OBLIGATIONS AND CONTRACTS REVIEWER
OBLIGATIONS
AND
CONTRACTS
ATTY. MEL STA. MARIA
ATTY. MEL STA. MARIA
TITLE. IV. – PRESCRIPTION
Chapter 1: General Provisions
Chapter 2: Prescription of Ownership and Other Real Rights
Chapter 3: Prescription of Actions
TITLE. I. - OBLIGATIONS
Chapter 1: General Provisions
Chapter 2: Nature and Effect of Obligations
Chapter 3: Different Kinds of Obligations
SECTION 1. − Pure and Conditional Obligations
SECTION 2. − Obligations with a Period
SECTION 3. − Alternative Obligations
SECTION 4. − Joint and Solidary Obligations
SECTION 5. − Divisible and Indivisible Obligations
SECTION 6. − Obligations with a Penal Clause
Chapter 4: Extinguishment of Obligations
GENERAL PROVISIONS
SECTION 1. − Payment or Performance
Title II – CONTRACTS
Chapter 1: General Provisions
Chapter 2: Essential Requisites of Contracts
General Provisions
Section 1 − Consent
Section 2 − Object of Contracts
Section 3 − Cause of Contracts
Chapter 3: Form of Contracts
Chapter 4: Reformation of Instruments
Chapter 5: Interpretation of Contracts
Chapter 6: Rescissible Contracts
Chapter 7: Voidable Contracts
Chapter 8: Unenforceable Contracts
Chapter 9: Void and Inexistent Contracts
Title III – NATURAL OBLIGATIONS
Title IV – ESTOPPEL
Title V – TRUSTS
Chapter 1: General Provisions
Chapter 2: Express Trusts
Chapter 3: Implied Trusts
Title XVII – EXTRA-CONTRACTUAL OBLIGATIONS
Chapter 1: Quasi−Contracts
Section 1 − Negotiorum Gestio
Section 2 − Solutio Indebiti
Section 3 − Other Quasi−Contracts
CODAL MEMORY AID
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OBLIGATIONS AND CONTRACTS REVIEWER
ATTY. MEL STA. MARIA
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o
Prescription and Laches compared:
PRESCRIPTION
LACHES
Concerned with fact of delay
Concerned with effect of delay
A matter of time
A question of inequity
Statutory
Not provided by statutes
Based on Law
Based on equity
Prescribes a fixed time
No fixed time
TITLE. IV. – PRESCRIPTION
Chapter 1: General Provisions
Art. 1106 – Prescription Defined
By prescription, one acquires ownership and other real rights through the lapse of
time in the manner and under the conditions laid down by law.
▪
In the same way, rights and actions are lost by prescription. (1930a)
•
•
•
Object of Prescription − to suppress fraudulent and stale claims from
springing at great distances of time and surprising the parties or their
representatives when the facts have become obscure, or evidences or
witnesses might already be lost. Sinaoan v. Sorongan
2 Kinds of Prescription
1. Acquisitive − acquisition of a right or property by the lapse of
time; also known as adverse possession and usucapcion
2. Extinctive − rights and actions are lost by the lapse of time; also
known as limitation of action Morales v. CFI of Misamis Occidental
Laches − doctrine of stale demands; defendant becomes the offended
party due to the complainant’s inaction for an unreasonable and
unexplained length of time; founded on some change during the property
or the relations between the parties during the lapse of time.
o Requisites: (C.D.L.I.)
1. Conduct on the part of the defendant of which complaint is
made to seek remedy
2. Delay in asserting the complainant’s rights, having had
knowledge or notice of the defendant’s conduct, and having
been afforded opportunity to file a suit
3. Lack of knowledge or notice on the part of the defendant that
the complainant would assert right on which he bases his suit
4. Injury or prejudice to the defendant in the event relief is
accorded to the complainant
▪
ZE Lotho, Inc. v. Ice and Cold Storage − where the complainant
only filed a suit after 9 years despite having knowledge of the
defendant’s violative practice, and where the material records
were already lost making it difficult for the defendant to
controvert claims for damages, the case was dismissed on the
ground of laches. Laches can bar the filing or the prosecution of
the suit.
Catholic Bishop of Balanga v. CA − although prescription does not
apply to registered property, a registered landowner may lose his
right to recover the possession of his registered property by
reason of laches.
Art. 1107 – Acquisition by Capable Persons and Minors
Persons who are capable of acquiring property or rights by other legal modes may
acquire the same by means of prescription.
Minors and other incapacitated persons may acquire property or rights by
prescription, either personally or through their parents, guardians or legal
representatives. (1931a)
•
Who may acquire property or rights through prescription:
1. Persons of majority age − qualified to do all civil acts of life
2. Minors and other incapacitated persons
o Annullable or voidable − when acquisition is made without
the assistance of parents or guardians
o Ratified − when such minor attains majority age of 18 years
(emancipation)
o Completely valid − when acquisition is made through parents
or guardians
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OBLIGATIONS AND CONTRACTS REVIEWER
ATTY. MEL STA. MARIA
corporation whose causes of action are subject to the statute of
limitation.
Art. 1108 – Persons Exempt from Prescription
Prescription, both acquisitive and extinctive, runs against:
(1)
Minors and other incapacitated persons who have parents, guardians or
other legal representatives;
(2)
Absentees who have other administrators, either appointed by them
before their disappearance, or appointed by the courts;
(3)
Persons living abroad, who have managers or administrators;
(4)
Juridical persons, except the State and its subdivisions
Persons who are disqualified from administering their property have a right to claim
damages from their legal representatives whose negligence has been the cause of
prescription. (1932a)
General rule − Prescription does not run against: (M.A.A.J.)
1.
2.
3.
4.
Minors and other incapacitated persons − unless they have parents,
guardians or other legal representatives.
• Vda. De Alberto v. CA − an illegitimate child who still has a living
parent, his mother who actually filed the suit, cannot claim exemption
from prescription.
Absentees − unless they have administrators.
• Administrator may be appointed by the absentees before their
disappearance or by the courts (Art. 381 of the Civil Code).
• Absentees must be absent for at least 2 years and must prove that
they cannot go back to their domicile.
• If they can go back but intentionally do not want to return,
prescription will lie against them.
Persons living abroad − unless they have managers or administrators.
• It must be shown that they cannot return to their domicile within the
period which prescription should have run.
The State and its subdivisions − unless not acting in their sovereign
capacity or juridical persons.
• Juridical persons are endowed by law of the attributes of a natural
person to acquire and lose properties and rights.
• Republic v. PNB − if the political subdivision (AFP) is acting in its
proprietary character, or if the government instrumentality is not
acting in a sovereign capacity, prescription will lie against it.
• National Development Co. v. Tobia − upheld the applicability of
prescription against petitioner, acting in its proprietary character, who
like all other corporations capitalized by the government, is a business
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Art. 1109 – Between Husband and Wife, Children and Guardian
Prescription does not run between husband and wife, even though there be a
separation of property agreed upon in the marriage settlements or by juridical
decree.
Neither does prescription run between parents and children, during the minority or
insanity of the latter; and between guardian and ward during the continuance of
the guardianship. (n)
General rule − Prescription does not run:
• Between husband and wife
o Pacio v. Billion − where the first wife claims that possession of the
property for 29 years is equivalent to a title, it was held that
prescription by adverse possession cannot exist between husband and
wife.
• Between parent and child − during the child’s minority or insanity; based
on natural bond of filiation
• Between guardian and ward − during the continuance of the guardianship;
based on fiduciary relationship
Exception − When the law so provides that prescription shall apply.
Ex. 1.
Legal separation must be filed within 5 years from the occurrence of the
cause (Art. 57, Family Code)
2.
Annulment on the ground of impotency must be filed within 5 years
from the marriage ceremony (Art. 47, Family Code)
3.
Husband may impugn the legitimacy of the child within 1 year, 2 years or
3 years from his knowledge of the birth of the child, depending on his
residence and the place of birth of the child (Art. 170, Family Code)
Art. 1110 – Married Woman
Prescription, acquisitive and extinctive, runs in favor of or against a married woman.
•
Presupposes a situation involving a married woman and another person
not her husband. Prescription shall run for or against a married woman.
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OBLIGATIONS AND CONTRACTS REVIEWER
ATTY. MEL STA. MARIA
Art. 1111 – Co-Proprietor or Co-owner
•
Prescription obtained by a co−proprietor or a co−owner shall benefit the others.
(1933)
o
o
Co-ownership − exists when the ownership of an undivided thing or right
belongs to different persons.
There could be valid acquisition by all owners even though only one or a few
are in actual possession.
Art. 1112 – Renunciation
Persons with capacity to alienate property may renounce prescription already
obtained, but not the right to prescribe in the future.
•
•
•
Prescription is deemed to have been tacitly renounced when the renunciation
results from acts which imply the abandonment of the right acquired. (1935)
•
•
•
When a debt is already barred by prescription, it cannot be enforced by
the creditor.
o Statutory limitation merely bars the remedy but does not
discharge the debt.
Renunciation − a waiver of one’s right to the prescriptive period. It is
unilateral, hence does not require the approval of the person benefited by
it.
1. Express renunciation − made by a person capacitated to alienate
property.
2. Implied renunciation − deduced from acts which imply the
abandonment of right acquired.
Development Bank of the Philippines v. Adil − where the debtor issued a
new promissory note recognizing his indebtedness, promises to pay and
agrees to the foreclosure of a mortgage should he fail to do so, such
debtor effectively and expressly renounced his right to prescription
covering the first promissory note.
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Excludes property of the State and its subdivisions not patrimonial in
character, things within commerce of men but prohibited by law:
Ex. 1. Movables possessed through a crime can never be acquired by
prescription by the offender (Art. 1133)
2. Lands covered by Torrens Title
3. Properties of spouses, parents and children, wards and
guardians under the restrictions imposed by law (Art. 1109)
Dir. of Forest Administration v. Fernandez − forest lands of public domain
cannot be acquired by prescription and its possession however long cannot
ripen into private ownership.
Lovina v. Moreno − a navigable stream or any of its bed is not acquired by
prescription.
Republic v. CA − [1] area adjacent to bay which was covered with water
due to rain is not land of public domain. “Highest ordinary depth” is
defined as the regular, common, natural depth, which occurs most of the
time during the year. [2] Having established his registerable title (Torrens
title does not grant acquisition), applicant may avail of a judicial
confirmation of imperfect title which may be availed by: those who, by
themselves or through their predecessors−in−interest, have been in the
open, continuous, exclusive, and notorious possession and occupation of
agricultural lands of the public domain, under bona fide claim of
ownership, for at least 30 years immediately preceding the filing of the
application for confirmation of title.
Art. 1114 – Right to Enforce Prescription
Creditors and all other persons interested in making the prescription effective may
avail themselves thereof notwithstanding the express or tacit renunciation by the
debtor or proprietor. (1937)
•
•
Persons interested − may be the creditor, guarantor, sureties or other
third persons
May ask the enforcement of prescription even though it has been waived
by the debtor
Art. 1113 – Subjects of Prescription
All things which are within the commerce of men are susceptible of prescription,
unless otherwise provided. Property of the State or any of its subdivisions not
patrimonial in character shall not be the object or prescription. (1936a)
•
Includes all things within the commerce (with commercial value) of man
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OBLIGATIONS AND CONTRACTS REVIEWER
ATTY. MEL STA. MARIA
Art. 1115 – Special Laws
The provisions of the present Title are understood to be without prejudice to what
in this Code or in special laws is established with respect to specific cases of
prescription. (1938)
•
•
In case of conflict between the period provided in this Title and in another
portion of the Civil Code or special laws: the more specific provision will
prevail.
If different statutes are providing for different prescriptive periods, and the
cause of action contemplated by them are apparently conflicting, they do
not exclude each other from being availed of by the aggrieved party.
Ex. Callanta v. Carnation Philippines Inc. − although Labor Code
provides that money claims prescribe in 3 years, the aggrieved
party in illegal dismissal case may avail of the 4−year prescriptive
period for “injury to rights” under Article 1146 of the Civil Code.
Art. 1116 – Transition
Prescription already running before the effectivity of this Code shall be governed by
laws previously in force; but if since the time this Code took effect the entire period
herein required for prescription should elapse, the present Code shall be applicable,
even though by the former laws, a longer period might be required. (1939)
1.
2.
•
Prescriptive period under the old law has lapsed before the effectivity of
the 1950 Civil Code — old law shall apply
Prescriptive period under the old law is still running upon the effectivity of
the new Code:
a. New code provides for a different period for the same situation —
New code shall apply if the prescriptive period it provides has
already lapsed even though under the old law, the period has not
yet lapsed.
b. The remaining balance of the prescription period in the old law
since the effectivity of the new code is shorter than that provided
in the latter — old law will apply
The law which provides the shorter prescription period shall apply.
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Chapter 2: Prescription of Ownership and Other Real
Rights
Art. 1117 – Acquisitive Prescription
Acquisitive prescription of dominion and other real rights may be ordinary and
extraordinary.
Ordinary acquisitive prescription requires possession of things in good faith and
with just title for the time fixed by law. (1940a)
Kinds of Acquisitive Prescription:
1. Ordinary − requires uninterrupted possession during the required
statutory period, good faith (Art. 1128) and just title (Art. 1129)
Ex. Godinez v. CA − property was acquired after adverse,
continuous and notorious possession for more than 50 years with
corrected decree of registration and good faith on the part of the
buyers.
2. Extraordinary − requires uninterrupted possession for the required
statutory period without need of good faith and just title
Art. 1118 – Possession
Possession has to be in the concept of an owner, public, peaceful and
uninterrupted. (1941)
Characteristics of Possession: (O.P.P.U.)
1.
In the concept of an Owner
• possessor asserts dominion over the property to the exclusion of all
others.
• must be adverseƒconcepto de dueno (as to claim title)
• Ramirez v. CA − antichretic creditor (debtor hands over his property,
allowing the use thereof, for the interest on the money lent) cannot
acquire the land by prescription because such property was not given to
him as the new owner.
• Republic v. CA − prescription does not apply where possession of property
was for recreational purposes only.
• Ramos v. CA − paying taxes does not evidence title but it is a strong
evidence of possession.
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OBLIGATIONS AND CONTRACTS REVIEWER
2.
3.
4.
ATTY. MEL STA. MARIA
Public
• must be a notorious holding of the property known to the community.
• must not be of a surreptitious character.
Peaceful
• there must be no valid interference from others claiming or asserting their
rights to the property.
Uninterrupted
• possession during the required period must be continuous.
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Consequences of Natural Interruption:
• Old possession is not revived and lapse of time shall begin to run from the
beginning should possession be claimed by the same adverse claimant.
• If the natural interruption is for only one year or less, the time elapsed
shall be counted in favor of the prescription.
Art. 1123 – Civil Interruption
Civil interruption is produced by the judicial summons to the possessor. (1945a)
Art. 1119 – Possession through License or Tolerance
Art. 1124 – Judicial Summons
Acts of possessory character executed in virtue of license or by mere tolerance of
the owner shall not be available for the purposes of possession. (1942)
•
Possession by license or tolerance produces no effect with respect to
possession or prescription because such possession acknowledges that
somebody else owns the property.
Judicial summons shall be deemed not to have been issued and shall not give rise to
interruption:
(1)
If it should be void for lack of legal solemnities;
(2)
It the plaintiff should desist from the complaint or should allow the
proceedings to lapse;
(3)
If the possessor should be absolved from the complaint.
•
Coronado v. CA − being allowed to enter and reap produce on said
property is not sufficient possession in the concept of an owner.
In all these cases, the period of the interruption shall be counted for prescription.
(1946a)
Art. 1120 – Interruption
The old possession is not revived if a new possession should be exercised by the
same adverse claimant. (1944a)
No civil interruption in the following cases: (S.A.D.)
1. Lack of legal solemnities
• May consist error or irregularity in the form or process required to
acquire such summon.
Ex. Judicial summons have been served by a person not
authorized by the court.
2. Desistance from plaintiff
• Desistance— voluntarily having the case dismissed.
• Allowing the proceeding to lapse—manifests the lack of interest
to prosecute the case.
3. Possessor is absolved
• Absolution—the complaint has not been fully substantiated to
support any adverse claim by the complainant.
• The possessor is always presumed to be in good faith.
Art. 1122 – One Year or Less
Art. 1125 – Possessor’s Recognition of Owner’s Right
Possession is interrupted for the purposes of prescription, naturally or civilly. (1943)
•
•
Uninterrupted possession strengthens the adverse right of the possessor.
2 Kinds of Interruption:
1. Natural — through any cause it should cease for more than 1 year.
2. Civil — produced by judicial summons to the possessor.
Art. 1121 – Natural Interruption
Possession is naturally interrupted when through any cause it should cease for
more than one year.
If the natural interruption is for only one year or less, the time elapsed shall be
counted in favor of the prescription. (n)
Any express or tacit recognition which the possessor may make of the owner’s right
also interrupts possession. (1948)
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OBLIGATIONS AND CONTRACTS REVIEWER
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•
ATTY. MEL STA. MARIA
Corpus v. Padilla − one cannot recognize the right of another and at the
same time claim adverse possession which can ripen to ownership, thru
acquisitive prescription.
Dinoso v. CA − where the seller and buyer executed a contract of sale giving
the seller the right to repurchase property after 10 years, the sale is
subject to the owner’s right of redemption. The purchaser’s possession has
been held in subordination to the title of the owner prior to the expiration
of the redemption period.
Art. 1126 – Titles
Against a title recorded in the Registry of Property, ordinary prescription of
ownership or real rights shall not take place to the prejudice of a third person,
except in virtue of another title also recorded; and the time shall begin to run from
the recording of the latter.
Art. 1127 – Good Faith
The good faith of the possessor consists in the reasonable belief that the person
from whom he received the thing was the owner thereof, and could transmit his
ownership (1950a)
Art. 1128 – Other Conditions of Good Faith
The conditions of good faith required for possession in Articles 526, 527, 528 and
529 of this Code are likewise necessary for the determination of good faith in the
prescription of ownership and other real rights. (1951)
•
As to lands registered under the Land Registration Act, the provisions of that special
law shall govern. (1949a)
•
•
•
•
General rule − Torrens title recorded in the Registry of Property is never
subject of prescription to the prejudice of a third person.
o However, it can be challenged by a claim of laches
o Or when another title is also recorded. Prescription will begin to
run from the recording of such title
Dimayuga v. CA − no title to registered land in derogation of the registered
owner shall be acquired by prescription or adverse possession.
Reyes v. CA − where petitioners forged a document and claimed
acquisition, their title cannot defeat the real rights of private respondents
who stepped into the shoes of their father as successors−in−interest.
Catholic Bishop of Balanga v. CA − although prescription will not apply to
registered property, the doctrine of laches is applicable. A registered
landowner may lose his right to recover possession of his registered
property by reason of laches.
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•
•
•
Conditions of Good Faith:
o Art. 526 − not aware that there exists any flaw which invalidates his
title or mode of acquisition
o Art. 527 − good faith is always presumed
o Art. 528 − possession acquired in good faith does not lose this
character
o Art. 529 − it is presumed that possession continues to be enjoyed in
the same character in which it was acquired
Negrete v. CFI of Marinduque − good faith is not complied with when a
person claims a property through ordinary acquisitive prescription based
on a deed of sale which he knew involved a different property.
Reyes v. CA − knowingly using a forged document to base one’s just title
for the purposes of acquisitive prescription is an act of bad faith.
Magtira v. CA − good faith cannot be invoked if the claimant has actual or
constructive notice of the legal and valid rights of possession of another
during the prescriptive period.
Art. 1129 – Just Title
For the purposes of prescription, there is just title when the adverse claimant came
into possession of the property through one of the modes recognized by law for the
acquisition of ownership or other real rights, but the grantor was not the owner or
could not transmit any right. (n)
Art. 1130 – True and Valid Title
The title for prescription must be true and valid. (1953)
Art. 1131 – Just Title must be Proved
For the purposes of prescription, just title must be proved; it is never presumed.
(1954a)
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OBLIGATIONS AND CONTRACTS REVIEWER
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•
•
ATTY. MEL STA. MARIA
Just title − constitutes such title when the possession of a property is
obtained through one of the modes recognized by law for acquisition (Art.
712) but the grantor was not the owner, or has no power to transmit
rights. The just title is intended to transfer ownership and could have
actually transmitted such had the grantor been the true owner. Possession
from a just title can ripen into ownership if the other elements of
prescription are present.
Doliendo v. Biarnesa − where a person bought a property from a public
auction and took possession for more than 10 years but there was a first
purchaser, such document from the public sale constituted a just title,
hence the person acquired the property through prescription.
Solis v. CA − a donacion propter nuptias is sufficient to constitute just title.
Even a void donation may ripen into title by prescription. A better title may
be barred by that adverse possession.
o “Titulo Colorado” − such title where, although there was a mode
of transferring ownership, still something is wrong because the
grantor is not the owner. This is enough to constitute just title.
•
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Dira v. Tanega − after 8 years, the active partner, who took over of the
shares of the delinquent partner in a printing business, acquired the shares
of stock of the latter (personal property) through acquisitive prescription.
Recovery of Property:
• Art. 559—the possession of movable property acquired in good faith is
equivalent to a title. If the possessor lost or of which the owner has been
unlawfully deprived, has acquired it in good faith at a public sale, the
owner cannot obtain its return without reimbursing the price paid.
• Art. 1505 − when goods are sold by a person who is not the owner, the
buyer gets no better title to the goods than the seller had, unless the
owner of the goods is precluded from denying the seller’s authority to sell.
However, nothing in the title shall affect:
1. laws which enable the apparent owner to dispose of goods as his
own
2. the validity of any contract of sale under the order of the court
3. purchases made from the merchant in accordance with the Code
of Commerce and special laws
Art. 1132 – Acquisition of Movables or Personal Property
The ownership of movables prescribes through uninterrupted possession for four
years in good faith.
The ownership of personal property also prescribes through uninterrupted
possession for eight years, without need of any other condition.
With regard to the right of the owner to recover personal property lost or of which
he has been illegally deprived, as well as with respect to movables acquired in a
public sale, fair, or market, or from a merchant’s store the provisions of Articles 559
and 1505 of this Code shall be observed. (1955a)
Requisites
Years
Uninterrupted
Possession
Good Faith
Just Title
SUMMARY: ACQUISITION THROUGH PRESCRIPTION
Movables (witho Immovables
Immovables
Movables
other conditions)
(Ordinary)
(Extraordinary)
4
8
10
30
✓
✓
✓
Art. 1132
✓
✓
Art. 1134
✓
Art. 1132
✓
Art. 1137
Art. 1133 – Movables from Crime
Movables possessed through a crime can never be acquired through prescription by
the offender. (1956a)
•
The benefits of prescription are denied to the offender.
Ex. A thief cannot acquire title for a stolen car even if the owner did not
make a demand and the prescriptive period has already lapsed.
•
Tan v. CA − however, if the thing was in the meanwhile passed to a
subsequent holder, prescription begins to run 4 or 8 years (depending on
the existence of good faith).
Art. 1134 – Acquisition of Immovables
Ownership and other rights over immovable property are acquired by ordinary
prescription through possession of ten years. (1957a)
•
Ordinary acquisitive prescription of immovables − must be by virtue of a
just title, good faith and possession (in the concept of an owner,
uninterrupted, adverse and public).
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OBLIGATIONS AND CONTRACTS REVIEWER
ATTY. MEL STA. MARIA
Art. 1135 – Mistake in Area
In case the adverse claimant possesses by mistake an area greater; or less, than that
expressed in his title, prescription shall be based on the possession. (n)
•
The extent of property subject to the prescription shall be the one actually
possessed or held by the claimant regardless of the size indicated or
described in the title.
(2)
It is presumed that the present possessor who was also the possessor at a
previous time, has continued to be in possession during the intervening
time, unless there is proof to the contrary;
The first day shall be excluded and the last day included. (1960a)
(3)
1.
Art. 1136 – Wartime
Possession in wartime, when the civil courts are not open, shall not be counted in
favor of the adverse claimant. (n)
•
The possession of the adverse claimant during that time shall not be
counted where it must be observed that the civil courts must be closed.
•
If it is functioning, even during wartime, the possession may be counted in
his favor.
2.
Art. 1137 – Extraordinary Prescription of Immovables
Ownership and other real rights over immovables also prescribe through
uninterrupted adverse possession thereof for thirty years, without need of title or
of good faith.
3.
•
•
Parcotilo v. Parcotilo − where a person’s adverse possession of a property
for 38 years ripened into a title by extraordinary prescription although all
the requisites of a valid will were not executed.
Heirs of Celso Amarante v. CA − acquisitive prescription has set in when
alienable public land was under the adverse possession of a person prior to
the war although the titles have not been perfected. The possessor may
apply for the confirmation of his claims to the proper courts.
Art. 1138 – Computation of Prescription
In the computation of time necessary for prescription the following rules shall be
observed:
(1)
The present possessor may complete the period necessary for prescription
by tacking his possession to that of his guarantor or predecessor in
interest;
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The present possessor may complete the period necessary for prescription
by tacking his possession to that of his grantor or predecessor in interest
• “Grantor” and “predecessor in interest” − connote a transfer in a
manner provided by law of property from one person to another.
• Tacking − possession is allowed only when there is a privity of contract
or relationship between the previous and present possessors. South
City Homes, Inc. v. Republic
o Tacking is not allowed if the predecessor in interest has not
satisfied the requirements of prescription. Otherwise, there
can be no continuity in the nature of the possession.
It is presumed that the present possessor who was also the possessor at a
previous time, has continued to be in possession during the intervening
time, unless there is proof to the contrary.
• The presumption proceeds from a set of facts.
• For the presumption to exist, there must be a prior showing of the fact
that the person presently possessing the property was also the one in
possession of the same before the intervening time.
The first day shall be excluded and the last day included.
***Other notes:
What is the rule to follow when the character of the possession of the predecessor is
different from that of the present possessor?
• The law does not provide any solution to such kind of contingency. Thus,
sound judgment must be resorted to.
A. If the predecessor was in good faith but the successor is in bad faith:
• There are different views. Some writers say there must be no tacking.
Others say, the good faith of the predecessor should not be set at naught.
The second is the better view. The computation of the periods to be tacked
should be proportionate, that is, in the proportion of what the period of
possession in good faith bears to the period of extraordinary prescription.
So it is in the proportion of 2:1 as regards movables and 3:1 for
immovables.
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B. If the possession of the predecessor was in bad faith and the possession of the
successor is in good faith, should there be tacking of possession:
• Possession of the predecessor in bad faith cannot be counted and added to
that of the present possessor. Here, the possession of the predecessor
cannot be considered in ordinary prescription because such requires good
faith all throughout the period fixed by law.
Art. 1140
Art. 1141
Art. 1142
Art. 1143
However, for purposes of extraordinary prescription, the possession in bad faith of
the predecessor can be tacked to the possession in bad faith of the successor where
there are no prohibitions provided.
Art. 1145
Art. 1146
Art. 1147
Art. 1149
Chapter 3: Prescription of Actions
o
Art. 1144
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SUMMARY: PRESCRIPTION OF ACTIONS
Movables
8 years
Immovables
30 years
Mortgages
10 years
Right of way, public or private nuisance
None
Written contracts, obligations created by
10 years
law, judgment
Oral contract, quasi−contract
6 years
Injury to the rights, quasi−delict
4 years
Forcible entry and detainer, defamation
1 year
All other actions with no fixed periods
5 years
Art. 1140−1142, 1144−1147 are without prejudice to those specified in
other parts of this Code, in the Code of Commerce, and in special laws.
(Art. 1148)
Art. 1139 – Lapse of Time
Actions prescribe by the mere lapse of time fixed by law. (1961)
•
•
Prescription of actions = limitation of actions
o Actions to enforce or preserve a right or claim must be brought
within a certain period of time.
When the government is the real party in interest and is proceeding mainly
to assert its own rights and recover its own property, there can be no
defense on the ground of laches or limitation.
o Prescription of action does not run against the government.
Elements of a cause of action: (R.O.A)
1. A right in favor of the plaintiff by whatever means and under whatever law
it arises or is created must be present
2. An obligation on the part of the defendant to respect such right
3. An act or omission on the part of such defendant violative of the right of
the plaintiff
• It is the legal possibility of bringing the action that determines the
starting point for the computation of the period of prescription, that
is, only upon the happening of the third requisite when it can be said
that a cause of action has arisen. Espanol v. Philippine Veterans
Administration(Art. 1144)
Art. 1150
Art. 1151
Art. 1152
Art. 1153
WHEN PRESCRIPTION SHALL BEGIN TO RUN
All kinds of actions when no
From the day they may be
provision provides otherwise
brought
Enforcement of obligation to pay
From the time of last payment
From the time judgment became
Enforcement of judgment
final
From the time the person
Demand accounting
responsible ceases to perform
From the day result was
Bring action from the result of
recognized by agreement of
accounting
interested parties
Art. 1140 – Prescription of Movables
Actions to recover movables shall prescribe eight years from the time the
possession thereof is lost, unless the possessor has acquired the ownership by
prescription for a less period, according to Article 1132, and without prejudice to
the provisions of Articles 559, 1505, and 1133. (1962a)
•
This refers to the period of extraordinary prescription of 8 years for
movables to bring an action to recover.
o However, action shall not prosper if it is brought when the
possessor has already acquired title by ordinary acquisitive
prescription within 4 years.
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OBLIGATIONS AND CONTRACTS REVIEWER
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o “Without prejudice” − if a possessor has acquired ownership no
action to recover may be filed even though there may still be
several years remaining in the prescribed 8 years.
If possessor acquired the movable in good faith at a public sale, owner
cannot obtain its return without reimbursing the price paid therefore. (Art.
559)
In certain cases, owner is precluded from recovery without right to
reimbursement although the action has not yet prescribed. (Art. 1505)
Movables possessed through a crime cannot be acquired through
prescription by offender (Art. 1133)
Tan v. CA − where petitioner claims that, through bad faith and fraud, he
was led to assign his shares of stocks, it was held that the action had
already prescribed, hence the corporate entities have acquired such
personal property after possession of more than 8 years (without need of
good faith).
Dira v. Tanega − in a printing partnership, it was held that the active
partner has acquired the shares of the delinquent partner through
extraordinary prescription of 8 years, regardless of bad faith.
Art. 1142 – Prescription of Mortgages
A mortgage action prescribes after ten years. (1964a)
•
•
The following rights, among others specified elsewhere in this Code, are not
extinguished by prescription:
(1)
To demand a right of way, regulated in Article 649;
(2)
To bring an action to abate a public or private nuisance. (n)
•
Real actions over immovables prescribe after thirty years.
This provision is without prejudice to what is established for acquisition of
ownership and other real rights by prescription. (1963)
•
This refers to extraordinary acquisitive prescription of immovables of 30
years in adverse possession. The right to sue prescribes after acquisition of
the title.
o However, if within the 30−year period, all the requisites of
ordinary acquisitive prescription are present, the possessor
acquires ownership after 10 years of uninterrupted possession,
just title and good faith.
In case of fraud:
o If action is based on fraud, action prescribes in 4 years from the
discovery of fraud and such discovery is deemed to have taken
place upon the issuance of the certificate of title over the
property.
o lf based on implied or constructive trust, in 10 years from the
alleged fraudulent registration or date of issuance of certificate of
title over the property.
Mortgage − an accessory contract constituted to secure a debt so that if
the debtor fails to pay the principal obligation, the creditor can foreclose
on the mortgage by selling it in a public sale and use the proceeds to pay
off the debt.
Development Bank of the Philippines v. Tomeldan − a suit for the recovery
of the deficiency after foreclosure of a mortgage is in the nature of
mortgage action which prescribes in 10 years.
Art. 1143 – Rights Not Extinguished by Prescription
Art. 1141 – Prescription of Immovables
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To demand a right of way (Art. 649) − the owner by virtue of a real right
may use any immovable surrounded by other immovables owned by other
persons and without access to a public highway, is entitled to demand a
right of way across the neighboring estates, after payment of the proper
indemnity.
o However, this easement is not compulsory if the isolation of the
immovable is due to the proprietor's own acts.
To abate a public or private nuisance − involves a person, thing, or
circumstance causing inconvenience or annoyance; unlawful interference
with the use and enjoyment of a person's land.
Other rights not barred by prescription:
1. To demand partition of a co−ownership as long as the co−ownership is
expressly or impliedly recognized
2. To enforce an express trust
3. To demand easement of light and view
4. To declare the inexistence of a contract or the nullity of a void judgment or
of a void title
5. To compel a trustee to reconvey property registered in his name for the
benefit of the cestui que trust
6. To compel reconveyance of land registered in bad faith provided it has not
yet passed to an innocent purchaser for value
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7.
8.
To quiet title brought by a person in possession of the property
To recover real property or its value where the property was taken by the
government for public use without first acquiring title thereto
9. To seek issuance of a writ of possession
10. To probate a will
11. To recover by the State non−registrable land
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b.
c.
Such positive acts of repudiation have been made known to the
cestui que trust.
The evidence thereon is clear and conclusive.
o Such repudiation shall be the reckoning point of the cause of
action.
Art. 1145 – 6 Years
Art. 1144 – 10 Years
The following actions must be brought within ten years from the time the right of
action accrues:
(1)
Upon a written contract;
(2)
Upon an obligation created by law;
(3)
Upon a judgment. (n)
1.
2.
3.
Written contracts
• agreement must be in writing.
• a promissory note, a check or a ticket issued for transportation is a
written contract.
Obligations created by law
• obligation of the possessor to reconvey to the true owner real
property arising from a constructive or implied trust.
• obligation of the lessor to indemnify the lessee in good faith for useful
improvements on the property leased.
• obligation of the husband and wife, parents and children, and brothers
and sisters to support each other.
Judgment—judgment that is final and executory
• under the Rules of Court, judgment may be executed on motion within
5 years from the date of its entry or from the date it becomes final and
executory. After the lapse of such time, it may be enforced by ordinary
action within 10 years.
• Espanol v. Philippine Veterans Administration − right of action accrues
when there exists a cause of action which in this case is the
declaration of the Court that the company’s administrative policy is
invalid.
• Huang v. CA − an implied trust is normally not subject to prescription,
unless the trustee openly and adversely repudiates the trust by:
a. performing unequivocal acts amounting to an ouster of the cestui
que trust (French for the beneficiary of a trust).
The following actions must be commenced within six years:
(1)
Upon an oral contract;
(2)
Upon a quasi−contract. (n)
1.
2.
Oral contract
• Action upon an oral contract of tenancy to compel the reinstatement
of a tenant comes under the provision.
Quasi-contract
• Certain lawful, voluntary and unilateral acts give rise to the juridical
relation of quasi−contracts to the end that no one shall be unjustly
enriched or benefited at the expense of another.
• Solutio indebiti − quasi contract provided in the Civil Code which
occurs if something is received when there is no right to demand it,
and it has been delivered by mistake, the obligation to return arises.
• Municipality of Opon v. Caltex − right to recover taxes illegally
collected upon a quasi−contract.
Art. 1146 – 4 Years
The following actions must be instituted within four years:
(1)
Upon an injury to the rights of the plaintiff;
(2)
Upon a quasi−delict. (n)
1.
Injury to the rights of the plaintiff
• Purpose of an action or suit and the law to govern it, including the
period of prescription, are to be determined by the complaint itself, its
allegations and prayer for relief.
• Action for recovery of damages for taking or retaining personal
property, or incident to trespass upon real estate prescribes within 4
years.
• Virgilio Callanta v. Carnation Phil. Inc. − petition for illegal dismissal,
reinstatement and backwages was illegally dismissed because
although the Labor Code provides 3 years for such claims, the case
involved the profession of the plaintiff which is a property right, hence
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ATTY. MEL STA. MARIA
was predicated “upon injury to the rights of the plaintiff” which
prescribes in 4 years. (ln relation to Art. 1148)
Quasi-delict
• When there is no pre−existing relations between parties, whoever by
act or omission causes damage to another with fault or negligence, is
obliged to pay damages. (Art.2176)
• Dicosa v. Sarabia − prescriptive period is counted from the day the
quasi−delict occurred or was committed.
• Liability of manufacturers for any death or injuries caused by noxious
or harmful substances used, although no contractual relations exist.
• Coca−Cola Bottlers Philippines Inc. v. CA − where soft drinks sold
contained fiber−like matter and other foreign substances which caused
sickness to students.
• Kramer Jr. v. CA − collision of two vessels is a quasi−delict.
• Allied Banking Corp. v. CA − action against the Central Bank for tortious
inference, in closing and liquidating a bank.
Art. 1147 – 1 Year
•
•
2.
Forcible entry and detainer
• A summary proceeding to recover possession of land that is instituted
by one who has been wrongfully ousted from, or deprived of,
possession.
• Vda. De Borromeo v. Pogoy − the 1−year prescriptive period is
sufficient time for complainant to file a case and this period is counted
from demand to vacate the premises.
Defamation
• Any intentional false communication, either written or spoken, that
harms a person's reputation.
Art. 1148 – Code of Commerce and Special Laws
The limitations of action mentioned in Articles 1140 to 1142, and 1144 to 1147 are
without prejudice to those specified in other parts of this Code, in the Code of
Commerce, and in special laws. (n)
The provisions of Title V on Prescription have suppletory application to
specific cases of prescription found elsewhere in the Civil Code and in
special laws.
Virgilio Callanta v. Carnation Phil. Inc. − where a petition upon injury to the
rights of the plaintiff was found with merit, it was held that a statute of
limitation (pertaining to prescription for claims under the Labor Code)
extinguishes the remedy only. Although the remedy to enforce a right may
be barred, that right may be enforced by some other available remedy
(pertaining to Art. 1146 regarding injury upon the rights of the plaintiff).
Art. 1149 – No Fixed Period = 5 Years
All other actions whose periods are not fixed in this Code or in other laws must be
brought within five years from the time the right of action accrues. (n)
•
•
The following must be filed within one year:
(1)
For forcible entry and detainer;
(2)
For defamation. (n)
1.
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The right of action or cause of action accrues from the moment of
commission or omission of an act by a party in violation of his duty to, or of
the right, of another.
Essential elements are: (R.O.A.)
1. Right in favor of a person (obligee)
2. A correlative obligation on the part of another (obligor)
3. An act or omission in violation of said right
Espanol v. Philippine Veterans Administration
Tolentino v. CA − action to prevent the former spouse from using the
petitioner’s husband’s surname prescribes in 5 years counted from the day
such action might be brought.
Other Ex.s:
o Action to impugn the recognition of a natural child (Art. 296)
o Action to impugn the legitimation of a child (Art. 275)
o Action to reduce inofficious donations to be counted from the
death of the donor (Vide Art. 772, Civil Code).
Art. 1150 – When to Count Prescriptive Periods
The time for prescription for all kinds of actions, when there is no special provision
which ordains otherwise, shall be counted from the day they may be brought.
(1969)
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OBLIGATIONS AND CONTRACTS REVIEWER
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Quasi-delict − prescriptive period for actions based on quasi−delict shall
begin to run from the day the action may be brought, that is, from the day
the quasi−delict was committed.
Criminal action − unless otherwise provided, the statutory limitation for
period for filing a criminal action begins to run on the commission of the
offense.
Separate civil action − where offended party expressly reserves his right to
institute a separate civil action, prescription runs from the date reservation
is made up to the time the civil action is actually filed in court.
•
•
The period during which the obligee was prevented by a fortuitous event from
enforcing his right is not reckoned against him. (n)
•
The time for the prescription of actions which have for their object the enforcement
of obligations to pay principal with interest or annuity runs from the last payment
of the annuity or of the interest. (1970a)
•
This refers to obligations where payment of which is due at stipulated
intervals.
o If the debt is not yet due, payment of interest or annuity will not
start the running of the period.
Art. 1152 – Prescription of Actions declared by Judgment
The period for prescription of actions to demand the fulfilment of obligations
declared by a judgment commences from the time the judgment became final.
(1971)
•
•
Prescriptive period is counted not from the time the judgment was
rendered but from the time it became final.
Philippine National Bank v. Bondoc − regarding judgment creditors, the
purpose of the revival judgment is to give a creditor a new right of
enforcement from the date of revival for the creditor’s protection.
Provident Savings Bank v. CA − when prescription is interrupted by a
fortuitous event, all the benefits acquired so far from the possession will
cease and when prescription starts anew, it will be entirely a new one.
Tan v. CA − the petitioner’s arrest and detention during the Marcos regime
was not considered as a fortuitous event which could have interrupted the
prescription for his right of action.
Art. 1155 – Interruption of Prescription for Actions
The prescription of actions is interrupted when they are filed before the court,
when there is a written extrajudicial demand by the creditors, and when there is
any written acknowledgment of the debt by the debtor. (1973a)
•
Ledesma v. CA − this means that the period of prescription begins to run
anew, and whatever time of limitation might have already elapsed is
thereby negated and rendered inefficacious. The effect is to renew the
obligation and to make prescription run again from the date of
interruption.
1.
Filing of an action in court
• Cabrera v. Tiano − civil actions are deemed commenced from the
date of the filing and docketing of the complaint with the Clerk of
Court.
• Interruption lasts during the pendency of the action.
• Olympia International Inc. v. CA − if the plaintiff desists from
prosecuting the action to its final conclusion, the action is deemed
abandoned and as if it has never been instituted.
Written extrajudicial demand by the creditor
Art. 1153 – Prescription for Accounting
The period for prescription of actions to demand accounting runs from the day the
persons who should render the same cease in their functions.
The period for the action arising from the result of the accounting runs from the
date when said result was recognized by agreement of the interested
parties. (1972)
There is no difference between actions for accounting and reliquidation
since both involve the determination, adjustment and settlement of what
is due to the parties under the law
Dira v. Tanega − the delinquent partner’s action for accounting, filed after
14 years, had already prescribed.
Art. 1154 – Fortuitous Event
Art. 1151 – Prescription for Actions regarding Payment
•
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2.
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•
3.
Any written notice given by the creditor to the debtor to enforce
the delivery or payment of an obligation.
Written acknowledgement of the debt by the debtor
• Written offer of payment works as a renewal of the obligation
• Philippine National Bank v. Osete − not all acts of
acknowledgment of a debt interrupt prescription. To produce an
effect, it must be written.
• Ramos v. Condez − although actions regarding written contracts
prescribe after 10 years, such was interrupted when the
defendant submitted a letter acknowledging the validity of the
deed of absolute sale and promising to comply with the terms.
BOOK IV: OBLIGATIONS AND CONTRACTS
TITLE. I. - OBLIGATIONS
Chapter 1: General Provisions
Art. 1157 - Sources of Obligations
Obligations arise from:
(1) Law;
(2) Contracts;
(3) Quasi−contracts;
(4) Acts or omissions punished by law; and
(5) Quasi−delicts. (1089a)
•
•
1.
2.
3.
Art. 1156 – Definition
An obligation is a juridical necessity to give, to do or not to do. (n)
•
•
•
“Juridical necessity” − in case of non−compliance, the courts may be called
upon by the aggrieved party to enforce its fulfilment
Obligation − a legal bond whereby constraint is laid upon a person or
group of persons to act or forbear on behalf of another person or group of
persons.
Requirements: (J.O.S.)
1. Juridical tie − efficient cause established by sources of obligations.
2. Object or Prestation − conduct required to be observed by the debtor.
It may be to give, to do or not to do.
3. Subject-persons − may refer to both natural and juridical persons.
May be either:
a. Active (obligeeƒcreditor) − person entitled to demand
fulfilment; he who has the right.
b. Passive (obligorƒdebtor) − person who is bound to the
fulfilment of the obligation; he who has the duty.
Ang Yu Asuncion v. CA
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4.
5.
•
Serves as the juridical tie of the obligation.
Enumeration is exclusive. The following are the only sources of obligations:
(L.C.D.Q2)
Law − imposed by the law itself.
Ex. Obligation to pay taxes, support one’s family (Art. 291)
Contracts − from the stipulation of the parties
Ex. Obligation to repay a loan or indebtedness by virtue of
an agreement
Quasi-contracts − from lawful, voluntary and unilateral acts which are
enforceable to the end that no one shall be unjustly enriched or benefited
at the expense of another.
Ex. Obligation to return money paid by mistake or which is
not due
Delicts (Crimes) − from civil liability which is the consequence of a criminal
offense.
Ex. Obligation to return a car stolen
Obligation of a killer to indemnify the heirs of his victim
Quasi-delicts (Torts) − from damages caused to another through an act or
omission, there being fault or negligence, but no contractual relations
between the parties.
