Oblicon Reviewer
Oblicon Reviewer
Oblicon Reviewer
TABLE OF CONTENTS
CIVIL OBLIGATIONS
General
What is an obligation?.........................................................................2
NATURAL OBLIGATIONS
Sources of Obligation..2
What is a natural obligation?.............................................................58
Duties of Obligor....5
Contents
Kinds of Obligations
B. Obligations with a Period .......................................................... 19
Pure and Conditional.14
CONTRACTS
Obligations with a Period..19
Alternative...24
General
Joint and Solidary26
What is a contract?............................................................................60
Divisible and Indivisible..28
Kinds of contracts...69
Obligations with a Penal Clause...29
Stipulation Pour Autrui...75
Extinguishment of Obligations
Tortious Interference77
Payment or Performance..31
Essential Requisites
Loss of the Thing Due..34
Consent.....81
Condonation or Remission..35
Object.....87
Confusion or Merger of Rights....37
Cause...88
Compensations...37
Reformation of Instruments
Novation..42
Defective Contracts
Prescription47
Rescissible...90
Agreement.53
Voidable...96
Difficulty..54
Unenforceable...101
Impossibility.....55
Void104
Other Performance Excuses
Volenti Non Fit Injuria55
Fortuitous Event...56
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CIVIL OBLIGATIONS
I. GENERAL
What is an obligation?
Art. 1156. An obligation is a juridical necessity to give, to do, or not to do.
JURIDICAL NECESSITY juridical tie; connotes that in case of noncompliance,
there will be legal sanctions.
-An obligation is nothing more than the duty of a person (obligor) to satisfy a
specific demandable claim of another person (obligee) which, if breached, is
enforceable in court.
-A contract necessarily gives rise to an obligation but an obligation does not
always need to have a contract.
KINDS OF OBLIGATION
A. From the viewpoint of sanction (a)CIVIL OBLIGATION that defined in Article 1156; an obligation, if not fulfilled
when it becomes due and demandable, may be enforced in court through
action; based on law; the sanction is judicial due process
(b)NATURAL OBLIGATION defined in Article 1423; a special kind of obligation
which cannot be enforced in court but which authorizes the retention of the
voluntary payment or performance made by the debtor; based on equity and
natural law. (i.e. when there is prescription of duty to pay, still, the obligor paid
his dues to the obligee the obligor cannot recover his payment even there is
prescription) the sanction is the law, but only conscience had originally
motivated the payment.
(c) MORAL OBLIGATION the sanction is conscience or morality, or the law of
the church.
B. From the viewpoint of subject matter (a) REAL OBLIGATION the obligation to give
(b) PERSONAL OBLIGATION the obligation to do or not to do (e.g. the duty to
paint a house or to refrain from committing a nuisance)
C. From the affirmativeness and negativeness of the obligation (a) POSITIVE OR AFFIRMATIVE OBLIGATION the obligation to give or to do
(b) NEGATIVE OBLIGATION the obligation not to do (which naturally includes
not to give)
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- HELD: A private hauler is not a common carrier and it was not proven that the
driver was negligent.
- FGU is the subrogee of the rights and interests of Concepcion industries so it
had a right to seek reimbursement for the amount it had paid to the latter from
the trucking corporation. However, the liability arose from a contract. A breach
upon the contract confers upon the injured party a valid cause for recovering
that which had been lost or suffered.
- Failure in the compliance of an obligation, in this case the delivery of goods,
gives rise to a presumption of lack of care and corresponding liability on the
part of the contractual obligor.
- Driver may not be held liable since he was not a party to the contract of
carriage between petitioners principal and defendant. But, civil action may be
filed against him based on culpa aquiliana. Negligence must be proved first.
-Kinds of Interest:
1) Expectation interest - the interest of a party to a breached contract in
receiving the benefit of the bargain by being put in a position as good as that
which would have resulted had the contract been performed. It is based on the
actual value the contract would have had to the injured party if the contract
had been performed.
- you pay 1 peso for a car that that should have been delivered. Person did not
deliver car. He owes you 1 peso for the car not delivered.
2) Reliance interest - the interest of a party to a breached contract in being
compensated for detriments suffered (as expenses incurred) in reliance on the
agreement
Reliance damages protect a party's reliance interest. Neal spent $100 in
reliance on the contract, which constituted Neal's reliance interest.
Since reliance damages equal to the value of the reliance interest of the injured
party, Matt owes Neal $100. This puts Neal in the same economic position as if
the contract never happened.
- another example would also be buying mags for a car which was not delivered
3) Restitution interest - interest in having restored to him any benefit that he
has conferred on the other party....
Example: A, a social worker, promises B to render personal services to C in
return for B's promise to educate A's children. B repudiates the contract after A
has rendered part of the services. A can get restitution from B for the services,
even though they were not rendered to B, because they conferred a benefit on
B.
COCA COLA v. CA
J. Davide Jr.
- FACTS: Proprietress of a school canteen found foreign substances in the
softdrinks she sells at her canteen.
- HELD: Liability for quasi delicts may exist even with a contract if the nature
that breaks the contract may also be a tort. Existence of a contract does not
preclude the action for quasi delicts
LRTA v NAVIDAD
J. Vitug
- FACTS: Man and guard had an altercation. Man fell on the railway tracks of
LRT just as the train was approaching. He died.
- HELD: Agency can never be liable if guard is not liable. Agency may be liable if
guard is liable except if it establishes that it exercised extraordinary diligence in
choosing employees. Obligation is based on quasi delict.
- LRTA is a common carrier so carrier is presumed to be at fault upon proof of
the injury. Burden shifts on the carrier to prove that the injury is due to an
unforeseen event or force majeure.
- LRTAs liability is the contract of carriage and its obligation to indemnify the
victim arises from the breach of that contract by reason of its failure to exercise
the high diligence required of the common carrier.
LG FOODS v AGRAVIADOR
J. Garcia
- FACTS: Boy died after being hit by the van of the petitioners. The driver who
was driving the van and an employee of the petitioners killed himself.
- HELD: Civil liability arising from the criminal act. Judgement is required. Since
driver killed himself, Art 2180 was used (for persons for whom one was
responsible). LG foods is principally liable. It was sufficiently alleged that the
death of the son was caused by the drivers negligence. LG foods impliedly
admitted the action for quasi delicts by using the defense that they exercised
extraordinary diligence to choose its employees.
What are the duties of the obligor in obligations to give?
To take care of the thing with the diligence of a good father of a family
Art. 1163. Every person obliged to give something is also obliged to take care
of it with the proper diligence of a good father of a family, unless the law or
the stipulation of the parties requires another standard of care.
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Negligence
KINDS of DILIGENCE:
1. DILIGENCE OF A GOOD FATHER a good father does not abandon his family,
he is always ready to provide and protect his family; ordinary care which an
average and reasonably prudent man would do.
2. Diligence required by the law governing the particular obligation
3. Diligence stipulated by the parties
To deliver the thing
Art. 1169. Those obliged to deliver or to do something incur in delay from the
time the obligee judicially or extrajudicially demands from them the
fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in order that
delay may exists:
-When the law or obligation so expressly declares;
-When from the nature of the contract, time us the essence and motivating
factor for its establishment;
-When demand would be useless (prestation is impossible);
-In reciprocal obligations, from the moment one of the parties fulfills his
obligation;
-When the debtor admits he is in default
ORDINARY DELAY mere failure to perform an obligation at the appointed
time.
LEGAL DELAY (DEFAULT) tantamount to non-fulfillment of the obligation and
arises after an extrajudicial or judicial demand was made upon the debtor.
KINDS OF DEFAULT :
a) MORA SOLVENDI delay on the part of the debtor to fulfill his obligation;
REQUISITES:
1. failure of the obligor to perform obligation on the DATE agreed upon;
2. demand (judicial/extrajudicial) by the creditor;
3. failure to comply with such demand
EFFECTS:
1) debtor liable for damages and interests
2) debtor liable for the loss of a thing due to a fortuitous event
KINDS:
1) mora solvendi ex re default in real obligations (to give)
2) mora solvendi ex persona default in personal obligations (to do)
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- The remedy of the buyer when there is no delivery despite demand is to file a
complaint for SPECIFIC PERFORMANCE AND DELIVERY because he is not yet
the owner of the property before the delivery.
ACTUAL DELIVERY actual delivery of a thing from the hand of the grantor to
the hand of the grantee (personally), or manifested by certain possessory acts
executed by the grantee with the consent of the grantor (realty).
Art. 1164. The creditor has a right to the fruits of the thing from the time the
obligation to deliver it arises. However, he
shall acquire no real right over it until the same has been delivered to him.
REAL RIGHT (jus in re) right pertaining to person over a specific thing, without
a passive subject individually determined against whom such right may be
personally enforced.
- a right enforceable against the whole world
PERSONAL RIGHT (jus ad rem) a right pertaining to a person to demand from
another, as a definite passive subject, the fulfillment of a prestation to give, to
do or not to do.
- a right enforceable only against a definite person or group of persons.
- Before the delivery, the creditor, in obligations to give, has merely a personal
right against the debtor a right to ask for
delivery of the thing and the fruits thereof.
- Once the thing and the fruits are delivered, then he acquires a real right over
them.
- Ownership is transferred by delivery which could be either actual or
constructive. (Art. 1477)
FRUITS:
1. NATURAL spontaneous products of the soil, the young and other products
of animals;
2. INDUSTRIAL produced by lands of any cultivation or labor;
3. CIVIL those derived by virtue of juridical relation.
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(a) negligence depends upon the circumstances of a case good or bad faith of
the obligor may be considered as well as the conduct or misconduct of the
obligee;
(b) it is not as serious as fraud.
Negligence lack of foresight or knowledge
Imprudence lack of skill or precaution
TEST OF NEGLIGENCE
Did the defendant, in doing the alleged negligent act, use the reasonable care
and caution which an ordinary prudent man would
have used in the same situation?
Art. 1173. The fault or negligence of the obligor consists in the omission of
that diligence which is required by the nature of the obligation and
corresponds with the circumstances of the persons, of the time and of the
place. When negligence shows bad faith, the provisions of Articles 1171 and
2201, paragraph 2, shall apply.
Two Types of Negligence:
Basis
Culpa Aquiliana (Quasi
Delict)
Definition
Negligence between
parties not so related by
pre-existing contract
Nature of Negligence
Direct, substantive and
independent
Good Father of the
family defense
Presumption of
negligence
Culpa Contractual
(Breach of Contract)
Negligence in the
performance of
contractual obligation
Incidental to the
performance of the
obligation
Not complete and
proper defense in the
selection of employees
There is presumption of
negligence by the fact
that the contract was
breached. Must show
that they are not
negligent and breach
was caused by
fortuitous events.
Ex, Bus with passengers bumps a car. A was a passenger of the bus. B was the
driver of the car. There is culpa contractual with regards to A and the bus driver
and culpa aquiliana with regards to the car driver and bus driver.
Art. 2221. Nominal damages are adjudicated in order that a right of the
plaintiff, which has been violated or invaded by the defendant, may be
vindicated or recognized, and not for the purpose of indemnifying the
plaintiff for any loss suffered by him.
Art. 2224. Temperate or moderate damages, which are more than nominal
but less than compensatory damages, may be recovered when the court finds
that some pecuniary loss has been suffered but its amount can not, from the
nature of the case, be provided with certainty.
Art. 2200. Indemnification for damages shall comprehend not only the value
of the loss suffered, but also that of the profits which the obligee failed to
obtain. (1106)
Art. 2226. Liquidated damages are those agreed upon by the parties to a
contract, to be paid in case of breach thereof.
Art. 2201. In contracts and quasi-contracts, the damages for which the obligor
who acted in good faith is liable shall be those that are the natural and
probable consequences of the breach of the obligation, and which the parties
have foreseen or could have reasonably foreseen at the time the obligation
was constituted.
In case of fraud, bad faith, malice or wanton attitude, the obligor shall be
responsible for all damages which may be reasonably attributed to the nonperformance of the obligation. (1107a)
Art. 2202. In crimes and quasi-delicts, the defendant shall be liable for all
damages which are the natural and probable consequences of the act or
omission complained of. It is not necessary that such damages have been
foreseen or could have reasonably been foreseen by the defendant.
Art. 2216. No proof of pecuniary loss is necessary in order that moral,
nominal, temperate, liquidated or exemplary damages, may be adjudicated.
The assessment of such damages, except liquidated ones, is left to the
discretion of the court, according to the circumstances of each case.
Art. 2217. Moral damages include physical suffering, mental anguish, fright,
serious anxiety, besmirched reputation, wounded feelings, moral shock,
social humiliation, and similar injury. Though incapable of pecuniary
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- By insisting on the upgrade, Cathay breached its contract of carriage with the
Vazquezes even when the Vasquezs waived their privilege in not taking the
upgraded seats
- the upgrading of the seats were not in bad faith. Bad faith is defined as a
dishonest purpose or some moral obliquity and conscious doing of a wrong, a
breach of a known duty through some motive or interest or ill will that partakes
of the nature of fraud
- there was no bad faith since the Vasquez spouses were not induced by deceit
in upgrading their seats and it was not for a devious or evil purpose.
- overbooking the business class section was not in bad faith since it is in
accordance with law (Section 3 of the Economic Regulation No. 7 of the Civil
Aeronautics Board)
- there are no moral damages since it requires the following:
(1) there must be an injury clearly sustained by the claimant, whether physical,
mental or psychological; (2) there must be a culpable act or omission factually
established; (3) the wrongful act or omission of the defendant is the proximate
cause of the injury sustained by the claimant; and (4) the award for damages is
predicated on any of the cases stated in Article 2219 of the Civil Code.
- Moral damages predicated upon a breach of contract of carriage may only be
recoverable in instances where the carrier is guilty of fraud or bad faith or
where the mishap resulted in the death of a passenger.[ Where in breaching
the contract of carriage the airline is not shown to have acted fraudulently or in
bad faith, liability for damages is limited to the natural and probable
consequences of the breach of the obligation which the parties had foreseen or
could have reasonably foreseen. In such a case the liability does not include
moral and exemplary damages. Nominal damages is applicable since it deals
with the right of the spouses.
PLEASANTVILLE v CA
J. Panganiban
Source of obligation: contract
- there was good faith in Kee building the properties in the disputed lot.
- Good faith consists in the belief of the builder that the land he is building on is
his and his ignorance of any defect or flaw in his title. And as good faith is
presumed, petitioner has the burden of proving bad faith on the part of Kee. At
the time he built improvements on Lot 8, Kee believed that said lot was what
he bought from petitioner. He was not aware that the lot delivered to him was
not Lot 8. Thus, Kees good faith. Petitioner failed to prove otherwise.
- Kees contract violation -> only applicable in contractual breach
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(2) When from the nature and the circumstances of the obligation it
appears that the designation of the time when the thing is to be delivered or
the service is to be rendered was a controlling motive for the establishment
of the contract; or
(3) When demand would be useless, as when the obligor has rendered it
beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if the other does not
comply or is not ready to comply in a proper manner with what is incumbent
upon him. From the moment one of the parties fulfills his obligation, delay by
the other begins. (1100a)
Art. 1170. Those who in the performance of their obligations are guilty of
fraud, negligence, or delay, and those who in any manner contravene the
tenor thereof, are liable for damages. (1101)
Art. 1171. Responsibility arising from fraud is demandable in all obligations.
Any waiver of an action for future fraud is void. (1102a)
Art. 1172. Responsibility arising from negligence in the performance of every
kind of obligation is also demandable, but such liability may be regulated by
the courts, according to the circumstances. (1103)
Art. 1173. The fault or negligence of the obligor consists in the omission of
that diligence which is required by the nature of the obligation and
corresponds with the circumstances of the persons, of the time and of the
place. When negligence shows bad faith, the provisions of Articles 1171 and
2201, paragraph 2, shall apply.
If the law or contract does not state the diligence which is to be observed in
the performance, that which is expected of a good father of a family shall be
required. (1104a)
(See annotations above)
What are the duties of the obligor in obligations not to do?
Not to do what should not be done
To shoulder the cost to undo what should not have been done
Art. 1168. When the obligation consists in not doing, and the obligor does
what has been forbidden him, it shall also be undone at his expense. (1099a)
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(2) When from the nature and the circumstances of the obligation it
appears that the designation of the time when the thing is to be delivered or
the service is to be rendered was a controlling motive for the establishment
of the contract; or
(3) When demand would be useless, as when the obligor has rendered it
beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if the other does not
comply or is not ready to comply in a proper manner with what is incumbent
upon him. From the moment one of the parties fulfills his obligation, delay by
the other begins. (1100a)
Art. 1170. Those who in the performance of their obligations are guilty of
fraud, negligence, or delay, and those who in any manner contravene the
tenor thereof, are liable for damages. (1101)
Art. 1171. Responsibility arising from fraud is demandable in all obligations.
