obligation-as when the whole debt has been paid, remitted,
etc.
- Non-fulfillment of the suspensive condition
- Statute of frauds
- When all the debtors were incapacitated to give consent-such as unemancipated
minors, insane, etc.
- When there are Vices of Consent/Vitiated Consent on the part of all the debtors
b. Those personal to the debtor sued
c. Those personal to the other
Art 1226
In obligation with a penal clause, the penalty shall substitute the indemnity fro
damages and the payment of interest in case of non-compliance, if there is no stipulation
to the contrary. Nevertheless, damages shall be paid if the obligor refuses to pay the
penalty or is guilty of fraud in the fulfillment of the obligation.
Principal Purpose of the Penal Clause- to insure the performance of the obligation and
also to substitute for damages and the payment of interest in case of non-compliance.
Exceptions to the General Rule:
a. When there is express stipulation to the effect that damages or interest may still
be recovered, despite the presence of the penalty clause
b. When the debtor refuses to pay the penalty imposed in the obligation
c. When the debtor is guilty of fraud in the fulfillment of the obligation
Art 1227
The debtor cannot exempt himself from the performance of the obligation by
paying the penalty, save in the case where this right has been expressly reserved for
him. Neither can the creditor demand the fulfillment of the obligation and the satisfaction
of the penalty at the same time, unless this right has been clearly granted to him.
However, if after the creditor has decided to require the fulfillment of the obligation, the
performance thereof should become impossible without his fault, the penalty may be
enforced.
IF the debtor can just pay the penalty, the fulfillment of the obligation will be
considered an alternative one.
Art 1228 Proof of actual damages suffered by the creditor is not necessary in order
that the penalty may be demanded.
Art 1229
The judge shall equitably reduce the penalty when the principal obligation has
been partly or irregularly complied with by the debtor. Even if there has been no
performance, the penalty may also be reduced by the courts if it is iniquitous or
unconscionable.
When Penalty may be Reduced by Court;
a. When the obligation has been partly complied with by the debtor
b. When the obligation has been irregularly complied with by the debtor
c. When the penalty is iniquitous or unconscionable, even if there has been no
performance at all
It is thus clear that the penal clause cannot be enforced if
a. The breach is the fault of the creditor
b. A fortuitous event intervened, unless the debtor expressly agreed on his liability
in case of fortuitous events
c. The debtor is not yet in default
Art 1230 The nullity of the penal clause does not carry with it that of the principal
obligation.
The nullity of the principal obligation carries with it that of the penal clause.
CHAPTER IV
EXTINGUISHMENT OF OBLIGATIONS
1.
2.
3.
4.
5.
6.
7.
8.
9.
i.
it must have redounded to the obligee's benefit and only to the extent
of such benefit
ii. it falls under art 1241, par 1,2,3 - the benefit is total so, performance
is total
(c) anyone in possession of the credit - but will apply only if debt has not
been previously garnished
PAYMENT MADE TO AN INCAPACITATED PERSON , VALID IF:
1. Incapacitated person kept the thing delivered, or
2. Insofar as the payment has been beneficial to him
PAYMENT TO A 3RD PARTY NOT AUTHORIZED, VALID IF PROVED & ONLY
TO THE EXTENT OF BENEFIT;
PRESUMED IF:
1. After payment, 3rd person acquires the creditors rights
2. Creditor ratifies payment to 3rd person
3. By creditors conduct, debtor has been led to make the payment (estoppel)
PAYMENT MADE IN GOOD FAITH TO A PERSON IN POSSESSION OF CREDIT
SHALL RELEASE DEBTOR,
Requisites:
1. Payment by debtor must be made in good faith
2. Creditor must be in possession of the credit & not merely the evidence of
indebtedness
C. With respect to time and place of payment - must be according to the
obligation
Where payment should be made:
1. In the place designated in the obligation
2. If there is no express stipulation and the undertaking is to deliver a specific
thing at the place where the thing might be at the moment the obligation
was constituted
3. In other case in the place of the domicile of the debtor
Time of payment - time stipulated
Effect of payment extinguish obligation
Except: order to retain debt
SUBSTANTIAL PERFORMANCE
1. Attempt in Good Faith to perform without willful or intentional departure
2. Deviation is slight
3. Omission/Defect is technical or unimportant
2. If debts are of the same nature and burden, application shall be made to
all proportionately
b. Dacion en Pago mode of extinguishing an obligation whereby the debtor
alienates in favor of the creditor property for the satisfaction of monetary debt;
extinguish up to amount of property unless w/ contrary stipulation;
A special form of payment because 1 element of payment is missing: IDENTITY
Consignation the act of depositing the thing due with the court or judicial
authorities whenever the creditor cannot accept or refuses to accept
payment; generally requires prior tender of payment
REQUISITES OF VALID CONSIGNATION:
(1) Existence of valid debt
(2) Consignation was made because of some legal cause - previous valid
tender was unjustly refused or circumstances making previous tender
exempt
(3) Prior Notice of Consignation had been given to the person interested in
performance of obligation (1st notice)
(4) actual deposit/Consignation with proper judicial authorities
(5) subsequent notice of Consignation (2nd notice)
Effects: Extinguishment of obligation
(1) Debtor may ask judge to order cancellation of obligation
(2) Running of interest is suspended
(3) Before creditor accepts or before judge declares consignation has been
properly made, obligation remains ( debtor bears risk of loss at the
meantime, after acceptance by creditor or after judge declares that
consignation has been properly made risk of loss is shifted to creditor)
Consignation w/o prior tender allowed in:
1. creditor absent or unknown/ does not appear at the place of payment
2. incapacitated to receive payment at the time it is due
3. refuses to issue receipt w/o just cause
4. 2 or more creditor claiming the same right to collect
5. title of obligation has been lost
2. LOSS OF THE THING DUE partial or total/ includes impossibility of performance
WHEN IS THERE A LOSS:
1) When the object perishes (physically)
2) When it goes out of commerce
3) When it disappears in such a way that: its existence is unknown or it cannot be
recovered
WHEN IS THERE IMPOSSIBILITY OF PERFORMANCE
1) Physical impossibility
2) Legal impossibility :
(a) Directly caused as when prohibited by law
(b) Indirectly caused as when debtor is required to enter a military draft
REQUISITES:
a. There must be an agreement
b. There must be a subject matter (object of the remission, otherwise there would
be nothing to condone)
c. Cause of consideration must be liberality (Essentially gratuitous, an act of
liberality )
d. Parties must be capacitated and must consent; requires acceptance by obligor;
implied in mortis causa & expressed inter vivos
e. Formalities of a donation are required in the case of an express remission
f.
Kinds:
a. Principal accessory also condoned
b. accessory principal still outstanding
c. accessory oblig. Of pledge condoned;
presumption only, rebuttable
Requisites of Implied:
1. voluntary delivery presumption; when evidence of indebtedness is w/ debtor
presumed voluntarily delivery by creditor; rebuttable
2. effect of delivery of evidence of indebtedness is conclusion that debt is condoned
already conclusion;
voluntary delivery of private document
a. if in hands of joint debtor only his share is condoned
b. if in hands of solidary debtor - whole debt is condoned
c. Tacit voluntary destruction of instrument by creditor; made to prescribe
w/o demanding
5. CONFUSION OR MERGER OF RIGHTS character of debtor & creditor is merged in
same person with respect to same obligation
REQUISITES:
a. It must take place between principal debtor & principal creditor only
b. Merger must be clear & definite
c. The obligation involved must be same & identical one obligation only
d. Revocable, if reason for confusion ceases, the obligation is revived
6. COMPENSATION Set off; it is a mode of extinguishment to the concurrent amount
the obligation of persons who are in their own right reciprocally debtors or creditors
REQUISITES:
a. Both parties must be mutually creditors and debtors - in their own right and as
principals
b. Both debts must consist in sum of money or if consumable , of the same kind
or quality
c. Both debts are due
d. Both debts are liquidated & demandable (determined)
e. Neither debt must be retained in a controversy commenced by 3 rd person &
communicated w/ debtor (neither debt is garnished)
Kinds:
a. legal by operation of law; as long as 5 requisites concur- even if unknown
to parties & if payable in diff places; indemnity for expense of exchanges;
even if not equal debts only up to concurring amount
b. conventional agreement of parties is enough, forget other requirement as
long as both consented
c. facultative one party has choice of claiming/opposing one who has
benefit of period may choose to compensate
- not all requisites are present
- depositum; commodatum; criminal offense; claim for future support; taxes
d. judicial set off; upon order of the court; needs pleading & proof; all
requirements must concur except liquidation
e. total when 2 debts are of the same amount
f. partial when 2 debts are not of the same amount
Effect of assignment of credit to 3rd person; can there still be compensation
a. if made after compensation took place no effect; compensation already
perfected
b. if made before compensation took place depends
1. with consent of debtor debtor is estopped unless he reserves his right &
gave notice to assignee
2. with knowledge but w/o consent of debtor compensation may be set up
as to debts maturing prior to assignment
3. w/o knowledge compensation may be set-up on all debts prior to his
knowledge
7. NOVATION extinguishment of obligation by creating/ substituting a new one in its
place
a. changing object or principal conditions
b. substituting person of debtor
c. subrogating 3rd person in right of creditor
REQUISITES:
a. valid obligation
b. intent to extinguish old obligation expressed or implied: completely/substantially
incompatible old and new obligation on every point
c. capacity & consent of parties to the new obligation
d. valid new obligation
EFFECT OF NOVATION:
a. extinguishment of principal carries accessory, except:
- stipulation to contrary
- stipulation pour autri unless beneficiary consents
- modificatory novation only; obliged to w/c is less onerous
- old obligation is void
b. old obligation subsists if:
- new obligation is void or voidable but annulled already ( except: intention of
parties )
d. if old obligation has condition, must be compatible with the new obligation; if new
is w/o condition deemed attached to new
e. if new obligation has condition
- if resolutory: valid
-
KINDS:
a. REAL/OBJECTIVE change object, cause/consideration or principal condition
b. PERSONAL/SUBJECTIVE
1. substituting person of debtor ( passive )
EXPROMISION; initiative is from 3rd person or new debtor; new debtor &
creditor to consent; old debtor released from obligation;
subject to full reimbursement & subrogation if made w/ consent of old debtor;
if w/o consent or against will , only beneficial reimbursement;
if new debtor is insolvent, not responsible since w/o his consent
DELEGACION; initiative of old debtor; all parties to consent; full
reimbursement;
if insolvent new debtor not responsible old debtor because obligation
extinguished by valid novation unless:
insolvency already existing & of public knowledge or know to him at time of
delegacion
a. Delegante old debtor
b. Delegatario - creditor
c. Delegado new debtor
2. subrogating 3rd person to rights of creditor ( active )
a. conventional- agreement & consent of all parties; clearly established
b. legal- takes place by operation of law; no need for consent; not presumed
except as provided for in law:
presumed when1. creditor pays another preferred creditor even w/o debtors knowledge
2. 3rd person not interested in obligation pays w/ approval of debtor
3. person interested in fulfillment of obligation pays debt even w/o
knowledge of debtor
Change of debtor
1. debtor is released
3. 1 obligation
4. 3rd person has no oblig. to pay if insolvent
If the recipient was not authorized, the payment is generally not valid.
Art 1241 Payment to a third parson who is incapacitated to administer his property
shall be valid if he has kept the thing delivered, or insofar as the payment has been
beneficial to him.
Payment made to a third person shall also be valid insofar as it has redounded to
the benefit of the creditor. Such benefit to the creditor need not be proven in the
following case:
a.
If after the payment, the third person acquires the rights of the
creditor
b.
If the creditor ratifies the payment to the third person
c.
If by the creditors conduct, the debtor has been led to believe that
the third person had authority to receive the payment
Examples When Benefit to the Creditor is Presumed:
a.
If after payment, the third person acquires the creditors rights-as when
the creditor is indebted to the third person
b.
If the creditor ratifies the payment to the third person-like if Meralco, a
few days after its unauthorized collector had collected form you, tells
you that the payment to him is all right. Here, the defect is cured.
c.
If by the creditors conduct, the debtor has been led to make the
payment-like when the impostor agent had been given by the Meralco
the usual uniform for collectors.
Art 1242 Payment made in good faith to any person in possession of the credit shall
release the debtor.
Requisites:
a. Payment by the payor must be made in good faith (this is presumed, but payee
may be in good or bad faith)
b. The payee must be in possession of the credit itself (not merely the document
evidencing credit)
Art 1243- Payment made to the creditor by the debtor after the latter has been judicially
ordered to retain the debt shall not be valid.
Garnishment:
a. Takes place when the debtor of a debtor is ordered not to pay the latter so that
preference would be given to the latters consent
b. The preceding by which a debtors credit is subjected to the payment of his own
debt to another
Interpleader- the technical name of an action in which a certain person is in possession
of certain property wants claimants to litigate among themselves for the same.
Injunction- a judicial process by virtue of which a person is generally entered to refrain
from doing something. It is called Preliminary Injunction is the prohibition is during the
pendency of certain proceedings
Art 1244 The debtor of a thing cannot compel the creditor to receive different one,
although the latter may be of the same value as, or more valuable that which is due.
In obligation to do or not to do, an act of forbearance cannot be substituted by another
act or forbearance against the obligees will.
In dation, it is not always necessary that all the property of the debtor will be given to
satisfy the credit.
Art 1246 When the obligation consists in the delivery of an indeterminate or generic
thing, whose quality and circumstances have not been stated, the creditor cannot
demand a thing of superior quality. Neither can the debtor deliver a thing of inferior
quality. The purpose of the obligation and other circumstances shall be taken into
consideration.
Art 1248 Unless there is an express stipulation to that effect, the creditor cannot be
compelled partially to receive the prestations in which the obligation consists. Neither
may the debtor be required to make partial payments.
However, when the debt is in part liquidated and on part unliquidated, the creditor
may demand and the debtor may effect the payment of the former without waiting for the
liquidation lf the latter.
Exceptions when Partial Performance is Allowed:
a. When there is stipulation to this effect
b. When the different prestations are subject to different conditions or different
terms (e.g. like a debt payable in installment)
c. When a debt is in part liquidated and in part unliquidated, in which case
performance of the liquidated part may be insisted upon by either by the debtor
or creditor.
d. When a joint debtor pays his share or the creditor demands the same
e. When a solidary debtor pays only the part demandable because the rest are not
yet demandable on account on their being subject to different terms and
conditions
f. In case of compensation, which one debt is larger than the other, it follows that a
balance is left.
Art 1249
That payments of debts in money shall be made in the currency stipulated, and if
it is not possible to deliver such currency, then in the currency which is legal tender in
the Philippines.
In the meantime, the action derived from the original obligation shall be held in
abeyance.
Legal tender- it is that which a debtor may compel the creditor to accept in payment of a
debt.
Stipulation of another currency:
a. Under the first paragraph of this Article, payment may be either:
In the currency stipulated
Or if it is not possible to deliver such currency, then in Philippine legal tender
Art 1250
In case an extraordinary inflation or deflation of the currency stipulated should
supervene, the value of the currency at the time of the establishment of the obligation
shall b the basis of payment, unless there is an agreement to the contrary.
