OBLIGATIONS &
CONTRACTS
CODAL — CIVIL CODE PROVISIONS ON THE LAW ON OBLICON
COMPREHENSIVE NOTES ON PROF. TOLENTINO’S BOOK
COMPREHENSIVE NOTES ON PROF. PARAS’S BOOK
SOME NOTES ON DEAN MEL STA. MARIA’S AND PROF. AQUINO'S BOOKS
SOME NOTES ON DEAN DEL CASTILLO'S LECTURES
IT
BEGINS WITH FAITH
&
CONVICTION, PERSEVERES WITH HARD WORK
&
DISCIPLINE, AND
ENDS WITH AN IMPASSIONED TRIUMPH WITHIN, WHEN WE REALIZE THAT WE CAN DO ANYTHING
[SEE EPH. 3:20]
#EMBRACETHEGRIND
TABLE OF CONTENTS
I. GENERAL PROVISIONS ON OBLIGATIONS
7
DEFINITION AND KINDS OF OBLIGATIONS
7
SOURCES OF OBLIGATIONS
8
OBLIGATIONS ARISING FROM LAW
9
OBLIGATIONS ARISING FROM CONTRACT
9
OBLIGATIONS ARISING FROM QUASI-CONTRACT
11
OBLIGATIONS ARISING FROM DELICT
12
OBLIGATIONS ARISING FROM TORTS
13
II. NATURE AND EFFECTS OF OBLIGATIONS
14
A. GENERAL PROVISIONS
14
DUE DILIGENCE IN THE PERFORMANCE OF OBLIGATIONS
14
RIGHTS TO THE SUBJECT-MATTER IN OBLIGATIONS TO GIVE
14
USURY
15
PRESUMPTIONS IN CASE OF RECEIPT OF INTEREST OR INSTALMENTS
15
TRANSMISSIBILITY OF RIGHTS
16
B. PROVISIONS ON NON-PERFORMANCE OF IMPROPER PERFORMANCE OF OBLIGATIONS
16
REMEDIES OF THE CREDITOR IN CASE OF BREACH OF THE OBLIGATION
16
SOURCES OF LIABILITY
19
FRAUD
19
NEGLIGENCE
20
DELAY OR DEFAULT
21
FORTUITOUS EVENTS OR FORCE MAJEURE
24
REMEDIES OF THE CREDITOR TO COLLECT FROM THE DEBTOR
26
RESOLUTION OR CANCELLATION OF OBLIGATIONS
26
MUTUAL BREACH OF OBLIGATIONS
29
III. KINDS OF OBLIGATIONS
30
A. PURE AND CONDITIONAL OBLIGATIONS
30
PURE AND CONDITIONAL OBLIGATIONS DEFINED
30
OBLIGATION TO PAY WHEN ABLE
31
SUSPENSIVE AND RESOLUTORY CONDITIONS
31
POTESTATIVE, CASUAL, AND MIXED CONDITIONS
32
IMPOSSIBLE CONDITIONS
32
POSITIVE CONDITIONS WITH A PERIOD
33
NEGATIVE CONDITIONS WITH A PERIOD
33
CONSTRUCTIVE FULFILMENT OF CONDITIONS
33
RETROACTIVE EFFECT OF THE FULFILLMENT OF SUSPENSIVE CONDITIONS
34
PRESERVATION OF THE CREDITOR’S RIGHTS PENDING THE FULFILMENT OF THE CONDITION
36
RECOVERY IN CASE OF PAYMENT BY MISTAKE PENDING THE FULFILMENT OF THE SUSPENSIVE CONDITION36
LOSS, DETERIORATION, AND IMPROVEMENT BEFORE THE FULFILMENT OF SUSPENSIVE CONDITIONS
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EFFECT OF THE FULFILLMENT OF RESOLUTORY CONDITIONS
38
B. OBLIGATIONS WITH A PERIOD
39
DEFINITION OF A PERIOD OR TERM
39
LOSS, DETERIORATION, AND IMPROVEMENT BEFORE THE EXPIRATION OF THE PERIOD
40
RECOVERY IN CASE OF PAYMENT BY MISTAKE PENDING THE EXPIRATION OF THE SUSPENSIVE PERIOD
41
BENEFIT OF THE PERIOD
41
WHEN THE COURTS CAN FIX THE PERIOD
42
C. ALTERNATIVE OBLIGATIONS
43
OBLIGATIONS WITH SEVERAL OBJECTS
43
WHO HAS THE RIGHT OF CHOICE IN ALTERNATIVE OBLIGATIONS
43
HOW THE RIGHT OF CHOICE SHOULD BE MADE
44
IMPAIRMENT OF THE CHOICES
44
FACULTATIVE OBLIGATIONS
45
D. JOINT AND SOLIDARY OBLIGATIONS
46
JOINT AND SOLIDARY OBLIGATIONS DEFINED
46
JOINT INDIVISIBLE OBLIGATIONS
49
VARYING TERMS AND CONDITIONS IN SOLIDARY OBLIGATIONS
50
SUMMARY OF RULES GOVERNING THE RELATIONSHIP OF THE PARTIES IN SOLIDARY OBLIGATIONS
50
E. DIVISIBLE AND INDIVISIBLE OBLIGATIONS
55
DIVISIBILITY OF THINGS AND OBLIGATIONS
55
DETERMINATION OF DIVISIBILITY OR INDIVISIBILITY
56
F. OBLIGATIONS WITH A PENAL CLAUSE
57
NATURE OF A PENAL CLAUSE
57
SUBSTITUTION OF THE PENALTY FOR THE PRINCIPAL OBLIGATION
58
REDUCTION OF THE PENALTY BY COURTS
58
NULLITY OF THE PENAL CLAUSE VIS-A-VIS THE PRINCIPAL OBLIGATION
58
IV. MODES OF EXTINGUISHMENT OF OBLIGATIONS
59
GENERAL PROVISIONS
59
A. PAYMENT OR PERFORMANCE
60
CONCEPT AND NATURE OF PAYMENT
60
COMPLETENESS OF PAYMENT
60
SUBSTANTIAL PERFORMANCE
61
WAIVER OF DEFECT IN PERFORMANCE
61
RULES AS TO PERSON OF THE PAYOR
62
PAYMENT BY A THIRD PERSON
63
RULES AS TO THE PERSON OF THE PAYEE
64
RULES AS TO THE SUBJECT-MATTER OR OBJECT OF PAYMENT
66
RULES IN CASE OF MONETARY OBLIGATIONS
67
PAYMENT OF LOANS OR MUTUUM
69
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COSTS AND EXPENSES OF PAYMENT
71
PLACE OF PAYMENT
72
SPECIAL FORMS OF PAYMENT
72
DATION IN PAYMENT (DACION EN PAGO)
72
APPLICATION OF PAYMENTS — PAYMENT OF SEVERAL DEBTS OF THE SAME KIND TO A SINGLE CREDITOR74
PAYMENT BY CESSION
76
TENDER OF PAYMENT AND CONSIGNATION
77
B. LOSS OF THE THING DUE
80
NATURE AND CONCEPT OF “LOSS”
80
LOSS IN OBLIGATIONS TO GIVE
81
PARTIAL LOSS
82
PRESUMPTION OF FAULT
82
IMPOSSIBILITY OF PERFORMANCE IN OBLIGATIONS TO DO
82
REBUS SIC STANTIBUS
82
LOSS IN CRIMINAL OFFENSES
83
TRANSFER OF RIGHTS FROM THE DEBTOR TO THE CREDITOR IN CASE OF LOSS
83
C. CONDONATION OR REMISSION
84
DEFINITION OF CONDONATION
84
DELIVERY OF PRIVATE DOCUMENT EVIDENCING THE CREDIT
84
PRESUMPTION OF VOLUNTARY DELIVERY
85
EFFECT OF CONDONATION OF THE PRINCIPAL ON THE ACCESSORY
85
REMISSION OF PLEDGE
85
D. CONFUSION OR MERGER
86
NATURE OF CONFUSION OR MERGER
86
EFFECT OF MERGER ON THE GUARANTORS
87
MERGER IN JOINT OBLIGATIONS
88
E. COMPENSATION
88
NATURE AND KINDS OF COMPENSATION
88
LEGAL COMPENSATION
89
EFFECT OF COMPENSATION ON A GUARANTORS
93
COMPENSATION WHEN THERE IS AN ASSIGNMENT OF CREDIT
93
CONVENTIONAL OR VOLUNTARY COMPENSATION
94
FACULTATIVE COMPENSATION
95
JUDICIAL COMPENSATION
96
F. NOVATION
96
NATURE AND KINDS OF NOVATION
96
EFFECTS OF NOVATION
97
TOTAL OR EXTINCTIVE NOVATION — EXPRESS OR IMPLIED
98
PASSIVE SUBJECTIVE NOVATION — SUBSTITUTION OF THE DEBTOR
104
ACTIVE SUBJECTIVE NOVATION — SUBROGATION OF A THIRD PERSON IN THE RIGHTS OF THE CREDITOR106
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V. GENERAL PROVISIONS ON CONTRACTS
110
NATURE, DEFINITION AND ELEMENTS OF A CONTRACT
110
AUTONOMY OF CONTRACTS
114
LAW WHICH GOVERNS CONTRACTS
115
OBLIGATORY FORCE OF CONTRACTS
116
MUTUALITY OF CONTRACTS
117
RELATIVITY OR PRIVITY OF CONTRACTS
118
PERFECTION OF CONTRACTS
121
CONTRACTS MADE BY A PERSON ON BEHALF OF ANOTHER
122
VI. ESSENTIAL REQUISITES OF CONTRACTS
123
IN GENERAL
123
A. CONSENT OR MEETING OF THE MINDS
124
CONSENT IN GENERAL
124
MEETING OF THE MINDS — OFFER AND ACCEPTANCE; STAGES IN THE PERFECTION OF A CONTRACT
124
LEGAL INCAPACITY OF THE PERSONS TO GIVE CONSENT
128
VITIATION OF CONSENT
130
ABSOLUTE AND RELATIVE SIMULATION OF CONTRACTS
134
B. OBJECT OR SUBJECT-MATTER
136
C. CAUSE OR CONSIDERATION
138
NATURE AND KINDS OF CAUSES
138
CAUSE VS MOTIVE
138
REQUISITES OF A VALID CAUSE
139
VII. OTHER PROVISIONS ON CONTRACTS
141
A. FORM OF CONTRACTS
141
B. REFORMATION OF INSTRUMENTS
141
C. INTERPRETATION OF CONTRACTS
142
VIII. DEFECTIVE CONTRACTS
143
A. RESCISSIBLE CONTRACTS
147
NATURE OF RESCISSION
147
GROUNDS FOR RESCISSION
148
RESCISSION AS A REMEDY OF LAST RESORT
152
EXTENT AND EFFECTS OF RESCISSION
152
PRESCRIPTIVE PERIOD FOR RESCISSION
154
B. VOIDABLE CONTRACTS
155
NATURE OF VOIDABLE CONTRACTS
155
GROUNDS FOR ANNULMENT OF CONTRACTS
156
PRESCRIPTIVE PERIOD FOR ANNULMENT
156
RATIFICATION OF VOIDABLE CONTRACTS
157
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WHO MAY BRING AN ACTION FOR ANNULMENT
158
EFFECTS OF ANNULMENT
159
C. UNENFORCEABLE CONTRACTS
161
NATURE OF UNENFORCEABLE CONTRACTS
161
GROUNDS FOR UNENFORCEABILITY
161
RATIFICATION OF UNENFORCEABLE CONTRACTS
167
RIGHT OF ONE PARTY TO COMPEL THE OTHER TO EXECUTE THE NEEDED INSTRUMENT
167
UNENFORCEABILITY AS A PERSONAL DEFENSE
168
D. VOID AND INEXISTENT CONTRACTS
169
NATURE OF VOID CONTRACTS
169
GROUNDS FOR NULLITY OF CONTRACTS
170
IMPRESCRIPTIBILITY OF VOID CONTRACTS
170
DECLARATION OF NULLITY — EFFECTS AND CONSEQUENCES
171
NULLITY AS A DEFENSE BY THIRD PARTIES
174
CONTRACT RESULTING FROM A VOID CONTRACT
174
IX. NATURAL OBLIGATIONS
175
PAYMENT OR PERFORMANCE OF PRESCRIBED OBLIGATIONS
175
REIMBURSEMENT OF THIRD PERSON
175
RETURN OF THE THING IN AN ANNULLED CONTRACT DUE TO MINORITY
176
CONSUMPTION IN GOOD FAITH OF A THING ACQUIRED FROM A MINOR
176
VOLUNTARY FULFILLMENT OF THE WINNER IN AN ACTION
176
PAYMENT OF DEBTS BY AN HEIR BEYOND THE VALUE OF HIS INHERITANCE
176
PAYMENT OF LEGACIES DESPITE THE FACT THAT THE WILL IS VOID
177
X. ESTOPPEL
178
NATURE AND CONCEPT
178
SUPPLETORY APPLICATION OF THE PRINCIPLES OF ESTOPPEL
178
KINDS OF ESTOPPEL
179
SALE BY NON-OWNER; AFTER-ACQUIRED PROPERTY
180
SALE OR ALIENATION IN REPRESENTATION OF ANOTHER
180
ESTOPPEL ON THE PART OF A LESSEE OR A BAILEE
180
ESTOPPEL CONCERNING IMMOVABLE PROPERTY
180
ALLOWING SOMEONE TO ASSUME APPARENT OWNERSHIP OF PERSONAL PROPERTY
181
PERSONS BOUND BY ESTOPPEL
181
XI. PRESCRIPTION
182
A. GENERAL PROVISIONS
182
B. PRESCRIPTION OF OWNERSHIP AND OTHER REAL RIGHTS
183
C. PRESCRIPTION OF ACTIONS
184
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I. GENERAL PROVISIONS ON OBLIGATIONS
I. GENERAL PROVISIONS ON OBLIGATIONS
DEFINITION AND KINDS OF OBLIGATIONS
Article 1156. An obligation is a juridical necessity to give, to do or not to do. (n)
Article 1423. Obligations are civil or natural. Civil obligations give a right of action to compel their performance. Natural
obligations, not being based on positive law but on equity and natural law, do not grant a right of action to enforce their
performance, but after voluntary fulfillment by the obligor, they authorize the retention of what has been delivered or
rendered by reason thereof. Some natural obligations are set forth in the following articles.