Any waiver of an action for future fraud is void. (1102a)
In case of fraud, bad faith, malice or wanton attitude, the obligor shall be
responsible for all damages which may be reasonably attributed to the nonperformance of the obligation. (1107a)
Art. 2202. In crimes and quasi-delicts, the defendant shall be liable for all
damages which are the natural and probable consequences of the act or
omission complained of. It is not necessary that such damages have been
foreseen or could have reasonably been foreseen by the defendant.
Art. 1173. The fault or negligence of the obligor consists in the omission of
that diligence which is required by the nature of the obligation and
corresponds with the circumstances of the persons, of the time and of the
place. When negligence shows bad faith, the provisions of Articles 1171 and
2201, paragraph 2, shall apply.
If the law or contract does not state the diligence which is to be observed in
the performance, that which is expected of a good father of a family shall be
required. (1104a)
(see annotations above)
However, the demand by the creditor shall not be necessary in order that
delay may exist:
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- mutual restitution happens not just for the object and the price but also for
the fruits and the interests
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Art. 1308. The contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them. (1256a)
Art. 1309. The determination of the performance may be left to a third
person, whose decision shall not be binding until it has been made known to
both contracting parties. (n)
Art. 1310. The determination shall not be obligatory if it is evidently
inequitable. In such case, the courts shall decide what is equitable under the
circumstances. (n)
Potestative condition one which depends upon the will of one of the
contracting parties
Casual condition depends exclusively upon chance or other factors and not
upon the will of the contracting parties
Mixed condition one which depends upon the will of one of the contracting
parties and other circumstances, including the will of a third person
Kinds of Potestative Condition
1.) Simple presupposes not only a manifestation of will but also the
realization of an external act (if you sell your house)
- does not prevent the formation of a valid obligation
- it is subject in part to contingencies over which debtor has no control
2.) Purely Potestative depends solely and exlusively upon the will ( if I like it
or if I deem it proper)
- destroys the efficacy of the legal tie;
- it is only when the potestative condition depends exclusively upon the will of
the debtor that the conditional obligation is void. It is valid if it depends partly
rd
on the will of the debtor and the 3 person,
- dependence on the debtor illusory obligations obligation is void but is
applicable only when the condition is suspensive and cannot apply to
resolutory conditions
- potestative and resolutory = may be valid
- mixed conditions = valid
rd
- if dependent on a 3 person who cannot be compelled to carry it out, and it
is found by the court that the obligor has done all in his power to comply with
the obligation, the other party may be ordered to comply with his part of the
contract
NAGA TELEPHONE v CA
J. Nocon
Source of obligation: contract
- cause of action one sided contract, petitioners use of the telephone posts
caused damage
- cause of action no payment for usage of telephone posts despite demands
or private respondent
- cause of action poor service which caused damages
Respondents answered:
- not sufficient COA , barred by prescription, estoppel, their usage could not
have caused the deterioration
- petitioners refused to comply with private respondents demands , it was
probably because what is due to them from private respondent is more than its
claim against them.
- telephone service had been categorized by the National Telecommunication
Corporation (NTC) as "very high" and of "superior quality.
Issue of the applicability of Art 1267 of the NCC - we agree with respondent
court that the allegations in private respondent's complaint and the evidence it
has presented sufficiently made out a cause of action under Article 1267. We,
therefore, release the parties from their correlative obligations under the
contract. However, our disposition of the present controversy does not end
here. We have to take into account the possible consequences of merely
releasing the parties therefrom: petitioners will remove the telephone
wires/cables in the posts of private respondent, resulting in disruption of their
service to the public; while private respondent, in consonance with the
contract will return all the telephone units to petitioners, causing prejudice to
its business. We shall not allow such eventuality. Rather, we require, as
ordered by the trial court: 1) petitioners to pay private respondent for the use
of its posts in Naga City and in the towns of Milaor, Canaman, Magarao and Pili,
Camarines Sur and in other places where petitioners use private respondent's
posts, the sum of ten (P10.00) pesos per post, per month, beginning January,
1989; and 2) private respondent to pay petitioner the monthly dues of all its
telephones at the same rate being paid by the public beginning January, 1989.
The peculiar circumstances of the present case, as distinguished further from
the Occea case, necessitates exercise of our equity jurisdiction.
Issue of prescription - Article 1144 of the New Civil Code provides, inter alia,
that an action upon a written contract must be brought within ten (10) years
from the time the right of action accrues. Clearly, the ten (10) year period is to
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be reckoned from the time the right of action accrues which is not necessarily
the date of execution of the contract. This was when contract was studied since
it was disadvantageous (1982) , 10 years have not yet elapsed.
Issue of Potestation - petitioners allege that there is nothing purely potestative
about the prestations of either party because petitioner's permission for free
use of telephones is not made to depend purely on their will, neither is private
respondent's permission for free use of its posts dependent purely on its will.
Petitioners' allegations must be upheld in this regard. A potestative condition is
a condition, the fulfillment of which depends upon the sole will of the debtor,
in which case, the conditional obligation is void. 19 Based on this definition,
respondent court's finding that the provision in the contract, to wit:
(a) That the term or period of this contract shall be as long as the party of the
first part (petitioner) has need for the electric light posts of the party of the
second part (private respondent) . . ..
is a potestative condition, is correct. However, it must have overlooked the
other conditions in the same provision, to wit:
. . . it being understood that this contract shall terminate when for any reason
whatsoever, the party of the second part (private respondent) is forced to stop,
abandoned (sic) its operation as a public service and it becomes necessary to
remove the electric light post (sic);
which are casual conditions since they depend on chance, hazard, or the will of
a third person. In sum, the contract is subject to mixed conditions, that is, they
depend partly on the will of the debtor and partly on chance, hazard or the will
of a third person, which do not invalidate the aforementioned provision.
POLOTAN v CA
J. Romero
Soutce of obligation contract
PAYMENT OF CHARGES . . . The Cardholder agrees to pay interest per annum
at 3% plus the prime rate of Security Bank and Trust Company. . . . Provided
that if there occurs any change in the prevailing market rates the new interest
rate shall be the guiding rate of computing the interest due on the outstanding
obligation without need of serving notice to the Cardholder other than the
required posting on the monthly statement served to the Cardholder.
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Question: A promised B to give his car if B can hold the sun. Can B demand the
fulfillment of the donation?
Art. 727. Illegal or impossible conditions in simple and remuneratory
donations shall be considered as not imposed.
- impossibility may be physical or juridical
-physical if contrary to the laws of nature. Juridical if contrary to law, morals,
good customs, public policy and order
- intention determines if the act is illicit
- impossibility must exist at the time of the creation of the obligation
- illogical conditions is the logical impossibility in an obligation although the
condition is not impossibility (I will deliver to you my house if it is destroyed)
- divisible obligations part not affected by the impossible or unlawful
obligation shall be valid
- negative impossible conditions considered to have been agreed upon. Does
not need to wait upon the conditions.
When are conditions deemed fulfilled?
Art. 1184. The condition that some event happen at a determinate time shall
extinguish the obligation as soon as the time expires or if it has become
indubitable that the event will not take place. (1117)
Positive condition refers to the fulfillment of an event or performance of an
act
Negative condition refers to the non-fulfillment or non-performance of an
act.
POSITIVE SUSPENSIVE CONDITION
The obligation is extinguished:
1. As soon as the TIME EXPIRES without the event taking place;
2. As soon as it has become certain that the EVENT WILL NOT TAKE PLACE
although the time specified has not yet expired.
nd
indicated has elapsed, or if it has become evident that the event cannot
occur.
If no time has been fixed, the condition shall be deemed fulfilled at such time
as may have probably been contemplated, bearing in mind the nature of the
obligation. (1118)
1184 (Positive Suspensive)
A obliges himself to give B some
money if B recites on or before June
30
A liable if B recites on or before June
30
A is not liable if B recites after June 30
Art. 1186. The condition shall be deemed fulfilled when the obligor
voluntarily prevents its fulfillment. (1119)
- This provision speaks of the DOCTRINE OF CONSTRUCTIVE FULFILLMENT
Requisites
- intent of the obligor to prevent the fulfillment of the condition
- actual prevention of compliance
- when the act (voluntary), did not have for its purpose the prevention of the
condition, this article is not applicable
- if in preventing the fulfillment of the condition, the debtor acts pursuant to a
right, the condition will not be deemed as fulfilled
- when the condition is resolutory but not dependent on the will of the debtor,
and he unjustifiably provokes or produces the condition, which would not have
happened without his doing so, uit will be considered as not having been
fulfilled and there will be no extinguishment of rights.
Does the fulfillment of a condition have retroactive effect?
Art. 1187. The effects of a conditional obligation to give, once the condition
has been fulfilled, shall retroact to the day of the constitution of the
obligation. Nevertheless, when the obligation imposes reciprocal prestations
upon the parties, the fruits and interests during the pendency of the
condition shall be deemed to have been mutually compensated. If the
obligation is unilateral, the debtor shall appropriate the fruits and interests
received, unless from the nature and circumstances of the obligation it should
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be inferred that the intention of the person constituting the same was
different.
In obligations to do and not to do, the courts shall determine, in each case, the
retroactive effect of the condition that has been complied with.
- moment of the creation of the conditional obligation and the fulfillment of the
suspensive condition, the creditor enforce the obligation , right is a mere
expectancy
- cause of action for the enforcement of the obligation accrues, and the period
of prescription of the action has to be computed from that moment
- effects retroact to when the obligation was created
- increase in value which the thing may acquire before the happening of the
suspensive condition, inures to the benefit of the creditor
- right to the fruits of the thing is not within the principle of retroactivity of
conditional obligations
- in obligations to do or not to do, the courts shall determine the retroactive
effect of the fulfillment of the conditions
Common question: A promised to give B his house if B passes the bar. Before
the results of the bar came out, A sold his car to C. Is the sale valid? Can B
obtain the rentals for the house from the time they had an agreement to when
the condition was fulfilled?
Validity of sale: determine if the buyer was in good faith and if the house has
already been delivered. B may take action against A for damages.
Rentals and Fruits: B cannot obtain the rentals / fruits as the fruits will remain
with the owner before the condition was fulfilled. Fruits not within the
principle of retroactive effect of the fulfillment of the conditions.
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(4) If it deteriorates through the fault of the debtor, the creditor may choose
between the rescission of the obligation and its fulfillment, with indemnity
for damages in either case;
(5) If the thing is improved by its nature, or by time, the improvement shall
inure to the benefit of the creditor;
(6) If it is improved at the expense of the debtor, he shall have no other right
than that granted to the usufructuary (right to enjoy products he does not
own).
- applicable to a determinate thing only, not a generic thing
LOSS
(1) debtor without fault obligation is extinguished
(2) debtor with fault obligation to pay damages
DETERIORATION
(1) debtor without fault impairment is to be borne by the creditor
(2) debtor with fault creditor chooses: rescission of obligation, fulfillment,
indemnity
IMPROVEMENT
(1) by nature or time improvement: inure to the benefit of the creditor
(2) at the expense of the debtor granted to the usufructuary
B. Obligations with a Period
What is an obligation with a period?
Art. 1193. Obligations for whose fulfillment a day certain has been fixed, shall
be demandable only when that day comes.
Obligations with a resolutory period take effect at once, but terminate upon
arrival of the day certain.
A day certain is understood to be that which must necessarily come, although
it may not be known when.
If the uncertainty consists in whether the day will come or not, the obligation
is conditional, and it shall be regulated by the rules of the preceding Section.
Term space of time which exerting an influence on the obligations as a
consequence of the juridical act, suspends their demandability or determines
their extinguishment
Differences from condition
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The courts shall also fix the duration of the period when it depends upon the
will of the debtor.
In every case, the courts shall determine such period as may under the
circumstances have been probably contemplated by the parties. Once fixed
by the courts, the period cannot be changed by them.
Art. 1180. When the debtor binds himself to pay when his means permit him
to do so, the obligation shall be deemed to be one with a period, subject to
the provisions of Article 1197.
- only refers to the period , not the obligation itself
JUDICIAL PERIOD period designated by the court.
CONTRACTUAL PERIOD period fixed by the parties in their contract.
Court will fix a period:
1. When no period is mentioned, but it is inferable from the nature and
circumstances of the obligation that a period was
intended by the parties.
2. When the period is dependent upon the will of the debtor.
-If the obligation does not state and intend a period, the court is not authorized
to fix a period.
-The court must fix the duration of the period to prevent the possibility that the
obligation may never be fulfilled or to cure
a defect in a contract whereby it is made to depend solely upon the will of one
of the parties.
Court cannot fix the period:
1. If there is a period agreed upon by the parties and it has already lapsed or
expired.
2. From the very moment the parties give their acceptance and consent to the
period fixed by the court, it
becomes a law governing their contract.
INDICATIONS OF A TERM OR PERIOD:
When the debtor binds himself to pay
-when his means permit him to do so
-little by little
-as soon as possible
-from time to time
-as soon as I have the money
-in partial payment
-when in the position to pay
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GAI filed MFR but CFI denied. GAI appealed to the CA, contending that the
relief granted, i.e., fixing of a period, was not justified by the pleadings & not
supported by the facts submitted at the trial of the case in court below & that
the relief granted in effect allowed a change of theory after the submission of
the case for decision
All that TC's amended decision says in this respect is that "the proven facts
precisely warrant the fixing of such a period", a statement manifestly
insufficient to explain how the 2 year period given to petitioner herein was
arrived at.
Art. 1197, CC involves a 2-step process.
CA upheld the CFI decision. Hence this petition for review by certiorari to the
SC
WON CFI may fix a period in the same pleading by PSEDC
NO. When GAI pleaded in its answer that the contract w/ PSEDC gave GAI
"reasonable time w/in w/c to comply with its obligation to construct &
complete the streets", what the answer put in issue was not whether the court
should fix the time of performance, but WON the parties agreed that the
petitioner should have reasonable time to perform its part of the bargain.
If the contract so provided, then there was a period fixed, a "reasonable time";
& all that the court should have done was to determine if that reasonable time
had already elapsed when suit was filed. If it had passed, then the court should
declare that petitioner had breached the contract, as averred in the complaint,
& fix the resulting damages. On the other hand, if the reasonable time had not
yet elapsed, the court perforce was bound to dismiss the action for being
premature. But in no case can it be logically held that under the plea above
quoted, court intervention to fix the period for performance was warranted,
for Art. 1197 is precisely predicated on the absence of any period fixed by the
parties
Granting that the court shouldve found that no reasonable time/no period at
all had been fixed, still the complaint not having sought that the Court should
set a period, the court couldnt proceed to do so unless the complaint was first
amended; for the orig. decision is clear that the complaint proceeded on the
theory that the period for performance had elapsed already, that the contract
had been breached & defendant was already answerable in damages.
Granting further that it lay within the Court's power to fix the period of
performance, still the amended decision is defective in that no basis is stated to
support the conclusion that the period should be set at 2 yrs after finality of the
judgment. Art. 1197 is clear that the period cannot be set arbitrarily.
Court must 1st determine that "the obligation does not fix a period" (or that
the period is made to depend upon the will of the debtor), "but from the
nature & the circumstances it can be inferred that a period was intended" (Art.
1197, pars. 1&2)
Secondly, it must decide what period was "probably contemplated by the
parties"
Ultimately, the Court can not fix a period merely because in its opinion it is or
should be reasonable, but must set the time that the parties are shown to have
intended.
In this connection, contract shows that the parties were fully aware that the
land described therein was occupied by squatters, because the fact is expressly
mentioned therein. As the parties must have known that they could not take
the law into their own hands, but must resort to legal processes in evicting the
squatters, they must have realized that the duration of the suits to be brought
would not be under their control nor could the same be determined in
advance. The parties must have thus intended to defer the performance of the
obligations under the contract until the squatters were duly evicted, as
contended by the GAI
CA objected that it would render the date of performance indefinite. Yet, the
circumstances admit no other reasonable view; & this very indefiniteness is
what explains why the agreement did not specify any exact periods or dates of
performance.
Holding: Reversed; Time for the performance is fixed at the date that all the
squatters on affected areas are finally evicted therefrom
CPU v CA
J. Bellosillo
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Iloilo, in 1939, Don Ramon Lopez by a deed of donation donated Lot No. 3174B-1 of the subdivision plan Psd-1144, then a portion of Lot No. 3174-B, for
which Transfer Certificate of Title No. T-3910A to CPU.