Ex. Obligation of the possessor of an animal to pay for the
damage which it may have caused
Obligations are civil or natural.
1. Civil obligation − gives a right of action to compel their performance.
2. Natural Obligations − not based on positive law but on equity and
natural law. These do not grant a right of action to enforce their
performance, but after voluntary fulfilment by the obligor, they
authorize retention of what has been delivered or rendered by reason
thereof. (Art. 1423)
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OBLIGATIONS AND CONTRACTS REVIEWER
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contract which states the insurer’s liabilities, whenever the intentions of
the parties are clear and the essential requirements for the validity of such
contract exist.
Art. 1158 – Obligations from Law
Obligations derived from law are not presumed. Only those expressly determined in
this Code or in special laws are demandable, and shall be regulated by the precepts
of the law which establishes them; and as to what has not been foreseen, by the
provisions of this Book. (1090)
•
•
•
Legal Obligation − the law is the most important source of obligation.
o It does not depend upon the will of the parties.
o lmposed by the State and is generally imbued with some public
policy considerations.
o The basis of the obligation must be clear.
o lt cannot be presumed.
Existing law enters into and forms part of a valid contract without need for
the parties expressly making reference thereto.
o The provisions of a contract are not only limited to what we see,
but is understood to include what is prescribed by law.
Special laws − refers to all other laws not contained in the Civil Code like
the Corporation Code, Negotiable Instruments Law, Insurance Code,
National Internal Revenue Code, Revised Penal Code, Labor Code, etc.
Art. 1160 – Obligations from Quasi Contracts
Obligations derived from quasi−contracts shall be subject to the provisions of
Chapter 1, Title XVII, of this Book. (n)
•
•
Art. 1159 – Obligations from Contracts
Obligations arising from contracts have the force of law between the contracting
parties and should be complied with in good faith. (1091a)
•
•
•
•
•
Contract – a meeting of minds between two persons whereby one binds
himself, with respect to the other, to give something or to render some
service. (Art. 1305)
Binding force – a contract is the law between the parties.
o Upon perfection of the contract, the parties are bound to fulfill
what has been stipulated including consequences should there be
a breach in good faith, usage, or the law.
o Stipulations should not be contrary to law, morals, good customs,
public policy or public order.
Compliance in good faith − performance in accordance with the
stipulations or terms of the contract or agreement.
A contract may involve mutual and reciprocal obligations and duties
between and among the parties.
Perla Compania de Seguros Inc. v. CA − the trial court cannot disregard and
substitute their own interpretation of the stipulations in an insurance
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Quasi Contract − certain lawful, voluntary and unilateral acts give rise to
the juridical relation of quasi−contract to the end that no one shall be
unjustly enriched or benefited at the expense of the other. (Art. 2142)
2 Kinds of Quasi−contracts:
1. Solutio Indebiti − the juridical relation which is created when
something is received when there is no right to demand it and it was
unduly delivered through mistake.
Ex. X owes Y ®1,000. X paid Y ®2,000 by mistake. Y is obliged to return
the excess of ®1,000.
2. Negotiorum gestio − the voluntary management of the property or
affairs of another without the knowledge or consent of the latter. (Art.
2144)
Ex. While X was out of town, a fire broke out near his house. Through
the effort of Y, X’s house was spared from being burned. X has the
obligation to reimburse Y of all expenses incurred in saving the
house.
Implied contract − a contract which is implied in fact is one in which the
circumstances imply that parties have reached an agreement even though
they have not done so expressly.
Ex. By going to a doctor, a patient agrees that he will pay a fair price
for the service. If he refuses to pay after being examined, he has
breached a contract implied in fact.
Art. 1161 – Obligations from Crimes or Delicts
Civil obligations arising from criminal offenses shall be governed by the penal laws,
subject to the provisions of Article 2177, and of the pertinent provisions of Chapter
2, Preliminary Title, on Human Relations, and of Title XVIII of this Book, regulating
damages. (1092a)
•
Civil liability − attaches to an individual who is found to be criminally liable.
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The extent of the civil liability arising from crimes is governed by the
Revised Penal Code which includes: restitution, reparation and
indemnification.
Ex.
X stole the car of Y. If X is convicted, the court will order X:
1) to return the car or pay its value
2) to pay for any damage caused to the car
3) to pay such other damages suffered by Y as a consequence of
the crime (like moral or exemplary damages)
Art. 1162 – Obligations from Quasi-delicts
•
•
Obligations derived from quasi−delicts shall be governed by the provisions of
Chapter 2, Title XVII of this Book, and by special laws. (1093a)
•
Quasi-delict or Torts − an act or omission which causes damage to another
person, there being fault or negligence, but no pre−existing contractual
relation between the parties. (Art. 2176)
Ex.
Obligation of the possessor of an animal to pay for the
damage which it may have caused
Chapter 2: Nature and Effect of Obligations
•
Art. 1163 – Required Diligence
•
Every person obliged to give something is also obliged to take care of it with the
proper diligence of a good father of a family, unless the law or the stipulation of the
parties requires another standard of care. (1094a)
•
•
Involves the prestation “to give”
“Something” − connotes a determinate object
o Determinate object − definite, known and has already been distinctly
decided and particularly specified as the matter to be given from
among the same things belonging to the same kind. The debtor cannot
substitute it with another although the latter is of the same kind and
quality without the consent of the creditor. (Art. 1244)
Ex. the house at x address
the Toyota car with plate number xxx
this cavan of rice
the money I gave you
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o Indeterminate or generic object − any object which belongs to the
same kind. The debtor can give anything of the same class as long as it
is of the same kind.
Ex.
a sum of ®1,000
a 1995 Toyota car
a cavan of rice
Diligence of a good father of a family (ordinary) − if there is no stipulation
as to the diligence which should be observed, that which is expected of a
good father of a family is required.
Another standard of care (extraordinary) − if the law or stipulation of the
parties provides for another standard of care, said law or stipulation shall
prevail.
o In case of a contrary stipulation of the parties, such should not be
one contemplating relinquishment or waiver of the most ordinary
diligence
o Common carriers—persons, corporations, firms or associations
engaged in the business of carrying or transporting passengers or
goods or both, by land, water, or air, for compensation, offering
their services to the public. They are bound to observe
extraordinary diligence.
Factors to be considered − the diligence required depends on the nature of
the person, time and place. (Art. 1173)
Cases of presumed negligence − substitute parental authority of schools,
common carriers
Art. 1164 – Right Over Fruits
The creditor has a right to the fruits of the thing from the time the obligation to
deliver it arises. However, he shall acquire no real right over it until the same has
been delivered to him. (1095)
•
•
Involves the prestation “to give”
Kinds of Fruits: (N.I.C.)
1. Natural fruits − spontaneous products of soil and the young or
other products of animals
Ex.
grass, trees, puppies
2. Industrial fruits − produced by lads of any kind through cultivation
or labor
Ex.
sugar cane, vegetables, rice
3. Civil fruits − derived by virtue of a juridical relation
Ex.
rent, interest, and other similar income
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OBLIGATIONS AND CONTRACTS REVIEWER
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ATTY. MEL STA. MARIA
Real right—the right or power of a person over a specific thing (like
ownership, possession, mortgage), without a definite passive subject
against whom such right may be personally enforced.
o Enforceable against the whole world and will prejudice anybody
claiming the same object of the prestation
o Accrues when the thing or object of the prestation is delivered to
the creditor
Personal right—the right or power of a person (creditor) to demand of
another (debtor), as a definite passive subject, the fulfillment of a
prestation to give, to do, or not to do.
o Can be defeated by a third person in good faith who has
innocently acquired the property prior to the scheduled delivery
regardless of whether or not such third person acquired the
property after the right to the delivery of the thing has accrued in
favor of the creditor
▪
If the thing is indeterminate or generic, he may ask that the obligation be complied
with at the expense of the debtor.
If the obligor delays, or has promised to deliver the same thing to two or more
persons who do not have the same interest, he shall be responsible for any
fortuitous event until he has effected the delivery. (1096)
•
•
Involves the prestation “to give”
Remedies of a creditor in a real obligation:
a.
Non-delivery of a determinate thing − to file an action to compel
the debtor to make the delivery, also known as specific
performance
b.
Non-delivery of an indeterminate or generic thing − the creditor
may have it accomplished or delivered in any reasonable and legal
way charging all expenses to the debtor
c.
Non-delivery due to fortuitous event (Art. 1174) − general rule:
obligor is not liable for fortuitous event
▪ Except when the obligor delays (Art. 1169) or has
promised the same thing to 2 or more persons with
different interests
In such cases, obligor may be compelled to effect
delivery and give the necessary damages (Art. 1170)
Art. 1166 – Accessions and Accessories
The obligation to give a determinate thing includes that of delivering all its
accessions and accessories, even though they may not have been mentioned.
(1097a)
•
•
•
Art. 1165 – Delivery of a Determinate or Indeterminate Thing
When what is to be delivered is a determinate thing, the creditor, in addition to the
right granted him by Article 1170, may compel the debtor to make the delivery.
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•
Involves the prestation “to give”
Accessions − fruits, additions to, or improvements upon a thing (principal),
which are not necessary to the principal thing.
Ex. house or trees on a land, profits or dividends accruing from
shares of stocks
Accessories − things joined to or included with the principal thing for
embellishment, better use or completion. The accessory and the principal
thing must go together
Ex. frame of a picture, bracelet of a watch, charger of an iPad
Both accessions and accessories can exist only in relation to the principal.
Art. 1167 – Obligation To Do
If a person obliged to do something fails to do it, the same shall be executed at his
cost.
This same rule shall be observed if he does it in contravention of the tenor of the
obligation. Furthermore, it may be decreed that what has been poorly done be
undone. (1098)
•
•
Involves the prestation “to do”
Remedies of the creditor:
a.
Debtor fails to perform an obligation to do − to have the
obligation performed by himself or by another at the debtor’s
expense and recover damages (Art. 1170)
▪ Unlike obligations to give, a specific performance in
obligations to do may not be ordered as this may amount
to involuntary servitude. Feasible remedy is damages.
b.
Debtor performs the obligation but contrary to the terms or in a
poor manner − in addition to remedy preciously mentioned, it
may be ordered (by the court) that it be undone if it is still
possible.
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ATTY. MEL STA. MARIA
When the obligation consists in not doing, and the obligor does what has been
forbidden him, it shall also be undone at his expense. (1099a)
•
▪
Chaves v. Gonzales − owner of the typewriter was entitled to the cost of
the execution of the obligation plus damages when the repairer of the
typewriter returned it with missing parts and without having it repaired.
Art. 1168 – Obligation Not To Do
Involves the prestation “not to do”
Ex. X bought a land from Y where it was agreed upon that Y would not
construct a fence on certain portions of the land. Should Y
construct a fence, the same may be removed at Y’s expense.
•
•
Art. 1169 - Delay
Those obliged to deliver or to do something incur in delay from the time the obligee
judicially or extrajudicially demands from them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in order that delay
may exist:
(1) When the obligation or the law expressly so declare; or
(2) When from the nature and the circumstances of the obligation it appears that
the designation of the time when the thing is to be delivered or the service is to be
rendered was a controlling motive for the establishment of the contract; or
(3) When demand would be useless, as when the obligor has rendered it beyond his
power to perform.
In reciprocal obligations, neither party incurs in delay if the other does not comply
or is not ready to comply in a proper manner with what is incumbent upon him.
From the moment one of the parties fulfills his obligation, delay by the other
begins. (1100a)
•
•
•
•
•
Delay − understood as legal delay or default; failure to perform or deliver
on time which constitutes a breach of an obligation. It must be either
malicious or negligent, the absence of which, the obligor shall not be liable
under Art. 1170.
o Kinds of Delay:
a. Mora accipiendi − delay on the part of the creditor to accept.
▪ the debtor may release himself from the obligation by
consignation (Art. 1256)
b. Mora solvendi − delay on the part of the debtor to deliver.
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•
•
Requisites:
1. obligation is demandable and liquidated
2. debtor delays performance
3. creditor demands performance
SSS v. Moonwalk Development and Housing Corp.
General rule − default begins from the moment demand is made by the
creditor judicially or extrajudicially. Commencement of a suit is sufficient
demand.
o Except in 3 cases: (U.T.L.)
1. When the obligation or the law so provides
2. When time is of the essence
3. When demand would be useless
Reciprocal Obligations − the obligation of one is a resolutory condition of
the other, the non−fulfillment of which entitles the other party to rescind
the contract.
o If one of the parties fails to deliver, the other cannot insist upon
its performance. Legally, there is no default or delay on the part of
both parties.
o If both parties incur delay, the liability of the first infractor shall be
equitably tempered by the courts. If it cannot be determined,
each shall bear his own damages. (Art. 1192)
2 cases where Extrajudicial Demand is necessary before filing a civil suit:
1. Ejectment
2. Consignment
Extrajudicial demand − necessary so that the courts will have a basis on
when to start computing damages
Delay in the payment of money − Art. 2209 provides that unless otherwise
stipulated, legal interest for delay in payment is 6% per annum.
o However, damages shall only begin to run after judicial or
extrajudicial demand.
Barzaga v. CA − demand was not necessary where a contract entered into
for the construction of a niche for the wife of the aggrieved party who
expressly wished that she be buried before Christmas day.
Binalbagan Tech Inc. v. CA − through no fault of the seller, the buyer could
not take possession of the property because such buyer was evicted by a
third party through a court order. Hence, the seller cannot rescind the
contract for the buyer’s non−payment of the balance of a property.
Agcaoili v. GSIS − respondent had no right to rescind the contract where
petitioner failed to immediately occupy the house built by petitioner
because the house was in a state of incompleteness. Neither party incurs
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OBLIGATIONS AND CONTRACTS REVIEWER
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ATTY. MEL STA. MARIA
in delay if the other does not comply or is not ready to comply in a proper
manner with what is incumbent upon him.
Tanguilig v. CA − the respondent may not be compelled to pay for the
balance and damages where the petitioner built windmills which collapsed
due to defects in the construction.
Art. 1170 – Sources of Liabilities
Those who in the performance of their obligations are guilty of fraud, negligence, or
delay, and those who in any manner contravene the tenor thereof, are liable for
damages. (1101)
Grounds for liability:
1. Fraud (deceit or dolo) − the deliberate or intentional evasion of the
obligation; it implies malice or dishonesty and is synonymous to bad faith
in that, it involves a design to mislead or deceive another. (in relation to
Art. 1171)
2. Negligence (fault or culpa) − omission of that diligence which is required by
the nature of the obligation and corresponds with the circumstances of the
persons, of the time and of the place. (Art. 1173)
o Standard of care imposed by law or by stipulation of the parties.
o In the absence of law or stipulation, that diligence which is
expected of a good father of a family is required.
3. Delay (mora) − failure to perform or deliver on time which constitutes a
breach of an obligation. (Art. 1169)
o Barzaga v. CA − there is negligence and delay where a contract
was entered into for the construction of a niche for the wife of
the aggrieved party who expressly wished that she be buried
before Christmas day, and the constructors failed to deliver.
4. Contravention of the terms of the obligation − violation of the terms and
conditions stipulated in the obligation.
•
If any of these co−exists with a fortuitous event or aggravates the loss
caused by a fortuitous event, the obligor cannot be excused from liability.
Art. 1171 – Responsibility from Fraud
Responsibility arising from fraud is demandable in all obligations. Any waiver of an
action for future fraud is void. (1102a)
•
•
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The fraud or dolo necessarily involves a valid agreement but, in the
performance of the same, fraud is committed.
A waiver of an action for future fraud produces no effect.
Art. 1172 – Responsibility from Negligence
Responsibility arising from negligence in the performance of every kind of
obligation is also demandable, but such liability may be regulated by the courts,
according to the circumstances. (1103)
•
Liability can be regulated by the courts depending on the circumstances.
Art. 1173 – Fault or Negligence
The fault or negligence of the obligor consists in the omission of that diligence
which is required by the nature of the obligation and corresponds with the
circumstances of the persons, of the time and of the place. When negligence shows
bad faith, the provisions of Articles 1171 and 2201, paragraph 2, shall apply.
If the law or contract does not state the diligence which is to be observed in the
performance, that which is expected of a good father of a family shall be required.
(1104a)
•
•
•
Negligence is a relative or comparative, not an absolute term and its
application depends on the circumstances of the persons, of time and of
the place.
o Syquia v. CA − the memorial company was not negligent when it
bore a hole on the grave of the deceased to prevent the vault
from falling due to heavy rains.
o Philippine National Bank v. CA − the bank was held liable for
negligently dishonoring the petitioners check causing serious
anxiety, humiliation and embarrassment to the client.
General rule − negligence must always be proven (burden of proof on the
creditor).
“Negligence shows bad faith” − can be implied from repeated negligence;
hence the provision on fraud (Art. 1171) shall apply.
o Art. 2201, 2nd par—the obligor shall be responsible for all
damages which may be reasonably attributed to the non−
performance of the obligation
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OBLIGATIONS AND CONTRACTS REVIEWER
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ATTY. MEL STA. MARIA
Samson v. CA − bad faith is a state of mind of ill will and it does
not simply connote bad judgment or negligence. It is synonymous
with fraud and involves a design to mislead or deceive another.
•
•
•
Fortuitous Event − any event which cannot be foreseen, or which though
foreseen, is inevitable; force majeur.
o Act of man − war, fire, robbery, murder, accident
o Act of God − earthquake, flood, shipwreck volcanic eruption
Requisites of a fortuitous event: (U.F.I2.)
1. Independent of the will of the debtor
2. Event must be unforeseeable or unavoidable
3. Event must be such as to render it impossible for the debtor to fulfill
his obligation in a normal manner
4. The debtor must be free from any participation therein, or aggravation
of the injury
Nakpil v. CA
General rule − an obligor cannot be liable for a fortuitous event except:
1. When expressly specified by law
▪ obligor promises the same thing to 2 or more persons of
different interests (Art. 1165)
▪ fraud, negligence, delay or violation by a person concurs with
an act of God in producing a loss, such person is not exempt
from liability (Art. 1170)
▪ object of prestation is generic even if the object is wiped out
by a fortuitous event (Art. 1263)
Ex. delivery of money
▪ obligation to deliver arises from a crime (Art. 1268)
▪ bailee in commodatum − agreement to lend
a.
uses the thing for a different purpose
b.
keeps it longer than what was agreed
c.
thing loaned was delivered with appraisal of its
value
d.
lends of leases the thing to a third person
given the opportunity to save either the loaned
thing or a personal property, he chose the latter
▪ provisions of other codes
2. When declared by the stipulation of the parties
3. When the nature of the obligation so requires the assumption of
risk
Tanguilig v. CA − destruction of the windmills by a typhoon was not
considered a fortuitous event because of the windmills’ inherent defect
attributable to the petitioners. 4th element of fortuitous event was not
present.
Dioquino v. Laureano − throwing of a stone directed at the car of the
plaintiff was considered a fortuitous event.
Sia v. CA − fortuitous event was not considered when a bank failed to
notify its client of the flooding of its safety box which resulted to the
destruction of the client’s stamp collection.
Victoria Planters Association Inc. v. Victoria’s Milling Co. − the obligee
cannot demand the fulfillment of the delivery of an obligation after 6 years
due to a fortuitous event, for such will be an extension of the contract. A
fortuitous event relieves the obligor from performance.
o However, should the obligee choose to enforce his right which
was prevented by a fortuitous event, the prescription for such
action will start anew. (Art. 1154)
Ace−Agro Development Corp. v. CA − suspension of the employee’s
contract was brought by a fortuitous event (burning), hence does not
justify the extension of such contract. The contract was subject to a
resolutory period which relieved the parties from their obligations, but did
not stop the running of the period of their contract.
Republic v. Luzon Stevedoring − extraordinary diligence is required of a
towed barge.
e.
Art. 1174 – Fortuitous Events
Except in cases expressly specified by the law, or when it is otherwise declared by
stipulation, or when the nature of the obligation requires the assumption of risk, no
person shall be responsible for those events which could not be foreseen, or which,
though foreseen, were inevitable. (1105a)
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•
•
•
•
•
Art. 1175 – Usurious Transactions
Usurious transactions shall be governed by special laws. (n)
•
•
The law does not prohibit usurious contracts.
Usury − contracting for or receiving interest in excess of the amount
allowed by law for the loan or use of money, goods etc.
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OBLIGATIONS AND CONTRACTS REVIEWER
ATTY. MEL STA. MARIA
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Art. 1176 – Presumption in Payment
Art. 1178 - Transmissibility
The receipt of the principal by the creditor without reservation with respect to the
interest, shall give rise to the presumption that said interest has been paid.
Subject to the laws, all rights acquired in virtue of an obligation are transmissible, if
there has been no stipulation to the contrary. (1112)
The receipt of a later installment of a debt without reservation as to prior
installments, shall likewise raise the presumption that such installments have been
paid. (1110a)
•
•
•
A presumption must always arise from a fact or a set of facts.
o Presumption can be rebutted by strong evidence to the contrary.
To have probative value, the creation of the presumption must be
provided by law.
Manila Trading & Suppy Co. v. Medina − receipts must clearly show
evidence of partial payment.
•
In general, rights growing out of an obligation are transmissible.
o However, the person who transmits the right cannot transfer
greater rights than he himself has by virtue of the obligation, and
vice versa.
•
The transmissibility of rights may be limited, or altogether prohibited by
stipulation of the parties.
•
Transmission must be subject to pertinent laws.
Chapter 3: Different Kinds of Obligations
Art. 1177 – Rights of the Creditor
The creditors, after having pursued the property in possession of the debtor to
satisfy their claims, may exercise all the rights and bring all the actions of the latter
for the same purpose, save those which are inherent in his person; they may also
impugn the acts which the debtor may have done to defraud them. (1111)
Remedies of creditors to satisfy their claims (in particular order):
1. Exhaust the properties of the debtor through levying by attachment and
execution upon all the property of the debtor, except such as are exempt
by law from execution
Ex. exempt property − family home
2. Exercise all the rights and actions of the debtor, save those personal to
him (accion subrogatoria)
Ex. enforceable rights − right to collect from a debtor’s debtor
personal rights − right to receive legal support
3. Seek rescission of the contracts executed by the debtor in fraud of their
rights (accion pauliana)
o Adorable v. CA − unless a debtor acted in fraud, the creditor
cannot order rescission of a contract between the debtor and a
third party on the ground that such sale will prejudice the
creditor’s right to collect from the debtor.
SECTION 1. - Pure and Conditional Obligations
Art. 1179 – Pure Obligations
Every obligation whose performance does not depend upon a future or uncertain
event, or upon a past event unknown to the parties, is demandable at once.
Every obligation which contains a resolutory condition shall also be demandable,
without prejudice to the effects of the happening of the event. (1113)
•
•
Pure obligation – an unqualified obligation which is demandable
immediately.
o Pay v. Vda. De Palanca − an action filed after 15 years to execute
a promissory note which contains an obligation immediately
demadable may no longer prosper, considering that the
prescription of written documents is 10 years.
Conditional obligation – an obligation subject to the fulfillment of a
condition which may be a future and uncertain event, or past event
unknown to the parties.
o Condition − an act or event, other than a lapse of time, which,
unless the condition is excused, must occur before a duty to
perform a promise in the agreement arises or which discharges a
duty of performance that has already risen.
▪ Future and uncertain
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OBLIGATIONS AND CONTRACTS REVIEWER
ATTY. MEL STA. MARIA
▪ Past but unknown
Kinds of Conditions:
a. Suspensive condition (condition precedent) − the fulfillment of which will
give rise to the performance of an obligation. The demandability of the
obligation is suspended until the fulfillment of the condition.
Ex. Contract to sell − when the buyer pays the last installment, the
title of the property shall be transferred to him
o Art. 1182 − potestative, casual conditions
b. Resolutory condition (condition subsequent) − operates to discharge a
duty of performance that has already arisen. The obligation is extinguished
by operation of law.
Ex. X binds himself to give Y ®1,000 allowance until Y graduates from
college.
o Reciprocal obligations − the obligation of one is a resolutory
condition of the obligation of the other, the non−fulfillment of
which entitles the other to rescind the contract.
• Coronel v. CA −
Suspensive
Condition
Ownership
Third
Persons
Status of
the
Obligation
CONTRACT TO SELL
Promise to sell upon the happening of
the suspensive condition (payment of
the final installment).
CONDlTlONAL CONTRACT OF SALE
The seller reserves title to the
property until the suspensive
condition (full payment) is fulfilled.
Ownership will not automatically
transfer to the buyer although the
property may have been previously
delivered to him.
Ownership thereto automatically
transfers to the buyer by operation
of law without any further act
having to be performed by the
seller.
Prospective buyer can seek relief
of reconveyance of the property.
A 3rd person buying such property
despite the fulfillment of the
suspensive condition, cannot be
deemed a buyer in bad faith.
Prospective buyer cannot seek relief of
reconveyance of the property (only a
promise to sell).
There is already a contract from the
beginning hence, if the suspensive
condition is not fulfilled, the seller may
rescind the contract.
The prospective seller still has to
convey title to the prospective buyer by
entering into a contract of sale
•
Javier v. CA − when a contract is subject to a suspensive condition, its birth
or effectivity can take place only if and when the event constitutes the
condition happens or is fulfilled.
Art. 1180 – Payment Depends on Debtor’s Means
When the debtor binds himself to pay when his means permit him to do so, the
obligation shall be deemed to be one with a period, subject to the provisions of
Article 1197. (n)
When duration of the period depends upon the will of the debtor:
•
•
•
Debtor − law presumes that the debtor really intends to pay.
Creditor − the problem is, the creditor is left to speculate and payment
could be an uncertain event.
Remedy of the law − to balance the presumed intent of the debtor to pay
and the interest of the creditor by classifying the obligation as one with a
period.
o Art. 1197 − The courts may fix a period.
o Period − a future and certain event upon the arrival of which the
obligation subject to it arises or is extinguished. (Art. 1193)
Art. 1181 – Conditional Obligations
In conditional obligations, the acquisition of rights, as well as the extinguishment or
loss of those already acquired, shall depend upon the happening of the event which
constitutes the condition. (1114)
•
•
If the suspensive condition is not
fulfilled, the perfection of the
contract is abated.
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Suspensive condition (condition precedent) − a condition which must be
fulfilled before the obligation may be demandable.
o Acquisition of rights
Resolutory condition (condition subsequent) − operates to extinguish an
already existing obligation.
o Loss of rights already acquired
Art. 1182 – Potestative and Casual Conditions
When the fulfillment of the condition depends upon the sole will of the debtor, the
conditional obligation shall be void. If it depends upon chance or upon the will of a
third person, the obligation shall take effect in conformity with the provisions of
this Code. (1115)
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OBLIGATIONS AND CONTRACTS REVIEWER
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ATTY. MEL STA. MARIA
“When fulfillment of a condition” − connotes a suspensive character of the
prestation
Conditions contemplated in this provision:
A. Potestative condition – fulfillment depends upon the sole will of the
debtor, then it is essentially a condition because whether the debtor will or
will not fulfill the obligation is a future and uncertain event, which is void.
Ex.
1. Lao Lim v. CA − the lease contract shall subsist for so long as the
defendant needed the premises. The birth of the new lease
contract depended on the sole will of the lessee, which is void.
2. Trillana v. Quezon College − full payment of the shares in a school
was to be made only after the obligor had harvested fish.
o However, if the potestative condition is imposed not on the birth
of the obligation but on its fulfillment, only the condition is
avoided, leaving unaffected the obligation itself. This happens
when the obligation is pre−existing.
Ex.
1. X borrowed ®10,000 from Y payable within 2 months.
Subsequently, X promised to pay Y after X sells his car
to which Y agreed. In this case, only the condition is
void but not the X’s pre−existing obligation to pay Y.
2. Osmena v. Ramos − where in a promissory note the
obligor promised to pay after the house is sold, the
condition is void but the obligation to pay subsists.
3. Security Bank and Trust Company v. CA − where upon
stipulation of the parties, the owner shall equitably
make appropriate adjustments was void, hence the
bank was ordered to pay the obligation in full.
o Patente v. Omega − when the condition is void and the obligation
subsists, such obligation is not converted into one which is pure
and unconditional. An arraignment might be enforced which is
not within the contemplation of the parties. The best solution is
to consider the parties having intended a period, and ask the
court to fix a period.
B. Casual condition − depends on chance, hazard, or the will of a third person
o A resolutory condition that depends upon the will of a third
person is not void.
Ex. Ducusin v. CA − agreement shall be terminated when
the lessor’s children need the premises.
C.
•
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Mixed obligation − depends not only upon the will of the debtor but also
upon chance and some other factors.
Ex.
1. Romero v. CA − downpayment from the buyer shall be
returned if the seller (will of the vendor) shall not be
able to remove the squatters (will of 3 rd persons) from
the property.
2. Naga Telephone Co. Inc. v. CA − petitioner can use the
electrical posts of the respondent as long as it needed
the posts and the contract shall terminate when the
respondent is forced to stop its operation as a public
service (dependent on chance, hazard and 3rd persons).
A condition at once facultative and resolutory may be valid even though
the condition is made to depend upon the will of the obligor
Art. 1183 – Void Conditions
Impossible conditions, those contrary to good customs or public policy and those
prohibited by law shall annul the obligation which depends upon them. If the
obligation is divisible, that part thereof which is not affected by the impossible or
unlawful condition shall be valid.
The condition not to do an impossible thing shall be considered as not having been
agreed upon. (1116a)
•
Impossible conditions − render the obligation dependent upon them as
legally ineffective. The condition annuls the prestation.
1. Physically impossible conditions − when such conditions cannot exist
or cannot be done in the nature of things.
Ex. If it will not rain in the Philippines for one year
If you can carry 20 cavans of palay on your shoulder
2. Legally impossible conditions − when they are contrary to law,
morals, good customs, public order or public policy.
Ex. If you kill Z (against the law)
If you slap your father (against good customs)
If you overthrow the government (against public order)
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OBLIGATIONS AND CONTRACTS REVIEWER
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Art. 1184 – Positive Condition
•
The condition that some event happen at a determinate time shall extinguish the
obligation as soon as the time expires or if it has become indubitable that the event
will not take place. (1117)
•
Positive condition − the happening of an event at a determinate time
extinguishes the obligation.
Ex.
X obliges to give Y ®10,000 if B will marry C before B reaches the
age of 23.
▪ X is liable if B marries C before B turns 23.
▪ X is not liable if B marries C when B turns 23 or after B
turns 23.
▪ If C dies when B is 22, it has become indubitable that the
condition shall happen. Hence, the obligation of X is
extinguished.
Art. 1185 – Negative Condition
The condition that some event will not happen at a determinate time shall render
the obligation effective from the moment the time indicated has elapsed, or if it has
become evident that the event cannot occur.
If no time has been fixed, the condition shall be deemed fulfilled at such time as
may have probably been contemplated, bearing in mind the nature of the
obligation. (1118)
•
Negative condition − if the event does not happen at a determinate time,
the obligation shall become effective and binding.
Ex.
X will give Y ®10,000 if Y does not fail any of his exams at the end
of the semester.
Art. 1186 – Constructive Fulfillment
The condition shall be deemed fulfilled when the obligor voluntarily prevents its
fulfillment. (1119)
•
The good faith-obligation of the parties includes an implied term on the
part of the said parties not to impede, hinder, obstruct or prevent the
fulfillment of the obligation.
•
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Constructive fulfillment – the obligor voluntarily prevents the fulfillment
of the condition in an obligation where the law states that the obligation
shall be deemed fulfilled.
o Tayag v. CA − as a condition of a contract of sale, the buyer was
required to pay the balance of a particular loan and where the
vendors prematurely paid the loan, thereby preventing the buyer
to fulfill the condition, there was constructive fulfillment.
Reciprocal obligation − both parties are mutually obligors and also
obligees, and any of the contracting parties may, upon non−fulfillment by
the other party of his part of the prestation, rescind the contract or seek
fulfillment.
Art. 1187 – Retroactive Effects of the Fulfillment of a Suspensive Condition
The effects of a conditional obligation to give, once the condition has been fulfilled,
shall retroact to the day of the constitution of the obligation. Nevertheless, when
the obligation imposes reciprocal prestations upon the parties, the fruits and
interests during the pendency of the condition shall be deemed to have been
mutually compensated. If the obligation is unilateral, the debtor shall appropriate
the fruits and interests received, unless from the nature and circumstances of the
obligation it should be inferred that the intention of the person constituting the
same was different.
In obligations to do and not to do, the courts shall determine, in each case, the
retroactive effect of the condition that has been complied with. (1120)
•
•
•
Presupposes the happening of a suspensive condition.
The effect of a conditional obligation to give retroacts to the day of the
constitution of the obligation.
o The efficacy of the obligation is merely suspended or held in
abeyance until the condition is fulfilled.
Resolutory condition − the fulfillment of the event extinguishes the
obligation; hence retroactivity is not relevant.
Situations contemplated:
1. Reciprocal obligations − the fruits and interests during the pendency of
the condition shall be deemed to have been mutually compensated.
• Fruits on the object of prestation (from debtor) and the interest
on the payment (from creditor) incurred during the pendency of
the condition need not be delivered.
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OBLIGATIONS AND CONTRACTS REVIEWER
2.
3.
ATTY. MEL STA. MARIA
Unilateral obligations − the debtor or obligor shall appropriate the fruits
and interests received, unless from the nature and circumstances of the
obligation it should be inferred that the intention of the person
constituting the same is different.
• Any fruits or interests incurred by the object of prestation shall
belong to the obligor, prior to the fulfillment of the condition.
Obligations not to do − courts shall determine the retroactive effect of the
fulfilled condition.
Art. 1188 – Rights Pending Fulfillment of Suspensive Condition
The creditor may, before the fulfillment of the condition, bring the appropriate
actions for the preservation of his right.
The debtor may recover what during the same time he has paid by mistake in case
of a suspensive condition. (1121a)
1.
2.
Creditor − can file an injunction suit to stop the debtor from alienating his
property which is supposed to be given to the creditor once a particular
condition is fulfilled.
Debtor − can recover what has been paid by mistake when the obligation is
not yet due and demandable.
o A case of solutio indebiti
Art. 1189 – Loss, Deterioration or Improvement Pending the Condition
When the conditions have been imposed with the intention of suspending the
efficacy of an obligation to give, the following rules shall be observed in case of the
improvement, loss or deterioration of the thing during the pendency of the
condition:
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(5) If the thing is improved by its nature, or by time, the improvement shall inure to
the benefit of the creditor;
(6) If it is improved at the expense of the debtor, he shall have no other right than
that granted to the usufructuary. (1122)
•
•
Involves the prestation to give a determinate thing which is subject to a
suspensive condition
o In the case of resolutory conditions, Art. 1170, 1173 and 1174
shall apply.
Definitions:
1. Loss − when a thing perishes (physical loss), goes out of commerce
(legal loss) or when a thing disappears in such a way that its
existence is unknown (civil loss).
2. Deterioration − a thing deteriorates when its value is reduced or
impaired with or without the fault of the debtor.
▪ The choice of the remedies to be pursued, whether
rescission plus damages or fulfillment plus damages,
belongs to the creditor regardless of the degree of
deterioration caused by the debtor.
▪ If the deterioration caused by the debtor is so grave that
the object goes out of commerce, it can be considered
lost and the creditor can seek damages from the debtor.
3. Improvement − a thing is improved when its value is increased or
enhanced by nature or by time, or at the expense of the debtor or
creditor.
▪ Usufruct − gives a right to enjoy the property of another
with the obligation of preserving its form and substance
unless the title constituting it or the law otherwise
provides.
(1) If the thing is lost without the fault of the debtor, the obligation shall be
extinguished;
(2) If the thing is lost through the fault of the debtor, he shall be obliged to pay
damages; it is understood that the thing is lost when it perishes, or goes out of
commerce, or disappears in such a way that its existence is unknown or it cannot be
recovered;
(3) When the thing deteriorates without the fault of the debtor, the impairment is
to be borne by the creditor;
(4) If it deteriorates through the fault of the debtor, the creditor may choose
between the rescission of the obligation and its fulfillment, with indemnity for
damages in either case;
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OBLIGATIONS AND CONTRACTS REVIEWER
•
ATTY. MEL STA. MARIA
Rules in case of loss, deterioration or improvement of the thing during
pendency of suspensive condition:
LOSS
DETERIORATION
IMPROVEMENT
Without fault/participation
of the debtor
Obligation is extinguished
(fortuitous event)
Creditor shall bear
impairment
Creditor shall enjoy the
benefits
rescission, even after he has chosen fulfillment, if the latter should become
impossible.
With fault/participation
of the debtor
The court shall decree the rescission claimed, unless there be just cause authorizing
the fixing of a period.
Debtor shall pay damages
This is understood to be without prejudice to the rights of third persons who have
acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage
Law. (1124)
Creditor may choose
rescission of the obligation
or its fulfillment, plus
damages
Debtor shall only have
usufructuary rights
•
•
Art. 1190 – Effects of Fulfillment of a Resolutory Condition
When the conditions have for their purpose the extinguishment of an obligation to
give, the parties, upon the fulfillment of said conditions, shall return to each other
what they have received.
In case of the loss, deterioration or improvement of the thing, the provisions which,
with respect to the debtor, are laid down in the preceding article shall be applied to
the party who is bound to return.
As for the obligations to do and not to do, the provisions of the second paragraph of
Article 1187 shall be observed as regards the effect of the extinguishment of the
obligation. (1123)
▪
▪
▪
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Once a resolutory condition is fulfilled, the obligation is extinguished and
there must be restitution of what has been obtained.
In the case of loss, deterioration or improvement of the thing during the
pendency of the resolutory condition, Art. 1189 shall apply.
In obligations to do and not to do, the courts shall determine the effect of
the extinguishment of the obligation.
Art. 1191 – Remedies in Reciprocal Obligations
The power to rescind obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him.
Reciprocal obligations − the obligation of one is a resolutory condition of
the other, the non−fulfillment of which entitles the other to rescind the
contract. Songcua v. lAC
Remedies − fulfillment of the obligation or rescission plus damages.
o The injured party may also seek rescission even after he has
chosen fulfillment.
o Areola v. CA − the aggrieved party who opted for the fulfillment of
the obligation was also entitled to damages.
o Ayson Simon v. Adamos − where both heirs of the deceased
owner and a buyer of a property won cases against a seller, and
both filed for the delivery of such property, the buyer’s action for
rescission and damages was proper considering that the heirs
already had possession of the property.
o Siy v. CA − the law does not authorize the injured party to rescind
the obligation and at the same time seek its partial fulfillment
instead of collecting damages.
Rescission − to declare the contract void at its inception and to put an end to it as
though it never was.
•
•
Predicated on the breach of faith by any of the parties to a contract that
violates the reciprocity between them.
The power to rescind is not absolute and must be based on a serious or
substantial breach of an obligation as to defeat the object of the parties in
making the agreement.
o A mere casual breach does not justify rescission of the contract.
o The question of whether a breach of a contract is substantial
depends upon the attendant circumstances.
The injured party may choose between the fulfillment and the rescission of the
obligation, with the payment of damages in either case. He may also seek
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OBLIGATIONS AND CONTRACTS REVIEWER
•
Cases:
o
o
o
o
ATTY. MEL STA. MARIA
Philippine Amusement Enterprises Inc. v. Natividad − that “there
were times” when the jukebox did not work did not constitute the
substantial breach sufficient to effect a rescission.
Tan v. CA − private respondents have substantially complied with
the obligation. Time not being of essence, a slight delay on the
part of the private respondent is not sufficient ground for the
resolution of the agreement.
Velarde v. CA − although a slight delay in payment of 1 month may
be a casual breach considering that time is not of the essence,
pre−conditions to pay by the debtor left the creditor with no
choice but to opt for rescission.
Santos v. CA − if the contract involved is a contract to sell, the
termination is not a rescission under Art. 1191, but an
enforcement of the contract.
Forms of power to rescind:
a.
Implied power to rescind − can only be enforced through court action, in
the absence of stipulation to the contrary.
o The decision of the court is the revocatory act of rescission
o Court shall decree the rescission claimed unless there is just
cause to authorize fixing a period.
▪ Roman v. CA − if the buyer paid within 60 days according
to the terms, there would have been just cause to grant
an extension.
▪ Central Philippine University v. CA − no just cause; fixing
of a period would be a mere technicality and formality
that would serve no purpose than to delay or lead to an
unnecessary and expensive multiplication of suits.
b.
Express unilateral extrajudicial stipulation to rescind − power to rescind
need not be implied in all cases.
o Parties may stipulate that the violation of the terms of the
contract shall cause the cancellation, termination or rescission
thereof even without court intervention
o University of the Philippines v. De Los Angeles − stipulation is
always provisional, subject to scrutiny and review by the proper
court. Notice must always be given to the defaulter before
rescission can take effect
o De Luna v. Abrigo − when there is an express stipulation to
rescission, any court decision validating the propriety of the
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o
o
rescission made is not the revocatory act of rescission but merely
declaratory or an affirmation of the revocation.
Palay Inc. v. Clave − stipulation which states that the seller may
declare the contract cancelled without notice is void.
Jison v. CA − sending a notice to the buyer is an indispensable act.
▪ Notice − revocatory act in express stipulation to rescind.
Art. 1192 – Breach by Both Parties
In case both parties have committed a breach of the obligation, the liability of the
first infractor shall be equitably tempered by the courts. If it cannot be determined
which of the parties first violated the contract, the same shall be deemed
extinguished, and each shall bear his own damages. (n)
•
•
First infractor known − subsequently, the other also violated his part of
the obligation. The liability of the first infractor should be equitably
reduced.
First infractor cannot be determined − obligation shall be deemed
extinguished and shall bear his own damages.
SECTION 2. - Obligations with a Period
Art. 1193 – Obligations with a Period
Obligations for whose fulfillment a day certain has been fixed, shall be demandable
only when that day comes.
Obligations with a resolutory period take effect at once, but terminate upon arrival
of the day certain.
A day certain is understood to be that which must necessarily come, although it
may not be known when.
If the uncertainty consists in whether the day will come or not, the obligation is
conditional, and it shall be regulated by the rules of the preceding Section. (1125a)
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OBLIGATIONS AND CONTRACTS REVIEWER
•
ATTY. MEL STA. MARIA
Obligation with a period − an obligation constituted at a much earlier date
but its effectivity only commences on a certain future period of time.
•
Suspensive period − gives rise to the effectivity of the obligation.
o Gaite v. Fonacier − where the balance was to be paid from and
out of the first letter of credit covering the first shipment of iron
derived from the local sale of iron by the client, the stipulation is a
suspensive period not a suspensive condition.
o A suspensive condition is comparatively more onerous than a
suspensive period.
Resolutory period − gives rise to the extinguishment of the obligation.
•
o
Period − a future and certain event upon the arrival of which the obligation
subject to it either arises or is terminated. It is a day which must
necessarily come (like next Christmas), although it may not be known
when (like the death of a person).
•
o
o
The same rules in Article 1189 shall apply in obligations subject to a suspensive or a
resolutory period.
Art. 1195 – Debtor May Recover Payment
Anything paid or delivered before the arrival of the period, the obligor being
unaware of the period or believing that the obligation has become due and
demandable, may be recovered, with the fruits and interests. (1126a)
•
•
•
•
•
Applies only to obligations to give
o The provision may not be applied in obligations to do or not to do
because it is physically impossible to recover a service rendered.
Similar to Art. 1188 paragraph 2 where a creditor cannot unjustly enrich
himself by retaining payment which is not due.
Burden of proof of paying by mistake is on the debtor. Debtor is presumed
to be aware of the period.
If the obligor delivered the object before the arrival of the period, and
upon arrival of the period, the obligee is in the possession of the object,
the obligor can only recover the fruits and interests accruing from the time
of the delivery up to the arrival of the period.
Kinds of Fruits: (N.I.C.)
Natural fruits − spontaneous products of soil and the young or
other products of animals
Industrial fruits − produced by lads of any kind through cultivation
or labor
Civil fruits − derived by virtue of a juridical relation
Art. 1196 – Period Benefits Both Creditor and Debtor
Whenever in an obligation a period is designated, it is presumed to have been
established for the benefit of both the creditor and the debtor, unless from the
tenor of the same or other circumstances it should appear that the period has been
established in favor of one or of the other. (1127)
•
Art. 1194 – Loss, Deterioration or Improvement before Day Certain
In case of loss, deterioration or improvement of the thing before the arrival of the
day certain, the rules in Article 1189 shall be observed. (n)
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•
•
General rule − the presumption of the law is that the period is for the
benefit of both debtor and creditor.
o Fernandez v. CA − a contract of lease is a reciprocal contract. The
period of lease must be deemed to have been agreed upon for
the benefit of both parties.