Inflation it is a sharp sudden increase of money or credit or both without a
corresponding increase in business transaction
*
Under this article, the basis of payment is the value at the time the obligation was
constituted or incurred, unless there is an agreement to the contrary.
Art 1251 - Payment shall be made in the place designated in the obligation.
There being no express stipulation and if the undertaking is to deliver a thing, the
payment shall be made wherever the thing might be at the moment the obligation was
constituted.
In any other case, the place of payment shall be the domicile of the debtor. If the
debtor changes his domicile in bad faith, or after he has incurred in delay, the additional
expenses shall be borne by him.
Where payment must be made:
a. If there is stipulation in the place designated
b. If there is no stipulation:
- If it is an obligation to deliver a determinate thing, then on the place
where the thing might be at the time the obligation was constituted;
- If the obligation is for any other thing, delivery must be made to the
domicile of the debtor.
Subsection 1 Application of Payments
Art. 1252
4 special forms of payment:
a. Application or imputation of payments
b. Dation in payment
c. Assignment in favor of creditors/cessation
d. Tender of payment and consignation
Application of payment the designation of the debt to which should be applied a
payment made by a debtor who owes several debts in favor of the same creditor
Requisites for application:
a. There must be 2 or more debts
b. The debts must be of the same kind
c. The debts are owed by the same debtor in favor of the same creditor
d. All the debts must be due
General rule: it is the debtor who is given the right to select which of his debt he is
paying.
Exception:
d.
If there was a valid prior but contrary agreement, the debtor cannot
choose
The debtor cannot choose to pay part of the principal ahead of the
interest unless the creditor consents.
e.
Art. 1253
If the debt produces interest, payment of the principal shall not be deemed to
have been made until the interest has been covered.
Interest must be paid first the debtor cannot insist that his payment be credited
to the principal instead of the interest. However, if the creditor agrees, that is ala
right.
Effect if payment is credited to the principal reduction of the principal would of
course result in the decrease of the total interest collectible.
What interest I supposed to be paid:
d.
Interest by way of compensation
e.
Interest by way of damages due to default
Art. 1254
Rules in case no application for payment has been voluntarily made
a.
Apply it to the most onerous/heavy/burdensome- (in case the due and
demandable debts are of different natures)
b.
If the debts are of the same nature and burden, application shall be made to all
proportionately.
1.If the debtor makes the application, the payment should be credited to the first
debt. The debtor cannot insist that the creditor accept it for the second debt for
insofar as the second debt is concerned, it is only a partial payment. And under
the law, a creditor cannot generally be compelled to receive partial payment
3. If no application has been made, the law steps in, and application will be
made, not equally but proportionately.
Section 2
Payment by Cession
Art 1255
Cession or assignment in favor of creditors- it is a process by which a debtor transfers all
the properties not subject to execution in favor of his creditors so that the properties not
subject to execution in favor of his creditors so that the latter may sell them, and thus
apply the proceeds to their credits.
Kinds or Classes of Assignment
a. Legal- the majority of creditors must agree; governed by the insolvency law
b. Voluntary-all creditors must agree; this is referred to in Art 1255
Requisites for Voluntary Assignment:
a. More than 1 debt
b. More then 1 creditor
c. Complete or partial insolvency of debtor
d. Abandonment of all debtors property not exempt from execution in favor of
creditors (unless exemption is validly waived by the debtor)
e. Acceptance on consent on the part of the creditors (for it cannot be imposed
upon an unwilling creditor)
Effect of Voluntary Assignment
a. The creditor do not become the owners; they are merely assignees with authority
b. The debtor is released up to the amount of the net proceeds of the sale, unless
there is stipulation to the contrary. The balance remains collectible.
c. Creditor will collect credits in the order of preference agreed upon, or in default of
agreement, in the order ordinarily established by law.
Cession Distinguished from Dation in Payment
a. Dation in Payment
Art 1257 In order that the consignation of the thing due may release the obligor, it
must first be announced to the persons interested in the fulfillment of the obligation.
The consignation shall be ineffectual if it is not made strictly in consonance with
the provisions which regulate payment.
Essential Requisites for Consignation:
a. Existence of a valid debt
b. Valid prior tender, unless tender is excused
c. Prior notice of consignation (before deposit0
d. Actual consignation (deposit)
e. Subsequent notice of consignation
Art 1258 Consignation shall be made by depositing the thing due at the disposal of
judicial authority, before whom the tender of payment shall be proved, in a proper case,
and the announcement of the consignation in other cases.
Art 1259 The expenses of consignation, when properly made shall be charged against
the creditor.
Art 1260 Once the consignation has been duly made, the debtor may ask the judge to
order the cancellation of the obligation.
Before the creditor has accepted the consignation, or before a judicial declaration
that the consignation has been properly made, the debtor may withdraw the thing or the
sum deposited, allowing the obligation to remain in force.
If the consignation is duly (properly) made:
a. The debtor may ask the judge to order the cancellation of the obligation
b. The running of interest is suspended
c. Before the creditor accepts, or before the judge declares that consignation has
been made, the obligation remains
When debtor may withdraw the thing or sum consignated:
a. As a matter of right
1.
2.
Examples of instances when the law requires liability even in the case of a fortuitous
event:
a. When the debtor is in default
b. When the debtor has promised to deliver the same thing to 2 or more parties who
do not have the same interest
c. When the obligation arises from a crime
d. When the borrower of an object has lent the thing to another who is not a
member of his own household
e. When the thing loaned has been delivered with appraisal of the value, unless
there is a stipulation exempting the borrower from responsibility in case of a
fortuitous event
f. When the payee in solutio indebiti is in bad faith
Art 1263 In an obligation to deliver a generic thing, the loss or destruction of anything
of the same kind does not extinguish the obligation.
Exceptions:
a. If the generic thing is delimited
b. If the generic thing has already been segregated or set aside in which case, it
has become specific.
Art 1264 The courts shall determine whether, under the circumstances, the partial loss
of the obligation is so important as to extinguish the obligation.
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 apple in
case of earthquake, flood, storm or other natural calamity.
In a case filed by the creditor, he doesnt have to prove that the debtor was at
fault, because it is already presumed.
Art 1266 The debtor in obligations to do shall also be released when the prestation
becomes legally or physically impossible without the fault of the obligor.
Art 1267
a. The service must become so difficult that it was manifestly beyond the
contemplation of BOTH parties. The difficulty could not possibly have been
anticipated or foreseen.
b. One of the parties must ask for relief
c. The object must be a future service with future unusual change in conditions.
Art 1268
This Article gives one instance where a fortuitous event does not extinguish the
obligation.
Exception: When the creditor is in Mora Accipiende (default on the part of the
creditor)
Art 1269 The obligation having been extinguished by the loss of the thing, the creditor
shall have all the rights of action which the debtor may have against third persons by
reason of the loss.
Section 3 Condonation of Remission of the Debt
Art 1270 Condonation or remission is essentially gratuitous and requires the
acceptance of the obligor. It may be made expressly or impliedly.
Remission or Condonation- it is the gratuitous abandonment by the creditor of his rights.
Essential Requisites for Remission:
a. There must be an agreement since acceptance of the offer is required.
b. The parties must be capacitated and must consent.
c. There must be subject matter.
d. The cause of consideration must be liberality
e. The obligation remitted must have been demandable at the time of remission.
f. The remission must not be in officious.
g. Formalities of a donation are required in the case of an express remission.
h. Waivers or remissions are not to be presumed generally.
Classes of Remission:
a. As regards its effect or extent:
Total
Partial-only a portion is remitted or the remission may refer only to the accessory
obligations
b. As regards its date of effectivity:
inter vivos- during life
mortis causa- after death
c. As regards its form:
*Implied or Tacit- required no formality
Express of Formal- requires formalities of a donation if inter vivos; of a will or cordial
if mortis causa
Effect if Remission is not Accepted by the Debtor- This would not be remission. If
the creditor does not really collect within the statute of limitations, the debt may
be said to have been extinguished by prescription.
Art 1271 The delivery of a private document evidencing a credit, made voluntarily by
the creditor to the debtor, implies the renunciation of the action the former had against
the latter.
Art 1271 tantamount to an implied Remission
Art 1272 Whenever the private document in which the debt appears is found in the
possession of the debtor, it shall be presumed that the creditor delivered it voluntarily,
unless the contrary is proved.
Art 1273 The renunciation of the principal debt shall extinguish the accessory
obligation; but the waiver of the latter shall leave the former in force.
Art 1274 It is presumed that the accessory obligation of pledge has been remitted
when the thing pledged, after its delivery to the creditor, is found in the possession of the
debtor, or of a third person who owns the thing.
In joint obligations, the debts are distinct and separate from each other.
Section 5 Compensation
Art 1278 Compensation shall take place when two persons, in their own right, are
creditors and debtors of each other.
Compensation vs. Payment
a. While payment must be complete and indivisible as a rule, in compensation,
partial extinguishment is always permitted.
b. While payment involves action or delivery, true/legal compensation takes place
by operation of law.
Compensation vs. Merger/Confusion
a. As to the number of persons
Confusion- there is only 1 person in whom is merged the qualities of creditor and
debtor
Compensation there must be 2 persons who are mutually creditor and debtor of
each other.
b. As to the number of obligations:
Confusion- there can only be 1
Compensation-there must be 2
Classes of Compensation
a. According to its effect or extent
Total-both obligations are completely extinguished because they are of the same
amount
b.
Art 1279
The requisites enumerated under Art 1279 are those for LEGAL compensation.
VOLUNTARY compensation in general requires no requisite except that the
agreement be voluntarily and validly entered into.
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.
All the requisites mentioned in Art 1279 must be present, except at the time of
the pleading, the claim need not yet be liquidated.
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.
Art 1285
The 3 Cases covered by Art 1285
a. The assignment may be made with the consent of the debtor
EFFECT: Compensation cannot be set up- because there has been consent and
therefore a waiver
EXCEPTION: If the right to the compensation (that has already taken place) is
reserved.
b. The assignment may be made with the knowledge but without the consent (or
against the will) of the debtor
EFFECT: Compensation can be set up regarding debts previous to the cession or
assignment. This refers to debts maturing before the assignment (that is, before the
notice) hence here, legal compensation has already taken place.
This Article speaks of instances when legal compensation cannot take place,
such as:
a. When one debt arises from a depositum (not bank deposit for this is really a
loan)- It is the depository who cannot claim compensation. The depositor is
allowed to so claim.
b. When one debt arises from the obligations of a depository
c. When one debt arises from the obligations of a bailee in commodatum (the
borrower of property who pays nothing for the loan)- the lender may claim
compensation, the borrower is not allowed to do so.
Obligations of the Depository
a. He is obliged to keep the thing safely and to return it when required, to the
depositor, or to his heirs and successors, or to the person who may have been
designated in the contract.
b. Unless there is a stipulation to the contrary, the depositary cannot deposit the
thing to a third person
c. If a deposit with a third person is allowed, the depositary is liable for the loss of
he deposited the thing with a person who is manifestly careless or unfit.
d. The depositary is responsible for the negligence of his employees
e. The depositary cannot make use of the thing deposited without the express
permission of the depositor. Otherwise, he shall be liable for damages.
However, when the preservation of the thing requires its use, it must be used
only for that purpose.
Art 1288- Neither shall there be compensation if one of the debts consists of civil liability
arising from a penal offense.
Art 1289 If the person shall have against him, several debts which are susceptible of
compensation, the rules on the application of payment shall apply to the order of the
compensation.
Art 1290 When all the requisites mentioned in Article 1279 are present, compensation
takes effect by operation of law, and extinguishes both debts to the concurrent amount,
even though the creditors and debtors are not aware of the compensation.
Art 1291
Novation- the substitution or change of an obligation by another, which extinguishes or
modifies the first, either changing its object or principal condition, or substituting another
in place of the debtor, or subrogating third person in the right of the creditor.
Kinds of Novation:
Art 1293
2 Kinds if Personal or Subjective Novation:
a. Passive- change in the debtor
b. Active- change in the creditor
Art 1293 speaks of Passive subjective Novation- which may be in the form of:
a. Expromission- initiative comes from a third person
c. Delegacion- initiative comes from the debtor, for it is he who delegates another to
pay the debt, and thus, he excuses himself. The 3 parties, the old debtor, the
new debtor and the creditor, must agree.
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.
Requisites for Expromision:
a. The initiative must come from a third person-who will be new debtor
Art 1297 If the new obligation is void, the original one shall subsist unless the parties
intend that the former relation should be extinguished in any event.
Other factors:
a. If the new obligation is subject to a condition and said condition does not materialize,
the old obligation subsists.
If the new obligation was intended, but the new contract was never perfected fro lack of
the necessary consent, the old obligation continues.
Rule if New Obligation is Merely Voidable;
a. The old obligation is novated because a voidable obligation is valid until it is annulled
b. If the new obligation is annulled, the old obligation subsists, and whatever novation
has taken place will naturally have to be set aside
Art 1298 - Effect if the Old Obligation was Void
a. if the old obligation is VOID, there is no valid novation
b. if the obligation was VOIDABLE and has already been annulled, there is no more
obligation. Thus, the novation is also void.
If the old obligation was VODABLE, and has NOT YET been annulled, there MAY
BE a valid novation, provided that:
a. Annulment may be claimed only by the debtor or
b. When ratification validates acts which are voidable
Rule if the Old Obligation was Extinguished by Loss
a. If the loss was purely because of a fortuitous event, without liability on the
part of the debtor, the novation is VOID for there would be NO obligation to
novate.
b. If the loss made the debtor liable, there is still an existing monetary obligation the
may be the subject of novation.
Art 1299 If the original obligation was subject to a suspensive or resolutory condition,
the new obligation shall be under the same condition, unless it is otherwise stipulated.
Art 1300
Subrogation- the transfer to a third person of all the rights appertaining to the creditor,
including the right to proceed against guarantors, or possessors of mortgages, subject
to any legal provision or any modification that may be agreed.
Kinds of Subrogation:
From the viewpoint of Cause of Origin
a. Conventional or Voluntary Subrogation- requires an agreement and the consent
of the original parties and of the creditor.
b. Legal Subrogation- takes place by operation of law
From the viewpoint of extent
a. Total Subrogation
b. Partial Subrogation- there would now be 2 or more creditors
Art 1301 Conventional subrogation of a third person requires the consent of the
original parties and of the third person.
Note: Generally, the debtor losses the right to present against the new creditor any
defense which he, the debtor, could have set up against the old creditor.
Distinctions between Conventional Subrogation and Assignment of Credit
a. Conventional Subrogation
- Extinguishes the obligation and creates a new one
- This requires debtors consent
- The defect of the old obligation may be cured in such a way that the
new obligation becomes entirely valid
b. Assignment of Credit
- Mere transfer of the same right or credit (the transfer die not
extinguish the credit)
- This does not require the debtors consent
- The defect in the credit or right is not cured simply by assigning the
same
b. The new creditor who is a creditor to the extent of what he had paid the creditor.