Under Art. 1181 of the Civil Code, on conditional obligations, the acquisition of
rights, as well as the extinguishment or loss of those already acquired, shall
depend upon the happening of the event which constitutes the condition.
Thus, when a person donates land to another on the condition that the latter
would build upon the land a school, the condition imposed was not a condition
precedent or a suspensive condition but a resolutory one. Only after the donee
didnt fulfill the conditions will the rights be revoked. which brings us to the
prescription
WON there is prescription. NO
The time from which the cause of action accrued for the revocation of the
donation and recovery of the property donated cannot be specifically
determined in the instant case. There being no stipulations in the deed, the
time for the fulfillment of the conditions lay in the will of the donee and
prevented the statute of limitations to affect
in this case.
And to compute for the time from which the cause of action accrued, it begins
with the expiration of a reasonable period and opportunity for petitioner to
fulfill what has been charged upon it by the donor.
And in this case, no exact time can really be surely stipulated in the deed,
considering the laws on construction, educational institutions etc. beyond the
control of the donee.
Thus, when the obligation does not fix a period but from its nature and
circumstances it can be inferred that a period was intended, the general rule
provided in Art. 1197 of the Civil Code applies, which provides that the courts
may fix the duration thereof because the fulfillment of the obligation itself
cannot be demanded until after the court has fixed the period for compliance
therewith and such period has arrived.
And yet, Art. 1197 cant be applied because the courts think that 50 years was
enough time for them to fulfill the conditions. CPU has slept on its obligations.
What applies is Art. 1191, when an obligor cant comply with what is expected
of him, the obligee may seek rescission unless the court fixes a period for a just
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cause. In this case, there is no just cause, to fix a period would be mere
technicality and would only result to a multiplication of suits.
Then the court said that since this is a gratuitous donation(contradiction, see
dissent) the court affirms the decision of the RTC and modifies that of the CA,
CPU is ordered to reconvey the property to the heirs.
Accion Subrogata - Action which the creditor may exercise in place of the
negligent debtor in order to preserve or
recover for the patrimony of the debtor the product of such action, and then
obtain therefrom the
satisfaction of his own credit
When is the obligation immediately demandable prior to the arrival of the
period?
Art. 1198. The debtor shall lose every right to make use of the period:
(1) When after the obligation has been contracted, he becomes insolvent,
unless he gives a guaranty or security for the debt;
(2) When he does not furnish to the creditor the guaranties or securities
which he has promised;
(3) When by his own acts he has impaired said guaranties or securities after
their establishment, and when through a fortuitous event they disappear,
unless he immediately gives new ones equally satisfactory;
(4) When the debtor violates any undertaking, in consideration of which the
creditor agreed to the period;
(5) When the debtor attempts to abscond (depart in a sudden and secret
manner)
The period is disregarded and the obligation becomes pure and immediately
demandable: [IGIVA]
[I] When debtor becomes i nsolvent ;
-The insolvency need not be judicially declared. It is sufficient that debtor could
not pay his debts due to lack of
money or funds.
[G] When the debtor does not furnish g uaranties or securities;
[I] When guaranties or securities given have been i mpaired or have
disappeared ;
If security was lost through debtors fault - impairment
If security was lost through fortuitous event disappearance
Ex. House was sold by A to B on an installment basis per month based on a
period. House became the mortgage (guaranty). A fire destroyed the house and
it was established that there was not negligence involved and it was a
fortuitous event. In the quiz, the accepted answer was that the obligation was
extinguished due to fortuitous events. However if we apply 1998, the period can
no longer be used and A can claim the whole amount (shall lose every right to
use the period) unless debtor gives a new guaranty equally satisfactory.
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years (A will benefit because he can pay anytime he wants as long as it is within
5 years; B will not benefit from the interests if A decides to pay early).
2. Term is for the benefit of the creditor He may demand fulfillment even
before the arrival of the term but the
debtor cannot require him to accept payment before the expiration of the
stipulated period.
- Example: A borrows money from B and is obliged to make the payment on
December 5. B may compel A to make the payment before December 5, but A
may not compel B to receive the payment before December 5 (B will benefit
from the interests that will accrue before December 5).
- The creditor may have reasons other than the maturity of interest, thats why,
unless the creditor consents, the debtor has no right to accelerate the time of
payment even if the premature tender includes an offer to pay the principal
and interest in full.
C. Alternative Obligations
Kinds of obligations that has many possible prestations to fulfil in order to
extinguish the obligation.
Obligations that require a debtor to perform completely one of the
several prestations provided as options in the stipulations of the
contract.
o The prestations must be lawful and possible. (CC1200)
Fulfilment of one of the provided prestations extinguishes the
obligation. Partial fulfilment of any number of the provided
prestations does not fulfil the obligation. The creditor cannot be
compelled to accept part of one and part of another prestation.
(CC1199)
The prestation to be fulfilled is dependent on whom the right to
choose is given. In default, the right to choose is given to the debtor.
(CC1200)
The choice must be communicated before it becomes effective. The
choice will only produce effects upon communication. (CC1201)
o Until the choice is communicated, the person with the right
to choose can change his mind.
When an alternative obligation ceases? > What happens to the
obligation?
o When only one choice is practicable. (CC1202)
o When the choice has been communicated. (CC1201) (CC1205)
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Solidary Obligations
Requisites of a Solidary Obligation:
o Subject:
Must be more than one (either creditors, debtors or
both)
o Unity of prestation:
Each solidary creditor can collect the entire
obligation. (Mutual Agency of creditors)
Each solidary debtor can be compelled to pay or
perform the entire obligation. (Mutual Guaranty
among debtors)
o Distribution among solidary parties:
Accounting between creditors for the share of each.
Contribution between debtors for the share of each.
Each creditor may only collect and each debtor may
only be held liable until the extent that the liability is
still not paid.
o Kinds of Solidarity based on subjects
Active: Solidarity of Creditors
Passive: Solidarity of Debtors
o Kinds of Solidarity based on uniformity of conditions
Uniform: Same terms and conditions for all.
Varied: With different periods and/or conditions for
each. (CC1211)
o Effects of a Solidary Obligation:
Active: On debtors
Each creditor can collect the entire debt or
extinguish it. (CC1215)
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By the Source
By the Parties
By the Effects
Solidary
Arises from the tie binds the
parties, debtors or creditors
Requires at least two
creditors and debtors
Solidary debtor answers to
the creditor for the breach of
his co-debtor
Indivisible
Arises from the nature of the
nature of the thing or
prestation due
Can exist between one
creditor and one debtor
Breach by one indivisible
debtor does not make the codebtor liable for such breach
The liability is not understood to have been paid unless the thing or
service in which the obligation consists has been completely delivered
or rendered. (CC1233)
Unless otherwise stipulated (or provided by law), the creditor cannot
be compelled to accept partial performance, nor the debtor required
to make partial payments. (CC1248)
o Exceptions:
Obligations partly liquidated (CC1248)
Instalment contracts (CC1720)
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consignees who fail to take delivery of their containerized cargo within the 10day free period are liable to pay demurrage charges.
US Lines filed suit against petitioner alleging that between the years 1979 and
1980, goods belonging to petitioner loaded on containers aboard respondents
vessels arrived in Manila from US ports. After the 10-day free period, petitioner
still failed to withdraw its goods.
Telengtan said that it has never entered into a contract nor signed an
agreement to be bound by any rule on demurrage. It likewise maintains that
absent an obligation to pay respondent who made no proper or legal demands
in the first place, there is justifiable reason to refuse payment. It also said that
upon arrival of the vessels, it presented the Bills of Lading and demanded the
delivery of all goods, only to be informed that respondent already unloaded the
goods. It contends that respondent violated its contractual obligation to deliver
when, instead of delivering the goods to the petitioner as consignee, it
deposited the same in bonded warehouse/s.
Issue: WON Telengtan is liable for the demurrage charges
Held:
Petitioner is at fault when it did not take delivery of the goods
prompting the respondent to store it in bonded warehouses.
The withdrawal of goods from the ship was with authority of
the Bureau of Customs
Bill of Lading indicates that if the consignee does not take
possession or delivery of the goods as soon as the goods are
at the disposal of the consignee for removal, the goods shall
be at their own risk and expense, delivery shall be considered
complete
Extraordinary inflation or deflation exists when there is an unusual
increase or decrease in the purchasing power of the Philippine peso
which is beyond the common fluctuation in the value of said currency,
and such increase or decrease could not have been reasonably
foreseen or was manifestly beyond the contemplation of the parties at
the time of the establishment of the obligation.
There should be an official pronouncement or declaration by
competent authorities of the existence of extraordinary
inflation or deflation during a given period.
Article 1250, as couched
o General Rule: The value of the peso at the time
of the establishment of the obligation shall
control and be the basis of payment of the
contractual obligation
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o
o
If the debtor changes his domicile in bad faith or after he has incurred
in delay, additional expenses shall be borne by him. [A1251]
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What are the rights of a third person who is able to pay for another?
a. Beneficial Reimbursement/ Right to reimbursement
If he has paid without the knowledge or against the will
of the debtor, he can recover only insofar as the payment
has been beneficial to the debtor [A1236]
He cannot compel creditor to subrogate him in his rights
[A1237]
Exception:
Article 1302 Legal Subrogation
Assignment of credit
b. Subrogation
If he had paid with the consent of the debtor, he may
demand from the debtor what he has paid [A1236]
Payment by Cession
Ceding or assigning the
property of the debtor to his
creditors in payment of his
debts
Only the possession and
administration (not the
ownership) are transferred
to the creitors
BUT with the authorization
to convert the property into
cash
Only extinguishes the credits
to the extent of the amount
realized from the properties
assigned
Involves all the property of
the debtor
Transfer is in favor of various
creditors
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Held:
a.
An assignment of credit is an agreement by virtue of which the owner
of a credit, known as the assignor, by a legal cause, such as sale,
dacion en pago, exchange or donation, and without the consent of the
debtor, transfers his credit and accessory rights to another, known as
the assignee, who acquires the power to enforce it to the same extent
as the assignor could enforce it against the debtor
In dacion en pago, as a special mode of payment, the debtor offers
another thing to the creditor who accepts it as equivalent of payment
of an outstanding debt.
The undertaking really partakes in one sense of the nature of
sale, that is, the creditor is really buying the thing or property
of the debtor, payment for which is to be charged against the
debtors debt.
As such, THE VENDOR IN GOOD FAITH SHALL BE
RESPONSIBLE, FOR THE EXISTENCE AND LEGALITY OF THE
CREDIT AT THE TIME OF THE SALE BUT NOT FOR THE
SOLVENCY OF THE DEBTOR.
It may be said that assignment of credit, which is in the
nature of a sale of personal property, produced the effects of
a dation in payment which may extinguish the obligation.
Because of its nature as a sale, the vendor is bound by certain
warranties. (see above all caps)
Because the obligation was already extinguished by
compensation, the credit does no longer exist, thus causing a
breach in the obligation. By warranting the existence of the
credit, petitioner is deemed to have ensured the performance
thereof.
b.
c.
d.
e.
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LC
1LC
LC
1/8
1/3
1/3
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Relevant Provisions
Article 745
The done must accept the donation personally, or through an authorized
person with a special power for the purpose, or with a general and
sufficient power; otherwise, the donation shall be void.
Article 748
The donation of a movable may be made orally or in writing.
An oral donation requires the simultaneous delivery of the thing or of the
document representing the right donated.
If the value of the personal property donated exceeds Five thousand
pesos, the donation and the acceptance shall be made in writing.
Otherwise, the donation shall be void.
Article 749
In order that the donation of an immovable may be valid, it must be
made in a public document
Article 752
No person may give or receive, by way of donation, more than he may
give or receive by will.
The donation shall be inofficious in all that it may exceed this limitation.
Article 771
Donations which are inofficious, bearing in mind the estimated net
value of the donors property at the time of his death, shall be reduced
with regard to the excess
Article 773
If, there being two or more donations, the disposable portion is not
sufficient to cover all of them, those of the more recent dates shall be
suppressed or reduced with regard to the excess.
Article 908
To the net value of the hereditary estate, shall be added the value of
all donations by the testator that are subject to collation, at the time he
made them.
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Requisites:
o Must take place between the creditor and the principal
debtor
o Same obligation must be involved
o Must be total
Merger benefits the guarantors.
Merger of characters of creditor and guarantor DOES NOT extinguish
the obligation [A1276]
Does not extinguish a joint obligation except as regards the share
corresponding to the creditor or debtor in whom the two characters
concur. [A1277]
E. Compensation
What are the requisites of compensation?
Art. 1278. Compensation shall take place when two persons, in their own
right, are creditors and debtors of each other.
De Leon: Compensation is the extinguishment to the concurrent amount of the
debts of two persons who, in their own right, are reciprocally principal debtors
and creditors of each other.
The object of compensation is the prevention of unnecessary suits and
payments thru the mutual extinction by operation of law of concurring debts.
Art. 1279. In order that compensation may be proper, it is necessary:
(1) That each one of the obligors be bound principally, and that he be at
the same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are
consumable, they be of the same kind, and also of the same quality if
the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy,
commenced by third persons and communicated in due time to the
debtor.
Requisites of Legal Compensation:
(1) That each one of the obligors be bound principally, and that he be at
the same time a principal creditor of the other;
Examples:
a) A owes B P10,000, with C as guarantor. B owes C P10,000.
There will be no compensation between B and C because while B
is principally liable to C, C is merely subsidiarily liable to B. Hence,
C can demand payment from B.
b) A owes B P10,000. B owes A P10,000, the latter as guardian or
administrator.
There will be no compensation. In this case, A is personally liable
to B, while B is not principally liable to A. The real creditor of B is
the ward under guardianship or the estate under administration.
A is creditor of B in a representative capacity.
c)
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This is the exception to requisite no. 3 under Art. 1279, viz., that only debts
which are due and demandable can be compensated.
Voluntary or conventional compensation includes any compensation which
takes place by agreement of the parties even if all the requisites for legal
compensation are not present. The absence of mutual creditor-debtor relation
cannot negate the conventional compensation.
The only requisites are:
(1) Each of the parties has the right to disposed of the credit he seeks to
compensate
(2) They agree to the mutual extinguishment of their credits
What are the kinds of compensation?
Art. 1281. Compensation may be total or partial. When the two debts are of
the same amount, there is total compensation.
Total compensation results when the two debts are of the same amount. If
they are of different amounts, compensation is total as regards the smaller
debt, and partial only with respect to the larger debt.
Kinds of Compensation:
(1) By its effect or extent:
a. Total
b. Partial
(2) By its cause or origin:
a. Legal when it takes place by operation of law when all the
requisites are present even without the knowledge of the
parties.
b. Conventional or voluntary when it takes place by
agreement of the parties.
c. Judicial when it takes place by order from a court in a
litigation. (This is actually a form of legal or voluntary
compensation, when declared by courts by virtue of an action
by on of the parties.)
d. Facultative when it can be set up only by one of the parties.
When will compensation not take place?
Art. 1286. Compensation takes place by operation of law, even though the
debts may be payable at different places, but there shall be an indemnity for
expenses of exchange or transportation to the place of payment.
Example:
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Both debts are extinguished up to the amount of P1,000. Hence, A still owes B
P2,000 today.
Now, if B assigns his right to C, the latter can collect only P2,000 from A.
However, if A gave his consent to the assignment before it was made or
subsequently (par. 1), A loses the right to set up the defense of compensation.
So A will be liable to C for P3,000 but he can still collect the P1,000 owed by B.
In other words, the compensation shall be deemed not to have taken place.
Where compensation has taken place after assignment
(1) Assignment with the consent of debtor
A owes B P3,000 due November 15. B owes A P1,000 due November
15.
B assigned his right to C on November 1 with the consent of A.
On November 15, A cannot set up against C, the assignee, the
compensation which would pertain to him against B, the assignor. In
other words, A is liable to C for P3,000 but he can still collect the
P1,000 debt of B.
However, if A, while consenting to the assignment, reserved his right
to the compensation, he would be liable only for P2,000 to C.
(2) Assignment with the knowledge but without the consent of debtor
A owes B P1,000 due November 1. B owes A P2,000 due November
10. A owes B P1,000 due November 15.
A assigned his right to C on November 12. A notified B but the latter
did not give his consent to the assignment. How much can C collect
from B?
B can set up the compensation of debts on November 10 which was
before the cession on November 12. (par. 2) There being partial
compensation, the assignment is valid only up to the amount of
P1,000.