CONCEPT OF AN “OBLIGATION”
‣
TOLENTINO — An obligation is the juridical relation created by virtue of certain facts, between two or more persons,
whereby one of them, known as the creditor or obligee, may demand of the other, known as the debtor or obligor, a
definite presentation
‣
Criticism on Art. 1156’s Definition of Obligations
‣
PARAS — Art. 1156 defines obligation as “a juridical necessity to give, to do, or not to do.” As will be noticed, this
stresses merely the duty of the debtor (the passive element) without emphasizing a corresponding right on the part of
the creditor (the active element). On this point, Justice J.B.L. Reyes of the Supreme Court has remarked — This
definition in Art. 1156, taken from Sanchez Roman is incomplete, in that, it views obligations only from the debit side.
There is no debt without a credit, and the credit is an asset in the patrimony of the creditor just as the debt is a liability
of the obligor. Following the defective method of the Spanish Civil Code, the new Code separates responsibility from
the other element of obligation.” He then quotes with approval the following definition given by Arias Ramos: “An
obligation is a juridical relation whereby a person (called the creditor) may demand from another (called the debtor) the
observance of a determinative conduct (the giving, doing, or not doing), and in case of breach, may demand
satisfaction from the assets of the latter.” This definition is accurate because it views “obligation” from a “total”
standpoint (both active and passive viewpoint).
ESSENTIAL ELEMENTS OF AN OBLIGATION
1.
2.
Subject-persons
a.
An active subject (called the obligee or creditor) — the possessor of a right; he in whose favor the obligation is
constituted. He has the power to demand the performance of the obligation
b.
A passive subject (called the obligor or debtor) — he who has the duty of giving, doing, or not doing. He is the one
bound to perform the obligation
The object or prestation — the subject matter of the obligation. A prestation is an obligation; more specifically, it is the
subject matter of an obligation and may consist of either —
a.
Giving a thing
b.
Doing a certain act
c.
Not doing a certain act
3.
The efficient cause (the vinculum juris or juridical tie) — the reason why the obligation exists. The law speaks of an
obligation as a juridical necessity to comply with a prestation. There is a “juridical necessity,” for non-compliance can
result in juridical or legal sanction.
‣
Example — A promises to paint B’s picture for B as a result of an agreement. Here A is the obligor; B is the obligee; the
painting of B’s picture is the object or prestation; the agreement or contract is the efficient cause.
KINDS OF OBLIGATIONS
1.
As to the basis enforceability or sanction
Civil obligation (or perfect obligation) — that defined in Art. 1156. The sanction is judicial process. Non-compliance
gives a right of action to compel their performance.
a.
‣
Example — A promises to pay B his (A’s) debt of P1 million.
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Natural obligation — based on equity and natural law, they 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. A natural obligation is basically an obligation which was originally a civil obligation, which
was converted to a natural obligation upon the happening of an event which extinguishes its legal demandability
(such as prescription).
b.
‣
Example — A owes B P1 million. But the debt has already prescribed. If A, knowing that it has prescribed,
nevertheless still pays B, he (A) cannot later on get back what he voluntarily paid. The sanction is the law of course,
but only because conscience had originally motivated the payment.
‣
NOTE — “Voluntary” means the creditor had knowledge of the existence of the debt and the fact that he is not
legally obligated to pay. If the debtor made a payment by mistake, then the rule on natural obligations does not
apply.
Moral obligation (or imperfect obligation) — the duty of a Catholic to hear mass on Sundays and holy days of
obligation. The sanction here is conscience or morality, or the law of the church.
c.
2.
3.
4.
5.
As to subject matter
a.
Real obligation — the obligation to give
b.
Personal obligation — the obligation to do or not to do
From the affirmativeness and negativeness of the obligation —
a.
Positive or affirmative obligation — the obligation to give or to do
b.
Negative obligation — the obligation not to do (which naturally includes “not to give”)
From the viewpoint of persons obliged —
a.
Unilateral — where only one of the parties is bound. The parties are either exclusively debtors or creditors.
b.
Bilateral — where both parties are bound
i.
Reciprocal
ii.
Non-reciprocal — where performance by one is non- dependent upon performance by the other. Contracting
parties are mutually debtors and creditors of each other. These are created and established at the same time, out
of the same cause and which results in mutual relationship of creditor and debtor between the parties
As to perfection and extinguishment
a.
Pure Obligations
b.
Conditional Obligations
i.
Obligations subject to a suspensive condition
ii.
Obligations subject to a resolutory condition
c.
4.
5.
Obligations with a Period
i.
Obligations subject to a suspensive period
ii.
Obligations subject to a resolutory period
As to plurality of prestations
a.
Conjunctive obligation — one where the debtor has to perform several prestations. This is extinguished only by the
performance of all of them.
b.
Alternative obligation — one where out of the two or more prestations which may be given, only one is due.
c.
Facultative obligation — one where only one prestation has been agreed upon but the obligor may render another in
substitution.
As to the plurality of the subject-persons
a.
Joint obligation — one in which each of the debtors is liable only for a proportionate part of the debt, and each
creditor is entitled only to a proportionate part of the credit. Each creditor can only recover his share of the obligation
and each debtor can only be made to pay his part.
b.
Solidary obligation — one in which each debtor is liable for the entire obligation, and each creditor is entitled to
demand the whole obligation. Each creditor may enforce the entire obligation, and each debtor may be obliged to
pay it in full.
SOURCES OF OBLIGATIONS
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Article 1157. Obligations arise from:
(1) Law;
(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punished by law; and
(5) Quasi-delicts. (1089a)
1.
Law (obligations ex lege) — like the duty to pay taxes and to support one’s family.
2.
Contracts (obligations ex contractu) — like the duty to repay a loan by virtue of an agreement.
3.
Quasi-contracts (obligations ex quasi-contractu) — like the duty to refund an “over change” of money because of the
quasi-contract of solutio indebiti or “undue payment.”
4.
Crimes or Acts or Omissions Punished by Law (obligations ex maleficio or ex delicto) — like the duty to return a stolen
carabao.
5.
Quasi-delicts or Torts (obligation ex quasi-delicto or ex quasi-maleficio) — like the duty to repair damage due to
negligence.
‣
NOTE — The enumeration by the law is exclusive; hence, no obligation exists if its source is not one of those
enumerated under Art. 1157. (Navales v. Rias)
‣
BUT — The enumeration is not scientific because in reality there are only two sources: the law and contracts, because
obligations arising from quasi-contracts, crimes, and quasi-delicts are really imposed by the law. (Leung Ben v.
O’Brien)
OBLIGATIONS ARISING FROM LAW
Article 1158. 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)
‣
Rules in Art. 1158 —
1.
Obligations from law are not presumed
2.
Only obligations expressly provided by laws are demandable
3.
Obligations from law are primarily regulated by the law which established them
4.
The Civil Code will govern in a supplementary manner
‣
The law says “obligations derived from law are not presumed.” This merely means that the obligation must be clearly
(expressly or impliedly) set forth in the law (the Civil Code or Special Laws).
‣
The obligation is imposed by the law itself
‣
This is consider as the ,ost important source of obligation
‣
It does not depend on the will of the parties but is imposed by the state and are generally imbued with public policy
considerations
‣
The importance of law as a source of obligation is highlighted by the legal principle that existing law enters into and forms
part of a valid contract without need for the parties expressly making reference thereto
‣
Examples —
‣
The duty to support. (Art. 291, Civil Code)
‣
The duty to pay taxes. (National Internal Revenue Code)
OBLIGATIONS ARISING FROM CONTRACT
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Article 1159. Obligations arising from contracts have the force of law between the contracting parties and should be
complied with in good faith. (1091a)
Article 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem
convenient, provided they are not contrary to law, morals, good customs, public order, or public policy. (1255a)
Article 5. Acts executed against the provisions of mandatory or prohibitory laws shall be void, except when the law itself
authorizes their validity. (4a)
‣
Rules in Art. 1159 —
1.
Contracts have force of law between the contracting parties
2.
Contracts should be complied with in good faith
‣
Art. 1159 means that neither party may unilaterally and upon his own exclusive volition, escape his obligations under the
contract, unless the other party assented thereto, or unless for causes sufficient in law and pronounced adequate by a
competent tribunal.