Exception − when the nature of the obligation or stipulation of the parties
shows that the period was for the benefit of either party.
The benefit of the period may be waived by the person in whose favor it
was constituted.
o Abesamis v. Woodcraft Works Inc. − where the obligor informed
the obligee that he will make an early delivery of the subject
portions of shipment, the obligor was made liable for failure to
make such delivery. Use of the period was effectively waived.
Art. 1197 – Court May Fix a Period
If the obligation does not fix a period, but from its nature and the circumstances it
can be inferred that a period was intended, the courts may fix the duration thereof.
The courts shall also fix the duration of the period when it depends upon the will of
the debtor.
In every case, the courts shall determine such period as may under the
circumstances have been probably contemplated by the parties. Once fixed by the
courts, the period cannot be changed by them. (1128a)
Related articles:
• Art. 1180 − when the debtor binds himself to pay when his means permit
him to do so
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OBLIGATIONS AND CONTRACTS REVIEWER
•
ATTY. MEL STA. MARIA
Art. 1191 par. 3 − instead of issuing a decree of rescission, the court may
authorize the fixing of a period when there is just cause
Presumption − the court is generally without power to fix a period. If the obligation
does not state a period and no period is intended, the court is not authorized to fix
a period because it has no right to make contracts for parties.
•
•
Gregorio Araneta, Inc. v. Phil. Sugar Estates Development Co. Ltd.
2- step process:
1. The court must first determine that the obligation does not fix a
period or that a period is made to depend upon the will of the
debtor, but from the nature and circumstances it can be inferred
that a period was intended.
2. The court must decide what period was probably contemplated
by the parties.
Radiowealth Finance Company v. Del Rosario − the fact that the due date
was left blank does not necessarily mean that payment was left on the sole
will of the debtor. The promissory note indicated that the debt should be
amortized monthly in installments.
1.
2.
3.
4.
Art. 1198 – When Debtor Cannot Make Use of the Period
The debtor shall lose every right to make use of the period:
(1)
(2)
(3)
(4)
(5)
When after the obligation has been contracted, he becomes insolvent,
unless he gives a guaranty or security for the debt;
When he does not furnish to the creditor the guaranties or securities
which he has promised;
When by his own acts he has impaired said guaranties or securities after
their establishment, and when through a fortuitous event they disappear,
unless he immediately gives new ones equally satisfactory;
When the debtor violates any undertaking, in consideration of which the
creditor agreed to the period;
When the debtor attempts to abscond. (1129a)
5.
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When debtor becomes insolvent
o Unless he gives a guaranty or security for the debt − a debtor may
ask a third person to guarantee his debt or put up his house as
collateral.
o Insolvency need not be judicially declared.
When debtor does not furnish the guaranties or securities promised
o Securities can take the form of real−estate mortgages or pledges
When guaranties or securities given have been impaired or have
disappeared through the debtor’s acts
o Unless he immediately gives new ones equally satisfactory.
o Gaite v. Fonacier − because of the company’s failure to renew the
bond of a surety or else replace it with an equivalent guarantee,
the debtor has forfeited it right to the period making the
obligation immediately demandable.
o The debtor loses the benefit of the period even if the guaranties
and securities disappear through a fortuitous event.
When the debtor violates any undertaking, in consideration of which the
creditor agrees to the period
o Allen v. Province of Albay
Constructive waiver of period − when the owner prevents the
period from arriving. Hence, the obligor shall be allowed to
furnish the obligation within reasonable time.
When the debtor attempts to abscond
o A mere attempt by the debtor to flee from his obligations, or to
move away to evade payment of his indebtedness, is sufficient
ground to demand from him immediately.
When debtor cannot make use of the period: (G.A.V.I 2.)
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OBLIGATIONS AND CONTRACTS REVIEWER
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CROMBONDS 2011-2012
Ex.
SECTION 3. - Alternative Obligations
•
▪
Art. 1199 – Alternative Obligations
A person alternatively bound by different prestations shall completely perform one
of them.
The creditor cannot be compelled to receive part of one and part of the other
undertaking. (1131)
•
•
•
“Different Prestations” − refers to both strict and loose sense of the word.
o Either different kinds of prestations (1 to give, and 1 to do)
o Or merely different objects (give a car, or give a boat)
Partial Performance of different prestations does not fulfill the obligation,
unless the creditor accepts such partial performance as complete
performance.
o Debtor must choose complete performance of one or the other.
If all but one of the alternatives becomes legally impossible, obligation
becomes simple.
o Loan payable in Pesos or USD, alternative obligation ceased to
exist when USD was illegal (Japanese time)
Art. 1200 – Debtor’s Right of Choice
The right of choice belongs to the debtor, unless it has been expressly granted to
the creditor.
The debtor shall have no right to choose those prestations which are impossible,
unlawful or which could not have been the object of the obligation. (1132)
•
•
•
•
Any doubt as to whom the choice is given as to which prestation to comply
with is always construed in favor of the debtor.
General rule − debtor always has choice.
o Exception − when such choice is expressly granted to the creditor.
Restriction on Debtor’s Power of Choice − the law, the intention of the
parties, and the realm of possibility.
Debtor has no right to choose those prestations which are:
o lmpossible – Ex. fly to the moon, turn water into wine,
o Unlawful − Ex. steal a car, deal drugs
o Could not have been the object of the obligation
A owes B ®30,000. He can either pay by giving B his
horse, his piano, or ®30,000 in cash.
A has two horses, one worth ®30,000 and another crap
one worth ®5,000. He cannot choose the ®5,000 horse
because it could not have been the object of the
obligation.
Art. 1201 – Choice Communicated
The choice shall produce no effect except from the time it has been communicated.
(1133)
•
•
•
•
Creditor is entitled to be notified of the choice.
Mode of communication may vary − it is also the debtor’s choice
Choice is given effect only upon communication to the creditor.
Creditor has no right to oppose the choice, provided such choice of
prestation is not unlawful, impossible, or outside what the parties wanted.
Art. 1202 – Only One Choice is Practicable
The debtor shall lose the right of choice when among the prestations whereby he is
alternatively bound, only one is practicable. (1134)
•
•
Right of choice is given to the debtor − according to law
o This right implies that the debtor can destroyƒimpair all other
choices as long as one remains
Practicable – capable of being done; feasible.
o Thus, when only one of the choices is practicable, the debtor loses
his right of choice.
o A prestation can be possible and lawful, but not practicable.
Ex.
Kissing a highly contagious leper − possible, and not
illegal, but impracticable and thus cannot be chosen by
debtor.
Art. 1203 – Debtor Cannot Choose due to Creditor’s Acts
If through the creditor's acts the debtor cannot make a choice according to the
terms of the obligation, the latter may rescind the contract with damages. (n)
•
Creditor cannot stop the debtor from fulfilling his obligation.
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OBLIGATIONS AND CONTRACTS REVIEWER
•
•
ATTY. MEL STA. MARIA
If creditor’s own acts result in the loss of a choice, the debtor can (he is not
bound to do so) rescind with a right to damages.
Ex.
A can pay his debt to B by giving a certain cellphone, giving a
certain horse, or dancing in a show.
o If the creditor through his own acts makes any of these choices
impossible:
▪ Kills horse
▪ Destroys phone
▪ Burns club
o Debtor has the option to rescind with damages.
As long as the creditor makes one of the choices impossible, the debtor
may rescind. (contrast this with next article)
Art. 1204 – Through Debtor’s Fault, All Choices are Lost
The creditor shall have a right to indemnity for damages when, through the fault of
the debtor, all the things which are alternatively the object of the obligation have
been lost, or the compliance of the obligation has become impossible.
The indemnity shall be fixed taking as a basis the value of the last thing which
disappeared, or that of the service which last became impossible.
Damages other than the value of the last thing or service may also be awarded.
(1135a)
•
•
•
•
Debtor will not be liable for loss of choices, even if obligation ceases to
become alternative and becomes simple.
o He has the right of choice, after all, and the creditor cannot
complain.
However, when all of the alternative prestations are rendered impossible,
the creditor is entitled to damages.
The value of the damages will be based on the value of the last choice to
be lostƒrendered impossible, be it a service or a thing to give.
Contrast with previous provision:
o Creditor only needs to render impossible at least one of the
prestations.
o Debtor must impair all of the prestations
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Art. 1205 – Choice Given to Creditor
When the choice has been expressly given to the creditor, the obligation shall cease
to be alternative from the day when the selection has been communicated to the
debtor.
Until then the responsibility of the debtor shall be governed by the following rules:
(1) If one of the things is lost through a fortuitous event, he shall perform the
obligation by delivering that which the creditor should choose from among the
remainder, or that which remains if only one subsists;
(2) If the loss of one of the things occurs through the fault of the debtor, the
creditor may claim any of those subsisting, or the price of that which, through the
fault of the former, has disappeared, with a right to damages;
(3) If all the things are lost through the fault of the debtor, the choice by the
creditor shall fall upon the price of any one of them, also with indemnity for
damages.
The same rules shall be applied to obligations to do or not to do in case one, some
or all of the prestations should become impossible. (1136a)
•
•
•
Conferment of right of choice to the creditor must always be express.
Obligation ceases to be alternative when choice is communicated to the
debtor.
Until communication is done, law provides rules as to the debtor’s
responsibility:
o One of the things is lost through a fortuitous event
▪ Debtor delivers what creditor chooses from the
remainder, or the only one remaining.
o Loss of one of the things occurs through fault of the debtor
• Creditor may claim any of the remaining options.
• Creditor may claim the price of the thing which
disappeared.
• Regardless of what the creditor picks, he has a right to
damages.
o If all things are lost through fault of the debtor
• Creditor chooses the price of any one of them.
• Also with an indemnity for damages.
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OBLIGATIONS AND CONTRACTS REVIEWER
ATTY. MEL STA. MARIA
CROMBONDS 2011-2012
o
Art. 1206 – Facultative Obligations
When only one prestation has been agreed upon, but the obligor may render
another in substitution, the obligation is called facultative.
o
The loss or deterioration of the thing intended as a substitute, through the
negligence of the obligor, does not render him liable. But once the substitution has
been made, the obligor is liable for the loss of the substitute on account of his
delay, negligence or fraud. (n)
•
•
•
Facultative Obligation − only one prestation has been agreed upon, but
obligor may render another in substitution
Ex. “l will give you my piano, but l may give you my TV as a substitute.
Thus, only the piano is due and only the loss of this piano makes me
liable for damages.”
Creditor cannot refuse the substitute, unless such is unlawful.
Once substitution has been made, obligor is liable for its loss.
o
Art. 1208 – Joint Obligations
lf from the law, or the nature or the wording of the obligations to which the
preceding article refers the contrary does not appear, the credit or debt shall be
presumed to be divided into as many shares as there are creditors or debtors, the
credits or debts being considered distinct from one another, subject to the Rules of
Court governing the multiplicity of suits. (1138a)
•
SECTION 4. - Joint and Solidary Obligations
Art. 1207 – Solidary Obligations
The concurrence of two or more creditors or of two or more debtors in one and the
same obligation does not imply that each one of the former has a right to demand,
or that each one of the latter is bound to render, entire compliance with the
prestation. There is a solidary liability only when the obligation expressly so states,
or when the law or the nature of the obligation requires solidarity. (1137a)
•
•
Solidary Obligation − a situation where there are debts incurred by 2 or
more debtors in favor of 2 or more creditors, and the right is given to
anyone, some or all of creditors, to demand the satisfaction of the TOTAL
obligation from anyone, some, or all of the debtors.
o Anyone of the creditors may demand fulfillment of the entire
obligation from any one of the debtor, not just for the share of
that debtor.
o Only exists when it is expressly stated, or when law or nature of
obligation so requires.
Ronquillo v. CA − the following terms indicate a solidary obligation:
“lndividually has the same meaning as “collectively”, “separately”,
“distinctly”, etc.
Ex.
An agreement (where the parties agree) to be”
individiaully liable” creates a several obligation.
Other wordsƒphrases denoting several obligation
• Juntos o sepadaramente
• Mancomun o insolidum
When a contract says “l promise” (singular) and is signed by two
or more promisors
•
Presumption of law − obligation is always a joint one.
o Un Pak Leung v. Negorra − in the absence of facts that the
defendants made themselves individually liable for the whole
amount, they are only liable for their share in the debt.
Joint Obligation – an obligation where the debtors are only bound to pay
their share and the creditors can only claim their share.
Ex.
A and B owe C and D ®1000.
o C can collect ®250 each from A and B.
o D can also collect ®250 each from A and B.
o But if A owns only 1ƒ3 of the indebtedness, and C only 1ƒ5 of
the credit:
o Creditors and debtors shall collect and pay only in
proportion to what they own and owe.
o In this case, A only pays 1ƒ3 of the ®1000, split such that
C gets 1ƒ5 and D gets 4ƒ5.
Art. 1209 – When Division is Impossible
If the division is impossible, the right of the creditors may be prejudiced only by
their collective acts, and the debt can be enforced only by proceeding against all the
debtors. If one of the latter should be insolvent, the others shall not be liable for his
share. (1139)
Art. 1210 – Indivisibility and Solidarity
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•
The indivisibility of an obligation does not necessarily give rise to solidarity. Nor
does solidarity of itself imply indivisibility. (n)
•
•
•
If division of the obligation is impossible, and the obligation is joint, the
creditors must act collectively
o One creditor cannot undertake an act which will prejudice the
others, unless he is authorized by the others to undertake such an
act.
If several debtors are obliged to give an indivisible obligation (like a house)
all of them must be sued if they renege on their obligation.
o So if one of the debtors refuses to deliver the house, the
obligation is turned into a claim for damages.
o A joint indivisible obligation becomes a claim for damages the
moment any one of the debtors does not comply with the
undertaking.
o How will the damages be divided?
• Those debtors who were ready to fulfill the obligation
are only liable for their corresponding portion.
Ex.
3 debtors must give a house, and one refuses. In
the following claim for damages, the 2 debtors
who were going to deliver the house are each
only liable for 1ƒ3 the price of the house.
• The debtor who is responsible for the damages claim
may be liable for the additional damages.
o Debtors shall not be responsible for another debtor who becomes
insolvent.
Solidarity does not mean indivisibility and vice versa.
o Solidary refers to nature of the obligors and obligees
o Indivisibility refers to nature of the prestation
2.
D can collect the whole amount from anyone, BUT the
debtor can only pay the balance of the debts that have
already matured.
A due on Monday, B on Tues, C on Wed.
• D can collect from any one of them, but can only collect
®5,000 on Monday (since only A’s debt has matured)
Art. 1212 – Acts of Solidary Creditors
Each one of the solidary creditors may do whatever may be useful to the others, but
not anything which may be prejudicial to the latter. (1141a)
•
•
As mentioned before, solidary creditors may not do anything which may
prejudice the others.
Ex. Refusing payment when debtors are ready to pay is prejudicial to the
others creditors.
▪ Thus, the other creditors can ask for damages.
They can, however, do things that may be useful for the others.
Ex. Quisumbing v. CA − one of the solidary creditors filed a suit for
collection against the solidary debtors. This was held to be a useful
act, and thus could be done just by one of the creditors.
Art. 1213 – Mutual Trust among Solidary Creditors
A solidary creditor cannot assign his rights without the consent of the others. (n)
•
•
The relationship between the solidary creditors should be one of mutual
trust.
To preserve this − a solidary creditor cannot assign his rights to others
without consent of the others. (they might not know the new co−creditor
as well, for Ex. − the trust may be lost)
Art. 1211 – Not Bound in the Same Manner
Solidarity may exist although the creditors and the debtors may not be bound in the
same manner and by the same periods and conditions. (1140)
•
Solidarity can still exist even if creditors and debtors are bound in different
manners, or have different conditionsƒperiods.
Ex. 1. A, B and C are solidarily indebted to D for ®15,000.
Art. 1214 – Judicial or Extrajudicial Demand by a Solidary Creditor
The debtor may pay any one of the solidary creditors; but if any demand, judicial or
extrajudicial, has been made by one of them, payment should be made to him.
(1142a)
•
General Rule − debtor may pay any of the solidary creditors.
o However, when demand (judicial or extrajudicial) is made by one
of the creditors, payment should be made to he who demanded.
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Payment to another creditor − the obligation will not be extinguished,
payment is invalid insofar as the share of the demanding creditor, in case
the other creditor does not give it.
Ex. A is liable to pay B and C ®10,000. If B demands from A, A must
pay to B.
▪ If A pays C, B is still entitled to his share from A in case C
does not give B his share.
Atty. Mel disagrees with this interpretation − collecting payment is
beneficial to the other creditors and thus should be allowed.
If there are 2 or more debtors, only the debtor upon whom demand is
made is bound to pay to the specific creditor who made the demand.
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This reiterates the rule that any one or some or all of the solidary debtors
may be made to pay the debt, so long as it has not been fully collected.
Thus, proceedings against one of the debtors will not be a bar to any
further proceedings against another, provided that the debt is still
subsisting (at the end of the day, if the debtors still owe something, then
they must pay it − and since the obligation is solidary, the creditor can
claim from anyone.)
Solidary creditor has a right to refuse partial payment − however, if he
does accept partial payment from one debtor, this does not bar him from
demanding from the others the rest of the obligation.
Art. 1217 – Payment by Solidary Debtors
Art. 1215 – Extinguishment by a Solidary Creditor
Novation, compensation, confusion or remission of the debt, made by any of the
solidary creditors or with any of the solidary debtors, shall extinguish the obligation,
without prejudice to the provisions of Article 1219.
The creditor who may have executed any of these acts, as well as he who collects
the debt, shall be liable to the others for the share in the obligation corresponding
to them. (1143)
•
•
These are modes of extinguishing obligations, to be discussed in the next
title. Briefly, they are:
1. Novation − change of creditors, debtors, or principal condition.
2. Compensation − two persons are creditors and debtors of each
other.
3. Confusion − creditor and debtor are merged in the same person.
4. Remission − condonation of an obligation.
Any of the solidary debtors can undertake these options with any of the
solidary debtors, and thus the obligation will be extinguished. However, he
who does these acts will be liable to his fellow creditors for their share in
the obligation.
Payment made by one of the solidary debtors extinguishes the obligation. If two or
more solidary debtors offer to pay, the creditor may choose which offer to accept.
He who made the payment may claim from his co−debtors only the share which
corresponds to each, with the interest for the payment already made. If the
payment is made before the debt is due, no interest for the intervening period may
be demanded.
When one of the solidary debtors cannot, because of his insolvency, reimburse his
share to the debtor paying the obligation, such share shall be borne by all his co−
debtors, in proportion to the debt of each. (1145a)
•
This article deals with the effect of payment by solidary debtors, with
regard to several relationships.
1.
Between solidary debtors and creditor(s)
• Payment made by one of the solidary debtors (payment in full)
extinguishes the obligation.
• Creditor is given a right to choose which offer to accept, if there
are more than one debtors offering to pay.
Among the solidary debtors
• He who paid the debt can demand reimbursement from his co−
debtors for their proportionate shares (with legal interest from
the time that he paid).
• When one of the debtors cannot reimburse because he is
insolvent, the other debtors will pay his share, in proportion with
their respective debts.
Among the solidary creditors
2.
Art. 1216 – Rights of Creditor Against Solidary Debtors
The creditor may proceed against any one of the solidary debtors or some or all of
them simultaneously. The demand made against one of them shall not be an
obstacle to those which may subsequently be directed against the others, so long as
the debt has not been fully collected. (1144a)
3.
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Payment by a solidary debtor shall not entitle him to reimbursement from his co−
debtors if such payment is made after the obligation has prescribed or become
illegal. (n)
•
•
▪ If payment was made BEFORE remission, A is liable to B
for ®500 because the remission had no effect.
The receiving creditor (the person who was paid) is jointly liable
to the others for their corresponding shares.
Art. 1218 – When Payment has Prescribed or become Illegal
If a debtor pays after the obligation is prescribed or has become illegal,
essentially, he is paying a non−existent debt.
o Prescription means that the cause of action has already lapsed
and ceased to exist.
Thus, he cannot demand that his co−debtors reimburse him for their
shares.
Art. 1219 – Remission of a Solidary Debtor’s Liability
The remission made by the creditor of the share which affects one of the solidary
debtors does not release the latter from his responsibility towards the co−debtors,
in case the debt had been totally paid by anyone of them before the remission was
effected. (1146a)
Art. 1221 – Loss or Impossibility of Prestation in Relation to Solidary
Debtors
If the thing has been lost or if the prestation has become impossible without the
fault of the solidary debtors, the obligation shall be extinguished.
If there was fault on the part of any one of them, all shall be responsible to the
creditor, for the price and the payment of damages and interest, without prejudice
to their action against the guilty or negligent debtor.
If through a fortuitous event, the thing is lost or the performance has become
impossible after one of the solidary debtors has incurred in delay through the
judicial or extrajudicial demand upon him by the creditor, the provisions of the
preceding paragraph shall apply. (1147a)
•
1.
2.
Art. 1220 – Remission of the Whole Obligation
The remission of the whole obligation, obtained by one of the solidary debtors,
does not entitle him to reimbursement from his co−debtors. (n)
•
•
When a creditor remits the debt of one of the solidary debtors, the effects
depend on when such remission was done.
o lf the creditor remits the whole debt before payment was made,
the person who convinced the creditor to remit cannot claim
anything from his co−debtors, because he hasn’t paid anything.
o If debt had been paid already, and the creditor is convinced to
condone the debt, this has no effect. However, the debtor who
paid can still go after his other co−debtors for their share.
This article is only applicable when there is one creditor.
Ex.
A and B are solidarily liable to C for ®1,000.
▪ C remits A’s share.
▪ If B pays C ®1,000, he cannot go after A for ®500.
▪ C, however, has to return ®500 to B.
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3.
4.
This article provides rules for when the thing to be delivered is lot, or when
the prestation becomes impossible to comply with.
Loss is without fault of debtors, and without delay − obligation is
extinguished.
If with fault of any of the debtors − all shall be liable for damages with
interest without prejudice innocent debtors actions against the guilty or
the negligent debtor.
Loss is due to fault of a solidary debtor
Ex.
A, B, and C are obliged to deliver a truck worth ®15,000 to D
▪ If it is lost through the fault of C, A and B are still
responsible to D for the price of the truck as well as
damages. (in solidary obligations, the faultƒdelay of one
of the debtors is the faultƒdelay of all)
▪ A and B can recover from C damages.
Loss is without fault but after delay
o D can recover damages from the innocent debtors, and the
innocent debtors have the same action against the offending
debtor as mentioned in the previous number.
o Because one of them was in default, all of them now are
responsible even for a fortuitous event.
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Art. 1222 – Solidary Debtor’s Defenses
A solidary debtor may, in actions filed by the creditor, avail himself of all defenses
which are derived from the nature of the obligation and of those which are
personal to him, or pertain to his own share. With respect to those which
personally belong to the others, he may avail himself thereof only as regards that
part of the debt for which the latter are responsible. (1148a)
•
Defenses available to a solidary debtor
1. Derived from the nature of the obligation
Ex.
A and B are solidarily liable to C for ®4,000. D pays this
entire debt.
▪ If C sues A, A can raise the defense of payment.
▪ This is a complete defense − because the
obligation is nullified and extinguished
o
2.
3.
Other examples:
▪ Prescription
▪ Remission
▪ Fraud
Personal to debtor sued
o Insanity at the time the obligation was contracted (only
with respect to the specific insane debtor)
o Incapacity
o Mistake
o Violence
Personal to other solidary debtors
SECTION 5. - Divisible and Indivisible Obligations
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Divisible obligation − an obligation whose object, in its delivery or
performance, is capable of partial fulfillment
Indivisible Obligation − not capable of partial fulfillment
Test − not the possibility or impossibility of partial performance, but
rather, the purpose of the obligation or the intention of the parties
o The objectƒservice may be physically divisible, but if the
partiesƒlaw say it should be indivisible, it’s indivisible.
o However, if physically indivisible, it’s always indivisible.
This article says that the “Nature and Effect of Obligations” (arts 1163−
1178) are also applicable to these kinds of obligations, even if there is only
one debtor or creditor.
Art. 1224 - Liabilities in Joint Indivisible Obligations
A joint indivisible obligation gives rise to indemnity for damages from the time
anyone of the debtors does not comply with his undertaking. The debtors who may
have been ready to fulfill their promises shall not contribute to the indemnity
beyond the corresponding portion of the price of the thing or of the value of the
service in which the obligation consists. (1150)
•
•
•
Joint Debtors − only bound to perform their respective portion. In
divisible, this is easy
If obligation is indivisible, each debtor must coordinate with his co−debtors
for the fulfillment of the obligation.
A, B, and C are required to give a computer worth ®30,000 to D, but when
D demands payment, only C unjustly refuses to deliver.
o Obligation is then turned into a claim for damages, as well as the
amount of the computer.
o A and B are liable for their share in the value of the PC (®10,000
each).
o But only C shall be liable for all damages.
Art. 1225 – Divisible and Indivisible Obligations
Art. 1223 – Nature and Effect of Divisible and Indivisible Obligations
The divisibility or indivisibility of the things that are the object of obligations in
which there is only one debtor and only one creditor does not alter or modify the
provisions of Chapter 2 of this Title. (1149)
For the purposes of the preceding articles, obligations to give definite things and
those which are not susceptible of partial performance shall be deemed to be
indivisible.
When the obligation has for its object the execution of a certain number of days of
work, the accomplishment of work by metrical units, or analogous things which by
their nature are susceptible of partial performance, it shall be divisible.
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However, even though the object or service may be physically divisible, an
obligation is indivisible if so provided by law or intended by the parties.
In obligations not to do, divisibility or indivisibility shall be determined by the
character of the prestation in each particular case. (1151a)
•
•
A.
B.
C.
o
This article deems some obligations indivisible, and others, divisible. It lays
down the general rule.
Again, the purpose of the obligation is the controlling circumstance.
Obligations deemed indivisible:
1. Obligations to give definite things − a particular electric fan
2. Obligations which are not susceptible of partial performance −
to sing a song, to dance a dance
3. Obligations provided by law to be indivisible − payment of taxes
4. Obligations intended by parties to be indivisible, even if the thing
is physically divisible:
▪ “Pay me ®2,000 on January 5.”
▪ The intention is clear − the ®2,000 should be delivered at
one time and as a whole
▪ De Leon: Suppose there are 2 debtors, is the obligation
still indivisible? YES
o It is divisible as to the two debtors, because they
can deliver it in parts
o However, as far as creditor is concerned, the
money should be delivered as a whole and is
thus indivisible − intention of the parties is
controlling
Obligations deemed divisible:
o Obligations which have for their object the execution of a certain
number of days of work − “Paint my house and finish within 10
days.”
o Obligations which have for their object the accomplishment of
work by metrical units. − “Make a table 3 feet wide and 5 feet
long”
o Obligations which by their nature are susceptible of partial
performance − Obligation to render 3 song numbers, obligation to
pay money in installments.
Divisibility/Indivisiblity of obligations not to do
o Character of the prestation in the particular case shall determine
▪ Indivisible − A promises not to sell cigarettes for one year − the
performance is continuous.
▪ Divisible − A promises not to sell cigarettes during Sundays and
holidays − performance is NOT continuous
Generally, “to do” and “not to do” are indivisible (except “to do”
mentioned above).
SECTION 6. - Obligations with a Penal Clause
Art. 1226 – Definition of Oblig with Penal Clause
In obligations with a penal clause, the penalty shall substitute the indemnity for
damages and the payment of interests in case of noncompliance, if there is no
stipulation to the contrary. Nevertheless, damages shall be paid if the obligor
refuses to pay the penalty or is guilty of fraud in the fulfillment of the obligation.
The penalty may be enforced only when it is demandable in accordance with the
provisions of this Code. (1152a)
•
•
•
•
SSS v. Moonwalk − a penal clause is “an accessory obligation which the
parties attach to a principal obligation for the purpose of insuring the
performance thereof by imposing on the debtor a special prestation
(generally consisting in the payment of money) in case the obligation is not
fulfilled or irregularly or inadequately fulfilled.
Obligation with a penal clause − is one which contains an accessory
undertaking to pay a previously stipulated indemnity in case of breach of
the principal prestation, intended primarily to induce its fulfillment.
Purposes of penal clauses:
o To insure performance
o To substitute a penalty for the indemnity of damagesƒpayment of
interest
o To punish the debtor
Kinds of Penal Clause:
a.
As to Origin
1. Legal penal Clause − provided by law
2. Conventional Penal Clause − provided for by stipulation
of the parties
b.
As to Purpose
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1. Compensatory − penalty takes place of damages
2. Punitive − imposed as a penaltyƒpunishment for breach
c.
As to demandabilityƒeffect
1. Subsidiary/Alternative − only the penalty can be
enforced
2. Joint/Cumulative − both principal obligation and penalty
can be enforced
General Rule − in obligations with a penal clause, the penalty takes the
place of damages and the payment of interest in case of non−compliance.
Thus, proof of actual damage suffered is not necessary to enforce the
penalty as long as there is non−compliance.
Creditor may recover damages in addition to the penalty:
1. When so stipulated
2. When obligor refuses to pay the penalty
3. When obligor is guilty of fraud in the fulfillment of the obligation −
creditor can recover damages caused by such fraud.
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Art. 1228 – Proof is Not Necessary
Proof of actual damages suffered by the creditor is not necessary in order that the
penalty may be demanded. (n)
Art. 1229 – Court Intervention
The judge shall equitably reduce the penalty when the principal obligation has been
partly or irregularly complied with by the debtor. Even if there has been no
performance, the penalty may also be reduced by the courts if it is iniquitous or
unconscionable. (1154a)
•
•
•
One of the cases where the court steps in between the parties.
If the penalty is so unconscionable, then the court may temper, reduce, or
delete it.
If penalty clause is so unconscionable that its enforcement would
constitute an undue deprivation or confiscation of property, the courts can
strike it down as invalid.
Art. 1227 – Penalty and Fulfillment
Art. 1230 – Nullity of the Penal Clause
The debtor cannot exempt himself from the performance of the obligation by
paying the penalty, save in the case where this right has been expressly reserved for
him. Neither can the creditor demand the fulfillment of the obligation and the
satisfaction of the penalty at the same time, unless this right has been clearly
granted him. However, if after the creditor has decided to require the fulfillment of
the obligation, the performance thereof should become impossible without his
fault, the penalty may be enforced. (1153a)
The nullity of the penal clause does not carry with it that of the principal obligation.
•
•
•
•
•
The nullity of the principal obligation carries with it that of the penal clause. (1155)
•
•
If the penal clause is null, the original obligation still persists.
If the original obligation is null, the penal clause is null as well.
Penalty is an accessory obligation, not a substitute.
Debtor cannot merely pay the penalty instead of performing the obligation
in order to extinguish the obligation. (as always, however, the parties can
stipulate otherwise)
Creditor cannot demand fulfillment of obligation and payment of penalty
at the same time (unless stipulated)
Penalty may be enforced if, after creditor demands fulfillment, it becomes
impossible without fault of the creditor.
If the creditor requires the obligation to be fulfilled, and performance
becomes impossible without his or her fault, the penalty may be imposed.
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o
Chapter 4: Extinguishment of Obligations
GENERAL PROVISIONS
•
Art. 1231 – Modes of Extinguishment
Obligations are extinguished:
(1) By payment or performance:
(2) By the loss of the thing due:
(3) By the condonation or remission of the debt;
(4) By the confusion or merger of the rights of creditor and debtor;
(5) By compensation;
(6) By novation.
Other causes of extinguishment of obligations, such as annulment, rescission,
fulfillment of a resolutory condition, and prescription, are governed elsewhere in
this Code. (1156a)
•
•
Provides modes by which obligations can be extinguished.
Death does not extinguish an obligation unless such is personal or
intransmissible
•
Art. 1232 – Payment Defined
A debt shall not be understood to have been paid unless the thing or service in
which the obligation consists has been completely delivered or rendered, as the
case may be. (1157)
•
•
•
Payment is not exclusively limited to giving of money
Payment is any manner of performing the obligation with the end in view
of extinguishing it.
Certain presumptions are made in favor of payment
Payment − full satisfaction of the debtƒobligation
o everything that is necessary to satisfy the obligation, consistent
with the object of the same.
Anything less than complete performance may be considered to be a
breach.
Art. 1234 – Substantial Performance in Good Faith
If the obligation has been substantially performed in good faith, the obligor may
recover as though there had been a strict and complete fulfillment, less damages
suffered by the obligee. (n)
•
•
Payment means not only the delivery of money but also the performance, in any
other manner, of an obligation. (n)
•
•
Receipt of principal without reservation as to interest gives rise to
presumption of payment of interest.
o Receipt of a later instalment without reservation as to a prior
installment gives rise to the presumption of payment of the prior
installment.
Burden of proof to show payment, once debt is established, is on the
debtor.
Payment and performance are synonymous.
Art. 1233 - Payment must be Complete
•
SECTION 1. - Payment or Performance
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First Exception − substantial performance
o Generally, anything less than complete = breach
In this case, there is substantial fulfillment − the breach is not material
enough to compel the creditor to rescind.
o Thus, the unperformed part should not destroy the valueƒpurpose
of the contract.
Debtor may recover as if there had been a strict and complete fulfillment,
less damages suffered by creditor.
o Creditor is benefitted by the substantial performance, so the
obligor should be allowed to recover.
o The damages are compensation for the relative breach committed
by obligor.
Pagsibigan v. CA − the debtor, because of high interest rate and several
penalty charges, had effectively paid more than the original amount of the
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loan. − SC ruled that there was substantial compliance. Thus, debtor was
released from his mortgage − “debtor may recover as if…”
Art. 1235 – Creditor Accepts Incompleteness or Irregularity
When the obligee accepts the performance, knowing its incompleteness or
irregularity, and without expressing any protest or objection, the obligation is
deemed fully complied with. (n)
•
•
Second Exception − the creditor waives the damages arising from the
breach of contract resulting in the incompletenessƒirregularity.
He must express his objection, because if not, he accepts the performance
as fully complied with.
Esguerra v. Villanueva
o Debtor said that since creditor received partial payments, he
accepted partial performance and thus the obligation should be
considered complied with
o SC: “receipt” is not equivalent to “acceptance.”
o Mere receipt is not enough to constitute acceptance − in fact,
creditor actually manifested their dissatisfaction
o No particular manner prescribed for the creditor’s objection – so
long as the acts of the creditor at the time of the irregular
payment show that the former is not satisfied.
Tayag v. CA
o Sellers accepted numerous payments in installment after the due
date, without any protest, it was even the buyers (debtors) who
filed a case for performance of the sale − SC held that these acts
were clearly a waiver of the right to rescind
Art. 1236 – Payment by a Third Person
The creditor is not bound to accept payment or performance by a third person who
has no interest in the fulfillment of the obligation, unless there is a stipulation to
the contrary.
Whoever pays for another may demand from the debtor what he has paid, except
that if he paid without the knowledge or against the will of the debtor, he can
recover only insofar as the payment has been beneficial to the debtor. (1158a)
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Art. 1237 – No Subrogation
Whoever pays on behalf of the debtor without the knowledge or against the will of
the latter, cannot compel the creditor to subrogate him in his rights, such as those
arising from a mortgage, guaranty, or penalty. (1159a)
Art. 1238 - Donation
Payment made by a third person who does not intend to be reimbursed by the
debtor is deemed to be a donation, which requires the debtor's consent. But the
payment is in any case valid as to the creditor who has accepted it. (n)
•
•
People whose payment the creditor is bound to accept:
1. The debtor
2. Any person who has an interest in the obligation (ex. Guarantor)
3. A third person uninterested in the obligation, WHEN STlPULATED.
Payment by a 3rd person − several situations may arise. These will
determine whether the third person becomes a creditor as to the original
debtor.
1. Third person pays without knowledge or against the will of the
debtor
o The third person can only recover from the debtor to the
extent that the debtor is benefitted.
o What is beneficial to the debtor is determined by law and not
the will of the debtor.
Ex. A owed B ®500,000 secured by a mortgage.
▪ C pays B without knowledgeƒagainst the will of A.
▪ C can recover the ®500,000, but he does not acquire
the right to the mortgage − he cannot foreclose on the
property.
2. Third person pays with knowledge, but against the will of the
debtor − same as above
3. Third person pays with knowledge and consent of the debtor
o Third person can recover the amount he paid to the creditor.
o He may also compel the creditor to transfer to him any
mortgage, guaranty or penalty
o There is legal subrogation here.
4. Creditor accepts payment from third person, because its
stipulated – same as previous, because obviously the debtor
agrees with such payment.
5. Third person pays creditor without intending to be reimbursed
by the debtor
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Obligation is extinguished, regardless of the debtor’s
consent.
It’s treated as a donation.
Art. 1239 – Payment by an Incapacitated Person
In obligations to give, payment made by one who does not have the free disposal of
the thing due and capacity to alienate it shall not be valid, without prejudice to the
provisions of Article 1427 under the Title on "Natural Obligations." (1160a)
•
•
•
“Free Disposal of the Thing” − the thing must not be subject to any claim
or lien or encumbrance of a third person.
“Capacity to alienate” – person is not incapacitated to enter into contracts
and to make a disposition of the thing due.
Thus, payments by any person not possessing these qualities is invalid.
o Exception: People 17 years old and below who enter into a
contract without the consent of their parentƒguardian, and who
pay voluntarily to fulfill the obligation have no right to recover
from the creditor who has spent it in good faith. (based on Art.
1427 of Civil Code and 234 and 236 of the Family Code)
Art. 1240 – To Whom Payment Should be Made
Payment shall be made to the person in whose favor the obligation has been
constituted, or his successor in interest, or any person authorized to receive it.
(1162a)
•
•
Payment should only be paid to
o The creditor
o His successors in interest
o Any person authorized to receive it.
▪ Authorized by the creditor
▪ Authorized by the law
Payment made to a third person, even if through error and good faith does
not release debtor of obligation to pay. Creditor can still demand payment.
o If it becomes impossible to recover, any loss shall be borne by the
deceived debtor
CROMBONDS 2011-2012
Art. 1241 – Payment to Incapacitated or Third Persons
Payment to a person who is incapacitated to administer his property shall be valid if
he has kept the thing delivered, or insofar as the payment has been beneficial to
him.
Payment made to a third person shall also be valid insofar as it has redounded to
the benefit of the creditor. Such benefit to the creditor need not be proved in the
following cases:
(1) If after the payment, the third person acquires the creditor's rights;
(2) If the creditor ratifies the payment to the third person;
(3) If by the creditor's conduct, the debtor has been led to believe that the third
person had authority to receive the payment. (1163a)
•
•
Effect of payment to an incapacitated person
o not valid, unless such person keeps the thing paid or delivered, or
was benefitted by the payment
Ex. If A gives to B, a minor, 1000 in payment of the debt, and C
loses 700 because of negligence − the payment should be
considered made only to the extent of 300.
▪ If B keeps the money, or spent it on purposes useful to him −
payment shall be valid
Effect of payment to a third person
o Not valid, except insofar as it has redounded to the benefit of the
creditor.
o Thus benefit is not presumed and must be proven by evidence.
o Exceptions − when it need not be proven (S.R.E.)
1. Subrogation − If after the payment, the 3rd person acquires
the creditor’s rights
• A owed B 1000. He does not pay on due date, so B
adds 100 as interest.
• A pays X, a third person, the 1000.
• If B empowers X to collect the P100 interest for himself
(X), then the benefit to the creditor need not be
proven.
2. Ratification by the creditor
3. Estoppel on the part of the creditor
• B tells A that he can pay X the indebtedness.
• B cannot disclaim the payment to X.
•
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3.
Art. 1242 – Payment to Possessor of Credit
Payment made in good faith to any person in possession of the credit shall release
the debtor. (1164)
•
•
Payment made to the creditor by the debtor after the latter has been judicially
ordered to retain the debt shall not be valid. (1165)
•
•
•
A person in possession of the credit is presumed to own the credit.
The examples about “to bearer” checks fall under this article.
Art. 1243 – Judicial Order to Retain the Debt
The debtor is prohibited from paying a creditor if the court prohibits him
from doing so − if he does, such is invalid
The purpose − to protect other creditors of the debtor
When the obligation consists in the delivery of an indeterminate or generic thing,
whose quality and circumstances have not been stated, the creditor cannot demand
a thing of superior quality. Neither can the debtor deliver a thing of inferior quality.
The purpose of the obligation and other circumstances shall be taken into
consideration. (1167a)
•
•
In obligations to do or not to do, an act or forbearance cannot be substituted by
another act or forbearance against the obligee's will. (1166a)
•
Debtor has no choice in the payment except to give what is agreed upon.
o Unless the obligation is facultativeƒalternative.
Art. 1245 – Dation in Payment
Dation in payment, whereby property is alienated to the creditor in satisfaction of a
debt in money, shall be governed by the law of sales. (n)
•
•
Dation in payment / dacion en pago – conveyance of ownership of a thing
as an accepted equivalent or performance.
Ex.
D owes C ®30,000. To fulfill this obligation, D, with consent of C,
delivers a piano.
Requisites of dation in payment: (P.D.A.)
1. The performance of the prestation in lieu of payment
▪ Delivery of a realy thing, or a real right, or a credit
2. There must be some difference between the prestation due and
that given in substitution
There must be an agreement between creditor and debtor that
the obligation is immediately extinguished.
If thing is of less value − for example, the piano
o The debt is extinguished to the extent of the value of the thing.
o Unless the parties agree that the whole obligation is extinguished.
Art. 1246 – Delivery of a Generic Thing
Art. 1244 – Creditor Cannot be Compelled to Receive a Different Thing
The debtor of a thing cannot compel the creditor to receive a different one,
although the latter may be of the same value as, or more valuable than that which
is due.
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Rule of Medium Quality
o Creditor cannot demand the best.
o Debtor cannot give the worst.
What is delivered should be consistent with the purpose and goal of the
obligation.
o Rent a car to be used in a simple wedding
o Creditor cannot demand a Rolls−Royce that debtor cannot afford
o Obligor cannot give a crap Kia Pride that does not brake.
Art. 1247 – Extrajudicial Expenses
Unless it is otherwise stipulated, the extrajudicial expenses required by the
payment shall be for the account of the debtor. With regard to judicial costs, the
Rules of Court shall govern. (1168a)
•
•
Principal behind this is that the creditor usually is the beneficiary of the
obligation
Thus, it is the debtor who does service, and must bear any extra−judicial
costs in his performance.
Art. 1248 – Partial Receipt and Payment
Unless there is an express stipulation to that effect, the creditor cannot be
compelled partially to receive the prestations in which the obligation consists.
Neither may the debtor be required to make partial payments.
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However, when the debt is in part liquidated and in part unliquidated, the creditor
may demand and the debtor may effect the payment of the former without waiting
for the liquidation of the latter. (1169a)
•
•
•
This contemplates obligations where there is only one creditor and only
one debtor.
General rule − payment must be in full in order to extinguish an obligation.
o Creditor may accept partial performance, but he may not be
compelled to.
o Debtor should fulfill the obligation, but he cannot be required to
make partial payments.
When is partial performance allowed:
1. Express stipulation in the obligation
2. Debt is part liquidated (computed) and in part unliquidated
Ex. The obligation is to deliver ®1,000, and whatever debtor gets
from his father’s estate.
▪ He can give the ®1,000 first without waiting for the
determination of his inheritance.
3. If creditor accept such payment and benefits from it
4. When the different prestations in which the obligation consists
are subject to different terms or conditions which affect some of
them.
Ex. Obligation to pay debt in installments
▪ Prestations (each installment) need not be given
simultaneously.
Art. 1249 – Currency and Legal Tender
The payment of debts in money shall be made in the currency stipulated, and if it is
not possible to deliver such currency, then in the currency which is legal tender in
the Philippines.
The delivery of promissory notes payable to order, or bills of exchange or other
mercantile documents shall produce the effect of payment only when they have
been cashed, or when through the fault of the creditor they have been impaired.
In the meantime, the action derived from the original obligation shall be held in the
abeyance. (1170)
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•
•
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Legal Tender − that currency which a debtor can legally compel a creditor
to accept in payment of a debt in money when tendered by debtor in the
right amount.
o Debts in money shall be paid in the currency stipulated.
o If impossible to deliver such currency, or in the absence of
stipulation, the default is that payment shall be made in the
currency which is legal tender in the Philippines. (all coins and
notes issued by the Bangko Sentral ng Pilipinas)
Payment by means of instruments of credits − do not extinguish the
obligation until:
o They have been cashed.
o They have been impaired through the fault of the creditor.
