d. Delicts
e. Quasi-Delicts
OBLICON FINALS READY!
Obligation
- An obligation is a juridical relation whereby one party, called the creditor, may
demand from another, called the debtor the observance of a determinative conduct
and in case of breach, may demand satisfaction from the assets of the latter.
Makati Stock Exchange case
Four Essential Elements of Obligation
1. Active Subject : Creditor
2. Passive Subject : Debtor
3. Subject Matter : Prestation
4. Juridical Tie / Efficient Cause : Sources of an Obligation
# 1 and 2 : CREDITOR and DEBTOR a.k.a. The Parties
Requisites:
a. Must be determinate or determinable based on the source of obligation. 1
Example:
i. Contract of Sale
ii. Promissory Note
iii. Bearer Note
iv. Payment of Taxes
# 3: PRESTATION a.k.a. “To Give, To Do, or Not To Do”2 (ART. 1156)
Requisites:
a. Must be performed in good faith (ART. 1159)
b. Must be performed with ordinary diligence, except when extraordinary
diligence is required by law or by the contract expressly stipulated the
parties (ART 1163)
c. In obligations to give, the thing, its fruits, its accessories, and its accessions
must be delivered. (ART 1164)
d. Must also be physically and juridically possible
e. Must have monetary value
Basic Remedies in case of Breach in an Obligation (General Rule)
1. Specific Performance (with or without Damages)5
2. Resolution (with or without Damages) 6
3. Damages
Remedies in Obligation to GIVE
1. Specific Performance
2. Right to compel for the delivery of the thing, its fruits, its accessories, and its
accessions
3. Resolution
4. Damages
Remedies in Obligation to DO
1. Specific Performance7
2. Substitute Performance
3. Resolution
4. And/Or Damages
5. Rectification of Services or Recant
Remedies in Obligation NOT to DO
1. Injunction
2. Reversal
3. Damages
REMEDIES
These remedies presupposes the existence of a valid and enforceable obligation,
and that debtor violated the obligation. Otherwise, remedies would be
unavailing.
4
Solutio Indebiti (Unjust Enrichment) & Negotiorium Gesti (Voluntary administration of
Property)
5
May later claim for Resolution should this option become impossible (ART. 1191).
6
The court may grant this option, unless there be just cause authorizing the fixing of a period
(ART. 1191).
Suria v. IAC: Resolution will not be available as a remedy if you have a COS where the payment
is in installments and is secured by a REM on a property sold. The remedy should be
foreclosure because with the mortgage, there was a deemed consummation or cash payment of
1
If you cannot identify the parties, then you don’t have an obligation based on the source of
the purchase price.
7
obligation.
You cannot avail of this remedy if the debtor does not want to perform because it will be
2
There must be an observance of exact prestation.
contrary to law against involuntary servitude. In which case, the creditor will only be entitled to
3
The sources are exclusive. If it is not part of the list, then you don’t have an obligation.
damages.
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# 4 : JURIDICAL TIE / EFFICIENT CAUSE a.k.a. Sources of Obligation3
Sources:
a. Laws
b. Contracts
c. Quasi-Contracts4
To avail Resolution:
1. Specific Performance must be unavailing.
2. There must be a substantial breach.
Substantial breach to be entitled Resolution (with or without Damages)
- Failure to fulfill an essential term, condition, or part of the obligation.
“Essential” means such is the principal or primary consideration of the party in
entering into the contract or obligation.
- 18% left unpaid would suffice as substantial breach. (Cannu v. Galang)
-19% left unpaid was not a substantial breach. (Reyes v. Tuparan -controlling)
- A violation of the principal condition of the contract would amount as substantial
breach (Lalicon v. NHA)
-Thing delivered was different from their original agreement. There was a failure
to deliver the exact prestation. Even if it is an upgrade, it would still be a
substantial breach. (Cathay Pacific v. Vasquez)
Slight breach may only be entitled to Specific Performance plus damages.
However, if there is already a court order for SP and there is still a breach, this will
amount to substantial breach due to violation of court mandate.
Damages
Nominal Damage : “other damages”, if there is no bad faith
Moral Damage : if there is bad faith
Difference between “Contract of Sale” and “Contract to Sell”
Contract of Sale : There is an immediate transfer of title from the seller to the
buyer. May demand for specific performance, in case of breach.
Contract to Sell : There is a positive suspensive condition, which is the payment
of the price, that must happen prior the existence of an obligation. 8 *Check
Articles 1181 and 1190.
Usual Causes of Breach of an Obligation (ART. 1170)9
1. Fraud
2. Negligence
8
Without the happening of the positive suspensive condition, there can be no obligation. Hence,
specific perfomance as a remedy is unavailing. However, there is a case saying that aggrieved
party may be entitled to damages. Article 1184 provides that obligation is extinguished when
the condition that shall happen at a determinate time does not happen, or when it has become
indubitable that the condition will not take place.
3. Legal Delay
4. Contravene the Tenor of the Obligation
# 1 FRAUD as a breach of obligation (INCIDENTAL FRAUD)
There exists an obligation and in the performance thereof, there is incidental fraud.
There is fraud when there is bad faith in the compliance of an obligation, when
there is malice or ill will, or when there is intent to harm or cause damage to
another.
Substantial breach is tantamount to fraud.
Article 1171 : Responsibility arising from fraud shall be demandable in all
obligations. Any waiver of an action for future fraud is void.10
# 2 NEGLIGENCE as breach of obligation (ART. 1172 & 1173)
Examples:
1. FEU v. Saludaga
FEU is negligent in failing to provide a safe environment for Saludaga when
the latter was shot by a security guard. They only accepted the security guard
by the recommendation of Galaxy. They did not check the qualifications of
the security guard.
2. MERALCO v. Ramoy
Meralco is negligible in not checking whether the court order presented to
them was final and executory before they cut their electrical services from
Ramoy. Even assuming they new it was not yet final and executory, there will
bad faith and they will still be liable.
# 3 LEGAL DELAY or DEFAULT as breach of obligation (ART. 1169)
Requisites:
1. There must be an obligation that is due and demandable, and is determinate/
liquidated.
2. The debtor failed to perform the required prestation.
3. There is a judicial or extrajudicial demand of the creditor for the performance
by the debtor for the required prestation, unless it falls under the exceptions in
the requirement of demand.
GR rule in Reciprocal Obligation11: (ART. 1169)
A party defaults if one party does not perform the required prestation and the other
party has already complied or at least is ready, willing, and able to perform.
Reyes v. Tuparan provides that sometimes, even if the creditor (seller) is entitled to rescission, if
10
it can be seen that there is only a slight breach, or the debtor has paid substantial amount, the
The reason for this is because it will negate compliance in good faith if such waiver is
Court would just require the debtor to continue paying the remaining fee.
allowed. Then there will be no obligation anymore. It will negate the juridical tie.
9
11
Persons guilty will be liable for damages.
Jurisprudence defines reciprocal obligation as an obligation
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Page 2
Except when you have a successive performance of the prestation, demand
is needed to set the other party in default. (Solar Harvest v. Davao
Corrugated)
3 Types of Legal Delay or Default
1. Default of the Debtor / Mora Solvendi
Failure of the debtor to perform the required prestation on due date upon
demand.
2. Default of the Creditor / Mora Accipiendi
Failure of the creditor to accept the performance of the required prestation
without justification or legal basis.
Upon receiving the tender of payment, creditor refuses to accept it without
justification and without legal basis. The remedy is to consign the entire
payment to the court. It will be tantamount to payment. Otherwise, interest will
be due once creditor decided to get payment at later date, but not penalty12
because mere refusal does not extinguish the obligation.
Liability on Loss of Thing During Mora Accipiendi (ART 1189)
a. Not Fault of the Debtor :
Obligation is extinguished. Parties shall return to each other what they have
received. (ART 1190) Sometimes, liability can be born by the creditor.
b. Gross Negligence or Fault of the Debtor:
Debtor is liable on the rule that there can be no waiver of an action for future
fraud or gross negligence.
c. Simple Negligence of the Debtor
It is possible to free debtor from liability.
be performance.
GR: If the court can determine who the first infractor was, the court will be the
one to apply offsetting. 13
EXN: If the court cannot determine who first incurred a violation to the
obligation, the obligation would be extinguished. Each party will bear his or her
own damages.
Exceptions in the Requirement of Demand
1. When the obligation or the law expressly so declares
2. When time is of the essence
3. When demand would be useless
When time is of the essence
In order to be considered that time is of the essence, debtor must convey
information to the creditor, who must agree that performance should be exact as
stipulation by the parties.
There must be a statement of date and a consequence. (Lorenzo Shipping v. BJ
Marthel)
When demand would be useless
Demand would be useless when upon receipt of demand by the creditor, the debtor
cannot immediately perform the required prestation.
Grace Period
- It is a period that will incur after the failure of performance by the debtor from
the due date. It is not an obligation. It is a right; hence, demand is not necessary
to make it effective. When a due date arrives and there is no fulfillment of
prestation, the grace period will be automatically triggered.
Exceptions on Mora Accipiendi
1. When debtor pays when he does not have the free disposal of the thing due
and capacity to alienate it
2. Proceeds from a crime
3. Incomplete payment
Fortuitous Event as a defense from breach (ART. 1174)
- It excuses the debtor for the nonperformance of the required prestation. It can
happen that the obligation will remain and should be performed after the
expiration of the fortuitous event. There is just an excuse or exemption from
liability during the subsistence of the fortuitous event.
3. Default of Both Parties / Compensatio Morae (ART. 1192)
Both are liable for damages. Unless they can compute the damages with
exactitude, then there will just be offsetting of the damages. Also, there can still
However, it does not extend the term of contract. The term in a contract is
uninterrupted in case of a fortuitous event. 14 (Ace-Agro v. CA)
13
[JSP’s advice] If you are the party who will much likely pay more in the offsetting, confuse
the court (e.g. not volunteer info) so it cannot determine who the first infractor was.
Penalty will only be due once there is default on the part of the debtor. Default must be upon
14
To get away with this:
demand by the creditor. Debtor cannot be in default in mora accipiendi because it is the seller
(1) stipulate in the contract that “in case of a fortuitous event, the term shall extend by a period
who refuses to accept payment.
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12
Requisites of a Fortuitous Event:
1. It must be independent from the will of the debtor beyond his control
2. It must be unforeseeable or unavoidable
3. It must render impossible for the debtor to fulfill his obligation in a normal
manner. It should not just be difficult.
4. The obligor/debtor must be free from any participation in the aggravation of
the injury resulting to the creditor.