But B cannot raise the defense of compensation with respect to the
debt of A due on November 15 which has not yet matured. So, on
November 12, B is liable to C for P1,000. Come November 15, A will
be liable for his debt of P1,000 to B.
(3) Assignment without knowledge of the debtor
In the preceding example, let us suppose that the assignment was
made without the knowledge of B who learned of the assignment only
on November 16.
In this case, B can set up the compensation of credits before and after
the assignment. The crucial time is when B acquired knowledge of the
assignment and not the date of the assignment. If B learned of the
assignment after the debts had already matured, he can raise the
defense of compensation; otherwise, he cannot.
Class discussion
In other words, the debtor can always set up compensation to extinguish his
obligation prior to the debtors knowledge of the assignment, unless the debtor
consents to the assignment.
Art. 1287. Compensation shall not be proper when one of the debts arises
from a depositum or from the obligation of a depositary or of a bailee in
commodatum.
Neither can compensation be set up against a creditor who has a claim for
support due by gratuitous title, without prejudice to the provisions of
paragraph 2 of Article 301.
Art. 1288. Neither shall there be compensation if one of the debts consists in
civil liability arising from a penal offense.
(1) Where one of the debts arises from a depositum
A deposit is constituted from the moment a person receives a thing
belonging to another with the obligation of safely keeping it and of
returning the same. Note: A bank deposit is not a depositum as
defined in the Civil Code. It is really a loan which creates the
relationship of debtor and creditor.
*Article 1962. A deposit is constituted from the moment a person
receives a thing belonging to another, with the obligation of safely
keeping it and of returning the same. If the safekeeping of the thing
delivered is not the principal purpose of the contract, there is no
deposit but some other contract.
Example:
A owes B P10,000. B, in turn owes A the amount of P10,000
representing the value of a ring deposited by A with B, which B failed
to return.
In this case, B, who is the depositary, cannot claim legal compensation
even if A fails to pay his obligation. The remedy of B is to file an action
against A for the recovery of the amount of P10,000.
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what the recipient (B) owes the obligor (A). However, if A failed
to support B for some months, the support in arrears may be
compensated with the debt of B. Compensation can take place
because B no longer needs the support in arrears as he was able
to exist even without the support of A during those months.
(4) Where one of the debts consists in civil liability arising from a penal
offence
Example:
A owes B P1,000. B stole the ring of A worth P1,000. Here,
compensation by B is not proper.
But A, the offended party, can claim the right of compensation. The
prohibition in Article 1288 pertains only to the accused by not to the
victim of the crime.
Art. 1283. If one of the parties to a suit over an obligation has a claim for
damages against the other, the former may set it off by proving his right to
said damages and the amount thereof.
Compensation may also take place when so declared by a final judgment of a
court in a suit (judicial compensation). A party may set off his claim for
damages against his obligation to the other party by proving his right to said
damages and the amount thereof.
Both parties must prove their respective claims. In the absence from both
parties on their claims, offsetting is improper. The right to offset may exist but
the question of how much is to be offset is factual in nature.
Art. 1284. When one or both debts are rescissible or voidable, they may be
compensated against each other before they are judicially rescinded or
avoided.
Example:
A owes B P10,000. Subsequently, A, through fraud, was able to make B sign a
promissory note that B is indebted to A for the same amount.
The debt of A is valid but that of B is voidable. Before the debt of B is nullified,
both debts may be compensated against each other if all the requisites for legal
compensation are present.
Suppose Bs debt is later on annulled by the court, is A still liable considering
that compensation had already taken place? Yes. The effect of annulment is
retroactive. It is the same as if there had been no compensation.
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latter against the original obligor, except when said insolvency was already
existing and of public knowledge, or known to the debtor, when he delegated
his debt.
Delegacion
This takes place when the creditor accepts a third person to take the place of
the debtor at the instance of the latter. The creditor may withhold approval.
The new debtor is entitled to reimbursement and subrogation under Article
1297.
Article 1295 only speaks of insolvency. Hence, in delegacion, if the nonfulfillment of the obligation is due to other causes, the old debtor is not liable.
The general rule is that the old debtor is not liable to the creditor in case of the
insolvency of the new debtor.
The exceptions are:
(1) The said insolvency was already existing and of public knowledge
(although it was not known to the old debtor) at the time of the
delegacion.
(2) The insolvency was already existing and known to the debtor
(although it was not of public knowledge) at the time of the
delegacion.
Article 1302. It is presumed that there is legal subrogation:
(2) When a third person, not interested in the obligation, pays with the
express or tacit approval of the debtor.
Example:
A owes B P1,000. C pays B with the express or implied consent of A.
In this case, C will be subrogated in the rights of B.
What is the effect of novation on accessory obligations?
Art. 1296. When the principal obligation is extinguished in consequence of a
novation, accessory obligations may subsist only insofar as they may benefit
third persons who did not give their consent.
The above article follows the general rule that the extinguishment of the
principal obligation carries with it that of the accessory obligations.
It provides, however, an exception in the case of an accessory obligation
created in favor of a third person which remains in force unless said third
person gives his consent to the novation. This is so because a person should
not be prejudiced by the act of another without his consent.
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The effect of legal subrogation as provided in Article 1303 may not be modified
by agreement.
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The vendor in bad faith shall always be answerable for the payment of
all expenses, and for damages.
*Article 1616. The vendor cannot avail himself of the right of repurchase
without returning to the vendee the price of the sale, and in addition:
(1) The expenses of the contract, and any other legitimate payments made by
reason of the sale;
Art. 1629. In case the assignor in good faith should have made himself
responsible for the solvency of the debtor, and the contracting parties should
not have agreed upon the duration of the liability, it shall last for one year
only, from the time of the assignment if the period had already expired.
If the credit should be payable within a term or period which has not
yet expired, the liability shall cease one year after the maturity.
Art. 1213. A solidary creditor cannot assign his rights without the consent of
the others.
Conventional Subrogation and Assignment of Credit Distinguished
Conventional Subrogation
Assignment of Credit
A credit is extinguished and another
There is a transfer of same credit
appears, which the new creditor
which belonged to another and
claims as his own
which, upon being transferred, is not
extinguished
The consent of the debtor is required
The consent of the debtor is not
so that it may fully produce legal
required, his knowledge thereof
effects
affecting only the validity of the
payment he might make. What the
law requires is merely notice to the
debtor as the assignment takes effect
only from the time he has knowledge
thereof.
Its effects begin from the time of
The effects with respect to the debtor
novation itself, that is, from the
begin from the date of notification
moment all the parties have given
their consent
The nullity or defects of the previous
The nullity or defects of the obligation
obligation may be cured by the
are not remedied, because only the
novation
correlative right of the obligation is
transmitted
Class discussion
Article 1301 does not require payment for conventional subrogation to take
place. What is required is the consent of all parties. On the other hand, in
Article 1302 (2), payment is necessary for legal subrogation to take place.
Licaros v Gatmaitan (2001) 362 SCRA 548
The threshold issue for the determination of [the] Court is whether the
Memorandum of Agreement between petitioner and respondent is one of
assignment of credit or one of conventional subrogation. This matter is
determinative of whether or not respondent became liable to petitioner under
the promissory note considering that its efficacy is dependent on the
Memorandum of Agreement, the note being merely an annex to the same
memorandum.
Petitioner Licaros invested his funds with the Anglo-Asean Bank, an offshore
bank, but had difficulty retrieving not only the interests or profits, but even the
very investments he had put. Respondent Gatmaitan, a reputable banker and
investment manager, voluntarily offered to assume the payment of AngloAseans indebtedness to Licaros subject to certain terms and conditions. A
Memorandum of Agreement was executed and notarized to this effect. A
promissory note was appended to the Memorandum of Agreement
representing the amount.
Contained in the Memorandum is the stipulation:
WHEREAS, the parties herein have come to an agreement on the nature, form
and extent of their mutual prestations which they now record herein with the
express conformity of the third parties concerned.
Hence, included in the signatories of the Memorandum of Agreement is AngloAsean, as Conforme. The document, however, remained unsigned by the bank.
Gatmaitan was unable to collect from Anglo-Asean, resulting in the
nonfulfillment of his promise to pay Licaros the amount stated in his
promissory note.
Licaros contends that he has a right to collect from Gatmaitan regardless of the
outcome of Gatmaitans efforts.
[The Court] agrees with the finding of the Court of Appeals that the
Memorandum of Agreement was in the nature of a conventional subrogation
which requires the consent of the debtor, Anglo-Asean Bank, for its validity.
The Memorandum stipulated that there should be express conformity of the
third parties concerned, this third party admittedly being Anglo-Asean Bank.
The consent of the third party being required by the Memorandum, the
agreement therefore is one of conventional subrogation, and not of
assignment of credit.
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Exception: prescription runs between husband and wife who are legally
separated
Art. 1113. All things which are within the commerce of men are susceptible of
prescription, unless otherwise provided. Property of the State or any of its
subdivisions not patrimonial in character shall not be the object of
prescription. (1936a)
That which is not subject to appropriation cannot be acquired by prescription
Art. 1136. Possession in wartime, when the civil courts are not open, shall not
be counted in favor of the adverse claimant.
Art. 1154. The period during which the obligee was prevented by a fortuitous
event from enforcing his right is not reckoned against him. (n)
Can prescription be waived? Yes
Art. 1112. Persons with capacity to alienate property may renounce
prescription already obtained, but not the right to prescribe in the future.
Prescription is deemed to have been tacitly renounced when the renunciation
results from acts which imply the abandonment of the right acquired. (1935)
Renunciation is unilateral, it does not require the acceptance of the person
benefitting
However, renunciation in advance is void; an agreement based on waiving
future prescription is nonbinding. Waiving of prescription by those without
capacity or by ones representatives is nonbinding.
Distinguish between ordinary and extraordinary prescription.
Art. 1117. Acquisitive prescription of dominion and other real rights may be
ordinary or extraordinary.
Ordinary acquisitive prescription requires possession of things in good faith
and with just title for the time fixed by law. (1940a)
Requisites of prescription:
a. Capacity to acquire by prescription
b. The thing is capable of acquisition by prescription
c. Possession of the thing under certain conditions
d. Lapse of time provided by law
While the first two are common of all prescriptions the latter two vary as to
WON the prescription is ordinary or extraordinary.
Ordinary prescription requires
a. Good faith possession
b. Just title
c. Possession for a period of time fixed by law
MOVABLES
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deposit it with the mayor of the city or municipality where the finding has
taken place.
The finding shall be publicly announced by the mayor for two consecutive
weeks in the way he deems best.
If the movable cannot be kept without deterioration, or without expenses
which considerably diminish its value, it shall be sold at public auction eight
days after the publication.
Six months from the publication having elapsed without the owner having
appeared, the thing found, or its value, shall be awarded to the finder. The
finder and the owner shall be obliged, as the case may be, to reimburse the
expenses. (615a)
Art. 720. If the owner should appear in time, he shall be obliged to pay, as a
reward to the finder, one-tenth of the sum or of the price of the thing found.
(616a)
Art. 526. He is deemed a possessor in good faith who is not aware that there
exists in his title or mode of acquisition any flaw which invalidates it.
He is deemed a possessor in bad faith who possesses in any case contrary to
the foregoing.
Mistake upon a doubtful or difficult question of law may be the basis of good
faith. (433a)
Art. 1127. The good faith of the possessor consists in the reasonable belief
that the person from whom he received the thing was the owner thereof, and
could transmit his ownership. (1950a)
Art. 1128. The conditions of good faith required for possession in Articles 526,
527, 528, and 529 of this Code are likewise necessary for the determination of
good faith in the prescription of ownership and other real rights. (1951)
Good faith
- The well founded belief that the grantor is the owner.It is the belief in
the validity, and not merely ignorance of a defect.
- The belief must be continuous
- Any other defect will invalidate the title, and when there is no just title
there can be no prescription
- Good faith is always presumed, the burden of proof rests on those
claiming otherwise.
- There is a presumption that the possession continues to be enjoyed in
the same character in which it was acquired, until the contrary is
proven.
Art. 308. Who are liable for theft. Theft is committed by any person who,
with intent to gain but without violence against or intimidation of persons
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nor force upon things, shall take personal property of another without the
latter's consent.
Theft is likewise committed by:
1. Any person who, having found lost property, shall fail to deliver the same
to the local authorities or to its owner;
2. Any person who, after having maliciously damaged the property of
another, shall remove or make use of the fruits or object of the damage
caused by him; and
3. Any person who shall enter an inclosed estate or a field where trespass is
forbidden or which belongs to another and without the consent of its owner,
shall hunt or fish upon the same or shall gather cereals, or other forest or
farm products.
Art. 536. In no case may possession be acquired through force or intimidation
as long as there is a possessor who objects thereto. He who believes that he
has an action or a right to deprive another of the holding of a thing, must
invoke the aid of the competent court, if the holder should refuse to deliver
the thing. (441a)
Art. 537. Acts merely tolerated, and those executed clandestinely and
without the knowledge of the possessor of a thing, or by violence, do not
affect possession. (444)
In what concept must be the possession for prescription to run?
Art. 1118. Possession has to be in the concept of an owner, public, peaceful
and uninterrupted. (1941)
Art. 1119. Acts of possessory character executed in virtue of license or by
mere tolerance of the owner shall not be available for the purposes of
possession. (1942)
Concept of owner
- necessary for possession
- vs license: a positive act of owner in favor of a holder
- vs tolerance: passive acquiescence by owner of acts of another which
are contrary to former.
Public - manifest and visible to all, the opposite of clandestine, there is the
presumption that the public and the owner are aware of the possession.
Peaceful acquired and maintained without violence whether physical or
moral. Except that force may be used to repel an unlawful physical invasion.
Uninterrupted continuous, there must be no act of deprivation of enjoyment
of the thing by a third person or other act which interrupts prescription.
Interruption is a positive act of a third person. Uninterruption is distinct from
discontinuity, since the former is a positive act of a third person while the latter
is a negative act of the possessor.
Art. 541. A possessor in the concept of owner has in his favor the legal
presumption that he possesses with a just title and he cannot be obliged to
show or prove it. (448a)
How is prescription interrupted?
Art. 1120. Possession is interrupted for the purposes of prescription, naturally
or civilly. (1943)
Effect of interruption all the benefits acquired so far from the possession
cease, when it resumes the time lapsed will start anew.
Interruption is the opposite of suspension where in the past period is included
in the computation of the total time lapsed.
Art. 1121. Possession is naturally interrupted when through any cause it
should cease for more than one year.
The old possession is not revived if a new possession should be exercised by
the same adverse claimant. (1944a)
Art. 1122. If the natural interruption is for only one year or less, the time
elapsed shall be counted in favor of the prescription. (n)
Art. 1123. Civil interruption is produced by judicial summons to the
possessor. (1945a)
Art. 1124. Judicial summons shall be deemed not to have been issued and
shall not give rise to interruption:
(1) If it should be void for lack of legal solemnities;
(2) If the plaintiff should desist from the complaint or should allow the
proceedings to lapse;
(3) If the possessor should be absolved from the complaint.
In all these cases, the period of the interruption shall be counted for the
prescription. (1946a)
In civil interruption, the effect of the recovery of the possession is that the
period of interruption is included in the computation of the prescription.
Technically then, it is as if there was no interruption and that the possession
was continuous.
Art. 1125. Any express or tacit recognition which the possessor may make of
the owner's right also interrupts possession. (1948)
The recognition of the possessor of the owners rights will interrupt possession.
rd
However, the declaration of a 3 person that the holder is not the owner will
not interrupt possession.
Art. 1126. Against a title recorded in the Registry of Property, ordinary
prescription of ownership or real rights shall not take place to the prejudice
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of a third person, except in virtue of another title also recorded; and the time
shall begin to run from the recording of the latter.
As to lands registered under the Land Registration Act, the provisions of that
special law shall govern. (1949a)
Recorded titles as to third persons
Third persons are those who acquire their rights subsequently, relying on the
registration of ownership in the registry. They cannot be prejudiced by a period
of possession prior to their acquisition. This will apply provided that the
following conditions are met:
a) acquisition is by onerous title
b) acquisition is from one who, accdg to the registry, can transmit the
title
c) acquisition is registered
d) That the third person has no knowledge of the prescription.
Registered lands adverse possession may not be allowed to defeat the
owners right to possession of lands registered under the Torrens system, nor
will it run against the owners hereditary successors. But laches may be set up
as to registered lands.
Art. 1127. The good faith of the possessor consists in the reasonable belief
that the person from whom he received the thing was the owner thereof, and
could transmit his ownership. (1950a)
Art. 1129. For the purposes of prescription, there is just title when the
adverse claimant came into possession of the property through one of the
modes recognized by law for the acquisition of ownership or other real rights,
but the grantor was not the owner or could not transmit any right. (n)
Art. 1130. The title for prescription must be true and valid. (1953)
For prescription to run, the title must be just, true, valid, and proved.