▪ Applicable only to instruments executed by 3rd persons and
delivered by debtor to creditor
▪ Does not apply to instruments executed by debtor himself and
delivered to creditor
Bill of exchange – unconditional order in writing addressed by one person
to another, signed by the person giving it, requiring the addresee to pay on
demand a sum certain in money to the bearer.
o A check is a bill of exchange addressed to the bank, payable on
demand.
▪ If payment is tendered by way of check, and the obligee
accepts, such obligee is estopped from questioning the efficacy
of such tender
Art. 1250 – Inflation or Deflation
In case an extraordinary inflation or deflation of the currency stipulated should
supervene, the value of the currency at the time of the establishment of the
obligation shall be the basis of payment, unless there is an agreement to the
contrary. (n)
•
Extraodrinary Inflation − a decrease or increase in the purchasing power of
the Philippine currency which is unusual or beyond the common
fluctuation of the value of the said currency, and such decrease or increase
could not have been foreseen, or was beyond contemplation of the
parties.
o Cannot be applied without an official declaration from competent
authorities.
o Applies only to cases where a contractƒagreement is involved.
o Does not apply when obligation to pay is derived from law.
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OBLIGATIONS AND CONTRACTS REVIEWER
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Art. 1251 – Place of Payment
Payment shall be made in the place designated in the obligation.
•
•
There being no express stipulation and if the undertaking is to deliver a determinate
thing, the payment shall be made wherever the thing might be at the moment the
obligation was constituted.
•
In any other case the place of payment shall be the domicile of the debtor.
•
If the debtor changes his domicile in bad faith or after he has incurred in delay, the
additional expenses shall be borne by him.
These provisions are without prejudice to venue under the Rules of Court. (1171a)
•
Provides where to pay in order to ensure certainty in payment.
1. If there is a stipulated place, then it shall be made there.
2. If there is no stipulation, and the thing is determinate, payment
shall be made where the thing was at the time of the perfection of
the contract
3. No stipulation, generic thing − domicile of the debtor
▪ Domicile – a person’s place of habitual residence; true fixed
permanent home; he has the intention of returning
▪ Costs shall be borne by by the creditor in going to the domicile,
unless such has been changed in bad faith, or unless debtor is in
delay
SUBSECTION 1. - Application of Payments
CROMBONDS 2011-2012
These apply to a person who has several debts of the same kind to a single
creditor.
When a person pays, he is given the choice to which debt the payment is
applied.
The payments must still conform to the rules given in the previous articles
o Creditor can refuse if the payment is applied to a debt that would
only be partially fulfilled
Application of payments cannot be made on debts which are not yet due.
1. Unless parties agree
2. Payment is made by the party for whose benefit the term has
been constituted
Ex.
A owes B ®1,000 pesos, and such debt will not incur
interest before a certain date, the term is constituted for
the debtor’s benefit.
3. If the debtor receives and accepts a receipt for the application he
cannot complain about where it was applied.
Art. 1253 - Interest
If the debt produces interest, payment of the principal shall not be deemed to have
been made until the interests have been covered. (1173)
•
•
•
•
This is only directory and not mandatory.
Payment of both interest and principal − two payments by the debtor.
This article is why the presumption of payment of interest arises when the
principal is received by the creditor.
Right to apply payment to interest first can be waived.
Art. 1254 – Most Onerous Debt
Art. 1252 – Application of Payments
He who has various debts of the same kind in favor of one and the same creditor,
may declare at the time of making the payment, to which of them the same must
be applied. Unless the parties so stipulate, or when the application of payment is
made by the party for whose benefit the term has been constituted, application
shall not be made as to debts which are not yet due.
If the debtor accepts from the creditor a receipt in which an application of the
payment is made, the former cannot complain of the same, unless there is a cause
for invalidating the contract. (1172a)
When the payment cannot be applied in accordance with the preceding rules, or if
application cannot be inferred from other circumstances, the debt which is most
onerous to the debtor, among those due, shall be deemed to have been satisfied.
If the debts due are of the same nature and burden, the payment shall be applied to
all of them proportionately. (1174a)
•
If there is no indication as to which debt the payment goes to − it goes to
the most onerous, provided it is due.
o “Onerous” − indebtedness which exacts the heaviest burden
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OBLIGATIONS AND CONTRACTS REVIEWER
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ATTY. MEL STA. MARIA
Ex. A debt with interest is more onerous than one without
interest.
Same nature and burden − there is no “most onerous”
o Payment shall be applied to all proportionally.
Ex. A owes B three debts totalling ®30,000, and he gives ®9,000
without saying where it will go.
▪ Each debt will be reduced by ®3,000.
Ex. A owes B ®10,000, 20K, and ®30,000. He pays ®6,000 − the
proportion is 1:2:3.
▪ ®1,000 applied to the ®10,000 debt, ®2,000 to the ®20,000, and
®3,000 to the ®30,000.
SUBSECTION 2. - Payment by Cession
•
CROMBONDS 2011-2012
Effect of Cession
o Unless otherwise stipulated, creditors do now become owners.
o Debtor is only released up to the net proceeds of the sale.
▪ If his properties, when sold, don’t raise enough money, he still
has a debt to pay
SUBSECTION 3. - Tender of Payment and Consignation
Art. 1256 – Tender of Payment and Consignment
If the creditor to whom tender of payment has been made refuses without just
cause to accept it, the debtor shall be released from responsibility by the
consignation of the thing or sum due.
Consignation alone shall produce the same effect in the following cases:
Art. 1255 - Cession
The debtor may cede or assign his property to his creditors in payment of his debts.
This cession, unless there is stipulation to the contrary, shall only release the debtor
from responsibility for the net proceeds of the thing assigned. The agreements
which, on the effect of the cession, are made between the debtor and his creditors
shall be governed by special laws. (1175a)
•
•
Payment by Cession
o Special form of payment
o Assignmentƒabandonment of all the properties of the debtor for
the benefit of his creditors.
▪ Only the properties which are susceptible and not exempted by
law from being alienated (example family home)
o Such that the latter may sell the same and apply the proceeds to
the satisfaction of their credits
▪ Only the proceeds − no right of creditors as to ownership of the
properties ceded.
Requisites of Cession
1. Two or more creditors
2. Debtor (partially) insolvent
3. Cession must be accepted by creditors
▪ Creditors must agree which debt will be paid first, or the
proportioning.
(1) When the creditor is absent or unknown, or does not appear at the place of
payment;
(2) When he is incapacitated to receive the payment at the time it is due;
(3) When, without just cause, he refuses to give a receipt;
(4) When two or more persons claim the same right to collect;
(5) When the title of the obligation has been lost. (1176a)
Art. 1257 - Announcement
In order that the consignation of the thing due may release the obligor, it must first
be announced to the persons interested in the fulfillment of the obligation.
The consignation shall be ineffectual if it is not made strictly in consonance with the
provisions which regulate payment. (1177)
Art. 1258 – Consignation Process
Consignation shall be made by depositing the things due at the disposal of judicial
authority, before whom the tender of payment shall be proved, in a proper case,
and the announcement of the consignation in other cases.
The consignation having been made, the interested parties shall also be notified
thereof. (1178)
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OBLIGATIONS AND CONTRACTS REVIEWER
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•
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ATTY. MEL STA. MARIA
Tender of payment
o Act on the part of the debtor
o Offering to the creditor the thing or the amount due
o Debtor must show that he has the thingƒmoney in his possession
o Must be made in lawful currency
o Extrajudicial
o Requisites for valid tender of payment
1. Must comply with the rules on payment (Arts 1256−1258)
2. Must be unconditional and for the whole amount
3. It must actually be made
Consignation
o Act of depositing the thing or amount due with the proper court
o When the creditor does not desire or cannot receiev it
o Consignation is judicial − generally requires a prior tender of
payment
o Requisites of a valid consignation − in order that debtor may be
released (V.T.R.P.A.S.)
1. Existence of a valid debt, which is due
2. Tender of payment by debtor
3. Refusal without justifiable reason by creditor
4. Previous notice of consignation to persons interested in
the fulfillment of the obligation
5. Actual consignation of the thingƒsum dueƒthe amount is
placed at the disposal of the court
6. Subsequent notice to interested parties
When consignation produce the same effect (Ex. even without tender of
payment) − five cases (A.I.G.T.T.)
1. Creditor is absentƒunknownƒdoes not appear at the place of
payment
2. Creditor is incapacitated to receive payment at the time it is due.
3. Creditor refuses without just cause to give a receipt.
4. Two or more persons claim the same right to collect
5. Title of the obligation has been lost
Art. 1259 – Expenses Borne by the Creditor
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o
•
Expenses are chargeable to the debtor if the consignation is not
properly made.
Proper consignation:
1. When creditor accepts the thing or sum deposited, without
objection, as payment of the obligation
2. When creditor questions the validity of consignation, and court
deems it valid
3. When creditor neither accepts or questions validity, and court
orders cancellation of the obligation
Art. 1260 – Judicial Declaration
Once the consignation has been duly made, the debtor may ask the judge to order
the cancellation of the obligation.
Before the creditor has accepted the consignation, or before a judicial declaration
that the consignation has been properly made, the debtor may withdraw the thing
or the sum deposited, allowing the obligation to remain in force. (1180)
•
•
•
•
Once consignation is deemed proper, debtor should be released from the
obligation
o Court order to that effect
o Court orders creditor to accept the moneyƒthing
Consignation is retroactive.
o Payment deemed to have been made at the time of the deposit of
the moneyƒwhen the thing was placed at the disposal of the court
Creditor may accept either unconditionally or with reservation.
o Reservation does not completely extinguish obligation.
Withdrawal of thing/sum by debtor − debtor may withdraw the thing or
sum deposited.
o Before creditor has accepted the consignation
o Before a judicial declaration that the consignation has been
properly made
o This is because he is still the owner of the thing
o Obligation shall continue to remain in force
o Expenses paid by debtor
The expenses of consignation, when properly made, shall be charged against the
creditor. (1178)
•
Creditor is responsible because it is his fault that consignation was
necessary − his refusal to accept payment.
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OBLIGATIONS AND CONTRACTS REVIEWER
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Art. 1261 – Creditor Authorizes Debtor to Withdraw
o
o
o
If, the consignation having been made, the creditor should authorize the debtor to
withdraw the same, he shall lose every preference which he may have over the
thing. The co−debtors, guarantors and sureties shall be released. (1181a)
•
Contemplates a situation where there has already been a finding by the
court that the consignation is valid.
o ln this case, it is incumbent on the creditor to obtain from the
court the thing deposited.
o However, if the debtor withdraws the thing, with the creditor’s
consent − nothing to retrieve
▪ Essentially reviving the indebtedness
▪ However, the creditor loses any preference to the thing
deposited − anyone can now go after it
CROMBONDS 2011-2012
Ex. If he is in delay
When stipulated by parties
When nature of obligation requires the assumption of risk
When obligation to deliver a specific thing arises from a crime
Art. 1263 – Loss of a Generic Thing
In an obligation to deliver a generic thing, the loss or destruction of anything of the
same kind does not extinguish the obligation. (n)
•
Generic thing cannot really be lost unless the whole class of the said thing
is destroyed − hence, obligation persists.
Art. 1264 – Partial Loss
SECTION 2. - Loss of the Thing Due
The courts shall determine whether, under the circumstances, the partial loss of the
object of the obligation is so important as to extinguish the obligation. (n)
Art. 1262 - Loss
•
An obligation which consists in the delivery of a determinate thing shall be
extinguished if it should be lost or destroyed without the fault of the debtor, and
before he has incurred in delay.
•
When by law or stipulation, the obligor is liable even for fortuitous events, the loss
of the thing does not extinguish the obligation, and he shall be responsible for
damages. The same rule applies when the nature of the obligation requires the
assumption of risk. (1182a)
•
•
•
•
When a thing is considered lost
o When it perishes
o Goes out of commerce
o Disappears in a way such that its existence is unknown or it
cannot be recovered
When does loss of a thing extinguish an obligation to give
o Obligation is to deliver a specific or determinate thing
o Loss of the thing occurs without fault of the debtor
o Debtor is not guilty of delay
When does loss NOT extinguish?
o When law so provides
Partial Loss − the courts may consider it as a complete loss which
extinguishes the obligation.
This happens if the loss is so important that it affects the whole object of
the obligation.
Ex. Obligation to give a specific computer with a specialized
keyboard and monitor, such that the parts are dependent on each
other.
▪ Loss of the keyboard, though only partial, renders the whole
thing useless.
Debtor may go to court and declare that this partial loss has extinguished
the obligation.
Art. 1265 – Loss of Thing in the Possession of the Debtor
Whenever the thing is lost in the possession of the debtor, it shall be presumed that
the loss was due to his fault, unless there is proof to the contrary, and without
prejudice to the provisions of article 1165. This presumption does not apply in case
of earthquake, flood, storm, or other natural calamity. (1183a)
•
If debtor is not in possession of the thing when it is lost, the presumption
does not arise.
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OBLIGATIONS AND CONTRACTS REVIEWER
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ATTY. MEL STA. MARIA
Debtor must prove that he is not at fault, or that loss was because of a
fortuitous event.
Presumption does not apply in case of natural calamities.
•
CROMBONDS 2011-2012
Requisites of Rebus Sic Stantibus
1. Prestation has become so difficult to render
2. Service has become manifestly beyond contemplation of the
parties
Art. 1266 – Legal or Physical Impossibility
The debtor in obligations to do shall also be released when the prestation becomes
legally or physically impossible without the fault of the obligor. (1184a)
•
•
•
This involves obligations “to do.”
o Without debtor’s fault, obligation becomes legally or physically
impossible
Effect of impossibility of performance
o lmpossibility extinguishes the obligation
o This impossibility must take place after the constitution of the
obligation
Kinds of Impossibility
1. Physical Impossibility – in purely personal obligations (obligations
where personal qualifications are involved) death or physical
incapacity results in physical impossibility
Ex. A is obliged to paint B’s house. Two days later, A is
attacked by a shark and loses both his arms. He is thus
released.
2. Legal Impossibility − Obligation cannot be performed because it is
rendered impossible by provision of law
Art. 1268 – Proceeds from a Criminal Offense
When the debt of a thing certain and determinate proceeds from a criminal
offense, the debtor shall not be exempted from the payment of its price, whatever
may be the cause for the loss, unless the thing having been offered by him to the
person who should receive it, the latter refused without justification to accept it.
(1185)
•
•
Another instance where a fortuitous event does not extinguish the
obligation
Ex . A stole a watch from B, and was charged for it. If the watch is
lost through a fortuitous event, A must still pay the price of the
watch.
EXCEPTION − if the creditor refuses to accept the thing when offered to
him by the debtor
Art. 1269 – Creditor’s Right of Action
The obligation having been extinguished by the loss of the thing, the creditor shall
have all the rights of action which the debtor may have against third persons by
reason of the loss. (1186)
Art. 1267 – Difficult Beyond Contemplation
When the service has become so difficult as to be manifestly beyond the
contemplation of the parties, the obligor may also be released therefrom, in whole
or in part. (n)
•
•
•
•
Difficulty alone does not excuse the debtor.
What must happen is that the service is so difficult as to be manifestly
beyond the contemplation of the parties.
This is the principal of rebus sic stantibus
o Where the parties stipulate in the light of certain conditions
o When these conditions cease to exist, the contract also ceases to
exist
This is one case where the court can enter into a contract and judge
whether it’s the performance is still within what the parties contemplated
•
•
Designed to protect interests of the creditor
He is given right to proceed against a third person responsible for the loss
Ex. A is obliged to give B a specific horse. The horse is lost through
the fault of C. A’s obligation is extinguished, but B is allowed to
go after C to recover the price of the horse, with damages.
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OBLIGATIONS AND CONTRACTS REVIEWER
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SECTION 3. - Condonation or Remission of the Debt
•
Art. 1270 – Condonation Defined
Condonation or remission is essentially gratuitous, and requires the acceptance by
the obligor. It may be made expressly or impliedly.
One and the other kind shall be subject to the rules which govern inofficious
donations. Express condonation shall, furthermore, comply with the forms of
donation. (1187)
•
•
•
•
•
Condonation : an act of liberality
Creditor decides not to enforce the debtor’s prestation
o ln effect, a donation of the obligee’s credit in favor of the debtor
lt requires the impliedƒexpress consent of the debtor
Governed by the rules of lnofficious donation
o lnofficious − the amount remitted encroaches on the
legitimeƒsuccessional rights of the heirs of the condoning creditor
o Ex. Creditor condones debt worth 50K
o Creditor gives birth to a child, when her properties are only worth
®10,000 (thus, with remitted debt, the overall estate is 60K)
o Child has ½ of this as his legitime. Hence, free portion is only
®30,000. The remission will only be ®30,000.
Other rules on donation are provided in the Civil Code
Art. 1271 – Delivery of a Credit to the Debtor
The delivery of a private document evidencing a credit, made voluntarily by the
creditor to the debtor, implies the renunciation of the action which the former had
against the latter.
If in order to nullify this waiver it should be claimed to be inofficious, the debtor
and his heirs may uphold it by proving that the delivery of the document was made
in virtue of payment of the debt. (1188)
•
This article creates a presumption : If a private document evidencing credit
is given by the creditor to the debtor, it implies that he is condoning the
debt.
CROMBONDS 2011-2012
Ex. Promissory note − if the creditor gives the debtor his
promissory note, it implies that he is no longer interested in
the debt.
This waiver can be nullified by showing that it is inofficious.
o What the debtor can do is show that the delivery of the document
was made because of payment, and not because of remission.
Art. 1272 – Presumption when Credit is in the Possession of the Debtor
Whenever the private document in which the debt appears is found in the
possession of the debtor, it shall be presumed that the creditor delivered it
voluntarily, unless the contrary is proved. (1189)
•
•
If the debtor has the document and it is not known where he got it, the
presumption is that it was voluntarily given by the creditor
“It is believed” that presumption of voluntary delivery  presumption of
payment, not remission. Only when it is known that there is no payment
should there be a presumption of remission.
Art. 1273 – Extinguishment of Accessory Obligations
The renunciation of the principal debt shall extinguish the accessory obligations; but
the waiver of the latter shall leave the former in force. (1190)
•
•
•
Accessory follows the principal − existence of the accessory obligation
depends on the existence of the principal obligation.
When principal is waived, the accessory is waived as well.
But when accessory is waived, principal remains in force.
Art. 1274 – Accessory Obligation of Pledge
It is presumed that the accessory obligation of pledge has been remitted when the
thing pledged, after its delivery to the creditor, is found in the possession of the
debtor, or of a third person who owns the thing. (1191a)
•
Pledge − a contract where the debtor gives to the creditor or a third
person a movable or instrument evidencing incorporeal rights in order to
secure the fulfillment of a principal obligation, such that when the
obligation is fulfilled, the thing delivered shall be returned with all its fruits
and accessories.
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OBLIGATIONS AND CONTRACTS REVIEWER
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ATTY. MEL STA. MARIA
If the thing pledged is found in the possession of the debtor, then there is a
presumption that the obligation has been remitted.
SECTION 4. - Confusion or Merger of Rights
•
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▪ There is merger in persons of X and C.
▪ Obligation is extinguished as to the ®1,000 share of C, but not
to the rest.
▪ A and B still owe ®1,000 each.
If solidary − merger in C and X extinguishes the obligation.
o If A pays the ®3,000 to X before the merger, A can collect from X
and B their respective shares in the indebtedness (®1,000 each)
Art. 1275 – When Obligation is Extinguished
The obligation is extinguished from the time the characters of creditor and debtor
are merged in the same person. (1192a)
•
Ex. A son owes his father ®10,000, and his father dies, leaving,
among others, ®10,000 owed by the son to his dad. In this
case, there is a merger.
Chittick v. CA − wife filed a complaint against her father for support in
arrears. She died, and her children continued the case. The father died. SC
held that since the children are also heirs of their grandfather, the
obligation had been extinguished.
SECTION 5. – Compensation
Art. 1278 – Compensation Defined
Compensation shall take place when two persons, in their own right, are creditors
and debtors of each other. (1195)
•
Art. 1276 – Effect on Guarantors
Merger which takes place in the person of the principal debtor or creditor benefits
the guarantors. Confusion which takes place in the person of any of the latter does
not extinguish the obligation. (1193)
•
•
Indebtedness guaranteed by a third person is also extinguished if there is
confusionƒmerger.
Thus, guarantor is benefitted because the accessory obligation of the
guarantee is extinguished.
o Merger of persons of guarantor and creditor only extinguishes
accessory obligation, not the whole thing.
o Merger of debtor and guarantor only extinguishes the accessory.
Art. 1277 – Confusion in Joint Obligations
Confusion does not extinguish a joint obligation except as regards the share
corresponding to the creditor or debtor in whom the two characters concur. (1194)
•
Joint debtors owe only their share, and creditors can only collect from each
debtor his respective share.
Ex. A, B, and C owe X ®3,000.
•
Compensation − extinguishment to the concurrent amount of the debts of
two persons, who, in their own right, are debtors and creditors of each
other.
o The simultaneous balancing of 2 obligations in order to extinguish
them to the extent in which the amount of one is covered by that
of the other.
Kinds of compensation
a.
As to effectƒextent
1. Total − both obligations are of the same amount, and
thus are entirely extinguished.
2. Partial – two obligations are of different amounts and a
balance remains. (partial only as to the larger debt)
b.
As to causeƒorigin
1. Legal − takes place by operation of law, even without
knowledge of the parties
2. Voluntary/Conventional − takes place by agreement of
the parties
3. Judicial − takes place by order from a court in litigation
4. Facultative − can be set up by only one of the parties
Art. 1279 – Requisites of Compensation
In order that compensation may be proper, it is necessary:
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OBLIGATIONS AND CONTRACTS REVIEWER
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Ex. A owes B ®1,000, due on Jan 1. B owes A ®1,000, due on Jan. 21.
▪ Third person C filed suit against A, and was able to obtain a
resolution garnishing all money and credits of A (including the
indebtedness of B in A’s favor).
▪ If B only found out about the garnishment on Feb. 1, then
compensation would have set in already, and C cannot make
use of these credits to satisfy A’s debt to C.
▪ If B found out about the garnishment on Jan 15, then no
compensation sets in.
(1) That each one of the obligors be bound principally, and that he be at the same
time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are consumable,
they be of the same kind, and also of the same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by
third persons and communicated in due time to the debtor. (1196)
Requisites of Compensation:
1.
2.
3.
4.
5.
Mutual principal creditors and debtors − each one of the obligors is bound
principally, and that each of them be at the same time a principal creditor
of the other.
Both in money, or same kind − both debts consist in a sum of money, or if
the things due are consumable, they be of the same kind, and also of the
same quality.
o Consumable − “fungible”; susceptible of substitution
o Ong v. Court of Appeals − no compensation could take place
because one party owed money, and the other owed zippers.
Both debts are due
o Debts need not be contracted at the same time
o Parties, however, can agree that compensation can be made even
if debts are not yet due.
o PNB Madecor v. Uy − one of the debts was payable upon demand,
and no demand was made. There is no compensation, because
the debts were not yet due.
Liquidated and demandable
o Debts must be determined and certain.
o Compensation cannot take place where one of the debts is not
liquidated.
o Compania Maritima v. CA − since legal interest was still accruing
on the debt, it was not liquidated. Thus, no compensation
o Miailhe v. Halili − no compensation because a certain amount was
still under litigation, and thus, not being liquidated and certain.
No controversy from third persons − Over neither of them be any
retention or controversy commenced by third persons and communicated
in due time to the debtor.
o “Due Time” − period before legal compensation was supposed to
take place
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Art. 1280 – Set-up by Guarantor
Notwithstanding the provisions of the preceding article, the guarantor may set up
compensation as regards what the creditor may owe the principal debtor. (1197)
•
•
•
Guarantor − a person who promises to pay the creditor in case the
principal debtor cannot pay the indebtedness.
Before a creditor can go after the guarantor, he must exhaust all possible
ways to collect debt from principal debtor.
o Unless guarantor is bound solidarily.
A possible defense of a guarantor is that compensation had set in between
the creditor and the principal debtor.
o This is the case when the guarantor “sets up” compensation
between the two parties.
Art. 1281 – Total or Partial Compensation
Compensation may be total or partial. When the two debts are of the same
amount, there is a total compensation. (n)
•
•
Total Compensation − when both debts are equal, and both are
extinguished.
Partial Compensation − one of the debts is bigger; the smaller debt is
deducted from the bigger debt.
Ex.
A owes B 2000. B owes A ®1,500. A will still owe B ®500.
Art. 1282 – Debts Not Due
The parties may agree upon the compensation of debts which are not yet due. (n)
•
This is an exception to the general rule that debts should be due for
compensation to set in.
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OBLIGATIONS AND CONTRACTS REVIEWER
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ATTY. MEL STA. MARIA
An example of contractual compensation.
Art. 1283 – Judicial Set-off
If one of the parties to a suit over an obligation has a claim for damages against the
other, the former may set it off by proving his right to said damages and the
amount thereof. (n)
•
•
•
Contemplates a situation of a judicial set−off.
Essentially, compensation when it comes to damages.
Ex. A files a collection case against B for ®1,000. B can file a
counterclaim for ®1,000, claiming damages arising from the same
transaction
▪ B requests the court to off-set the damages.
▪ If court agrees, there can be compensation.
Ong v. CA − amount of damages must be duly proven in order for judicial
set−off to apply.
If the assignment is made without the knowledge of the debtor, he may set up the
compensation of all credits prior to the same and also later ones until he had
knowledge of the assignment. (1198a)
Situations when a creditor gives his credit to a third person:
1.
2.
Art. 1284 – Compensation of Voidable Debts before Voided
When one or both debts are rescissible or voidable, they may be compensated
against each other before they are judicially rescinded or avoided. (n)
•
•
These are valid until voided.
Thus, if all requisites to a valid compensation are present before contract is
voided, then compensation can take place.
Art. 1285 – Assignment of the Creditor’s Rights to a Third Person
The debtor who has consented to the assignment of rights made by a creditor in
favor of a third person, cannot set up against the assignee the compensation which
would pertain to him against the assignor, unless the assignor was notified by the
debtor at the time he gave his consent, that he reserved his right to the
compensation.
If the creditor communicated the cession to him but the debtor did not consent
thereto, the latter may set up the compensation of debts previous to the cession,
but not of subsequent ones.
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3.
Debtor has consented to the assignment of rights to a third person cannot set up compensation against the assignee, which would pertain to
the debtor against the original creditor.
o Exception: when debtor reserves this right.
Ex. A owes B ®1,000, due on Jan 1. B owes A ®1,000 due on Feb 2.
▪ On Jan 3, B assignes his credit to C, with consent of A, and without
reservation as to right of compensation against B.
▪ C demands payment from A on Feb 5, and A cannot claim that the
debts have been extinguished because of compensation
▪ If A told B that he was reserving his right to compensation, he can
validly invoke that the debts had been extinguished.
Debtor did not consent to the assignment of rights – debtor can set up
compensation of debts prior to the cession, but not of subsequent ones.
Ex. A has two debts to B.
Debt 1 is due on Jan 1. Debt 2 is due on Feb 1.
▪ B owes A in the same amounts. Debt 1 is due on March 1. Debt 2
is due on March 3.
▪ On March 2, B gives all his credits to C. A does not consent.
▪ A can say that Debt 1 is extinguished due to compensation,
because they became due before the cession.
▪ He cannot say that Debt 2 has been extinguished, because it
became due after the cession.
Assignment is made without the knowledge of the debtor
o Debtor can claim compensation for debts prior to the cession
o Debtor can claim compensation for debts after the cession, as
long as he has no knowledge of the cession.
o When he finds out, he can no longer claim compensation for
debts coming after that point.
Art. 1286 – Different Places
Compensation takes place by operation of law, even though the debts may be
payable at different places, but there shall be an indemnity for expenses of
exchange or transportation to the place of payment. (1199a)
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OBLIGATIONS AND CONTRACTS REVIEWER
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•
•
ATTY. MEL STA. MARIA
Once all requisites are present, compensation takes place by operation of
law (legal compensation).
Parties need not notify each other that they want to have their debts
compensated.
The indemnity for transportation in this article only applies in a case of
partial compensation.
Ex. A owes B ®1,000, due in CBTL Rockwell. B owes A ®500, due in
CBTL Katipunan.
▪ If B has to commute to Rockwell to receive the balance of ®500,
he should be reimbursed by A, the debtor.
▪ Art. 1247 − extrajudicial expenses to be borne by debtor
Ex.
3.
4.
Art. 1287 – No Compensation
Compensation shall not be proper when one of the debts arises from a depositum
or from the obligations of a depositary or of a bailee in commodatum.
Neither can compensation be set up against a creditor who has a claim for support
due by gratuitous title, without prejudice to the provisions of paragraph 2 of Article
301. (1200a)
Art. 1288 – Civil Liability
Neither shall there be compensation if one of the debts consists in civil liability
arising from a penal offense. (n)
4 Cases where Legal Compensation is not allowed:
1.
2.
Depositum, or from the obligations of a depository
• Deposit − constituted from the moment a person receives a thing
belonging to another with the obligation of safely keeping it and
returning it.
Ex.
A owes B ®1,000. Previously, A deposited with B for
safekeeping ®1,000.
▪ There is no compensation, because B’s obligation to give A the
®1000 arises from the obligations of a depository.
Bailee in Commodatum
• A bailee in commodatum acquires the use of the thing loaned, but
not its fruits.
• Bailee cannot retain the thing loaned just because the bailor (true
owner of the thing) owes him something
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If B borrows the PS3 of A, he cannot refuse to return it on
the ground that A owes him something.
Duty to support
• Compensation cannot arise if the other obligation is of support
• A father cannot refuse to support his son on the ground that the
son owes him money
• “Without prejudice to the provisions” − refers to the fact that
support in arrears can be compensated.
▪ of doubtful application, because the Family Code has deleted
the provision mentioned.
Civil liability arising from a penal offense
Ex.
A owes B 1000. B stole the ring of D worth 1000.
▪ B cannot claim compensation
▪ But A, the offended party, can claim compensation
▪ Prohibition only applies to the accused
Art. 1289 – Several Debts
If a person should have against him several debts which are susceptible of
compensation, the rules on the application of payments shall apply to the order of
the compensation. (1201)
•
See Arts 1252−1254.
Art. 1290 – By Operation of Law
When all the requisites mentioned in Article 1279 are present, compensation takes
effect by operation of law, and extinguishes both debts to the concurrent amount,
even though the creditors and debtors are not aware of the compensation. (1202a)
•
•
Compensation takes place by mere operation of law
o From the moment all requisites concur, compensation takes place
automatically.
o Even without the agreement of parties.
o Retroactive − from the day the requisites concurred.
Full legal capacity − not required
o Because of the fact that it takes place by operation of law.
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SECTION 6. - Novation
Art. 1292 – Express and Implied Novation
Art. 1291 – Kinds of Novation
In order that an obligation may be extinguished by another which substitute the
same, it is imperative that it be so declared in unequivocal terms, or that the old
and the new obligations be on every point incompatible with each other. (1204)
Obligations may be modified by:
(1) Changing their object or principal conditions;
(2) Substituting the person of the debtor;
(3) Subrogating a third person in the rights of the creditor. (1203)
•
•
Novation − extinction of an obligation through the creation of a new one
which substitutes it.
o The Civil Code refers to extinctive novation and not modificatory
novation.
Kinds of Novation:
a.
According to Origin
1. Legal − takes place by operation of law.
2. Conventional − takes place by agreement of the parties.
b.
According to how Constituted
1. Express − declared in unequivocal terms.
2. Implied − old and new obligation are essentially incompatible
with each other.
c.
According to Extent or Effect
1. Total/Extinctive − old obligation is completely extinguished.
2. Partial/Modificatory − old obligation is merely modified.
d.
According to Subject
1. Real or Objective − the objective, cause, or principal conditions
of the obligation are changed.
• Ajax v. CA − to effect an objective novation, there must
be express declaration that old obligation is
extinguished, or that the new obligation be on every
point incompatible with the new one.
2. Personal or Subjective − when the person of the debtor is
substitutedƒthird person is subrogated in rights of the creditor
•
Ibid − To effect a subjective novation in the person of
the debtor, it is necessary that old debtor be expressly
released from the obligation.
3. Mixed – a combination of real and personal novation.
•
•
•
Requisites of Novation: (V.E.I.N.)
1. A previous valid obligation
2. Capacity and intention of parties to modifyƒextinguish the
obligation
3. ModificationƒExtinguishment
4. Creation of a new valid obligation
All parties must consent or be made parties to the new contract.
Novation is never presumed. 2 indications of the presence of novation:
1. Novation is explicitly stated and declared in unequivocal terms.
2. Old and new obligations are incompatible on every point.
▪ Test – whether or not the two obligations can stand together,
each one having its independent existence.
▪ If they cannot, then they are incompatible and the latter
novates the first one.
Art. 1293 – Substituting a New Debtor
Novation which consists in substituting a new debtor in the place of the original
one, may be made even without the knowledge or against the will of the latter, but
not without the consent of the creditor. Payment by the new debtor gives him the
rights mentioned in Articles 1236 and 1237. (1205a)
•
•
Substituting a new debtor may be made without the knowledge and
consent of the original debtor.
Creditor must always consent and have knowledge of the replacement.
Art. 1294 – Insolvency of the New Debtor in Expromision
If the substitution is without the knowledge or against the will of the debtor, the
new debtor's insolvency or non−fulfillment of the obligations shall not give rise to
any liability on the part of the original debtor. (n)
•
•
•
Substitution − person of the debtor is substituted.
Subrogation − a third person is subrogated in the rights of the creditor.
Kinds of Personal Novation
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OBLIGATIONS AND CONTRACTS REVIEWER
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1.
•
Expromision − a third person of his own initiative and without
knowledge or against the will of the original debtor assumes the
latter’s obligation with consent of creditor
o Creditor must consent.
o Right of new debtor who pays − right to beneficial
reimbursement (Art. 1236)
o Insolvency of new debtor shall not give rise to an action
against the old debtor
Ex. A owes B ®1,000. Without knowledge or consent of
A, C commits to pay B.
▪ Novation occurs only if B agrees to release A
from his obligation.
▪ Thus, if C only pays B partially, B cannot go after
A anymore.
▪ C can go after A for reimbursement to the
extent C was benefited.
2. Delegacion – creditor accepts a third person to take the place of the
debtor, at the suggestion of the latter.
o Creditor must consent
o Right of new debtor who pays − reimbursement and
subrogation (Art. 1237)
Bangayan v. CA − assignment of a lease contract by the lessee needs
consent of lessor, because assignment involves transfer of obligations. It
constitutes novation by substitution.
Art. 1295 - Insolvency of the New Debtor in Delegacion
The insolvency of the new debtor, who has been proposed by the original debtor
and accepted by the creditor, shall not revive the action of the latter against the
original obligor, except when said insolvency was already existing and of public
knowledge, or known to the debtor, when the delegated his debt. (1206a)
•
•
General Rule − in delegacion, when accepted by the creditor, the original
debtor’s obligation is completely extinguished. Thus, creditor cannot go
after old debtor in case of insolvency of the new debtor
Exceptions:
1. Insolvency of new debtor has already been existing and of public
knowledge when the old debtor delegated the debt.
2. Insolvency of the new debtor is known to the old debtor when he
delegates the debt.
•
•
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In both cases, the creditor must not have knowledge of such insolvency.
o If he has knowledge, he cannot claim the benefits of these
exceptions.
In both cases, the insolvency must have existed at the time of the
delegation.
Art. 1296 – Effect on Accessory Obligations
When the principal obligation is extinguished in consequence of a novation,
accessory obligations may subsist only insofar as they may benefit third persons
who did not give their consent. (1207)
•
•
General Rule − accessory follows the principal.
o If principal is extinguished, accessories are extinguished
Ex.
Mortgage, guarantee, pledge
Exception − accessory obligations persist only insofar as they may benefit
third persons who do not give consent to the novation.
Ex.
A owes B ®2,000, with interest of 14%.
▪ B owes C ®280.
▪ IT was agreed that A would pay the interest of ®280 to C.
▪ This is a stipulation in favor of C, a third person.
▪ Later, A and B novate the obligation, and A is now obliged to
give a TV set in payment of the loan.
▪ Inspite of the novation, the accessory obligation to give C ®280
subsists, unless C gives his consent to the novation.
Art. 1297 – New Obligation is Void, Old one shall subsist
If the new obligation is void, the original one shall subsist, unless the parties
intended that the former relation should be extinguished in any event. (n)
•
•
•
A void obligation intended to novate an old one has no legal effect.
General Rule − when new obligation is void, old obligation subsists.
Exception − when the parties stipulate that in any event, the old obligation
shall be extinguished.
Art. 1298 – Original Obligation was Void
The novation is void if the original obligation was void, except when annulment may
be claimed only by the debtor or when ratification validates acts which are
voidable. (1208a)
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OBLIGATIONS AND CONTRACTS REVIEWER
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•
•
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Novation presupposes an original valid obligation.
If original obligation is void, a subsequent obligation to novate it is also
void.
o Unless it is clear that the subsequent one can stand on itself and
without any reference to the old one
If original is voidable, it is valid until annulled.
o Thus, it can be novated before it is annulled.
Ex.
Through force and intimidation, A was obliged togive B a
car. Later, also through force, prestation was novated to
a house.
▪ In such a way that only A, the debtor, can file a case to annul it.
▪ He does not annul it.
▪ This novation may be given effect.
o Also, if by A’s acts the obligation is ratified, it is valid as well.
Art. 1299 – Subject to a Suspensive or Resolutory Condition
If the original obligation was subject to a suspensive or resolutory condition, the
new obligation shall be under the same condition, unless it is otherwise stipulated.
(n)
•
•
General Rule − new prestation is also subject to the same suspensive or
resolutory condition.
Exception − unless otherwise stipulated.
Art. 1300 – Kinds of Subrogation
Subrogation of a third person in the rights of the creditor is either legal or
conventional. The former is not presumed, except in cases expressly mentioned in
this Code; the latter must be clearly established in order that it may take effect.
(1209a)
•
•
Subrogation − substitution of one person in the place of a creditor with
reference to a lawful claim or right, giving the former all the rights of the
latter, including rights to employ all remedies to enforce payment
Kinds of Subrogation:
1. Conventional − Expressly agreed upon by original parties and the
new creditor.
2. Legal − takes place by operation of law (Art. 1302)
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Art. 1301 – Conventional Subrogation
Conventional subrogation of a third person requires the consent of the original
parties and of the third person. (n)
•
Consent of all parties is required − this is a contractual subrogation.
Art. 1302 – When Legal Subrogation is Presumed
It is presumed that there is legal subrogation:
(1) When a creditor pays another creditor who is preferred, even without the
debtor's knowledge;
(2) When a third person, not interested in the obligation, pays with the express or
tacit approval of the debtor;
(3) When, even without the knowledge of the debtor, a person interested in the
fulfillment of the obligation pays, without prejudice to the effects of confusion as to
the latter's share. (1210a)
•
3 cases where legal subrogation is presumed (subrogation happens by
operation of law):
1. Creditor pays another creditor who is preferred, even without
knowledge of debtor
o Preferred Creditor − a creditor who is preferred because of the
stipulation of law
Ex. A owes B 1000, secured by a first mortgage. A owes C
2000, which is unsecured. Under the law, B is a preferred
creditor. If C pays the debt of A to B, then C will be
subrogated in B’s right − he can then foreclose on the
mortgage of A.
2. When a third person not interested in the obligation pays with the
expressƒtacit approval of the debtor
o Debtor agrees to the payment.
Ex. A owes B 1000. C pays B with expressƒimplied consent of
A. C will be subrogated in the rights of B.
3. Third person interested in the obligation pays weven without
knowledge of the debtor
o “person interested” − one who will be affected by the payment
Ex.
Suppose in above example, C is guarantor of A (he is
interested in the fulfillment of obligation). If C, the guarantor,
pays B, even without the knowledge of A, C is
subrogated in the rights of B.
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OBLIGATIONS AND CONTRACTS REVIEWER
▪
▪
Confusion takes place in person of C.
Guaranty is extinguished, but
obligation subsists.
ATTY. MEL STA. MARIA
CROMBONDS 2011-2012
principal
Art. 1303 – General Effect of Subrogation
Subrogation transfers to the persons subrogated the credit with all the rights
thereto appertaining, either against the debtor or against third person, be they
guarantors or possessors of mortgages, subject to stipulation in a conventional
subrogation. (1212a)
•
Effect of Subrogation:
o “Stepping into the shoes’ of the creditor
o Conventional subrogation − parties may stipulate and limit the
scope of this subrogation
Art. 1304 – Effect of Partial Subrogation
A creditor, to whom partial payment has been made, may exercise his right for the
remainder, and he shall be preferred to the person who has been subrogated in his
place in virtue of the partial payment of the same credit. (1213)
•
Contemplates a situation where the original creditor has been partially
paid by new creditor:
o He remains a creditor to the extent of the balance of the debt.
o In case of insolvency of debtor, he has a preferential right above
the new creditor.
Ex.
A owes B ®10,000. C pays B ®6,000, with consent of A. B remains
creditor with balance of ®4,000.
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OBLIGATIONS AND CONTRACTS REVIEWER
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Title II – CONTRACTS
Chapter 1: General Provisions
Art. 1305 – Contracts Defined
A contract is a meeting of minds between two persons whereby one binds himself,
with respect to the other, to give something or to render some service. (1254a)
Contract:
• a source of obligation and it can also be defined as a legally enforceable
agreement.
• A juridical convention manifested in legal form, by virtue of which one or
more persons bind themselves in favor of another or others, or
reciprocally, to the fulfillment of a prestation to give, to do or not to do.
• An agreement whereby at least one of the parties acquires a right, either in
rem or in personam, in relation to some person, thing, act or forbearance.
• Agreements falling under the Statute of Frauds are useless contracts for
they cannot be implemented which, in effect, negates the existence of a
contract.
Characteristics of Contracts:
1. Essential elements − without the following there is no contract (COC):
a. Consent
b. Object
c. Cause
2. Natural elements − exist as part of the contract even if the parties do not
provide for them, because the law, as suppletory to the contract, creates
them.
3. Accidental elements − those which are agreed by the parties and which
cannot exist without being stipulated.
Number of Parties:
• The Code states “two persons” but what is meant actually is two parties.
• For a contract to exist, there must be at least two parties. A party can be
one or more persons.
Ex.
Husband & Wife − cannot sell to each other as a protection of the
conjugal partnership. They can however enter into a contract of
agency.
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Stages of Contracts:
1. Negotiation − covers the period from the time the prospective contracting
parties indicate interest in the contract to the time the contract is
concluded (perfected).
2. Perfection − takes place upon the concurrence of the essential elements of
the contract.
o A contract which is consensual as to perfection is so established upon
a mere meeting of the minds i.e. the concurrence of offer and
acceptance, on the object and on the cause thereof.
3. Consummation − begins when the parties perform their respective
undertakings under the contract culminating in the extinguishment
thereof.
Kinds of Contracts:
1. Real contract − a contract which requires, in addition to the above, the
delivery of the object of the agreement, as in a pledge or commodatum
2. Solemn contract − compliance with certain formalities prescribed by law is
essential in order to make the act valid, the prescribed form being thereby
an essential element thereof.
3. Auto-contracts − one person contracts himself. As a general rule, it is
accepted in our law. The existence of a contract does not depend on the
number of persons but on the number of parties. There is no general
prohibition against auto−contracts; hence, it should be held valid.
4. Contracts of Adhesion − contracts prepared by another, containing
provisions that he desires, and asks the other party to agree to them if he
wants to enter into a contract.
Ex. Transportation tickets − other party can reject it entirely
Other Terms:
• Perfect promise − distinguished from a contract, in that the latter
establishes and determines the obligations arising therefrom; while the
former tends only to assure and pave the way for the celebration of a
contract in the future.
• Imperfect Promise − mere unaccepted offer
• Pact − a special part of the contract, sometimes incidental and separable
for the principal agreement.
• Stipulation − similar to a pact; when the contract is an instrument, it refers
to the essential and dispositive part, as distinguished from the exposition
of the facts and antecedents upon which it is based.
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countenance disrespect for or failure to observe a legal prescription.