PART II CONTRACTS
Meeting of minds bet 2 parties whereby one binds himself with respect to other to give
something or render some service
PRINCIPAL CHARACTERISTICS:
1. Autonomy of wills parties may stipulate anything as long as not illegal, immoral,
etc.
2. Mutuality performance or validity binds both parties; not left to will of one of parties
3. Obligatory Force parties are bound from perfection of contract:
a. fulfill what has been expressly stipulated
b. all consequences w/c may be in keeping with good faith, usage & law
4. Relativity binding only between the parties, their assigns, heirs; strangers cannot
demand enforcement
EXCEPTION TO RELATIVITY:
a.
Accion pauliana
b.
Accion directa
c.
The stipulation in favor of a 3rd person should be a part of, not the whole
contract
(3)
(4)
(5)
d.
Art 1312
e.
Art 1314
REQUISITES OF ART 1312:
(1) Existence of a valid contract
(2) Knowledge of the contract by a 3rd person
(3) Interference by the 3rd person
KINDS OF CONTRACTS
As to perfection or formation:
b. Capacity
c. Intelligence and free will
d. Manifestation of intent of parties
e. Cognition by the other party
f. Conformity of manifestation and cognition
Note: We follow the theory of cognition and not the theory of manifestation.
Under our civil law, the offer and acceptance concur only when the offeror
comes to know, and not when the offeree merely manifests his acceptance
ELEMENTS OF VALID OFFER
a. definite
b. complete
c. intentional
d. Produces a well grounded fear that the person making it will carry it over
3. undue influence
SIMULATED CONTRACTS
a. absolute no intention to be bound at all, fictitious only void from beginning
b. relative there is intention to be bound but concealed; concealed contract
binds:
1. no prejudice to 3rd persons
2. not contrary to law, morals, etc.
2. OBJECT The prestation
REQUISITES:
a) Within the commerce of man - either existing or in potency
b) Licit or not contrary to law, good customs
c) Possible
d) Determinate as to its kind or determinable w/o need to enter into a new contract
e) Transmissible
3. CAUSA reason why parties enter into contract
REQUISITES:
a) It must exist
b) It must be true
c) It must be licit
MOTIVE - purely private reason; illegality does not invalidate contract except when it
predetermines purpose of contract; when merged into one
ABSENCE OF CAUSA
ILLEGALITY OF CAUSA
FALSITY OF CAUSA
CAUSA NOT STATED IN
CONTRACT
INADEQUACY OF CAUSA
4. FORM in some kind of contracts only as contracts are generally consensual; form
is a manner in which a contract is executed or manifested
a. Informal may be entered into whatever form as long as there is consent,
object & cause
mutual
mistake of fact
b. unilateral
one party was mistaken
\
c. mistake by 3rd persons due to ignorance, lack of skill, negligence , bad faith of
drafter, clerk, typist
d. others specified by law to avoid frustration of true intent
REQUISITES:
1. there is a written instrument
2. there is meeting of minds
3. true intention not expressed in instrument
4. clear & convincing proof
5. facts put in issue in pleadings
Note: prescribes in 10 years from date of execution of instrument
WHEN NOT AVAILABLE:
a. simple donation inter vivos
b. wills
c. when real agreement is void
d. estoppel; when party has brought suit to enforce it
KINDS OF DEFECTIVE CONTRACTS:
1. RESCISSIBLE CONTRACTS Those which have caused a particular economic
damage either to one of the parties or to a 3rd person and which may be set aside
even if valid. It may be set aside in whole or in part, to the extent of the damage
caused'
REQUISITES:
a. Contract must be rescissible
(1) Under art 1381:
i. Contracts entered into by persons exercising fiduciary capacity
(a) Entered into by guardian whenever ward suffers damage by more
than 1/4 of value of object
(b) Agreed upon in representation of absentees, if absentee suffers lesion
by more than of value of property
(c) Contracts where rescission is based on fraud committed on creditor
(accion pauliana)
(d) Objects of litigation; contract entered into by defendant w/o knowledge
or approval of litigants or judicial authority
(e) Payment by an insolvent on debts w/c are not yet due; prejudices
claim of others
(f) Provided for by law - art 1526, 1534, 1538, 1539, 1542, 1556, 1560,
1567 and 1659
ii.Under art 1382 - Payments made in a state of insolvency
b. Plaintiff has no other means to obtain reparation
b. Plaintiff must be able to return whatever he may be obliged to return due to
rescission
c. The things must not have been passed to 3rd parties who did not act in bad faith
d. It must be made within the prescribed period
OBLIGATION CREATED BY THE RESCISSION OF THE CONTRACT:
Mutual Restitution
1. Things w/c are the objects of the contract & their fruits
2. Price with interest
Note: Mutual restitution N.A. when:
1. creditor did not receive anything from contract
2. thing already in possession of party in good faith; subject to indemnity
only; if there are 2 or more alienations liability of 1st infractor
2. VOIDABLE CONTRACTS intrinsic defect; valid until annulled; defect is due to vice
of consent or legal incapacity
CHARACTERISTICS:
a. Effective until set aside
b. May be assailed or attacked only in an action for that purpose
c. Can be confirmed ( Note: CONFIRMATION IS THE PROPER TERM FOR
CURING THE DEFECT OF A VOIDABLE CONTRACT)
d. Can be assailed only by the party whose consent was defective or his heirs or
assigns
WHAT CONTRACTS ARE VOIDABLE:
a. THOSE WHERE ONE OF THE PARTIES IS INCAPABLE OF GIVING
CONSENT TO A CONTRACT (legal incapacity)
(1) minors ( below 18 )
(2) insane unless acted in lucid interval
(3) deaf mute who cant read or write
(4) persons specially disqualified: civil interdiction
(5) in state of drunkenness
(6) in state of hypnotic spell
b. THOSE WHERE THE CONSENT IS VITIATED BY MISTAKE, VIOLENCE,
INTIMIDATION, UNDUE INFLUENCE OR FRAUD (vice of consent)
(1) mistake false belief into something
REQUISITES:
1. Refers to the subject of the thing which is the object of the contract
2. Refers to the nature of the contract
3. Refers to the principal conditions in an agreement
EFFECTS OF ANNULMENT:
1. Obligation to give mutual restitution
2. Obligation to do value of service
PRESCRIPTION IN ACTION FOR ANNULMENT OF VOIDABLE CONTRACTS:
Intimidation/Violence/undue Influence
Mistake/Fraud
Contracts
entered
into
by
minors/incapacitated persons
Imprescriptible
g. Anyone may invoke the nullity of the contract whenever its juridical effects are
asserted against him
KINDS OF VOID CONTRACT:
1) Those lacking in essential elements: no consent, no object, no cause
(inexistent ones) essential formalities are not complied with ( ex: donation
propter nuptias should conform to formalities of a donation to be valid )
(a) Those w/c are absolutely simulated or fictitious no cause
(b) Those which cause or object did not exist at the time of the transaction no
cause/object
(c) Those whose object is outside the commerce of man no object
(d) Those w/c contemplate an impossible service no object
(e) Those w/c intention of parties relative to principal object of the contract
cannot be ascertained
2) Prohibited by law
(f) Those expressly prohibited or declared void by law - Contracts w/c violate any
legal provision, whether it amounts to a crime or not
3) Illegal/Illicit ones Those whose cause, object or purpose is contrary to law,
morals, good customs, public order or public policy ; Ex: Contract to sell
marijuana
before purpose is
apply because an incapacitated person does not know what he is entering into;
unable to understand the consequences of his own action
4. If agreement is not illegal per se but merely prohibited & prohibition is designated
for the protection of the plaintiff may recover what he has paid or delivered by
virtue of public policy
MUTUAL RESTITUTION IN VOID CONTRACTS
General Rule: parties should return to each other what they have given by virtue of
the void contract in case where nullity arose from defect in essential elements
1. return object of contract & fruits
2. return price plus interest
Exception: No recovery can be had in cases where nullity of contract arose from
illegality of contract where parties are in pari delicto;
except:
a. incapacitated not obliged to return what he gave but may recover what
he has given
b. other party is less guilty or not guilty
CONTRACTS
Art 1305
ELEMENTS OF A CONTRACT
a. Essential Elements
1.Consent
2.Subject Matter
3.Cause or Consideration
b. Natural Elements- presumed to exist, unless the contrary is stipulated
Ex. Warrants against eviction and against hidden defects
c. Accidental Elements existence of such is dependent on the agreement of the
parties.
Classification of Contracts
a. According to perfection or formation
1. Consensual
2. Real-perfected by delivery
3. Formal or Solemn
b. According to cause of equivalence of the value of prestations:
1. Onerous
2. Gratuitous or Lucrative
3. Remunerative
c. According to Importance or dependence of one upon another
1. Principal can stand alone
2. Accessory depends upon the existence of another contract
3. Preparatory here, the parties do not consider the contract as an end by
itself, but as a means thru which future transaction or contracts may be
made
Ex. Agency, partnership
j.
k. According to the number of persons actually and physically entering into the
contracts
1. Ordinary two parties are represented by different persons
2. Auto Contracts where only one person represents two opposite parties,
but in different capacities
l.
Art 1307
Four Kinds of Innominate Contracts
a. Du ut des (I give that you may give)
b. Do ut facias (I give that you may do)
c. Facio ut des (I do that you may give)
d. Facio ut facias (I do that you may do)
Art 1308-1310
MUTUALITY OF CONTRACTS
The validity or fulfillment of a contract cannot be left to the will of one of the
contracting parties.
The validity or fulfillment may be left to the will of a third person.
The validity or fulfillment may be left to chance.
Art 1311
This principle stresses the Principle of Relativity.
Contracts are generally effective only between the parties, their assigns and their
heirs.
Exceptions:
a. Where the obligation arising from the contract are not transmissible by their
nature, by stipulation, or by provision of law.
b. Where there is stipulation pour atrui (a stipulation in favor of a third party)
c. Where a third person induces another to violate his contract
d. Where, in some cases, third persons may be adversely affected by a contract
where they did not participate.
e. Where the law authorizes the creditor to sue on a contract entered into by his
debtor.
Art 1312
A real right binds the property over which it is exercised.
Exception to the general rule that a contract binds only the parties.
Art 1313
Right of defrauded creditor.
Art 1314
Requisites before a third person in this article can be held for damages
a. Existence of a valid contract
b. Knowledge on the part of the third person of the existence of the contract
c. Interference by the third person without legal justification or excuse
Art 1315-1316
Perfection of contracts
Art 1317
Requisites for a Person to Contract in the Name of Another
a. He must be duly authorized (expressly or impliedly)
b. Or he must have by law a right to represent him
c. Or the contract must be subsequently ratified
Art 1318
Requisites of Contracts
a. Consent (Art 1319-46)
b. Object (Art 1347-1349)
c. Cause (Art 1350-55)
Art 1319
Definition of Consent
-Art 1319,first paragraph
Requisite of Consent
a. There must be two or more parties
b. The parties must be capable or incapacitated
c. There must be no vitiation of consent
d. There must be no conflict between what was expressly declared and what was
really intended
e. The intent must be declared properly
Requisites for the meeting of minds
a. An offer that must be certain
b. And an acceptance must be unqualified and absolute
Art 1320
Forms of Acceptance
Art 1322
Acceptance of an Offer made thru an agent
Art 1323
Other instances when the offer becomes ineffective
a.
When the offeree expressly or impliedly rejects the offer
b.
When the offer is accepted with qualification or condition
c.
When before acceptance is communicated, the subject matter becomes illegal
or impossible
d.
When the period of time given to the offeree within which he must signify his
acceptance has already lapsed
e.
When the offer is rejected in due tome
Art 1324
Option Contract
Option- it is a contract granting a person the privilege to buy or not to buy certain objects
at anytime within the agreed period at a fixed price
Perfection of Option
When there is a meeting of minds on the option
Art 1325-1326
If the advertisement contains all the specific particular needed in a contract, it is a
definite offer.
If important details are left out, the advertisement is not a definite offer, but a
mere invitation to make an offer.
Art 1327 in relation to Art 1329
Who cannot give consent.
Art 1328
Voidable contracts by reason of incapacity
Art 1330
This article enumerates causes or vices of consent.
Art 1331 in relation to Art 1333
Mistake
It is a false belief about something.
Requisites for mistake to vitiate consent
a. Object of the contract
b. The condition which principally proved or induced one of the parties
c. Identify or qualifications, but only if such was the principal cause of the contract.
d. The error must be excusable
e. The error must be a mistake of fact
Kinds of Mistake
a. Mistake as to the object
1. Mistake as the identity of the thing
2. Mistake as to the substance of the thing
3. Mistake as to the conditions of the thing
4. Mistake as to the quantity of the thing
b. Mistake as to person
1. Mistake must be either with regards to the identify or with regard to the
qualification of one of the contracting parties
2. Such identity or qualification must have been the principal consideration
for the celebration of the contract
Art 1332
Burden of proof in case of mistake
Art 1333
Effect of knowledge of risk
Art 1334
Mistake of Law
Is that which arises from an ignorance of some provision of law, or from an
erroneous interpretation of its meaning, or from an erroneous conclusion as to the legal
effect of the agreement, on the part of one of the parties.
Requisites:
a. There must be mutual error
b. The error must refer to the legal effect of the agreement
c. The real purpose of the parties is frustrated
Art 1335-1336
Violation refer to physical coercion
Intimidation refers to moral coercion
Requisites for violence to vitiate consent
a. Employment of serious or irresistible force
b. It must have been the reason why the contract was entered into
CHAPTER 4
REFORMATION OF INSTRUMENT
Reformation is that remedy by means of which a written instrument is amended or
rectified so as to express or conform to the real agreement or intention of the parties
when by reason of mistake, fraud, or inequitable contract, or accident the instrument
fails to express such agreement or intention.
Requisites for reformation
a. There is a meeting of minds of the parties to the contract
b. The written instrument does not express the true agreement or intention of the
parties
c. The failure to express the true intentions is due to mistake, fraud, inequitable
conduct or accident
d. The facts upon which relief by way of reformation of the instrument is sought are
put in issue by the pleadings
e. There is clear and convincing evidence of the mistake, fraud, inequitable
conduct, or accident
Reformation vs. Annulment
In reformation, there has been a meeting of the minds of the parties, hence, a
contract exists while in annulment, there has been none, the consent of one of the
parties being vitiated by mistake, etc.