Exception to Fortuitous Event:
1. When expressly specified by law15
2. Expressly stipulated by the parties
3. When the nature of the obligation requires the assumption of risk16
Effect of Negligence in a Fortuitous Event:
It lacks the 4th requirement of a Fortuitous Event. Hence, there would be default
and debtor is not exempted from liability. Such negligence would humanize the
fortuitous event.
ACCION SUBROGATORIA
(ART. 1177)
This is an action by the creditor to
collect payments by exercising the right
of the debtor except those rights
inherent in the debtor’s person.
ACCION PAULIANA
(ART. 1385)
It is a remedy afforded to a creditor
defrauded by a debtor.
Creditor is going after a contract to
which the creditor is not a party.
Creditors may also impugn the acts
which the debtor may have done to
defraud them.
3. There is no other remedy.
4. The transaction if the debtor to a third person is fraudulent.
5. The third person is not buyer in good faith.
RESOLUTION (ART. 1191) & RESCISSION (ART. 1381)
RESOLUTION
RESCISSION
It is a principal remedy. The It is a subsidiary remedy. It
moment there’s substantial can only be availed when the
breach, creditor may avail aggrieved party has no other
Main
resolution.
legal
means to obtain
Distinctions
reparation for the damage.
Creditor is a party in the (ART. 1383)
subject contract.
Creditor is not a party in the
subject contract.
It is granted only to the extent
necessary to cover the
damages caused. (ART. 1384)
It completely cancels the
Effect
contract.
Mutual restitution subject to
right of the aggrieved party to
claim for damages.
Lesion or economic prejudice
Substantial breach
Basis
recognized by law
Mutual restitution for both
parties however, creditor will
Mutual restitution for both
not return anything because
Consequence
parties
creditor did not receive
anything
Creditors may also use this action to
annul a voidable contract entered into
by his defaulting debtor.
Requisites of Accion Pauliana (Rescission under ART. 1381)
1. The creditor, who is the plaintiff, should have credit before a rescissible
contract.
2. Debtor executed all his properties in favor of third person.
Example scenarios for Rescission:
Third Party
Creditor
corresponding to the duration of such fortuitous event” ; or
(2) For an automatic extension, show that the parties agree that “n” number of days is needed to
fulfill the prestation.
15
Examples: Article 1165 and Commodatum (borrowing for free or no interest).
16
Means that the risk would not have been there if the party did not venture into that business.
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Good faith
Fourth Party
-
Effect
3rd
Party
is
protected because
he is an innocent
purchaser
of
value.
Creditor
may claim for
Page 4
Bad faith
-
Bad faith (but no
other assets)
Good faith
damages
from
debtor.
Creditor may go
after 3rd party and
rescind contract.
Creditor
may
claim for damages
from the debtor.
TRANSMISSIBLE RIGHTS (ART. 1178)
All rights acquired by an obligation are transmissible, unless there is a law 17 or
stipulation to the contrary. 18
SUSPENSIVE CONDITIONS UNDER ART. 1185
If the condition doesn’t happen during
the given period or it is clear that it
won’t happen, the obligation is
extinguished.
Positive Suspensive Condition
However, there is a case saying that if
the condition has been substantially
fulfilled, the Court may order for the
debtor to finish the prestation.
The obligation becomes effective as
soon as it is clear that the negative
Negative Suspensive Condition
condition will not happen.
PRESUMPTIONS UNDER ART. 1176
1. Receipt of the principal payment by the creditor without reservation as to the
interest means presumption of payment of interest.
2. Receipt of the later installment without reservation to prior installment means a
presumption of payment of earlier installments.
PURE OBLIGATION
It is an obligation not subject to a condition or term. The stipulation must provide
that there is an absolute and unconditional conveyance of property of the Seller
to Buyer.19
CONDITIONAL OBLIGATION (also check Contract to Sell)
Condition
Future and uncertain
Term
Future and certain
Relevance of condition to an obligation Obligation may or may not exist,
depending upon the condition
Kinds of condition
Resolutory (extinguishes the obligation)
and Suspensive (suspends the existence
of an obligation)
EFFECT OF CONDITIONAL OBLIGATION TO GIVE (ART. 1187)
If the condition was done:
THE THING
Ownership will retroact to the day of
the constitution of the obligation (back
to Day 1).
If the condition was done:
FRUITS AND INTEREST
Such will be deemed as mutually
compensated.
CONSTRUCTIVE FULFILLMENT (ART. 1186)
The condition shall be deemed fulfilled when the obligor voluntarily prevents its
fulfillment. Negligence is also a voluntary act that may fall under this.
PROTECTION OF RIGHT OF CREDITOR (ART. 1188)
“The creditor may, before the fulfillment of the condition, bring the appropriate
actions for the preservation of his right.”
IMPOSSIBLE CONDITIONS (ART. 1183)
Positive Impossible Condition: Condition and Obligation are void.
Negative Impossible Condition: Condition will be deemed as not having been
agreed upon. Obigation is valid and will become pure obligation.
(Extrajudicial) : The creditor may notify the 3rd party that he and the seller has a
deal on subject thing/service, and should not interfere with the transaction,
otherwise 3rd party would be a buyer in bad faith.
17
Example of noncommunicable rights recognized by laws:
(1) Right to consortium
(2) Right to receive support, except support in arrears
(3) Conjugal rights
(4) Parental authority
18
Remember: RIGHTS only are transmissible, not OBLIGATIONS.
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-
(Judicial) : Buyer can also file for an injunction of the 2nd sale.
PAYMENT BY MISTAKE PRIOR TO THE OCCURENCE OF
SUSPENSIVE CONDITION (ART. 1188)
“The debtor may recover what during the same time he has paid by mistake in
19
Even if the parties say that it is CTS, it would be construed to be COS.
H.V. ORTEGA 2021
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case of a suspensive condition.”
1. If Buyer paid by mistake in good faith and exercised due diligence, B can
recover especially of there is non-fulfillment of conditions. In that case, there
are no obligation.
2. If Buyer paid by mistake, exercised due diligence, and the condition is
fulfilled, B can no longer recover but might be entitled for a recovery of
damages because S got the price when S was not entitled to it.
3. If Buyer paid the price knowing fully well that the condition has not yet been
fulfilled, it would be tantamount to waiver. The obligation becomes pure
obligation, no longer subject to condition.
4. If Buyer paid the price by mistake and he is simply negligent or negligent,
but it was never the intention as can be established by competent proof for B to
waive the condition. If this condition is not fulfilled, B can recover the price
because there is no obligation in that case.20
RULES ON THE
THING DURING
THE PENDENCY
OF CONDITION21
(ART. 1189)
THING LOST
THING
DETERIORATED
THING IMPROVED
WITH FAULT OF
DEBTOR22
Debtor is obliged to pay
for damages.
The creditor may choose
between rescission of the
obligation
and
its
fulfillment, with damages.
Debtor only has right
granted to the usufructuary.
WITHOUT FAULT OF
DEBTOR
The
obligation
is
extinguished.
The impairment is borne
by the creditor.23
It shall be inure to the
benefit of the creditor.
property owner decides to sell, he should first offer the property for sale to the
owner of right to first refusal. It must be upon the same terms that the seller
offers the property to others.
b. Purely Potestative Condition Dependent on the Sole Will of the Creditor
Seller as creditor will decide when B should pay (upon demand).
c. Valid Purely Potestative Resolutory Condition Dependent on the Sole
Will of the Creditor Lessor can terminate lease contract any time with or
without cause.26
2. Casual :
It depends upon chance or upon the will of a third person (other
than the will of one parties).
3. Mixed
:
classifications.27
One whose fulfillment is a combination of the two preceding
TACIT RESOLUTORY CONDITION (ART. 119128)
“The power to rescind 29 is implied in reciprocal ones, in case one of the
obligors should not comply30 with that is incumbent upon him.”
HOW TO RESOLVE AN OBLIGATION
GR: Judicial resolution is opted, especially when there is successive performance
of prestations.31
EXNs:
(1) When it is stipulated by the parties that they would allow extrajudicial
resolution32. There must be notice33 to the other party.
26
This is valid because there is already an existing obligation. It does not negate the juridical
tie.
27
Catungal v. Rodriguez: Road right of way is a mixed condition, because there is a need for an
TYPES OF CONDITIONS OF AN OBLIGATION
agreement
between the buyer and the owner of the property objected to the right of way.
1. Potestative :
When the fulfillment of the condition depends upon the sole
Del
Castillo
v. Naguiat: It is not purely potestative when it is stipulated by the parties for the
24
will of the debtor (the one obliged to convey), the conditional obligation is void.
buyer to be liable for the interest if he fails to pay for the rent.
The conditional obligation is not void when it is
28
In a reciprocal obligation requiring simultaneous performance, a party incurs delay upon
a. Right of First Refusal25 (Simple suspensive potestative condition) If a
fulfillment by the other of latter’s prestation. Conversely, if the party has not fulfilled his
respective prestation in a reciprocal obligation, the other party will never be in default.
29
The one entitled to resolve is the creditor in a reciprocal obligation, who is willing, ready,
20
Otherwise, if it cannot be established, such negligence would tantamount to waiver to
and able to perform the prestation.
30
recover.
There must be substantial breach- non performance of an ESSENTIAL TERM,
21
These rules apply only in an obligation to give a determinate thing.
CONDITION, or CONSIDERATION.
22
31
It is the seller or the one obliged to convey the property.
Co v. CA doctrine: Otherwise, or in improperly resorting to extrajudicial resolution, the
23
It is the buyer or the one to receive the property.
aggrieved party is risking itself to allow the other party in default to rehabilitate itself and
24
Ex. “...when the seller will sell”
become the one RWA to comply with the obligation, become entitled to resolution, and set the
25
Unlike an option, it is not an offer. There is an object but no cause. Hence, even if the owner
aggrieved party in default.
32
of the right of first refusal accepts, nothing happens. (Lack of essential element)
UP v. De Los Angeles: Extrajudicial rescissions may be availed when it is expressly stipulated
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(2) Resolution in a lease contract. 34
(3) Remedy of Cancellation / Notice of Cancellation35
(4) Insertion of Arbitration Clause in Contracts36
Term
Relevance of a term or a period to an
obligation
EXN to EXN on Notice: “Payment shall be made upon the expiration of the
grace period. Should there be no payment, contract will be canceled
automatically without need of notice.”37
Nature
Cause
Effect
CANCELLATION
Extra-judicially donesending
of
prior
notice
Motive predetermines
cause; negation of
cause
Void ab initio ; mutual
restitution
RESOLUTION
GR: Judicial
Substantial breach
by the other party
Void ab initio ;
mutual restitution
plus damages
TERMINATION
Stipulated in the
contract
Extra-judicially
done- sending of
prior notice
Breach on the
grounds stated in
the contract
Valid
until
terminated ; plus
what is stipulated
as penalty38
OBLIGATION SUBJECT OF A TERM OR A PERIOD
Condition
Future and uncertain (ART. 1193)
Kinds of term
Fortuitous event in obligation subject of
a term or a period
Future and certain (ART. 1193)
It suspends the demandability or
determines the extinction of an
obligation.