The purpose of just title is the transmission of ownership which would have
transferred ownership if the grantor had really been the owner. The defect is
cured by prescription.
e.g. sale, donation, and dation transfer ownership. But lease, loan, and deposit
do not transfer ownership and therefore do not give rise just title
A true title is one that actually exists, as opposed to a simulated title which
cannot be the basis of prescription. A false title is one which does not exist but
is believed to exist. It will be sufficient of the mistake of fact is with regards to
acts of a third person. If the mistake refers to the act of the possessor himself,
it will be considered insufficient.
e.g purchasing from an insane party with knowledge of the vendors incapacity
will render the title insufficient. But purchasing without such knowledge of the
incapacity will render the title sufficient.
Valid title the title should be sufficient to transfer right if the grantor had
been the owner. Void titles are insufficient and cannot give rise to prescription.
Voidable titles are sufficient so long as it has not been annulled. For titles with
suspensive condition, prescription only runs from the fulfillment of such a
condition. For titles with resolutory conditions, prescription begins at once
without prejudice to the fulfillment of the condition
Art. 1131. For the purposes of prescription, just title must be proved; it is
never presumed. (1954a)
Proof of title: required for purpose of prescription. It is an exception to 541
which refers to an existing fact of possession. This article refers to the
acquisition of right of ownership. Since a new right is sought to be created, the
law becomes more exacting
How is prescription computed?
Art. 1138. In the computation of time necessary for prescription the following
rules shall be observed:
(1) The present possessor may complete the period necessary for prescription
by tacking his possession to that of his grantor or predecessor in interest;
(2) It is presumed that the present possessor who was also the possessor at a
previous time, has continued to be in possession during the intervening time,
unless there is proof to the contrary;
(3) The first day shall be excluded and the last day included. (1960a)
Tacking means adding the period of possession of the predecessor to that of
the successor. Tacking of possession requireds:
A) The present possessor must have obtained it from previous possessor
B) There must be privity between them
Tacking is only possible with succession, usurpers cannot tack
Different characteristics of possession: from good to bad faith and vice versa
When the possession of the predecessor is in good faith and that of the
successor is in bad faith, tacking is permitted. The period of possession in good
faith is computed in the proportion that the period of extraordinary
prescription bears to that of ordinary prescription.
When the possession of the predecessor is in bad faith and that of the
successor is in good faith then tacking does not apply for ordinary prescription.
However, if the period of the predecessor is so long as to be beneficial to the
successor, he may claim tacking for extraordinary prescription.
Art. 544. A possessor in good faith is entitled to the fruits received before the
possession is legally interrupted.
Natural and industrial fruits are considered received from the time they are
gathered or severed.
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Civil fruits are deemed to accrue daily and belong to the possessor in good
faith in that proportion. (451)
What is the prescriptive period to recover movables and immovable?
Movables 8 years
Immovables 30 years
Art. 1140. Actions to recover movables shall prescribe eight years from the
time the possession thereof is lost, unless the possessor has acquired the
ownership by prescription for a less period, according to Articles 1132, and
without prejudice to the provisions of Articles 559, 1505, and 1133. (1962a)
Art. 1141. Real actions over immovables prescribe after thirty years.
This provision is without prejudice to what is established for the acquisition
of ownership and other real rights by prescription. (1963)
LOSS OF POSSESSION
Art. 555. A possessor may lose his possession:
(1) By the abandonment of the thing;
(2) By an assignment made to another either by onerous or gratuitous title;
(3) By the destruction or total loss of the thing, or because it goes out of
commerce;
(4) By the possession of another, subject to the provisions of Article 537, if
the new possession has lasted longer than one year. But the real right of
possession is not lost till after the lapse of ten years. (460a)
When is prescription interrupted?
Art. 1155. The prescription of actions is interrupted when they are filed
before the court, when there is a written extrajudicial demand by the
creditors, and when there is any written acknowledgment of the debt by the
debtor. (1973a)
Filing in court interruption of extinctive prescription commences upon the
docketing and continues during the pendency of the action. Upon dismissal, the
prescription runs anew. However, when an action is filed and the plaintiff
desists in the prosecution, the action is deemed never to have commenced.
Written extrajudicial demand must be in writing, verbal demand is
insufficient.
Written acknowledgement of debt may be express or implied in writing. May
be made by an agent or legal representative. However, acknowledgement of a
debt after the prescription has expired does not amount to a renunciation of a
prescription already acquired. Partial payment does not interrupt prescription
because although it can be considered an acknowledgment of a debt, as long as
it is not in writing, there will be no interruption.
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same began to run only on February 25, 1986, when the Aquino government
too power. It is true that under Art. 1154:
Article 1154. The period during which the obligee was prevented by a
fortuitous event from enforcing his right is not reckoned against him.
fortuitous events have the effect of tolling the period of prescription.
However, it cannot be say, as a universal rule, that the period from September
21, 1972 to February 25, 1986, involves force majeure. This claim should be
taken on a case-to-case basis.
*The Court+ is convinced, from petitioner Tans very behavior (of instituting
actions in court that did not involve the conveyance of shares), that his
detention was not an impediment to a judicial challenge, and the fact of the
matter was that he was successful in obtaining judicial assistance. Under these
circumstances, [the Court] cannot declare detention, or authoritarian rule for
that matter, as a fortuitous event insofar as he was concerned, that interrupted
prescription.
Prescription was not interrupted. Tans action came too late.
H. Agreement
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Issue:
Held:
basic claim that the defendant failed to fulfill its obligation and the
plaintiff is therefore entitled to recover damages.
It should be noted that RFC entertained the loan application of Saura,
Inc. on the assumption that the factory to be constructed would utilize
locally grown raw materials, principally kenaf. Evidently Saura, Inc.
realized that it could not meet the conditions required by RFC stated
that local jute "will not be able in sufficient quantity this year or
probably next year," and asking that out of the loan agreed upon the
sum of P67,586.09 be released "for raw materials and labor." This was
a deviation from the terms laid down in Resolution No. 145 and
embodied in the mortgage contract, implying as it did a diversion of
part of the proceeds of the loan to purposes other than those agreed
upon.The action thus taken by both parties was in the nature cf
mutual desistance what Manresa terms "mutuo disenso" 1 which
is a mode of extinguishing obligations. It is a concept that derives from
the principle that since mutual agreement can create a contract,
mutual disagreement by the parties can cause its extinguishment.
I. Difficulty
What is clausula rebus sic stantibus?
Art. 1267. When the service has become so difficult as to be manifestly
beyond the contemplation of the parties, the obligor may also be released
therefrom, in whole or in part. (n)
Occena vs. Jabson
Facts:
Tropical Homes, Inc. filed a complaint for modification of the terms
and conditions of its subdivision contract with petitioners (landowners
of a 55,330 square meter parcel of land in Davao City) alleging that
due to the increase in price of oil and its derivatives and the
concomitant worldwide spiraling of prices, further performance by the
plaintiff under the contract, will result in situation where defendants
would be unjustly enriched at the expense of the plaintiff; will cause
an iniquitous distribution of proceeds from the sales of subdivided lots
in manifest actually result in the unjust and intolerable exposure of
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J. Impossibility
What is the effect of impossibility?
Art. 1266. The debtor in obligations to do shall also be released when the
prestation becomes legally or physically impossible without the fault of the
obligor. (1184a)
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L. Fortuitous Event
What are the acts of God?
Art. 1174- refer to 104
Art. 1262. An obligation which consists in the delivery of a determinate thing
shall be extinguished if it should be lost or destroyed without the fault of the
debtor, and before he has incurred in delay.
When by law or stipulation, the obligor is liable even for fortuitous events,
the loss of the thing does not extinguish the obligation, and he shall be
responsible for damages. The same rule applies when the nature of the
obligation requires the assumption of risk. (1182a)
Examples of instances when the law requires liability even in the case
of a fortuitous event:
o When the debtor is in default (mora)
o When the debtor has promised to deliver the same thing to two or
more persons (parties) who do not have the same interest
o When the oblig arises from a crime
o When a borrower (of an object) has lent the thing to another who
is not a member if his own household.
o When the thing loaned has been delivered with appraisal of the
value, unless there is a stipulation exempting the borrower from
responsibility in case of a fortuitous event.
o When the payee in solutio indebiti is in bad faith
An act of God has been defined as an accident, due directly and
exclusively to natural causes without human intervention, which by no
amount of foresight, pains or care, reasonably to have been expected,
could have been prevented. (1 Corpus Juris 1174). (Nakpil and Sons vs.
CA)
o The principle embodied in the act of God doctrine strictly requires
that the act must be one occasioned exclusively by the violence of
nature and all human agencies are to be excluded from creating
or entering into the cause of the mischief. When the effect, the
cause of which is to be considered, is found to be in part the
result of the participation of man, whether it be from active
intervention or neglect, or failure to act, the whole occurrence is
thereby humanized, as it were, and removed from the rules
applicable to the acts of God. (1 Corpus Juris, pp. 1174-1175).
o The negligence of the defendant and the third-party defendants
petitioners was established beyond dispute both in the lower
court and in the Intermediate Appellate Court. Defendant United
Construction Co., Inc. was found to have made substantial
deviations from the plans and specifications. and to have failed to
observe the requisite workmanship in the construction as well as
to exercise the requisite degree of supervision; while the thirdparty defendants were found to have inadequacies or defects in
the plans and specifications prepared by them. As correctly
assessed by both courts, the defects in the construction and in the
plans and specifications were the proximate causes that rendered
the PBA building unable to withstand the earthquake of August 2,
1968. For this reason the defendant and third-party defendants
cannot claim exemption from liability. (Decision, Court of Appeals,
pp. 30-31).
o In any event, the relevant and logical observations of the trial
court as affirmed by the Court of Appeals that "while it is not
possible to state with certainty that the building would not have
collapsed were those defects not present, the fact remains that
several buildings in the same area withstood the earthquake to
which the building of the plaintiff was similarly subjected," cannot
be ignored.
Art. 1221. If the thing has been lost or if the prestation has become
impossible without the fault of the solidary debtors, the obligation shall be
extinguished.
If there was fault on the part of any one of them, all shall be responsible to
the creditor, for the price and the payment of damages and interest, without
prejudice to their action against the guilty or negligent debtor.
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If through a fortuitous event, the thing is lost or the performance has become
impossible after one of the solidary debtors has incurred in delay through the
judicial or extrajudicial demand upon him by the creditor, the provisions of
the preceding paragraph shall apply. (1147a)
Loss because of a fortuitous event after defaultthere will be liability
because of the default.
When will force majeure not extinguish an obligation?
Art. 1174- refer to 104
Art. 1265. Whenever the thing is lost in the possession of the debtor, it shall
be presumed that the loss was due to his fault, unless there is proof to the
contrary, and without prejudice to the provisions of article 1165. This
presumption does not apply in case of earthquake, flood, storm, or other
natural calamity. (1183a)
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Dispositive: The instant petition is hereby DENIED, with costs against the
petitioners.
NATURAL OBLIGATIONS
Distinguish civil and natural obligations.
Art. 1423. Obligations are civil or natural. Civil obligations give a right of
action to compel their performance. Natural obligations, not being based on
positive law but on equity and natural law, do not grant a right of action to
enforce their performance, but after voluntary fulfillment by the obligor, they
authorize the retention of what has been delivered or rendered by reason
thereof. Some natural obligations are set forth in the following articles.
Civil and natural obligs distinguished
o Voluntary fulfilment defined
Voluntary fulfilment means that the debtor complied with the
same even if he knew that he could have been legally forced
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Art. 1424. When a right to sue upon a civil obligation has lapsed by extinctive
prescription, the obligor who voluntarily performs the contract cannot
recover what he has delivered or the value of the service he has rendered.
Effect of extinctive prescription- By virtue of extinctive prescription, a
right to property has been lost. Hence, the existence of the Article.
Art. 1425. When without the knowledge or against the will of the debtor, a
third person pays a debt which the obligor is not legally bound to pay because
the action thereon has prescribed, but the debtor later voluntarily reimburses
the third person, the obligor cannot recover what he has paid.
Payment with debtors consent- If payment is made with the consent
of the debtor, a civil oblig arises.
after the annulment of the contract voluntarily returns the whole thing or
price received, notwithstanding the fact the he has not been benefited
thereby, there is no right to demand the thing or price thus returned.
Art. 1427. When a minor between eighteen and twenty-one years of age,
who has entered into a contract without the consent of the parent or
guardian, voluntarily pays a sum of money or delivers a fungible thing in
fulfillment of the obligation, there shall be no right to recover the same from
the obligee who has spent or consumed it in good faith. (1160A)
Contract by MinorsNo annulment yet
o Generally, annulment requires mutual restitution. Here, the oblige
who has spent or consumed the object in good faith is not
required to restore.
o Good faith of the oblige must be present at the time of the
spending or consuming.
o Note that the majority age today is 18. And fungible here really
means consumable.
Art. 1428. When, after an action to enforce a civil obligation has failed the
defendant voluntarily performs the obligation, he cannot demand the return
of what he has delivered or the payment of the value of the service he has
rendered.
Winner in an action to enforce a civil obligationHere the defendant
may have realized that he should have lost the case, instead of winning
it, this the existence of the Article.
Art. 1429. When a testate or intestate heir voluntarily pays a debt of the
decedent exceeding the value of the property which he received by will or by
the law of intestacy from the estate of the deceased, the payment is valid and
cannot be rescinded by the payer.
Art. 1426. When a minor between eighteen and twenty-one years of age who
has entered into a contract without the consent of the parent or guardian,
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Art. 1430. When a will is declared void because it has not been executed in
accordance with the formalities required by law, but one of the intestate
heirs, after the settlement of the debts of the deceased, pays a legacy in
compliance with a clause in the defective will, the payment is effective and
irrevocable.
Payment of legacies despite the fact that the will is void
o If the will is void, the legacy would also be void and the deceased
is considered to have died without a will. This is the reason for the
existence of this Article.
Analogous cases
o By analogy, all alienations defective for lack of proper formalities
may be included under Art. 1430.
CONTRACTS
V. General
What is a contract?
Art. 1305. A contract is a meeting of minds between two persons whereby
one binds himself, with respect to the other, to give something or to render
some service. (1254a)
Contract, defined
o A contract, from the Latin contractus and from the French
contract, is a juridical convention manifested in legal form, by
virtue of which, one or more persons (or parties) bind themselves
in favour of another or others, or reciprocally, to the fulfilment of
a prestation to give, to do, or not to do.
Elements of a contract
o Essential elements (without them a contract cannot exist)
Consent
Subject matter
Cause or consideration
Form (some contracts)
Delivery (some contracts)
o Natural elements (those found in certain contracts and presumed
to exist, unless the contrary has been stipulated)
Warranty against eviction and against hidden defects in the
contract of sale
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Art. 1315. Contracts are perfected by mere consent, and from that moment
the parties are bound not only to the fulfillment of what has been expressly
stipulated but also to all the consequences which, according to their nature,
may be in keeping with good faith, usage and law. (1258)
Ang Yu vs. CA
Facts:
Plaintiffs (Ang Yu) are tenants or lessees of residential and commercial
spaces owned by defendants (Bobby Cu Unjieng) in Binondo, Manila.
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They have occupied said spaces since 1935 and have been religiously
paying the rental and complying with all the conditions of the lease
contract.
Defendants informed plaintiffs that they are offering to sell the
premises and are giving them priority to acquire the same; that during
the negotiations, Bobby Cu Unjieng offered a price of P6-million while
plaintiffs made a counter offer of P5-million; that plaintiffs thereafter
asked the defendants to put their offer in writing to which request
defendants acceded.
In reply to defendant's letter, plaintiffs wrote them asking that they
specify the terms and conditions of the offer to sell.
Since defendants failed to specify the terms and conditions of the
offer to sell and because of information received that defendants were
about to sell the property, plaintiffs were compelled to file the
complaint to compel defendants to sell the property to them.
Defendants filed their answer denying the material allegations of the
complaint and interposing a special defense of lack of cause of action.
The court dismissed the complaint on the ground that the parties did
not agree upon the terms and conditions of the proposed sale, hence,
there was no contact of sale at all.
The Cu Unjieng spouses executed a Deed of Sale transferring the
property in question to Buen Realty and Development Corporation.