‣
“Compliance in good faith” means that we must interpret “not by the letter that killeth but by the spirit that giveth life.”
‣
The right to enter into lawful contracts constitutes one of the liberties of the people of the State. If that right be struck
down or arbitrarily interfered with, a substantial impairment of constitutional rights would result. (People v. Pomar).
Nevertheless, in contracts where public interest is involved (as in the case of labor agreements), the government has a
right to intervene for the protection of the whole. (Leyte Land Trans. v. Leyte Farmer’s Union 1948)
‣
Art. 1159 must be correlated with the Principle of Autonomy of Contracts in Art. 1306 —
‣
While obligations arising from a contract have the force of law between the parties, this does not mean that the law is
inferior to contracts. This is because before a contract can be enforced, it must first be valid, and it cannot be valid if it
is against the law. Moreover, the right of the parties to stipulate is limited.
‣
Contracts which are the private laws of the parties should be fulfilled according to their literal sense of their interpretation
if their terms are clear and leave no room for doubt as to the intention of the contracting parties, for contracts are
obligatory no matter what form they mat be, whenever the essential requirements for their validity are present. (Perla
Compaia de Seguros vs CA 1990)
‣
From the moment the contract is perfected, the parties are bound not only to fulfil what has been expressly stipulated but
also all the consequences which, according to their nature may be in keeping with good faith, usage, and the law.
(Romero vs CA 1995)
‣
Because the contract is the law between the parties, generally, the Courts cannot interfere with a valid contract
which does not transgress the boundaries established in Art. 1306 and 5.
‣
EXCEPT — In these instances expressly provided by law, courts may interfere with obligations arising from contract
—
1.
‣
In Obligations with a Penal Clause, the Courts may reduce or delete the penalty if —
a.
There is partial or irregular performance
b.
If there has been no performance but the penalty is iniquitous or unconscionable. (Art. 1229)
2.
If the obligation to do becomes physically or legally impossible, the courts may extinguish it and release the
debtor from his obligation. (Art. 1266)
3.
If the obligation to do has become difficult as to be manifestly beyond the contemplation of the parties, the court
may extinguish it. This is known as the principle of Rebus sic Stantibus (Art. 1267)
4.
When the determination of performance in a contract made by a third person is evidently inequitable then courts
shall decide what is equitable under the circumstances. (Art. 1310)
Circumstances when the Court intervenes or is involved in the enforcement of an obligation without changing the
nature of the obligation or contract —
1.
Art. 1167: Courts may decree what has been done may be undone
2.
Art. 1169: In case of judicial demand
3.
Are. 1172: Courts may regulate negligence according to the circumstances
4.
Art. 1180: Courts will fix the period when the debtor binds himself to pay when his means permit him to do so
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5.
Art. 1187: In obligations with suspensive conditions and involves prestations to do and not to do, the Courts shall
determine retroactive effect of the condition
6.
Art 1190: In obligations with resolutory conditions involving prestations to do or not to do, courts shall determine the
effect of extinguishment of the obligation
7.
Art. 1191: In cases of reciprocal obligations, when there is implied rescission, the Courts shall decree the rescission
claimed. In cases of express rescission, it may affirm the rescission made by the party, if it was proper.
8.
Art. 1197: If there is no period and it can be inferred from the nature and circumstances that a perod was intended,
courts may fix a period. (See preceding other table for the instances when the courts may fix a period)
9.
In cases of Consignation which is necessarily a judicial act
10. Art. 1234: If the obligation has been substantially performed in good faith, the obligor may recover as through there
had been a strict and complete fulfillment, less damages suffered by the obligee. (Debtor may go to the court to
declare complete compliance when there is substantial performance)
11. Art. 1264: 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
‣
What is the difference between an obligation and a contract?
‣
An obligation is the result of a contract (or some other source). Hence, while a contract, if valid, always results in
obligations, not all obligations come from contracts. A contract always presupposes a meeting of the minds; this is
not necessarily true for all kinds of obligations.
‣
PARAS — Be it noted, however, from another viewpoint that a contract may itself be the result of an obligation. Thus,
if P engages A as the former’s agent, we have the contract of agency. As an agent, A has the obligation, say to look
around for clients or buyers, as in the real estate business. As a result of such obligation, A may enter into a contract
of sale with C, a customer. The contract of sale itself results in the obligations to pay and to deliver. The obligation to
deliver may result in a contract of carriage, and so on, ad infinitum.
OBLIGATIONS ARISING FROM QUASI-CONTRACT
Article 1160. Obligations derived from quasi-contracts shall be subject to the provisions of Chapter 1, Title XVII, of this
Book. (n)
Article 2142. 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 that juridical relation resulting from a lawful, voluntary, and unilateral act, and which has for its purpose
the payment of indemnity to the end that no one shall be unjustly enriched or benefited at the expense of another
‣
Is a Quasi-Contract an Implied Contract?
‣
PARAS — NO, because in a quasi-contract (unlike in an implied contract) there is NO meeting of the minds.
KINDS OF QUASI-CONTRACTS
Negotorium Gestio
1.
‣
This takes place when a person voluntarily takes charge of another’s abandoned business or property without the
owner’s authority. (Art. 2144). Reimbursement must be made to the gestor for necessary and useful expenses, as a
rule. (Art. 2150)
‣
Art. 2144 — 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.
‣
2.
BUT — This juridical relation does not arise in either of these instances —
a.
When the property or business is not neglected or abandoned
b.
If in fact the manager has been tacitly authorised by the owner.
Solutio Indebiti
‣
Art. 2154 — 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.
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‣
3.
Example — If I let a storekeeper change my P50.00 bill and by error he gives me P50.60, I have the duty to return the
extra P0.60
Other Quasi-Contracts
‣
Other circumstances involving support, funeral expenses, medical expenses of a person who cannot give consent to
the contract, during fortuitous events, etc.
‣
Such as —
a.
When during a fire, flood, 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. (Art. 2168)
b.
Any person who is constrained to pay the taxes of another shall be entitled to reimbursement from the latter. (Art.
2175)
OBLIGATIONS ARISING FROM DELICT
Article 1161. 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)
REVISED PENAL CODE
Article 100. Every person criminally liable for a felony is also civilly liable.
Article 101. The exemption from criminal liability established in subdivisions 1, 2, 3, 5, and 6 of Art. 12 and in subdivision
4 of Art. 11 of this Code does not include exemption from civil liability.
Article 104. Civil liability established in Art. 100, 101, 102, and 103 includes Restitution, Reparation, and Indemnification
‣
Laws which govern criminal offenses or delicts —
1.
Pertinent provisions of the Revised Penal Code and other penal laws
2.
Subject to the provisions of Art. 2177
‣
3.
Art. 2177 — Responsibility for fault or negligence under the preceding article (Art. 2176 for Quasi Delict) is entirely
separate and distinct from the civil liability arising from negligence under the Penal Code. But the plaintiff cannot
recover damages twice for the same act or omission of the defendant
Chapter 2, Preliminary Title, on Human Relations (of the Civil Code).
a. Art. 20 — Willful or negligent damage to another contrary to law
b. Art. 29 — Civil action after acquittal of person in a criminal proceeding
c. Art. 30 — Civil action for criminal offense where no criminal proceedings have been instituted
d. Art. 31 — Civil action from an obligation not arising from an act or omission complained of as a felony
e. Art. 32 — Independent Civil Action from violation of rights guaranteed in the Bill of Rights as enumerated in the
article
f.
Art. 33 — Independent Civil Action from defamation, fraud, and or physical injuries
g. Art. 34 — Independent Civil Action from police force failing to render aid/protection
8.
The Law on Damages — Title 18 of Book IV of the Civil Code on damages.
‣
In addition to criminal and civil liability ex delicto, other damages may be awarded, such as civil indemnity, and
other kinds of damages found on the Law on Damages.
‣
In crimes, the damages to be adjudicated may be, respectively, increased or lessened according to the
aggravating or mitigating circumstances. (Art. 2204)
‣
Delicts are crimes which are acts or omissions punishable by law
‣
Damages include restitution, reparation, and indemnification
‣
Note that there are certain instances where the person by virtue of a justifying or exempting circumstance are not
criminally liable but nonetheless are still civilly liable.
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‣
There are also instances where a person can be civilly liable even if he did not commit the criminal act as he is subsidiarily
liable. (Art. 102 and 103 of RPC in cases of the inn-keepers or employers, teachers, etc or in the cases of parents and
guardians of minors, in the family code)
‣
Generally acquittal of the criminal act means acquittal of the civil damages, but under Art. 29 and other provisions, the
victim may institute an independent civil actions for the recovery of civil damages with the standard of proof only of
Preponderance of evidence.
OBLIGATIONS ARISING FROM TORTS
Article 1162. Obligations derived from quasi-delicts shall be governed by the provisions of Chapter 2, Title XVII of this
Book, and by special laws. (1093a)
Article 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for
the damage done. Such fault or negligence, if there is no pre-existing contract relation between the parties is called a
quasi-delict and is governed by the provisions of this chapter.
‣
A quasi-delict is a fault or act of negligence (or omission of care) which causes damages to another, there being no preexisting contractual relations between the parties.
‣
NOTE — “Quasi-Delicts” should now be called “Torts” as the Supreme Court has already expanded the concept by
including not only negligent acts but also intentional or voluntary acts or omissions. (See Elcano vs Hill; Barredo vs Garcia)
‣
‣
It is also known as “culpa aquiliana”
Laws which govern Torts —
1.
The Law on Torts — Chapter 2, Title 17, Book IV, Civil Code
2.
Special Laws
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II. NATURE AND EFFECTS OF OBLIGATIONS
A. GENERAL PROVISIONS
DUE DILIGENCE IN THE PERFORMANCE OF OBLIGATIONS
Article 1163. Every person obliged to give something is also obliged to take care of it with the proper diligence of a good
father of a family, unless the law or the stipulation of the parties requires another standard of care. (1094a)
Article 1173. XXXXX 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)
Article 1460. A thing is determinate when it is particularly designated or physical segregated from all others of the same
class. The requisite that a thing be determinate is satisfied if at the time the contract is entered into, the thing is capable
of being made determinate without the necessity of a new or further agreement between the parties. (n)
APPLICABILITY OF ART. 1163
1.
It applies only to obligations to give
‣
This is expressed in Art. 1163.
‣
BUT — Even in obligations to do or not to do, proper performance with due diligence is also required. (See Art. 1173)
2.
It applies only when the subject-matter of the obligation is a determinate thing.
Determinate thing — a thing is determinate when it is —
a.
i.
Particularly designated
ii.
Physical segregated from all others of the same class.
‣
Generic thing — a thing is generic or indeterminate when it refers only to a class, to a genus, and cannot be pointed
out with particularity.
b.
‣
‣
Example — a particular car with serial and engine numbers xxxxx, this particular compass, my mom’s iPhone
Example — a car, a 2005 BMW automobile, the sum of P5 million, a kilo of sugar
NOTE — The word “something” is understood as a determinate thing because proper diligence is NOT needed in
cases of indeterminate/generic things because they are easily replaceable.
RULES IN ART. 1163
‣
RULE — 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
‣
‣
Once the determinate thing becomes the specified object of the prestation, the debtor is bound to take care of it in
the way the parties stipulated or the law expressly provides, only in the absence of such will Art. 1163 take effect
which requires the proper diligence of a good father of a family.