Art 1360-69
Art 1360
Rule in case of conflict
Art 1366
Instances when reformation is not allowed
CHAPTER 5
INTERPRETATION OF A CONTRACT
Art 1370
Definition of interpretation of contract
-Is the determination of the meaning of the terms or words used by the parties in
their contract
Art 1371-79 (provisions)
Kinds of defective contracts
a. Rescissible (Art 1380-89)
b. Voidable (Art 1390-1402)
c. Unenforceable (Art 1403-1408)
d. Void or Inexistent (Art 1409-1422)
Art 1381 in relation to Art 1382
Meaning of rescissible contracts
-Those validly agreed upon because all the essential elements exists but in some
cases established by law, the remedy of rescission is granted in the interest of equity
Requisites of rescission
a. The contracts must be validly agreed upon
b. There must be lesion or pecuniary prejudice to one of the parties or to a third
person
VOIDABLE CONTRACTS
Definition
-Are those which possess all the essential requisites of a valid contract but one of
the parties is incapable of giving consent, or consent is vitiated by mistake, violence,
intimidation, undue influence, or fraud
Characteristics
a. Their defect consist in the vitiation of consent of one of the contracting parties
b. They are binding until they are annulled by competent court
c. They are susceptible of convalidation by ratification or by prescription
Voidable vs. Rescissible Contracts
Voidable
a. Defect is intrinsic
b. Contract is voidable even if there is no damage or prejudice
c. Annulability of the contract is based on law
d. Susceptible of ratification
e. The causes of annulment
The causes of rescission
Rescissible
a. Defect is extrinsic
b. Contract is not rescissible id there is no damage or prejudice
c. Rescissibility of the contract is based on equity
d. Not susceptible of ratification
e. Are different form
Art 1390
Voidable contracts
Art 1391
Prescription
Art 1392-96
Concept of Ratification
-By virtue of which efficacy is given to a contract which suffers from a vice of
curable nullity
Requisites for ratification
a. The contract should be tainted with a vice which is susceptible of being cured
b. The confirmation should be effected by the person who is entitled to do so under
the law
c. It should be effected with knowledge of the vice or defect of the contract
d. The cause of the nullity or defect should have already disappeared
Art 1397 in relation to Art 1391
-Who and when may an action for annulment of contract be instituted
Art 1398-99
Effects of annulment
Art 1400-02
- Effect pf failure to make restitution
-Where loss is due to fault of plaintiff
-Where loss is due to fault of defendant
-Where loss is due to fortuitous event
CHAPTER 8
UNENFORCEABLE CONTRACTS
Meaning of unenforceable contracts
-Those that san not be enforced in court or sued upon by reason of defects
provided by law until and unless they are ratified according to law.
Kinds:
a. Those entered into in the name of another by one without or acting in excess of
authority
b. Those that do not comply with the statute of fraud
c. Those where both parties are incapacitated of giving consent
Unauthorized contracts
-Those entered into in the name of another person by one who has been given
no authority or legal representation on who has acted beyond his powers.
Characteristics of Unenforceable Contracts
a. They can not be enforced by a proper action in court
b. They are susceptible of ratification
c. They can not be assailed by third persons
Unenforceable vs. Rescissible
a. An unenforceable contract cannot be enforced by a proper action in court, while
a rescissible contract can be enforced, unless it is rescinded
b. The causes for the unenforceable character of the former are different from the
causes fro the rescissible character of the latter
c. The former is susceptible of ratification, while the latter is not
d. The former cannot be assailed by third persons, while the latter may be assailed
by third persons who are prejudiced
Unenforceable vs. Voidable
a. An unenforceable contract cannot be enforced by a proper action in court, while
a voidable contract can be enforced, unless it is annulled
b. The causes for the unenforceable character of the former are different from the
causes for the voidable character of the latter
STATUTE OF FRAUDS
Purpose
-Not only to prevent fraud but also to guard against the mistakes of honest men
by requiring that certain agreement specified must be in writing.
Application
a. Not applicable in actions which are neither for damages because of a violation of
a contract, nor for the specific performance thereof
b. Applicable only to executory contracts and not to contracts which are totally or
partially performed
c. Not applicable where the contract is admittedly expressly, or impliedly by the
failure to deny specifically its existence, no further evidence thereof being
required in such case.
d. Applicable only to the agreements enumerated therein
e. Not applicable where a writing does not express the true agreement of the
parties
f. It does not declare the contracts infringing it are void but merely unenforceable
g. The defense of the statute of frauds may be waived
h. The defense of the statute of frauds is personal to the parties and cannot be
enforced by strangers to the contract
Effect of Non-Compliance
-The contract or agreement is unenforceable by action
Ratification of Unenforceable Contracts
Either by: a. the failure of object to the presentation of oral existence to prove the same
c. The acceptance of benefits under them
Art 1404-1408 (provisions)
CHAPTER 9
VOID OR INEXISTENT CONTRACTS
Void Contracts
-Those, which of certain defects generally produce no effect at all
Inexistent Contracts
-Refer to agreements which lack one or some or all the elements or do not
comply with the formalities which are essential for the existence of a contract
Characteristics of a Void or Inexistent Contracts
a. Generally, it produces no effect
b. It cannot be ratified
c. The right to set up the defense of legality cannot be waived
d. The action or defense for the declaration of its inexistence does not prescribe
e. The defense of illegality is not available to third persons whose interests are not
directly affected
f. It cannot give rise to a valid contract
Art 1410
-Imprescriptibility of void or inexistent contract
Art 1411-1412
Where both parties are in pari delicto
a. The parties shall have no action against each other
NATURAL OBLIGATIONS
Art 1423
-Defines Natural Obligations
Civil vs. Natural Obligations
Civil
a. Arise from la, contracts, quasi-contracts, and quasi-delicts
b. Give a right of action to compel their performance
Natural
a. Based not on positive law but on equity and natural law
b. Do not grant such right of action to enforce their performance
TITLE IV
ESTOPPEL
Art 1431
Definition of Estoppel
-Condition or state by virtue of which admission or representation is rendered
conclusive upon the person making it and cannot be denied or disproved as against the
person relying thereon
Art 1432
Adoption of the principle
Art 1433
Kinds of Estoppel
A. Estoppel in Pais (equitable estoppel)
-That which arises one y his acts, representations, or admission, or by his silence
when he ought to speak out, intentionally or through culpable negligence, induces
another to believe certain facts to exist and such, other rightfully relies and acts on such
belief, as a consequence of which he would be prejudice if the former is permitted to
deny the existence of such facts
Kinds
a. Estoppel by conduct or by acceptance of benefits
b. Estoppel by representation or concealment
c. Estoppel by silence
d. Estoppel by omission
e. Estoppel by laches
Requisites
a. As related to the party being estopped
existing contract entered into by both parties after a process of bidding. This, to the
Court's mind, is a flagrant violation of the express provisions of the law and is contrary to
fair and just dealings to which every man is due.
ESPINA v. CA (G.R. No. 116805, June 22, 2000)
Civil Law/ Oblicon/ Novation/ Application of Payment: Novation is never presumed; it
must be proven as a fact either by express stipulation of the parties or by implication
derived from an irreconcilable incompatibility between old and new obligations or
contracts. Novation takes place only if the parties expressly so provide, otherwise, the
original contract remains in force. In other words, the parties to a contract must
expressly agree that they are abrogating their old contract in favor of a new one.
Where there is no clear agreement to create a new contract in place of the
existing one, novation cannot be presumed to take place, unless the terms of the new
contract are fully incompatible with the former agreement on every point. Thus, a deed of
cession of the right to repurchase a piece of land does not supersede a contract of lease
over the same property.
Petitioner gave respondent a notice to vacate the premises and to pay his back
rentals. Failing to do so, respondent's possession became unlawful and his eviction was
proper. Now respondent contends that the petitioner's subsequent acceptance of such
payment effectively withdrew the cancellation of the provisional sale. We do not agree.
Unless the application of payment is expressly indicated, the payment shall be applied to
the obligation most onerous to the debtor. In this case, the unpaid rentals constituted the
more onerous obligation of the respondent to petitioner. As the payment did not fully
settle the unpaid rentals, petitioner's cause of action for ejectment survives.
VIEWMASTER CONSTRUCTION CORP vs. ROXAS (G.R. No. 133576, July 13, 2000)
Civil Law/ Contracts/ Statute of Frauds/ Implied Trusts/ Sales: The verbal agreement
entered into between petitioner Viewmaster and respondent Allen Roxas was an
agreement that by its terms is not to be performed within a year from the making
thereof. To be taken out of the operation of the Statute of Frauds, the agreement
must be fully performed on one side within one year from the making thereof. In the
case at bar, since neither of the parties has fully performed their obligations within
the one-year period, then it behooves this Court to declare that the case falls within
the coverage of the Statute of Frauds. Also, as the sale of fifty percent (50%) of Allen
Roxass shareholdings in State Investment would amount to more than five hundred
pesos (P500.00), the contract must be in writing to be enforceable.
There is no implied trust here for in order for the provisions of Article 1448 to
apply in the case at bar "the price is paid by another for the purpose of having the
beneficial interest of the property." It bears stressing that respondent Allen Roxas
obtained a loan from First Metro Investments, Inc. not from petitioner Viewmaster. It
was FMIC that provided the funds with which Allen Roxas acquired the controlling
interest in State Investment Trust, Inc. FMIC lent the money to Roxas because the
latter needed the money and not to obtain any beneficial interest in the shares of
stock in State Investment. Viewmaster merely facilitated the loan by acting as
guarantor of the loan and nothing more.
ARRIOLA vs. DEMETRIO
Civil Law/ Contracts/ Fraud : The law, however, requires that in case one of the parties to
a contract is unable to read and fraud is alleged, the person enforcing the contract must
show that the terms thereof have been fully explained to the former. Consent, having
been obtained by fraud, the deed entered into could be annulled.
PILIPINAS HINO vs. CA
Civil Law/ Oblicon/Application of Equity/ Sales: Obligations arising from contracts and
agreements between parties not contrary to law, morals, good customs, public
policy or public order have the force of law between the contracting parties and
should be complied with in good faith.
Equity is applied only in the absence of, and never against, statutory law or judicial
rules of procedure.
Also, while this Court recognizes that in contracts to sell even if the contract is
terminated the seller can retain the sums already received or paid, such can be done
only if it is expressly provided for in the contract.
(6)
In any other case where it may be fairly inferred that the real intention of the
parties is that the transaction shall secure the payment of a debt or the performance of
any other obligation.'"
Under Article 1604 of the New Civil Code, the provisions of Article 1602 shall also
apply to a contract purporting to be an absolute sale. And for these provisions of law to
apply, two requisites must concur: that the parties entered into a contract denominated
as a contract of sale and that their intention was to secure an existing debt by way of
mortgage.
As to the reformation of contracts, Article 1365 applies only if there is evidence,
clear and convincing, that the parties did agree upon a mortgage of subject property.
Here, everything appears to be clear and unambiguous and nothing is doubtful, within
the contemplation of Article 1602. When the words of the contract are clear and readily
understandable, there is no room for construction, the contract being the law between
the parties.
SINGSON v. CALTEX (PHILIPPINES) (G.R. No. 137798. October 4, 2000)
Civil Law/ Contracts/ Extraordinary Inflation: Article 1250 of the Civil Code states
that in case an extraordinary inflation or deflation of the currency stipulated should
supervene, the value of the currency at the time of the establishment of the obligation
shall be the basis of payment, unless there is an agreement to the contrary.
Extraordinary inflation exists when there is a decrease or increase in the purchasing
power of the Philippine currency which is unusual or 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.
Erosion is indeed an accurate description of the trend of decline in the value of
the peso in the past three to four decades. Unfortunate as this trend may be, it is
certainly distinct from the phenomenon contemplated by Article 1250.
Moreover, the effects of extraordinary inflation are not to be applied without an
official declaration thereof by competent authorities.
made, the former cannot complain of the same, unless there is a cause for invalidating
the contract.
Also, under the law, if the debtor did not declare at the time he made the payment to
which of his debts with the creditor the payment is to be applied, the law provided the
guideline--no payment is to be made to a debt that is not yet due and the payment
has to be applied first to the debt most onerous to the debtor.
Assnt to the change in the manner of application of payment must be clear and
unequivocal. Mere silence is not tantamount to consent.
PUA v. CA (G.R. No. 134992. November 20, 2000)
Civil Law/ Contracts/ Minors Entering Into Contracts/ Sales/ Simulated Contract:
Unemancipated minors, insane or demented persons, and deaf-mutes who do not know
how to write can not validly give consent to contracts. In the instant case, Johnny P. Uy
could not have validly given his consent to the contract of sale, as he was not even
conceived yet at the time of its alleged perfection. For lack of consent of one of the
contracting parties, the deed of sale is null and void
Without authority from the Court, no person can make a valid contract for or on
behalf of a minor. Coloma therefore could not have acted as representative of Johnny P.
Uy. Besides, petitioners themselves insist that Coloma was not acting in a representative
capacity when she purchased the subject, but rather, that she was acting in her own
behalf as the actual buyer of said land.
An absolutely simulated contract is not susceptible of ratification.
SPOUSES BUENAFLOR v. CA (G.R. No. 142021. November 29, 2000)
Civil Law/ Obligations/ Payment/ Substantial Performance: In the Civil Law sense,
payment means not only the delivery of money but also the performance, in any other
manner, of the obligation.
Article 1234 of the Civil Code allows substantial performance in the payment of
obligations. In order that there may be substantial performance of an obligation, there
must have been an attempt in good faith to perform, without any willful or intentional
departure therefrom. This concept of substantial performance may be applied by
analogy in the determination of question on the proper payment of the appellate docket
fees.
AYALA CORPORATION v. ROSA-DIANA REALTY AND DEVELOPMENT
CORPORATION (G.R. No. 134284. December 1, 2000)
Civil Law/ Contracts/ Obligatory Force: Contractual obligations between parties have the
force of law between them and absent any allegation that the same are contrary to law,
morals, good customs, public order or public policy, they must be complied with in good
faith. The party guilty of violating the deed restrictions may only be held alternatively
liable for substitute performance of its obligation, that is, for the payment of damages.
ORTIGAS & CO. LTD. v. CA (G.R. No. 126102. December 4, 2000)
Civil Law/ Contracts/ Stipulations Contravening Law, Good Customs, etc: The
contractual stipulations annotated on the Torrens Title, on which Ortigas relies, must
yield to the ordinance. When that stretch of Ortigas Avenue from Roosevelt Street to
Madison Street was reclassified as a commercial zone by the Metropolitan Manila
Commission in March 1981, the restrictions in the contract of sale between Ortigas and
Hermoso, limiting all construction on the disputed lot to single-family residential
buildings, were deemed extinguished by the retroactive operation of the zoning
ordinance and could no longer be enforced. While our legal system upholds the sanctity
of contract so that a contract is deemed law between the contracting parties,
nonetheless, stipulations in a contract cannot contravene "law, morals, good customs,
public order, or public policy." Otherwise such stipulations would be deemed null and
void.
LHUILLIER v. CA (G.R. No. 128058. December 19, 2000)
lease does not ipso facto carry with it any implied revival of private respondents option
to purchase (as lessee thereof) the leased premises. The provision entitling the lessee
the option to purchase the leased premises is not deemed incorporated in the impliedly
renewed contract because it is alien to the possession of the lessee. Private
respondents right to exercise the option to purchase expired with the termination of the
original contract of lease for one year.
As a general rule, common carriers are expected to follow a standard of care and
diligence which is higher and different in kind to that of ordinary carriers. However, in
the case at bar, JAL is not absolutely responsible for all injuries or damages suffered
by respondents because such was caused by a fortuitous event. They are liable for
nominal damages to respondents though, for their failure to make the necessary
arrangements to transport respondents on the first available connecting flight to
Manila. Nominal damages are adjudicated in order that a right of a plaintiff, which
has been violated of invaded by the defendant, may be vindicated or recognized, and
not for the purpose of indemnifying any loss suffered by him.