Obligation may or may not be due and
demandable yet, subject to proof
presented before the court. Hence, it
may be proven that debtor is not yet in
default, and enjoy the benefit of a
period that may be fixed by the court.
Resolutory - ART. 1193(2) (usufruct39)
and Suspensive (“...payable on date”)
It does not extend the term in an
obligation. (Ace-Agro case)
In Radiowealth v. Del Rosario, the Court held that even though the promissory
note did not stipulate on what date the respondents should pay, there was a term
intended to be fulfilled. There was an acceleration clause40 and a late payment
penalty. The payable within 12 months-rule and the respondents’ act of actually
paying the checks proved that there was knowledge that the obligation was
demandable.
In Macasaet v. Macasaet, the Court held that the agreement on the possession of
land was based on a resolutory condition- the tolerance of the parents and their
affection to their son which can terminate the verbal lease agreement. It was held
that the “continuing love and affection” may or may not happen. 41
by parties, subject to judicial review upon filing of proper action in court.
33
Palay v. Clave: Automatic cancellation clause is invalid to give the other party in a reciprocal
WHEN COURTS MAY FIX THE PERIOD42 (ART. 1197)
obligation a chance to question the basis of the rescission or the resolution.
34
GR : Parties fix the period.
Chua v. Victorio: Rule 70 of the Rules of Court provides that a lessor, in case of breach, can
sue for ejectment. A prerequisite for filing an ejectment case is a demand by the lessor for the
EXN : This article provides:
lessee to vacate the property together with the resolution. Hence, that demand presumes an
(1) When the parties contemplated a term, but failed to stipulate in the contract
extrajudicial resolution, including a demand for the lessee to vacate the property.
(Radiowealth
case)
35
Uy v. CA: It must be shown that the motive predetermines the cause. When motive is
frutrated, the cause for the debtor was also negated. So, if there’s no cause, then there is also no
39
contract.
JSP Ex. : Property is owned by a child, but in the lifetime of the parents, they shall have use
Cancellation is not resolution. Hence, it is not covered by the GR that it should be done
of the property. It is resolutory because usufruct will end upon death of parents.
40
judicially. You can send notice of cancellation that says that there is frustration of the purpose of
When a debtor defaults, the entire obligation becomes due.
41
the contract.
JSP : It may be deduced from various jurisprudence that in order to prove an agreement as
36
[This is JSP’s suggestion.] JSP’s explanation on problem with the GR of Judicial Resolution:
subject to a term, you prove the purpose of the agreement and the reasonableness of
It gives the burden of litigation costs (and losses) to the aggrieved party, the one RWA to
payment upon demand. In this case, if it can be proved the the possession of land was for
comply- especially when thre is no stipulation between parties that they will allow extrajudicial
construction business of the son, then the agreement may be considered as subject to a period.
resolution.
(e.g. “You gave us this property to allow us to grow the business. We can prosper in this kind of
37
JSP’s suggested loophole to the Palay case.
business only within this number of months or days. If you’re going to eject us, then you’re
38
Pryce v. PAGCOR: If the court finds the penalty to be unconscionable, they can reduce the
defeating the very purpose of our agreement.”)
42
penalty. However, they cannot remove it altogether. ART 1229
There must be an obligation,even if it’s an implied contract. No obligation, no term to fix.
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(2) When the term depends on the sole will of the debtor 43
*Once the court fixed the term, it cannot be changed by them. However, the
parties can, by means of amending the contract or through novation (entering
into a new contract). The courts may only fix the period, not the terms and
conditions of a contract.
4. When there is substantial breach of obligation (basically the reason for
acceleration); and
5. When the the debtor attempts to abscond.
For the benefit of the creditor: “The borrower shall pay the lender on or
before 12/31/2017, with the lender having the right or option to demand
payment before 12/31/2017.”
OBLIGATIONS WITH MULTIPLE OBJECTS OR PRESTATIONS
CONJUNCTIVE
ALTERNATIVE
FACULTATIVE
Only 1, with at least
# of Principal
Several
Several
1 accessory or
Prestations
substitute prestation
Only one of the
Only 1, if can’t be
# of Principal
All of them
Principal
performed, then one
Prestations
(qualified by the
Prestations
of the substitutes
Obliged to
term ‘and’)
(qualified by the
will take over
Perform
word ‘or’)
Not necessary since Debtor47, unless the
Who
all must be
parties agree
Only the debtor 49
Chooses the
48
complied
otherwise
Prestation
Loss
or
deterioration of the
principal obligation
would invalidate
the
entire
Loss
or obligation.
Loss
or deterioration of one However, if it’s
deterioration of one would allow the only the accessory
EFFECT
substitute
would amount to debtor to choose or
default.
among remaining prestation, then it’s
still valid; or
prestations.
WHEN CAN THE DEBTOR LOSE THE BENEFIT OF THE
PERIOD/TERM46 (ART. 1198)
1. When debtor becomes insolvent after the obligation has been contracted,
unless there is a guaranty or security for the debt;
2. When debtor does not furnish to the creditor the guarantees or securities
which were promised;
3. When debtor loses the established guarantees or securities by his fault or by
fortuitous event, unless debtor provides substitute security (equally satisfactory);
if
nullity
is
triggered by the
penalty
of
the
obligation.
1. Rule on integrity of payment applies - the prestation must be
completely delivered. Debtor cannot choose one part of the
prestation and one part of the other. (ART. 1199(2))
2. Prestations which are impossible, unlawful, or which could
RULES on PAYMENT BEFORE THE PERIOD(ART. 1195)
Requisites:
1. Anything is paid or delivered before the arrival of period/term
2. The debtor is unaware of the period or believed the obligation has become due
and demandable
GR : Debtor may recover what was paid or conveyed, with its fruits and interests
EXN : refer to ART. 1196
RULES on BENEFITS OF THE PERIOD ART. 1196
GR : If there is a period designated, it is presumed to it is for the benefit of both
the creditor and the debtor.44
EXN : From the tenor of the same or other circumstances, it should appear that the
period has been established in favor of one or of the other.45 Ex:
For the benefit of debtor: “The borrower should pay the lender on or before
12/31/2017.” The borrower will have the option to max the period.
RULES TO
ALL
43
47
This is different from purely potestative condition dependent on the sole will of the debtor,
If on due date, the debtor does not choose, the creditor should sue. If creditor wins, the court
which makes the condition void.
will allow creditor to choose because the debtor waived his right to choose.
44
48
Neither of the parties can accelerate the payment. The debtor cannot be forced to pay before
If creditor does not choose on due date, the debtor may not do anything. He will not be in
the period, neither can the seller be forced to accept payment before the period.
default.
45
49
One of the practical uses of this is to avoid the accrual of interest.
If on due date, the debtor does not choose, the creditor should sue. If creditor wins, the court
46
will allow creditor to choose because the debtor waived his right to choose.
In this case, the creditor may collect judicially or extrajudicially.
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not have been the object of the obligation cannot be chosen as
prestation. (ART. 1200(2))
Nature
General Rule.51
[ALTERNATIVE AND FACULTATIVE]
1. The choice shall have no effect until it has been
communicated. It may be done implicitly50 or expressly.
(ART. 1201) It will then become a pure obligation. (ART. 1205)
2. Obligation becomes pure obligation when among one
prestations, only one is practicable. (ART. 1202)
Division of
Obligation
LIABILITIES IN ALTERNATIVE & FACULTATIVE OBLIGATIONS
EVENT
1. Through creditor’s act, the debtor
cannot make a choice according to the
terms of the obligation.
2. Through the fault of debtor, all the
things which are objects of alternative
prestations have been lost, or the
compliance of the obligation has
become impossible.
3. One of the things is lost by fortuitous
event
4. Loss of one of the things by fault of
debtor
5. Loss of the substitute or accessory
prestation through negligence of the
debtor
6. Loss of the chosen substitute or
accessory prestation trough his delay,
negligence, or fraud
EFFECT
Debtor may rescind the contract with
damages. (ART 1203)
EXN: There is a proof to
contrary.
Creditor is entitled for indemnity for
damages. (ART. 1204)
Indemnity is fixed based on the value of
the last thing which last became
impossible to convey. Other indemnity
for damages may also be awarded.
Debtor shall perform the obligation
which the creditor should choose
among the remainder, or which remains
if only one subsists. (ART. 1205)
Creditor may claim any of those
subsisting, or the price of which has
disappeared, plus damages.
(ART. 1205)
Debtor not liable. Principal prestation
would still be done.
(ART. 1206)
Debtor is liable for the loss.
(ART. 1206)
In case of death
during litigation
Rule on Mutuality
Rule on Default on
Delivery of
Indivisible Object
OBLIGATIONS WITH MULTIPLE PARTIES
ARTS. 1207-1222
JOINT
SOLIDARY
By destroying the other choices, the debtor impliedly chose the remaining prestation.
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-
As per the share of the
particular deceased debtor,
provision in the Rules of
Court provides that creditor
should file in the settlement
of estate proceedings.
Only the party privy to an
act shall be bound or
affected by the said act. 54
Creditor: Must sue all
debtors
for
specific
performance or resolution.
Applies when:
- obligation expressly so
states;
- when the law requires;
- when the nature of the
obligation
requires
solidarity
One debtor may provide for
the entire or part of the
obligation to one or all
creditors.
One creditor may claim for
the entire52 or part of the
obligation from one or all
debtors.
Creditor can continue with
the case. The remaining
living debtors will be
retained
as
solidary
debtors.53
Rule on mutual agency or
representation applies:
Each debtor in relation to
the creditors is regarded as
an agent
or as a
representative of others,
and vice versa.
Creditor may sue one or all
debtors.
JSP said that in answering in the exam, “Joint without any special circumstance.”
Except when there are different period or condition applied to solidary debtors. E.g.:
C1 cannot demand to D1 to pay in whole the obligation because D2 has been given the benefit
of the period. So D1 may only give a portion of his share to give effect to the period.
53
Boston v. CA doctrine. Solidary creditor can go after one or all debtors by virtue of the Civil
Code. Rule of Court cannot prevail over the Rule of Court on settlement of in the estate
proceedings, although creditor may choose this as an option.
54
Citibank v. Sabiano: The foreign branch and local branch of a bank are separate entities.