EXCEPT — When the (1) law or (2) the stipulation of the parties requires another standard of care.
‣
Example — Common carriers are required by law to exert extraordinary diligence in the performance of their
obligations. (Art. 1755). The parties may also stipulate that the highest degree of diligence must be exerted.
RIGHTS TO THE SUBJECT-MATTER IN OBLIGATIONS TO GIVE
Article 1164. The creditor has a right to the fruits of the thing from the time the obligation to deliver it arises. However, he
shall acquire no real right over it until the same has been delivered to him. (1095)
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Article 1166. 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)
‣
RULE — IN OBLIGATIONS TO GIVE, THE CREDITOR IS ENTITLED TO THE FOLLOWING —
1.
PRINCIPAL THING AND ITS FRUITS
‣
He is entitled to the principal thing and the fruits from the time the obligation to deliver it arises.
‣
BUT — However, he shall acquire no real right over it until the same has been delivered to him.
‣
Example — A is obliged to give B on Dec. 3, 2004, a particular parcel of land. (Before Dec. 3, he has no right
whatsoever over the fruits). After Dec. 3, 2004, B, the creditor is entitled (as of right) to the fruits. But if the fruits
and the land are actually or constructively delivered only on Dec. 15, 2004, B becomes owner of said fruits and
land only from said date. Between Dec. 3 and Dec. 15, B had only a personal right (enforceable against A, which is
to deliver the thing); after Dec. 15, he has a real right (which is ownership over the properties), a right that is
enforceable against the whole world.
‣
Distinguish personal and real rights —
Personal right (jus in personam) — is power demandable by one person of another person — to give, to do, or
not to do, It is enforceable only against the debtor and not the entire world.
b.
Real right (jus in re) — is a power over a specific thing (like the right of ownership or possession) and is
binding on the whole world.
‣
NOTE — Under Art. 1164, the creditor acquires a real right over the fruits (and also the principal thing) only upon
its actual or constructive delivery (When it is delivered). Thus, before delivery, the creditor cannot assert any right
(suhc as ownership) against other persons over the thing and its fruits. The creditor acquires a mere personal right
to the fruits of the thing from the time the obligation to deliver it arises (When it becomes due and demandable). It
is only upon delivery that the creditor obtains ownership of the thing and its fruits.
‣
When does the obligation to deliver arise?
2.
‣
a.
a.
If there is no term or condition — then from the perfection of the contract.
b.
If there is a term or a condition — then from the moment the term arrives or the condition happens.
ACCESSORIES AND ACCESSIONS
‣
The obligation to give a determinate thing includes that of delivering all its accessions and accessories, even
though they may not have been mentioned.
‣
NOTE — This only applies to obligations to give determinate things.
EXCEPT — THE FRUITS OR THE ACCESSORIES AND ACCESSIONS MAY NOT BE INCLUDED WHEN THE (1) LAW OR (2) THE
STIPULATION OF THE PARTIES REQUIRES OTHERWISE
‣
This exception pertains to the right to the fruits, and the accessories or accessions. The law or the parties may
stipulate that they will not form part of the obligation. This takes precedence over their inclusion by Art. 1164 and
1166.
USURY
Article 1175. Usurious transactions shall be governed by special laws. (n)
‣
Discussed in the Law on Credit Transactions
PRESUMPTIONS IN CASE OF RECEIPT OF INTEREST OR INSTALMENTS
Article 1176. 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.
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)
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This is merely an evidentiary rule and is a disputable presumption.
TRANSMISSIBILITY OF RIGHTS
Article 1178. Subject to the laws, all rights acquired in virtue of an obligation are transmissible, if there has been no
stipulation to the contrary. (1112)
‣
‣
RULE — ALL RIGHTS ARE TRANSMISSIBLE
‣
They may be transferred through any of the modes of derivative acquisition
‣
Such as — by donation, sale, succession
EXCEPT — They are intransmissible if either —
1.
The law provides otherwise
‣
Such as —
‣
A contract of partnership, or a contract of agency (Here death of a partner, of the principal, or of the agents
ends the contract, and the heir does not step into the shoes of the deceased.
‣
Money debts are not directly chargeable against the heirs. They should be claimed in the estate or intestate
proceedings for the settlement of the estate of the deceased.
2.
The contract provides otherwise
3.
The obligation is purely personal in nature
‣
This is when the obligor’s personal qualifications and skill was the motive behind the contract.
B. PROVISIONS ON NON-PERFORMANCE OF IMPROPER PERFORMANCE OF OBLIGATIONS
REMEDIES OF THE CREDITOR IN CASE OF BREACH OF THE OBLIGATION
Article 1165. When what is to be delivered is a determinate thing, the creditor, in addition to the right granted him by
article 1170, may compel the debtor to make the delivery.
If the thing is indeterminate or generic, he may ask that the obligation be complied with at the expense of the debtor.
XXXXXXX
Article 1167. 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)
Article 1168. When the obligation consists in not doing, and the obligor does what has been forbidden him, it shall also
be undone at his expense. (1099a)
Article 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in
any manner contravene the tenor thereof, are liable for damages. (1101)
Article 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply
with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages
in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.
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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)
Article 2236. The debtor is liable with all his property, present and future, for the fulfillment of his obligations, subject to
the exemptions provided by law. (1911a)
1987 CONSTITUTION
ARTICLE 3 — BILL OF RIGHTS
Sec. 18. XXXX No involuntary servitude in any form shall exist except as a punishment for a crime whereof the party shall
have been duly convicted.
APPLICABILITY OF THE REMEDIES PROVIDED FOR UNDER ART. 1165, 1167, 1168, 1170
‣
RULE — IT APPLIES ONLY IF THERE IS FAULT OR NEGLIGENCE ON THE PART OF THE DEBTOR. NOT WHEN HIS NONPERFORMANCE IS EXCUSED BY THE INTERVENTION OF A FORTUITOUS EVENT
‣
The remedies provided for are applicable only if the debtor is guilty of —
1.
Deceit or Dolo
‣
2.
a.
Fraud — this pertains to fraud which pertains to the performance of the obligation (as distinguished from
fraud in the perfection of the contract)
b.
Gross negligence (negligence in bad faith which is equivalent to fraud)
c.
Intentional delay
d.
Contravention to the tenor of the obligation (improper performance)
Negligence or Culpa
‣
‣
This includes —
More on this in Art. 1172 and 1173
NOTE — The debtor is NOT liable if the non-performance of the obligation is due the intervention of a
fortuitous event
‣
More on this in Art. 1174.
‣
EXCEPT — If the obligation is to give a generic thing. Generic things do not perish, thus, the happening of a
fortuitous event does not operate to extinguish the obligation
REMEDIES OF THE CREDITOR IN CASE OF NON-PERFORMANCE IN OBLIGATIONS TO GIVE
1.
ACTION FOR SPECIFIC PERFORMANCE (ART. 1165)
‣
This pertains to an action before the courts to compel the debtor to make the delivery.
‣
This is true whether the obligation be generic or determinate
‣
BUT — If the thing is indeterminate or generic, he may ask that the obligation be complied with at the expense of the
debtor. (Substitute performance)
‣
2.
In this case, the creditor may have it accomplished or delivered in any reasonable and legal way and charging all
expenses to the debtor
ACTION FOR SUBSTITUTE PERFORMANCE (ART. 1165, 2ND PAR.)
‣
If the thing is indeterminate or generic, he may ask that the obligation be complied with at the expense of the debtor.
‣
This pertains to the having the obligation performed by another person (third party) and then asking reimbursement
from the debtor.
‣
This only applies to obligations to give a generic thing
3.
ACTION FOR RESOLUTION OR CANCELLATION (ART. 1191)
‣
This applies only when the obligation is reciprocal, meaning the parties are mutually debtors and creditors of each
other, such as in bilateral contracts.
‣
This is mutually exclusive with an action for specific performance. However, damages may be claimed nonetheless.
‣
EXCEPT — He may seek rescission, even after he has chosen fulfillment, if the latter should become impossible.
(Art. 1191)
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4.
DEAN DEL CASTILLO — Art. 1191 uses the term “rescission” but the proper term should be “resolution or
cancellation” of the contract. Distinguish “Resolution under Art. 1191 ” and “Rescission under Art. 1381”. “Rescission
under Art. 1381” is a technical term for defective contracts based on lesion or economic prejudice. Whereas,
resolution under Art. 1191 is based on substantial breach (non-performance or improper performance) of the
obligation. Distinguish these two kinds of rescission.
ACTION FOR DAMAGES (ART. 1165, 1ST PAR.; 1170)
‣
This may be asked in conjunction with either with or without the first two remedies.
REMEDIES OF THE CREDITOR IN CASE OF NON-PERFORMANCE OR IMPROPER PERFORMANCE IN OBLIGATIONS TO DO
1.
ACTION FOR SUBSTITUTE PERFORMANCE (ART. 1167)
‣
This pertains to an action to have the obligation performed (by himself or by another) at debtor’s expense (only if
another can do the performance).
‣
EXCEPT — if the obligation is to do is purely personal to the debtor
‣
2.
ACTION TO COMPEL THE THE DEBTOR TO UNDO IMPROPER PERFORMANCE (ART. 1167, 2ND PAR.)
‣
This applies to improper performance of obligations to do if the debtor poorly or improperly performs his obligation.
‣
The creditor then can avail of action for substitute performance after the court compels the debtor to undo what has
been improperly done.
3.
ACTION FOR RESOLUTION OR CANCELLATION (ART. 1191)
‣
4.
‣
Example — As a painting to be done by a reputed artist — only damages may be asked
Same explanation as in obligations to give. This is also mutually exclusive with action for substitute performance.
However, damages may be claimed nonetheless.
ACTION FOR DAMAGES (ART. 1170)
NOTE — Specific performance is NOT a remedy in obligations to do; otherwise, this may amount to involuntary servitude,
which as a rule is prohibited under our Constitution.
‣
DEAN DEL CASTILLO — The principle of involuntary servitude should NOT apply to obligations to do when there is a
contract since the debtor himself voluntarily obliged himself (by consenting to the contract) to perform the obligation
to do
REMEDIES OF THE CREDITOR IN CASE OF NON-COMPLIANCE IN OBLIGATIONS NOT TO DO
1.
ACTION TO COMPEL THE THE DEBTOR TO UNDO WHAT HAS BEEN DONE (ART. 1168)
‣
When the obligation consists in not doing, and the obligor does what has been forbidden him, it shall also be undone
at his expense.
2.
RESOLUTION OR CANCELLATION (ART. 1191)
3.
ACTION FOR DAMAGES (ART. 1170)
OBLIGATIONS TO GIVE
OBLIGATIONS TO DO
1.
Action for Specific Performance
(Art. 1165)
1.
Action for Substitute Performance
(Art. 1167)
2.
Action for Substitute
Performance (Art. 1165, 2nd
par.)
2.
Action to Compel the the Debtor
to Undo Improper Performance
(Art. 1167, 2nd par.)
3.
Resolution or Cancellation (Art.
1191)
3.
Action for Resolution or
Cancellation (Art. 1191)
4.
Action for Damages (Art. 1165,
1st par.; 1170)
4.
Action for Damages (Art. 1170)
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OBLIGATIONS NOT TO DO
1.
Action to Compel the the
Debtor to Undo what has been
Done (Art. 1168)
2.