VALGOSONS REALTY INC. v. CA (September 1998)
Civil Law/ Lease/ Non-delivery of the Leased Premises: Under Art. 1654 of the NCC, it is
the duty of the lessor, in this case, petitioner VRI (Valgosons Realty Inc), to deliver the
thing which is the object of the contract ., failure to do so constitutes a wrong to which
petitioner exposes itself to legal action including being held liable for damages. The fact
that respondent Prudential Bank (PB), the former lessee of the same space, did not
vacate the premises at the time the new lessee (respondent UDB) was supposed to
enter therein cannot exculpate petitioner VRI from its liability for the non-performance of
its obligation to URB. Moreover, UDB has no cause of action against the first lessee (PB)
because there is no privity of contract between the two respondents-lessees.
POLOTAN, SR. v. CA (September 1998)
Civil Law/ Contracts/ Binding Effect/ Escalation Clause/ Contract of Adhesion: Petitioner
is a holder of a credit card of Security Diners International Corporation (Diners Club). He
was adjudged by the RTC and CA to be indebted to the company for the use of the card.
The contract entered into between petitioner and the company is a contract of
adhesion. A contract of adhesion is one in which one of the contracting parties imposes
a ready-made form of contract which the other party may accept or reject but cannot
modify. Nevertheless, these types of contracts have been declared as binding as
ordinary contracts, the reason being that the party who adheres to the contract is free to
reject it entirely. The binding effect of any agreement between parties to a contract is
premised on two settled principles: (1) that any obligation arising from a contract has the
force of law between the parties; and (2) that there must be mutuality between the
parties based on their essential equality. The court is therefore not precluded from ruling
out blind adherence to their terms if the attendant facts and circumstances show that
they should be ignored for being obviously too one-sided.
In the instant case, the claim of petitioner that the contract is one-sided has no
basis. The fact that the contract allows for the escalation of interests but does not
provide for a downward adjustment of the same does not boost his claim. There is
nothing inherently wrong with escalation clauses, as long as they are not merely
potestative but based on reasonable and valid grounds. They are valid stipulations in
commercial contracts to maintain fiscal stability and to retain the value of money in long
term contracts. In this case, the interest rate is based on the fluctuation in the market
rates, which is beyond the control of the credit card company.
1997
ROBLETT INDUSTRIAL CONSTRUCTION CORP. v. CA (G.R. No. 116682, Jan. 2,
1997)
Civil Law/ Estoppel: Estoppel in pais arises when one, by his acts, representations or
admissions, or by his own silence when he ought to speak out, intentionally or through
culpable negligence, induces another to believe certain facts to exist and such other
rightfully relies and acts on such belief, so that he will be prejudiced if the former is
permitted to deny the existence of such facts. (Panay Electric v. CA, 174 SCRA 500
[1989]) This doctrine obtains here. A statement of account for P376,350.18 covering the
period above mentioned was received from respondent by petitioner with nary a protest
from the latter. Neither did petitioner controvert the demand letter concerning the
overdue account; on the contrary, it asked for ample time to source funds to substantially
settle the account.
(2) Art. 1250 requires for its application a declaration of inflation by the Central
Bank, without such declaration creditors cannot demand an increase of what is due
them.
MATANGUIHAN v. CA (July 1997)
Civil Law/Equitable Mortgages: In order to judge the intention of the contracting parties,
their contemporaneous and subsequent acts shall be principally considered.
Accordingly, there are instances where the form and stipulations of a contract must give
way to reflect the true intention of the parties. This is best illustrated in the instances
where contracts of sale, whether absolute, or one where the vendor reserves the right to
repurchase the thing sold or a sale pacto de retro, are presumed to be an equitable
mortgage. An equitable mortgage is defined as one which although lacking in some
formality, or form or words, or other requisites demanded by a statute, nevertheless
reveals the intention of the parties to charge real property as security for a debt, and
contains nothing impossible or contrary to law. Its essential requisites are: (1) That the
parties entered into a contract denominated as a contract of sale; and (2) That their
intention was to secure an existing debt by way of a mortgage.
Under the wise, just and equitable presumption in Article 1602, a document
which appears on its face to be a sale - absolute or with pacto de retro - may be proven
by the vendor or vendor-a-retro to be one of a loan with mortgage. In this case, parol
evidence becomes competent and admissible to prove that the instrument was in truth
and in fact given merely as a security for the payment of a loan. And upon proof of the
truth of such allegations, the court will enforce the agreement or understanding in
consonance with the true intent of the parties at the time of the execution of the contract.
Sales with a right to repurchase are not favored. As before, instruments shall not
be construed to be sales with a right to repurchase, with the stringent and onerous
effects which follow, unless the terms of the document and the surrounding
circumstances so require. Whenever, under the terms of the writing, any other
construction can be fairly and reasonably inferred, such construction will be adopted and
the contract construed as a mere loan unless the court sees that, if enforced according
to its terms, it is not an unconscionable pact.
NOOL v. CA (July 1997)
Civil Law/Void Contracts/Sales: (1) A contract of repurchase arising out of a contract of
sale where the seller did not have any title to the property "sold" is not valid. Since
nothing was sold, then there is also nothing to repurchase. A void contract cannot give
rise to a valid one.
(2) The right to repurchase presupposes a valid contract of sale between the
same parties.
(3) In light of the prohibition against unjust enrichment, if a void contract has
already been performed, the restoration of what has been given is in order. Corollarily,
interest thereon will run only from the time of private respondents' demand for the return
of this amount in their counterclaim.
ONG v. CA (July 1997)
Civil Law/Contracts/Rescission: Arts 1191 and 1383 are inapplicable in this case: Art
1191 refers to rescission applicable to reciprocal obligations which should be
distinguished from rescission of contracts under Art 1383. Although both presupposed
contracts validly entered into and subsisting and both require mutual restitution when
proper, they are not entirely identical.
SPOUSES SANTIAGO v. CA (August 1997)
Civil Law/ Oblicon/ Simulated or Fictitious Contracts: Here, while petitioners (buyers
in a conditional deed of sale) were able to occupy the property allegedly sold, they
were relegated to a small bedroom without bath and toilet, while Arcega (seller)
remained virtually in full possession of the house and lot, using the master's
bedroom. If the transaction was indeed an absolute sale, then Arcega had no
business remaining on the property. Also if petitioners were the legitimate owners,
they would have collected rent from Arcega.
Since the transaction was used merely to facilitate a loan with the SSS with
petitioners using the property as collateral, the contract was absolutely simulated or
fictitious, declared void as per Art. 1409, NCC. The fact that petitioners were able to
secure a title in their names did not operate to vest ownership upon them. The Torrens
system does not create nor vest title, but merely confirms and records title already
existing and vested.
respondent, i.e., the payment of the last installment of the consideration mentioned in
the first agreement. Such conditions did not affect the perfection of the contract or prove
simulation. Neither did the mortgage.
Simulation occurs when an apparent contract is a declaration of a fictitious will,
deliberately made by agreement of the parties, in order to produce, for the purpose of
deception, the appearance of a juridical act which does not exist or is different from that
which was really executed. (Tongoy v. CA, 123 SCRA 99, 118 [1983]) Such an intention
is not apparent in the agreements. The intent to sell, on the other hand, is clear.
(2) At most, nonpayment only gives petitioner the right to sue for collection.
Generally, in a contract of sale, payment of the price is a resolutory condition and the
remedy of the seller is to exact fulfillment or, in case of substantial breach, to rescind the
contract under Art. 1191, NCC. However, failure to pay is not even a breach, but merely
an event which prevents the vendor's obligation to convey title from acquiring binding
force. (Jacinto v. Kaparaz, 209 SCRA 246, 254-55 [1992])
(3) The transfer of ownership via the 2 agreements and the relinquishment of
rights, being private contracts, were binding only between petitioner and private
respondent. The Public Land Act finds no relevance as the disputed land was covered
by said Act only after issuance of the order of award in favor of private respondent.
Thus, possession of any disqualification by private respondent under said Act is
immaterial to the private contracts between the parties thereto. (We are not, however,
suggesting a departure from the rule that laws are deemed written in contracts.)
BINGCOY v. CA (October 1997)
Civil Law/Prescription: Acquisitive prescription is in itself a mode of acquiring ownership
over a parcel of land and does not require successional rights in order to ripen into
ownership. There is nothing on the record that discloses even an attempt by petitioners
to rebut the evidence of private respondents as to their peaceful, continuous, adverse
and open possession in the concept of an owner over the lots for 22 years. Under the
law then, Act No. 190, 41 (Code of Civil Procedure), 10 years of continuous, actual
adverse possession was sufficient.
YOBIDO v. CA (October 1997)
Civil Law/Oblicon/Fortuitous Event: The explosion of a newly installed tire of a
passenger vehicle causing the vehicle to fall in the ravine is not a fortuitous event that
exempts the carrier from liability for the death of a passenger. To be considered a
fortuitous event: (a) the cause of the unforeseen and unexpected occurrence must be
independent of human will; (b) it must be impossible to foresee the event which
constitutes the caso fortuito, or if it could be foreseen, must have been impossible to
avoid; (c) the occurrence must be such as to render it impossible for the debtor to fulfill
his obligation in a normal manner; (d) obligor must be free from any participation in the
aggravation of the creditor's injury; (e) entire exclusion of human agency from the cause
of injury or loss.
Under the circumstances here, there are human factors involved. The fact that
the tire was new (in fact, grooves/tread were still visible) did not imply that it was entirely
free from manufacturing defects or that it was properly mounted on the vehicle. Neither
may the fact that the tire bought and used vehicle is of a brand name noted for qualify,
resulting in the conclusion that it could not explode within 5 days' use. Be that as it may,
it is settled that an accident caused either by defects in the automobile or through the
negligence of its driver is not a caso fortuito that would exempt the carrier from liability
for damages.
MURLI SADHWANI v. CA (October 1997)
Civil Law/Contracts/Lease/Sublease: Under Art. 1650, NCC, when the lease contract
does not expressly forbid a sublease, the lessee may sublet the thing leased. The rule is
different, however, re: assignments of lease. Art. 1649 provides that the lessee cannot
assign the lease without the consent of the lessor, unless there is a stipulation to the
contrary..
Indeed, the consent of the lessor is necessary because the assignment of lease
would involve the transfer not only of rights, but also of obligations. Such assignment
would constitute novation by substitution of one of the parties, i.e., the lessee. There is
no evidence here showing that Sawit subsequently agreed to a substitution of petitioners
in place of Orient as lessee.
1996
DOMINGO v. CA (March 1996)
Civil Law/ Contracts/ Compromise: A compromise is a contract whereby the parties, by
making reciprocal concessions, avoid a litigation or put an end to one already
commenced. Essentially, it is a contract perfected by mere consent. Once an agreement
is stamped with judicial approval, it becomes more than a contract binding upon the
parties; having the sanction of the court and entered as its determination of the
controversy, it has the force and effect of any other judgment.
PCIB v. CA (March 1996)
Civil Law/ Contracts/ Absolution from Liability: A stipulation embodied in the standard
application for/receipt furnished by petitioner for the purchase of a telegraphic transfer
which relieves it of any liability resulting from loss caused by errors or delays in the
course of the discharge of its services cannot absolve the petitioner from liability, where
it has acted fraudulently and in bad faith. In Geraldez v. CA (230 SCRA 320 [1994]), it
was unequivocally declared that notwithstanding the enforceability of a contractual
limitation, responsibility from a fraudulent act cannot be exculpated because the same is
contrary to public policy. (See Art. 21, Civil Code.) Freedom of contract is subject to the
limitation that the agreement must not be against public policy and any agreement
made in violation of this rule is not binding and will not be enforced. (17 Am Jur. 2d,
Contracts 257)
PNB v. CA (April 1996)
Civil Law/ Oblicon/ Payment/ Exemplary Damages: (1)When the court ordered petitioner
to pay private respondent the amount of P32,480.00, it had the obligation to deliver the
same to him. Under Art. 1233 of the Civil Code, a debt shall not be understood to have
been paid unless the thing or service in which the obligation consists has been
completely delivered or rendered. The burden of proof of such payment lies with the
debtor. (Pinon v. Osorio, 30 Phil. 365)
(2) Jurisprudence has set down the requirements for exemplary damages to be
awarded:
1.
they may be imposed by way of example in addition to compensatory
damages, and only after the claimant's right to them has been established;
2.
they cannot be recovered as a matter of right, their determination
depending upon the amount of compensatory damages that may be awarded to the
claimant;
3.
the act must be accompanied by bad faith or done in a wanton manner.
(Octol v. Ybaez, 111 SCRA 79 [1982]; De Leon v. CA, 165 SCRA 166 [1988])
In the case at bench, while there is a clear breach of petitioner's obligation to pay
there is no evidence that it acted in a fraudulent manner. Furthermore, there is no award
of compensatory damages which is a prerequisite before exemplary damages may be
awarded.
SPOUSES ALMEDA v. CA (April 1996)
Civil Law/Contracts/Obligatory Force/Interest/Escalation Clause: (1)The binding
effect of any agreement between parties to a contract is premised on two settled
principles: (a) that any obligation arising from contract has the force of law
between the parties; and (b) that there must be mutuality between the parties
based on their essential equality. Any contract which appears to be heavily
weighed in favor of one of the parties so as to lead to an unconscionable result is
void. Any stipulation regarding the validity or compliance of the contract which is
left solely to the will of one of the parties, is likewise, invalid.
PNB unilaterally altered the terms of its contract with petitioners by increasing the
interest rates on the loan without prior assent of the latter. Article 1956 stipulates that
"No interest shall be due unless it has been expressly stipulated in writing."
(2)Escalation clauses are not basically wrong or legally objectionable as long as they
are not solely potestative but based on reasonable and valid grounds.
him by reason of the fiansa; while a solidary co-debtor has no other rights than those
bestowed upon him in Section 4, Chapter 3, Title I Book IV of the Civil Code
(3) Under Art. 1207 thereof, when there are two or more debtors in one and the
same obligation, the presumption is that the obligation is joint so that each of the debtors
is liable only for a proportionate part of the debt. There is solidary liability only when the
obligation expressly so states, when the law so provides or when the nature of the
obligation so requires.
Because the promissory note involved in this case expressly states that the three
signatories therein are jointly and severally liable, any one, some or all of them may be
proceeded against for the entire obligation. The choice is left to the solidary creditor to
determine whom he will enforce collection.
NATIONAL WATERWORKS (now MWSS) v. NLRC (July 1996)
Civil Law/Contracts/Prescription: Article 1155 of the Civil Code provides the specific
instances when the period of prescription may be interrupted. Any such interruption is a
factual matter to be properly supported by evidence. Private respondents' claims herein
are not barred by prescription, the period having been interrupted by the written
extrajudicial demands made by private respondents, coupled with petitioner's own pleas
for time within which to pay the claims.