H.V. ORTEGA 2021
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51
52
50
Equal shares (proportional)
as there are creditors or
debtors
Exception.
If SP is not possible, the
obligation
will
be
converted to monetary
liability plus damages. The
debtor who is RWA to
comply is liable only to the
value
of
the
thing
corresponding to his share.
The defaulting party is
liable for his share plus
damages.
Debtor: Default of one is
default of all.
Same rule goes for
creditors
in
mora
accipiendi. All of them
should be in default,
although it doesn’t mean
that they are solidary
creditors. (ART. 1224)
Marsman v. Philippine Geoanalytics: There was a joint venture agreement to
which PGI was not a party. Hence, it should not adversely affect PGI.
Terms Used to Indicate Solidarity in Obligation
1. Jointly and Severally
2. Jointly
3. Solidarily
4. Each
5. Individually
6. An accommodation party is solidary liable based on Negotiable Instruments
Law55
7. Section 31 of the Corp. Code- a director who is guilty of bad faith or negligence
will be solidary liable with the other directors who approved the same act.
8. Liabilities based on tort or quasi-delict56
55
RULE BETWEEN AND AMONG DEBTORS & CREDITORS
Active Solidarity :
Solidary Creditors
Passive Solidarity :
Solidary Debtors
1. Debtor can pay any creditor.
2. If there is a demand, payment should be made to
the demanding creditor.
ACTIVE SOLIDARITY
BETWEEN DEBTORS & 3. Each creditor can extinguish the obligation by
any possible means.
CREDITORS
4. Rule on mutual agency applies: each creditor
represents each other.
1. Rule on mutual agency applies: each creditor
represents each other.
2. Assignment cannot be made to third party
without consent of other creditors.
ACTIVE SOLIDARITY
3. If a creditor performs a prejudicial act, he must
AMONG CREDITORS
reimburse other creditors.
4. Collecting creditor has to account- liable to the
others for the share of obligation corresponding to
them.
1. Each or all debtors shall be liable to the creditor.
2. If two or more debtors offer to pay, the creditor
PASSIVE SOLIDARITY
BETWEEN DEBTORS & has an option on which offer to accept.
3. Rule on mutual agency applies: each debtor
CREDITORS
represents each other.
1. If a debtor pays on behalf of other debtors, other
debtors should reimburse. 57
2. There is no reimbursement if there is
remission 58 (ART. 1220), obligation has
PASSIVE SOLIDARITY
prescribed, or is illegal (ART. 1218).
AMONG DEBTORS
3. There is no reimbursement from one debtor who
becomes insolvent at the time of reimbursement.
(ART. 1217 (3))
DEFENSES AVAILABLE TO SOLIDARY DEBTORS (ART. 1222)
1. Personal defenses59
2. Defenses pertaining to the obligation itself60
Applied in Gonzales v. PCIB. In this case it provided for the requisites of an accommodation
party:
57
1. Signed as a drawer, maker, etc.
ART. 1217 provides that paying debtor may also claim for interest for the payment already
2. Without receiving value therefor
made, except if the payment is made before the debt is due.
58
3. For the purpose of lending his name to some other person.
Except when one solidary debtor has already paid before the remission.
56
59
Applied in Lafarge Cement v. Continental Cement. Moreover, JSP provided for an example
Debtor 1 may offset the liability with Creditor’s existing liability to the former. Other debtors
where liabilities based on fraud is solidary. (Buying stocks without paying the price, setting it
may raise also raise this as defense.
60
under REM in a loan, having it foreclosed, and thereafter buying it from the foreclosing bank).
Debtor may challenge the obligation as void or has already prescribed.
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RULES ON THE THING LOST IN PASSIVE OBLIGATION (ART. 1221)
Event
Effect
Without fault of the solidary debtors
Obligation is extinguished. Mutual
restitution without damages.
By fault even of one solidary debtors
All debtors are liable to the creditor for
the price and the payment of damages
and interest.
By fortuitous event after incurring
default
Innocent solidary debtors may file an
action against the guilty or negligent
solidary debtor.
All debtors are liable to the creditor for
the price and the payment of damages
and interest.
Innocent solidary debtors may file an
action against the defaulting solidary
debtor.
DIVISIBLE AND INDIVISIBLE OBLIGATION (ART. 1223 - 1225)
An obligation may be divisible or indivisible depending on:
1. Agreement of the parties
2. Object of the contract
3. Nature of the thing
4. Other special circumstances
Effect of Indivisible Obligation
The debtor can perform the prestation in parts and the creditor cannot demand
complete fulfillment of the obligation.
GR: The divisibility of the obligation does not alter the default rule of joint
obligation. (ART. 1210)
OBLIGATIONS WITH A PENAL CLAUSE
Kinds of Penalty
GR
:
Subsidiary / Alternative61 (ART. 1226)
EXN
:
Joint / Cumulative (ART. 1226)
- When expressly stipulated by parties 62
-When debtor defaulted in the payment of penalty
-When debtor is guilty of fraud in the non-fulfillment of obligation
Purpose of Penalty Clause
1. As liquidated damages - it depends on the necessity of for the parties to prove
the actual prejudice caused to the aggrieved party
2. To ensure performance - to compel performance
WHEN THE COURTS CAN REDUCE PENALTY (ART. 1229)
1. When there is partial or irregular performance63
2. When the penalty is unconscionable or iniquitous 64
MODES OF EXTINGUISHING AN OBLIGATION (ART. 1231)
1. Payment
2. Loss of thing due
3. Condonation
4. Confusion or Merger
5. Compensation
6. Novation
7. Rescission
8. Prescription
9. Annulment
Other modes: Cancellation, Termination, Death, and Waiver.
PAYMENT (ART.1232)
- It is not only delivery of money, but also performance or fulfillment of the
mandated prestation.
Requisites of Payment:
1. Integrity65 of Payment - an obligation should be performed completely
2. Identity of Payment- exact performance of the obligation
(2) “Should this transaction turn out to be void, X shall pay _ amount.”
In this case, the Court should determine whether the penalty is for reparation or
compensation.
Reparation: The penalty should be reduced based on the extent of performance.
Compensation: The penalty should not be reduced if it’s meant as punishment, except when it is
unconscionable or iniquitous.
61
64
However, under this kind, ART. 1227 provides that the debtor cannot exempt himself from
To get away with this, JSP said that party must show its reasonableness- show that the penalty
the performance of the obligation by paying the penalty, except when this right is expressly
is the basis of a contract and must be complied with in good faith; that the parties truly
granted to him. The same applies to the creditor. Exception to this is when the obligation should
negotiated the contract; and that there is a completely informed consent on the penalties.
65
become impossible to be performed without fault.
Exceptions: Debtor’s substantial compliance in good faith, and waiver of an irregular or
62
(1) “In addition to any and all rights and remedies under the contract or under relevant laws.”
incomplete performance by creditor.
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63
TENDER OF PAYMENT is an offer to pay.66 It is the intention, willingness, and
ability of the debtor to pay the creditor. It is not a payment nor does it extinguish
an obligation.
GR: Pay in cash
EXN: There is prior agreement or creditor accepted67 payment.
BSP Circular on limits of coins:
Php 1, 5 & 10 coins
: Valid tender until P 1,000
Php .25 centavo
: Valid tender until P 100
New Pacific v. Seneris: A manager’s check is legal tender because it is as good as
cash.
Tibajia v. CA: Checks issued by the debtor are not legal tender.
Go Cinco v. CA : Generally, an SPA is not a tender of payment. However, in this
case, it has been held that the SPA68 is equivalent to such. Hence, there was an
unjust refusal on the part of private lender to accept payment (SPA).
WAIVER TO THE INTEGRITY OF PAYMENT (ART. 1235)
1. Creditor knows that the payment is incomplete or irregular
2. Creditor does not protest or object
3. Creditor accepted payment without any reservation
Requisites:
1. Existence of a valid right
2. Information from the parties
In other cases, at the domicile of the debtor or borrower.69
RULES ON FULFILLMENT OF OBLIGATIONS
Basis
Event
Effect
Substantial compliance in Debtor may recover as
ART. 1234
good faith
though there had been a strict
and complete performance
less damages
IHC v. Joaquin
If there is only slight Quantum meruit applies:
Suarez70
compliance + good faith
Equitable compensation to
the work done.
OPTION
- It is an outstanding offer to entering into a contract. The other party only needs to
notify the offeror to create a new contract.
If there is no option money, the grantor can withdraw anytime, as long as there is
no exercise of the option or acceptance by the grantee. Option money must be a
consideration distinct from the price. Earnest money71 is considered as part of the
consideration of the object (down payment).
RULES ON PAYMENT
GR: Debtor should pay.
EXN: Third party may pay.
EVENT
Payment by third party
Effect: The obligation is deemed fully complied with.
RULES ON PAYMENT (ART.1251)
GR : Shall be made in the place designated in the obligation
EXNs :
If it is to deliver a determinate thing, place where the object (thing) was at the
time the obligation was constituted
If X doesn’t want to reimburse
69
EFFECT
PAYMENT BY
Lender is not obliged to receive payment,
unless there is stipulation to the contrary.
(ART. 1236)
It will be considered as donation, although such
donation may lack requisites 72 of valid
donation.73
If debtor changes domicile in bad faith or after incurring delay, he shall borne the additional
expenses.
70
To get away with this problem, JSP said that you should establish compensated milestones
or % of completion. Otherwise, if you follow IHC facts, you should have a premium fee for
66
the accomplishment of the main objective.
Generally, in monetary obligations, it happens when you present the money.
71
67
If grantee wants to consider this as an option money, there should bee a receipt stating that it
Far East Bank v. Diaz Realty: Since Far East accepted the check (even if it is as a deposit), it
is an option to be exercised within a period of time.
was held as a waiver of the requirement that the payment must be in Legal Tender.
72
68
Donation and its acceptance must be in writing. Otherwise, it’s void.
This SPA grants the lender to receive the proceeds of the loan that his debtor would obtain
73
As far as the lender is concerned, the obligation has been extinguished.
from another lender (PNB).
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be the basis of payment, unless there is an agreement to the contrary.
If X wants reimbursement:
Debtor knows about such
payment
Debtor doesn’t know about
such payment
Payment
by third
incapacitated to pay
X can compel creditor to subrogate him in his
rights, e.g. arising from mortgage, guaranty, or
penalty.
LEGAL COMPENSATION
It is a mode of extinguishing to the concurrent amount, the obligations of those
persons who in their own right are reciprocally debtors and creditors of each other.
X can only recover the amount which
redounded to the benefit of the debtor.
It takes place by operation of law, although it must be invoked.74
party
If lender accepted,
Representatives of X can recover.