Resolution or Cancellation (Art.
1191)
3.
Action for Damages (Art. 1170)
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II. NATURE AND EFFECTS OF OBLIGATIONS
SOURCES OF LIABILITY
Article 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in
any manner contravene the tenor thereof, are liable for damages. (1101)
Article 2201. In contracts and quasi-contracts, the damages for which the obligor who acted in good faith is liable shall
be those that are the natural and probable consequences of the breach of the obligation, and which the parties have
foreseen or could have reasonably foreseen at the time the obligation was constituted.
In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for all damages which may be
reasonably attributed to the non-performance of the obligation. (1107a)
1.
FRAUD (DECEIT OR DOLO)
‣
See Art. 1171
‣
This is the intentional evasion of fulfilment of the obligation
‣
Fraud may be defined as the voluntary execution of a wrongful act, or a wilful omission, knowing and intending the
effects which naturally and necessarily arise from such act or omission
‣
Fraud means that there is intent to comply with bad faith
‣
Intentional or deliberate evasion of the obligation which implies malice or dishonesty and bad faith.
‣
It involves a design to deceive others
2.
NEGLIGENCE (FAULT OR CULPA)
‣
See Art. 1173
‣
Negligence is relative and depends upon the circumstances therefore liability arising from it may be regulated by the
courts
‣
Generally, negligence must be proven, however there are cases where it is presumed.
‣
Negligence contemplated under this articles is culpa contractual and not culpa aquiliana, as it involves a breach of
an obligation. They are treated differently by law.
3.
DELAY OR DEFAULT (MORA)
‣
See Art. 1169
‣
It is the failure to perform or deliver on time upon demand for fulfilment of the obligation
4.
CONTRAVENTION TO THE TENOR OF THE OBLIGATION
‣
It is the violation of the terms and conditions stipulated in the obligation
‣
Includes any illicit act which impairs the strict and faithful fulfilment of the obligation, or every kind of defective
performance
FRAUD
Article 1171. Responsibility arising from fraud is demandable in all obligations. Any waiver of an action for future fraud is
void. (1102a)
‣
Fraud or malice (dolo) has been defined as a "conscious and intentional design to evade the normal fulfillment of existing
obligations" and is, thus, incompatible with good faith
‣
Fraud may be past or future — Liability for past fraud may be waived; this is not so for future fraud because any waiver of
an action for future fraud is void
‣
Fraud refers to all kinds of deception — whether through insidious machination, manipulation, concealment or
misrepresentation that would lead an ordinarily prudent person into error after taking the circumstances into account.
‣
Fraud contemplated under Art. 1170 and 1171 is “fraud in the performance of the obligation” and NOT fraud in the
perfection of the contract
1.
Fraud in the perfection of the contract
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2.
a.
Causal fraud (dolo causante) — This is fraud in obtaining consent to a contract which is serious enough to
vitiate consent. In contracts, a fraud known as dolo causante or causal fraud is basically a deception used by one
party prior to or simultaneous with the contract, in order to secure the consent of the other. Needless to say, the
deceit employed must be serious.
b.
Incidental fraud (dolo incidente) — Cover fraud during the perfection stage of the contract but which is not
serious enough to vitiate consent, it not serious in character and without which the other party would still have
entered into the contract. Only some particular or accident of the obligation is referred to by incidental fraud or
dolo incidente, or that which is not serious in character and without which the other party would have entered into
the contract anyway.
‣
This fraud or dolo which is present or employed at the time of birth or perfection of a contract may either be dolo
causante or dolo incidente. The first, or causal fraud referred to in Article 1338, are those deceptions or
misrepresentations of a serious character employed by one party and without which the other party would not
have entered into the contract. Dolo incidente, or incidental fraud which is referred to in Article 1344, are those
which are not serious in character and without which the other party would still have entered into the contract.
Dolo causante determines or is the essential cause of the consent, while dolo incidente refers only to some
particular or accident of the obligation. The effects of dolo causante are the nullity of the contract and the
indemnification of damages, and dolo incidente also obliges the person employing it to pay damages. To
summarize, if there is fraud in the performance of the contract, then this fraud will give rise to damages. If the fraud
did not compel the imputing party to give his or her consent, it may not serve as the basis to annul the contract,
which exhibits dolo causante. (Tankeh vs DBP 2013)
Fraud in the performance of the obligations — This is the kind of fraud contemplated in Art. 1170 and 1171
NEGLIGENCE
Article 1172. Responsibility arising from negligence in the performance of every kind of obligation is also demandable,
but such liability may be regulated by the courts, according to the circumstances. (1103)
Article 1173. The fault or negligence of the obligor consists in the omission of that diligence which is required by the
nature of the obligation and corresponds with the circumstances of the persons, of the time and of the place. When
negligence shows bad faith, the provisions of articles 1171 and 2201, paragraph 2, shall apply.
If the law or contract does not state the diligence which is to be observed in the performance, that which is expected of a
good father of a family shall be required. (1104a)
CONCEPT OF NEGLIGENCE
‣
The determination of the existence of negligence is always a fact-driven exercise. It would always depend on the facts
and circumstances of each case. It is context-specific. There are a lot of cases involving different facts and circumstances
to prove this point.
‣
Relate the concept of negligence with “due diligence” or the standard of care or conduct. Negligence is the failure to
observe the standard of care/conduct required depending on the circumstances. Jurisprudence helps us determine the
standard of care depending on what is involved. Generally, the standard of care is that of a good father of a family, this is
so, unless the law or the contract provides otherwise (Art. 1173).
‣
TEST OF NEGLIGENCE — This is an objective test. The test is in Picart vs Smith, “what would an ordinarily reasonable
prudent man would do or not do?” Sometimes it’s easy to determine (by common sense), sometimes hard (such as in
medical negligence cases), and sometimes the standard is higher (like in the case of banks and common carriers)
‣
Negligence is defined in Art. 1173, this is the statutory definition but Picart defines it as something a reasonably
prudent man would do or not do
NEGLIGENCE VS FRAUD
NEGLIGENCE
FRAUD
Although voluntary (that is, not done thru force) still there
is no deliberate intention to cause damage.
There is a deliberate intention to cause damage or
prejudice.
BUT — If the negligence is made in bad faith or is
gross, then it is considered fraud
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NEGLIGENCE
FRAUD
Liability due to negligence may be reduced in certain
cases.
Liability arising from dolo cannot be mitigated or
reduced by the courts.
Waiver of an action to enforce liability due to future culpa
may in a certain sense be allowed.
Waiver of an action to enforce liability due to future fraud
is void.
STIPULATIONS REGARDING NEGLIGENCE (FUTURE NEGLIGENCE)
1.
Gross negligence (equivalent to fraud) can never be excused in advance for this would be contrary to public policy.
2.
Simple negligence may in certain cases be excused or mitigated.
KINDS OF NEGLIGENCE CLASSIFIED ACCORDING TO THE SOURCE OF THE OBLIGATION
1.
Contractual negligence (culpa contractual) — that which results in a breach of a contract
2.
Civil negligence or negligent tort (culpa aquiliana)
3.
Criminal negligence (culpa criminal) — that which results in the commission of a crime or a delict
CONTRACTUAL NEGLIGENCE
NEGLIGENCE BASED ON TORT
CRIMINAL NEGLIGENCE
(culpa contractual)
(culpa aquiliana)
(culpa criminal)
Negligence is merely incidental,
incident to the performance of an
obligation already existing because of
a contract. (Rakes vs Atlantic Gulf &
Pac. Co)
Negligence here is direct, substantive,
and independent. (Rakes v. Atlantic
Gulf & Pacific Co)
Negligence here is direct,
substantive, and independent of a
contract.
There is a pre-existing obligation (a
contract, either express or implied)
No pre-existing obligation (except of
course the duty to be careful in all
human actuations)
No pre-existing obligation (except
the duty never to harm others).
‣
EXCEPT — If the act which
breaches a contract is a tort itself.
(Air France vs Carrascoso)
Proof needed — preponderance of evidence
Proof needed in a crime — proof of
guilt beyond reasonable doubt.
Defense of “good father of a family”
in the selection and supervision of
employees is nota proper complete
defense in culpa contractual, though
this may mitigate damages. (Cangco
v. Manila Railroad)
Defense of “good father, etc,” is a
proper and complete defense (insofar
as employers or guardians are
concerned) (Cangco v. Manila
Railroad)
This is not a proper defense in culpa
criminal. Here the employee’s guilt is
automatically the employer’s civil
guilt, if the former is insolvent.
As long as it is proved that there was
a contract and that it was not carried
out, it is presumed that the debtor is
at fault, and it is his duty to prove
that there was no neg- ligence in
carrying out the terms of the
contract. (Cangco v. Manila Railroad)
Ordinarily, the victim has to prove the
negligence of the defendant. This is
because his action is based on alleged
negligence on the part of the
defendant. (Cangco v. Manila Railroad)
Accused is presumed innocent until
the contrary is proved, so
prosecution has the burden of
proving the negligence of the
accused.
DELAY OR DEFAULT
Article 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or
extrajudicially demands from them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in order that delay may exist:
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(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)
Article 1165. XXXXXX 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)
Article 2215. In contracts, quasi-contracts, and quasi-delicts, the court may equitably mitigate the damages under
circumstances other than the case referred to in the preceding article, as in the following instances:
(4) That the loss would have resulted in any event;
CONCEPT OF DEFAULT
‣
PARAS — Although Art. 1169 uses the words “in delay,” these should be translated to mean default or mora
APPLICABILITY OF ART. 1169
‣
It applies only in obligations to give and to do (for obvious reasons)
RULE IN CASE OF DEFAULT BY THE DEBTOR
‣
RULE — 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
‣
To put a debtor in default, as a rule, “demand” by the creditor is needed.
‣
The demand may either be —
‣
‣
1.
Judicial — when the creditor files an action in court, as when a complaint for specific performance is filed
2.
Extra-judicial — when the creditor demands the performance of the obligation from the debtor without court
proceedings, as by oral or written demand.
BUT — a “premature” demand is an ineffective demand to put the debtor in default.
EXCEPT — IN THE FOLLOWING CASES, DEMAND IS NOT NECESSARY TO PUT THE DEBTOR IN DEFAULT —
1.
When the law so provides
‣
2.
Example — Taxes should be paid within a definite period, otherwise penalties are imposed without need of demand
for payment.
When the obligation (or contract) expressly so provides
‣
3.
PARAS — The mere fixing of the period is NOT enough; there must be a provision that if payment is not made
when due, default or liability for damages or interests automatically arises.
When time is of the essence of the contract
‣
This means that the fixing of the time was the controlling motive for the establishment of the contract
‣
NOTE — It is not essential for the contract to categorically state that time is of the essence; the intent is sufficient
as long as this is implied
‣
Example — The making of a wedding dress, if the wedding is scheduled at the time the dress is due; agricultural
contracts where implements are needed at a particular time; the selling of land with payment at specified time, so
that the seller could pay off certain debts that were due on said date
4.
When demand would be useless, as when the obligor has rendered it beyond his power to perform
‣
Example — When before the maturity, the seller has disposed of it in favor of another, or has destroyed the subject
matter, or is hiding.
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CONSEQUENCES OF DEFAULT
Debtor is liable for damages (Art. 1170)
1.
‣
Debtor is liable even if the thing is lost due to a fortuitous event (Art. 1165[3])
2.