The Statute takes precedence.
o Only laws existing at the time of the execution of a contract are
applicable thereto and that later statutes do not govern said
contract unless the latter is specifically intended to have a
retroactive effect.
Art. 1306 – Guarantee of Freedom to Contract
The contracting parties may establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided they are not contrary to law,
morals, good customs, public order, or public policy. (1255a)
Autonomous Nature of Contracts:
•
Freedom to stipulate terms and conditions − essence of the contractual
system provided such stipulations are not contrary to law, morals, good
customs, public order, or public policy.
o Prohibits a party from coercing or intimidating or unduly
influencing another to enter into a contract.
o Azcuna Jr. v. CA − there is nothing immoral or illegal in a provision
stating that the lessee shall be charged ®1000ƒday if the lessee
shall not vacate the premises on the due date.
o Manila Bay Club Corporation v. CA − termination of a lease is valid
when it is due to the failure of the lessee to comply with the
insurance clause of the contract. Contracts are respected as the
law between the contracting parties.
•
Teves v. People’s Homesite and Housing Corp. − in the absence of express
legislation or constitutional prohibition, a court may declare a contract
void as against public policy when:
1. It has a tendency to injure the public.
2. It is against the public good.
3. It contravenes some established interest of society.
4. It is inconsistent with sound policy and good morals which tends
to undermine the security of individual rights, whether of
personal liability or of private property.
▪
2.
Principle of Autonomy:
•
•
Freedom to contract − any person has the liberty to enter into a contract
so long as they are not contrary to law, morals, good customs, public order
or public policy. The legislature, under the constitution, is prohibited from
enacting laws to prescribe the terms of a legal contract.
Validity of Stipulations − any and all stipulations not contrary to law,
morals, good customs, public order or public policy is valid.
1. Contrary to law − freedom of contract is restricted by law for the good
of the public. It is fundamental postulate that however broad the
freedom of the contracting parties may be, it does not go so far as to
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3.
Ortigas v. CA − construction of a commercial edifice was
proper provided that the area was reclassified from a
residential to a commercial zone.
o Non-impairment of contracts or vested rights clauses − must to
yield to the superior and legitimate exercise by the State of police
power to promote the health, morals, peace, education, good
order, safety and general welfare of the people.
Ex.
▪ Pakistan International Airlines v. Ople − contractual
stipulations contravening provisions of law designed to
protect laborers and employees are not valid.
▪ stipulations to pay usurious interests
▪ agreement to declare valid a law or ordinance
Contrary to Morals − morals mean those generally accepted principles
of morality which have received some kind of social and practical
confirmation.
Ex.
▪ Philippine American General Insurance v. Mutuc − a provision that
a bond may be extended without notification is not necessarily
contrary to law or morals as to render the stipulation null and
void.
▪ De Leon v. CA − agreement by the husband and wife to terminate
their relations is contrary to law, Filipino morals and public policy.
The termination of a marriage by the parties cannot be done on
their own and without legal basis.
▪ a promise to marry or not to marry, to secure legal separation, or
to adopt a child
▪ a promise to change citizenship, profession, religion or domicile
▪ a promise not to hold public office or which limits the
performance of official duties
▪ a promise to enter a particular political party or separate from it
Contrary to Public Order − if the court finds that the contract as to the
consideration or the thing to be done, contravenes some established
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interest of society, or is inconsistent with sound policy and good
morals, or tends to undermine the security of individual rights.
Ex.
▪ Common carrier cannot stipulate for exemption for liability unless
such exemption is justifiable and reasonable and the contract is
freely and fairly made.
▪ Payment to intermediaries in securing import licenses or quota
allocations
▪ Contract of scholarship stipulating that the student must remain
in the same school and that he waives his right to transfer to
another school without refunding the school
Art. 1307 – Innominate Contracts
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obligatory and it must be proved as a fact according to
the rules of evidence
Innominate Contracts according to Kind of Prestation:
1. do ut des (I give that you may give) − An agreement in which A will give
one thing to B, so that B will give another thing to A.
2. do ut facias (I give that you may do) − An agreement under which A will
give something to B, so that B may do something for A.
3. facio ut facias (I do that you may do) − An agreement under which A does
something for B, so that B may render some other service for A.
4. facio ut des (I do that you may give) − An agreement under which A does
something for B, so that B may give something to A.
Cases:
Innominate contracts shall be regulated by the stipulations of the parties, by the
provisions of Titles I and II of this Book, by the rules governing the most analogous
nominate contracts, and by the customs of the place. (n)
•
Innominate Contracts:
• Those which are not specifically governed by any provision in the Civil Code
or special law but which likewise involve the fulfillment or accomplishment
of some prestations
• They are actually not extraordinary contracts. Such contracts are common
and frequently encountered.
Ex. contract to translate a book, contract to model,
contract between lawyer and client
• They are governed by the following (SLAC):
a. Stipulation of the parties
b. Law − provisions of obligations and contracts under Title I and
II of the Civil Code
c. Rules governing the most analogous nominate contracts
▪ Sale, barter or exchange, lease, partnership, agency,
loan, deposit, aleatory, contracts, compromises,
guaranty, pledge, mortgage, and antichresis
▪ Governed by special laws: insurance, real estate
mortgage, and charter party
d. Customs of the place
o Custom − a rule of conduct formed by repetition of acts
uniformly observed as a social rule, legally binding and
•
Dizon v. Gaborro − a contract where respondent shall pay for the
obligations of the petitioner, and the petitioner grants possession,
enjoyment and the use of certain lands until full reimbursement, partakes
the nature of an antichresis.
Corpus v. CA − contract between lawyer and client is analogous to a
contract of agency.
Art. 1308 – Mutuality of Contracts
The contract must bind both contracting parties; its validity or compliance cannot
be left to the will of one of them. (1256a)
Mutuality of Contracts:
• In order that obligations arising from contracts may have the force of law
between the parties, there must be mutuality between the parties based
on their essential equality. A contract containing a condition which makes
its fulfillment dependent upon the exclusive will of the contracting parties
is void. PNB v. CA
• Garcia v. Rita Legarda Inc. − a contract expressly giving to one party the
right to cancel the same if a resolutory condition therefor agreed upon is
not fulfilled, is valid, the reason being that when the contract is thus
cancelled, the agreement of the parties is in reality being fulfilled.
• Allied Banking Corp. v. CA − a stipulation which states that a contract may
be renewed for a like term at the option of the lessee is valid since such
right of the lessee is part of the consideration in the contract.
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ATTY. MEL STA. MARIA
Contract of adhesion − wherein a party, usually a corporation, prepares
the stipulations in the contract, while the other party merely affixes his
signature or his adhesion thereto. Serra v. CA
o Not per se void.
o Binding as ordinary contracts because the party who adheres to
the contract is free to reject it entirely.
Cancellation by One Party:
• Unilateral Cancellation − just as nobody can be forced to enter into a
contract, in the same manner once a contract is entered into, no party can
renounce it unilaterally or without the consent of the other.
o Nobody is allowed to enter into a contract, and while the contract
is in effect, leaves, denounces or disavows the contract to the
prejudice of the other.
• Upon Stipulation − however, when the contract so stipulates that one may
terminate the contract upon a reasonable period is valid.
o Judicial action for the rescission of the contract is no longer
necessary when the contract so stipulates that it may be revoked
and cancelled for the violation of any of its terms and conditions.
This right of rescission may be waived.
Art. 1309 – Determination of Performance by a Third Person
The determination of the performance may be left to a third person, whose
decision shall not be binding until it has been made known to both contracting
parties. (n)
Exception to Mutuality of Contracts (Art. 1308)
• A third person may be called upon to decide whether or not performance
has been done for the fulfillment of the contract. Such decision becomes
binding when communicated to the parties.
Ex. A sold his parcel of land to B. It was agreed that C, a real estate
appraiser, would be the one to determine the reasonable price of
the land. C, then fixed the price after considering all the
circumstances affecting the value of the land. C must make known
his decision to A and B who will be bound by the same.
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Art. 1310 – When Determination is Inequitable
The determination shall not be obligatory if it is evidently inequitable. In such case,
the courts shall decide what is equitable under the circumstances. (n)
Exception to Mutuality of Contracts (Art. 1308)
• Qualifies determination in Art. 1309
• When the decision cannot be arrived due to inequity, the courts shall
decide what is equitable for the parties involved.
Art. 1311 – Stipulation Pour Atrui
Contracts take effect only between the parties, their assigns and heirs, except in
case where the rights and obligations arising from the contract are not
transmissible by their nature, or by stipulation or by provision of law. The heir is not
liable beyond the value of the property he received from the decedent.
If a contract should contain some stipulation in favor of a third person, he may
demand its fulfillment provided he communicated his acceptance to the obligor
before its revocation. A mere incidental benefit or interest of a person is not
sufficient. The contracting parties must have clearly and deliberately conferred a
favor upon a third person. (1257a)
Relativity of Contracts (General Rule):
•
•
Between Principals (parties) − contracts take effect only between parties
to the same. A stranger cannot invoke the contract of another for his own
interest or for a source of an alleged prejudice.
o Integrated Packaging Corp. v. CA − supplier private respondent is
not a party to the agreement, hence cannot be held liable for any
breach between the contracting parties.
Transmissibility to Assigns and Heirs − the law operates to effect the
transfer of a chosen of action from one person to another without any
concurring act on the part of the parties or indeed without their assent.
o Heirs are not third persons because there is privity of interest
between them and their predecessor.
o Transfer of an interest in land may be by marriage, and by death.
o DKH Holdings Corp. v. CA − upon acquiring the property, the heir
has acquired all the rights and obligations of the deceased lessor
with respect to the property.
o Transmission of rights and obligations in a contract may be agreed
upon by the parties.
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The heir may not be held liable beyond the value of the property
received.
3 cases where contracts cannot take effect with respect to the
heirs or assigns (SNL):
1. Nature − of the contract does not allow transmission
▪ Where acts stipulated in a contract require the exercise
of special knowledge, genius, skill, taste, ability,
experience, judgment, discretion, integrity, or other
personal qualification of one or both parties, the
agreement is of a personal nature, and terminates on the
death of the party who is required to render such service
2. Stipulation − that no transmission of rights shall be allowed
3. Law − provides non−transmission
4 Exceptions to the Relativity of Contracts:
1. Contracts Pour Autrui (Art. 1311 par. 2) − enforcement of which may be
demanded by a third party for whose benefit it has been made, although
not a party to the contract, before the stipulation in his favor has been
revoked by the contracting parties. There must be a clear intent to benefit
the third party. It is insufficient that the third party be merely incidentally
benefited.
o Requisites of a Stipulation Pour Autrui (SPCLA):
a. There must be a stipulation in favor of a third person (who is
not necessarily named)
b. The stipulation must be a part, not the whole of the contract
c. The contracting parties must have clearly and deliberately
conferred a favor upon a third person, not a mere incidental
benefit or interest
d. Neither of the contracting parties bears the legal
representation or authorization of the third party
e. The favored party must have communicated his acceptance
of the stipulation to the obligor before its revocation
2. Contracts creating Real Rights (Art. 1312)
3. Right of Creditors to Impugn Fraudulent Contracts (Art. 1313)
4. Person who Induces Another to Violate a Contract (Art. 1314)
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Stipulation Pour Autrui Cases:
•
•
•
•
Marmont Resort Hotel v. Guiang − spouses may be held liable as Marmont
hotel is a third party who is benefitted upon the second memorandum of
agreement which the spouses executed with Maris Trading.
Coquia v. Fieldman’s Insurance Co. Inc. − insurance contract is contract
pour autrui. Any authorized driver of the insured taxi company has a right
of claim in case of a death or bodily injury suffered through an accident.
Mandarin Villa, Inc. v. CA − in a transaction between a restaurant, bank
and a credit card holder, the card holder’s offer to pay by means of his
credit card constitutes not only an acceptance of the said stipulation but
also an explicit communication of his acceptance to the obligor.
Young v. CA − when given a right of first refusal, the sale of subject
property to some other person constitutes a revocation of such right.
Art. 1312 – Contracts Creating Real Rights Bind Third Persons
In contracts creating real rights, third persons who come into possession of the
object of the contract are bound thereby, subject to the provisions of the Mortgage
Law and the Land Registration Laws. (n)
Real Rights in Property:
• A real right directly affects property subject to it.
• Whoever is in possession of such property must respect that real right.
Ex.
If the lessor terminates the lease contract for a valid cause, the
sublessee can be ejected from the leased premises even if he is
not a party to the lease contract.
Art. 1313 – Right of Creditors to Impugn Fraudulent Contracts
Creditors are protected in cases of contracts intended to defraud them. (n)
•
•
Art. 1381(3) − provides that a contract shall be rescissible if it is
undertaken in fraud of creditors when the latter cannot in any other
manner collect the claim due them.
Even if the creditor is not a party to the contract intended to defraud him,
he is given legal personality by law to terminate the contract.
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Art. 1314 – Liability of Third Persons Responsible for Breach of Contract
Art. 1315 – Perfection of Contracts and Implied Terms
Any third person who induces another to violate his contract shall be liable for
damages to the other contracting party. (n)
Contracts are perfected by mere consent, and from that moment the parties are
bound not only to the fulfillment of what has been expressly stipulated but also to
all the consequences which, according to their nature, may be in keeping with good
faith, usage and law. (1258)
•
•
•
•
A stranger owes to the parties to the agreement a duty not to interfere
with its performance.
o This covers every case where one person maliciously persuades
another to break any contract with a third person.
Malicious act − if the persuasion be used for the indirect purpose of
injuring the plaintiff, or benefiting the defendant, at the expense of the
plaintiff.
o Lack of malice precludes damages. But it does not relieve
petitioner of the legal liability for entering into contracts and
causing breach of existing ones.
The party guilty of such breach may, nevertheless, recover against the one
who induces him to violate his contract when the latter, by such acts and
persuasion, intended to injure the other contracting party or to coerce him
into adopting a line of business against his will and judgment
Damage − the loss, hurt, or harm which results from injury and damages
are the recompense or compensation awarded for the damage suffered.
Song Pin Bun v. CA
o One becomes liable in an action for damages for a non−
trespassory invasion of another’s interest in the private use and
enjoyment of asset if (RILS):
1. The other has property rights and privileges with respect
to the use or enjoyment interfered with.
2. The invasion is substantial.
3. The defendant’s conduct is a legal cause of the invasion.
4. The invasion is either intentional and unreasonable or
unintentional and actionable under general negligence
rules.
o Elements of Tort Interference (EKI):
1. Existence of a valid contract
2. Knowledge on the part of the third person of the existence of
contract
3. Interference of the third person is without legal justification
or excuse
•
Implied terms − obligations not stipulated in a contract but includes all
consequences that may be in keeping with good faith, usage and law.
Ex.
observance of proper diligence
delivery includes all accessions and accessories
provisions on fortuitous events
Art. 1316 – Real Contracts are Perfected upon Delivery
Real contracts, such as deposit, pledge and Commodatum, are not perfected until
the delivery of the object of the obligation. (n)
•
General Rule − contracts are perfected by mere consent of the parties.
o Exceptions:
1. Contract of Sale − ownership over the object is transferred only
upon actual or constructive delivery.
2. Real Contracts
a. Deposit − constituted from the moment a person
receives a thing belonging to another for the purpose of
safely keeping it and returning the same. (Art. 1962)
b. Pledge − constituted by the owner of the object to
secure a loan. It is indispensable that the thing pledged
be in possession of the creditor.
c. Commodatum − bailee in commodatum acquires the use
of the thing loaned.
Art. 1317 – Unauthorized Contracts are Unenforceable
No one may contract in the name of another without being authorized by the latter,
or unless he has by law a right to represent him.
A contract entered into in the name of another by one who has no authority or
legal representation, or who has acted beyond his powers, shall be unenforceable,
unless it is ratified, expressly or impliedly, by the person on whose behalf it has
been executed, before it is revoked by the other contracting party. (1259a)
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•
•
•
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General rule − no person may contract in the name of another.
o Exception − if such person has by law a right to represent him.
Ex. Parents exercising parental authority have the right and
duty to represent their unemancipated child.
Contract of Agency − a person binds himself to render some service or to
do something in representation or on behalf of another, with the consent
or authority of the latter.
o The principal of the agent must comply with all the obligations
which the agent may have contracted with the scope of his
authority.
o Wherein the agent has exceeded his power, the principal is not
bound except when he ratifies it expressly or tacitly.
o When the agent exceeded his authority, the principal is solidarily
liable with the agent if the former allowed the latter to act as
though he had full powers.
o When a sale of a piece of land or any interest therein is through
an agent, the authority of the latter shall be in writing, or else, the
sale shall be void.
Yao Ka Sin v. CA − if a private corporation intentionally or negligently
clothes its officers or agents with apparent power to perform acts for it,
the corporation cannot deny that the existence of such authority, as to
innocent third persons dealing in good faith with such officers or agents.
Regal Films v. Concepcion − such an agreement is void where the agent
was no longer acting on behalf of the movie actor.
•
•
Art. 1318 – Elements of a Contract
There is no contract unless the following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established. (1261)
“Concur” − all the three requisites must be present. Absence of one
negates the existence of a contract.
The rule on pari delicto − when both parties are equally at fault.
o Void and inexistent contracts − when any of the elements are
absent pari delicto shall not apply.
o Ostensible contracts − when the elements are all present but the
contract is void, pari delicto shall apply.
Ex.
purchase and delivery of drugs
Section 1 – Consent
Art. 1319 – Consent Defined
Consent is manifested by the meeting of the offer and the acceptance upon the
thing and the cause which are to constitute the contract. The offer must be certain
and the acceptance absolute. A qualified acceptance constitutes a counter−offer.
Acceptance made by letter or telegram does not bind the offerer except from the
time it came to his knowledge. The contract, in such a case, is presumed to have
been entered into in the place where the offer was made. (1262a)
•
Consent – the concurrence of the wills of the offerer and acceptor as to
the thing and the cause which constitute a contract.
o Requisites of Consent:
1. Consent must be manifested by the concurrence of the
offer and the acceptance (Arts. 1319−1326)
2. Contracting parties must possess the necessary legal
capacity (Arts. 1327−1329)
3. Consent must be intelligent, free, spontaneous and real
(Arts. 1330−1346)
•
Offer – a manifestation of a willingness to enter into a bargain so made as
to justify another person in understanding that his assent to that bargain is
invited and will conclude it.
o Making an offer means inviting an acceptance which, if given, will
finally create a contract.
o It must be so complete that its acceptance will form an agreement
containing all the terms necessary and intended by the parties, for
it is obvious that there can be no agreement until its terms are
settled, and that an offer which is not complete is merely a step in
the negotiations.
Chapter 2: Essential Requisites of Contracts
General Provisions
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o The following relations, until a contract is perfected, are not
considered binding commitments, and if withdrawn, such
withdrawal is effective immediately after its manifestation such as
by its mailing and not necessarily when the offeree learns of the
withdrawal:
1. Negotiation – is formally initiated by an offer
2. Imperfect promise (policitacion) – is merely an offer
3. Public advertisements or solicitations – are ordinarily
construed as mere invitations to make offers or only as
proposals.
Art. 1320 - Acceptance
An acceptance may be express or implied. (n)
•
Acceptance − must exist to establish concurrence of the wills of the
parties, otherwise there is no consent to form a contract.
▪ Salonga v. Farrales − where the defendant merely
offered the property but which offer was not accepted,
there was no consent.
o Must be absolute − it may be express or implied.
▪ Adelfa Properties Inc. v. CA − except where formal
acceptance is required, it may be shown by acts, conduct
or words of the accepting party that clearly manifest a
present intention or determination to accept the offer to
buy or sell.
o Must be unconditional − it must be identical to the terms of the
offer.
▪ It must not vary from the proposal by way of omission,
addition or alteration.
▪ Counter-offer − a qualified acceptance which binds
neither of the parties.
▪ Jardine Davies v. CA − when the acceptance of a
construction bid was subject to certain basic terms and
conditions, it was not tantamount to a qualified
acceptance. As to conditions:
• Condition imposed on the perfection of a
contract − failure to comply results in the failure
of a contract.
• Condition imposed merely on the performance
of an obligation − failure to comply gives the
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o
other party options andƒor remedies to protect
interests.
Person making the offer must have actual knowledge of the
acceptance.
Art. 1321 – Offerer Fixes Manner, Time and Place of Acceptance
The person making the offer may fix the time, place, and manner of acceptance, all
of which must be complied with. (n)
•
•
•
General rule − offerer will not be bound by an acceptance made by the
acceptor in any other manner than that specified by the offerer.
o Exception − when the offerer acquiesces in the change.
Matias v. CA − a lessee may not compel the subsequent owner of a
property to sell it in an amount which the lessee feels reasonable.
Contract of sale − the manner of payment of the purchase price is an
essential element before a valid and binding contract of sale can exist.
Art. 1322 – Communication of Acceptance to Agent
An offer made through an agent is accepted from the time acceptance is
communicated to him. (n)
•
Contract of Agency − a person binds himself to render some service or to
do something in representation or on behalf of another with the consent
or authority of the latter.
•
When a sale of a piece of land or any interest therein is through an agent,
the authority of the latter shall be in writing, otherwise the sale is void.
Art. 1323 – When Offer Becomes Ineffective
An offer becomes ineffective upon the death, civil interdiction, insanity, or
insolvency of either party before acceptance is conveyed. (n)
•
•
•
“Before acceptance is conveyed” − before acceptance has come to the
actual knowledge of the offeror.
When an offer becomes ineffective, nothing can be accepted.
Villanueva v. CA − an offer became ineffective when a bank became
insolvent and was placed under receivership before its acceptance of the
purchase of a certain foreclosed property was communicated to the seller.
Hence, no contract was created.
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o
Art. 1324 – Contract of Option, Option Period, Option Money
When the offerer has allowed the offeree a certain period to accept, the offer may
be withdrawn at any time before acceptance by communicating such withdrawal,
except when the option is founded upon a consideration, as something paid or
promised. (n)
•
•
•
•
•
•
Option — a contract granting a privilege to buy or sell at a determined
price within an agreed time.
Option period — when the offerer has allowed the offeree a certain period
to accept the offer.
Ang Yu Asuncion v. CA — rules on option period:
PERIOD NOT FOUND ON A
PERIOD HAS A SEPARATE
CONSIDERATION
CONSIDERATION
The offerer is still free and has the A contract of —option is deemed
right to withdraw the offer before perfected and it would be a breach
its acceptance or if an acceptance of that contract to withdraw the
was made, before the offeror’s offer during the agreed period.
coming to know of such fact, by
If the optioner−offeror withdraws
communicating that withdrawal to
the offer before its acceptance by
the offeree.
The right to withdraw must not be the optionee−offeree, the latter
not
sue
for
specific
exercised whimsically or arbitrarily; may
performance
on
the
proposed
otherwise, it could give rise to a
damage claim under Art. 19 of the contract since it has failed to reach
its own stage of perfection.
Civil Code.
The
optioner−offeror
renders
himself liable for damages for
breach of the option.
Serra v. CA — an optional contract is a privilege existing only in one party—
the buyer.
o He is given the right to decide to purchase or not, a certain
merchandise or property, at any time within the agreed period, at
a fixed price.
Consideration — in an option contract, may be anything of value, unlike in
sale where it must be the price certain in money or its equivalent.
Earnest money — considered part of the price in a contract of sale and can
be a proof of the perfection of the contract of sale.
However, it is not the giving of the earnest money per se, but the
proof of the concurrence of all the essential elements of the
contract of sale which establishes the existence of a perfected
sale.
Art. 1325 – Business Advertisements
Unless it appears otherwise, business advertisements of things for sale are not
definite offers, but mere invitations to make an offer. (n)
•
General Rule — advertisements of things for sale are mere invitations to
make an offer.
o Exception — unless it appears otherwise or where such
advertisement may constitute an offer which is certain.
Art. 1326 – Advertisements for Bidders
Advertisements for bidders are simply invitations to make proposals, and the
advertiser is not bound to accept the highest or lowest bidder, unless the contrary
appears. (n)
•
Jardine Davies Inc. v. CA — when a company starts the process of a bidding
and disseminates the document denominated the “Terms Conditions of
the Bidding” to the bidders, the dissemination of the said documents
constitutes an advertisement to bid in the project. The bid proposals or
quotations submitted by the prospective suppliers are the offers. The
favorable reply of the company to one of the prospective suppliers is the
acceptance.
Art. 1327 – Persons who Cannot Give Consent
The following cannot give consent to a contract:
(1) Unemancipated minors;
(2) Insane or demented persons, and deaf−mutes who do not know how to write.
(1263a)
•
Persons who are capable cannot allege the incapacity of those with whom
they contracted to annul the contract.
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Unemancipated Minors:
• Emancipation takes place by the attainment of majority age which
commences at the age of 18 years.
• Any contract entered into by an unemancipated person is annullable or
voidable.
o Unless they ratify the same upon reaching the age of majority.
• Only the minor can invoke the ground that a contract is annullable
because, at the time it was entered into, he was still a minor.
• Misrepresentation by a Minor:
a. Braganza v. De Villa Abrille (passive misrepresentation) — where
minors signed a promissory note without telling the creditor their
ages, and where the creditor sought to enforce the promissory note
against them, it was held that the minors can set up the defense of
minority to resist claim.
o Minors have no juridical duty to disclose their inability or age.
o Even if the written contract is unenforceable because of non−
age, they shall make restitution to the extent that they may
have profited by the money they received.
b. Mercado v. Espiritu (active misrepresentation) — document signed by
the minor specifically stated he was of age. The minor is estopped
from setup the defense of minority.
Insane or Demented Persons:
• Contracts entered into by insane or demented persons are annullable, not
void ab initio.
o Valid up to the time they are rendered ineffective by the courts.
o Insanity of the other party at the time of the perfection of the
contract must be proven.
o When the insane is not under a guardian and the other
contracting party has no reasonable cause to believe him
otherwise insane, the agreement is valid if equitable and
beneficial to such insane person.
• 3 classes of mental incapacity:
1. Idiot — one who has been insane from birth.
2. Lunatic — one who was at one time sane, but who from some cause
or other has lost use of his reason.
3. Mentally Weak — not totally incapable of transacting business or
managing affairs.
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Deaf−mutes:
• Being deaf−mute is not by itself alone a disqualification for giving consent.
• The law refers to the deaf−mute who does not know how to write.
Art. 1328 – Lucid Intervals, Drunkenness, Hypnotic Spell
Contracts entered into during a lucid interval are valid. Contracts agreed to in a
state of drunkenness or during a hypnotic spell are voidable. (n)
Lucid Interval:
• Lucid interval — that period of time when an insane person acts with
reasonable understanding, comprehension and discernment with respect
to what he is doing.
• Lunacy may be intermittent in character, but when one is shown to have
been mentally deranged at a recent period anterior to the execution of the
contract, that condition is presumed to continue and the burden is on the
other party to show that the agreement was entered into during a lucid
interval.
Drunkenness or Hypnotic Spell:
• Intoxication — must be such a character as to perpetuate an undue
advantage over the drunken person.
o It must render the person incapable of intelligent assent and
deprived of the power to know what he is doing.
o Anything short of this will not invalidate the contract.
o An agreement made by a person when so drunk, is voidable at the
intoxicated person’s option under any of the following (OFC):
1. When it appears that the drunkenness was brought about by
the opposite party
2. That a fraudulent advantage was taken of it
3. That the drunkenness was so complete as to deprive the
party of his reason of an agreeing mind
• Hypnosis — an artificially induced state, resembling sleep, but
characterized by exaggerated suggestibility and continued responsiveness
to the voice of the hypnotist.
Art. 1329 – Incapacity Subject to Modifications
The incapacity declared in Article 1327 is subject to the modifications determined
by law, and is understood to be without prejudice to special disqualifications
established in the laws. (1264)
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The Rules of Court provide a list of incompetents who need guardianship:
o persons suffering from the penalty of civil interdiction
o hospitalized lepers
o prodigals
o deaf and dumb who are unable to write and read
o those of unsound mind (even though they have lucid intervals)
o persons not being of unsound mind but by reason of age, disease,
weak mind, and other similar causes cannot, without outside aid,
take care of themselves and manage their property—becoming an
easy prey for deceit and exploitation.
The incapacity to give consent (Arts. 1327 & 1328) to contracts renders the
contract merely voidable, while special disqualification (Art. 1329) makes it
void.
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Art. 1330 – Characteristics of Consent
A contract where consent is given through mistake, violence, intimidation, undue
influence, or fraud is voidable. (1265a)
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•
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Meeting of the minds must be free, voluntary, willful and with reasonable
understanding of the various obligations the parties intend to be bound.
Mistake, intimidation, violence, undue influence, fraud — grounds to
annul a contract because there is no real assent to the contract.
Intimidation, violence, undue influence — acts of duress where the
coerced party is compelled to execute the contract against his will.
A contract obtained through duress or mistake is voidable or annullable
under Art. 1390.
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Annulment of contract on the ground of error is limited to cases in which it
may reasonably be said that without such error the consent would not
have been given.
For mistake to make a contract voidable or annullable, the law states that
the consent must either refer to the (SC):
1. Substance of the thing which is the object of the contract
2. Conditions which principally moved the parties to enter into a
contract
▪ Unilateral mistake — of which the other party is entirely
ignorant and to which he in no way contributes, will not
affect the agreement or afford ground for its avoidance
or rescission, unless it is such a mistake as goes to the
substance of the agreement itself.
▪ Identity or qualifications — even when there is no error
as to person, is a cause vitiating consent, if such
qualifications have been the principal cause of the
contract.
▪ Motive — does not affect the contract unless such
motive was a condition of the consent given, because an
accidental element is, by the will of the parties,
converted into a substantial element.
Spouses Heinzrich Theis and Betty Theis v. CA — Mistake involves either:
1. Ignorance — absence of knowledge which respect to a thing.
2. Mistake properly speaking — a wrong conception about said
thing or a belief in the existence of some circumstance, fact or
event which in reality does not exist.
A simple mistake of account shall give rise to its correction — it does not
go into the essentials of a contract.
Art. 1331 – Mistake or Error
In order that mistake may invalidate consent, it should refer to the substance of the
thing which is the object of the contract, or to those conditions which have
principally moved one or both parties to enter into the contract.
Mistake as to the identity or qualifications of one of the parties will vitiate consent
only when such identity or qualifications have been the principal cause of the
contract.
A simple mistake of account shall give rise to its correction. (1266a)
Mistake:
Art. 1332 – Burden of Proof in case of Fraud or Mistake
When one of the parties is unable to read, or if the contract is in a language not
understood by him, and mistake or fraud is alleged, the person enforcing the
contract must show that the terms thereof have been fully explained to the former.
(n)
•
Presumption — when entering into a contract, the parties are presumed to
have understood the terms of the contract they voluntarily signed
especially when there is proof that they are educated.
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o
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May be rebutted by evidence that the person invoking the same
has either of these conditions:
▪ Inability to read
▪ Inability to understand the language of the contract
Burden of proof shifts to the one enforcing the contract to show that the
terms have been explained to the other party.
The fact of not understanding is not enough; it must be coupled with fraud.
Lustan v. CA — a deed of definite sale was ruled to be an equitable
mortgage where an illiterate woman was made to believe that what she
signed evidenced an indebtedness to the creditor.
Lim v. CA — where a contract was written in English signed by an elderly
woman who claimed that she did not understand it, was upheld because
fraud was not proven.
Arriola v. Mahilum — upheld the cause of an illiterate where her sister
fraudulently had her sign a document including the partition of her own
property.
Art. 1335 – Violence or Force
There is violence when in order to wrest consent, serious or irresistible force is
employed.
There is intimidation when one of the contracting parties is compelled by a
reasonable and well−grounded fear of an imminent and grave evil upon his person
or property, or upon the person or property of his spouse, descendants or
ascendants, to give his consent.
To determine the degree of intimidation, the age, sex and condition of the person
shall be borne in mind.
A threat to enforce one's claim through competent authority, if the claim is just or
legal, does not vitiate consent. (1267a)
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Art. 1333 – Knowledge of Risk
There is no mistake if the party alleging it knew the doubt, contingency or risk
affecting the object of the contract. (n)
•
•
If the parties are conscious of their ignorance as to the existence of some
facts, the non−existence of such facts is of no consequence.
Wood v. Boynton — contract cannot be annulled where a Topaz turned out
to be actually a Diamond because there was conscious uncertainty and
both parties took the risk.
Art. 1334 – Mistake of Law May Vitiate Consent
Mutual error as to the legal effect of an agreement when the real purpose of the
parties is frustrated, may vitiate consent. (n)
•
General rule — A unilateral mistake of law as to the legal effect of an
agreement is not a ground to annul a contract.
o Exception — when the following requisites concur:
1. The mistake as to the legal effect of the agreement must be
mutual.
2. Such mutual mistake frustrates the real purpose of the
parties.
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Violence − refers to physical force or compulsion.
o There is total absence of free will in case a person is compelled to
enter into a contract through violence.
o Requisites of violence:
1. that the physical force employed must be irresistible or of
such degree that the victim has no other course, under the
circumstances, but to submit.
2. that such force is the determining cause in giving the consent
to the contract.
Intimidation − refers to moral force or compulsion.
o It is necessary that the threats and circumstances be of a
character as to excite the reasonable apprehensions of a person
of ordinary courage, and that the agreement be made under the
influence of such threats or menace.
o Threat must be tangible and direct
o Requisites of intimidation:
1. that the intimidation must be the determining cause of the
contract, or must have caused the consent to be given.
2. that the threatened act be unjust or unlawful.
3. that the threat be real and serious, there being an evident
disproportion between the evil and the resistance which all
men can offer.
4. that it produces a reasonable and well−grounded fear from
the fact that the person from whom it comes has the
necessary means or ability to inflict the threatened injury.
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De Leon v. CA
Duress − that degree of constraint or danger either actually inflicted
(violent) or threatened and impending (intimidation), sufficient to
overcome the mind and will of a person of ordinary firmness.
o Vda. De Lacson v. Granada − the duress or intimidation must be
more than the “general feeling of fear.”
▪ There must be specific acts or instances of such nature
and magnitude as to have, of themselves, inflicted fear or
terror upon the subject thereof that his execution of the
questioned deed or act cannot be considered voluntary.
▪ Mere threat to bring a good faith action, maintainable at
law, does not amount to duress.
o Laperal v. Rogers − where fearing for his life and that of his family,
he sold the house, it was held that the contract can be annulled as
the consent was coerced by direct intimidation.
o Legal actions which amount to duress:
▪ A threatened civil action where the parties are not on an
equal footing.
▪ Threats made against a person of inferior intellect, or an
aged weakened in body and mind to the effect that
certain civil proceedings will be instituted.
▪ Threatening litigation while the defendant is ill, or to
continue litigation when the circumstances are
oppressive.
Art. 1336 – Violence or Intimidation by a Third Person
Violence or intimidation shall annul the obligation, although it may have been
employed by a third person who did not take part in the contract. (1268)
Ex.
lf A is coerced to enter into a contract with X because G threatens to kill all
the children of A if he does not do so, such contract may be annulled
whether or not X knew of the intimidation.
Art. 1337 – Undue Influence
There is undue influence when a person takes improper advantage of his power
over the will of another, depriving the latter of a reasonable freedom of choice. The
following circumstances shall be considered: the confidential, family, spiritual and
other relations between the parties, or the fact that the person alleged to have
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been unduly influenced was suffering from mental weakness, or was ignorant or in
financial distress. (n)
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Annulling a contract based on undue influence —is based upon principles
of highest morality, it reaches every case and grants relief where influence
is acquired and abused, or where confidence is reposed and betrayed.
“Undue” — unrighteous, illegal and designed to perpetrate a wrong.
o It must amount to fraud or coercion.
“Due influence” — solicitation, importunity, argument and persuasion
used by one party as means to the consent of the other.
o Banez v. CA − influence obtained by persuasion or argument or by
appeals to the affections is not prohibited either in law or morals
and is not obnoxious even in courts of equity.
o Marubeni Corporation v. Lirag − an agreement entered into
because of the actual or supposed influence...which contemplates
the use of personal influence and solicitation rather than appeal
to the judgment of the official on the merits of the object sought
is contrary to public policy.
Art. 1338 – Causal Fraud
There is fraud when, through insidious words or machinations of one of the
contracting parties, the other is induced to enter into a contract which, without
them, he would not have agreed to. (1269)
•
Fraud — a false representation of a material fact made by word or conduct
with knowledge of its falsehood or in reckless disregard of its truth, in
order to induce and actually inducing another to act thereon to his injury.
o There must be always be damage or injury in case of fraud.
o Fraud is every kind of deception, whether in the form of insidious
machinations,
manipulations,
concealments,
or
misrepresentations, for the purpose of leading another party into
error and thus executing a particular act.
o Fraud produces qualified error; it induces in the other party an
inexact notion of facts. The will of another is maliciously misled by
means of false appearance of reality.
o Insidious words or machinations include false promises;
exaggeration of hopes or benefits; abuse of confidence; and
fictitious names, qualifications, or authority.
o The result of fraud is error on the part of the victim.
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Kinds of fraud:
1. Dolo causante (Art. 1338) — which determines or is the essential
cause of the consent; fraud in the perfection of contract; can be a
ground for annulment.
2. Dolo incidente (Arts. 1344 & 1170) — which does not have such a
decisive influence and by itself cannot cause the giving of consent,
but refers only to some particular or accident of the obligation;
cannot be a ground for annulment.
Requisites of fraud:
1. Employed by one contracting party upon the other
2. Induced the other party to enter into the contract
3. Serious
4. Resulted in damage or injury to the party seeking annulment
Rivero v. CA − it was held that consent of the old woman was obtained
through fraudulent misrepresentation of her nephew when she was made
to believe that the contract was a mortgage when in fact it was a sale.
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If a party is induced by such exaggerations, there may be fraud amounting
to active misrepresentation.
If it is within the means of the other party to investigate and he does not
do so, there will be no fraud despite the exaggerations.
Tolerated fraud − includes minimizing the defects of the thing,
exaggeration of its good qualities, and giving it qualities that it does not
have. This is lawful misrepresentation known as dolus bonus. This is also
called lawful astuteness.
o These misrepresentations are usually encountered in fairs,
markets, and almost all commercial transactions. They do not give
rise to an action for damages, either because of their
insignificance or because the victim’s gullibility is the real cause of
his loss.
Art. 1341 – Expert Opinion
A mere expression of an opinion does not signify fraud, unless made by an expert
and the other party has relied on the former's special knowledge. (n)
Art. 1339 – Fraud by Concealment
Failure to disclose facts, when there is a duty to reveal them, as when the parties
are bound by confidential relations, constitutes fraud. (n)
•
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The mere fact that one of the parties has superior knowledge of the value
of the property subject of the transaction does not per se constitute fraud.
o There is only fraud when, under the special and peculiar
circumstances of each case, a legal or equitable duty is imposed
upon the dominant party to reveal certain facts material to the
transaction or when there is a confidential relationship between
the parties.
Silence or concealment − by itself, does not constitute fraud, unless there
is a special duty to disclose certain facts, or unless according to good faith
and the usages of commerce, the communication should be made
o The innocent non−disclosure of a fact does not affect the
formation of the contract or operate to discharge the parties from
their agreement.
Art. 1340 – Usual Exaggerations in Trade
The usual exaggerations in trade, when the other party had an opportunity to know
the facts, are not in themselves fraudulent. (n)
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General Rule — Opinions are not regarded as representation of facts
Hence, if it turns out to be wrong, it is not considered legally deceitful
insidiously inducing a party to enter into a contract.
o Exception — an opinion of an expert is like a statement of fact,
and if false, may be considered a fraud giving rise to annulment.
Art. 1342 – Fraud by a Third Person
Misrepresentation by a third person does not vitiate consent, unless such
misrepresentation has created substantial mistake and the same is mutual. (n)
•
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A contract may be annulled on the ground of vitiated consent if deceit by a
third person, even without connivance or complicity with one of the
contracting parties, resulted in mutual error on the part of the parties to
the contract.
General rule — is that the fraud employed by a third person upon one of
the parties does not vitiate consent and cause the nullity of a contract.
o Exception — If one of the parties is in collusion with the third
person, or knows of the fraud by the third person, and he is
benefited thereby, he may be considered as an accomplice to the
fraud, and the contract becomes voidable.
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Rural Bank of Caloocan v. CA − there was misrepresentation where a
person induced an elderly woman to co−sign a promissory note as a co−
debtor and such person claimed false qualifications to get a loan from a
bank.
Art. 1343 – Misrepresentation Made in Good Faith
Misrepresentation made in good faith is not fraudulent but may constitute error.
(n)
•
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Misrepresentation − inclusive of the term fraud.
o Practically, every fraud is a misrepresentation but not every
misrepresentation is fraudulent.
Misrepresentations may be made without the knowledge of its falsity and
therefore completely done in good faith.
o ln such case, it may constitute merely an error.
o Hence, breach of contracts need not always be in good faith as it
could be the due to an honest mistake.
•
Incidental fraud only obliges the person employing it to pay damages. (1270)
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The fraudulent act must be serious
o There must be an intention to injure and that damage or injury in
fact resulted.
o It must not be dolo incidente—accidental and collateral fraud—
which does not necessarily bear on the decision of the party
defrauded to enter into the contract.
o It must be dolo causante—which refers to the very cause why the
other party entered into the contract.
Fraud is serious when it is sufficient to impress, or to lead an ordinarily
prudent person into error; that which cannot deceive a prudent person
cannot be a ground for nullity.
Besides being serious, the fraud must be the determining cause of the
contract. It must be dolo causante.
When both parties use fraud reciprocally, neither one has an action against
the other; the fraud of one compensates that of the other. Neither party
can ask for the annulment of the contract.
Art. 1345 – Simulation of a Contract
Simulation of a contract may be absolute or relative. The former takes place when
the parties do not intend to be bound at all; the latter, when the parties conceal
their true agreement. (n)
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Art. 1344 – Causal Fraud may make a Contract Voidable
In order that fraud may make a contract voidable, it should be serious and should
not have been employed by both contracting parties.
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Absolute simulation — renders the contract null and void when the parties
do not intend to be bound at all by the same. Umali v. CA
o The basic characteristic of this type of simulation of contract is the
fact that the apparent contract is not really desired or intended to
either produce legal effects or in any way alter the juridical
situation of the parties. Umali v. CA
Simulation − the declaration of a fictitious will, deliberately made by
agreement of the parties, in order to produce, for the purposes of
deception, the appearance of a juridical act which does not exist or is
different from that which was really executed.
Art. 1346 – Absolute and Relative Simulation of Contracts
An absolutely simulated or fictitious contract is void. A relative simulation, when it
does not prejudice a third person and is not intended for any purpose contrary to
law, morals, good customs, public order or public policy binds the parties to their
real agreement. (n)
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Javier v. CA − assignee should be held liable considering that the
assignment was a relatively simulated contract which, though containing a
false consideration, was not null and void per se.
JR Blanco v. Quasha − simulation of contracts may be absolute or relative.
a. Absolute simulation − there is color of a contract, without any
substance thereof, the parties not having any intention to be
bound.
b. Relative simulation − the parties have an agreement which they
conceal under the guise of another contract.
Ex.
a deed of sale executed to conceal donation.
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Pua v. CA — where it was proven that the person who allegedly entered
into the contract was not even conceived at the time the contract was
executed, the SC said that the contract was definitely absolutely simulated.
Velasquez v. CA − contract was clearly simulated to facilitate the
transaction with the bank as there was absolutely no consideration at all
and the parties clearly did not intend to be bound by the deed of sale and
its accompanying documents.
Francisco v. Francisco−Alfonso − when two illegitimate daughters claimed
they bought property but it was shown that they could not have possibly
acquired the same given that they had no income, the contract of sale was
void for being simulated because there was no consideration for the same.
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Section 2 – Object of Contracts
Art. 1347 – Object of a Contract
All things which are not outside the commerce of men, including future things, may
be the object of a contract. All rights which are not intransmissible may also be the
object of contracts.
No contract may be entered into upon future inheritance except in cases expressly
authorized by law.
All services which are not contrary to law, morals, good customs, public order or
public policy may likewise be the object of a contract. (1271a)
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The object of a contract is its subject matter. It is the thing, right, or service
which is the subject−matter of the obligation arising from the contract.
Requisites (CILID):
1. within the commerce of man;
2. not intransmissible
3. must be licit, or not contrary to law, morals, good customs, public
policy, or public order;
4. not an impossible thing or service; and
5. it must be determinate as to its kind.