PAYMENT TO
Debtor has the burden of recovering the
Payment is made to the wrong
payment. However, creditor may also claim to
party
the receiving third party.
Valid if: (ART. 1241)
- Creditor retained the thing delivered
To the incapacitated creditor - Payment has been beneficial to him
Otherwise, invalid.
Valid if: (ART. 1241)
- It has redounded to the benefit of the creditor.
To the third party
To the creditor after the debtor
has been judicially ordered to
retain the debt
No proof require if:
-After the payment, the 3 rd party acquires the
creditor’s rights
-The creditor ratifies the payment to the 3 rd
party
-By creditor’s conduct, the debtor has been led
to believe that the third person had authority to
receive the payment
Payment is invalid.
Requisites:
1. Both parties are principally bound as debtor and creditor of the other on 2
separate transactions75;
2. Both debts must consist in sum of money76, or if consumable, of the same kind
of quality;
3. Both debts are liquidated77, due78 and demandable;
4. Neither debt must be retained in a controversy commenced by third person and
communicated with debtor (neither debt is garnished); and
5. Compensation must not be prohibited by law.
INVALID COMPENSATION:
1. Obligations arising from support
2. Obligations arising from criminal offense
OTHER TYPES OF COMPENSATION
1. Conventional Compensation
-Compensation pursuant to the agreement of parties.
2. Faculatative Compensation
-Combination of legal and conventional compensation. It is when compensation
can take place at the option of a party who have some certain contractual or
legal benefit.
RULE ON ESCALATION CLAUSE
Equitable v. Ng : If there is an escalation clause, there should be a deescalation
74
Compared to conventional compensation, which takes place when the parties agree to
compensate their mutual obligations even in the absence of some requisites. Also, the party who
has the benefit of the relevant law can invoke the compensation, but the other cannot.
EXTRAORDINARY INFLATION (ART. 1250)
75
Mondragon v. Sola: Since Sola undertook, in writing, to pay the obligation of his wife, he
Requisites:
became
a debtor to Mondragon. Legal compensation applies.
1. A proclamation by the BSP that there is extraordinary inflation/deflation;
76
United Airlines v. CA: There can bo no offsetting with respect to taxes.
2. A contractual relation between parties; and
77
First United v. Bayanihan: The amount of the repairs has been liquidated as the judgment of
3. Stipulation that parties recognize the effect of extraordinary inflation/deflation.
the RTC determined the price. Hence, legal compensation is valid.
Lao v. Special Plans: Receipt of the repairs made, not mere provision of quotation, must be
given for the obligation to be considered liquidated.
Effect:
78
Benefit of the period must be respected. To get away with this, one who has the benefit may
The value of the currency at the time of the establishment of the obligation shall
waive his right in order to have legal compensation.
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clause. Otherwise, it will violate the mutuality of contracts- the compliance with
the contract for the determination of the terms and conditions of the contract
cannot be left to the will of one of the parties.
A contract of adhesion79 is construed against the one who drafted the contract
because any ambiguity would have been caused by the person who drafted it. It
does not violate mutuality of contracts.
RULE ON MULTIPLE OBLIGATIONS ON ONE CREDITOR (ART. 1252)
RULE
EFFECT
Debtor will choose which obligation to -Without prejudice to the rights 80 of the
pay.
creditor
If debtor doesn’t choose, creditor will -This must be with consent 81 of the
choose.
debtor.
Application of payment will apply by -Payment of penalty and interest first,
operation of law. (Article 1254)
then principal.
Payment will be applied to the most
onerous (most burdensome) obligation.
If the debts due are of the same nature
and burden, the payment shall be
applied to all of them proportionately.
Article 1254
However, JSP said that this runs
counter to the rule on integrity of
payment. Also, it’s difficult to account.
DACION EN PAGO (ART. 1245)
It is the act of giving or transferring of ownership of property to the creditor as
accepted payment for monetary obligation.
Extent of Extinguishment of Obligation in DEP
Luzon Bank v. Enriquez: Dacion en Pago shall extinguish the obligation to the
extent of the value of the property (1) as agreed upon by parties, or (2) as may
be proved. (Acceptance is material to extinguish).82
CESSION (ART. 1255)
A debtor ceding all assets to the creditors so the creditors may liquidate the assets
and apply the proceeds to payment of the obligation to the creditors.
Debtor authorizes the creditors for the disposal of his assets to pay for the
obligation. This is done through a valid SPA. 83
REQUISITES OF VALID CONSIGNATION84
1. There MUST be a debt due.
2. Creditor unjustly refused tender of payment or for some reason, payment cannot
be made.
3. There must be prior notice.
4. There must be an action for consignation in court together with the payment.
5. There must be a second notice after consignation.
6. Court decision.
In consignation, debtor may withdraw payment prior court approval or acceptance
by the creditor. Creditor may also accept payment, and if such payment is short, he
should accept it with reservation.
Legaspi v. CA85 : The mere tender of payment before consignation should suffice
for the seller to exercise his right to repurchase.
Hulganza v. CA : The filing of an action is sufficient to preserve the right to
repurchase because it is an enforcement of the right to repurchase.
EXCEPTION (CONSIGNATION ITSELF WOULD SUFFICE)
(ART. 1256)
1. Creditor is absent, unknown, or not present at the place of payment.
2. Creditor is incapacitated to receive payment.
3. Without just cause, the creditor refuses to issue a receipt.
4. Two or more persons claim the same right to collect. (Multiple claimants)
agreement. In this case, Luzon accepted the properties subject of the dacion without reservation.
83
You are presented a form and you will just affix your signature.
JSP : You do cession only if it’s possible for you to get complete discharge of the obligation.
80
Otherwise, it does not make sense. It would be better to file an action under the Financial
Examples.:
Rehabilitation and Insolvency Act (FRIA) - debtor surrenders all his assets in an insolvency
(1) Integrity of payment - Excess payments shall not be applied to other obligation, unless
proceeding in the court. The Court will then decide how the assets should be distributed
creditor acknowledged such. In which case, the creditor must accept the payment with
following the rules and procedures in FRIA.
reservation, e.g. “as partial payment”, because otherwise, implied waiver on his right to integrity
84
These steps must be strictly followed because upon court decision granting consignation, the
of payment would rule.
creditor will be liable for the consignation costs. Available remedy for the creditor to avoid such
(2) Benefit of the period - Creditor cannot be forced to accept payment not due and
is to accept payment.
demandable, unless it is stipulated by the parties.
85
81
In this case, buyer tendered his payment within the prescriptive period (5 yrs.) of his right to
Notice to debtor would suffice. No objection = implied consent.
82
Luzon Bank v. Enriquez: A dacion en pago completely extinguishes obligation due to the
repurchase. However, he only consigned the payment after the prescriptive period.
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79
5. When the title of the obligation has been lost.
Heirs of Luis Bacus v. CA: In an option to buy, if there is an option money or
consideration distinct from the price, the lessor cannot withdraw option within the
option period.
: Notice is sufficient to preserve right under option.
LOSS86 OF THE THING DUE (ART. 1262)
It is the impossibility of performing an prestation after the constitution of the
obligation. Otherwise, if it is during the time of the constitution of the obligation,
it will be void.
SCENARIO
Loss of a determinate thing +
without fault of debtor, or
before debtor incurs default
Loss of a generic thing
Loss of a thing in possession of debtor
Physical or legal impossibility of
obligation to do +
Without fault of debtor
EFFECT
GR: Obligation is extinguished.
EXN:
- by law or stipulation,
- by nature of the obligation requires
assumption of risk
-Proceed from a criminal offense87
Then debtor is liable even for
fortuitous event. Debtor is liable for
damages.
GR: Obligation is not extinguished.
EXN: The court shall determine
whether, under the circumstances, the
partial loss of the obligation is so
important as to extinguish the
obligation.
GR: Presumption of debtor’s fault
EXNs:
- There is proof to contrary, without
prejudice to ART. 1165
- There is earthquake, flood, storm, or
other calamity.
Debtor shall be released from the
obligation. (ART. 1266)
REQUISITES:
1. Parties could not have foreseen the event or change in circumstance.
2. The event or change in circumstance makes the performance of the contract
extremely difficult but not impossible.
3. It is not due to the act of the party in the difficulty of performing the prestation.
4. The contract is for a future prestation.
Naga Telephone v. CA: Reformation is not the proper remedy but the Doctrine on
Unforeseen Event (Rebuc Sic Stantibus) should apply. However, it was still
granted by virtue of Rules on Equity.
PNCC v. CA: ART. 1266 pertains in an obligation to do, while ART. 1267
contemplates all prestations.89
Difficulty in payment and change in political climate does not apply in this
doctrine.
CONDONATION or REMISSION
It is a gratuitous extinction of an obligation and partakes the nature of a
donation90. Hence, there must be an acceptance by the debtor. It has to comply the
formal requirements of a donation, which is offer and acceptance must be in
writing.
Invalid or inofficious condonations:
1. Impairment of legitimes91
2. Done in fraud of creditors
MERGER OR CONFUSION
It is a mode of extinguishing an obligation through the combination of the debtor
and the creditor in one person.
COMPENSATION
It is offsetting of debts. It pertains to legal compensation92, which takes place by
operation of law.
NOVATION
88
The concerned party may ask the court for release from the obligation based on this doctrine.
However, in this case the Court did not grant ART. 1267 because they held that PNCC should
have known the change in circumstance. (Change of political climate)
86
90
Loss will be subject to the Rules on Sale depending on who has ownership and who will be
To avoid donation, creditor may resort to prescription of obligation and waiver of right.
91
Legal entitlement of a certain heir to the estate of the deceased.
bearing the loss.
92
87
See p. 13 on Legal Compensation..
Exception: If the person who should receive it unjustly refuses.
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DOCTRINE OF UNFORESEEN EVENTS88 (ART. 1267)
89
It is the extinguishment of an obligation by the substitution or change of the
obligation by a subsequent one which extinguishes or modifies the first, eitherby changing the object or principal conditions93; or
by substituting another in place of the debtor; or
by subrogating a third person in the rights of the creditor.
Requisites of Novation:
1. There should be an old valid obligation
2. A new valid obligation
3. The new valid obligation should extinguish or modify the old obligation
3. Autonomy of Contract98
Two Ways of Novating an Obligation
1. Express Novation - by stipulation or agreement by the parties
2. Implied Novation - by utter incompatibility of the 2 obligations 94
Milla v. People : Novation cannot extinguish criminal liability.