Buen Realty, as the new owner of the subject property, wrote to the
lessees demanding the latter to vacate the premises. In its reply, it
stated that Buen Realty and Development Corporation brought the
property subject to the notice of lis pendens.
Issue: WON there was a perfected contract between Ang Yu and Cu Unjieng
Held:
Until the contract is perfected, it cannot, as an independent source of
obligation, serve as a binding juridical relation. In sales, particularly, to
which the topic for discussion about the case at bench belongs, the
contract is perfected when a person, called the seller, obligates
himself, for a price certain, to deliver and to transfer ownership of a
thing or right to another, called the buyer, over which the latter
agrees.
When the sale is not absolute but conditional, such as in a "Contract to
Sell" where invariably the ownership of the thing sold is retained until
the fulfillment of a positive suspensive condition (normally, the full
payment of the purchase price), the breach of the condition will
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Principle of Freedom
o The free entrance into contracts generally without restraint is one
of the liberties guaranteed to the people. However, the
constitutional prohibition against impairment of contractual obligs
refers only to contracts which are not legal, not to void or
inexistent ones.
Limitations on the nature of the stipulations
o The law
o Moral
o Good customs
o Public order
o Public policy
Limitations imposed by law
o The contractual stipulations must not be contrary to mandatory
and prohibitive laws. Directory and suppletory laws need not be
complied with, since these are either discretionary or merely
supply the omissions of the parties.
o Contracts must respect the law, for the law forms part of the
contract. Indeed the provisions of all laws are understood to be
incorporated in the contract.
Limitations imposed by morals
o Morals deal with right and wrong and with human conscience.
Limitations imposed by good customs
o Good customs are those that have received for a period time
practical and social confirmation. Acc to the Code Commission,
good customs and morals overlap each other; but sometimes they
do not.
Limitations imposed by public order
o Public order deals with the public weal and includes public safety.
Limitations imposed by public policy
o Public policy, which varies according to the culture of a particular
country, is the public social and legal interest in private law. It is
said to be the manifest will of a State.
o A contract is contrary to public policy if it has a tendency to injure
the public, is against the public good or contravenes some
established interest of society or is inconsistent with sound policy
and good morals or tends clearly to undermine the security of
individuals rights.
Designation of the name of a contract
o The parties generally may agree on any contract but the name
that they give to it should not be controlling for a contract is what
the parties intended it to be not what they call it.
o This is because a contract must be judged by its character, its
nature and its legal qualifications. The courts will therefore look
not so much at the form of the transaction as at its substance.
Section 10, Art. III, 1987 Constitution. No law impairing the
obligation of contracts shall be passed.
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and those they are exported to the same market. The only difference
between the two companies is the method of doing the finishing
work- the manufacture of the embroidered material into finished
garments.
Ollendorf commenced the action to prevent, by injunction, any further
breach of that part of defendant's contract of employment by plaintiff.
Lower court granted a preliminary injunction.
Issue: WON the contract of employment is void
Held:
A contract by which an employee agrees to refrain for a given length
of time after the expiration of the term of his employment, from
engaging in a business competitive with that of his employer is not
void as being restraint of trade, if the restraint imposed is no greater
in restraint imposed is no greater than that which is necessary to
afford a reasonable protection to the employer.
The only limitation upon the freedom of contractual agreement is that
the pacts established shall not be contrary to law, morals, or public
order. The industry of counsel has failed to discover any direct
expression of the legislative will which prohibits such a contract as
that before us. It certainly is not contrary to any moral precept.
The validity of restraints upon trade or employment is to be
determined by the intrinsic reasonableness of the restrictions in each
case, rather than by any fixed rule, and that such restrictions may be
upheld when not contrary to the public welfare and not greater than is
necessary to afford a fair and reasonable protection to the party in
whose favor it is imposed.
The restraint imposed upon defendant by his contract is not
unreasonable. The public policy which allows a person to obtain
employment on certain terms understood by and agreed to by him,
and to repudiate his contract, conflicts with and must, to avail the
defendant, for some sufficient reason, prevail over, the manifest
public policy, which as a rule holds to his bond.
Simbol met Alma, also an employee of the company. When they got
married, Simbol resigned pursuant to the company policy of the ban of
spouses working in the same company.
Comia also resigned after being advised of the policy.
Estrella got herself pregnant by Zuniga, a co-worker who was married.
She opted to resign from the company.
The respondents each signed a Release and Confirmation Agreement.
They stated that they have no money and property accountabilities in
the company and that they release the latter of any claim or demand
of whatever.
Respondents offer a different version of their dismissal. Simbol and
Comia allege that they did not resign voluntarily; they were compelled
to resign in view of an illegal company policy.
Estrella alleged that Zuniga misrepresented himself himself as a
married but separated man. After she got pregnant, she discovered
that he was not separated. She then severed her relationship with him
to avoid dismissal. She met an accident which required her to
recuperate for 21 days. When she returned to work, she was denied
entry. She was directed to proceed to the personnel office where one
of the staff handed her a memorandum stating that she is dismissed
for immoral conduct.
Respondents filed a complaint for unfair labor practice, constructive
dismissal, separation pay and attorney's fees.
The labor arbiter dismissed the complaint for lack of merit.
NLRC affirned the decision.
CA reversed decision of NLRC.
Issue: WON the policy of the employer banning spouses from working in the
same company violates the rights of the employee
Held:
The policy of petitioners prohibiting close relatives from working in the
same company takes the nature of an anti-nepotism employment
policy.
Unlike in our jurisdiction where there is no express prohibition on
marital discrimination, there are 20 statutes in the US prohibiting
marital discrimination. In other statutes, they rule that unless the
employer can prove that the reasonable demands of the business
require a distinction based on marital status and there is no better
available or acceptable policy which would better accomplish the
business purpose, an employer may not discriminate against an
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Nominate
Innominateno express name
o Governing rules for innominate contracts
Stipulations
Titles I and II of Book IV- Obligations and Contracts
Rules on the most analogous nominate contracts
Customs of the place
o 4 kinds of innominate contracts
Do ut des (I give that you may give)
Do ut facias (I give that you may do)
Facio ut des (I do that you may give)
Facio ut facias (I do that you may do)
Consensual
Art. 1315. Contracts are perfected by mere consent, and from that moment
the parties are bound not only to the fulfillment of what has been expressly
stipulated but also to all the consequences which, according to their nature,
may be in keeping with good faith, usage and law. (1258)
o
o
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Art. 1475. The contract of sale is perfected at the moment there is a meeting
of minds upon the thing which is the object of the contract and upon the
price.
From that moment, the parties may reciprocally demand performance,
subject to the provisions of the law governing the form of contracts. (1450a)
Solemn
Art. 1356. Contracts shall be obligatory, in whatever form they may have
been entered into, provided all the essential requisites for their validity are
present. However, when the law requires that a contract be in some form in
order that it may be valid or enforceable, or that a contract be proved in a
certain way, that requirement is absolute and indispensable. In such cases,
the right of the parties stated in the following article cannot be exercised.
(1278a)
o
Art. 1357. If the law requires a document or other special form, as in the acts
and contracts enumerated in the following article, the contracting parties
may compel each other to observe that form, once the contract has been
perfected. This right may be exercised simultaneously with the action upon
the contract. (1279a)
o
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(1) Acts and contracts which have for their object the creation, transmission,
modification or extinguishment of real rights over immovable property; sales
of real property or of an interest therein a governed by Articles 1403, No. 2,
and 1405;
(2) The cession, repudiation or renunciation of hereditary rights or of those of
the conjugal partnership of gains;
(3) The power to administer property, or any other power which has for its
object an act appearing or which should appear in a public document, or
should prejudice a third person;
(4) The cession of actions or rights proceeding from an act appearing in a
public document.
All other contracts where the amount involved exceeds five hundred pesos
must appear in writing, even a private one. But sales of goods, chattels or
things in action are governed by Articles, 1403, No. 2 and 1405. (1280a)
o
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Real
Art. 1316. Real contracts, such as deposit, pledge and Commodatum, are not
perfected until the delivery of the object of the obligation. (n)
o
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Art. 1962. A deposit is constituted from the moment a person receives a thing
belonging to another, with the obligation of safely keeping it and of returning
the same. If the safekeeping of the thing delivered is not the principal
purpose of the contract, there is no deposit but some other contract. (1758a)
Art. 1963. An agreement to constitute a deposit is binding, but the deposit
itself is not perfected until the delivery of the thing. (n)
Art. 2085. The following requisites are essential to the contracts of pledge
and mortgage:
(1) That they be constituted to secure the fulfillment of a principal obligation;
(2) That the pledgor or mortgagor be the absolute owner of the thing pledged
or mortgaged;
(3) That the persons constituting the pledge or mortgage have the free
disposal of their property, and in the absence thereof, that they be legally
authorized for the purpose.
Third persons who are not parties to the principal obligation may secure the
latter by pledging or mortgaging their own property. (1857)
Art. 2087. It is also of the essence of these contracts that when the principal
obligation becomes due, the things in which the pledge or mortgage consists
may be alienated for the payment to the creditor. (1858)
Art. 2088. The creditor cannot appropriate the things given by way of pledge
or mortgage, or dispose of them. Any stipulation to the contrary is null and
void. (1859a)
Art. 2093. In addition to the requisites prescribed in Article 2085, it is
necessary, in order to constitute the contract of pledge, that the thing
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Mutuality of contracts
o Both parties are bound. The principle is based on the essential
equality of the parties. It is repugnant to bind one party and yet
leave the other free.
Consequences of mutuality
o A party cannot revoke or renounce a contract without the consent
of the other, nor can it have it set aside on the ground that he had
made a bad bargain.
o When the fulfilment of the condition depends upon the sole will
of the debtor, the conditional oblig is void if the condition is
suspensive. If resolutory, the oblig is valid. Hence, it is all right for
the contract to expressly give to one party the right to cancel the
same. This is because when the contract is thus cancelled, the
agreement is really being fulfilled.
The decision binds the parties only after it is made known to both.
Effect of stipulation regarding arbitration
o If in a contract, there is a stipulation for arbitration and one party,
in case of dispute, refuses to submit the matter to arbitration, the
aggrieved party whose goes to court to request it to order the
other party to submit the matter to arbitration, should not
anymore present to the court the merits of the disputed matters.
The decision on said merits will be up to the arbitrator. The only
function of the Court in this case would be to decide WON the
parties should proceed to arbitration.
Art. 1182. When the fulfillment of the condition depends upon the sole will of
the debtor, the conditional obligation shall be void. If it depends upon chance
or upon the will of a third person, the obligation shall take effect in
conformity with the provisions of this Code. (1115)
Who can demand enforcement of contract?
Art. 1311. Contracts take effect only between the parties, their assigns and
heirs, except in case where the rights and obligations arising from the
contract are not transmissible by their nature, or by stipulation or by
provision of law. The heir is not liable beyond the value of the property he
received from the decedent.
If a contract should contain some stipulation in favor of a third person, he
may demand its fulfillment provided he communicated his acceptance to the
obligor before its revocation. A mere incidental benefit or interest of a person
is not sufficient. The contracting parties must have clearly and deliberately
conferred a favor upon a third person. (1257a)
Principle of relativity
o Contracts are generally effective only between the parties, their
assigns and their heirs.
Exceptions to the principle of relativity (refer to Paras p576-583)
o Where the oblig arising from the contract are not transmissible by
their nature, by stipulation or by provision of law.
o Where there is a stipulation pour autrui (a stipulation in favour of
a third party)
rd
o Where a 3 person induces another to violate his contract.
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rd
rd
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Uy vs. CA
Facts:
Petitioners William Uy and Rodel Roxas are agents authorized to sell 8
parcels of land by the owners. They offered to sell the lands to
National Housing Authority to be utilized and developed as a housing
project.
NHA Board passed Resolution No. 1632 approving acquisition of said
lands. The parties executed a series of Deeds of Absolute Sale. Of the 8
parcels of lands, only 5 were paid for by the NHA because of a report
by DENR that the remaining area is not suitable for a housing project.
NHA issued another resolution cancelling the sale over the 3 parcels of
land.
Petitioners filed before RTC a Complaint for Damages against NHA and
its General Manager Balao.
RTC rendered a decision declaring the cancellation of the contract to
be justified.
CA reversed decision.
Issue: WON the agents are real parties-in-interest
Held:
Petitioners are not parties to the contract of sale between their
principals and NHA. They are mere agents of the owners of the land
subject of the sale. As agents, they only render some service or do
something in representation or on behalf of their principals. The
rendering of such service did not make them parties to the contracts
Baluyot vs. CA
Facts:
Petitioners Timoteo Baluyot, Jaime Benito, Benigno Eugenio, Rolando
Gonzales, and Fortunato Fulgencio are residents of Barangay Cruz-naLigas and members of The Cruz-na-Ligas Homesite Association, Inc.
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This article constitutes one of the exceptions to the general rule that a
contract binds only the parties.
A real right binds the property over which it is exercised.
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rd
But the fact that the appellant's interference was actionable did not of
itself entitle Gilchrist to sue out an injunction against them. The
allowance of the remedy must be justified under Sec. 164 of the Code
of Civil Procedure. There is nothing in Sec. 164 that before an
injunction may issue, the strangers must know the identity of both
parties. Courts usually grant an injunction where the profit of the
injured person are derived from his contractual relations with a large
and indefinite number of individuals. Injunction against further
interference with the contract was properly issued.
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When the contract expired, the parties did not renew the contracts,
but Tek hua continued to occupy the premises.
Tek Hua was dissolved. Later, the original members of Tek Hua formed
Tek Hua Enterprising Corp.
When So Pek Giok, managing partner of Tek Hua Trading died, his son
So Ping Bun, occupied the warehouse for his own textile business.
Tiong, president of Tek Hua, sent a letter demanding So Ping Bum to
vacate the premises.
So Ping Bun refused and instead requested formal contracts. DCCSI
acceded to the request.
Private respondents filed a petition for injunction for the nullification
of the lease contracts between DCCSI and petitioner with damages.
Trial court ruled in favor of the respodents. Upon appeal, the Court of
Appeals affirmed. Hence, this petition.
Issue: WON So Ping Bun is liable for tortuous interference of contract
Held:
A duty which the law of torts is concerned with is respect for the
property of others, and a cause of action ex delicto may be predicated
upon an unlawful interference by one person of the enjoyment by the
other of his private property. In the present case, petitioner's
Trendsetter Marketing asked DCCSI to execute lease contracts in its
favor, and as a result petitioner deprived respondent corporation of
the latter's property right. This was a clear case of tortuous
interference.
Section 1314 of the Civil Code categorically provides that "Any third
person who induces another to violate his contract shall be liable for
damages to the other contracting party". While lack of malice
precludes damages, it does not relieve the interferer of the legal
liability for entering into contracts and causing breach of existing ones.
The respondent appellate court correctly confirmed the permanent
injunction and nullification of the lease contracts between DCCSI and
Trendsetter Marketing without awarding damages. The injunction
saved the respondents from further damage or injury caused by
petitioner's interference.
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a)
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Despite petitioners claim that he signed the documents on March 28, way
before respondents withdrawal of the offer on April 4, still the letter of the
petitioner accepting the offer was received on April 7. By then, respondent had
already withdrawn its offer. Indubitably, there was no contract perfected by
the parties.
It must also be underscored that there was no time frame fixed by respondent
for petitioner to accept or reject its offer. When the offeror had not fixed a
period for offeror to accept the offer, and the offer is made to a person
present, the acceptance must be made immediately. The respondent had the
option to withdraw or revoke the offer.
As regards the effectiveness of the withdrawal, the Court held that implicit in
the authority given to Philtectic Corporation to demand for and recover from
the petitioner the subject car and to institute the appropriate action against
him to recover possession of the car is the authority to withdraw the
respondent's March 14, 1990 Letter-offer. It cannot be argued that respondent
authorized Philtectic Corporation to demand and sue for the recovery of the
car and yet did not authorize it to withdraw its March 14, 1990 Letter-offer to
the petitioner. Besides, when he testified, Senen Valero stated that the April 4,
1990 letter of Philtectic Corporation to the petitioner was upon his instruction
and conformably with the resolution of the Board of Directors of the
respondent.
When is there an offer? An offer is a unilateral proposition which one party
makes to the other for the celebration of a contract.