Art. 1348 – Impossible Things or Services
Impossible things or services cannot be the object of contracts. (1272)
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Within the commerce of man − any property or service can be the object
of a contract provided that it is within the commerce of man.
o Maneclang v. IAC − a creek cannot be converted into a fishpond
because it is a property belonging to the public domain which is
not susceptible to private appropriation and acquisitive
prescription.
o Things which are outside the commerce of man:
▪ Services which imply an absolute submission by those
who render them, sacrificing their liberty, their
independence or beliefs, or disregarding in any manner
the equality and dignity of persons, such as perpetual
servitude or slavery;
▪ Personal rights, such as marital authority, the status and
capacity of a person, and honorary titles and distinctions;
▪ Public offices, inherent attributes of the public authority,
and political rights of individuals, such as the right of
suffrage;
▪ Property, while they pertain to the public dominion, such
as the roads, plazas, squares, and rivers;
▪ Sacred things, common things, like the air and the sea,
and res nullius, as long as they have not been
appropriated.
▪ Even future things can be the object of contracts, as long
as they have the possibility or potentiality of coming into
existence.
Future things that can be reasonably ascertained can be the object of a
contract.
•
Rights may likewise be the object of contracts provided they are
transmissible.
•
Future inheritance — any property or right not in existence or capable of
determination at the time of the contract, that a person may in the future
acquire by possession.
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Blas v. Santos — where the wife agreed to give whatever her share in the
conjugal partnership property to her heirs once the husband dies, the SC
said that such agreement does not involve future inheritance.
o The document refers to existing properties which she will receive
by operation of law on the death of her husband, because it is her
share in the conjugal assets.
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The law, however, generally does not allow contracts on future
inheritance. A contract entered into by a fideicommissary heir with respect
to his eventual rights would be valid provided that the testator has already
died. The right of a fideicommissary heir comes from the testator and not
from the fiduciary.
Art. 1349 – Quantity Need Not be Determinate
The object of every contract must be determinate as to its kind. The fact that the
quantity is not determinate shall not be an obstacle to the existence of the
contract, provided it is possible to determine the same, without the need of a new
contract between the parties. (1273)
•
The object must be one that can be ascertained with reasonable certainty
as to its kind.
o Hence, a contract engaging a certain person to perform a deed,
without specifying what deed it is, does not make the service
determinable and is therefore void.
Section 3 – Cause of Contracts
Art. 1350 – Cause Defined
In onerous contracts the cause is understood to be, for each contracting party, the
prestation or promise of a thing or service by the other; in remuneratory ones, the
service or benefit which is remunerated; and in contracts of pure beneficence, the
mere liberality of the benefactor. (1274)
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Cause of the contract — the essential or more proximate purpose which
the contracting parties have in view at the time of entering into the
contract
o It may or may not be tangible
o It can take different forms:
▪ Prestation or promise of a thing or service by another
▪ Giving of a sum of money, an object
▪ Expectation of profits from a subdivision project
The cause as to each party is the undertaking or prestation to be
performed by the other. The object of the contract is the subject matter
thereof
Ex.
the land which is sold in a sales contract
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Consideration − the reason, motive, or inducement by which a man is
moved to bind himself by an agreement.
The contact is the law between the parties. When the words of a contract
are plain and readily understandable, there is no room for construction.
Dihiansan v. CA − the consideration was the private respondent’s
preferential right to buy the property from the owner.
Cause of contracts:
1. Onerous contract — for each contracting party, the prestation or promise
of a thing or service by the other
o The cause need not be adequate or an exact equivalent in point of
actual value, especially in dealing with objects which have a
rapidly fluctuating price. There are equal considerations.
2. Reciprocal contracts — the obligation or promise of each party.
o Republic v. Cloribel − in a compromise agreement designed to
terminate the case, the cause of the compromise was the mutual
waiver and abandonment of the parties of their claims against
each other.
3. Remuneratory contracts — the service or benefit which is remunerated
o Where a party gives something to another because of some
service or benefit given or rendered by the latter to the former,
where such service or benefit was not due as a legal obligation.
The consideration of one is greater than the other‘s.
4. Contracts of pure beneficence — mere liberality of the benefactor
o It does not involve any material thing but rather it involves only
the generosity of the benefactor.
Art. 1351 – Motive Defined
The particular motives of the parties in entering into a contract are different from
the cause thereof. (n)
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Cause — essential reason for the contract.
Motive — particular reason for a contracting party which does not affect
the other party and which does not preclude the existence of a different
consideration.
o Motivation of the parties is independent from the cause of the
contract and therefore does not form an essential part of it.
General rule — motive or particular purpose of a party in entering into a
contract does not affect the validity nor existence of the contract.
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o Exception — when the realization of such motive or particular
purpose has been made a condition upon which the contract is
made to depend. Philippine National Construction Corp. v. CA
No judicial action is necessary for the annulment of a void contract. Any
such action would be merely declaratory.
Cause is the objective, intrinsic, and juridical reason for the existence of
the contract itself, while motive is the psychological, individual, or personal
purpose of a party to the contract.
General principle — the motives of a party do not affect the validity or
existence of a contract.
o Exceptions — When motive predetermines the purpose of the
contract, such as:
▪ When the motive of a debtor in alienating property is to
defraud his creditors, the alienation is rescissible;
▪ When the motive of a person in giving his consent is to
avoid a threatened injury, as in the case of intimidation,
the contract is voidable; and
▪ When the motive of a person induced him to act on the
basis of fraud or misrepresentation by the other party,
the contract is voidable.
E. Razon v. Philippine Ports Authority − contract with an illegal cause is
void.
Uy v. CA − where the NHA purchased lots and cancelled because the lots
turned out to be unsuitable for its housing project, the cancellation was
valid as it was based on the negation of the cause which is to use the land
for housing.
Art. 1352 – Absence of Cause
Contracts without cause, or with unlawful cause, produce no effect whatever. The
cause is unlawful if it is contrary to law, morals, good customs, public order or
public policy. (1275a)
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Absence of the cause, being one of the essential elements of a contract, do
not create a contract as there can be no meeting of the minds.
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Art. 1353 – False Cause
The statement of a false cause in contracts shall render them void, if it should not
be proved that they were founded upon another cause which is true and lawful.
(1276)
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General rule — false cause stated in a contract makes the contract void.
o Exception — when a contract, though stating a false
consideration, has in fact a real consideration, the contract is not
void
The contract is at least a relatively simulated one.
Art. 1354 – Cause Presumed to Exist and Lawful
Although the cause is not stated in the contract, it is presumed that it exists and is
lawful, unless the debtor proves the contrary. (1277)
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Unless the contrary is proved, a contract is presumed to have a good and
sufficient consideration.
This presumption applies when no cause is stated in the contract.
Liam v. Olympic Sawmill Co. − defendants had not proven that the
obligation was illegal hence, it subsists.
Art. 1355 – Lesion Defined
Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a
contract, unless there has been fraud, mistake or undue influence. (n)
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A valuable consideration, however small or nominal, if given or stipulated
in good faith is, in the absence of fraud, sufficient. Penaco v. Ruava
In case of lesion or inadequacy of cause:
o General rule — the contract is not subject to annulment.
▪ Exception — in cases provided by law, however, such as
those mentioned in Art 1381, the lesion is a ground for
rescission of the contract.
Gross inadequacy naturally suggests fraud and is evidence thereof, so that
it may be sufficient to show it when taken in connection with other
circumstances.
Auyong Hian v. Court of Tax Appeals − petitioner has not shown that the
instant sale is a cause exempted by law from the operation of Art. 1355.
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Chapter 3: Form of Contracts
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Art. 1356 – Form of Contracts
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Contracts shall be obligatory, in whatever form they may have been entered into,
provided all the essential requisites for their validity are present. However, when
the law requires that a contract be in some form in order that it may be valid or
enforceable, or that a contract be proved in a certain way, that requirement is
absolute and indispensable. In such cases, the right of the parties stated in the
following article cannot be exercised. (1278a)
Form of Contracts:
• General Rule − contracts are binding from perfection in whatever form,
provided the three requisites exist:
1. Consent
2. Object
3. Cause
• 1356 establishes Exceptions − where form is required for validity.
1. Contracts which law itself requires that they be in some particular
form
2. Donation of immovable property must be in a public instrument
such that the donation may be valid
▪ Donation of movables worth more than P 5,000
3. Contracts that law requires to be proven by some writing of its
terms
▪ Statute of Frauds
• Cenido v. Apacionado −the purposes of prescribing form:
1. Validity − non−observance of form renders contract void
2. Enforceability − non−compliance with form will not permit the
contract to be proved or enforced
3. Greater efficacy − if not done, would not adversely affect validity
or enforceability of the contract between the parties themselves
Art. 1357 – Form for the Convenience of the Parties
If the law requires a document or other special form, as in the acts and contracts
enumerated in the following article, the contracting parties may compel each other
to observe that form, once the contract has been perfected. This right may be
exercised simultaneously with the action upon the contract. (1279a)
Compulsion to follow form :
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A party who wishes to have his contract reduced to the particular form
required by law may file an action to compel the other party to comply
with such form.
If requirement is merely directory − no impact on the validity or
enforceability.
o Parties may enforce the contract.
o Demand that it be reduced in the form required by law.
Zaide v. CA − unregistered contract of sale was assailed as invalid, SC ruled
in favor of validity.
o The deed of sale was defective as to render it unregisterable − no
name of the vendee’s husband.
o However, such defect does not invalidate the deed.
o Though defective in form, the sale was valid.
o Thus, the parties may compel each other to do what is needed to
make the document of sale registerable.
Art. 1358 – Contracts Which Must Appear in a Public Document
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; sales of real
property or of an interest therein a governed by Articles 1403, No. 2, and 1405;
(2) The cession, repudiation or renunciation of hereditary rights or of those of the
conjugal partnership of gains;
(3) The power to administer property, or any other power which has for its object
an act appearing or which should appear in a public document, or should prejudice
a third person;
(4) The cession of actions or rights proceeding from an act appearing in a public
document.
All other contracts where the amount involved exceeds five hundred pesos must
appear in writing, even a private one. But sales of goods, chattels or things in action
are governed by Articles, 1403, No. 2 and 1405. (1280a)
Failure to put in a public or private document of matters enumerated :
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Does not render the agreement void.
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OBLIGATIONS AND CONTRACTS REVIEWER
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Agreement is still valid between the parties.
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Requirement is only for purpose of:
1. Greater efficacy
2. Convenience
3. Binding of third persons
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Dalion v.. CA − requirement under 1358 is only for convenience, not a
requisite for validity or enforceability.
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Chapter 4: Reformation of Instruments
Art. 1359 - Reformation
When, there having been a meeting of the minds of the parties to a contract, their
true intention is not expressed in the instrument purporting to embody the
agreement, by reason of mistake, fraud, inequitable conduct or accident, one of the
parties may ask for the reformation of the instrument to the end that such true
intention may be expressed.
If mistake, fraud, inequitable conduct, or accident has prevented a meeting of the
minds of the parties, the proper remedy is not reformation of the instrument but
annulment of the contract.
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Reformation − defined:
o That remedy by means of which a written instrument is amended or
rectified…
o As to express or conform to the real agreement or intention of the
parties, when…
o By reason of mistake, fraud, inequitable conduct, or accident…
o The instrument fails to express such agreement or intention.
Reason − equity
o Courts do not attempt to make a new contract
o Reformation is based on the doctrine that it would be unjust and
inequitable to allow the enforcement of a written instrument which
does not reflect or disclose the real meeting of the minds of the
parties.
Requisites of Reformation − (ME-MFIA-FC)
o There is a meeting of the minds of the parties to the contract.
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The written instrument does not express the true agreement or
intention of the parties.
o Failure to express the true intention is due to mistake, fraud,
inequitable conduct, or accident.
o The facts upon relief by way of reformation of the instrument is
sought are put in issue by the pleadings.
o There is clear and convincing evidence (more than a preponderance)
of the mistake, fraud, inequitable conduct, or accident.
Reformation distinguished from annulment:
o Reformation − there is a meeting of the minds: a contract exists. The
deficiency lies in the written instrument embodying such contract.
o Annulment − there was no valid contract perfected.
Art. 1360 – Principles of the General Law on Reformation
The principles of the general law on the reformation of instruments are hereby
adopted insofar as they are not in conflict with the provisions of this Code.
Art. 1361 – Mutual Mistake as Basis of Reformation
When a mutual mistake of the parties causes the failure of the instrument to
disclose their real agreement, said instrument may be reformed.
Mutual Mistake as Basis for Reformation:
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Mutual Mistake − mistake of fact that is common to both parties which causes
the failure of the instrument to express true intention.
Gonzales Mondragon v. Santos − contracts solemnly and deliberately entered
into may not be overturned by inconclusive proof or by reason of mistake of
one of the parties to which the other in no way has contributed.
The following requisites must concur to justify reformation under this article
(FCMC):
1. Mistake must be of fact .
2. Such mistake proved by clear and convincing evidence.
3. Mistake must be mutual – common to both parties.
4. Mistake must cause the failure of the instrument to express true
intention.
If the mutual mistake is one of law – the remedy is annulment.
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Art. 1362 –Mistaken, Fraud and Inequitable Conduct
If one party was mistaken and the other acted fraudulently or inequitably in such a
way that the instrument does not show their true intention, the former may ask for
the reformation of the instrument.
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The right to ask for reformation is given to the party whose mistake was in
good faith.
It must be shown that the other party has acted fraudulently or inequitably 
and such act resulted in the drafting of a document that does not correspond
to the actual agreement
General Rule − mistake of law cannot result in reformation
o Exception − where, on account of misplaced confidence, and because
of some artifice or deception fraudulently practiced upon him by the
other party, a material part of the contract was omitted from the
writing, or he was otherwise misled, equity will decree a reformation.
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Concealment of mistake of other party
o Remedy of reformation may be availed of the party who acted in good
faith.
o The concealment of mistake constitutes fraud.
Knowledge by one party of the other’s mistake regarding the expression of the
agreement is equivalent to a mutual mistake.
o Injured party may seek reformation.
Art. 1364 –Ignorance, etc. on the Part of Third Person
When through the ignorance, lack of skill, negligence or bad faith on the part of the
person drafting the instrument or of the clerk or typist, the instrument does not
express the true intention of the parties, the courts may order that the instrument
be reformed.
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Situation contemplated: If person drafting or typing the instrument is unable
to come up with a correct written document that embodies the will of the
parties, because of:
o lgnorance
o Lack of skill
o Negligenceƒbad faith
Such mistake will be deemed mutual, and either party may ask for reformation
− this is because neither party is responsible.
Art. 1365 – Mortgage or Pledge Stated as a Sale
If two parties agree upon the mortgage or pledge of real or personal property, but
the instrument states that the property is sold absolutely or with a right of
repurchase, reformation of the instrument is proper.
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Art. 1363 – Concealment of Mistake by the Other Party
When one party was mistaken and the other knew or believed that the instrument
did not state their real agreement, but concealed that fact from the former, the
instrument may be reformed.
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Situation contemplated : the real agreement is mortgage or pledge, but the
instrument says that such property is sold absolutely.
Reformation in this case will be proper.
Palileo v. Cosio − parties to a contract intended that a house was to be
collateral for a previous loan. Agreement apparently stated that the house was
subject of a conditional sale. It was held that the courts do not make another
contract… they merely inquire into the intention of the parties, and, having
found it, reform the written instrument (not the contract) in order that it may
express the real intention.”
Art. 1366 –Cases when Reformation Not Allowed
There shall be no reformation in the following cases:
(1) Simple donations inter vivos wherein no condition is imposed;
(2) Wills;
(3) When the real agreement is void.
Art. 1367 – Party who Brought Action to Enforce Cannot Reform
When one of the parties has brought an action to enforce the instrument, he
cannot subsequently ask for its reformation.
When is reformation not allowed − DWEV :
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Simple donations inter vivos where no condition is involved
o Donation − an act of liberality whereby a person disposes gratuitously
of a thing or right in favor of another.
o Inter vivos − a donation intended to take place during the donor’s
lifetime
o Since act is essentially gratuitous, donee has no just cause for
complaint
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Donor is not bound to correct mistakes in deed of donation
▪ Donor may ask for reformation.
o Donations do not involve a meeting of the minds.
o If donation is onerous in character or involves a condition, the deed
may be reformed so that the true conditions imposed by the donor
may be expressed.
Will − an act whereby a person is permitted, with formalities of law, to control
to a certain degree the disposition of his estate, to take effect after his death.
o It is a strictly personal and free act.
Where the real agreement is void
o When the real agreement is void, there is nothing to reform.
When one party has brought an action to enforce the instrument (Art 1367)
o Based on estoppel.
o When a party brings an action to enforce a contract, he admits its
validity and that it expresses the true intention of the parties.
Art. 1368 – Party Entitled to Reformation
Reformation may be ordered at the instance of either party or his successors in
interest, if the mistake was mutual; otherwise, upon petition of the injured party, or
his heirs and assigns.
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This article gives the persons who are given legal standing to initiate an action
for reformation:
1. Either of parties, if mistake is mutual (Arts. 1361, 1364, 1365)
2. In all other cases, the injured party (Arts 1362 − 1365)
3. Heirs or successors in interest, in lieu of the party entitled
Effect of reformation is retroactive from the time of the execution of the
original contract.
Art. 1369 – Procedure for Reformation
The procedure for the reformation of instrument shall be governed by rules of court
to be promulgated by the Supreme Court.
Chapter 5: Interpretation of Contracts
Art. 1370 – Interpretation of Contracts Defined
If the terms of a contract are clear and leave no doubt upon the intention of the
contracting parties, the literal meaning of its stipulations shall control.
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If the words appear to be contrary to the evident intention of the parties, the latter
shall prevail over the former. (1281)
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Purpose of interpretation − to be able to know the intent of the parties, so that
the contract can be properly implemented.
o Making intelligible what was not before understood, ambiguous, or
not obvious.
o The meaning of language is ascertained.
Rules in statutory construction can likewise be applied.
o Finman General Assurance Corp v. CA − the statcon rule “expressio
unius exclusio alterius” was applied in deciding the case
Generally, intention of parties is reflected in the wordings − Thus, the general
rule is that the literal meaning of stipulations shall control.
o Adelfa Properties Inc v. CA − the important task in contract
interpretation is the ascertainment of the intention of the parties. And
that task is to be discharged by looking to…all the words, not just a
particular word or two, and words in context, not words in isolation.
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Conde v. CA − if the contract is plain and unequivocal in its terms, he is
ordinarily bound thereby. It is the duty of every contracting party to
learn and know its contents before he signs. Thus, parties must every
contract they enter into very carefully.
o Santi v. CA − lease contract provided: 20 year period of lease being
extendable for another period of 20 years. Lower court interpreted
this as automatic renewal. It was held that we must look at literal
meaning when the terms are clear and unequivocal. There is no
reason to construe these terms in a different meaning. If they wanted
automatic extension, they could have just provided for a period of 40
years.
o Universal Textile Mills, Inc. v. NLRC −− NLRC misread and misapplied
provisions of a CBA. It was held that the NLRC cannot remake a
contract by eviscerating it, by deleting words placed there by the
parties. No court, interpreter, or applier of a contract has such
prerogative.
▪ The interpretation or construction of a contract does not
include its modification or creation of a new and different
one.
▪ Whatever interpretation the court will make should be within
the realm of what the parties intended.
▪ They cannot revise or modify.
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Art. 1371 – Contemporaneous and Subsequent Acts Determine Intent
In order to judge the intention of the contracting parties, their contemporaneous
and subsequent acts shall be principally considered. (1282)
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An interpreter must look at the reasons and surrounding circumstances behind
a contract’s execution − This is so he may place himself in the situation
occupied by the parties concerned at the time of the writing.
Pingol v. CA − there was a dispute as to whether the purchase agreement was a
contract to sell, or an absolute sale. The court looked at the contemporaneous
and subsequent acts of the parties. Pursuant to the deed, the vendor delivered
actual and constructive possession of the property to the vendee. Vendee
occupied and took such possession, constructed a building thereon. These acts
are demonstrative that the vendor, since the sale, recognized the vendee as
the absolute owner of the property. Thus, it was a contract of absolute sale.
Rapanut v. CA − the controversy was about the interpretation of a provision on
the application of interest. Significant is the fact that private respondent
accepted the payments petitioner religiously made for four years. Thus, the
acts of the respondent made the application of the provision clearer − it was
that interest that was applicable. Since there was no objection or rescission,
respondent was now estopped.
Carceller v. CA − analysis and construction should not be limited to the words
used in the contract, as they may not accurately reflect the parties’ true intent.
Reasonableness of the result obtained ought to be considered. Contracts
should not be interpreted in a harsh and iniquitous way.
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It should not include S’s refrigerator, which is distinct from
furniture.
Art. 1373 – Interpretation of Stipulation with Several Meanings
If some stipulation of any contract should admit of several meanings, it shall be
understood as bearing that import which is most adequate to render it effectual.
(1284)
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Basic Rule : Terms in a construct must be given a construction as will give effect
to them.
Ex. S sells “his parcel of land” to B.
▪ S owns 2 lands − one owned by him absolutely, and another
that he co−owns with C. C did not give consent.
▪ We must interpret it as referring to the land owned by him
alone, as this would give the contract effect.
Lao Lim v. CA − where the instrument is susceptible of two interpretations, one
which will make it invalid and illegal, and another which will make it valid and
legal, the latter interpretation should be interpreted.
Ridjo Tape and Chemical Corp v. CA − construction resulting in impairment or
loss of right is not favored.
o Conservation and preservation, not waiver,
forfeiture,
or
abandonment of a right is the rule.
Art. 1374 – Interpretation of Various Stipulations
Art. 1372 – Special Intent Prevails Over General Intent
The various stipulations of a contract shall be interpreted together, attributing to
the doubtful ones that sense which may result from all of them taken jointly. (1285)
However general the terms of a contract may be, they shall not be understood to
comprehend things that are distinct and cases that are different from those upon
which the parties intended to agree. (1283)
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Two latin maxims are in the purview of this article :
• Noscitur a sociis
o General and unlimited terms are restrained and limited
o By the particular terms that follow.
• Ejusdem generis
o A general term joined with a specific one will be deemed to include
only things that are like, of the same genus as, the specific one.
Ex.
S sells his house “including all the furniture therein.”
o “all” only modifies “furniture”
Provisions of a contract must be read as a whole, and not in isolation.
Each provision must be related to each other to clearly know the total import
and application of the law.
Ex.
R leased his house to E.
▪ The contract said that E should not sublease the house
without the written consent of R.
▪ Another stipulation said that E should pay P1000 as additional
rent a month, should he violate the condition.
▪ E subleased the house without consent of R.
▪ R has no right to eject E, because of the clause stating the
penalty for the violation of the condition.
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Ruiz v. Sherriff of Manila − controversy involving a mortgage contract, and
foreclosure. Its entirety must be taken into account, and not merely its last two
sentences. A reading of the entire provision will readily show that appellants
were allowed to amortize their loan. This illustrates that like statutory
construction, meaning can be found by reading all of the provisions, as a
whole.
Art. 1377 – Interpretation of Obscure Words
The interpretation of obscure words or stipulations in a contract shall not favor the
party who caused the obscurity. (1288)
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Art. 1375 – Interpretation of Words with Different Significations
Words which may have different significations shall be understood in that which is
most in keeping with the nature and object of the contract. (1286)
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Ex. R leased to E a roof for the purpose of erecting an advertising sign.
o Contract provides for termination of the lease by E if a “building” should
be constructed on the adjoining property that would obscure E’s sign.
o There was erected on the roof of an adjoining building a sign that
obstructed the view of E’s sign.
o The term “building” may be included as to include the obstructing sign,
having in mind the nature and object of the contract – that situation
where E’s sign was obscured.
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Words or stipulations that cause ambiguity in application shall be construed
against the person who chose to use such language.
o This is the contra preferentem rule.
o Against the profferer − he who drafted the documents
o Reason for this is that the one who drafted the contract had better
opportunity to prevent mistake or ambiguity
This rule is generally applied to contracts of adhesion
o Those contracts which do not result in negotiation
o Prepared by one party to which the other may “adhere to” if he
wishes, but which he cannot change − a “take it or leave it” contract
Capitol Insurance v.. Sadang − ambiguity in the mortgage contract drafted by
lawyer of insurance company led to ambiguity in application. The court ruled
that the doubt must be resolved against Capitol, whose lawyer prepared the
document.
Art. 1378 – Rules in Case Doubts are Impossible to Settle
Art. 1376 – Usage or Custom as aid in Interpretation
The usage or custom of the place shall be borne in mind in the interpretation of the
ambiguities of a contract, and shall fill the omission of stipulations which are
ordinarily established. (1287)
Ex. X rendered services to Y, but the contract did not state the amount of
compensation to be paid. In this case, the amount must be determined by the
rate customarily paid in the place where the services where rendered.
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It is necessary to prove the existence of usage or custom − burden of proof on
he who alleges it.
Usage or custom cannot supersede or vary the plain and literal terms of a
contract.
o The proper office of a custom or usage in trade is to ascertain and
explain the meaning and intention of the parties. It does not go
beyond this, and is used as a mode of interpretation on the theory
that the parties knew of its existence and contracted with reference
to it.
When it is absolutely impossible to settle doubts by the rules established in the
preceding articles, and the doubts refer to incidental circumstances of a gratuitous
contract, the least transmission of rights and interests shall prevail. If the contract is
onerous, the doubt shall be settled in favor of the greatest reciprocity of interests.
If the doubts are cast upon the principal object of the contract in such a way that it
cannot be known what may have been the intention or will of the parties, the
contract shall be null and void. (1289)
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Situation contemplated : after application of all the preceding rules, there are
still doubts that exist.
This article gives supplementary rules, depending on what kind of contract it is,
and where the doubts lie.
o Gratuitous Contract − such interpretation should be made which
would result in the least transmission of rights and interests.
▪ Ex. R gave his car to E. It is not clear whether contract is a
donation or a commodatum.
▪ The contract is presumed to be a mere commodatum
because that transmits less rights.
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Onerous Contract − doubts should be settled in favor of the greatest
reciprocity of interests.
Ex. D borrows from C P5,000 at 12% interest.
▪ It cannot be determined whether the loan is payable in 6
months or one year.
▪ It must be assumed that the period agreed upon is one year
which results in greater reciprocity, since D can use the
money for one year, and C can earn interest due for one year
instead of just 6 months.
▪ A contract for sale is generally onerous − thus, if doubt is
between a suspensive condition or a suspensive period for
the payment of a price, the doubt shall be resolved in favor of
the latter. Gaite v. Fonacier
Principal object of the contract − doubt refers to the principal object
of the contract, leaving the intention of the parties to be unknown,
then the contract shall be null and void.
Ex. S sold to B his land. S has many lands, and it cannot be
determined which land was intended.
▪ This contract is null and void.
Art. 1379 – Rules of Court Applicable
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Requisites of Rescission:
1. Contract validly agreed upon
2. Pecuniary prejudice to one of the parties or a third person
3. Rescission must be based on a case provided by law
4. No other legal remedy
5. Party asking for rescission must be able to return what he is
obliged to restore
6. Object of the contract must not be legally in the possession of a
3rd person who acquired it in good faith
7. Period for filing has not prescribed. (De Leon)
Rescissible contracts are valid, but may be terminated upon legal grounds.
o Rescissibility predicated not on breach of trust, but on economic
damage as a result of inequitable conduct by a party.
Dilag v. CA − Contract in fraud of creditors but completely simulated is void
ab initio.
Art. 1381 – Cases of Rescissible Contracts
The following contracts are rescissible:
(1) Those which are entered into by guardians whenever the wards whom they
represent suffer lesion by more than one−fourth of the value of the things which are
the object thereof;
The principles of interpretation stated in Rule 123 of the Rules of Court shall
likewise be observed in the construction of contracts. (n)
(2) Those agreed upon in representation of absentees, if the latter suffer the lesion
stated in the preceding number;
•
•
(3) Those undertaken in fraud of creditors when the latter cannot in any other
manner collect the claims due them;
It is now contained in Rule 130.
The sections are reproduced in the book.
Chapter 6: Rescissible Contracts
Art. 1380 – Rescissible Contracts Defined
Contracts validly agreed upon may be rescinded in the cases established by law.
(1290)
•
Rescissible Contracts are those validly agreed upon because al the
essential elements exist, and therefore, legally effective, but in the cases
established by law, the remedy of rescission is granted in the interest of
equity.
(4) Those which refer to things under litigation if they have been entered into by
the defendant without the knowledge and approval of the litigants or of competent
judicial authority;
(5) All other contracts specially declared by law to be subject to rescission. (1291a)
•
Entered into by guardians whenever the wards whom they represent suffer
lesion by more than one−fourth of the value of the things which are the object
thereof.
o Lesion − economic damage.
o Act of ownership by guardian on behalf of his ward, with respect to
ward’s property, without court approval is void.
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•
o
•
•
•
What is contemplated here is a transaction with court approval −
which is valid.
o If by guardian’s act of ownership however, causes ward to suffer
economic damage − more than one−fourth of the value of the things of
the object of the contract − the contract can be rescinded.
Those agreed upon in representation of absentees, if the latter suffer the lesion
stated in the preceding number.
o Provisional absence − person disappears from his domicile,
whereabouts unknown, without leaving an agent − judge can appoint
an administrator at the instance of an interested party, relative, or
friend.
o How is absence declared – court may declare a person absent when:
▪ Absence for more than two years without news
▪ Absence for five years (if person has left administrator)
o Same rule as in the previous number applies
Those undertaken in fraud of creditors when the latter cannot in any other
manner collect the claims due them.
o Contract entered to in bad faith.
o Designed to evade the due obligations in favor of creditors, who have
no other way of collecting their debts.
o Bobis v. Provincial Sheriff of Camarines Norte − it is essential to prove
that both contracting parties have acted maliciously and with fraud in
order to prejudice creditors.
▪ This refers only to actual creditors of the debtor
▪ Marsman Investment Ltd v.. Philippine Abaca Development
Company − plaintiff corporations had ceased to be the
creditors of transferer PADCO as of 1959, and were
thereafter deprived of any interest in assailing the validity of
the transfer of its properties to Marsman.
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
Ex. In a suit for replevin wherein plaintiff seeks to recover personal
property from the defendant
▪ Defendant cannot in bad faith sell the property being
liquidated to any third person
▪ If he does, and the third person is in bad faith as well, such
contract is rescissible
▪ Litonjua v. LR Corporation
• Creditor lent money to debtor
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•
Debtor collateralized his property to secure such
loan
• Failure of debtor to recognizeƒimplement the
stipulated right of first refusal of the creditor will
make any sale of the property to a third person
rescissible
All other contracts specially declared by law to be subject to rescission
Art. 1382 – Payments Made in State of Insolvency
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.
(1292)
•
•
•
Insolvency − when a debtor has liabilities in excess of his assets and can barely
pay off his debts.
If he pay a creditor whose credit is not yet due, such payment can be rescinded
Prior judicial declaration of insolvency not required.
Art. 1383 – Nature of Action for Rescission
The action for rescission is subsidiary; it cannot be instituted except when the party
suffering damage has no other legal means to obtain reparation for the same.
(1294)
•
•
•
•
Action for rescission can only be made in a proper and direct action filed for
that purpose, and not on a mere motion incidental to another case.
Air France v. CA − Action for rescission may not be raised or set up in a
summary proceeding through a motion, but in a an independent civil action
and only after a full blown trial.
It must also be the last remedy. Other means to claim reparation must be
availed of first − included here is the filing of a court case.
Khe Hong Cheng v. CA − presuppositions for an accion pauliana, or action for
rescission that highlight the point that it has to be the last remedy.
1. A judgment
2. Issuance by trial court of a writ of execution for satisfaction of the
judgment
3. Failure of sheriff to enforce and satisfy court’s judgment
Art. 1384 – Extent of Rescission
Rescission shall be only to the extent necessary to cover the damages caused. (n)
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Rescission presupposes a valid contract.
o It need not be rescinded totally − rescission shall only be up to the
extent needed to cover the damage.
Recall : Rescission is based on economic damage as a result of inequitable
conduct.
Art. 1385 – Rescission Creates Obligation of Mutual Restitution
Rescission creates the obligation to return the things which were the object of the
contract, together with their fruits, and the price with its interest; consequently, it
can be carried out only when he who demands rescission can return whatever he
may be obliged to restore.
Neither shall rescission take place when the things which are the object of the
contract are legally in the possession of third persons who did not act in bad faith.
Art. 1387 – When Alienation Presumed in Fraud of Creditors
All contracts by virtue of which the debtor alienates property by gratuitous title are
presumed to have been entered into in fraud of creditors, when the donor did not
reserve sufficient property to pay all debts contracted before the donation.
Alienations by onerous title are also presumed fraudulent when made by persons
against whom some judgment has been issued. The decision or attachment need
not refer to the property alienated, and need not have been obtained by the party
seeking the rescission.
In addition to these presumptions, the design to defraud creditors may be proved in
any other manner recognized by the law of evidence. (1297a)
•
In this case, indemnity for damages may be demanded from the person causing the
loss. (1295)
•
•
•
•
Objective of restitution is to restore their parties to their original (pre−contract)
position.
Upon rescission, parties must return:
1. The object of the contract
2. Fruits and interests of such object, if any
If object cannot be restored because of loss − damages may be claimed.
Rescission cannot take place if the object of the contract is legally in possession
of a third party in good faith.
o Good faith is presumed unless contrary evidence is adduced.
Art. 1386 – Contracts Approved by the Courts
Rescission referred to in Nos. 1 and 2 of Article 1381 shall not take place with
respect to contracts approved by the courts. (1296a)
•
•
Numbers 1 and 2:
o Guardian with respect to ward’s property
o Administrator − absentee
Contracts entered into by these people, once judicially approved, cannot be
subject of rescission.
o Approval implies that the contract was justified already in the eyes of
the court.
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•
This article provides rebuttable presumptions.
o It creates the presumption that acts have been done in fraud of
creditors
o However, all these presumptions may be rebutted by strong evidence
that the contract was not in fraud of creditors.
First − debtor alienates property by gratuitous title, when donor did not
reserve sufficient property to pay all debts contracted before such donation
o Ex. B owes a total of P30,000 to several creditors
o He has P60,000 in the bank
o He donates P55,000 to X − donation is presumed to be fraudulent
o Maturity of debts immaterial
Second − Alienation by onerous title is made by persons against whom some
judgment has been issued
o This refers to a person against whom a writ of attachment has already
been issued
o Mere alienation during pendency of suit does not create the
presumption
o Alienation need not refer to property attached
Ex. A obtains a writ of attachment against debtor B, with respect to a
property in Mandaluyong.
▪ If B sells his property in Laguna the presumption arises, even
if it is not the property attached
Art. 1388 – Liability of Purchaser in Bad Faith
Whoever acquires in bad faith the things alienated in fraud of creditors, shall
indemnify the latter for damages suffered by them on account of the alienation,
whenever, due to any cause, it should be impossible for him to return them.
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If there are two or more alienations, the first acquirer shall be liable first, and so on
successively. (1298a)
These contracts are binding, unless they are annulled by a proper action in court.
They are susceptible of ratification. (n)
•
•
•
Buyer who knows that conveyance has been made in fraud of creditors shall be
liable for damages to the creditor, should it be impossible to return the
property.
If he can, he has obligation to return what has been transferred to him in bad
faith.
Art. 1389 – Period for Filing Action for Rescission
The action to claim rescission must be commenced within four years.
For persons under guardianship and for absentees, the period of four years shall
not begin until the termination of the former's incapacity, or until the domicile of
the latter is known. (1299)
When the four year period begins :
• Generally, when the aggrieved party has unsuccessfully exhausted all
possible remedies to enforce the obligation or to recover what has been
lost
o Persons under guardianship – from the time the incapacity
terminates
o For absentees – from the time he learns of the contract
o Defrauded creditors – from the time the fraud is discovered
o Things under litigation – from the time of knowledge of the
transaction
Chapter 7: Voidable Contracts
Art. 1390 – Voidable Contracts Defined
The following contracts are voidable or annullable, even though there may have
been no damage to the contracting parties:
(1) Those where one of the parties is incapable of giving consent to a contract;
(2) Those where the consent is vitiated by mistake, violence, intimidation, undue
influence or fraud.
•
•
Voidable or annullable contracts − those which possess all the essential
requisites, but one of the parties.
a. Is incapable of giving consent.
b. Has his consent vitiated by mistake, violence, undue influence or
fraud.
They may be cured by the aggrieved party − ratification
Lim Tay v. CA − annulment operates prospectively, and does not retroact.
Art. 1391 – Period for Filing Action for Annulment
The action for annulment shall be brought within four years.
This period shall begin:
In cases of intimidation, violence or undue influence, from the time the defect of
the consent ceases.
In case of mistake or fraud, from the time of the discovery of the same.
And when the action refers to contracts entered into by minors or other
incapacitated persons, from the time the guardianship ceases. (1301a)
•
•
Prescriptive period to annul a contract is four years.
Starting point depends on the ground invoked.
1. Intimidation, violence, undue influence − when such defect ceases.
Ex. A intimidates B with bodily harm in order to enter into a lease
contract. The moment A reforms and stops the threats, the four
year period begins counting.
2. Mistake or Fraud − from the discovery of such defect
Ex. A fools B into thinking that a jewel is made of diamond, when in
fact it is made of glass. Once B discovers the fraud, the period
begins running.
3. Contracts entered into by minors or other incapacitated persons −
from the moment guardianship ends
Ex.
If A’s guardian fraudulently transfers his property to a
third party, A must wait until the guardianship ceases to
file the case, and from there, the period will begin
running.
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Art. 1392 – Effect of Ratification
Art. 1395 – Conformity of Guilty Party to Ratification Not Required
Ratification extinguishes the action to annul a voidable contract. (1309a)
Ratification does not require the conformity of the contracting party who has no
right to bring the action for annulment. (1312)
Art. 1393 – Forms of Ratification
Ratification may be effected expressly or tacitly. It is understood that there is a tacit
ratification if, with knowledge of the reason which renders the contract voidable
and such reason having ceased, the person who has a right to invoke it should
execute an act which necessarily implies an intention to waive his right. (1311a)
•
•
•
Ratification − the act of curing the defect which made the contract annullable −
it extinguishes the action to annul
May be express or tacit:
A. Express − after coercion ceases, A tells B that he will continue to pay
the lease payments
B. Tacit − After coercion ceases, A merely continues to pay the rentals for
the property
▪ Requisites:
1. Knowledge of reason which renders contrct voidable
2. Such reason ceases
3. Injured party executes an act which implies an
intention to waive his right
o In both cases, the defect is cured whuch erases the infirmity in the
contract.
Yao Ka Sin Trading v. CA − no ratification by a corporation of acts performed by
an officer if he has no authority from such corporation, or if such acts are not
later validated.
Art. 1394 – Who May Ratify
Ratification may be effected by the guardian of the incapacitated person. (n)
•
•
•
Guardian − takes with the administration of person and properties of the ward
A contract entered into by an incapacitated person may be ratified by:
A. Guardian
B. Injured party himself, once capacitated
▪ No longer insane, for example
▪ Reaches age of majority
In case contract is voidable on ground of mistake, etc − ratification can be
made by party whose consent is vitiated.
•
•
Ratification − unilateral act
Consent of injuring party is not required.
Art. 1396 – Retroactive Effect of Ratification
Ratification cleanses the contract from all its defects from the moment it was
constituted. (1313)
•
•
Ratification retroacts to the day the contract was entered into.
It makes the contract valid from its inception, subject to the prior rights of third
persons.
o “prior” − means prior to ratification
Art. 1397 – Party Entitled to Bring an Action to Annul
The action for the annulment of contracts may be instituted by all who are thereby
obliged principally or subsidiarily. However, persons who are capable cannot allege
the incapacity of those with whom they contracted; nor can those who exerted
intimidation, violence, or undue influence, or employed fraud, or caused mistake
base their action upon these flaws of the contract. (1302a)
•
•
General rule − only parties to the contract may bring an action for its
annulment.
Requisites for capacity to annul:
1. Must be interested in the contract
2. The victim is the one who must assert the same (in other words, the
person who caused the defect cannot be the one to bring the action
for annulment)
▪ Capacitated persons may not allege the incapacity of the
other party in order to annul
▪ However, in case the incapacity involved is minority, the
capacitated party may file a case for enforcement, provided
that the misrepresentation of majority was active
▪ Users of intimidation, etc cannot annul the contract based on
these acts.
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Exceptions:
1. A person who is not a party…may exercise an action for the nullity of
the contract if he is prejudiced in his rights with respect to one of the
contracting parties…
2. …and can show the detriment which would positively result to him
from the said contract. Banez v. CA
▪ Thus, a stranger to the contract must show:
1. Prejudice to his rights
2. Detriment that would result
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▪
However, since as a general rule, capacitated persons may
not allege incapacity in order to annul. A may only recover
upon an action for annulment filed by B when he reaches
majority
Art. 1400 – Effect of Loss of Thing to be Returned
Whenever the person obliged by the decree of annulment to return the thing can
not do so because it has been lost through his fault, he shall return the fruits
received and the value of the thing at the time of the loss, with interest from the
same date. (1307a)
Art. 1398 – Duty of Mutual Restitution upon Annulment
An obligation having been annulled, the contracting parties shall restore to each
other the things which have been the subject matter of the contract, with their
fruits, and the price with its interest, except in cases provided by law.
In obligations to render service, the value thereof shall be the basis for damages.
(1303a)
•
•
•
Parties, as a general rule, must restore to each other, upon annulment:
1. Subject matter of the contract, with fruits
2. Price thereof, with legal interest
Like in rescission, the purpose is to restore the parties to their original position.
In personal obligations, where service had already been rendered, the value
thereof with interest is the basis for damages.
Art. 1399 – Restitution by an Incapacitated Person
When the defect of the contract consists in the incapacity of one of the parties, the
incapacitated person is not obliged to make any restitution except insofar as he has
been benefited by the thing or price received by him. (1304)
•
When defect consists in incapacity, the incapacitated person is not obliged to
make any restitution except insofar as he has been benefited by the thing or
price received by him.
Ex. A loans B, a minor, money.
▪
▪
If B spends it uselessly, A cannot recover even if court
declares the obligation annulled.
If B spends it on things beneficial to him, such as tuition for
school, A may recover.
Effect of Loss of Thing to be Returned:
•
•
If lost without the fault of person obliged:
o No more obligation to return such thing.
o The other party cannot be compelled to restore what he had received.
If lost through fault of person obliged:
o Obligation converted into a claim for damages
o Damages − value of the thing at the time of the loss, with interest
from the same date, and fruits received from the thing.
Ex. S sold his plow and carabao to B. On petition of S, contract was
annulled. However, carabao died through fault of B.
▪
▪
B must pay value of carabao at the time of its death, with
interest from the same date.
If carabao had given birth, the baby carabao would be
delivered to S as a fruit.
Art. 1401 – Extinguishment of Action for Annulment
The action for annulment of contracts shall be extinguished when the thing which is
the object thereof is lost through the fraud or fault of the person who has a right to
institute the proceedings.
If the right of action is based upon the incapacity of any one of the contracting
parties, the loss of the thing shall not be an obstacle to the success of the action,
unless said loss took place through the fraud or fault of the plaintiff. (1314a)
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Extinguishment of Action for Annulment:
•
•
•
No one can come to court with unclean hands.
If the person who had a right to institute an action for annulment is unable to
restore the thing he would be obliged to return, because such thing is lost
through his fault, the right to annul is extinguished.
o If A coerces B to sell him a car, B can seek annulment.
o However, if B loses the car by intentionally destroying it, his right to
file the action would be extinguished.
Right of action based on incapacity − the rule is the same.
o Generally, if an incapacitated person loses the object, there is no bar
to the action for annulment.
▪ This is because he is only obliged to restore to the extent of
how he was benefited.
▪ If the object was lost, he could not have benefited.
o However, if he loses it through his own fault, the case for annulment
will be dismissed.
Art. 1402 – Effect where a Party Cannot Restore Object
As long as one of the contracting parties does not restore what in virtue of the
decree of annulment he is bound to return, the other cannot be compelled to
comply with what is incumbent upon him. (1308)
•
•
•
When a contract is annulled, a reciprocal obligation of restitution is created.
Return by one party of what he is obliged to restore is regarded as a condition
to the fulfillment of the other’s obligation to return.
Thus, if a party cannot return what he has received, the other may not be
compelled to return what he has received.