CONTRACTS
Essential Elements of a Contract95
1. Consent of contracting parties
2. Object
3. Cause or consideration
Stages of a Contract
1. Negotiation - discussion of the terms of the contract
2. Perfection - meeting of the minds; happens upon delivery of prestation
3. Consummation - completion or performance of the terms agreed upon
4. Principle of Relativity100
the contract cannot be left to the will of
either contracting parties. Both parties
must consent to the object and the cause
of the contract. Either party should not
be allowed to maintain unilaterally the
terms and conditions of the contract.
The parties to a contract may stipulate
anything in the contract as long as it is
not contrary to law 99 , morals, good
customs, public order or public policy.
GR: The contract binds and affects only
the parties, heirs, assignees.
EXN:
1. Contracts creating real rights bind
third persons (ART. 1312)
2. Protection from contracts intended to
defraud creditors (ART.1313)
3. Tortious interference (ART. 1314)
4. Stipulation in favor of 3rd party /
Stipulation pour autrui (ART. 1311(2))
1. Contracts creating real rights bind third persons (ART. 1312)
a. Registered mortgage will bind even third parties, if such registered mortgage
was sold or obtained by the third party. The mortgage will follow the property
Corporation may terminate this contract.” = VOID (to cure, add notice prior termination)
PNB v. Rocamora: Escalation clause; Silence does not mean consent when there is no obligation
to reply. To make this valid, the parties must include the clause granting the borrower the right to
accept and reject the adjustment. In case of rejection, the borrower must prepay- just like in
Solidbank v. Permanent Homes.
98
Tiu v. Platinum Plans: A non-compete clause is valid as long as there is reasonable limitations
as to time, place, and trade. [A restriction on the use of property is also valid.] However, this is
assailable under Philippine Competition Act which provides that act imposing restrictions on the
93
sale of services concerning where, to whom, or in what form services may be sold or traded or
PNB v. Soriano: Incompatibility must be in the essential elements (prestation) of the
imposing conditions not to deal with competing entities, is prohibited. The reason is it would
obligation.
94
Kwong v. Gargantos: There cannot be a Deed of Conditional Sale and Deed of Absolute Sale
deprive the employee of a source of livelihood.
99
at the same time. There was also a change of objects.
Ex.: Pactum commissorium (automatic appropriation by the creditor of the thing pledged or
95
The moment the parties agree on the object and cause, then you will have a valid contract.
mortgaged upon the failure of the debtor to pay the principal obligation) cannot apply wherein
96
the foreigner is the lender and a Filipino is the borrower and the thing mortgaged is the land.
DOH v. HTMC: DOH requested the amendments to the consultancy agreements pursuant to
Should there be default, foreigner cannot automatically appropriate the land because by virtue of
guidelnines issued by the NEDA. HTMC did not agree. Hence, there’s no new contract or
the Constitution, foreigners cannot own land.
meeting of the minds, and the original contract subsists in which the parties are bound to
100
NAPOCOR v. Province of Quezon: NPC cannot claim tax exemption from tax in behalf of
comply.
97
GF Equity v. Valenzona: “If at any time during the contract, the Coach, in the sole opinion of
NPC because the latter is not a privy to the contract between Mirant and Quezon. Also,
the Corporation, failts to exhibit sufficient skill or competitive ability to coach the team, the
Province of Quezon can’t impose tax o NPC.
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RULES ON CONTRACT
The contract is a law between parties
1. Obligatory Force of Contract96
that should be complied with good
faith.
2. Mutuality of Contract97
The determination of the stipulations in
and will bind anyone who possess the property.
b. Third party may have a claim after an attached (and also mortgaged to
another party) property filed by him. Should the property be foreclosed, the first
priority will be the amount due to the person in favor of the mortgage. The
residual value will go to the third party (attaching creditor).
c. Pledged shares sold to innocent buyers who exercised due diligence is
protected. Otherwise, buyers will be bound.
2. Protection from contracts intended to defraud creditors (ART.1313)
3. Tortious interference (ART. 1314)
Requisites:
a. There is a valid contract.
b. The third party is aware of the existence of the valid contract. 101
c. The third party interferes without legal justification or excuse. 102
EXN:
Tayag v. Lacson: There is no tortious interference when there is an enforcement
of the law. In this case, the 3 rd party merely prevents another from
consummating an unlawful contract. 103
4. Stipulation in favor of 3rd party / Stipulation pour autrui 104 (ART. 1311(2))
Limitless v. Quilala: Requisites:
1. The stipulation in favor of the third person should only be a part, not the
whole, of the contract.
2. The contracting parties must have clearly and deliberately conferred a
favor in upon a third person, not a mere incidental benefit or interest.
3. The favorabler stipulations should not be conditioned or compensated by
any kind of obligation.
4. Neither of the contracting parties should represent the third party.
5. The third party must have communicated his acceptance to the obligor
before its revocation.
101
CONSENT
Requisites:
1. Two distinct contracting parties
2. Consent freely given by a capacitated party
3. Informed consent
GR: Consent must be expressed
EXN: When there is an obligation to reply, you have to accept or reject. Otherwise,
silence means consent.
Pelayo v. Perez: Wife signed as witness in a contract is deemed as consent. Hence,
sale of conjugal asset is a consensual contract that is perfected by mere consent.
OFFER
It is an invitation to create a contract. There is already a consent 105 by one party,
an object, and a cause. The only element missing is the acceptance of the other
party to trigger the existence of an obligation.
Acceptance must be unconditional and unqualified. It must be made during the
subsistence of offer.
An offer cannot be accepted, or an acceptance would not result into a contract,
if at the time of the acceptance the offeror revoked it or the offeror loses legal
capacity through death, civil interdiction, insanity, or insolvency106.
Change in terms of payment (cause or consideration) will not create an agreement.
It will be a counter offer.
Crisscrossing
If there is crisscrossing of an offer, revocation, and acceptance, receipt may be the
reckoning point; whichever is received ahead will prevail over later in
communication.
The mere acceptance but not reading the same would not allow the offeror to skirt
the effect of acceptance resulting in a contract because it would open a window for
fraud.
Lagon v CA: There must be an exercise of due diligence to avoid tortious interference.
Gilchrist v. Cuddy: Malice is not yet required for award of damages to injured party. Mere
interference, even just for furtherance of financial interest is subject to damages. If there is
ART. 1325 :
malice, then the award of damages will be higher.
Contrary to:
Advertisements of sale are not yet a complete offer, unless they appear to be given
So Ping Bun v. CA: No claim for damages when motive is for financial interest but there is still
tortious interference. In effect, there is as if no tortious interference because the third party will
105
Except when offer is made in jest, wherein the party does not intend to be bound by the
not be liable for damages.
103
obligation.
JSP: The inducement must be the cause for the breach in tortious interference. If it was only
106
Villanueva v. CA: The insolvency of the bank restrict the bank’s capacity to act, especially in
incidental, it cannot be a liability based on tortious interference.
104
rd
relation to its property, by virtue of Art. 1323 CC.
Ex. Proceeds that go to 3 party
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102
otherwise. It means that the offer is complete and an acceptance will result to a
valid contract.
ART. 1326 :
Bidding107 is not yet a complete offer. The title is not yet transferred to the highest
or lowest bidder, unless the contrary is stated.
WHO CAN GIVE CONSENT?
1. Juridical person
2. Natural persons
3. If married, spouse with other spouse’s consent
LEGALLY INCAPACITATED TO ENTER A CONTRACT108
1. Minor109
2. Insane110
3. Deaf-mute who cannot write
4. Person with impaired mental facilities or legal incapacity (under influence of
drugs or intoxicated)111
5. Under hypnotic spell
6. Those suffering from special disqualifications 112
a. Under guardianship
b. Civil interdiction
c. Conjugal Property
d. Entities under receivership
EXN:
Burden of proof is shifted in case the one who alleges the mistake or fraud is
illiterate or does not understand the language of the contract and the
contract was not explained to that party.114
Vice of consent ma be so intensive as to amount to lack of consent.115
Vices of Consent (Voidable Contract)
1. Mistake116
Requisites:
a. It must be either regarding the identity or qualification of one of thee
contracting parties
b. Identity or qualification must have been the principal consideration of the
party in entering the contract.
2.
Violence
It is the use of physical force to get the consent.
3.
Intimidation
Requisites:
a. It produces a well-rounded evil and fear
b. It is unlawful117
c. It is against the person’s property or person, or the person/property of his
spouse, ascendants or descendants
d. It is the cause of consent
4.
Undue Influence
It involves moral coercion. The influence exerted must have so overpowered
or subjugated the mind of a contracting party as to destroy the latter’s free
VITIATED CONSENT (ART. 1330 - 1334)
GR: One who alleges fraud or mistake or any vice of consent should prove it with
competent evidence.113
107
Public Estates v. Bolinao: The reservations in bidding entitles the government to reject any
bid, including the best bid. [The reservation clause in biddings is not exclusive for government
transactions.]
108
Contracts entered into by these persons are VALID BUT VOIDABLE. As a vice of consent,
this must be proven.The law presumes that their consent is not complete.
mental faculties to the extent that he is unable to properly, intelligently and fairly understand the
109
The contract is valid to the extent that it benefits the minor. To make contract completely
provisions of said contract. This must be proven by clear and convincing evidence.
114
valid:
Dela Cruz v. Sison: An illiterate party must first establish such fact in order for the burden to
ADMINISTRATION : Legal representative / guardian can do it.
shift to other party to prove that there is no vitiation of consent on the part of illiterate person.
DISPOSITION : Get court approval.
There is a presumption of validity of notarized and other public documents.
110
115
The contract is valid if it is done during lucid interval. Same rules as with minors apply to
Paragas v. Heirs of Balacano: “Gregorio purportedly executed a deed during the last stages
make contract completely valid.
of his battle against his disease...” raises serious doubt as to whether Gregorio could’ve fully
111
Case to case basis. Voidable as long as the mental faculties are impaired.
read or understood the contents of the documents he signed or of the consequences of his act.
112
116
If disqualified pursuant o a specific special law, the rule generally is that contract will be
Unavailing if te party is in a position to know the facts by mere exercise of due diligence.
117
void.
There is no intimidation if:
113
a. A party is merely exercising a lawful claim or right.
Yason v. Arciaga: Mere weakness of mind alone, without imposition of fraud, is not ground
b. The party is not capable of inflicting the injury threatened.
for vacating a contract. A person is not incapacitated to enter into a contract merely because of
c. Intimidation is not the cause of the party.
advanced years or by reason of physical infirmities, unless such age and infirmities impair his
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agency, making such party express the will of another rather than his own. 118
Causal Fraud119
Requisites:
a. The contracting party should perpetrate the fraud to get the consent of the
other party120
b. The fraud should be the cause for the consent of the party
c. The fraud must be serious
d. It must result in damage or injury to the aggrieved party
SIMULATED CONTRACTS (ART. 1345 - 1346)
1. Absolutely Simulated Contracts121
The parties do not intend to be bound by the contract. Consent or cause is
missing. Hence, void.