AMERICAN HOME ASSURANCE v. NLRC (July 1996)
Civil Law/ Oblicon/ Condition: Petitioners denied the grant of the bonus to private
respondent because the condition for its grant is that the employee must retire under the
SERP. Yet, it was the unjust denial of his applications that prevented private respondent
from complying with such condition for early retirement. As petitioners, being employersobligors, voluntarily prevented fulfillment of the condition by their own acts, private
respondent is deemed to have fulfilled the condition for early retirement.
PNB v. CA (July 1996)
Civil Law/Oblicon/Compensation: What petitioner bank is effectively saying is that since
the respondent appellate court ruled that petitioner bank could not do a shortcut and
simply intercept funds being coursed through it, for transmittal to another bank, and
eventually to be deposited to the account of an individual who happens to owe some
money to petitioner, and because respondent court ordered petitioner bank to return the
intercepted amount to said individual, who in turn was found by the appellate court to be
indebted to petitioner bank, therefore, there must now be legal compensation of the
amounts each owes the other, hence, there is no need for petitioner bank to actually
return the amount, and finally, that petitioner bank ends up in exactly the same position
as when it first took the improper and unwarranted shortcut by intercepting the said
money transfer, notwithstanding the assailed decision saying that this could not be done!
There is here a clever ploy to use this Court to validate an improper act of petitioner
bank, with the not impossible intention of using this case as precedent for similar acts of
interception in the future.
BRILLO HANDICRAFTS v. CA (G.R. No. 109090, Aug. 7, 1996)
Civil Law/Contracts/Estoppel: Estoppel has set in where petitioner had partially paid the
amount and acquiesced to the respondents rate.
CUIZON v. CA (G.R. No. 102096, Aug. 22, 1996)
Civil Law/Oblicon/Interpretation/Fraud: (1) In contractual relations, the law allows the
parties much leeway and considers their agreement to be the law between them. This is
because "courts cannot follow one every step of his life and extricate him from bad
bargains xxx relieve him from one-sided contracts, or annul the effects of foolish acts."
(Vales v. Villa, 35 Phil. 769)
(2) Where the parties have given a practical construction by their conduct, as by
acts in partial performance, such construction may be considered by the court in
determining its meaning and ascertaining the mutual intention of the parties at the time
of the contracting. (Javier v. CA, 183 SCRA 171) If it were true as private respondents
claim that their agreement was for the transfer of the subject lots only upon payment of
the full consideration, why then did private respondents execute a deed of sale over one
[of six] lot[s] although they knew too well that a partial amount only of the purchase price
was paid? No credible explanation was given by private respondents.
(3) In construing a written agreement, the reason behind and the circumstances
surrounding its execution are of paramount importance to place the interpreter in the
situation occupied by the parties concerned at the time the writing was executed.
(Vicente v. Shotwell, 38 SCRA 107) Admittedly, the intention of the contracting parties
should always prevail because their will has the force of law between them. (Kasilag v.
Rodriguez, 69 Phil. 217)
(4) We do not find it proper to use the fair market value as the price of one lot.
This is not in accord with the contract between the parties. It is not the province of the
court to alter a contract by construction or to make a new contract for the parties; its
duty is confined to the interpretation of the one which they have made for themselves
without regard to its wisdom or folly as the court cannot supply material stipulations or
read into the contract words which it does not contain. (Bacolod Murcia v. Banco
Nacional, 74 Phil. 675)
(5) Fraud is the deliberate or intentional evasion of the normal fulfillment of an
obligation. (8 Manresa 72) The mere failure of private respondents to execute a deed of
sale because they demanded first an accounting of the lots used as collateral by
petitioner and amount of loans secured could not be considered as fraud. Fraud is
never presumed; it must be alleged and proven. (Atilano v. Inclan, 45 Phil. 246) Fraud is
negated when private respondents partially performed their obligation when they
executed a deed of sale over 1 lot.
RIZAL SURETY v. CA & TRANSOCEAN TRANSPORT (G.R. No. 96727, Aug. 28,
1996)
Civil Law/ Contracts/Trusts: In Mindanao Devt. Authority v. CA (113 SCRA 429, 436-437
[1982]), this Court held the elements of an express trust:
1)
Competent trustor and trustee;
2)
An ascertainable trust res; and
3)
Sufficiently certain beneficiaries.
There is no need for stilted formalities. There must be a present and complete
disposition of the trust propoerty, notwithstanding that the enjoyment in the beneficiary
will take place in the future. Also, the purpose must be an active one to prevent trust
from being executed into a legal estate or interest, and one not in contravention of some
prohibition of statute or rule of public policy.
Power of administration must be other than a mere duty to perform a contract
although the contract is for a 3rd party beneficiary. A declaration of terms is essential,
and these must be stated with reasonable certainty in order that the trustee may
administer, and the court, if called upon to do so, may enforce the trust.
INTER-ASIA SERVICES CORP. v. CA (G.R. No. 106427, October 1996)
Civil Law/ Contracts/ Lease/ Renewal v. Extension: To renew means the old contract is
extinguished, thus a new one must be executed, and vice-versa. In this case, there was
only an extension where after the contract expired on 14 July 1990, agreements were
entered into for petitioner to stay on the leased premises up to 1 January 1991 and
subsequently up to 1 March 1991. In Fernandez v. CA (166 SCRA 577 [1988]), this
Court held that an alleged verbal assurance of renewal of a lease is inadmissible to
qualify the terms of the written lease agreement under the parole evidence rule and
unenforceable under the Statute of Frauds.
PHIL. INTL. TRADING CORP. v. ANGELES (G.R. No. 108461, October 1996)
Civil Law/Publication of Laws: In Taada v. Tuvera (146 SCRA 446 [1986]), we ruled that
executive issuances meant to enforce and implement an existing law pursuant to a valid
delegation, must be published.
SECURITY BANK & TRUST CO. v. RTC (G.R. No. 113926, October 1996)
Civil Law/Interest/Usury: Should the rate of interest on a loan as stipulated in a
contract (23% here), far in excess of the ceiling prescribed under or pursuant to the
Usury Law prevail over 2 of CB Circular No. 905 which prescribes that the rate of
interest thereof shall continue to be 12% per annum?
Circular No. 905 merely suspended the effectivity of the Usury Law. Where the
rate of interest was agreed upon by the parties freely, it is not for respondent court to
change the stipulations in the contract where it is not illegal. Further, Art. 1306, NCC
provides that contracting parties may establish stipulations as they deem convenient,
provided they are not contrary to law, etc. We find no valid reason for the respondent
court to impose a 12% interest rate on the principal balanc. In a loan, the interest due
should be that stipulated in writing, and in the absence thereof, the rate shall be 12%
p.a. (Eastern Shipping v. CA, 234 SCRA 78) Hence, only in the absence of a stipulation
can the court impose the 12% interest rate.
MACTAN CEBU INTL. AIRPORT AUTHORITY v. CA (G.R. No. 121506, October 1996)
Civil Law/Contracts/Statute of Frauds: Under Art. 1403, NCC, a contract for the sale of
real property shall be unenforceable unless the same or some note or
memorandum thereof be in writing and subscribed the party charged or
his agent. Evidence of the agreement cannot be received without the
writing, or a secondary evidence of its contents. In case at bench, the
deed of sale and verbal agreement allowing the right of repurchase
should be considered an integral whole. The deed of sale relied upon by
petitioner is in itself the note or memorandum evidencing the contract.
Thus, the requirement of the Statute of Frauds has been sufficiently
complied with. Moreover, the principle of the Statute of Frauds only
applies to executory contracts and not to contract either partially or totally
performed (Victoriano v. CA, 194 SCRA 19), as in this case, where the
sale has been consummated; hence, the same is taken out of the scope
of the Statute of Frauds.
As the deed of sale has been consummated, by virtue of which, petitioner
accepted some benefits thereunder, it cannot now deny the existence of the agreement.
(Art. 1405, NCC) The Statute of Frauds was enacted for the purpose of preventing fraud
and should not be made the instrument to further them. (National Bank v. Phil. Vegetable
Oil, 49 Phil. 857)
PHIL. NATIONAL BANK v. CA (G.R. No. 123643, October 1996)
Civil Law/Damages/Interest: The 12% interest rate referred to in Circ. 416 applies only to
loans or forbearance of money, or where money is transferred from one person to
another and the obligation to return the same or a portion thereof is adjudged. xxx (FTI
v. CA & TAO Devt., G.R. No. 120097, 23 Sept. 1996)
Therefore, the proper rate of interest referred to in the judgment under execution
is only 6%, to be computed from the time of the filing of the complaint considering that
the amount adjudged can be established with reasonable certainty (P98,691.90).
CONSTANTINO v. CA (G.R. No. 116018, November 1996)
Civil Law/Contracts/Land Titles/Fraud: We find respondents allegation that they signed
the deed prior to the survey worthy of credit. As found by the trial court, petitioners
contrary contention was contradicted by petitioners own witness who positively asserted
in court that the survey was conducted 6 days after the signing. Obviously, when
respondents signed the deed, it was still incomplete sice petitioner who caused it to be
prepared left several spaces blank, regarding the dimensions of the property to be sold.
The heirs were persuaded to sign the document only upon assurance of petitioner that
Roque would be present when the property would be surveyed. But this turned out to be
a ruse of petitioner to induce respondents to sign the deed. (See Periquet v. IAC, 238
SCRA 697 [1994]) Thus all elements of fraud vitiating consent for purposes of annulling
a contract concur: (a) employed by a contracting party upon the other; (b) induced the
other party to enter into the contract; (c) serious; and (d) resulted in damage and injury
to the party seeking annulment. (Alcasid v. CA, 237 SCRA 419 [1994])
Perhaps, another reason to annul the document is that the second page
manifests that the number of the subdivision plan and the respective area of the lot were
merely handwritten while the rest of the statements were typed, which leads us to
conclude that the handwritten figures were not available at the time the document was
formalized.
and then hold the debtor in default for non-payment of installments on the principal (Art.
1253, Civil Code).
DBP v. CA (G.R. No. 110053, Oct. 16, 1995)
Civil Law/Oblicon/Void Contracts/Restoration: If both parties have no fault
or are not guilty, the restoration of what was given by each of them to the other is
in order. The declaration of nullity of a contract which is void ab initio operates to
restore things to the state and condition in which they were found before the
execution thereof.
AG & P v. CA (G.R. Nos. 114841-42, Oct. 20, 1995)
Civil Law/Contracts/Damages/Interest: When an obligation not constituting a loan or
forbearance of money is breached, interest on the amount of the damages awarded may
be imposed at the rate of six percent (6%) per annum. No interest shall be adjudged on
unliquidated claims unless the same can be established with reasonable certainty.
The actual base for the computation of such legal interest, however, shall be the
amount as finally adjudged by this Court. Furthermore, when our judgment herein
becomes final and executory, the rate of legal interest shall be twelve percent (12%)
from such finality until the satisfaction of the total judgment account, the interim period
being effectively equivalent to a forbearance of credit.
CASE NO.9
SM: Contracts; suretyship; Art. 2047, NCC
PALMARES vs. CA
GR # 126490, March 31, 1998
FACTS: Pursuant to a promissory note (PN), private respondent MB Lending Corp. (MB)
extended a loan to the spouses Azarraga together with petitioner amounting to P30k but
debtors were able to pay only P16, 300. Consequently, on the basis of petitioners
solidary liability under the PN, MB filed a complaint against petitioner as the lone party
defendant to the exclusion of the principal debtors, allegedly due to the latters
insolvency. Petitioner claimed that while she agreed to be liable on the note upon default
of the principal debtor, MB acted in bad faith in suing her alone without including the
Azarragas when they were the only ones who benefited from the loans proceeds.
HELD: Petitioner expressly bound herself to be jointly and severally liable with the
principal maker of the note. The terms of the contract are clear, explicit and unequivocal
that petitioners liability is that of a surety. A surety is an insurer of the debt, a
suretyship is an undertaking that the debtor shall pay. A surety promises to pay
the principals debt. If the principal will not pay, he binds himself to perform if the
principal does not, w/o regard to his ability to do so. In fine, a surety undertakes
directly for the payment and is so responsible at once if the principal debtor
makes default. It has not been shown, either in the contract or the pleadings that MB
agreed to proceed against petitioner only if and when the defaulting principal has
become insolvent
CASE NO. 10
SM: Contracts; A. 1342, NCC
PBC vs. CA
GR # 109803, April 20, 1998
FACTS: Chee Puen, then the general manager of Global Inc., informed private
respondent, his estranged wife that their company a P300k loan for its operational
expenses. He proposed that her paraphernal lot in Makati be used as collateral. He
assured her that the loan would not exceed P300k and she was asked to sign 3 sets of
blank forms of real estate mortgage (REM) of PBC. He wrote down in pencil the figure
300 under the space provided for the amount to be loaned and respondent signed the
blank mortgage forms due to Chee Puens representations. Chee Puen had the REM
document later notarized by Atty. Arzadon using a residence certificate bearing
respondents forged signature. Apparently, Chee Puen applied for a P3M loan from
PBC. To secure the loan, he mortgaged respondents paraphernal lot in Makati, using
the blank REM forms signed by her. He also misrepresented himself as president and
acting corporate secretary of Global, Inc. PBC did not investigate Chee Puens authority
CASE NO. 23
SM: Quasi delicts; Liability of employers under Arts.2180 & 2194, NCC
METRO MANILA TRANSIT CORP. vs. CA
GR# s 116617 & 126395, November 16, 1998
FACTS: Liza Rosalie Rosales died due to a vehicular accident involving petitioner
MMTCs vehicle driven by Pedro Musa. Her parents sued MMTC and Musa for
damages. According to MMTC, it has exercised the diligence of a good father of a family
with respect to the selection of employees by presenting mainly testimonial evidence on
its hiring procedure. Thus, it should not be liable for damages. HELD: The evidence
presented by MMTC to show that it exercised the diligence of a good father of a family in
the selection and supervision of employees and thus avoid the vicarious liability for the
negligent acts of its employees is insufficient to overcome the presumption of negligence
against it. MMTC is thus primarily liable for damages arising from the negligence of its
employee in view of A.2180, NCC. It can recover from its employee but does not make
the latters liability subsidiary. They are solidarily liable. The liability of the registered
owner of a public service vehicle for damages arising from the tortious acts of its
driver is primary, joint and direct with the driver.
NO. 25
SM: Obligations and contracts; double sale
CHENG vs. GENATO
GR# 129760, December 29, 1998
FACTS: Respondent Ramon Genato entered into a contract to sell with the other
respondents, spouses Da Jose. The contract was in a public instrument and was duly
annotated at the back of the 2 Transfer of Certificate of Titles covering the said lots. The
contract provided, among others, the partial down payment of P50k and the payment of
the remaining P950k after 30 days and only after verifying and confirming the truth and
authenticity of the documents. Said 30 days was executed for another 30 days.
Pending the effectivity of said extension, and without notifying the Da Joses,
Genato executed an Affidavit to Annul the Contract to Sell but no annotation of the same
was made at the back of his titles.