‣
He is liable for interest
‣
He will be obliged to bear the risk of loss
‣
BUT — damages may be mitigated if he can prove that even if he had not been in default, loss would have occurred
just the same. (Art. 2215[4])
NOTE — In a purchase by installments, the contract may provide for an “acceleration clause” (a clause which would
make all installments due, upon default in one installment). Default in the payment of one installment does not mean
default in the whole amount. If there is an acceleration clause, all that happens will be that the whole amount becomes
due. And demand is still needed to put the debtor in default.
KINDS OF DEFAULT
1.
MORA SOLVENDI — DEFAULT ON THE PART OF THE DEBTOR
a.
Mora solvendi ex re — debtor’s default in real obligations
b.
Mora solvendi ex persona — debtor’s default in personal obligations
‣
REQUISITES —
i.
The obligation must be due, enforceable, and already liquidated or determinate in amount
ii.
There must be non-performance.
iii.
There must be a demand, unless the demand is not required (When demand is needed, proof of it must be shown
by the creditor).
‣
iv.
2.
NOTE — A mere reminder, like “This is to remind you that your next installment falls due on Jan. 7, 2005,” is not
a demand because for all that we know, lateness may still be tolerated by the creditor.
The demand must be for the obligation that is due (and not for another obligation, nor one with a bigger amount,
except in certain instances, considering all the circumstances)
MORA ACCIPIENDI — DEFAULT ON THE PART OF THE CREDITOR
‣
The creditor is guilty of default when he unjustifiably refuses to accept payment or performance at the time said
payment or performance can be done.
‣
Some justifiable reasons for refusal to accept may be —
‣
a.
That the payor has no legal capacity; or
b.
That there is an offer to pay an obligation other than what has been agreed upon.
If an obligation arises ex delicto (as the result of a crime), the debtor-criminal is responsible for loss, even though this
be through a fortuitous event, unless the creditor is in mora accipiendi. (See Art. 1268)
‣
‣
‣
3.
Art. 1268 — “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.”
What is the remedy of the debtor if the creditor is in mora accipiendi?
a.
Consign it in court (expenses chargeable to creditor); or
b.
Keep it himself (here he should still exercise diligence and care, but this time, he would not be liable for loss due
to a fortuitous event).
The improper refusal of the lessor (creditor) to accept the rents tendered by the lessee places said lessor in default
(mora) and he must shoulder the subsequent accidental loss of the premises leased. The mora accipiendi of said
lessor is not cured by the lessee’s failure to make consignation of the rejected payments, but the lessee remains
obligated to pay the amounts he had tendered but did not deposit in court. (Vda. de Villaruel vs Manila Motor Co. &
Caloniares 1958)
COMPENSATIO MORE — WHEN IN A RECIPROCAL OBLIGATION BOTH PARTIES ARE IN DEFAULT
‣
Here it is as if neither is in default
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FORTUITOUS EVENTS OR FORCE MAJEURE
Article 1174. Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the
nature of the obligation requires the assumption of risk, no person shall be responsible for those events which could not
be foreseen, or which, though foreseen, were inevitable. (1105a)
Article 1165. XXXXXX 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)
‣
RULE — NO PERSON SHALL BE RESPONSIBLE FOR THOSE EVENTS WHICH COULD NOT BE FORESEEN, OR WHICH, THOUGH
FORESEEN, WERE INEVITABLE
‣
REQUISITES — For an event to be considered as a fortuitous event, the following must be present —
The cause must be independent of the will of the debtor (freedom from participation or aggravation)
1.
‣
The debtor must not have been at fault or negligence
‣
AQUINO — The essential characteristics that resulted in the rule that the defendant will not be excused from
liability if the fortuitous event is not the sole cause of the injury. In other words, the negligence of the defendant
which concurred with the fortuitous event or which resulted in the aggravation of the injury of the plaintiff will
make him liable even if there was a fortuitous event. When an act of God combines or concurs with the
negligence of the defendant to produce an injury, the defendant is liable if the injury would not have resulted
but for his own negligent conduct or omission. The whole occurrence is “humanized” and removed from the
rules applicable to acts of God. Nevertheless, it is believed that even if the defendant is still liable, courts may
equitably mitigate the damages if the loss, even in part, would have resulted in any event because of the
fortuitous event. (Article 2215[4], New Civil Code). Otherwise stated, any aggravation of the injury due to
fortuitous event should be taken into consideration in the assessment of liability of the defendant.
‣
Example — Loss of a firearm which fell to the bottom of the sea when the ship sank during a storm.
2.
Impossibility of foreseeing OR impossibility of avoiding it, even if foreseen
‣
3.
‣
Example — Damage to train passengers when the train is hit by lightning.
The occurrence must be such as to render it impossible for the debtor to fulfill his obligation in a normal
manner.
‣
Examples — Armed robbery causing the loss of a specific radio, but not if money is taken for money is a
generic thing; seizure by the Japanese military forces, during the war, of copra deposited in a warehouse.
‣
NOTE — When the thing lost due to a fortuitous event is generic, then the obligation still subsists because it is
still possible for the debtor to comply with his obligation in a normal manner.
‣
This is another important difference between a generic and a specific obligation is that, a specific
obligation, that is, an obligation to deliver a specific thing, is, as a rule, extinguished by a fortuitous event or
act of God. Upon the other hand, generic obligations are never extinguished by fortuitous events.
‣
Examples —
‣
A is obliged to give B this car. Before delivery, an earthquake destroys completely the car. The obligation
to deliver is extinguished.
‣
A is obliged to give B a book. Since this is a generic thing, even if one particular book is lost, other
books may take its place. Hence, the obligation is not extinguished (genus nunquam perit).
EXCEPT — IN THE FOLLOWING CASES, THE DEBTOR IS STILL LIABLE EVEN IF THERE WAS A FORTUITOUS EVENT —
1.
WHEN EXPRESSLY SPECIFIED BY THE LAW
‣
Such as —
In an obligation to deliver a determinate thing and the obligor is in default (Art. 1165)
a.
‣
b.
EXCEPT — If the creditor is also in default
If the obligor is guilty of bad faith for having promised to deliver the same thing to two or more persons who
do NOT have the same interest (Art. 1165)
‣
BUT — If the persons share the same interest, this exception does not apply. (As when one is merely the
agent of the other)
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c.
In obligations with a period, the debtor shall lose the right to make use of the period when through a fortuitous
event they disappear, unless he immediately gives new ones equally satisfactorily (Art. 1198[3])
d.
In an obligation to deliver a generic thing, the loss or destruction of anything of the same kind does not
extinguish the obligation (Art 1263)
e.
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. (Art.
1268)
f.
Possessor in bad faith shall be liable for deterioration or loss in every case, even if caused by a fortuitous
event (Art. 552)
g.
In the liquidation of the conjugal partnership of gains, unless the owner had been indemnified from whatever
source, the loss or deterioration of movables used for the benefit of the family, belonging to either spouse,
even due to fortuitous event shall be paid to said spouse from the conjugal fund. (Art. 129[6], Family Code)
h.
The engineer or architect who drew up the plans and specifications for a building is liable for damages if within
15 years from the completion of the structure, the same should collapse by reason of a defect in those plans
and specifications, or due to the defends in the ground. The contractor is likewise responsible for the
damages if the edifice falls, within the same period, on account of defects in the construction or the use of
materials of inferior quality furnished by him, or due to any violation of the terms of the contract. If the
engineer or architect supervises the construction, he shall be soldiery liable with the contractor. (Art. 1723)
i.
The bailee (in commodatum) is liable for the loss of the thing, even if it should be through a fortuitous event —
i.
If the devotes the thing to any purpose different from that for which it has been loaned
ii.
If he keeps it longer than the period stipulated, or after the accomplishment of the use for which the
commodatum has been constituted
iii.
If the thing loaned has been delivered with appraisal of its value, unless there is a stipulation exempting the
bailee from responsibility in case of a fortuitous event
iv.
If he lends or leases the thing to a third person, who is not a member of this household
v.
If being able to save either the thing borrowed or his own thing, he chose to save the latter. (Art. 1942)
j.
The depositary is liable for the loss of the thing through a fortuitous event —
i.
If it is so stipulated
ii.
If he uses the thing without the depositors’s permission
iii.
If he delays its return
iv.
If he allows others to use it, even though he himself may have been authorized to use the same. (Art. 1979)
The officious manager (for quasi-contract of negotorium gestio) shall be liable for any fortuitous events —
k.
2.
i.
If he undertakes risky operations which the owner was not accustomed to embark upon
ii.
If he has preferred his own interest to that of the owner
iii.
If he fails to the property or business after demand by the owner
iv.
If he assumed the management in bad faith
WHEN EXPRESSLY DECLARED BY STIPULATION (BY CONTRACT)
‣
3.
This is when the parties themselves stipulate that the debtor will be liable even if the nonperformance of the
obligation is due to a fortuitous event.
WHEN THE NATURE OF THE OBLIGATION REQUIRES THE ASSUMPTION OF RISK
‣
This is the Doctrine of Assumption of Risk. It is basically a form of implied waiver.
‣
Example — When a carrier transports dynamite, and because of an accidental tire blow-out it injures nearby
property, the carrier would be responsible. This is because of the nature of carrying dynamite. Upon the other hand,
injuries caused by a tire blow-out of a perfectly new tire, or at least a still good one, when no explosives or
dangerous things were being carried, are due to an unavoidable accident, and the owner of the car would not be
liable.
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REMEDIES OF THE CREDITOR TO COLLECT FROM THE DEBTOR
II. NATURE AND EFFECTS OF OBLIGATIONS
Article 1177. The creditors, after having pursued the property in possession of the debtor to satisfy their claims, may
exercise all the rights and bring all the actions of the latter for the same purpose, save those which are inherent in his
person; they may also impugn the acts which the debtor may have done to defraud them. (1111)
1.
DIRECT ACTION AGAINST THE DEBTOR
‣
This is an action to exhaust the properties within the patrimony of the debtor
‣
Correlate with Art. 2236 — The debtor is liable with all his properties, present and future, for the fulfilment of his
obligations, subject to the exemptions provided by law
‣
EXCEPT — The following properties are exempt from execution and cannot be claimed by the creditor —
2.
a.
Family home (Art. 233 of Family Code)
b.
Labourer wages except for debts incurred for food, shelter, clothing, and medical attendance (Art. 1708)
c.
Support (Art. 302 of Family Code)
ACCION SUBROGATORIA
‣
This pertains to an action to enable the creditor to exercise all the rights and actions of the debtor
‣
The action which the creditor may exercise in the place of his negligent debtor in order to preserve or recover for the
patrimony of the debtor the product of such action, and then obtain therefrom the satisfaction of his own credit.
‣
This is the right of the creditor to collect from the debtor’s debtor
‣
Legal Subrogation — Transfers to the person surrogated the credit with all the rights thereto appertaining, either
against the debtor or third persons, be they guarantors, or possessors of mortgages.
‣
EXCEPT — those which are personal to the debtor
‣
3.