5.
Remedy of Creditor 122: Sue for specific performance, since it is still an asset of
the debtor.
2. Relatively Simulated Contracts123
The parties have a real contract but they conceal their true agreement.
lawful, unless the debtor proves the contrary124. (ART. 1354)
ART. 1355 : Lesion or inadequacy of cause shall not invalidate a contract, except:
a. In cases specified by law
b. There had been fraud, mistake and undue influence
NEGATION OF CAUSE
GR: Motive don’t affect contracts.
EXN: When it predetermines the cause. 125 Hence, contract is void.
OBJECT ART. 1347 - 1349
This refers to service, or any undertaking that is the subject matter of the
obligation. It is the prestation. In a reciprocal obligation, object and cause may
sometimes be interchangeable.
Requisites:
1. Must be physically and juridically possible
2. Must be determinate or determinable based on the source of an obligation
(based on contract)
3. Must have pecuniary value
Remedy: Reformation
ART. 1447 : Contracts on future inheritance126 is void.
CAUSE
It is the principal or essential reason or consideration of a party in entering a
contract. It is the prestation. In a reciprocal obligation, object and cause may
sometimes be interchangeable.
FORM OF CONTRACTS
GR: The moment parties agree on the cause and the object, they will have a
contract.
EXN: WHen law requires for validity, enforceability, and proof (a specific form).
Although it does not appear in the contract, it is presumed that it exists and is
118
Example of Contracts that has Requirement to be Valid127:
1. Donation : Donation and acceptance must be in writing.
2. Pre-nuptial agreement : There are formal requirements under Family Code.
3. Agreement or payment of interest : Must be in writing.
DBP v. CA: There is no undue influence if it is a threat to enforce a just or legal claim
through competent authority.
119
Exceptions:
1. Usual exaggerations in trade when the other party had opportunity to know the facts. (ART.
1340)
Example of Contracts that has Requirement to be Enforceable128:
2. An opinion (ART. 1341), unless he is an expert and the other party relied on his expertise.
1. Contracts involving those listed under Statute of Fraud must be in writing.
120
If it is done by third party, it can be mistake but not fraud.
2. Real estate mortgages should be registered with the relevant registry of deeds
121
Manila Bank v. Silverio: Characteristics of ASC:
(a) Insufficient consideration, or (b) not a result of fair and regular private transaction
Cruz v. Bancom Finance: Deed of sale, in which stated consideration had not in fact been paid,
124
was a false contract; hence void. It was executed not to effect transaction, but for the other party
Jurisprudence provides that mere allegation, even if under oath, is not enough. It must be
to have acquire loan.
proven.
125
122
See E. Razon v. Philippine Ports & Uy v. CA.
JSP prefers creditors to use this because unlike in rescissible contracts, creditor need not be a
126
This means succession has not yet opened at the time of the execution of the contracts.
creditor prior the conveyance and there is no prescriptive period. Trick is to check whether there
Succession will not open until the ascendant dies, by operation of law.
is payment of price.
127
123
Failure to meet requirement would render the contract void.
Heirs of Balite v. Lim: If the parties state a false cause in the contract to conceal their real
128
agreement, then such a contract is relatively simulated.
Contract is valid (it has all the essential requisites), but is unenforceable.
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in order to be enforceable against third persons.
3. Pledge can be enforceable against third parties if it is public instrument,
meaning acknowledged before a notary public.
Requisites:
1. Meeting of the minds of the parties to the contract
2. Instrument does not express the true intention of the parties
3. Due to mistake132, fraud, inequitable conduct133 or accident.
134
Example of Contracts that has Requirement for Proof:
1. Express trust 129 involving real property should be proved by a written
instrument. Parole evidence cannot be used to establish the existence of an express
trust involving real property or an immovable.
Emilio v. Rapal: The burden of proof is on the party seeking reformation and they
should make the proper allegations in the complaint when filed in proper court.
ART. 1357 : Remedy that entitles party to a contract to compel the other party to
execute the proper form. This remedy assumes that the contract is valid and
enforceable. It does not apply if the form is necessary for its validity or
enforceability.
Cases Wherein Reformation is Not Available (by law)
1. Simple Donation Inter Vivos - gratuitous act
2. Wills - gratuitous act
3. Void Contract
ART. 1358 : This requires list130 of of documents to be in public document
(notarized). However, it is not a requirement for validity, enforceability or proof. It
is only for convenience- as readily available as admissible evidence.
INTERPRETATION OF CONTRACTS (ART. 1370)
GR : There must be an ambiguity. Otherwise, or if the contract is clear, there is no
room for interpretation.
In case wherein this is the problem (meaning, not notarized), neither party can
raise this article to nullify a contract because it is a private instrument. Party can
compel the other to execute the proper form pursuant to Article 1357.
If there are doubts referring to incidental circumstances, we have to distinguish:
Gratuitous Contract : Interpretation should be in favor of the least transmission
of rights because the law assumes that the party will preserve its lease rights, if
possible.
REFORMATION131 (ART 1359)
It is a remedy of a contracting party to make a contract or documentation reflect
the true agreement of the parties.
129
Onerous Contract : Interpretation should be in favor of the greatest reciprocity
of interest.
FOUR INFIRM OR DEFECTIVE CONTRACTS:
A. Rescissible Contracts
B. Voidable Contracts
C. Unenforceable Contracts
D. Void Contracts
TRUST : It is when the real owner (trustor/beneficiary) buys a property and places it under
the name of the trustee. Owner is the real owner of the property but does not want to appear as
owner on record.
130
The following must appear in a public document:
(1) Acts and contracts which have for their object the creation, transmission, modification or
extinguishment of real rights over immovable property;
RESCISSIBLE CONTRACTS
(2) The cession, repudiation or renunciation of hereditary rights or of those of the conjugal
-All elements are present.
partnership of gains;
-Valid until rescinded
(3) The power to administer property, or any other power which has for its object an act
-Due to economic prejudice or lesion (recognized by law) caused to the
appearing or which should appear in a public document, or should prejudice a third person
contracting party or some party
(representation);
(4) The cession of actions or rights proceeding from an act appearing in a public document.
-Prescriptive period commences from the day it has become clear that there are no
All other contracts where the amount involved exceeds P500 must appear in writing, even a
other legal remedies by which the creditor can satisfy his claims.
private one.
131
PCI LEasing v. Trojan: The Court reformed the contract to be a loan with chattel mortgage,
132
and not a financial leasing. “Financial leasing contemplates the extension of credit to assist a
Same with fraud: Typographical errors.
133
buyer in acquiring movable property, which he can use and eventually own. If the movable
Insertion of an extra page with other provision in a contract.
134
These only prevent the documentation from reflecting the true agreement, unlike in vices of
property already belonged to the borrower-lessee, the transaction between parties was a loan wth
consent.
mortgage in the guise of lease.”
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-Mutual restitution on the part of the parties in a rescissible contract
(ART 1381):
(1) Those which are entered into135 by guardians whenever the wards whom they
represent suffer lesion by more than 1/4 of the value of the things which are object
thereof;136
(2) Those agreed upon in representation of absentees, if the absentee suffer lesion
by more than 1/4 of the value of the things which are object thereof; 137
(3) Those undertaken in fraud of creditors when the latter cannot in any other
manner collect the claims due them;
(4) Those which refer to things under litigation if they have been entered into by
the defendant without the knowledge and approval of the litigants or of competent
judicial authority (lis pendens);
(5) All other contracts declared by law to be rescissible.
(ART. 1382):
Payments made in a state of insolvency for obligations to whose fulfillment the
debtor could not be compelled at the time they were effected, are also
rescissible.138
BADGES OF FRAUD (ART. 1387)
These are the acts that are presumed fraudulent 139:
1. Donation done when the donor did not reserve sufficient property to pay all
debts contracted before the donation
2. Onerous conveyance of title (sale of all properties) when there is a judgment
against debtor.
Union Bank v. Ong: There is a presumption of validity of contracts 140 when (1)
there was sufficient consideration, and (2) it is a result of a fair and regular private
transaction. In fraudulent contracts, insolvency is not necessary to constitute a
transaction to be in defrauding of creditors.
135
Reliance on badges of fraud is also not enough. You have to establish fraud by
also:
3. Showing extraordinary discrepancy between the FMV and the price to pay;
4. Other factors like the relationship between X and the shareholder;
5. Buyer is not alleging his right over the property.
VOIDABLE CONTRACTS
-There is an infirmity with respect to an essential element - consent
-Valid until annulled
-Mutual restitution141 plus damages
-Relevant party whose consent is vitiated may annul the contract 142 (see footnote
108)
-Whoever alleges mistake or fraud has the burden of proving it, unless you have
the rule of shifting burden143.
-May be ratified by party whose consent is vitiated
The Roman Catholic Church v. Pante: There can be no fraud when the person
alleging fraud is in a position to know such.
Sps. Viloria v. Continental: Failure to establish fraud because the basis was only
the testimony of the husband. It must be based on clear and convincing evidence.
To cure defects of contract:
1. Minor : Appropriate legal representative.
2. Express and Implied144 Ratification
When prescription starts:
1. Minor : prior reaching legal age
2. Insane : during lucid interval
3. Intimidation, violence, undue influence : From the time of cessation of vice of
consent.
4. Mistake or fraud : From the time of knowledge of such
*As long as vice of consent continues, the period does not commence.
It involves act of administration, not involving acts of dominion or ownership because it
needs court approval.
UNENFORCEABLE CONTRACTS (ART. 1403)
136
The ward may rescind, not the legal representative. If it is made before prescription (4 yrs.),
there will be mutual restitution.
141
137
If thing can no longer be returned, then its monetary value would be the alternate plus
The absentee may rescind, not the legal representative. If it is made before prescription (4
damages. In cases of minors at the time of loss, they are not obliged to return, unless the minor
yrs.), there will be mutual restitution.
138
retained the property or somehow benefited from it.
Example: Before the first debt to Creditor 1 became due, debtor paid for his second debt
142
In some case, legal representatives, and creditors pursuant to accion subrogatoria may also
(secured by REM) to Creditor 2 which was not yet due. Then, debtor became insolvent. Benefit
annul.
of the period wasn’t lost when he became insolvent, as far as the second debt is concerned.
143
See footnote 114.
Creditor 1 can rescind payment to second debt.
144
139
Manzano v. Lazaro: There is implied ratification by silence and accepting benefits of the
In effect, burden of proof shifts.
140
contract.
This was well-established in this case.