Cheng and Genato thereafter entered into a contract of sale over the lands. Genato
decided to continue the contract he had with the Da Joses and sent back Chengs check
but Cheng demanded compliance with their agreement as it was already perfected.
Cheng further executed as Affidavit of Adverse Claim which was annotated on the
subject TCTs. Meanwhile, the Da Joses paid Genato the P950k balance. HELD: The Da
Joses were not in default since the 30 day extension period has not yet expired. In
addition, no further condition was agreed upon when the Da Joses were granted the 30
days extension. Even if they did default in their Contract to sell, the affidavit to annul is
not even called for. With or with out it, their non-payment to complete the full down
payment of the purchase price ipso facto avoids their contract to sell, it being subjected
to a suspensive condition. When a contract is subject to a suspensive condition, its
birth/effectivity can take place only if and when the event which constitutes the
condition happens or is fulfilled. If it does not take place, the parties would stand
as if the conditional obligation had never existed. Further, the act of a party of
canceling a contract should be made known to the other. Since that was not made, the
Da Joses contract was not rescinded properly. Lastly, the knowledge gained by Cheng
of t heist transaction between the Da Joses and Genato defeats his rights even if he is
first to register the 2nd transaction, since such knowledge taints his prior registration with
bad faith.
CASE NO. 29
SM: Obligation and contracts; Rescission, A.1191, NCC
ONG vs. CA
GR# 97347, July 06, 1999
FACTS: Petitioner Jaime Ong and respondent spouses Miguel and Alejandra Robles
executed an Agreement of Purchase and Sale on 2 lots for P2M. Ong paid the Robles
couple the initial payment of P103, 499.91 as agreed upon, by depositing it with the
UPCB. Ong took possession of the property will all the improvements thereon. He
further deposited the remaining payment with the BPI in accordance with their stipulation
that Ong pay the respondents loan with BPI. Ong issued 4 post dated Metro Bank
checks to answer fro his P1.4M balance but they were dishonored for insufficient funds.
Ong failed to replace the checks and out of the P496, 500 BPI loan, he only paid P393,
679.60. Respondents then sold 3 of their rice mills transformers found in the subject
lots and Ong gave them the authority to operate the mill while retaining possession of
the lots. Respondents demanded Ong the return of their properties. Ong ignored the
same. HELD: A careful reading of the parties contract shows that it is a contract to
sell whereby ownership is by agreement, reserved in the vendor and is not to pass
to the vendee till full payment of the purchase price. In a contract to sell, payment
of the purchase price is a positive suspensive condition, the failure of which is not
a breach, causal or serious, but a situation that prevents the obligation of the
vendor to convey title from acquiring an obligatory force.
In the instant case,
the respondents bound themselves to deliver a deed of absolute sale and a clean title
upon full payment by Ong of the P2M. Ongs failure to complete payment rendered the
contract to sell ineffective and without force and effect. The breach contemplated in
A.1191, NCC is the obligors failure to comply with an obligation already extant, not a
failure of a condition to render binding that obligation. Hence, the agreement of the
parties herein maybe set aside, but not because of a breach on Ongs part to pay in full.
Rather, his failure brought a situation which prevented the obligation of respondents to
convey title from acquiring an obligatory force.
CASE NO. 30
SM: Wills and Succession; Holographic will; A.811, NCC
CODOY vs. CALUGAY
GR# 123486, August 12, 1999
FACTS: Matilde Seo Vda. De Ramonal executed a holographic will. Herein
respondents, devisees and legatees of said will filed with the RTC of Misamis Oriental a
petition for probate of said will.Petitioners opposed the petition alleging that the
holographic will was a forgery and that the same was even illegible. They argued that
the repeated dates incorporated or appearing on the will after every disposition is out of
the ordinary. The CA held that the testimonies presented by respondents prove the
authenticity of the will and the handwriting and signature therein and allowed the wills
probate. HELD: The word shall in a statute commonly denotes an imperative
obligation and is inconsistent with the idea of discretion and that the presumption
is that the word shall when used in a statute is mandatory. However, in the case
at bar, the goal to achieve is to give effect to the wishes of the deceased and the evil to
be prevented is the possibility that unscrupulous individuals who for their benefit will
employ means to defeat the wishes of the testator. Not all the witnesses presented by
the respondents testified explicitly that they were familiar with the testators handwriting.
Further, the will was found not in the decedents personal belongings but with one of the
respondents who kept it even before the decedents death. There was even no
opportunity for an expert to compare the signature and the handwriting of the deceased
with other documents signed and executed by her during her lifetime. A comparison of
the strokes and signature of the decedent in the will with the other documents written by
her prior to said will showed that there is uncertainty that the holographic will is in the
deceaseds handwriting.
CASE NO. 31
SM: Contracts; A.1603, NCC; equitable mortgage
CHING SEN BEN vs. CA
GR # 124355, September 21, 1999
FACTS: Petitioner constructed a house on his Marikina lot (TCT 128394) and agreed to
transfer the same to Vicente for P150, 000 to be paid by Vicente from the proceeds of
his housing loan from the SSS which granted him a P119, 400 loans. Ching then
executed a Deed of Absolute Sale over said realty in Vicentes favor. Ching informed
Vicente that he has a P43k balance on the house and lot. Vicente failed to pay the said
amount. Thereafter, they executed a Deed of Sale with Assumption of Mortgage and
With Right to Repurchase whereby Vicente conveyed the property to Ching. It provided
that Ching will assume all the duties and obligations of Vicente imposed upon by the
latter in the deed of mortgage he executed in SSSs favor, as if Ching was the original
mortgagor in the mortgaged deed. However, Vicente retained possession of the property.
Ching paid in full to the SSS Vicentes account. SSS then issued a release of REM
annotated on TCT 146078 under Vicentes name. Ching demanded that Vicente
execute a Deed of Absolute Sale over the property. Vicente ignored it. HELD: The deed
of sale with assumption of mortgage and right to repurchase is actually an equitable
mortgage. The purported consideration for the sale with right to repurchasing the amount
of P60, 242.86 is unusually inadequate compared to the purchase price of P150k when
Vicente bought it from Ching 6 months before the execution of the deed. Not only did
Vicente retained possession of the property but he also retained ownership thereof
which led Ching to file the consolidation case.The real intention of the parties was to
secure the payment by Vicente of the balance of the purchase price and the transfer
fees of P43k. The stipulation in the Deed of sale with right to repurchase that absolute
title shall be vested in the vendee in case the vendor failed to redeem the property on
the specified date is void for being a pactum commissorium. Further, that Ching
assumed the mortgage obligation of Vicente to the SSS does not detract from the real
nature of the agreement as a contract of mortgage to secure the debts payment.
CASE NO. 38
SM: Contracts; void contract; A.1412 (2)
CAVITE DEVELOPMENT BANK vs. SPOUSES LIM
GR# 131679, February 01, 2000
FACTS: Rodolfo Guansing obtained a P90k loan from CDB and mortgaged a lot covered
by TCT#300809 registered in his name. Guansing defaulted in his payment and thus,
CDB foreclosed the mortgage which was sold to CDB in the foreclosure sale that
ensued. Guansing failed to redeem his lot and CDB eventually consolidated title to the
property in its name evidenced by TCT# 355588.Private respondent Lolita Lim offered to
buy the lot from CDB. The offer provided 10% option money and the balance payable in
cash. Lim discovered that the subject property was originally registered in the name of
Perfecto Guansing, Rodolfos father. Apparently, Rodolfo succeeded in having the lot
registered in his name under the title he mortgaged to CDB and from which CDBs title
was derived. However, Perfecto instituted a case for the cancellation of Rodolfos title
which was granted and the decision became final and executory. HELD: In the instant
case, the P30k, although denominated in the offer to purchase as option money, is
actually in the nature of earnest money or down payment when considered with the
other terms of the offer. An option contract is a contract separate from and
preparatory to a contract of sale which, if perfected, does not result in the
perfection or consummation of the sale. Only when the option is exercised may a
sale be perfected. Here however, after the payment of the 10% option money, the offer
to purchase provides for the payment only of the balance of the purchase price. This is
the result of paying earnest money under A.1482, NCC. Clearly, the parties entered into
a contract of sale, perfected and partially executed by the partial payment of the
purchase sale. But due to the legal obstacle of the annulment of Rodolfos title from
which CDB derived its own title, the contract between it and Lim can not be enforced and
is void by reasons of public policy. Since CDB can not be considered a mortgagee in
good faith due to its negligence for failing to conduct an exhaustive investigation, it is
liable to return the P30k, plus damages as provided by A.1412 (2), NCC.
CASE NO. 40
SM: Obligation and contracts; rescissible contracts; A.1381(3), NCC
CHINA BANKING CORPORATION (CBC) vs. CA
GR# 129644, March 3, 2000
FACTS: Alfonso Roxas Chua obtained a loan from MetroBank which he secured by
mortgaging his conjugal share in a property covered by TCT #410603. Alfonso failed to
pay and consequently MetroBank foreclosed the realty. In 1988, during the period of
exercising his right to redeem said realty, Alfonso sold his right of redemption to his son,
Paulino who redeemed the property and caused the annotation thereof at the back of the
title. This preceded the annotation of the levy of execution in CBCs favor by 2 years
and the certificate of sale also in CBCs favor by more than 3 years. CBC is Alfonsos
creditor which obtained judgment against him and Pacific Multi Agro Industrial Co. on
November 07, 1985, 2 years before Alfonso sold his right to redeem to Paulino.
Consequently, CBC sued Paulino alleging that the transaction between him and his
father was fraudulent and was meant to defraud the latters creditors such as CBC.
HELD: Since the judgment of the trial court in CBCs favor against Alfonso was rendered
as early as 1985, there is a presumption that the 88 sale of his property, in this case, the
right of redemption, is fraudulent under A.1387, NCC. The fact that Paulino redeemed
the property and caused its annotation on the TCT ahead of CBC is of no moment since
a fraudulent transaction , such as Alfonsos and Paulinos , is not overcome by the mere
fact that the deeds of sale were in the nature of public instruments.
This
presumption is strengthened by the fact that the conveyance has virtually left Alfonsos
other creditors with no other property to attach. The mere fact that the conveyance
was founded on valuable consideration as in the case at bar, does not necessarily
negates the presumption of fraud under A.1387, NCC. There has to be a valuable
consideration and the transaction must have been made bona fide. In the instant
case, the presumption of fraudulent conveyance has not been overcome.
CASE NO. 50
SM: Obligations; when is a contract perfected
JARDINE DAVIES INC. vs. CA
GR#s 128066 & 128069, June 19, 2000
FACTS:
Purefoods Corporation (PC) decided to install 2 1500kw generators in its
food processing plant in Marikina City due to the 1992 power crisis.3 bidders submitted
bid proposals and gave bid bonds equivalent to 5% of their respective bids as required.
Far East Mill Supply Corporation (FEMSCO) won the contract and immediately
submitted the required performance bond amounting to P1, 841,187.90 and contractors
all-risk insurance policy totaling P6, 137,293 with PC acknowledged in a letter. It also
made arrangements with its principal and started purchasing the necessary materials.
PC meanwhile returned FEMSCOs Bidders Bond of P1M as requested. However, PC
unilaterally cancelled the award allegedly due to significant factors. FEMSCO protested
the act and before the matter could be resolved, PC already awarded the project and
entered into a contract with Jardine Nell, a division of Jardine Davies, Inc (JDI), which
was not one of the original bidders. HELD: Contracts are perfected by mere consent,
upon the acceptance by the offeree of the offer made by the offeror. 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, maybe in keeping with
good faith, usage and law. For a contract to arise, the acceptance must be made known
to the offeror. Accordingly, the acceptance can be withdrawn/ revoked before it is made
known to the offeror. PC started the process on entering into the contract by conducting
bidding. The bid proposals/quotations submitted by the bidders which included FEMSCO
are the offers and PCs reply the acceptance / rejection of the same. The December 12,
1992 letter of PC to FEMSCO constituted acceptance of FEMSCOs offer
notwithstanding the conditions contained in the contract. The conditions were imposed
on the performance of the obligation rather than on the perfection of the contract. They
were prescriptions on how the obligation was to be performed and implemented, not
conditions imposed on the perfection of the contract. PCs cancellation of its contract
with FEMSCO presupposes that the contract has been perfected. Here, the SC
awarded moral damages to FEMSCO after it sufficiently showed that its reputation
has been tarnished (cf HANIL and ABS-CBN cases).
CASE NO. 51
SM: Contracts; Novation
ESPINA vs. CA
GR# 116805, June 22, 2000
FACTS: Respondent Diaz originally occupied the subject condo unit in 1987 as a lessee.
While he was its lessee, petitioner agreed to sell the unit to him by installments. The
agreement to sell was provisional as the consideration was payable in installments.
Petitioner terminated the provisional deed of sale by a notarial notice of cancellation;
Diaz remained the lessee but he failed to pay the rentals due. Diaz subsequently made
payment of P100k applicable either to the back rentals or for the purchase of the unit.
Nevertheless, petitioner gave Diaz a notice to vacate the premises and to pay his back
rentals. Diaz failed to do both and so petitioner filed an action for unlawful detainer
against him. Diaz alleged that the provisional deed of sale executed by them novated the
original existing contract of lease and thus, petitioner has no cause of action for
ejectment against him. HELD: Novation must be clearly proved; its existence is not
presumed. It only takes place if the parties expressly so provide, otherwise, the original
contract remain in force. Where there is no clear agreement to create a new contract in
place of the existing one, novation cannot be presumed to take place, unless the terms
of the new contract are fully incompatible with the former agreement on every point. In
the case at bar, after the initial down payment , respondents checks in payment of 6
installments all bounced and were dishonored. This led to petitioners termination of the
provisional deed of sale. Petitioners subsequent acceptance of payment did not
withdraw the cancellation of the provisional sale. Unless the application of payment is
expressly indicated, the payment shall be applied to the most onerous obligation of the
debtor, in this case, the unpaid rentals.
Since the payment did not fully settle the
unpaid rentals, the cause of action for ejectment survives.
CASE NO. 53
SM: Contracts; A. 1479, NCC
SAN MIGUEL PROPERTIES PHIL INC. vs. SPOUSES HUANGS
GR# 137290, July 31, 2000
FACTS: The parties in the case at bar executed an instrument involving the sale of the
petitioners subject real properties to the Huangs. The Huangs wrote petitioner the terms
of their offer. Among the conditions given by the Huangs are: (1) that they be given the
exclusive option to purchase the property within 30 days from acceptance of the offer;
(2) that during the option period, the parties would negotiate the terms and conditions of
the purchase; and (3) petitioner would secure the necessary approval while respondents
would handle the documents. The Huangs gave petitioner P1M as earnest deposit.
However, the couple and petitioner failed to agree on the terms of the payment.
Petitioner gave the Huangs a 45-day extension so that a final agreement may be had.