Chapter 8: Unenforceable Contracts
Art. 1403 – Uneforceable Contracts Defined
The following contracts are unenforceable, unless they are ratified:
(1) Those entered into in the name of another person by one who has been given
no authority or legal representation, or who has acted beyond his powers;
(2) Those that do not comply with the Statute of Frauds as set forth in this number.
In the following cases an agreement hereafter made shall be unenforceable by
action, unless the same, or some note or memorandum, thereof, be in writing, and
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subscribed by the party charged, or by his agent; evidence, therefore, of the
agreement cannot be received without the writing, or a secondary evidence of its
contents:
(a) An agreement that by its terms is not to be performed within a year from the
making thereof;
(b) A special promise to answer for the debt, default, or miscarriage of another;
(c) An agreement made in consideration of marriage, other than a mutual promise
to marry;
(d) An agreement for the sale of goods, chattels or things in action, at a price not
less than five hundred pesos, unless the buyer accept and receive part of such
goods and chattels, or the evidences, or some of them, of such things in action or
pay at the time some part of the purchase money; but when a sale is made by
auction and entry is made by the auctioneer in his sales book, at the time of the
sale, of the amount and kind of property sold, terms of sale, price, names of the
purchasers and person on whose account the sale is made, it is a sufficient
memorandum;
(e) An agreement of the leasing for a longer period than one year, or for the sale of
real property or of an interest therein;
(f) A representation as to the credit of a third person.
(3) Those where both parties are incapable of giving consent to a contract.
Unenforceable Contracts :
•
•
•
Those that cannot be enforced in court or sued upon by reason of certain
defects provided by law.
o Even if they have all the requisites for perfection.
Until and unless they are ratified according to law.
Binding force − none until they are ratified.
Kinds of Unenforceable Contracts :
1.
2.
Unauthorized contracts − those entered into in the name of another by one
without, OR acting in excess of, authority.
o Governed by Article 1317
Those that do not comply with the Statute of Frauds
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Those where both parties are incapable of giving consent to a contract.
The Statute of Frauds − in General:
•
•
•
Purpose:
1. Prevent fraud
2. Guard against mistakes by honest men
3. By requiring certain agreements that are susceptible to fraud must be
in writing
4. For certain executory contracts to be enforceable in a court of law, the
only evidence that can prove such contract is a written proof of the
agreement.
Application (some fundamental principles relative to the Statute of Frauds)
Note − when we say “applicable,” it means that such contracts must be
reduced to writing. If “not applicable,” it’s okay that it’s not in writing
o SoF not applicable in actions that are not for…
▪ Damages because of violation of contract
▪ Specific performance of a contract.
o SoF applicable only to executory contracts (that is, where no
performance has yet to be made by either party)
▪ Not to contracts which are totally or partially performed
▪ Why? − Performance, like writing, furnishes reliable evidence
of the intention of the parties or the existence of the contract
▪ Ex. Contract of sale of real property in installment not within
the Statute, if the first installment has already been paid. –
this constitutes partial performance
▪ Babao v. Perez − oral contract partially performed must be
proven clearly in court.
▪ Partial performance can also be manifested when
improvements are made on property, rentals are paid, etc −
in general, acts of partial performance remove the contract
from the SoF
o SoF not applicable when the contract is admitted expressly, or
impliedly by the failure to deny specifically its existence.
o SoF applicable only to the agreements enumerate therein
o SoF not applicable where a writing does not express the true
agreement of the parties.
o lt does not declare contracts void.
o The defense of the SoF may be waived.
o
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The defense of the SoF is personal to the parties − cannot be
interposed by strangers to the contract
No particular form of language or instrument needed to constitute a
memorandum or note in writing under the SoF
▪ Need not be contained in a single document
▪ 2 or more writings properly connected may serve as the
required memorandum
▪ Ex. Limketkai Sons Milling Inc V. CA
• “While there was no written contract of sale… there
are abundant notes and memoranda extant in the
records of this case evidencing the elements of a
perfected contract.
The Statute of Frauds − Agreements within its Scope:
•
Agreement not to be performed within one year from the making thereof
Ex. On Oct 10, 2007, S entered into an oral contract with B for the
construction of B’s house to begin on October 20, 2008. − Such
contract must be in writing
▪ For such contract to fall under the SoF, it must appear that
the parties intended when they made the contract that it
should not be performed within a year.
o If a contract stipulates that a certain type of activity shall be
commenced within the year, but can only be finished after one year,
the SoF will apply.
Ex. On March 21, 2012, A enters into a contract with B that B
will construct a skyscraper, to commence on June 30, 2012.
Obviously, such contract cannot be finished by March 2012,
so it must be in writing.
o If a party fully paid the boulder of the building for the complete
construction of the same six months after the making of the contract,
it does not come within the statute.
▪ Babeo v. Perez − contracts which y their terms are not to be
performed within one year may be taken out of the statute
by performance of one party thereto.
• “AII that is required…is complete performance
within one year of one party, however many years
elapse before agreement is performed by another
party.”
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“…nothing less than full performance by one party
will suffice, and it has been held that if anything
remains to be done after expiration of the year,
besides the mere payment of money, the statute will
apply.”
Promise to answer for the debt, default, or miscarriage of another
Ex. D owes C P 10,000, with G as guarantor.
▪ G promises to answer for the debt of D in case D fails.
▪ This agreement (between G and D) is unenforceable unless it
is in writing signed by G.
o The promise here is merely subsidiary or collateral to the promise of
another (original debtor, D)
o If the promise is an original or independent one, the promise is not
within the SoF and thus may be proven by oral evidence.
o “Special promise” − express and tacit promises in fact made.
▪ Does not apply in cases where duties are created by law
without any promissory assent.
o “Debt, default, miscarriage” − includes all legal obligations under
which a person can come, contractual or non−contractual, requiring a
money payment or any other kind of performance.
o If obligation is joint – no special promise
▪ “one is not considered as promising…within the meaning of
the statute… where his performance will also extinguish the
promisor’s own debt.”
o If obligation is solidary – depends on whether or not the promisor
knew that only one of the solidary debtors would truly be benefited
by payment.
▪ “But if one of several promisors is to have the purchased
goods or the borrowed money, the others lending their credit
as security, the latter are “answering for the debt of another
within the statute.”
Agreement in consideration of marriage other than promise to marry
Ex. M agrees to build a house worth P1M for W, if W marries M.
▪ Applicable even when promise to build the house is made by
a third person to W.
o Mutual promise to marry between M and W need not be in writing.
▪ Note − law states no period to performance, unlike number 1
▪ An oral mutual promise to marry may be proved by parol
evidence, even if marriage is to be celebrated beyond one
year
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o
•
•
•
•
Other examples
▪ Marriage settlements
▪ Donations propter nuptias
Agreement for sale of goods, at a price not less that P500.
Ex. S and B mutually promised to sell and buy a piano worth P12,000.
▪ This agreement must be in writing to be enforceable against
either party
▪ Unless there is already delivery or partial/full payment.
Agreement for leasing for a longer period than one year.
Ex. R agreed to lease his house to E for two years.
▪ Must be in writing, unless partially executed.
Agreement for sale of real property or of an interest therein.
Ex. B orally sold his land or his right of usufruct in said land to B.
▪ Such agreement is unenforceable, unless it has been partially
executed.
Representation as to the credit of a third person
Ex. D is seeking a loan from C.
▪ T represents to C that D is solvent and has a good credit
reputation.
▪ Such representation must be in writing.
Art. 1404 – Rules Governing Unauthorized Contracts
Unauthorized contracts are governed by Article 1317 and the principles of agency in
Title X of this Book.
Art. 1405 – Modes of Ratification under Statutes of Fraud
Contracts infringing the Statute of Frauds, referred to in No. 2 of Article 1403, are
ratified by the failure to object to the presentation of oral evidence to prove the
same, or by the acceptance of benefit under them.
Modes of Ratification under the SoF :
•
Failure to object to the presentation of oral evidence to prove the contract
o This amounts to a waiver of the SoF.
o Makes the contract as binding as if it had been reduced to writing.
o Limketkai Sons Milling v. CA − contacts infringing the SoF are ratified
when the defense fails to object, or asks questions on cross−
examination.”
▪ “as no timely objection or protest was made to the admission
of the testimony of the plaintiff with respect to the contract…
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[defendants] tacitly waived there right to have it stricken
out.”
Acceptance of benefits under the contract.
o In this case, the contract is no longer executory.
Ex. A sold to G a particular real property, and A benefited from the
transaction by already obtaining the purchase price .
▪ Contract of sale can be enforced, even if not in writing.
Art. 1406 – Right of a Party where Contract Enforceable
When a contract is enforceable under the Statute of Frauds, and a public document
is necessary for its registration in the Registry of Deeds, the parties may avail
themselves of the right under Article 1357.
•
•
When the agreements in the SoF are in writing and thus enforceable, and the
law requires that such document should be transformed into a pbulic
document for registration.
Contracting parties may compel each other to observe the form once the
contract has been perfected.
Art. 1407 – When Uneforceable Contract becomes Voidable
In a contract where both parties are incapable of giving consent, express or implied
ratification by the parent, or guardian, as the case may be, of one of the contracting
parties shall give the contract the same effect as if only one of them were
incapacitated.
If ratification is made by the parents or guardians, as the case may be, of both
contracting parties, the contract shall be validated from the inception.
•
•
•
If both parties have no guardian, for example, then it is unenforceable.
If there is one guardian, or if one of the parties upon gaining capacity ratiies it,
it becomes voidable.
If ratification is made by guardians, or by both parties upon attaining capacity,
this bevcomed valid.
Art. 1408 – Right of Third Persons to Assail an Unforceable Contract
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o
They are not parties to the contract.
Chapter 9: Void and Inexistent Contracts
Articles 1409 and 1422 provide for the instances where contracts are
deemed void or inexistent. It must be noted that where contracts are divisible and
the illegal terms can be separated, the legal ones may be enforced (1420).
The defense against the nullity of void contracts does not prescribe (1410)
and this defense may even be raised by a 3 rd person provided that his interest is
directly affected (1421).
Usually, when parties enter into a contract that is contrary to law, the
parties are not in good faith. Thus, Articles 1411 to 1419 talk about pari delicto.
Generally, parties who are in pari delicto may not recover what has been given nor
compel the other to comply with what has been agreed upon (1411 −1412)
However, the law provides some exceptions to this rule and gives instances when
recovery may be made (1413 − 1419).
Art. 1409 – Instances of void or inexistent contracts
The following contracts are inexistent and void from the beginning:
(1) Those whose cause, object or purpose is contrary to law, morals, good customs,
public order or public policy;
(2) Those which are absolutely simulated or fictitious;
(3) Those whose cause or object did not exist at the time of the transaction;
(4) Those whose object is outside the commerce of men;
(5) Those which contemplate an impossible service;
(6) Those where the intention of the parties relative to the principal object of the
contract cannot be ascertained;
(7) Those expressly prohibited or declared void by law.
These contracts cannot be ratified. Neither can the right to set up the defense of
illegality be waived.
What are void and inexistent contracts?
Unenforceable contracts cannot be assailed by third persons.
•
•
Third persons cannot assail unenforceable contracts.
o They cannot be executed anyway.
Void Contracts – those which, because of certain defects generally
produce no effect at all. It is no contract at all.
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o
•
Exception – see Art 1411−1412 where illegal contracts may
produce effects where parties are not of equal guilt.
Inexistent Contracts – agreements which lack one or some or all of the
elements or do not comply with formalities which are essential for the
existence of contracts.
3.
Characteristics of a void or inexistent contract:
1.
2.
3.
4.
5.
6.
Generally produces no effect
It cannot be ratified (Art 1409, Par 2)
The right to set up the defense of illegality cannot be waived
The action or defense for the declaration of its inexistence does not
prescribe (Art. 1410)
The defense of illegality is not available to 3rd persons whose interest are
not directly affected (Art. 1421)
It cannot give rise to a valid contract (Art. 1422)
Instances of void or inexistent contracts:
1.
2.
Contracts whose cause, object or purpose is contrary to law, etc.
• De Leon v. CA − A contract whose consideration is the termination
of the marriage by the parties is void for being contrary to law and
Filipino morals and public policy.
• Prudential bank v. Panis − Mortgage contract entered into by the
grantee within the prohibited period provided by the Public Land
Act is null and void.
• Maharlika Publishing Co. v. Tagle −A contract of sale in a public
beidding entered into by a wife acting in behalf of her husband,
an influential public official, was declared void for being violative
of public policyƒorder.
• Cui v. Arellano University − A contract that provides a refund of
scholarship grant as a precondition to a student’s transfer is void
for being contrary to public policy and morals.
a. Public Policy − court must find that the contract
contravenes some established interest of society, or
inconsistent with sound policy and good morals or tends
to undermine the security of individual rights. (See Art.
1306 and 1416 for more examples)
Contracts which are absolutely simulated or fictitious.
• Gardner v. CA − a contract purporting a sale of land was really
without consideration and was actually intended merely to
4.
5.
6.
7.
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protect a party was held as absolutely simulated and therefore
null and void. (See Art. 1345 and 1346 for more examples)
Contracts without cause or object
• The phrase ”did not exist at the time of the transaction” does not
apply to a future thing which may legally be the object of a
contract (De Leon).
• See Art. 1347, 1352, and 1353 for examples and comments.
Contracts whose object is outside the commerce of men
• See comments and examples under Art. 1347 and 1348.
Contracts which contemplate an impossible service
• See comments and examples under Art. 1347 and 1348
Contracts where the intention of the parties relative to the object cannot
be ascertained
• See comments and examples under Art. 1378, par. 2
Contracts expressly prohibited or declared void by law
Ex.
a. A stipulation prohibiting a mortgagor to sell property
mortgaged is void for being contrary to the express
provision of Art. 2130 of the Civil Code
b. Contracts upon future inheritance except those expressly
authorized by law (Art. 1347)
c. Sale of property between husband and wife except when
there is separation of property (Art. 1490)
d. Donation between spouses (Art. 87, FC)
The defect in a void contract is permanent and incurable:
• Chavez v. PCGG − A void agreement will not be rendered operative by the
parties’ alleged partial or full performance of their respective prestations.
It produces no legal effect.
• Arsenal v. IAC − Neither can an infirmity be cured by equity.
• Acierto v. De Los Santos − The pari delicto doctrine may not be invoked in
void contracts that run contrary to state policy.
• 19 Am. Jur. 802 − it is generally considered that as between parties to a
contract, validity cannot be given to it by estoppel if it is prohibited by law
or against public policy.
• Eugenio v. Perfido − the mere lapse of time cannot give efficacy to
contracts that are null and void.
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A has no action against B if B does not give the car even if the
former succeeded in kidnapping X. The same rule applies if B
complies and A does not.
Art. 1410 – Action or Defense is Imprescriptible
The action or defense for the declaration of the inexistence of a contract does not
prescribe.
•
•
•
There is no need to judicially file an action to make the contract void. A
case is filed merely to declare that the contract, which is void, is in fact
void.
Ex. For a consideration of ®2,000,000, B will construct A’s house in 3
days. This is void for being impossible. There is no need to file a
case. It is void. However, A may file a case to have it declared void
if A has already paid the ®2,000,000
Doctrine of Laches does not apply.
DBP v. CA − restitution should generally apply in void contracts if both
parties have no fault or are not guilty.
Art. 1411 – Rules where Contract is Illegal and Act is Criminal Offense
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Both A and B will be prosecuted and the car will be
confiscated in favour of the government when kidnapping is
committed.
•
Where only one party is guilty – the same rule as above will apply against
the guilty party but the innocent party (1) may claim what he has given and
(2) shall not be bound to comply with his promise
Articles 1411 and 1412 do not apply to inexistent contracts:
•
Modina v. CA − An inexistent contract has absolutely no consideration at
all, or there is total absence of consent, or there is no object. Thus, pari
delicto will not apply because these contracts have considerations or
objects, but are illegal. Simulated Contract is an example.
When the nullity proceeds from the illegality of the cause or object of the contract,
and the act constitutes a criminal offense, both parties being in pari delicto, they
shall have no action against each other, and both shall be prosecuted. Moreover,
the provisions of the Penal Code relative to the disposal of effects or instruments of
a crime shall be applicable to the things or the price of the contract.
Art. 1412 – Rules where Contract is Illegal but Act is not Criminal Offense
This rule shall be applicable when only one of the parties is guilty; but the innocent
one may claim what he has given, and shall not be bound to comply with his
promise. (1305)
(1) When the fault is on the part of both contracting parties, neither may recover
what he has given by virtue of the contract, or demand the performance of the
other's undertaking;
NOTE: Articles 1411 and 1412 embody the general principle that the law refuse
remedy when parties are in pari delicto. Some exceptions to this rule are contained
in Articles 1413 to 1419.
(2) When only one of the contracting parties is at fault, he cannot recover what he
has given by reason of the contract, or ask for the fulfillment of what has been
promised him. The other, who is not at fault, may demand the return of what he
has given without any obligation to comply his promise. (1306)
Rules where contract is illegal and the act constitutes an illegal offense:
• Where both parties are in pari delicto (NPC)
a. The parties shall have no action against each other.
b. Both shall be prosecuted.
c. The things or the price of the contract, as effects or instruments
of the crime shall be confiscated in favour of the Government.
Ex. A and B enter into a contract where A will kidnap X and bring
him to B. In return, B will give the car used to kidnap X to A.
If the act in which the unlawful or forbidden cause consists does not constitute a
criminal offense, the following rules shall be observed:
Rules where the contract is illegal but the act does not constitute a criminal offense:
• Where both parties are in pari delicto
1. Neither party may recover what he has given by virtue of the
contract.
2. Neither party may demand the performance of the other’s
undertaking.
• Where only one party is guilty
1. The guilty party loses what he has given by reason of the contract.
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The guilty party cannot ask for the fulfilment of the other’s
undertaking.
The innocent party may demand the return of what he has given.
The innocent party cannot be compelled to comply with his
promise.
Art. 1413 – Recovery of Usurious Interest
Interest paid in excess of the interest allowed by the usury laws may be recovered
by the debtor, with interest thereon from the date of the payment.
•
•
Payment of usurious interest is void.
Angel Jose v. Chelda Enterprise − the phrase “interest paid in excess of the
interest allowed by law” means the whole interest paid.
Ex. In a loan of ®1,000, with interest of 20% per annum (wƒc is a
usurious rate) or ®200 per year, if the borrower pays said ®200,
the whole ®200 is the usurious interest. The borrower may
recover the whole ®200 and not just the part which is in excess of
the interest allowed by law.
Art. 1414 – Recovery where Contract Entered Into for Illegal Purpose
When money is paid or property delivered for an illegal purpose, the contract may
be repudiated by one of the parties before the purpose has been accomplished, or
before any damage has been caused to a third person. In such case, the courts may,
if the public interest will thus be subserved, allow the party repudiating the contract
to recover the money or property.
Recovery where contract entered into for illegal purpose:
1. The contract is for an illegal purpose.
2. The contract is repudiated before the purpose has been accomplished or
before any damage has been caused to a third person.
3. The court considers that public interest will be subserved by allowing
recover.
Ex. De leon v. Court of Appeals − the Supreme Court allowed the
recovery of ®380, 000 pesos paid by the husband’s mother who
resisted the wife’s attempt to enforce the other provisions of the
void contract (as its consideration is the termination of marital
status between the husband and the wife).
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Art. 1415 – Recovery by an Incapacitated Person
Where one of the parties to an illegal contract is incapable of giving consent, the
courts may, if the interest of justice so demands allow recovery of money or
property delivered by the incapacitated person.
•
This rule is within the discretion of the court hence it may issue an order
allowing or disallowing recover of money.
Ex. A, a minor, enters into a contract with B for the purchase of illegal drugs
worth ®10,000. The court may allow the minor to recover the ®10,000
pesos if it finds that the interest of justice so demands.
Art. 1416 – Recovery where Contract is Not Illegal per se
When the agreement is not illegal per se but is merely prohibited, and the
prohibition by the law is designated for the protection of the plaintiff, he may, if
public policy is thereby enhanced, recover what he has paid or delivered.
When is recovery permitted?
1. The agreement is not illegal per se but is merely prohibited
2. The prohibition is designed for the protection of the plaintiff
3. Public policy would be enhanced by allowing the plaintiff to recover what
he has paid or delivered.
Ex. Ras v. Sua − The Supreme Court allowed repossession of a certain land to
the owner who acquired the same pursuant to a law designed to give land
to the landless even when the said owner leased, in violation of the spirit
of the law, the said land to another person who later refused to return the
same despite demand of the owner and even after the former violated the
lease agreement on the ground of pari delicto
Art. 1417 – Recovery of Amount Paid in Excess of Ceiling Price
When the price of any article or commodity is determined by statute, or by
authority of law, any person paying any amount in excess of the maximum price
allowed may recover such excess.
•
It is illegal to charge a price higher than the statutory ceiling. Any payment
in excess of such may be recovered.
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Ex. An annual subscription to a weekly magazine where X pays ®1,000 is a
divisible obligation (for the publisher) but is an indivisible contract of
subscription.
Art. 1418 – Recovery of Additional Compensation
When the law fixes, or authorizes the fixing of the maximum number of hours of
labor, and a contract is entered into whereby a laborer undertakes to work longer
than the maximum thus fixed, he may demand additional compensation for service
rendered beyond the time limit.
•
•
If a contract provides that an employee shall work only for 8 hours at a
certain legal rate, any work done beyond the 8 hour period should be paid
for extra time.
Articles 1418 and 1419 are general provisions on labor. The Labor Code of
the Philippines (PD. 442) provides for the specific rights and remedies of
employees.
If the agreement is that the publisher will deliver magazine every week
and X will pay ®20 upon delivery, the contract is divisible.
Art. 1421 – Persons Entitled to Raise Defense of Illegality or Nullity
The defense of illegality of contract is not available to third persons whose interests
are not directly affected.
•
Art. 1419 – Recovery of Amount of Wage Less than Minimum Fixed
When the law sets, or authorizes the setting of a minimum wage for laborers, and a
contract is agreed upon by which a laborer accepts a lower wage, he shall be
entitled to recover the deficiency.
•
Art. 1422 – Void Contract Cannot be Novated
In case of a divisible contract, if the illegal terms can be separated from the legal
ones, the latter may be enforced.
A contract which is the direct result of a previous illegal contract, is also void and
inexistent.
Effects of illegality where contract is inƒdivisible:
1. When the consideration is entire and single, the whole contract is void and
unenforceable
2. Where contract is divisible or severable, the illegal ones can be separated
from the legal portions, the latter may be enforced subject to the intention
of the parties.
Ex.
Pactum commisorium is void but the loan agreement is valid
Usurious rate is illegal but the loan is valid.
Divisible contracts distinguished from divisible obligation:
• Divisible contracts refer to divisibility of cause while divisibility
obligation refer to susceptibility to partial fulfilment.
General Rule − Only parties to the void contract can raise the defense of
illegality or nullity because contracts are mutual obligations between the
parties.
o Exception − 3rd persons are may avail the defense of illegality or
set up its nullity as long as his interest is directly affected by the
contract.
Ex. A sold a parcel of land, which he does not own, to B. X, the owner of
the land which is encroached by said illegal sale, may go to court and
seek nullification of the contract.
If an employee receives less than the minimum wage rate, sƒhe can still
recover the deficiency with legal interest (PD. 442).
Art. 1420 – Effect of Illegality where Contract is Indivisible/Divisible
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•
A subsequent contract which proceeds from a void contract is likewise
void.
Ex. A contract of repurchase is dependent of the validity of the original
contract of sale. If the latter is void, then there is no right of
repurchase.
of
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Title III – NATURAL OBLIGATIONS
•
Art. 1423 – Concept of Natural Obligations
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If a third person pays the prescribed debt of the debtor without his
knowledge or against his will, the latter is not legally bound to pay him
(Art. 1236, par. 2). But the debtor cannot recover what he has paid in case
he voluntarily reimburses the third person.
Obligations are civil or natural. Civil obligations give a right of action to compel their
performance. Natural obligations, not being based on positive law but on equity
and natural law, do not grant a right of action to enforce their performance, but
after voluntary fulfillment by the obligor, they authorize the retention of what has
been delivered or rendered by reason thereof. Some natural obligations are set
forth in the following articles.
Art. 1426 – Restitution by Minor After Annulment of Contract
Concept of Natural Obligations:
• These obligations rest upon morality and are recognized in leading civil
codes.
• It is based on equity and natural law.
When a minor between eighteen and twenty−one years of age who has entered into
a contract without the consent of the parent or guardian, after the annulment of
the contract voluntarily returns the whole thing or price received, notwithstanding
the fact the he has not been benefited thereby, there is no right to demand the
thing or price thus returned.
Civil Obligations and Natural Obligations distinguished:
1.
2.
Civil obligations arise from law, contracts, quasi contracts, delicts, and
quasi−delicts, while natural obligations are based on equity and natural law
The former gives a right of action to compel performance while the latter
do not grant such right of action.
Art. 1424 – Performance After Civil Obligation has Prescribed
When a right to sue upon a civil obligation has lapsed by extinctive prescription, the
obligor who voluntarily performs the contract cannot recover what he has delivered
or the value of the service he has rendered.
Ex.
If a debtor, despite the lapse of the prescriptive period and knowing that
the debt had already prescribed, pays the creditor, such debtor can no
longer recover such payment.
Art. 1425 – Reimbursement of Third Person for Prescribed Debt
When without the knowledge or against the will of the debtor, a third person pays a
debt which the obligor is not legally bound to pay because the action thereon has
prescribed, but the debtor later voluntarily reimburses the third person, the obligor
cannot recover what he has paid.
Ex. A debt has already prescribed but X, a third person, pays the debt, and
later on, the original debtor pays X, such payment shall be considered valid
and original debtor cannot recover such amount from the creditor on the
ground that X should not have paid him.
•
•
When a contract is annulled, a minor is not legally obliged to make
restitution except insofar as he has been benefited (Art. 1399). But if he
nevertheless returns the thing or price although he has not been
benefited, he cannot recover.
A “minor” pursuant to RA 6809 means below 18 years.
Ex. If a minor sold his car for ®100,000 without consent of his parent but the
minor lost ®30,000 due to negligence but was able to deposit the rest in a
bank, he is legally obliged to return only ®70,000 in case the contract is
later annulled. However, if he returns the whole ®100,000 amount, there is
no right to demand the same.
Art. 1427 – Delivery by Minor of Money or Fungible Thing
When a minor between eighteen and twenty−one years of age, who has entered
into a contract without the consent of the parent or guardian, voluntarily pays a
sum of money or delivers a fungible thing in fulfillment of the obligation, there shall
be no right to recover the same from the obligee who has spent or consumed it in
good faith. (1160A)
•
After annulment, the parties are generally obliged to make mutual
restitution (Art. 1398). However, the obligee who spent or consumed in
good faith the money or consumable thing voluntarily paid or delivered by
the minor, is not bound to make restitution.
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therefore void as such should be wholly hand−written by the testator. If
despite this, N’s heir, Y, still voluntarily gives the legacy of the ab−roller to J,
it shall be valid and cannot be revoked anymore.
This article refers not only to fungible things but also to things that are
non−consumable.
Art. 1428 – Performance After Action to Enforce Civil Obligation Failed
When, after an action to enforce a civil obligation has failed the defendant
voluntarily performs the obligation, he cannot demand the return of what he has
delivered or the payment of the value of the service he has rendered.
Ex.
A is indebted to B for ®50,000 and a civil suit is filed to collect the amount
but such is dismissed, A is not legally obliged to pay the said amount
because he won. However, if he voluntarily makes payment, he can no
longer recover such payment.
Title IV – ESTOPPEL
Art. 1431 – Estoppel Defined
Through estoppel an admission or representation is rendered conclusive upon the
person making it, and cannot be denied or disproved as against the person relying
thereon.
Art. 1429 – Payment by Heir of Debt Exceeding Value of Property Inherited
When a testate or intestate heir voluntarily pays a debt of the decedent exceeding
the value of the property which he received by will or by the law of intestacy from
the estate of the deceased, the payment is valid and cannot be rescinded by the
payer.
•
General Rule – Doctrine of Estoppel applies to any particular case and its
applicability depends largely on the special circumstances of the case (Beronilla
v. GSIS) after careful consideration of the material facts in order to avoid
injustice (Kalalo v. Luz).
Exceptions (G-P-Q):
1. Estoppel is not applicable against the government suing in its
capacity as sovereign or asserting governmental rights
▪ It follows that the government cannot be estopped by
the mistake and errors of its officers (Collector of Internal
Revenue v. McGrath).
2. If law and public policy will be violated, there is no estoppel
(Republic v. Go Bon Lee).
3. Estoppel does not apply to questions of law, as it applies only to
questions of fact
▪ In Kalalo v. Luz, if the act, conduct, or misrepresentation
of party sought to be estopped is due to ignorance
founded on an innocent mistake, estoppels will not arise.
The heir is not liable beyond the value of the property he received from
the decedent (Art. 1311, par. 1). But if he pays the difference voluntarily,
payment is valid and cannot be rescinded by him.
Ex. A is indebted to X for ®10,000. A later dies, with B as his heir who is
entitled only to ®5,000 from the estate of A. If B voluntarily pays X
P10,000, B can no longer recover such an amount.
Art. 1430 – Payment of Legacy After Will has been Declared Void
When a will is declared void because it has not been executed in accordance with
the formalities required by law, but one of the intestate heirs, after the settlement
of the debts of the deceased, pays a legacy in compliance with a clause in the
defective will, the payment is effective and irrevocable.
•
Legacy − the act of disposition by the testator in separating from the
inheritance for definite purposes, things, rights or a definite portion of his
property. Its purpose is to reward friends, servants, and others for services
they rendered, etc.
•
Estoppel is characterized as harsh and odious, and not favoured in law. It
can only be sustained by clear and convincing evidence.
Ex. N provided in his holographic will that his ab−roller shall go to his friend J.
Later, the holographic will turns out to be partly type−written and
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Art. 1432 – Application of Estoppel
Art. 1434 – Sale by Person not the Owner
The principles of estoppel are hereby adopted insofar as they are not in conflict
with the provisions of this Code, the Code of Commerce, the Rules of Court and
special laws.
When a person who is not the owner of a thing sells or alienates and delivers it, and
later the seller or grantor acquires title thereto, such title passes by operation of
law to the buyer or grantee.
Art. 1433 – Kinds of Estoppel
Ex.
A, who without authority of the owner, sold B’s car to C. This sale is
unenforceable because A is not the owner. If later on A buys the car of B, A
can no longer claim the property as his own on the ground that when he
sold it to C, he was not the owner of the same.
Estoppel may be in pais or by deed.
Kinds of Estoppel:
1. Estoppel by Deed − A bar which precludes one party to a deed and his
privies from asserting as against the other party and his privies any right or
title in derogation of the deed, or from denying the truth of any material
facts asserted in it.
• It is technical in nature and such an estoppel may conclude a
party without reference to the moral equities of his conduct.
• It is generally limited to an action on the deed itself; in a collateral
action, there is ordinarily no estoppel (28 Am Jur 2d 602 − 603)
• Requisites: (RKIA)
1. There must have been a representation or concealment
of material facts
2. The representation must have been with knowledge of
the facts
3. The party to whom it was made must have been ignorant
of the truth of the matter
4. It must have been made with the intention that the other
party would act upon it
2. Equitable Estoppel or Estoppel in pais − situation where the party is
denied the right to plead or prove a fact because of his own act or
omission
• Rests on the facts and circumstance of the case in which it is
urged
• Requisites: (CIK)
1. Conduct amounting to false representation or
concealment of material facts or at least calculated to
convey the impression that the party 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
3. Knowledge, actual or constructive, of the actual facts
Art. 1435 – Sale by a Person Representing Another
If a person in representation of another sells or alienates a thing, the former cannot
subsequently set up his own title as against the buyer or grantee.
Ex.
A constituted B as his agent to sell a car and the car was in fact sold by B. A
cannot later on claim that he was the owner to invalidate the transaction.
Art. 1436 – Lessee or Bailee Estopped from Asserting Title
A lessee or a bailee is estopped from asserting title to the thing leased or received,
as against the lessor or bailor.
•
Both the lessee and the bailee are not the owner. They merely enjoy
possession of the property or thing leased or loaned.
Art. 1437 – Estoppel in Contracts where One Party is Mislead
When in a contract between third persons concerning immovable property, one of
them is misled by a person with respect to the ownership or real right over the real
estate, the latter is precluded from asserting his legal title or interest therein,
provided all these requisites are present:
(1) There must be fraudulent representation or wrongful concealment of facts
known to the party estopped;
(2) The party precluded must intend that the other should act upon the facts as
misrepresented;
(3) The party misled must have been unaware of the true facts; and
(4) The party defrauded must have acted in accordance with the misrepresentation.
Ex.
A leased the apartment of B. Said contract of lease gave A preferential
right to buy the apartment in case B decides to sell.
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A approaches X and misrepresented that the former has already exercised
his preferential right to buy and that another person, Y, is interested in
buying although in fact there is none. A proposes a scheme where X will
purchase said apartment from A and then sell the same to Y for a higher
price. Because A is a great broker, X agrees to purchase. B, the owner
ratified the sale.
Later on, A cannot assert a claim on the property contending that the sale
is unenforceable for not having the consent of the true owner, B.
Art. 1438 – Estoppel where Personal Property is Pledged
One who has allowed another to assume apparent ownership of personal property
for the purpose of making any transfer of it, cannot, if he received the sum for
which a pledge has been constituted, set up his own title to defeat the pledge of
the property, made by the other to a pledgee who received the same in good faith
and for value.
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Title V – TRUSTS
What is a Trust?
•
•
Trust in its technical legal sense, it is the right enforceable solely in equity,
to the beneficial enjoyment of property, the legal title of which is vested in
another.
It is a fiduciary relationship with respect to property, subjecting the person
holding it to deal with the property for the benefit of another
Characteristic of a Trust:
1.
2.
3.
Fiduciary
Created by law or agreement
Where the legal title is held by one, the equitable title or beneficial title is
held by another
Kinds of Trust:
Ex.
P owns a BMW but does not want to be known as the owner. He tells
everybody that X is the owner and even gives X authority to sell,
encumber, or alienate said BMW. X knows this and goes along.
Later, P instructs X to pledge the BMW as collateral for a loan from Y. The
money goes to P. On due date, Y warned X of foreclosure in case of non
payment. P cannot resist the foreclosure by claiming that the pledge of the
BMW is invalid because X is not the actual owner. P is estopped.
Art. 1439 – Between Parties and Successors in Interest
Estoppel is effective only as between the parties thereto or their successors in
interest.
•
•
Estoppel does not operate in favour nor against a stranger (persons who
are neither parties not privies to the transaction out of which the estoppel
arose).
Castrillo v. CA − The SC did not permit the heirs to assail the validity of
estoppel because it is only the person against whom it may be invoked
who is allowed to assail it.
TRUST
EXPRESS
• Intention is expressly present; the •
intent is created by the direct and
positive acts of the parties, some
writing or deed or will or words
evidencing the intention to create a
trust.
• No form is required for the words.
• Trusts over immovable property •
cannot be proved by oral evidence.
•
Prescription:
GR: The trustee cannot acquire the
thing in trust by prescription
EXC:
1. The
trustee
has
performed
unequivocal acts of repudiation
2. Such acts were made known to the
beneficiary
3. The evidence thereon us clear and
conclusive
IMPLIED
Intention is not expressly present,
but it is deducible from the nature
of the transaction (resulting trust);
the law may also induce the intent
in the transaction and thus, this
kind of trust works by operation of
law (constructive trust).
May be barred by laches.
May be proved by oral evidence.
2 kinds:
1. Resulting Trust:
o Intent is presumed to be
contemplated by the parties.
o Imprescriptible, as long as the
trustee has not repudiated the
trust.
2. Constructive trust:
o No intention presumed from
any of the acts of the parties,
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Acceptance of Trust
A. Trustee: Not necessary, unless the
appointment of such trustee is
material and is provided in the
instrument constituting the trust. In
case the trustee refuses to accept,
the court will appoint a trustee
B. Beneficiary: It is necessary. Such
acceptance will be presumed in
cases where the trust imposes no
onerous
condition
to
the
beneficiary.
ATTY. MEL STA. MARIA
but is a mere construction of
equity.
o Prescription may supervene.
o Substantially an appropriate
remedy
against
unjust
enrichment.
• Examples of implied trust in the
provisions below are not exclusive.
• Also, even if a trust takes the form
of any of the provisions under
implied trust, it will be considered
an express trust if there is express
intention of the trustor to create a
trust.
Chapter 1: General Provisions
Art. 1440 – Trustor, Trustee and Beneficiary
A person who establishes a trust is called the trustor; one in whom confidence is
reposed as regards property for the benefit of another person is known as the
trustee; and the person for whose benefit the trust has been created is referred to
as the beneficiary.
•
•
•
Trustor – person who establishes a trust
Trustee – person in whom confidence is reposed for the benefit of another
person
Beneficiary – person for whose benefit the trust has been created. Also
called cestui que trust
Art. 1441 – Kinds of Trusts
Trusts are either express or implied. Express trusts are created by the intention of
the trustor or of the parties. Implied trusts come into being by operation of law.
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Kinds of Trust:
1. Express Trust – those which are created by the direct and positive acts of
the parties, by some writing or deed, or will, or by words either expressly
or impliedly evincing an intention to create a trust.
2. Implied Trust – those which, without being expressed, are deducible from
the nature of the transaction as matters of intent, or which are
superinduced on the transaction by operation of law as matters of equity,
independently of the particular intention to create a trust; two kinds:
a. Resulting Trust – a trust raised by implication of law and
presumed always to have been contemplated by the parties, the
intention as to which is to be found in the nature of their
transaction, but not expressed in the deed or instrument of
conveyance.
o Simply, it is imposed by law to carry out the actual or
presumed intent of the parties, where the express trust
fails.
o Articles 1448 − 1455 are Resulting trusts.
b. Constructive Trust – trusts arising from the construction of law, or
arising by operation of law. It is established by law, regardless of
intention of parties, in order to prevent fraud, oppression or
unjust enrichment.
Rules on Prescription of Express Trust:
• Express trusts do not prescribe because possession of trustee is not
adverse. Thus:
o A trustee cannot acquire by prescription the ownership of
property entrusted to him
o There is no prescription on an action to compel a trustee to
convey property registered in his name in trust for the benefit of
the beneficiary
o No prescription in an action to recover property held by a person
in trust for the benefit of another
o Property held in trust can be recovered by the beneficiary
regardless of the laps of time
• However, acquisitive prescription may bar the action of the beneficiary
against the trustee in an express trust for the recovery of the property held
in trust where:
o The trustee has performed unequivocal acts of repudiation
amounting to an ouster of the beneficiary
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o
o
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Such positive acts of repudiation have been made known to the
beneficiary
The evidence thereon is clear and conclusive
Rules on Prescription of Implied Trust:
• For Resulting Trust, imprescriptibility may apply as long as the trustee has
not repudiated the trust.
• Constructive Trust prescribes.
• The enforcement of both may, however, be barred by laches.
Art. 1442 – Application of the Principles of the General Law of Trusts
The principles of the general law of trusts, insofar as they are not in conflict with
this Code, the Code of Commerce, the Rules of Court and special laws are hereby
adopted.
Chapter 2: Express Trusts
Art. 1445 – When Trustee Declines Designation
No trust shall fail because the trustee appointed declines the designation, unless
the contrary should appear in the instrument constituting the trust.
•
•
Acceptance by the beneficiary is necessary. Nevertheless, if the trust imposes no
onerous condition upon the beneficiary, his acceptance shall be presumed, if there
is no proof to the contrary.
•
No express trusts concerning an immovable or any interest therein may be proved
by parol evidence.
•
Parole evidence refers to oral evidence
Pascual v. Meneses − To prove an express trust over immovable properties
or any interest therein, there must be a showing of some document
proving the same.
Ramos v. Ramos − A trust may be proven by clear, satisfactory, and
convincing evidence.
Art. 1444 – No Words Required
No particular words are required for the creation of an express trust, it being
sufficient that a trust is clearly intended.
•
If there is no onerous condition, the law presumes acceptance unless
there is proof to the contrary.
o Thus, when the beneficiary is required to perform something to
make the trust effective, there is an onerous condition.
Beneficiary needs to accept.
o If there is no such condition, the trust is a liberality or gratuity
and acceptance is presumed.
▪ This presumption is rebuttable by proof to the contrary.
Chapter 3: Implied Trusts
Art. 1447 – Application of Implied Trusts Enumerated
The enumeration of the following cases of implied trust does not exclude others
established by the general law of trust, but the limitation laid down in Article 1442
shall be applicable.
•
Cuaycong v. Cuaycong − No form is required, for as long as the intent to
establish trust is very clear from the proofs, whether by some writing or
deed or will or by words.
In case of refusal to accept the trust by the trustee, the court will appoint a
trustee.
If the appointment of the trustee is a material provision, the trustor can
provide that a refusal of the trustee to accept the trust shall result in the
failure or nullification of the same.
Art. 1446 – Acceptance by the Beneficiary
Art. 1443 – Immovable Cannot be Proven by Parol Evidence
•
•
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•
•
The situations giving rise to implied trust provided under this chapter are
not exclusive.
Even if the situation falls under any of the provisions of this chapter, it will
be considered an express trust if there is an express intention of the
trustor to create a trust.
An implied trust is not created when the purpose is to evade the law.
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o
•
Saltiga v. CA − trust will not be created when for the purpose of
evading the law prohibiting one from taking real property, he
takes conveyance thereof in the name of a 3rd person.
The principles of general law of trust, in so far as they are not contrary to
the Civil Code, Code of Commerce, Rules of Court, and special laws are
applicable as limitations to implied trust.
o Policarpio v. CA − an implied trust is created when a
representative is tasked to negotiate the sale of an apartment on
behalf of the tenants. When such representative buys the
apartment for himself to the detriment of the tenants, the
implied trust is breached.
of the debt, a trust arises by operation of law in favor of the person to whom the
money is loaned or for whom its is paid. The latter may redeem the property and
compel a conveyance thereof to him.
Ex.
A wants to buy land from B but A has no money. So A asks C to pay for the
land. The land is then given in C’s name. This is supposed to be C’s security
until the debt of A is paid. Here, an implied trust is created. C is a trustee
and the beneficiary is A. When A has the money, he may redeem the
property from C and compel a conveyance to A
NOTE:
This is not the same as mortgage. Mortgage is when A borrows money
from C and A later buys land in his own name. A then executes a mortgage
on the land in favor of C. This is not an implied trust.
Art. 1448 – When a Third Party Pays for a Property
There is an implied trust when property is sold, and the legal estate is granted to
one party but the price is paid by another for the purpose of having the beneficial
interest of the property. The former is the trustee, while the latter is the
beneficiary. However, if the person to whom the title is conveyed is a child,
legitimate or illegitimate, of the one paying the price of the sale, no trust is implied
by law, it being disputably presumed that there is a gift in favor of the child.
Art. 1451 – When Land Passes by Succession
When land passes by succession to any person and he causes the legal title to be
put in the name of another, a trust is established by implication of law for the
benefit of the true owner.
Ex.
Ex.
A sold his share of stock to B. While it is in the name of B, it is X who pays
for the stocks such that X is the one who receives the dividends. There is
an implied trust; B is the trustee and X is the beneficiary.
If B is the legitimate or illegitimate child of X, no trust is implied by law, it
being disputably presumed that a gift has been made to B by X.
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B is the only compulsory heir of M who dies. After payment of the debts of
M, the net estate will go to B. However, if B causes the title to the estate to
be placed in the name of X, an implied trust is created for the benefit of B.
Art. 1452 – When Legal Title is Named after One of Many Purchasers
If two or more persons agree to purchase property and by common consent the
legal title is taken in the name of one of them for the benefit of all, a trust is created
by force of law in favor of the others in proportion to the interest of each.
Art. 1449 – When a Donation is Made but Donee has Partial Interest
There is also an implied trust when a donation is made to a person but it appears
that although the legal estate is transmitted to the donee, he nevertheless is either
to have no beneficial interest or only a part thereof.
Ex.
A donated to B a lot and the apartment on it. Despite this, B still has to pay
rentals to for the apartment to A. This is an implied trust where the trustee
is the donee and the beneficiary is the donor.
Ex.
A, B and C are co−owners of a particular land with a clubhouse in equal
parts but, by agreement of all of them, the whole of the property is
registered under the name only of C. In this case, C is the trustee of the
respective 1ƒ3 shares of A and B. C is the trustee for the other co−owners.