ACCION PAULIANA
‣
This pertains to an action to seek rescission of the contracts executed by the debtor in fraud of the creditor’s rights
‣
This presupposes the existence of fraud on the part of the debtor to intentionally evade the non-compliance of his
obligations
‣
‣
Personal rights are inherent in the debtor’s person such as the right to claim support
Example — when the debtor deliberately and maliciously sold his other properties so that the creditor cannot
subject it to execution or attachment
‣
Correlate with Art. 1381(3) — Those undertaken in fraud of creditors when the latter cannot in any manner collect the
claims due to them
‣
Correlate with Art. 1313 — Creditors are protected in cases of contracts intended to defraud them
NOTE — These three remedies should be availed of in the order of preference.
‣
Meaning, direct action to exhaust first, then, if that has been exhausted, then acción subrogatoria, and so on
RESOLUTION OR CANCELLATION OF OBLIGATIONS
Article 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply
with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages
in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with
articles 1385 and 1388 and the Mortgage Law. (1124)
Article 1385. Rescission creates the obligation to return the things which were the object of the contract, together with
their fruits, and the price with its interest; consequently, it can be carried out only when he who demands rescission can
return whatever he may be obliged to restore.
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Neither shall rescission take place when the things which are the object of the contract are legally in the possession of
third persons who did not act in bad faith.
In this case, indemnity for damages may be demanded from the person causing the loss. (1295)
‣
NOTE — “Rescission” as referred to in Art. 1191 should be read as “resolution or cancellation” since the proper
“rescission” is that contemplated in defective contracts as found in Art. 1381. The translation in Art. 1191 was erroneous.
‣
SEE — Universal Food Corporation v. Court of Appeals, L-29155, May 13, 1970
‣
“The power to rescind,” as used in Art. 1191, means the right to cancel (or resolve) the contract or reciprocal
obligations in case of non-fulfillment on the part of one. Thus, the “rescission” referred to here is not predicated on
injury to economic interests on the part of the party plaintiff (which is the basis for the rescission mentioned in Arts.
1380 and 1381, Civil Code), but on the breach of faith by the defendant, which breach is violative of the reciprocity
between the parties.
APPLICABILITY OF ART. 1191
‣
It only applies in cases of reciprocal obligations
‣
What are reciprocal obligations?
‣
‣
Reciprocal obligations are those which arise from the same cause, and in which each party is a debtor and a creditor
of the other, such that the obligation of one is dependent upon the obligation of the other. They are to be performed
simultaneously, so that the performance of one is condition upon the simultaneous fulfilment of the other
Does it apply to every cases where the parties are mutually debtors and creditors of each other?
‣
NO. TOLENTINO — It has no application every case where two persons are mutually debtors and creditors of each
other. There must be reciprocity between them. Both relations must arise from the same cause, such that one
obligation is correlative to the other. Thus, a person may be the debtor of another by reason of agency, and his
creditor by reason of a loan. They are mutually obligated, but the obligations are not reciprocal. Reciprocity arises
from identity of cause, and necessarily the two obligations are created at the same time.
‣
Thus, where a contract of sale of property, there are various clauses, one of which is that the buyer will perfect the
title to the property within 6 months, the failure of the buyer to perform this undertaking does not give the seller the
right to resolve the contract under Art. 1191 because such stipulation is not an essential part of the contract, and
there is no real juridical bilaterality or reciprocity between the seller’s obligation to sell and the buyer’s obligation to
perfect the title papers to the property. The correlative duty of the obligation of the seller to deliver the property is
the obligation of the buyer to pay the agreed price.
RULE IN ART. 1191; THE REMEDY OF RESOLUTION OF CANCELLATION
‣
RULE — THE POWER TO RESCIND OBLIGATIONS IS IMPLIED IN RECIPROCAL ONES, IN CASE ONE OF THE OBLIGORS FAILS TO
COMPLY WITH HIS OBLIGATION. IN SUCH CASE, THE COURT SHOULD DECREE THE RESCISSION CLAIMED.
‣
Art. 1191 recognizes an implied or tacit resolutory condition in reciprocal obligations. It is a condition imposed
exclusively by law, even if there is no corresponding agreement between the parties.
‣
In reciprocal obligations, when one party has performed his part of the contract, and the other party incurs default, the
party who has performed or is ready and willing to perform may rescind the obligation if the other does not perform or
is not ready and willing to perform.
‣
The power to resolve or cancel is given to the injured party — Where the plaintiff is the party who did not perform
the undertaking which he was bound by the terms of the agreement to perform, he is not entitled to insist upon the
performance of the contract by the defendant or recover damages by reason of his own breach. An action for specific
performance is an equitable proceeding, and he who seeks to enforce it must himself be fair and reasonable, and do
equity.
‣
‣
The power to rescind is given only to the injured party. The injured party is the party who has faithfully fulfilled his
obligation or is ready and willing to perform his obligation. (Gaite vs The Plaza 2011)
Resolution and Specific Performance are mutually exclusive and alternative remedies — The injured party may
choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. Both
remedies cannot be availed of simultaneously by virtue of the nature of the reliefs themselves.
‣
The right is not conjunctive, that is, the plaintiff cannot ask for BOTH remedies. (Verceluz v. Edano) Thus, if the
plaintiff elects fulfillment of a reciprocal obligation, rescission thereof may not be declared at the same time.
(Bacordo v. Alcantara 1965)
‣
BUT — The injured party may seek rescission, even after he has chosen specific performance, if the latter should
become impossible.
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‣
Art. 1191 contemplates judicial resolution or cancellation — the injured party himself cannot resolve the obligation.
The mere failure of one party to perform his undertaking does not ipso jure product the resolution of the contract, the
party entitled to resolve should apply to the court for a decree of rescission or resolution. It must be invoked judicially.
‣
‣
BUT — If the parties themselves expressly stipulate that extra-judicial resolution or cancellation is allowed,
then a judicial decree may be dispensed with. Only a “notice of rescission” is required.
‣
In this case, the non-performance of the other partakes the nature of an express resolutory condition (as
distinguished from the implied nature contemplated in Art. 1191)
‣
However, the other party may contest the extra-judicial declaration of resolution if he wants to. A notice of
rescission is needed to that the other party may know the exercise of rescission and may challenge it in courts.
(See UP vs De Los Angeles)
‣
In the absence of a contractual stipulation allowing extrajudicial resolution in case of breach, a contracting
party cannot extrajudicially rescind the contract. The party needs to file an action for rescission under Art.
1191. (Eds Manufacturing, v. Healthcheck International, Inc., 2013)
‣
TOLENTINO — There seems to be a contradiction between the power of the injured party to rescind the obligation,
and the requirement that there be a judicial decree of rescission. However, this inconsistency is more apparent
than real. Art. 1191 regulates rescission as a power conferred upon the injured party, who may choose between
rescission and fulfilment, and this choice can be exercised judicially or by declaration of the creditor extrajudicially. But, if the debtor impugns the declaration of rescission, it shall be subject to judicial determination. If the
debtor does not object to the extra-judicial rescission, then it will produce legal effect. (See Magdalena Estate vs
Myrick)
‣
PARAS — The right to rescind needs judicial approval in certain cases, and in others, does not need such
approval.
1.
Judicial approval is needed — when there has already been delivery of the object (unless of course there is a
voluntary returning) (Guevara v. Pascual)
2.
Judicial approval is NOT needed — when there has been no delivery yet (Magdalena Estate v. Myrick) OR, in
case there has been delivery, the contract stipulates that either party can rescind the same or take possession
of the property upon non- fulfillment by the other party. (Consing v. Jamandre 1975).
EXCEPT — IN THE FOLLOWING CASES, RESOLUTION OR CANCELLATION IS NOT AVAILABLE —
1.
If the plaintiff is not ready, willing or able to comply with his own obligation
‣
Resolution can only be availed of if the plaintiff is ready, willing, and able to comply with his own obligation, and
the other is not. If neither is ready, neither can resolve.
‣
Also, the guilty party cannot rescind. He who comes to equity must come with clean hands.
2.
If the breach is NOT substantial or fundamental
‣
Resolution will not be permitted for a slight, trivial or causal breach of the contract, but only for such breaches as
are so substantial and fundamental as to defeat the object of the parties in making the agreement.
‣
The right to rescind the contract for non-performance of one of its stipulations, therefore, is not absolute. The
general rule is that rescission of a contract will not be permitted for a slight or casual breach, but only for such
substantial and fundamental breach as would defeat the very object of the parties in making the agreement. The
question of whether a breach of a contract is substantial depends upon the attendant circumstances.
‣
Relate this with — Art. 1234 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.
‣
NOTE — This rule also applies even if there is a stipulation on extra-judicial resolution in the contract (Angeles vs
Calasanz 1985)
3.
If there is a just cause, the court may, instead, obligate fulfilment of the obligation, and fix a period
‣
4.
When the things which are the object of the obligation are legally in the possession of third persons who did
not act in bad faith
‣
5.
The right of an injured party to rescind is subordinated to the rights of a third person to whom bad faith is not
imputable. But, the guilty party is liable for damages.
When the injured party is not in a position to return whatever he may be obliged to restore
‣
6.
This exception makes resolution or cancellation a qualified right. It is not absolute. The court is given discretionary
power to allow a period with which a person in default may be permitted to perform the stipulation upon which the
claim for rescission of the contract is based.
See Art. 1385.
If it has been waived, expressly or impliedly
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Accepting delayed installment payments beyond the grace period amounts to a waiver of the right to rescind.
(Angeles v. Calasanz 1985)
EXTRA-JUDICIAL RESOLUTION OR CANCELLATION
‣
SEE — Angeles vs Calasanz, G.R. No. L-42283 March 18, 1985
‣
There is nothing in the law that prohibits the parties from entering into an agreement that violation of the terms of the
contract would cause its cancellation even without court intervention. Well settled is the rule that a judicial action for
the rescission of a contract is not necessary where the contract provides that it may be revoked and cancelled for
violation of any of its terms and conditions'
‣
Resort to judicial action for rescission is obviously not contemplated . . . The validity of the stipulation can not be
seriously disputed. It is in the nature of a facultative resolutory condition which in many cases has been upheld by this
Court.
‣
The rule that it is not always necessary for the injured party to resort to court for rescission of the contract when the
contract itself provides that it may be rescinded for violation of its terms and condition.
‣
BUT — Of course, it must be understood that the act of a party in treating a contract as cancelled or resolved on
account of infractions by the other contracting party must be made known to the other and is always provisional,
being ever subject to scrutiny and review by the proper court.
‣
‣
If the other party denies that rescission is justified, it is free to resort to judicial action in its own behalf, and bring
the matter to court. Then, should the court, after due hearing, decide that the resolution of the contract was not
warranted, the responsible party will be sentenced to damages; in the contrary case, the resolution will be
affirmed, and the consequent indemnity awarded to the party prejudiced.
‣
In other words, the party who deems the contract violated many consider it resolved or rescinded, and act
accordingly, without previous court action, but it proceeds at its own risk. For it is only the final judgment of the
corresponding court that will conclusively and finally settle whether the action taken was or was not correct in law.
We see no conflict between this ruling and the previous jurisprudence of this Court invoked by respondent declaring
that judicial action is necessary for the resolution of a reciprocal obligation; since in every case where the extrajudicial
resolution is contested only the final award of the court of competent jurisdiction can conclusively settle whether the
resolution was proper or not. It is in this sense that judicial action will be necessary, as without it, the extrajudicial
resolution will remain contestable and subject to judicial invalidation, unless attack thereon should become barred by
acquiescence, estoppel or prescription.