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Categories of Unenforceable Contracts:
1. Those entered by unauthorized agents145
2. Those entered by parties both legally incapacitated
3. Those violating the Statute of Frauds
Statute of Frauds : The following must be in writing and subscribed by the party
charged:
a. Agreement that will be performed after one year from the making
b. Special promise to answer for debt, default or miscarriage of another
(surety/guarantee)
c. Agreement made in consideration of a marriage other than usual promise to
marry
d. Sale of personal property at a price not less than 500 pesos
e. Agreement for the leasing for a longer period than one year146, or sale of real
property, or of an interest therein
f. A representation as to the credit of a third person
Orduna v. Fuentebella: When there has already been a partial performance, it is
taken out of coverage of the Statute of Frauds. Hence, valid and enforceable.
Torcuator v. Bernabe: The written note or memorandum, as contemplated by Art.
1403 of the CC, should embody the essentials of the contract. The SPA does not
contain the essential elements of the purported contract and, more tellingly, dos
not even refer to any agreement for the sale of property.
Rosencor v. Inquing: Lists under Statute of Frauds are exclusive and right of first
refusal is not included.
Dao Heng Bank v. Laigo: Dacion en Pago should also comply with Statute of
Frauds because it is also a form of sale of real property.
145
Specific performance is unavailing, except when: (1) the person being unauthorizedly
represented has an apparent relationship with unauthorized agent; (2) the person is estopped
from questioning the authority of unauthorized agent; or (3) by the person’s acts, creditor was
led to believe that unauthorized agent has authority to enter into a contract. However, creditor
may go after unauthorized agent.
VOID CONTRACTS (ART. 1409)
-Don’t have prescriptive period
-Remedy: Re-execution
GR: Parties cannot take actions against each other. They cannot recover what they
have been given.
EXN: Parties can recover what they have given if the policy of the law will be
served. Unjust enrichment may be a defense.
Kinds:
1. Those lacking essential element
2. Those contrary to law
NATURAL OBLIGATIONS
All elements of obligation are present, except the juridical tie. There is no
compulsion on the concerned party to perform the prestation.
When the debtor knew fully well that the obligation has already prescribed,
however, he nonetheless paid, he cannot recover. (ART 1424)
When the debtor knew fully well that the obligation has already prescribed, a third
person paid for his debt, and he nonetheless paid the third person, he cannot
recover. (ART 1425)
ESTOPPEL (ART. 1431)
An admission or representation is rendered conclusive upon the person making it,
and cannot be denied or disproved as against the person relying thereon.
Requirements of the party claiming estoppel:
1. Lack of knowledge or means of the knowledge of the true as the facts in
question
2. Reliance in good faith upon the conduct or the statements of the party to be
estopped
3. Action or inaction based on the conduct or statement of the party to be estopped
resulting to injury, detriment, or prejudice.
Requirements of the parties sought to be estopped:
1. Conduct amounting to false representation or concealment of material facts or
calculated to convey impression that the facts are otherwise done those which the
parties subsequently attempts to assert
2. Intent or at least expectation that this conduct shall be acted upon or at least
influenced by the other party. The misrepresentation or conduct is done for the
purpose of leading the other party to act in a particular way.
Alcantara v. Nido: Unenforceable contracts must be valid. However, sale of real property by an
agent without SPA from the principal is void due to lack of consent by the owner.
146
Example: Extension of Lease for Another more than 1 year.
GR: It should be in writing
Defense: Argue that it is an amendment of contract, not another contract extending lease. Hence,
not covered by Statute of Frauds.
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record and he will be first to get sued in case of litigation.
3. Knowledge of the actual facts.
Kinds of Estoppel (ART. 1433)
1. In pais : Where a person is bound by certain acts or representation acted upon
another
2. By deed: Estoppel in writing or acts - deeds
Others:
3. Estoppel by judgment
4. Estoppel by laches - Doctrine of Stale Demands. It is the failure of the party to
assert a right within a reasonable time despite the benefit to do so.
5. Agency by estoppel - When you allow agents to represent you.
2. Implied
:
-Created by operation of law
-It is when the real owner (trustor/beneficiary) buys a property and places it
under the name of the trustee. Owner is the real owner of the property but does
not want to appear as owner on record.
Laches
The failure or neglect for unreasonable and unexplained length of time to do that
which by due diligence could have been exercised by the party.
-Creditor may go after the trustor/beneficiary if creditor is able to prove that the
trustor/beneficiary is the principal and the trustee is only an agent, unless, the
trustor/beneficiary and the trustee acted by fraud. It will be solidary liability
based on a tort.
GR: The party is entitled to the prescriptive period
EXN: In special cases, a relevant party can invoke this- especially when debtor is
led to believe that there will be no legal actions forthcoming.
Estoppel in State
GR: State cannot be estopped
EXN: In a case involving monetary board with respect to a rural bank, the Court
allowed estoppel to be claimed against the government. There was a deliberate
attempt to lead the party claiming estoppel that the government would act in a
particular way.
TRUST
It is when the real owner (trustor/beneficiary) buys a property and places it under
the name of the trustee. Owner is the real owner of the property but does not want
to appear as owner on record.
The 10 year prescriptive period is from the time the trustee rejects or renounces
the trust.
Kinds of Trust:
1. Express
:
-Created by contract
-Takes form of a Declaration of Trust or a Trust Agreement (but no required
form)
-As trustor, you can stipulate that the trustee should account for and remit all the
fruits and should only act as per instruction of the trustor
-Trustee should ask for an indemnity agreement because the trustee holds all the
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-Oco v. Limbaring: The purchase of things for the children is presumed to be a
gift or donation rather than an implied resulting trust. The burden or proving the
implied trust is incumbent upon the person alleging the trust.
-Tala Realty v. CA: Implied trust cannot exist if it is contrary to law for being
void.
-Ringor v. Ringor: Express trust involving immovable may be proven by parole
evidence when there is partial execution. Express trust may be established by
oral declaration. Express trust cannot prescribe, unless repudiated by the trustee.
Torrens title does not vest ownership and cannot be used to repudiate the trust.
CONSTRUCTIVE IMPLIED TRUST (ART. 1453)
Sale of a property whereby third party will hold the property on behalf of the
owner.147
SECURITY ARRANGEMENT IN TRUST (ART. 1454)
If an implied trust (created by law) was made in order to secure an obligation and
such obligation has been fulfilled when it becomes due, grantor may demand the
reconveyance of property to him.
Manila Bank v. Teodoro: The Court characterized the transaction as a pledge,
wherein certificate of stocks representing the shares are delivered to the lender,
and the lender holds it as long as the obligation is unpaid. [JSP]: Compared to ART.
1454, there is no transfer of ownership, but a delivery of the personal property
used as a collateral. You have a new set of rules governing the transaction and it is
outside the trust provisions because in this case, it will deal on foreclosure.
CLASSIC CONSTRUCTIVE TRUST (ART. 1456)
147
Usually done by lenders to acquire security in a loan.
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Of the property is acquired through mistake or fraud, the person obtaining it is, by
force of law, considered a trustee of an implied trust for the benefit of the person
from whom the property comes.
Aznar Brothers v. Aying: Of the heirs, 7 out of 9 conveyed the land to buyer. With
respect to the 2 heirs, the contract is void. There is mistake and fraud on the part of
the 7 heirs because they represented that they owned the entire land. There became
an implied constructive trust. The 10-year prescriptive period148 is from the time
of registration of the sale because it is a constructive trust without fiduciary
relation. However, in this case, there was a void registration. So the reckoning date
is the date of notice to the 2 heirs about the sale.
But if the heirs were in possession of property, the prescription will constinue
because they can ask for reconveyance.
PRESCRIPTION
Kinds of Prescription
1. Acuisitive149 - Mode of acquiring ownership
ORDINARY
Real Property
10 years
Personal Property
4 years
a. Adverse
b. Public
c. Peaceful
d. Uninterrupted151
TACKING PRESCRIPTION
The possession of former possessor from which the current possessor acquired the
property will be tacked to his possession. There must be a relation, conveyance or
some mode of acquisition. Otherwise, there is no tacking.
PRESCRIPTION OF ACTIONS
Actions prescribed by mere lapse of time takes by law. The reckoning of the
commencement of the prescriptive period:
Rescissible contracts
1 year
4 years
EXTRAORDINARY
30 years
8 years
5 years
6 years
2. Extinctive - Extinction of the right of action
Who can have the benefit of prescription:
GR: Anyone who is in a position to defend himself (ART. 1107)
EXN: The State, between husband and wife (ART. 1109)
EXN to the EXN: Patrimonial property of the State
Persons with capacity to alienate a property may renounce prescription already
obtained, but not the right to prescribe in the future.
8 years
10 years
30 years
:
-Forcible entry and detainer
-Defamation
-Injury to the rights of the plaintiff
-Quasi-delict
All other actions whose periods are not fixed or are in other laws
[from the time the right of action accrues]
-Oral contract
-Quasi contract
Actions to recover movables from the time the possession is lost
-A mortgage action
-From the time the right of action accrues:
-upon a written contract
-upon an obligation created by law
-upon a judgment
Real actions over immovables
Requisites of Ordinary Acquisitive Prescription
1. Possession in the concept of the owner*
2. Good faith
3. Just title150
*Possession must be:
It’s a prescription to recover, not to declare the contrat void.
Any property that is a proper object of a contract may be bound by acquisitive prescription,
151
except state property/patrimonial property.
Interruption may be:
150
Tan v. Ramirez:Just title could not be based on a compromise agreement [except, when there
a. NATURAL: physical possession is interrupted (more than a year or so).
is a provision conveying ownership]. It may be a means of terminating litigation.
b. CIVIL: Effected through service of judicial summons, except possessor wins the case.
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148
149
COMMENCEMENT OF PRESCRIPTION OF ACTIONS
Rescissible contracts
When all the requisites of a given cause
of action arise.
In case of breach
From the time breach of contract
occurred.
All kinds of prescriptions when there is From the day they may be brought
no special provision which ordains
otherwise
Enforcement of obligations to pay
From the last payment of annuity or of
principal with interest or annuity
the interest
Action to demand the fulfillment of
From the time judgment became final
obligations declared by a judgment
Action to demand accounting
From the day the persons who should
render the same cease in their functions
Action arising from the result of the
From the date hen said result was
accounting
recognized by agreement of interested
parties
Fortuitous event
Not to be reckoned against creditor
INTERRUPTION OF PRESCRIPTION OF ACTIONS
-Written extrajudicial demand by the creditor
-Acknowledgment of debt by the debtor
-Action filed before the court
END
Good Luck! :)
-H. V. Ortega Batch 2021
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