Thus when the clubhouse is rented, C is obliged to make proper accounting
for profit sharing as he is merely a trustee.
Art. 1453 – When Property is Conveyed to Hold or Transfer
Art. 1450 – When a Person Acquires Property through a Loan
If the price of a sale of property is loaned or paid by one person for the benefit of
another and the conveyance is made to the lender or payor to secure the payment
When property is conveyed to a person in reliance upon his declared intention to
hold it for, or transfer it to another or the grantor, there is an implied trust in favor
of the person whose benefit is contemplated.
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OBLIGATIONS AND CONTRACTS REVIEWER
Ex.
ATTY. MEL STA. MARIA
A told B (the seller) that the property should be in his (A) name because he
shall only hold it for the benefit of X, the real owner. An implied trust is
created in favour of X.
Art. 1454 – When Property is Conveyed to Fulfill an Obligation
If an absolute conveyance of property is made in order to secure the performance
of an obligation of the grantor toward the grantee, a trust by virtue of law is
established. If the fulfillment of the obligation is offered by the grantor when it
becomes due, he may demand the reconveyance of the property to him.
Ex.
A is indebted to B. A conveyed a particular property to B to secure such
indebtedness. B holds the property only in trust for A. B is the trustee.
Upon payment by A, he can demand that the property be returned.
Art. 1455 – When Trust Fund is Used to Purchase Property
When any trustee, guardian or other person holding a fiduciary relationship uses
trust funds for the purchase of property and causes the conveyance to be made to
him or to a third person, a trust is established by operation of law in favor of the
person to whom the funds belong.
Ex.
X created a trust fund for the benefit of A of which, Y is the trustee. If Y
uses the fund to purchase a property and places it under his name or
under the name of Z (a third person), an implied trust is created and the
trustee is either X or Z and the trust is in favor of Z.
NOTE:
Acquisition by an agent inures to the benefit of the principal. Severino v.
Severino
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Art. 1457 – May be Proved by Oral Evidence
An implied trust may be proved by oral evidence.
•
Because it is deducible from the nature of the transaction as matters of
intent or which are superinduced on the transaction by operation of law,
independently of the particular intention of the parties.
Title XVII – EXTRA-CONTRACTUAL OBLIGATIONS
Chapter 1: Quasi-Contracts
Art. 2142 – Quasi-Contracts Defined
Certain lawful, voluntary and unilateral acts give rise to the juridical relation of
quasi−contract to the end that no one shall be unjustly enriched or benefited at the
expense of another. (n)
•
•
•
A quasi−contract is not an implied contract.
It is not properly a contract at all because there is no meeting of minds.
A juridical relation is created by a quasi−contract so that nobody shall
enrich himself at the expense of another.
Art. 2143 – Other Quasi-Contracts
The provisions for quasi−contracts in this Chapter do not exclude other quasi−
contracts which may come within the purview of the preceding article. (n)
Art. 1456 – When Property is Acquired through Mistake or Fraud
If property is acquired through mistake or fraud, the person obtaining it is, by force
of law, considered a trustee of an implied trust for the benefit of the person from
whom the property comes.
•
This article provides that the number of quasi−contracts is indefinite and
not only confined to the two kinds specified by the Civil Code in Section 1
and 2 of this Chapter.
Ex.
X fraudulently made Y sign an alleged loan agreement which actually
turned out to be an absolute sale of X’s property. The sale is voidable and a
trust is deemed created by force of law. The trustee is X and is merely
holding the property for the benefit of X.
•
NOTE:
This refers to mistake by a third person and fraud is extra−contractual
Two obligations treated in the chapter devoted to Quasi−contracts:
1. Negotiorum Gestio – the voluntary management of the property or
affairs of another without the knowledge or consent of the latter.
2. Solutio Indebiti – the juridical relation which is created when
something is received when there is no right to demand it and it was
unduly delivered through mistake.
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Section 1 – Negotiorum Gestio
Art. 2144 – Negotiorum Gestio Defined and Its Exceptions
Whoever voluntarily takes charge of the agency or management of the business or
property of another, without any power from the latter, is obliged to continue the
same until the termination of the affair and its incidents, or to require the person
concerned to substitute him, if the owner is in a position to do so. This juridical
relation does not arise in either of these instances:
The courts may, however, increase or moderate the indemnity according to the
circumstances of each case. (1889a)
•
•
•
(1) When the property or business is not neglected or abandoned;
(2) If in fact the manager has been tacitly authorized by the owner.
In the first case, the provisions of Articles 1317, 1403, No. 1, and 1404 regarding
unauthorized contracts shall govern.
In the second case, the rules on agency in Title X of this Book shall be applicable.
(1888a)
•
•
Negotiorum Gestio − a quasi−contract which should not be performed for
profit
Circumstances under which one may undertake to carry out a business
matter for another:
1. They relate to determined things or affairs, and that there be no
administrator or representative of the owner who is charged with
the management thereof.
2. That it be foreign to all idea of express or tacit mandate on the
part of the owner, for it very often may happen even without his
knowledge.
3. That the actor be inspired by the beneficent idea of averting
losses and damages to the owner or to the interested party
through abandonment of the things that belong to him or of the
business in which he may be interested, that is, the administration
is not for profit.
Art. 2145 – Diligence Required of an Officious Manager
The officious manager shall perform his duties with all the diligence of a good father
of a family, and pay the damages which through his fault or negligence may be
suffered by the owner of the property or business under management.
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An officious manager is in a sense an intruder in the business or that
property of the owner.
However, if his intrusion is with the objective of preserving, managing, and
taking care of the property without any intent to gain, a quasi−contract is
created.
Ordinary diligence is required by law; once quasi−contract is created, he
cannot escape liability if the owner suffers damages due to negligence or
fault.
Art. 2146 – Liability of Officious Manager upon Delegation
If the officious manager delegates to another person all or some of his duties, he
shall be liable for the acts of the delegate, without prejudice to the direct obligation
of the latter toward the owner of the business.
The responsibility of two or more officious managers shall be solidary, unless the
management was assumed to save the thing or business from imminent danger.
(1890a)
•
The liability of two or more officious managers is solidary; the owner may
seek full payment of damages from anyone of them.
Art. 2147 – When Officious Manager shall be Liable for Fortuitous Event
The officious manager shall be liable for any fortuitous event:
(1) If he undertakes risky operations which the owner was not accustomed to
embark upon;
(2) If he has preferred his own interest to that of the owner;
(3) If he fails to return the property or business after demand by the owner;
(4) If he assumed the management in bad faith. (1891a)
Art. 2148 – Liability for Fortuitous Event as to Manager’s Capacity
Except when the management was assumed to save property or business from
imminent danger, the officious manager shall be liable for fortuitous events:
(1) If he is manifestly unfit to carry on the management;
(2) If by his intervention he prevented a more competent person from taking up the
management. (n)
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General Rule – No person shall be liable in case of fortuitous event.
Exception – (1) ARTICLE 2147
1. First case: The business is simply providing a warehouse for
dolls, the officious manger stored highly flammable materials
2. Second case: same business, but the officious manager also
stored some of his goods in the warehouse. During a flood,
he chose to save his goods first before that of the owner, the
officious manager will be liable for the loss
3. Third case: same business, but the officious manager did not
return the warehouse despite demand by owner. The
warehouse is destroyed by an earthquake and so the officious
manager will be held liable for his act of unduly retaining
what is not his.
4. Fourth case: same business, but the officious manager took
over in bad faith such as when he does so to get the clients of
the owner for his (officious manager’s) own warehousing
business.
(2) ARTICLE 2148
1. First case: A farmer takes over a Nuclear Power plant
business of another
2. Second case: Such farmer prevents another person who is a
nuclear scientist from taking over the Nuclear Power plant
business.
o EXC to 2148: When management was assumed to
save property or business from imminent danger
such as when the farmer enters the Nuclear Plant in
order to avert a meltdown.
Art. 2149 – Ratification of Owner results to Agency
The ratification of the management by the owner of the business produces the
effects of an express agency, even if the business may not have been successful.
(1892a)
•
When the owner ratifies management, the manager becomes the agent
and all the defects made by the latter are cured.
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Art. 2150 – Officious Manager Entitled to Reimbursement
Although the officious management may not have been expressly ratified, the
owner of the property or business who enjoys the advantages of the same shall be
liable for obligations incurred in his interest, and shall reimburse the officious
manager for the necessary and useful expenses and for the damages which the
latter may have suffered in the performance of his duties.
The same obligation shall be incumbent upon him when the management had for
its purpose the prevention of an imminent and manifest loss, although no benefit
may have been derived. (1893)
Art. 2151 – Reimbursement when there is No Benefit or Danger
Even though the owner did not derive any benefit and there has been no imminent
and manifest danger to the property or business, the owner is liable as under the
first paragraph of the preceding article, provided:
(1) The officious manager has acted in good faith, and
(2) The property or business is intact, ready to be returned to the owner. (n)
General Rule – Reimbursement is required when (Art. 2150):
1. When owner is benefited by officious management of property or business
Ex.
The manager pays taxes on the property so that it will not be
foreclosed, owner must reimburse payment made by officious
manager.
2. When officious management is made to prevent loss
Ex.
A is the neighbor of B. One day, B’s kitchen was on fire. A entered
the house and extinguished the fire using his (A’s) fire
extinguisher. B is obliged to reimburse A for the fire price of the
fire extinguisher used.
Exception: Benefit or imminent danger is not required when the manager
acted in good faith and the business is intact, ready to be returned to the
owner (Art. 2151).
Art. 2152 –Officious Manager as to Contracts with Third Persons
The officious manager is personally liable for contracts which he has entered into
with third persons, even though he acted in the name of the owner, and there shall
be no right of action between the owner and third persons. These provisions shall
not apply:
(1) If the owner has expressly or tacitly ratified the management, or
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•
(2) When the contract refers to things pertaining to the owner of the business. (n)
General Rule -- Officious manager is liable for contracts entered with 3 rd persons.
Thus, when the manager buys a photocopying machine, he is liable.
Exceptions – (1) When the owner ratifies management in which case
manager becomes agent and (2) When the contract refers to things
pertaining to the business. Thus, where the owner is engaged in
photocopying business, the purchase of photocopying machine must be
shouldered by the owner.
1.
2.
3.
Benedicto v. Board of Administrators − The PCGG may not lawfully
intervene and participate in the management of a private mass media
where the owner demands the return of the same.
The officious manager can withdraw from the property only after
substitution, otherwise he may only withdraw upon termination of the
affair and its incidents pursuant to Article 2144.
Death, civil interdiction, insanity or insolvency incapacitates the officious
manager or owner.
Section 2 – Solutio Indebiti
Art. 2154 – Solutio Indebiti Defined
If something is received when there is no right to demand it, and it was unduly
delivered through mistake, the obligation to return it arises. (1895)
•
•
Requisites (N-M):
o That he who paid was not under obligation to do so
o That payment was made by reason of an essential mistake of fact
Principles of equity cannot be applied if there is a provision of law
specifically applicable to a case.
Prescriptive period is 6 years.
Art. 2155 – Applicable to Doubtful or Difficult Question of Law
Payment by reason of a mistake in the construction or application of a doubtful or
difficult question of law may come within the scope of the preceding article. (n)
Genearal Rule − Solutio Indebiti involves only a mistake of fact
Exception − A mistake of law is allowed if the mistake is brought about by
the construction or application of a doubtful or difficult question of law
•
Art. 2154 – The management is extinguished:
(1) When the owner repudiates it or puts an end thereto;
(2) When the officious manager withdraws from the management, subject to the
provisions of Article 2144;
(3) By the death, civil interdiction, insanity or insolvency of the owner or the
officious manager. (n)
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Puyat v. Manila − There is solutio indebiti when tax is paid by mistake due
to complicated correlation and application of various municipal and
national laws. Voluntariness is incompatible with protest and mistake.
Art. 2156 – Doubt on whether the Debt was Due
If the payer was in doubt whether the debt was due, he may recover if he proves
that it was not due. (n)
Ex.
A debtor can recover what he has paid prior to the due date provided that
the demand for reimbursement is not made after the debt has become
due.
Art. 2157 – Solidary Responsibility of Two or More Payees
The responsibility of two or more payees, when there has been payment of what is
not due, is solidary. (n)
Ex.
A owes B and C ®2,000 who are solidary creditors. A pays B ®2,000 before
due date. A can recover from B or C the amount he has paid (even if C has
not yet received his share of the ®2,000) provided demand is made before
debt becomes due.
Art. 2158 – Property or Money Delivered Belongs to Third Person
When the property delivered or money paid belongs to a third person, the payee
shall comply with the provisions of article 1984. (n)
Art. 2159 – Acceptance of Undue Payment in Bad Faith
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Whoever in bad faith accepts an undue payment, shall pay legal interest if a sum of
money is involved, or shall be liable for fruits received or which should have been
received if the thing produces fruits.
Ex.
A is indebted to B in the amount of ®1,000. It is an oral contract which
prescribes in 6 years. X is the guarantor of the loan and is liable to pay the
®1,000 only when B has exhausted all means to collect from A.
Believing that he is principally liable, X pays on the 5th year and B accepts
the payment in good faith. After the lapse of the 6 year prescriptive period,
X may not recover from B what he has paid by mistake. Instead, X can only
recover from A the ®1,000 who was the original debtor.
He shall furthermore be answerable for any loss or impairment of the thing from
any cause, and for damages to the person who delivered the thing, until it is
recovered. (1896a)
Ex.
If the creditor knows that payment is not yet due, yet he accepted such
without informing the debtor that it is not yet due, he is therefore in bad
faith and shall be liable for interest from the time he accepts payment up
to the time he returns it upon demand of the debtor.
Art. 2160 – Acceptance of Undue Payment in Good Faith
He who in good faith accepts an undue payment of a thing certain and determinate
shall only be responsible for the impairment or loss of the same or its accessories
and accessions insofar as he has thereby been benefited. If he has alienated it, he
shall return the price or assign the action to collect the sum. (1897)
Ex.
A is obliged to give B a house on Dec. 1. Believing it was due on July, A
delivered the house. B likewise did not know that the house is only due on
Dec. 1 and accepted it. On Sept., the house was rented but the kitchen was
accidently burned. On Nov., A discovered that the delivery was not yet due
and demandable for its return. B can return the house and pay the amount
of the Kitchen which has been impaired, because B has been benefited by
the house when it had been rented.
CROMBONDS 2011-2012
Art. 2163 – Presumed Mistake
It is presumed that there was a mistake in the payment if something which had
never been due or had already been paid was delivered; but he from whom the
return is claimed may prove that the delivery was made out of liberality or for any
other just cause. (1901)
Ex.
The person to whom the payment has been made can show that such
payment is a gift or a donation by showing the proper evidence like a valid
deed of donation.
Section 3 – Other Quasi-Contracts
Art. 2164 – Support Given by a Stranger
When, without the knowledge of the person obliged to give support, it is given by a
stranger, the latter shall have a right to claim the same from the former, unless it
appears that he gave it out of piety and without intention of being repaid. (1894a)
This is under Article 206 of the Family Code:
•
Art. 2161 – Reimbursement for Improvements and Expenses
As regards the reimbursement for improvements and expenses incurred by him
who unduly received the thing, the provisions of Title V of Book II shall govern.
(1898)
Art. 2162 – Exemption from Obligation to Restore
He shall be exempt from the obligation to restore who, believing in good faith that
the payment was being made of a legitimate and subsisting claim, destroyed the
document, or allowed the action to prescribe, or gave up the pledges, or cancelled
the guaranties for his right. He who paid unduly may proceed only against the true
debtor or the guarantors with regard to whom the action is still effective. (1899)
•
When, without the knowledge of the person obliged to give support, it is
given by a stranger, the latter shall have a right to claim the same from the
former, unless it appears that he gave it without the intention of being
reimbursed.
De Marcaida v. Redfern − For one to recover under this, it must be alleged
and proved that:
1. Support has been furnished a dependent of one bound to give
support but who fails to do so
2. The support was supplied by a stranger
3. The support was given without the knowledge of the person
charged with the duty
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refuses to support or fails to give support to the child when urgently
needed.
Art. 2165 – Funeral Expenses Borne by a Third Person
When funeral expenses are borne by a third person, without the knowledge of
those relatives who were obliged to give support to the deceased, said relatives
shall reimburse the third person, should the latter claim reimbursement. (1894a)
The following are obliged to support each other:
1. Spouses
2. Legitimate ascendants and descendants
3. Parents and their legitimate children, and the legitimate and illegitimate
children of the latter
4. Parents and their illegitimate children, and the legitimate and illegitimate
children of the latter
5. Legitimate brothers and sisters, whether full or half blood
Whenever two or more persons are obliged to give support, the liability shall
devolve upon the following persons in the following order:
1. Spouses
2. Descendants in the nearest degree
3. Ascendants in the nearest degree
4. Brothers and sisters
Ex. A was the son of X and Y. A died. Z shouldered the cost of the funeral. If Z did
this as an act of charity, X and Y need not reimburse him. Otherwise, Z can
demand payment from X and Y.
CROMBONDS 2011-2012
Art. 2167 – Services Given by a Physician in an Accident
When through an accident or other cause a person is injured or becomes seriously
ill, and he is treated or helped while he is not in a condition to give consent to a
contract, he shall be liable to pay for the services of the physician or other person
aiding him, unless the service has been rendered out of pure generosity.
Ex.
X was a victim of a hit−and−run incident and is seriously injured. He is
brought to the hospital and needs operation. However he is in a coma and
cannot give consent. Dr. House nevertheless treats his injuries lest it
becomes more serious. When X recovers, he has the obligation to pay Dr.
House unless the latter does not want to be paid.
Art. 2168 – Property is Saved from Fire, Flood, Storm or Calamity
When during a fire, flood, storm, or other calamity, property is saved from
destruction by another person without the knowledge of the owner, the latter is
bound to pay the former just compensation.
Ex.
During Ondoy, The village where X’s house is located began flooding. X was
abroad during the typhoon. When the flood reached X’s house, Y pushed
the car of the former to higher grounds such that it was saved from
destruction. X is bound to pay Y just compensation unless Y does not
wasn’t to accept it.
Art. 2166 – Support Given to an Orphan, Insane or Indigent Person
When the person obliged to support an orphan, or an insane or other indigent
person unjustly refuses to give support to the latter, any third person may furnish
support to the needy individual, with right of reimbursement from the person
obliged to give support. The provisions of this article apply when the father or
mother of a child under eighteen years of age unjustly refuses to support him.
This has been adopted by Article 207 of the Family Code:
When the person obliged to support another unjustly refuses or fails to
give support when urgently needed by the latter, any third person may
furnish support of the needy individual with a right of reimbursement from
the person obliged to give support. This article shall apply particularly
when the father or the mother of a child under the age of majority unjustly
Art. 2169 – Government Work regarding Health and Safety Regulations
When the government, upon the failure of any person to comply with health or
safety regulations concerning property, undertakes to do the necessary work, even
over his objection, he shall be liable to pay the expenses.
Ex.
An ordinance requires residents to segregate trash into recyclable and
non−recyclable. Mr. X refuses to comply with this ordinance and throws all
his trash in one plastic bag. The city government may segregate his trash
and provide him with two trash cans at his own expense.
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Art. 2170 – Rules of Co-Ownership in Accident or Fortuitous Event
When by accident or other fortuitous event, movables separately pertaining to two
or more persons are commingled or confused, the rules on co−ownership shall be
applicable.
Ex.
Brothers X and Y each bought a black 32Gb Ipad3. Upon reaching their
home and after opening the boxes, a magnitude 8.7 earthquake hit their
locality. Luckily both of them survived but their home was completely
destroyed. In the rubble, they found two Ipad3’s but not knowing which
belongs to whom, the rules on co−ownership will apply.
Art. 2171 – Finder of Lost Property
Article 1237. Whoever pays on behalf of the debtor without the knowledge or
against the will of the latter cannot compel the creditor to subrogate him in his
rights, such as those arising from a mortgage, guaranty or penalty.
Art. 2174 – Measures for Protection Against Lawlessness
When in a small community a nationality of the inhabitants of age decide upon a
measure for protection against lawlessness, fire, flood, storm or other calamity, any
one who objects to the plan and refuses to contribute to the expenses but is
benefited by the project as executed shall be liable to pay his share of said
expenses.
Ex.
The rights and obligations of the finder of lost personal property shall be governed
by Articles 719 and 720.
Article 719. Whoever finds a movable, which is not treasure, must return it to its
previous possessor.
Article 720. If the owner should appear in time, he shall be obliged to pay as reward
to the finder, 1ƒ10 of the sum or of the price of the thing found.
People of Barrio X decided to engage in a security force to protect their
community. For this reason, the people of X agreed to contribute for the
expenses of this security force. Mr. K however refused to make any
contribution. In the event the security force apprehends robbers intending
to rob the house of Mr. K, he should pay his share in the expenses for the
community’s engagement of the security force to protect the people.
Art. 2175 – Person Paying for Taxes of Another
Any person who is constrained to pay the taxes of another shall be entitled to
reimbursement from the latter.
Ex.
Art. 2172 – Right to Reimbursement of Possessor in Good Faith
CROMBONDS 2011-2012
X who pays the real estate taxes of G (whose land will be forfeited if he
fails to pay taxes) must be reimbursed by the latter.
The right of every possessor in good faith to reimbursement for necessary and
useful expenses is governed by Article 546.
Art. 2173 – Third Person Paying a Debt
When a third person, without the knowledge of the debtor, pays the debt, the
rights of the former are governed by Articles 1236 and 1237.
Article 1236. The creditor is not bound to accept payment or performance by a
third person who has no interest in the fulfilment of the obligation, unless there is a
stipulation to the contrary. Whoever pays for another may demand from the debtor
what he has paid, except that if he paid without the knowledge or against the will of
the debtor, he can recover only insofar as the payment has been beneficial to the
debtor.
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CODAL MEMORY AID
TITLE. IV. – PRESCRIPTION
Chapter 1: General Provisions
Art. 1106 − Prescription Defined
Art. 1107 − Acquisition by Capable Persons and Minors
Art. 1108 − Persons Exempt from Prescription
Art. 1109 − Between Husband and Wife, Children and Guardian
Art. 1110 − Married Woman
Art. 1111 − Co−Proprietor or Co−owner
Art. 1112 − Renunciation
Art. 1113 − Subjects of Prescription
Art. 1114 − Right to Enforce Prescription
Art. 1115 − Special Laws
Art. 1116 − Transition
Chapter 2: Prescription of Ownership and Other Real Rights
Art. 1117 − Acquisitive Prescription
Art. 1118 − Possession
Art. 1119 − Possession through License or Tolerance
Art. 1120 − Interruption
Art. 1121 − Natural Interruption
Art. 1122 − One Year or Less
Art. 1123 − Civil Interruption
Art. 1124 − Judicial Summons
Art. 1125 − Possessor’s Recognition of Owner’s Right
Art. 1126 − Titles
Art. 1127 − Good Faith
Art. 1128 − Other Conditions of Good Faith
Art. 1129 − Just Title
Art. 1130 − True and Valid Title
Art. 1131 − Just Title Must Be Proved
Art. 1132 − Acquisition of Movables or Personal Property
Art. 1133 − Movables from Crime
Art. 1134 − Acquisition of Immovables
Art. 1135 − Mistake in Area
Art. 1136 − Wartime
Art. 1137 − Extraordinary Prescription of Immovables
Art. 1138 − Computation of Prescription
Chapter 3: Prescription of Actions
CROMBONDS 2011-2012
Art. 1139 − Lapse of Time
Art. 1140 − Prescription of Movables
Art. 1141 − Prescription of Immovables
Art. 1142 − Prescription of Mortgages
Art. 1143 − Rights Not Extinguished by Prescription
Art. 1144 − 10 Years
Art. 1145 − 6 Years
Art. 1146 − 4 Years
Art. 1147 − 1 Year
Art. 1148 − Code of Commerce and Special Laws
Art. 1149 − No Fixed Period = 5 Years
Art. 1150 − Prescription for All Kinds of Actions
Art. 1151 − Prescription for Actions regarding Payment
Art. 1152 − Prescription of Actions declared by Judgment
Art. 1153 − Prescription for Accounting
Art. 1154 − Fortuitous Event
Art. 1155 − Interruption of Prescription for Actions
TITLE. I. - OBLIGATIONS
Chapter 1: General Provisions
Art. 1156 − Definition
Art. 1157 − Sources of Obligations
Art. 1158 − Obligations from Law
Art. 1159 − Obligations from Contracts
Art. 1160 − Obligations from Quasi Contracts
Art. 1161 − Obligations from Crimes or Delicts
Art. 1162 − Obligations from Quasi−delicts
Chapter 2: Nature and Effect of Obligations
Art. 1163 − Required Diligence
Art. 1164 − Right Over Fruits
Art. 1165 − Delivery of a Determinate or Indeterminate Thing
Art. 1166 − Accessories
Art. 1167 − Obligation To Do
Art. 1168 − Obligation Not To Do
Art. 1169 − Delay
Art. 1170 − Sources of Liabilities
Art. 1171 − Responsibility from Fraud
Art. 1172 − Responsibility from Negligence
Art. 1173 − Fault or Negligence
Art. 1174 − Fortuitous Events
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Art. 1175 − Usurious Transactions
Art. 1176 − Presumption in Payment
Art. 1177 − Rights of the Creditor
Art. 1178 − Transmissibility
Chapter 3: Different Kinds of Obligations
SECTION 1. − Pure and Conditional Obligations
Art. 1179 − Pure Obligations
Art. 1180 − Payment Depends on Debtor’s Means
Art. 1181 − Conditional Obligations
Art. 1182 − Potestative and Casual Conditions
Art. 1183 − Void Conditions
Art. 1184 − Positive Condition
Art. 1185 − Negative Condition
Art. 1186 − Constructive Fulfillment
Art. 1187 − Retroactive Effects of the Fulfillment of a Suspensive
Condition
Art. 1188 − Rights Pending Fulfillment of Suspensive Condition
Art. 1189 − Loss, Deterioration or Improvement Pending the
Condition
Art. 1190 − Effects of Fulfillment of Resolutory Condition
Art. 1191 − Remedies in Reciprocal Obligations
Art. 1192 − Breach by Both Parties
SECTION 2. − Obligations with a Period
Art. 1193 − Obligations with a Period
Art. 1194 − Loss, Deterioration or Improvement before Day
Certain
Art. 1195 − Debtor May Recover Payment
Art. 1196 − Period Benefits Both Creditor and Debtor
Art. 1197 − Court May Fix a Period
Art. 1198 − When Debtor Cannot Make Use of the Period
SECTION 3. − Alternative Obligations
Art. 1199 − Alternative Obligations
Art. 1200 − Debtor’s Right of Choice
Art. 1201 − Choice Communicated
Art. 1202 − Only One Choice is Practicable
Art. 1203 − Debtor Cannot Choose due to Creditor’s Acts
Art. 1204 − Through Debtor’s Fault, All Choices are Lost
Art. 1205 − Choice Given to Creditor
Art. 1206 − Facultative Obligations
SECTION 4. − Joint and Solidary Obligations
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Art. 1207 − Solidary Obligations
Art. 1208 − Joint Obligations
Art. 1209 − When Division is Impossible
Art. 1210 − Indivisibility and Solidarity
Art. 1211 − Not Bound in the Same Manner
Art. 1212 − Acts of Solidary Creditors
Art. 1213 − Mutual Trust among Solidary Creditors
Art. 1214 − Judicial or Extrajudicial Demand by a Solidary Creditor
Art. 1215 − Extinguishment by a Solidary Creditor
Art. 1216 − Rights of Creditor Against Solidary Debtors
Art. 1217 − Payment by Solidary Debtors
Art. 1218 − When Payment has Prescribed or become Illegal
Art. 1219 − Remission of a Solidary Debtor’s Liability
Art. 1220 − Remission of the Whole Obligation
Art. 1221 − Loss or Impossibility of Prestation in Relation to
Solidary Debtors
Art. 1222 − Solidary Debtor’s Defenses
SECTION 5. − Divisible and Indivisible Obligations
Art. 1223 − Nature and Effect of Divisible and Indivisible
Obligations
Art. 1224 − Liabilities in Joint Indivisible Obligations
Art. 1225 − Divisible and Indivisible Obligations
SECTION 6. − Obligations with a Penal Clause
Art. 1226 − Penalties
Art. 1227 − Penalty and Fulfillment
Art. 1228 − Proof is Not Necessary
Art. 1229 − Court Intervention
Art. 1230 − Nullity of the Penal Clause
Chapter 4: Extinguishment of Obligations
GENERAL PROVISIONS
Art. 1231 − Modes of Extinguishment
SECTION 1. − Payment or Performance
Art. 1232 − Payment Defined
Art. 1233 − Payment must be Complete
Art. 1234 − Substantial Performance
Art. 1235 − Creditor Accepts Incompleteness or Irregularity
Art. 1236 − Payment by a Third Person
Art. 1237 − No Subrogation
Art. 1238 − Donation
Art. 1239 − Payment by an Incapacitated Person
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Art. 1240 − To Whom Payment Should be Made
Art. 1241 − Payment to Incapacitated or Third Persons
Art. 1242 − Payment to Possessor of Credit
Art. 1243 − Judicial Order to Retain the Debt
Art. 1244 − Creditor Cannot be Compelled to Receive a Different Thing
Art. 1245 − Dation in Payment
Art. 1246 − Delivery of a Generic Thing
Art. 1247 − Extrajudicial Expenses
Art. 1248 − Partial Receipt and Payment
Art. 1249 − Currency
Art. 1250 − Inflation or Deflation
Art. 1251 − Place of Payment
SUBSECTION 1. − Application of Payments
Art. 1252 − Application of Payments
Art. 1253 − Interest
Art. 1254 − Most Onerous Debt
SUBSECTION 2. − Payment by Cession
Art. 1255 − Cession
SUBSECTION 3. − Tender of Payment and Consignation
Art. 1256 − Tender of Payment and Consignment
Art. 1257 − Announcement
Art. 1258 − Consignation Process
Art. 1259 − Expenses Borne by the Creditor
Art. 1260 − Judicial Declaration
Art. 1261 − Creditor Authorizes Debtor to Withdraw
SECTION 2. − Loss of the Thing Due
Art. 1262 − Loss
Art. 1263 − Loss of a Generic Thing
Art. 1264 − Partial Loss
Art. 1265 − Loss of Thing in the Possession of the Debtor
Art. 1266 − Legal or Physical Impossibility
Art. 1267 − Difficult Beyond Contemplation
Art. 1268 − Proceeds from a Criminal Offense
Art. 1269 − Creditor’s Right of Action
SECTION 3. − Condonation or Remission of the Debt
Art. 1270 − Condonation Defined
Art. 1271 − Delivery of a Credit to the Debtor
Art. 1272 − Presumption when Credit is in the Possession of the
Debtor
Art. 1273 − Extinguishment of Accessory Obligations
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Art. 1274 − Accessory Obligation of Pledge
SECTION 4. − Confusion or Merger of Rights
Art. 1275 − When Obligation is Extinguished
Art. 1276 − Effect on Guarantors
Art. 1277 − Confusion in Joint Obligations
SECTION 5. − Compensation
Art. 1278 − Compensation Defined
Art. 1279 − Requisites of Compensation
Art. 1280 − Set−up by Guarantor
Art. 1281 − Total or Partial Compensation
Art. 1282 − Debts Not Due
Art. 1283 − Claim for Damages
Art. 1284 − Voidable Debts
Art. 1285 − Assignment of the Creditor’s Rights to a Third Person
Art. 1286 − Different Places
Art. 1287 − No Compensation
Art. 1288 − Civil Liability
Art. 1289 − Several Debts
Art. 1290 − By Operation of Law
SECTION 6. − Novation
Art. 1291 − Kinds of Novation
Art. 1292 − Express and Implied Novation
Art. 1293 − Substituting a New Debtor
Art. 1294 − Insolvency of the New Debtor in Expromision
Art. 1295 − Insolvency of the New Debtor in Delegacion
Art. 1296 − Effect on Accessory Obligations
Art. 1297 − New Obligation is Void
Art. 1298 − Original Obligation was Void
Art. 1299 − Subject to a Suspensive or Resolutory Condition
Art. 1300 − Legal or Conventional Subrogation
Art. 1301 − Conventional Subrogation
Art. 1302 − When Legal Subrogation is Presumed
Art. 1303 − Rights Transferred Upon Subrogation
Art. 1304 − Partial Payment and Preference
Title II – CONTRACTS
Chapter 1: General Provisions
Art. 1305 − Contracts Defined
Art. 1306 − Guarantee of Freedom to Contract
Art. 1307 − Innominate Contracts
Art. 1308 − Mutuality of Contracts
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Art. 1309 − Determination of Performance by a Third Person
Art. 1310 − When Determination is Inequitable
Art. 1311 − Stipulation Pour Atrui
Art. 1312 − Contracts Creating Real Rights Bind Third Persons
Art. 1313 − Right of Creditors to Impugn Fraudulent Contracts
Art. 1314 − Liability of Third Persons Responsible for Breach of Contract
Art. 1315 − Perfection of Contracts and Implied Terms
Art. 1316 − Real Contracts are Perfected upon Delivery
Art. 1317 − Unauthorized Contracts are Unenforceable
Chapter 2: Essential Requisites of Contracts
General Provisions
Art. 1318 − Elements of a Contract
Section 1 − Consent
Art. 1319 − Consent Defined
Art. 1320 − Acceptance
Art. 1321 − Offerer Fixes Manner, Time and Place of Acceptance
Art. 1322 − Communication of Acceptance to Agent
Art. 1323 − When Offer Becomes Ineffective
Art. 1324 − Contract of Option, Option Period, Option Money
Art. 1325 − Business Advertisements
Art. 1326 − Advertisements for Bidders
Art. 1327 − Persons who Cannot Give Consent
Art. 1328 − Lucid Intervals, Drunkenness, Hypnotic Spell
Art. 1329 − Incapacity Subject to Modifications
Art. 1330 − Characteristics of Consent
Art. 1331 − Mistake or Error
Art. 1332 − Burden of Proof in case of Fraud or Mistake
Art. 1333 − Knowledge of Risk
Art. 1334 − Mistake of Law May Vitiate Consent
Art. 1335 − Violence or Force
Art. 1336 − Violence or Intimidation by a Third Person
Art. 1337 − Undue Influence
Art. 1338 − Causal Fraud
Art. 1339 − Fraud by Concealment
Art. 1340 − Usual Exaggerations in Trade
Art. 1341 − Expert Opinion
Art. 1342 − Fraud by a Third Person
Art. 1343 − Misrepresentation Made in Good Faith
Art. 1344 − Causal Fraud may make a Contract Voidable
Art. 1345 − Simulation of a Contract
CROMBONDS 2011-2012
Art. 1346 − Absolute and Relative Simulation of Contracts
Section 2 − Object of Contracts
Art. 1347 − Object of a Contract
Art. 1348 − Impossible Things or Services
Art. 1349 − Quantity Need Not be Determinate
Section 3 − Cause of Contracts
Art. 1350 − Cause Defined
Art. 1351 − Motive Defined
Art. 1352 − Absence of Cause
Art. 1353 − False Cause
Art. 1354 − Cause Presumed to Exist and Lawful
Art. 1355 − Lesion Defined
Chapter 3: Form of Contracts
Art. 1356 − Form of Contracts
Art. 1357 − Form for the Convenience of the Parties
Art. 1358 − Contracts Which Must Appear in a Public Document
Chapter 4: Reformation of Instruments
Art. 1359 − Reformation
Art. 1360 − Principles of the General Law on Reformation
Art. 1361 − Mutual Mistake as Basis of Reformation
Art. 1362 −Mistaken, Fraud and Inequitable Conduct
Art. 1363 − Concealment of Mistake by the Other Party
Art. 1364 −Ignorance, etc. on the Part of Third Person
Art. 1365 − Mortgage or Pledge Stated as a Sale
Art. 1366 −Cases when Reformation Not Allowed
Art. 1367 − Party who Brought Action to Enforce Cannot Reform
Art. 1368 − Party Entitled to Reformation
Art. 1369 − Procedure for Reformation
Chapter 5: Interpretation of Contracts
Art. 1370 − Interpretation of Contracts Defined
Art. 1371 − Contemporaneous and Subsequent Acts Determine Intent
Art. 1372 − Special Intent Prevails Over General Intent
Art. 1373 − Interpretation of Stipulation with Several Meanings
Art. 1374 − Interpretation of Various Stipulations
Art. 1375 − Interpretation of Words with Different Significations
Art. 1376 − Usage or Custom as Aid in Interpretation
Art. 1377 − Interpretation of Obscure Words
Art. 1378 − Rules in Case Doubts are Impossible to Settle
Art. 1379 − Rules of Court Applicable
Chapter 6: Rescissible Contracts
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Art. 1380 − Rescissible Contracts Defined
Art. 1381 − Cases of Rescissible Contracts
Art. 1382 − Payments Made in State of Insolvency
Art. 1383 − Nature of Action for Rescission
Art. 1384 − Extent of Rescission
Art. 1385 − Rescission Creates Obligation of Mutual Restitution
Art. 1386 − Contracts Approved by the Courts
Art. 1387 − When Alienation Presumed in Fraud of Creditors
Art. 1388 − Liability of Purchaser in Bad Faith
Art. 1389 − Period for Filing Action for Rescission
Chapter 7: Voidable Contracts
Art. 1390 − Voidable Contracts Defined
Art. 1391 − Period for Filing Action for Annulment
Art. 1392 − Effect of Ratification
Art. 1393 − Forms of Ratification
Art. 1394 − Who May Ratify
Art. 1395 − Conformity of Guilty Party to Ratification Not Required
Art. 1396 − Retroactive Effect of Ratification
Art. 1397 − Party Entitled to Bring an Action to Annul
Art. 1398 − Duty of Mutual Restitution upon Annulment
Art. 1399 − Restitution by an Incapacitated Person
Art. 1400 − Effect of Loss of Thing to be Returned
Art. 1401 − Extinguishment of Action for Annulment
Art. 1402 − Effect where a Party Cannot Restore Object
Chapter 8: Unenforceable Contracts
Art. 1403 − Unenforceable Contracts Defined
Art. 1404 − Rules Governing Unauthorized Contracts
Art. 1405 − Modes of Ratification under Statutes of Fraud
Art. 1406 − Right of a Party where Contract Enforceable
Art. 1407 − When Uneforceable Contract becomes Voidable
Art. 1408 − Right of Third Persons to Assail an Unforceable Contract
Chapter 9: Void and Inexistent Contracts
Art. 1409 − Void Contracts Defined
Art. 1410 − Action or Defense is Imprescriptible
Art. 1411 − Rules where Contract is Illegal and Act is Criminal Offense
Art. 1412 − Rules where Contract is Illegal but Act is not Criminal Offense
Art. 1413 − Recovery of Usurious Interest
Art. 1414 − Recovery where Contract Entered Into for Illegal Purpose
Art. 1415 − Recovery by an Incapacitated Person
Art. 1416 − Recovery where Contract is Not Illegal per se
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Art. 1417 − Recovery of Amount Paid in Excess of Ceiling Price
Art. 1418 − Recovery of Additional Compensation
Art. 1419 − Recovery of Amount of Wage Less than Minimum Fixed
Art. 1420 − Effect of Illegality where Contract is IndivisibleƒDivisible
Art. 1421 − Persons Entitled to Raise Defense of Illegality or Nullity
Art. 1422 − Void Contract Cannot be Novated
Title III – NATURAL OBLIGATIONS
Art. 1423 − Concept of Natural Obligations
Art. 1424 − Performance After Civil Obligation has Prescribed
Art. 1425 − Reimbursement of Third Person for Prescribed Debt
Art. 1426 − Restitution by Minor After Annulment of Contract
Art. 1427 − Delivery by Minor of Money or Fungible Thing
Art. 1428 − Performance After Action to Enforce Civil Obligation Failed
Art. 1429 − Payment by Heir of Debt Exceeding Value of Property Inherited
Art. 1430 − Payment of Legacy After Will has been Declared Void
Title IV – ESTOPPEL
Art. 1431 − Estoppel Defined
Art. 1432 − Application of Estoppel
Art. 1433 − Kinds of Estoppel
Art. 1434 − Sale by Person not the Owner
Art. 1435 − Sale by a Person Representing Another
Art. 1436 − Lessee or Bailee Estopped from Asserting Title
Art. 1437 − Estoppel in Contracts where One Party is Mislead
Art. 1438 − Estoppel where Personal Property is Pledged
Art. 1439 − Between Parties and Successors in Interest
Title V – TRUSTS
Chapter 1: General Provisions
Art. 1440 − Trustor, Trustee and Beneficiary
Art. 1441 − Forms of Trusts
Art. 1442 − Application of the Principles of the General Law of Trusts
Chapter 2: Express Trusts
Art. 1443 − Immovable Cannot be Proven by Parol Evidence
Art. 1444 − No Words Required
Art. 1445 − When Trustee Declines Designation
Art. 1446 − Acceptance by the Beneficiary
Chapter 3: Implied Trusts
Art. 1447 − Application of Implied Trusts Enumerated
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OBLIGATIONS AND CONTRACTS REVIEWER
ATTY. MEL STA. MARIA
Art. 1448 − When a Third Party Pays for a Property
Art. 1449 − When a Donation is Made but Donee has Partial Interest
Art. 1450 − When a Person Acquires Property through a Loan
Art. 1451 − When Land Passes by Succession
Art. 1452 − When Legal Title is Named after One of Many Purchasers
Art. 1453 − When Property is Conveyed to Hold or Transfer
Art. 1454 − When Property is Conveyed to Fulfill an Obligation
Art. 1455 − When Trust Fund is Used to Purchase Property
Art. 1456 − When Property is Acquired through Mistake or Fraud
Art. 1457 − May be Proved by Oral Evidence
Art. 2167 − Services Given by a Physician in an Accident
Art. 2168 − Property is Saved from Fire, Flood, Storm or Calamity
Art. 2169 − Government Work regarding Health and Safety Regulations
Art. 2170 − Rules of Co−Ownership in Accident or Fortuitous Event
Art. 2171 − Finder of Lost Property
Art. 2172 − Right to Reimbursement of Possessor in Good Faith
Art. 2173 − Third Person Paying a Debt
Art. 2174 − Measures for Protection Against Lawlessness
Art. 2175 − Person Paying for Taxes of Another
Title XVII – EXTRA-CONTRACTUAL OBLIGATIONS
Chapter 1: Quasi-Contracts
Art. 2142 − Quasi−Contracts Defined
Art. 2143 − Other Quasi−Contracts
Section 1 − Negotiorum Gestio
Art. 2144 − Negotiorum Gestio Defined and Its Exceptions
Art. 2145 − Diligence Required of an Officious Manager
Art. 2146 − Liability of Officious Manager upon Delegation
Art. 2147 − When Officious Manager shall be Liable for Fortuitous Event
Art. 2148 − Liability for Fortuitous Event as to Manager’s Capacity
Art. 2149 − Ratification of Owner results to Agency
Art. 2150 − Officious Manager Entitled to Reimbursement
Art. 2151 − Reimbursement when there is No Benefit or Danger
Art. 2152 −Officious Manager as to Contracts with Third Persons
Section 2 − Solutio Indebiti
Art. 2154 − Solutio Indebiti Defined
Art. 2155 − Applicable to Doubtful or Difficult Question of Law
Art. 2156 − Doubt on whether the Debt was Due
Art. 2157 − Solidary Responsibility of Two or More Payees
Art. 2158 − Property or Money Delivered Belongs to Third Person
Art. 2159 − Acceptance of Undue Payment in Bad Faith
Art. 2160 − Acceptance of Undue Payment in Good Faith
Art. 2161 − Reimbursement for Improvements and Expenses
Art. 2162 − Exemption from Obligation to Restore
Art. 2163 − Presumed Mistake
Section 3 − Other Quasi−Contracts
Art. 2164 − Support Given by a Stranger
Art. 2165 − Funeral Expenses Borne by a Third Person
Art. 2166 − Support Given to an Orphan, Insane or Indigent Person
CROMBONDS 2011-2012
SOURCES
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Sta. Maria, Obligations and Contracts (2003)
De Leon, The Law on Obligations and Contracts (2008)
Salanga RA, Obligations and Contracts Reviewer
Civil Law Obligations and Contracts Reviewer
http:ƒƒlegal−dictionary.thefreedictionary.comƒ
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