What transpired however was nothing more than offers and counter offers. Petitioner
then offered the properties to another. HELD: Under A.1479, NCC, consideration in an
option contract maybe anything of value, unlike in sale where it must be the price certain
in money or its equivalent. In the case at bar, there is no showing of any consideration
for the option. Lacking any proof of such consideration, the option is unenforceable. The
manner of payment of the purchase price is an essential element before a valid and
binding contract of sale can exist. Although the NCC does not expressly state that the
minds of the parties must also meet on the terms/manner of payment of the price, the
same is needed; otherwise, there is no sale. Agreement on the manner of payment goes
into the price such that a disagreement is tantamount to a failure to agree on the price.
Thus, it is not the giving of earnest money, but the proof of the concurrence of all the
essential elements of the contract of sale which establishes the existence of a perfected
sale. In addition, the Huangs did not give the P1M as earnest money as defined by
A.1482, NCC. It was only given not as a part of the purchase price and as proof of the
perfection of the contract of sale but only as a guarantee that respondents would not
back out of the sale.
CASE NO. 54
SM: Obligations and Contracts; Contract to Sell vs. Contract of Sale
SPOUSES FORTUNATO AND ROSALINDA SANTOS vs. CA
GR# 120820, August 01, 2000
FACTS: Private respondents, the Caseda couple, possessed the subject house and lot
in Paraaque City. However, the TCT over the same issued by the Register of Deeds of
Paraaque has always remained in Rosalindas name. Although the parties agreed that
the Casedas would assume the mortgage, all amortization, payments made by Carmen
Caseda to the bank were in Rosalindas name. The bank cancelled and discharged the
mortgage in Rosalindas favor. Apparently, petitioners thus informally sold with conditions
the said realties to the Casedas. The Casedas failed to pay in full. The Santoses thus
reposed their property. HELD: A.1458, NCC expressly obliges the vendor in a contract
of sale to transfer the ownership of the thing sold as an essential element of such a
contract. After a careful examination of the contents of the parties unofficial receipt and
other proofs, the SC held that there was no valid transfer of ownership was made by the
Santoses to the Casedas. Absent this essential element, their agreement can not be
deemed a contract of sale. What they had was a mere contract to sell. In contracts to
sell, ownership is reserved in the vendor and is not to pass until full payment of the
purchase price. In a contract of sale, the vendor has lost ownership of the thing sold and
can not recover it, unless the contract of sale is rescinded and set aside. In a contract to
sell, however, the vendor remains the owner for as long as the vendee has not complied
fully with the condition of paying the purchase. If the vendor should eject the vendee for
failure to meet the condition precedent, he is enforcing the contract and not rescinding it.
Such is what the Santoses did in this case.
CASE NO. 65
SM: Obligation and Contracts; Novation
AGRO CONGLOMERATES, INC. vs. CA
GR# 117660, December 18, 2000
FACTS: The conflict among the parties started from a contract of sale of a farmland
between Agro and Wonderland Food Industries.The original plan was that the initial
payments would be paid in cash. Subsequently, the parties, with respondent banks
participation, executed an addendum providing instead, that Agro would secure a loan in
its name for the total amount of the initial payments, while the settlement of said loan
would be assume by Wonderland. Thereafter, petitioner Soriano signed several
promissory notes (PNs) and received the proceeds in Agros behalf.
In effect, the
parties entered into a subsidiary contract of suretyship since petitioners signed the PNs
as makers and accommodation party for Wonderlands benefit. Petitioners asserted that
the addendum provided that their obligation to pay the PNs was novated by substitution
of a new debtor, Wonderland, and as such, they were not liable anymore on the PNs.
HELD: In order that a novation can take place, the concurrence of the following
requisites is indispensable: (1) there must be a previous valid obligation; (2) there
must be an agreement of the parties concerned to a new contract; (3) there must be the
extinguishment of the old contract; and (4) there must be the validity of the new contract.
In the case at bar, the 1st requisite for a valid novation is lacking. There was no
novation by substitution of debtor because there was no prior obligation which was
substituted by a new contract. The PNs, which bound petitioners to pay, were executed
after the addendum. The addendum modified the contract of sale, not the stipulation in
the PNs which pertain to the surety contract. Wonderland apparently assured the
payment of future debts to be incurred by petitioners. Consequently, only a contract of
surety arose. It was wrong for petitioners to presume that a novation had taken place.
Settled is the rule that a novation is never presumed, it must be clearly and
unequivocally shown.
CASE NO. 67
SM: Obligations and Contracts; Novation as a means to extinguish a contract of surety
BABST vs. CA
GR#s 99398/104625, January 26, 2001
FACTS: Babst alleged that DBP sold ELISCONs entire asset to the NADECO, for the
latter to take over and continue the operation of its business. Thereafter, the DBPs
Board of Governors adopted Resolution# 2817 providing that DBP shall enter into a
contractual arrangement with NDC for the latter to pay ELISCON;s creditors, including
BPI, amounting to P 4,015,534.54. A Memorandum of Agreement (MOA) between DBP
and NDC followed which provided that NDC shall pay to ELISCONs creditors, through
DBP, the amount of P299, 524,700. BPI again was listed as a creditor. Babst further
alleged that the ELISCON assets which DBP acquired and later transferred to NADECO
(NDC) were placed under the Asset Privatization Trust. Thus, he was not liable. Due to
its failure to make payment, BPI commenced an action to enforce payment of the credits
of ELISCON with CBTC which was acquired in a merger by BPI. The action was against
Pacific Multi Commercial Corporation and Babst as ELISCONs sureties. HELD: While a
surety is solidarily liable with the principal debtor, his obligation to pay only arises upon
the principal debtors failure/ refusal to pay. In the case at bar, there was no indication
that the principal debtor will default in payment.
BPIs conduct further showed a clear
and unmistakable consent to DBPs substitution for ELISCON as debtor. The authority
granted by BPI to its account officer to attend the creditors meeting was an authority to
represent the bank such that when he failed to object to the substitution of debtors, he
did so in behalf of and for the bank. Hence, there was a valid novation which resulted in
the release of ELISCON from its obligation to BPI, whose course of action should be
directed against DBP as the new debtor. The original obligation having been
extinguished, the contracts of suretyship executed separately by Babst and Multi being
accessory obligations are likewise extinguished.
CASE NO. 73
SM: Quasi- Contracts; Art. 2141, NCC
RODZSSEN SUPPLY CO. VS. FAR EAST
GR# 109087, May 09, 2001
FACTS: RODZSSEN applied for and obtained an irrevocable 30- day domestic Letter of
Credit from respondent Bank on January 15, 1979, in favor of Ekman & Co. Inc. in order
to finance the purchase of 5 units of hydraulic loaders amounting to P190k. After several
extensions, the validity was finally granted until October 16, 1979. Far East paid Ekman
for the first 3 hydraulic loaders that w ere delivered. The bank however paid Ekman
P76k on March 14, 1980 for the last 2 units which petitioner accepted under its trust
receipt arrangement with Far East. The latter demanded payment from petitioner which
refused the same since the bank paid Ekman when it was no longer bound to do so
under the Letter of Credit which expired 5 months prior to the payment of the 2 units.
HELD: The subject Letter of Credit had become invalid upon the lapse of period fixed
therein. Thus, respondent should not have paid Ekman since it was not obliged to do so.
However, Far Easts right to seek recovery from the petitioner is anchored not upon the
inefficacious letter of Credit, but on Art. 2142, NCC. Indeed, equitable considerations
should be used to allow recovery by respondent. Thus, it erred in paying Ekman but
petitioner itself was not without fault in the transaction. It must be noted that the latter
had voluntarily received and kept the loaders since October 1979.
CASE NO. 77
SM: Contracts; Novation as a mode of extinguishing obligations.
MOLINO vs. SECURITY DINDERS INTERNATIONAL CORPORATION
GR# 136780, August 16, 2001
FACTS: Danilo Alto is a credit card owner of SDIC. He signed a Surety Undertaking with
petitioner to ensure payment of his credit card debts with SDIC. Under the Undertaking,
petitioner bound herself jointly ad severally with Alto to pay SDIC all obligations and
charges in the use of the Diners Club Card and that any change or novation in the
Agreement or any extension of the time granted by SDIC to pay such obligation shall not
release her from the Surety Undertaking. Alto upgraded his card and became Diamond
card holder. However, he incurred debts of P166, 408.31 in credit card advances which
he failed to pay. SDIC sued Alto and petitioner as his surety to collect said amount.
HELD: The upgrading was a novation of the original agreement covering the 1st credit
card issued to Alto, basically since it was committed with the intent of canceling and
replacing the said card. But the novation did not serve to release petitioner from her
surety obligations because in the Surety Undertaking she expressly waived discharged
in case of change/ novation in the agreement governing the use of the 1 st credit card.
The extent of a suretys liability is determined by the language of the surety ship
contract/ bond itself. Also, the Surety Undertaking expressly provides that petitioners
liability is solidary. Although the contract of surety is in essence secondary only to a valid
principal obligation, his liability to the creditor is direct, primary and absolute; he
becomes liable for the debt and duty of another although he possesses no direct or
personal interest over the obligations nor does he receive any benefit there from.
Petitioner had the option to withdraw her suretyship when Alto upgraded his card to one
that permitted unlimited purchases, but instead she approved the upgrading. Hence, her
liability subsists.
CASE NO. 81
SM: obligations; damages
GSIS vs. SPOUSES GONZALO DEANG
GR# 135644, September 17, 2001
FACTS: GSIS and the Deangs had a loan agreement secured by a Real Estate
Mortgage. The Deangs were able to pay said loan and asked that their duplicate copy of
title be released by the GSIS. The latter insisted however that it was not obligated to
return said duplicate copy immediately. As a result, the Deangs were not able to secure
another loan, resulting to damages to their business. Consequently, they sued GSIS for
damages. HELD: Although Article 2180, NCC in inapplicable in the case at bar, GSIS is
still liable for damages. Under Articles 1170 and 2001, NCC, GSIS, due to its negligence
and refusal to return the duplicate copy of title, should pay the Deangs for the damages
they suffered. Since good faith is presumed and bad faith is a matter of fact which
should be proved, GSIS was treated by the SC as a party who defaulted in its obligation
to return the owners duplicate copy of title. As an obligor in good faith, GSIS is liable for
all the natural and probable consequences of the breach of the obligation. The inability
of the Deangs to secure another loan and the damages they suffered thereby has its
roots in the failure of GSIS to return the owners duplicate copy of title. Hence, award of
damage due to the breach of contract is granted.
CASE NO. 84
SM: Obligation and Contracts RA 6552 (realty Installment Buyer Protection Act); Art.
1169, NCC
LEAO vs. CA
GR# 129018, November 15, 2001
FACTS: Petitioner and private respondent Fernando executed a contract to sell over a
piece of property. The contract provided that the vendee, herein petitioner, may continue
occupying said lot as long as she complies with all the terms and conditions agreed
upon. The respondent- vendor meanwhile will only execute a deed of sale after the
complete payment of the total purchase price of the property. The parties agreed further
that petitioner will pay in monthly installments for a period of 10 years. However, after
April 01, 1989, petitioner failed to pay said installments. Respondents thereafter filed an
ejectment case against petitioner. HELD: Petitioners non payment of the installments
prevented respondents obligation to convey the property from arising. In fact, it brought
into effect the provision of the contract on cancellation. Any attempt to cancel the contact
to sell would have to comply with the provisions of RA 6552. RA 6552 recognizes on
conditional sales of all kinds of real estate (industrial, commercial, residential) the right of
the seller to cancel the contract upon non- payment of an installment by the buyer, which
is simply an event that prevents the obligation of the vendor to convey title from
acquiring binding force. The law also provides for the rights of the buyer in case of
cancellation. Sec. 3(b) provides even that If the contract is cancelled, refund to the buyer
of the case surrender value of the payments is a must. It also provides that the actual
cancellation of the contract shall take place after 30 days from receipt by the buyer of the
notice of cancellation/ demand for rescission of the contract. The decision in the
ejectment case operated as the notice of cancellation required by Sec. 3 (b). As
petitioner was not given the cash surrender value of the payments that she made, there
was still no actual cancellation of the contract. Consequently, petitioner may still
reinstate the contract by updating her account.
CASE NO. 85
SM: Obligations and Contracts; Double Sale; Art. 1544, NCC
TAN vs. CA
GR# 135038, November 16, 2001
FACTS: Hayden Luzon bought the subject property from Lorenzo Atega on sale by
installment, starting form 1957 till 1987. Leoncio Paredes bought a portion of his
property in 1977 and the remaining portion in 1990. However, no registration of their
claims had been made in their favor, much less any title issued in their name. Petitioner
meanwhile bought the lot through Ismael Elloso. Petitioner thereafter registered said
sale with the Register of Deeds in November 1979, soon after title was issued in Ategas
name, segregating his share in Lot No. 436-A. petitioner filed a notice of adverse claim
which was duly annotated on Ategas title. HELD: There is evidence showing not only
that respondents knew of the sale of the lot by Elloso to petitioner but also that the latter
was ahead in registering his acquisition of the lot with the Register of Deeds. Both the
prior registration of the deed of sale in petitioners favor, as well as the adverse claim,
effectively gave Luzon and Paredes notice of petitioners right on the subject land.
Before 2nd buyers like Luzon and Paderes can obtain priority over 1st buyers like Elloso,
petitioners predecessor- in interest, they must show that they have acted in good faith
throughout, having been ignorant of the 1 st buyers rights from the time of their
acquisition until the title was transferred to them by registration. The requirement is such
that the 2nd buyer must show continuing good faith and innocence or lack of knowledge
of the 1st sale till his contract ripens into full ownership through prior registration as
provided by law. Evidently, both respondents claim must yield in petitioners favor.
CASE NO. 86
SM: Obligation and Contracts; reciprocal Obligations; Consignation
BACUS vs. CA
GR# 127695, December 03, 2001
FACTS: Petitioners entered into a lease contract with option to buy with respondents.
The private respondents communicated to petitioners their intention to buy the property
prior to the expiration of their contract. However, petitioners refused to execute the deed
of sale and demanded respondents to first deliver the money before they would execute
the same. The respondents filed a case for specific performance in the RTC. Before the
RTC rendered its decision, respondents issued a cashiers check in petitioners favor
purportedly to bolster their claim that they were ready to pay the purchase price.
Asserting that the respondents were in delay when they issued the cashiers check after
the contract expired, petitioners filed this petition. HELD: Obligations under an option to
buy are reciprocal obligations. In an option to buy, the payment of the purchase price by
the creditor is contingent upon the execution and delivery of a deed of sale by the
debtor. In the case at bar, when the respondents opted to buy the property, their
obligation was to advise petitioners of their decision and their readiness to pay the price.
They were not yet obliged to make actual payment. Only upon petitioners actual
execution and delivery of the deed of sale were acquired to pay. Respondents did not
incur in delay when they did not yet deliver payment nor make a consignation before the
expiration of the contract. In reciprocal obligations, neither party incurs in delay if
the other does not comply or is not ready to comply in a proper manner with what
is incumbent upon him. Only from the moment one of the parties fulfills his
obligation, does delay by the other begin. Accordingly, as there was no compliance
yet with what was incumbent upon petitioners under the option to buy, respondents had
not incurred in delay when the cashiers check was issued even after the contract
expired.