It must be:
a) Definite distinguished from mere communications indicating that a
party is disposed to enter into a certain contract, or inviting the other
to make an offer
Ex. I will give you my watch if you buy it for P1, 500
as opposed to
I am in position and willing to entertain the purchase of this watch
under the following conditions
b) Complete Sufficient clearness of the kind of contract intended and
definitely stating the conditions of the contract
c) Intentional Must be made with seriousness, not for fun or in jest, or
out of courtesy, or as an example in teaching
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Art. 1479. A promise to buy and sell a determinate thing for a price certain is
reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate thing for a
price certain is binding upon the promissor if the promise is supported by a
consideration distinct from the price. (1451a)
This article is NOT inconsistent with Art. 1324. If the option is not
supported by any independent consideration distinct from the price
certain, the offer can still be withdrawn even if the offer is already
accepted.
Ang Yu v. CA [Supra]
P.U.P. v. CA [November 14, 2001]
Ponente: J. Bellosillo
Facts: In 1965, Firestone leased 2.9 hectares of National Development
Corporations land in Manila for a period of 10 years, renewable for another 10
years under the same terms and conditions. Firestone constructed several
buildings on the lot. 3 years later, Firestone entered into another contract for
the use of the prefabricated warehouses and was agreed to be co-extensive
with the earlier contract. Firestone entered into a similar contract with NDC in
1974. The contracts were to expire on 1978.
Firestone requested for an extension of the lease and the parties adopted a
resolution for its extension. One of the conditions added was that in the event
NDC "with the approval of higher authorities, decide to dispose and sell these
properties including the lot, priority should be given to the LESSEE"
On 22 December 1978, in pursuance of the resolution, the parties entered into
a new agreement for a ten-year lease of the property, renewable for another
ten (10) years, expressly granting FIRESTONE the first option to purchase the
leased premises in the event that it decided "to dispose and sell these
properties including the lot.
In 1988, FIRESTONE informed NDC latter through several letters and telephone
calls that it was renewing its lease over the property. NDC did not take any
action. Rumors circulated that NDC will sell the land to PUP.
FIRESTONE instituted an action for specific performance to compel NDC to sell
the leased property in its favor and likewise prayed for the issuance of a writ of
preliminary injunction to enjoin NDC from disposing of the property pending
the settlement of the controversy.
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parties. The stipulation is part and parcel of the contract of lease making the
consideration for the lease the same as that for the option.
It is a settled principle in civil law that when a lease contract contains a right of
first refusal, the lessor is under a legal duty to the lessee not to sell to anybody
at any price until after he has made an offer to sell to the latter at a certain
39
price and the lessee has failed to accept it. The lessee has a right that the
lessor's first offer shall be in his favor.
The option in this case was incorporated in the contracts of lease by NDC for
the benefit of FIRESTONE which, in view of the total amount of its investments
in the property, wanted to be assured that it would be given the first
opportunity to buy the property at a price for which it would be offered.
Consistent with their agreement, it was then implicit for NDC to have first
offered the leased premises of 2.60 hectares to FIRESTONE prior to the sale in
favor of PUP. Only if FIRESTONE failed to exercise its right of first priority could
NDC lawfully sell the property to petitioner PUP.
When does an offer become ineffective?
Incapacity of either party before acceptance (Death, Civil Interdiction,
Insanity, or Insolvency)
Lack of authority of offeror
Absence of any of the essential requisites
No acceptance/ Rejection of the offer
Time, manner and place of acceptance not complied with
Withdrawal of offer before acceptance
Art. 1323. An offer becomes ineffective upon the death, civil interdiction,
insanity, or insolvency of either party before acceptance is conveyed. (n)
The contract is not yet perfected at any time before acceptance is
conveyed. The disappearance or loss of capacity of either party before
acceptance before perfection prevents the contractual tie from being
formed.
Art. 1315. Contracts are perfected by mere consent, and from that moment
the parties are bound not only to the fulfillment of what has been expressly
stipulated but also to all the consequences which, according to their nature,
may be in keeping with good faith, usage and law. (1258)
Art. 1317. No one may contract in the name of another without being
authorized by the latter, or unless he has by law a right to represent him.
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A contract entered into in the name of another by one who has no authority
or legal representation, or who has acted beyond his powers, shall be
unenforceable, unless it is ratified, expressly or impliedly, by the person on
whose behalf it has been executed, before it is revoked by the other
contracting party. (1259a)
If the contract is entered into in behalf of another who has not
authorized it, such contract is not valid and binding upon him unless
he ratifies the transaction.
Art. 1318. There is no contract unless the following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established. (1261)
Art. 1319. Consent is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to constitute the
contract. The offer must be certain and the acceptance absolute. A qualified
acceptance constitutes a counter-offer.
Acceptance made by letter or telegram does not bind the offerer except from
the time it came to his knowledge. The contract, in such a case, is presumed
to have been entered into in the place where the offer was made. (1262a)
Art. 1320. An acceptance may be express or implied. (n)
Art. 1321. The person making the offer may fix the time, place, and manner of
acceptance, all of which must be complied with. (n)
Art. 1322. An offer made through an agent is accepted from the time
acceptance is communicated to him. (n)
Art. 1324. When the offerer has allowed the offeree a certain period to
accept, the offer may be withdrawn at any time before acceptance by
communicating such withdrawal, except when the option is founded upon a
consideration, as something paid or promised. (n)
Art. 1325. Unless it appears otherwise, business advertisements of things for
sale are not definite offers, but mere invitations to make an offer. (n)
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be oral or written. Hence, even without any written evidence of the Collective
Bargaining Agreement made by the parties, a valid agreement existed in this
case from the moment the minds of the parties met on all matters they set out
to discuss.
Art. 1315 of the Civil Code states that contracts are perfected by mere consent,
and from that moment, the parties are bound not only to the fulfillment of
what has been expressly stipulated but also to all the consequences which,
according to their nature, may be in keeping with good faith, usage and law.
The Secretary of Labor found that "as early as January 14, 1993, well within the
six (6) month period provided by law, the Company and the Union have
7
perfected their agreement." The claim of petitioner to the contrary
notwithstanding, this is a finding of an administrative agency which, in the
absence of evidence to the contrary, must be affirmed.
What is the effect of simulated consent? Void if absolute simulation, Can be
valid if it is relatively simulated
Art. 1345. Simulation of a contract may be absolute or relative. The former
takes place when the parties do not intend to be bound at all; the latter,
when the parties conceal their true agreement. (n)
Simulation defect in declaration. It is a declaration of a fictitious will,
deliberately made by agreement of the parties, in order to produce, for
purposes of deception, the appearance of a juridical act which does not exist or
is different from that which was really executed.
Absolute Simulation (Simulados) the parties do not have any intention of
being bound by any contract
Ex. A deed of absolute sale of land, stating that possession has been transferred
and the price paid, when in reality there has been no agreement of sale
between the parties.
Relative Simulation (Disimulados) the parties have an agreement which they
conceal under the guise of another contract. There are two juridical acts
involved:
a) Ostensible act contract that the parties pretend to have executed
b) Hidden act the true agreement between the parties
Ex: A deed of sale of a piece of land is executed by parties to conceal their true
agreement which is a donation
Note: If the concealed or hidden act is lawful, it is enforceable if the essential
requisites are present.
Art. 1346. An absolutely simulated or fictitious contract is void. A relative
simulation, when it does not prejudice a third person and is not intended for
any purpose contrary to law, morals, good customs, public order or public
policy binds the parties to their real agreement. (n)
The nullity of an absolutely simulated contract is based on want of true
consent where the parties do not have any intent to be bound at all. It is
generally fraudulent and for the purpose of injuring third persons.
If the purpose of the contract is licit, then the parties may prove the simulation
in order to recover what may have already been given. If it has an illegal object,
please see Arts. 1411 and 1412 under Void Contracts.
The relatively simulated contract is valid, except when it prejudices third
persons or has an illicit purpose.
B. Object (Prestation)
What can be the object of a contract?
Things within the commerce of men
Transmissible rights
Licit things
Determinate things
Possible things
Art. 1347. All things which are not outside the commerce of men, including
future things, may be the object of a contract. All rights which are not
intransmissible may also be the object of contracts.
No contract may be entered into upon future inheritance except in cases
expressly authorized by law.
All services which are not contrary to law, morals, good customs, public order
or public policy may likewise be the object of a contract. (1271a)
Requisites of Object:
a) Within the commerce of man
b) Licit
c) Possible
d) Determinate as to its kind
Things outside the commerce of man those things which are not susceptible
of appropriation or private ownership, and are not transmissible
Ex. Perpetual servitude or slavery, Personal rights (marital authority), Public
offices, Right of suffrage, Property pertaining to public dominion (roads, plazas,
rivers), Sacred things
Art. 1348. Impossible things or services cannot be the object of contracts.
(1272)
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Cause
Art. 1354. Although the cause is not stated in the contract, it is presumed that
it exists and is lawful, unless the debtor proves the contrary. (1277)Art. 1350
Unless the contrary is proved, a contract is presumed to have a good and
sufficient consideration. The presumption, however, applies only when no
cause is stated in the contract.
Differentiate motive from cause.
Art. 1351. The particular motives of the parties in entering into a contract are
different from the cause thereof. (n)
CAUSE
MOTIVE
Objective, intrinsic and juridical Psychological, individual or personal
reason for the existence of the purpose of a party to a contract
contract itself
Objective of a party in entering into Persons reason for wanting to get
the contract
such objective
Always the same for each kind of Differs with each person
contract
Essential requisite which affects Does not affect the validity or
validity or enforceability of a contract existence of a contract
What is the status of a contract with an unlawful cause? Void
Art. 1352. Contracts without cause, or with unlawful cause, produce no effect
whatever. The cause is unlawful if it is contrary to law, morals, good customs,
public order or public policy. (1275a)
Ex. An agreement to resume concubinage which had been interrupted by
quarrels
Art. 1409. The following contracts are inexistent and void from the beginning:
(1) Those whose cause, object or purpose is contrary to law, morals, good
customs, public order or public policy;
(3) Those whose cause or object did not exist at the time of the transaction;
What is the status of a contract with a false cause? Void, if not founded upon
another licit cause
Art. 1353. The statement of a false cause in contracts shall render them void,
if it should not be proved that they were founded upon another cause which
is true and lawful. (1276)
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instrument does not express the true intention of the parties, the courts may
order that the instrument be reformed.
This article refers to mistake committed by the clerk or typist.
Ex. Typographical errors
Art. 1365. If two parties agree upon the mortgage or pledge of real or
personal property, but the instrument states that the property is sold
absolutely or with a right of repurchase, reformation of the instrument is
proper.
Rule 130 - Sec. 9 PAROL EVIDENCE RULE
Evidence of written agreements. When the terms of an agreement have
been reduced to writing, it is considered as containing all the terms agreed
upon and there can be, between the parties and their successors in interest,
no evidence of such terms other than the contents of the written agreement.
However, a party may present evidence to modify, explain or add to the
terms of written agreement if he puts in issue in his pleading:
(a)An intrinsic ambiguity, mistake or imperfection in the written agreement;
(b)The failure of the written agreement to express the true intent and
agreement of the parties thereto;
(c)The validity of the written agreement; or
(d)The existence of other terms agreed to by the parties or their successors in
interest after the execution of the written agreement.
The term "agreement" includes wills. (7a)
When may a contract not be reformed?
Simple donations inter vivos wherein no condition is imposed
Wills
Real agreement is void
Action to enforce instrument is instituted
Art. 1366. There shall be no reformation in the following cases:
(1) Simple donations inter vivos wherein no condition is imposed;
(2) Wills;
(3) When the real agreement is void.
Rationale: An action to reform a written instrument is in the nature of an action
for specific performance and requires a valuable consideration, something that
is lacking in wills and donations.
Art. 1367. When one of the parties has brought an action to enforce the
instrument, he cannot subsequently ask for its reformation.
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ANNULMENT
No real and valid contract was made
Minds of the parties did not meet, or
consent was vitiated
Effect is complete nullification of the
contract
third person, and which for equitable reasons may be set aside even if it is
valid. (Tolentino)
When are contracts rescissible?
Art. 1380. Contracts validly agreed upon may be rescinded in the cases
established by law. (1290)
Rescission A remedy granted by law to the contracting parties and even to
third persons, to secure the reparation of damages caused to them by a
contract, by means of the restoration of the restoration things to their
condition prior to the celebration of said contract. (Tolentino, quoting
Manresa)
* Relief for the protection of one of the contracting parties AND third persons
from all injury and damages the contract may cause OR protect some
incompatible and preferent right created by the contract.
* Implies a contract which, even if initially valid, produces a lesion or pecuniary
damage to someone.
* Set asides the act or contract for justifiable reasons of equity.
* Grounds for rescission can only be for legal cause.
* Voidable contracts may also be rescinded.
KINDS OF RESCISSIBLE CONTRACTS
Art. 1381. The following contracts are rescissible:
Those which are entered into by guardians whenever the wards whom
they represent suffer lesion by more than one fourth of the value of
the things which are the object thereof;
Those agreed upon in representation of absentees, if the latter suffer
the lesion stated in the preceding number;
Those undertaken in fraud of creditors when the latter cannot in any
other manner collect claims due them;
Those which refer to things under litigation if they have been entered
into by the defendant without the knowledge and approval of the
litigants or of competent judicial authority;
All other contracts specially declared by law to be subject to
rescission. (1291a)
1 and 2) Contracts entered into by GUARDIANS for their wards, or trustees or
administrators for the ABSENTEES, are rescissible if the party represented
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suffers lesion of by more than one-fourth of the value of the things which are
objects of the contract.
Lesion injury which one of the parties suffers by virtue of a contract which is
disadvantageous to him. (Tolentino)
EXCEPTION: Article 1386. Rescission referred to in Nos. 1 and 2 of Article 1381
shall not take place with respect to contracts approved by the courts. (1296a)
* As a rule, guardians cannot enter into contracts involving a disposition of the
ward's property without approval of the guardianship court since a guardian is
only authorized to manage the estate. Therefore, the contracts contemplated
by Article 1381 are contracts entered into by the guardians for the ward which
would not require court approval i.e. contracts which constitute mere acts of
administration.
3) Contracts in Fraud of Creditors
Accion Pauliana the rescissory action to set aside contracts in fraud of
creditors
Article 1177. The creditors, after having pursued the property in
possession of the debtor to satisfy their claims, may exercise all the rights and
bring all the actions of the latter for the same purpose, save those which are
inherent in his person; they may also impugn the acts which the debtor may
have done to defraud them. (1111)
Requisites of Accion Pauliana:
a) that the plaintiff asking for recission has a credit prior to the alienation,
although demandable later.
b) that the debtor has made a subsequent contract conveying a patrimonial
benefit to a 3rd person.
c) that the creditor has no other legal remedy to satisfy his claim, but would
benefit by the recission of the conveyance to the 3rd person.
d) that the act being impugned is fraudulent.
e) that the 3rd person who received the property conveyed, if it is by onerous
title, has been an accomplice in the fraud.
* It must be shown that the conveyance was fraudulent or with intent to
prejudice creditors of the party making the conveyance.
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Art. 1189. When the conditions have been imposed with the intention of
suspending the efficacy of an obligation to give, the following rules shall be
observed in case of the improvement, loss or deterioration of the thing
during the pendency of the condition:
(4) If it deteriorates through the fault of the debtor, the creditor may choose
between the rescission of the obligation and its fulfillment, with indemnity
for damages in either case;
* Prior to the fulfillment of a suspensive condition, If the object of the
prestation deteriorates through the fault of the debtor, the creditor could
choose to rescind the contract with damages.
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in
case one of the obligors should not comply with what is incumbent upon him.
Art. 1355. Except in cases specified by law, lesion or inadequacy of cause shall
not invalidate a contract, unless there has been fraud, mistake or undue
influence. (n)
GENERAL RULE:
Lesion or inadequacy of cause will not subject the contract to rescission.
EXCEPTION:
Those mentioned in Article 1381, or if attended by fraud, mistake or undue
influence.
The injured party may choose between the fulfillment and the rescission of
the obligation, with the payment of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the latter should become
impossible.
The court shall decree the rescission claimed, unless there be just cause
authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons who
have acquired the thing, in accordance with Articles 1385 and 1388 and the
Mortgage Law. (1124)
1380
Similarities
Who may
demand
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Grounds
Sufficiency of reason
does not affect right to
ask for rescission (cannot
be refused if all the
requisites are satisfied)
Kind of
Obligation
applicable to
Only to reciprocal
Unilateral, reciprocal
Character
Principal Remedy
Art. 1203. If through the creditor's acts the debtor cannot make a choice
according to the terms of the obligation, the latter may rescind the contract
with damages. (n)
the object of the contract, together with their fruits, and the price with its
interest; consequently, it can be carried out only when he who demands
rescission can return whatever he may be obliged to restore.
Neither shall rescission take place when the things which are the object of the
contract are legally in the possession of third persons who did not act in bad
faith.
In this case, indemnity for damages may be demanded from the person
causing the loss. (1295)
* In restitution, the parties, shall be placed in the same position where they
were before they entered into the assailed contract. The objective is to restore
the parties to their original position. Not only should the parties return the
object subject of the rescissible contract but also the fruits or interest if any. If
the object of the contract cannot be restored because of loss, damages may be
claimed from the person responsible for the loss. (Sta. Maria)
* A party cannot rescind the and at the same time retain the consideration, or
part of the consideration, received under the contract. One cannot have the
benefits of rescission without assuming its burdens.
* When things, which are the object of a contract ,is legally in the possession of
a third person who acquired them in good faith, rescission cannot take place.
EXTENT OF RESCISSION
Art. 1192. In case both parties have committed a breach of the obligation, the
liability of the first infractor shall be equitably tempered by the courts. If it
cannot be determined which of the parties first violated the contract, the
same shall be deemed extinguished, and each shall bear his own damages. (n)
in pari delicto (in equal fault) both parties are equally at fault, the court
may deem the contract extinguished if it cannot determine who is the first
infractor.
Art. 1384. Rescission shall be only to the extent necessary to cover the
damages caused. (n)
* The extent of the revocation is only to the amount of the prejudice suffered
by the creditor who instituted the action for rescission. As to the excess, the
alienation is maintained.
Who may bring action for rescission?
1) The creditor injured by the contract
2) The heirs of the creditor injured by the contract.
3) The creditors of the creditor injured by the contract by virtue of the right
granted by Article 1177 (accion subrogatoria)
PRESUMPTIONS OF FRAUD
EFFECTS OF RESCISSION
Art. 1387. All contracts by virtue of which the debtor alienates property by
Art. 1385. Rescission creates the obligation to return the things which were
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gratuitous title are presumed to have been entered into in fraud of creditors,
when the donor did not reserve sufficient property to pay all debts
contracted before the donation.
Alienations by onerous title are also presumed fraudulent when made by
persons against whom some judgment has been issued. The decision or
attachment need not refer to the property alienated, and need not have been
obtained by the party seeking the rescission.
In addition to these presumptions, the design to defraud creditors may be
proved in any other manner recognized by the law of evidence. (1297a)
* Applies only when the there has been in fact an alienation or transfer or
transfer.
* Rebuttal by evidence that conveyance was made:
1) in good faith
2) for a sufficient cause
Art. 1388. Whoever acquires in bad faith the things alienated in fraud of
creditors, shall indemnify the latter for damages suffered by them on account
of the alienation, whenever, due to any cause, it should be impossible for him
to return them.
If there are two or more alienations, the first acquirer shall be liable first, and
so on successively. (1298a)
PRESCRIPTIVE PERIOD
Art. 1389. The action to claim rescission must be commenced within four
years.
For persons under guardianship and for absentees, the period of four years
shall not begin until the termination of the former's incapacity, or until the
domicile of the latter is known. (1299)
* prescriptive period begins to run after the aggrieved party has unsuccessfully
exhausted all possible remedies to enforce the obligation or to recover what
has been lost.
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price. The claim therefore, of the petitioner that it has the right to forfeit said
sums in its favor is untenable. Under Article 1124 of the Civil Code, however,
he may choose between demanding the fulfillment of the contract or its
resolution. These remedies are alternative and not cumulative, and the
petitioner in this case, having elected to cancel the contract cannot avail
himself of the other remedy of exacting performance. As a consequence of the
resolution, the parties should be restored, as far as practicable, to their original
situation which can be approximated only be ordering the return of the things
which were the object of the contract, with their fruits and of the price, with its
interest, computed from the date of institution of the action.
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HELD: Yes.
RATIO:
In the first place, UP and ALUMCO had expressly stipulated that upon default
by the debtor, UP has the right and the power to consider the Logging
Agreement of December 2, 1960 as rescinded without the necessity of any
judicial suit. As to such special stipulation and in connection with Article 1191
of the Civil Code, the Supreme Court, stated in Froilan vs. Pan Oriental Shipping
Co:
There is nothing in the law that prohibits the parties from entering into
agreement that violation of the terms of the contract would cause cancellation
thereof, even without court intervention. In other words, it is not always
necessary for the injured party to resort to court for rescission of the contract.
B.
Voidable or Annullable
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The Mecado case cited in the decision under review is different because
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Art. 1328. Contracts entered into during a lucid interval are valid. Contracts
agreed to in a state of drunkenness or during a hypnotic spell are voidable.
(n)
minors
deaf-mutes who cannot write
insane
imbeciles or demented
under civil interdiction
hypnotized
intoxicated
VITIATED CONSENT
a) MISTAKE
Art. 1331. In order that mistake may invalidate consent, it should refer to the
substance of the thing which is the object of the contract, or to those
conditions which have principally moved one or both parties to enter into the
contract.
Mistake as to the identity or qualifications of one of the parties will vitiate
consent only when such identity or qualifications have been the principal
cause of the contract.
A simple mistake of account shall give rise to its correction. (1226a)
Art. 1333. There is no mistake if the party alleging it knew the doubt,
contingency or risk affecting the object of the contract. (n)
* Mistake should refer to the substance of the thing which is the object of the
contract, or those conditions which principally induced the parties to enter into
a contract.
* Conditions must not be mere incidents to the consideration.
b) VIOLENCE and INTIMIDATION
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d) FRAUD
Art. 1338. There is fraud when, through insidious words or machinations of
one of the contracting parties, the other is induced to enter into a contract
which, without them, he would not have agreed to. (1269)
Art. 1344. In order that fraud may make a contract voidable, it should be
serious and should not have been employed by both contracting parties.
Art. 1339. Failure to disclose facts, when there is a duty to reveal them, as
when the parties are bound by confidential relations, constitutes fraud. (n)
* The mere fact that one of the parties has superior knowledge of the value of
the property subject of the transaction than the other party does not per se
constitute fraud. There is only fraud when a legal or equitable duty is imposed
upon the dominant party to reveal certain facts material to the transaction or
where there is a confidential relationship between the parties.
Art. 1340. The usual exaggerations in trade, when the other party had an
opportunity to know the facts, are not in themselves fraudulent. (n)
Art. 1341. A mere expression of an opinion does not signify fraud, unless
made by an expert and the other party has relied on the former's special
knowledge. (n)
* Other party must know that he is an expert.
* Other party relied on the opinion based on that knowledge
Art. 1342. Misrepresentation by a third person does not vitiate consent,
unless such misrepresentation has created substantial mistake and the same
is mutual. (n)
* Where both parties gave consent to a contract due to a substantial mistake
caused by a third party, the contract can be annulled.
Art. 1343. Misrepresentation made in good faith is not fraudulent but may
constitute error. (n)
Incidental fraud only obliges the person employing it to pay damages. (1270)
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PRESCRIPTIVE PERIOD
Art. 1391. The action for annulment shall be brought within four years.
This period shall begin:
In cases of intimidation, violence or udue influence, from the time
the defect of the consent ceases.
In case of mistake or fraud, from the time of the discovery of the
same.
And when the action refers to contracts entered into by minors or other
incapacitated persons, from the time the guardianship ceases. (1301a)
Period shall begin:
Intimidation, violence or undue influence- from the time consensual
defect ceases
Mistake or fraud- from the time of discovery of the same
Incapacity- from the time guardianship ceases
* Extinctive prescription shall apply not only to action for annulment, but also
the the defense of nullity
* applies to parties to the contract, but not to third parties.
OTHER INSTANCES WHERE AN ACTION FOR ANNULMENT IS EXTINGUISHED
Art. 1392. Ratification extinguishes the action to annul a voidable contract.
(1309a)
* Ratification the act of curing the defect which made the contract annullable
Art. 1393. Ratification may be effected expressly or tacitly. It is understood
that there is a tacit ratification if, with knowledge of the reason which
renders the contract voidable and such reason having ceased, the person who
has a right to invoke it should execute an act which necessarily implies an
intention to waive his right. (1311a)
Art. 1394. Ratification may be effected by the guardian of the incapacitated
person. (n)
* Ratification is a unilateral act. It is usually done by the injured party and not
by the party causing the injury. The consent of the injuring party is not required
because such party normally desires the effectivity of the contract anyway from
its inception.
Art. 1396. Ratification cleanses the contract from all its defects from the
moment it was constituted. (1313)
* Ratification transforms the contract completely as one without infirmity. This
curing effect retroacts to the day when the contract was entered into. Hence,
upon ratification, it is as if the contract has never been visited by any infirmity
or defect at all.
Art. 1401. The action for annulment of contracts shall be extinguished when
the thing which is the object thereof is lost through the fraud or fault of the
person who has a right to institute the proceedings.
If the right of action is based upon the incapacity of any one of the
contracting parties, the loss of the thing shall not be an obstacle to the
success of the action, unless said loss took place through the fraud or fault of
the plaintiff. (1314a)
* It is a rule that no one can come to court with unclean hands. Hence, the
injured party lost the thing which is the object of the obligation by his fault, he
cannot seek the annulment of the contract as such right will be considered
extinguished.
* However, if the party is one who is incapacitated, the mere fact that the thing
which is the object of the obligation has been lost, the incapacitated person is
not obliged to make any restitution except when it has benefited him.
EFFECT OF ANNULMENT
Art. 1398. An obligation having been annulled, the contracting parties shall
restore to each other the things which have been the subject matter of the
contract, with their fruits, and the price with its interest, except in cases
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provided by law.
In obligations to render service, the value thereof shall be the basis for
damages. (1303a)
* When the annulment of the contract has been decreed, the contracting
parties must be returned to their original position. Hence, whatever has been
given must be returned to the giver.
Art. 1399. When the defect of the contract consists in the incapacity of one of
the parties, the incapacitated person is not obliged to make any restitution
except insofar as he has been benefited by the thing or price received by him.
(1304)
* However, the law states that when the defect of the contract consists in the
incapacity of one of the parties, the incapacitated person is not obliged to
make any restitution except insofar as has been benefited by the thing or price
received by him.
Art. 1400. Whenever the person obliged by the decree of annulment to return
the thing can not do so because it has been lost through his fault, he shall
return the fruits received and the value of the thing at the time of the loss,
with interest from the same date. (1307a)
* When the object to be returned cannot be returned because it was lost by
the person obliged to return it due to fault of the said person, the value of the
object, its fruits, and interest shall be given instead to satisfy the order of
restitution.
Art. 1402. As long as one of the contracting parties does not restore what in
virtue of the decree of annulment he is bound to return, the other cannot be
compelled to comply with what is incumbent upon him. (1308)
* Restitution requires the return by the parties of what each has received from
the other. If one of them cannot restore to the other what he has received
from the said other, such other person cannot be compelled to return what he,
in turn, has received. (However, Article 1399)
C.
Unenforceable Contracts
Legal Effect
Defectiveness
Unenforceable
No legal effect unless
ratified
Nearer to absolute nullity
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o
o
o
o
o
5.
6.
Under Art. 1443, the Statute of Frauds also applies to express trusts
concerning an immovable or any interest therein.
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alleging occupancy of the same land. He promised Ortega that he would sell to
her a portion of the lot if she would desist from pressing her claim. There were
conditions given by Leonardo. Ortega must: 1) pay for the surveying and
subdivision of the Lot; and 2) continue holding the lot as tenant by paying a
monthly rental of P10.00 until said portion shall have been segregated and the
purchase price fully paid. Upon Leonardos acquisition of the title, Ortega
fulfilled all the conditions. She tendered to him the purchase price which the
latter refused to accept.
Issue: WON their oral agreement to sell the piece of land is covered by the
Statute of Frauds
Held:
No. The contract has been partially performed by Ortega. Partial payment of
the purchase price alone is not sufficient to constitute partial performance.
However, in the case at bar, there were several circumstances indicating partial
performance: 1) relinquishment of rights, 2) continued possession, 3) building
of improvements on the land, 4) tender of payment, 5) surveying of the lot at
Ortegas expense, 6) payment of rentals. None of these would separately
suffice, but the combination of relinquishment, survey and tender, is more than
enough.
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problem with the tenants, the sale would not push through anymore. They
would no longer be selling the property until all the problems had been settled.
Issue: WON Fernandez letter to Litonjua is a sufficient note or memorandum
required by the Statute of Frauds
Held:
No. The letter revealed a consistent denial of having a commitment to sell the
properties. There was no perfected contract of sale or contract to sell. There
was even no evidence to show that the owners of the land authorized
Fernandez to sell their properties. The application of the Statute of Frauds
presupposes the existence of a perfected contract. However, the required note
or memorandum must contain the essential elements of the contract
expressed with certainty: 1) all the essential terms and conditions of the sale of
the properties; 2) an accurate description of the property subject of the sale;
and, 3) the names of the owners of the properties. This was not the case in the
letter sent by Fernandez to the Litonjuas. Fernandez and the owners, then,
could not be held liable in the action for specific performance with damages.
D. Void
Contracts which have no force and effect from the very beginning, as if
it had never been entered into
Void Contract
Defect inherent in the contract itself
Nullity a matter of law and public
interest
No legal effects even if no action is
taken to set it aside
Action to declare nullity never
prescribes
Void Contract
Cannot be ratified
Generally, effects are not produced at
all
Ordinarily, the defect is that public
policy is militated against
Void from the very beginning so
generally, no action is required to set
it aside, unless the contract has
already been performed
Cannot be cured by prescription
Defense may be availed of by anybody
whose interest is directly affected
Void Contract
Cannot be ratified
No contract at all
Can be assailed by anybody directly
affected
Rescissible Contract
Defect in their effects, either to one of
the parties or a third party
Nullity based on equity and more a
matter of private interest
Remains valid and produces all its
effects if no action is taken to set it
aside
Action to rescind prescribes
Voidable Contract
May be ratified
Produces effects until annulled
The defect is due to incapacity or
vitiated consent
Valid until annulled
Unenforceable Contract
May be ratified
There is a contract but it cannot be
enforced by a court action
Cannot be assailed by third parties
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When the law fixes, or authorizes the fixing of the maximum number
of hours of labor, and a contract is entered into whereby a laborer
undertakes to work longer than the maximum thus fixed, he may
demand additional compensation for service rendered beyond the
time limit (Art. 1418).
When the law sets, or authorizes the setting of a minimum wage for
laborers, and a contract is agreed upon by which a laborer accepts a
lower wage, he shall be entitled to recover the deficiency (Art. 1419).
Cui v. Arellano (1961)
Facts:
Cui was enrolled in the College of Law of Arellano University up to the first
semester of his senior year. All the time, he was awarded scholarship grants for
scholastic merit. He was made to sign the following contract or agreement: In
consideration of the scholarship granted to me by the University, I hereby waive
my right to transfer to another school without having refunded to the University
(defendant) the equivalent of my scholarship cash. His semestral tuition was
returned to him at the end of the semester. Capistrano, his uncle was the dean
and legal counsel of the said college. But he left to accept the deanship and
chancellorship of the College of Law of Abad Santos University. Cui could not
pay his tuition in Arellano University, and so he enrolled for the last semester
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If the act in which the unlawful or forbidden cause consists does not
constitute a criminal offense: (Art. 1412)
1. If both are in pari delicto: cannot recover and cannot
demand performance against each other
2. If only one of the parties is at fault: the innocent one may
claim what he/she has given and shall not be bound to
comply with his promise
Facts:
Ong and Guan were married according to Chinese rites. Using her personal
funds, Ong purchased a parcel of land in Rizal, and registered it under her
name. Using their conjugal funds, the couple purchased a house and lot,
registered in their names. Guan abandoned his wife and three children. But
before they got separated, Ong was convinced by Guan to execute a Deed of
Sale of her property in Rizal to him. In return, Guan promised to construct a
commercial building for their children. The consideration for the simulated sale
was a Deed of Absolute Sale to be executed in favor of their children and that
he would pay the loan he obtained. Guan did not pay the consideration of
P200,000 for the sale. Ong kept the new TCT to insure that Guan would do
what he promised.
Issue: WON the in pari delicto principle applies to absolutely simulated or
fictitious contracts
Held:
No. A deed of sale, where the stated consideration has not been paid, is null
and void. The sale in this case was absolutely simulated, thus, void. When the
nullity arises from the illegality of the consideration or the purpose of the
contract, recovery to the guilty parties is denied. But it is different with
inexistent contracts such as the simulated sale between Guan and Ong. In this
case, Ong was not in pari delicto with Guan. The contract was fictitious due to
the lack of consideration. The land in Rizal may be recovered by Ong who
purchased the land using her personal funds. The transfer certificate of title
was cancelled, there being no legal basis for its issuance.