EFFECTS OF RESOLUTION OR CANCELLATION
‣
RULE — 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
‣
The exercise of the power to rescind extinguishes the obligatory relation as if it had never been created, the extinction
having a retroactive effect.
‣
The rescission is equivalent to invalidating and unmaking the juridical tie, leaving things in their status before the
celebration of the contract.
‣
Where a contract is rescinded, it is the duty of the court to require both parties to surrender that which they have
respectively received and to place each other as far as practicable in his original situation.
‣
The rescission has the effect of abrogating the contract in all parts. The party seeking rescission cannot have
performed as to a party and rescission as to the remainder
‣
BUT — In some cases, in the interest of justice partial rescission and partial fulfillment may be allowed. (See Tan
Guat v. Pamintuan) However, the rule is still that the rescission or resolution of a contract has the effect of
abrogating it in all its parts, the creditor cannot demand rescission, and still insist on the performance of
subordinate stipulations. Hence, a clause allowing for attorney’s fees for the foreclosure of a mortgage cannot be
availed of if the mortgage is itself rescinded. (Po Paues v. Sequenza)
MUTUAL BREACH OF OBLIGATIONS
Article 1192. In case both parties have committed a breach of the obligation, the liability of the first infractor shall be
equitably tempered by the courts. If it cannot be determined which of the parties first violated the contract, the same shall
be deemed extinguished, and each shall bear his own damages. (n)
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III. KINDS OF OBLIGATIONS
A. PURE AND CONDITIONAL OBLIGATIONS
III. KINDS OF OBLIGATIONS
CLASSIFICATION OF OBLIGATIONS UNDER THE CIVIL CODE
1.
Pure obligations
2.
Conditional obligations
3.
Obligations with a period
4.
Alternative obligations
5.
Joint obligations
6.
Solidary obligations
7.
Divisible obligations
8.
Indivisible obligations
9.
Obligations with a penal clause
A. PURE AND CONDITIONAL OBLIGATIONS
PURE AND CONDITIONAL OBLIGATIONS DEFINED
Article 1179. Every obligation whose performance does not depend upon a future or uncertain event, or upon a past
event unknown to the parties, is demandable at once.
Every obligation which contains a resolutory condition shall also be demandable, without prejudice to the effects of the
happening of the event. (1113)
PURE OBLIGATIONS
‣
When the obligation contains no term whatever upon which depends the fulfilment of the obligation, it is considered pure
‣
It is immediately demandable and there is nothing to exempt the debtor from compliance therewith.
CONDITIONAL OBLIGATIONS
‣
A conditional obligation is one which is subject to a condition.
‣
What is a condition?
‣
‣
It is a future AND uncertain event — upon which the acquisition or resolution of rights is made to depend by those
who execute the juridical act.
Is a “a past event unknown to the parties” a condition?
‣
TOLENTINO — NO. A condition must be uncertain. The uncertainty in this case is only in the mind of the parties, and
not in reality, there is no uncertainty to the event itself, for it has either already happened or has not happened. If as a
matter of fact it has happened, then the obligation immediately exists purely and simply, if it has not happened, there
is no obligation at all.
‣
BUT — What can be a condition is the future knowledge or proof of a past event unknown to the parties, but not the
event itself. Thus, the proof of an unknown past event may, by the will of the parties, be established as a condition.
This is because the proof of such fact will be received in the future.
KINDS OF CONDITIONS
‣
As to the effect of the happening of the condition —
1.
Suspensive condition — the happening of the condition gives rise to an obligation
2.
Resolutory condition — the happening of the condition extinguishes rights already existing. (Art. 1181)
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A. PURE AND CONDITIONAL OBLIGATIONS
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‣
‣
‣
‣
As to the factors to which the fulfilment of the obligation depends upon —
1.
Potestative condition — the happening of the condition depends upon the will of one of the parties
2.
Casual condition — the happening of the condition depends upon chance or the will of a third person
3.
Mixed condition — the happening of the condition depends partly upon the will of one of the parties and party by
chance or the will of a third person
As to whether the condition, by its nature, by law, or by agreement, it can be performed by parts —
1.
Divisible condition
2.
Indivisible condition
In case of multiple conditions —
1.
Conjunctive conditions — there are multiple conditions and all of them must be performed
2.
Alternative conditions — there are multiple conditions but only one of them must be performed
As to whether the condition is an act or omission —
1.
Positive condition — the future event must occur
2.
Negative condition — the future event must not occur
Whether they can be fulfilled or not —
1.
Possibile conditions
2.
Impossible conditions — may be legal, moral or physical impossibility
OBLIGATION TO PAY WHEN ABLE
Article 1180. When the debtor binds himself to pay when his means permit him to do so, the obligation shall be deemed
to be one with a period, subject to the provisions of article 1197. (n)
‣
This is an instance when the court may exceptionally fix a period
SUSPENSIVE AND RESOLUTORY CONDITIONS
Article 1181. 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)
SUSPENSIVE CONDITIONS
‣
If the suspensive condition happens, the obligation arises. But if the condition does not happen, then the obligation does
not come into existence.
‣
It is the happening of the suspensive condition that gives birth to the obligation.
‣
This is also known as a “condition precedent”
‣
Example of an obligation subject to a suspensive condition — Contract to Sell
‣
There is a contract to sell if the ownership or title over the property sold is retained by the vendor, and is not passed to
the vendee unless and until there is full payment of the purchase price and/or upon faithful compliance with the other
terms and conditions that may lawfully be stipulated. Such payment or satisfaction of other preconditions, as the case
may be, is a positive suspensive condition, the failure of which is not a breach of contract, casual or serious, but
simply an event that would prevent the obligation of the vendor to convey title from acquiring binding force. Stated
differently, the efficacy or obligatory force of the vendor's obligation to transfer title is subordinated to the happening
of a future and uncertain event so that if the suspensive condition does not take place, the parties would stand as if
the conditional obligation had never existed. The vendor may extrajudicially terminate the operation of the contract,
refuse conveyance, and retain the sums or installments already received, where such rights are expressly provided for.
(Villamaria vs CA 2006)
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III. KINDS OF OBLIGATIONS
A. PURE AND CONDITIONAL OBLIGATIONS
RESOLUTORY CONDITIONS
‣
If the resolutory condition happens, the obligations and rights are extinguished. The obligations and rights already exist
but under the threat of extinction upon the happening of the resolutory condition.
‣
The condition is not a prerequisite upon the perfection and demandability of the obligation. An obligation subject to a
resolutory condition is immediately demandable, subject to possible extinguishment upon the happening of the condition.
‣
This is also known as a “condition subsequent”
POTESTATIVE, CASUAL, AND MIXED CONDITIONS
Article 1182. When the fulfillment of the condition depends upon the sole will of the debtor, the conditional obligation
shall be void. If it depends upon chance or upon the will of a third person, the obligation shall take effect in conformity
with the provisions of this Code. (1115)
KINDS OF SUSPENSIVE OR RESOLUTORY CONDITIONS
1.
Potestative — the happening of the condition is dependent on the sole will of one of the parties. It is one which is in the
exclusive power of one of the parties to fulfil or prevent
a.
Potestative suspensive condition
i.
Dependent on the sole will of the debtor — obligation is VOID
‣
ii.
b.
Example — I will give you a car if I want to
Dependent on the sole will of the creditor — valid
Potestative resolutory condition
i.
Dependent on the sole will of the debtor or creditor — valid
Casual — depends exclusively upon chance or upon the will of a third person
2.
‣
Example — I will give you a car if Donald Trump becomes president
Mixed — depends partly chance or upon the will of a third person and party by the will of one of the parties.
3.
‣
Example — I will give you a car if you marry her
IMPOSSIBLE CONDITIONS
Article 1183. 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)
Article 727. Illegal or impossible conditions in simple and remuneratory donations shall be considered as not imposed. (n)
Article 873. Impossible conditions and those contrary to law or good customs shall be considered as not imposed and
shall in no manner prejudice the heir, even if the testator should otherwise provide. (792a)
‣
RULE — IMPOSSIBLE CONDITIONS, THOSE CONTRARY TO GOOD CUSTOMS OR PUBLIC POLICY AND THOSE PROHIBITED BY LAW
SHALL ANNUL THE OBLIGATION WHICH DEPENDS UPON THEM
Physically or logically impossible conditions — when contrary to the laws of nature or logic
1.
‣
2.
Example — I will give you my car if eat the sun, or if you draw a straight circle
Juridically impossible conditions — when contrary to law, morals, good customs, or public policy
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A. PURE AND CONDITIONAL OBLIGATIONS
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TOLENTINO — The condition is considered contrary to public policy when it restricts certain essential rights which
are necessary for the free development of human activity, such as political and constitutional rights.
‣
Example — I will give you my car if you change your religion, or not remarry, or kill somebody, or sell your body
‣
NOTE — The entire obligation is rendered void and not merely the condition
‣
When must the impossibility of the condition exist?
‣
‣
What if the condition was initially impossible (at the time of the perfection of the obligation) but subsequently
became possible?
‣
‣
At the time of the creation of the obligation. Thus, a supervening impossibility does not affect the existence of the
condition.
TOLENTINO — It remains void even if such condition subsequently becomes possible, unless the parties later
agree to revive the obligation again.
EXCEPT — IN THE FOLLOWING CASES, ONLY THE CONDITION IS VOID, THE OBLIGATION SUBSISTS
1.
If the condition is negative (negative impossible conditions)
‣
The condition not to do an impossible thing shall be considered as not having been agreed upon.
‣
Example — I will give you my car if you do not eat the moon
‣
BUT — This only applies to physically or logically impossible conditions, not juridically impossible conditions
2.
In gratuitous obligations
‣
Such as in donations or in succession (See Art. 727, and 872)
POSITIVE CONDITIONS WITH A PERIOD
Article 1184. The condition that some event happen at a determinate time shall extinguish the obligation as soon as the
time expires or if it has become indubitable that the event will not take place. (1117)
Article 1185. XXXX 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)
‣
Example — I will give you my car if your dad goes to Haiti within one year from today. The obligation is extinguished if the
period lapses and the condition has not happened, or if the dad dies before the lapse of the period.
‣
What if the condition is not subject to a period?
‣
The condition shall be deemed fulfilled at such time as may have probably been contemplated, bearing in mind the
nature of the obligation. (Art. 1185, 2nd par.)
NEGATIVE CONDITIONS WITH A PERIOD
Article 1185. 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)
‣
Example — I will give you P1,000,000 if by Oct. 1, 2005 you have not yet married Maria. If by said date, you are not yet
married, or if prior thereto, Maria had died, the obligation is effective — in the first case, from Oct. 1, 2005; and in the
second case, from Maria’s death.
CONSTRUCTIVE FULFILMENT OF CONDITIONS
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III. KINDS OF OBLIGATIONS
A. PURE AND CONDITIONAL OBLIGATIONS
Article 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment. (1119)
‣
This article covers constructive fulfilment of conditions, and refers to a condition which, although not exclusively within
the will of the debtor, may, in some way, be prevented by the debtor from happening.
‣
The mere intention of the debtor to prevent its happening, or the mere placing of ineffective obstacles to its compliance,
without actually preventing its fulfilment is not sufficient.
‣
RATIONALE — The principle underlying constructive fulfilment of conditions is that a party to a contract may not be
excused from performing his promise by the non-occurrence of an event which he himself prevented.
‣
REQUISITES —
1.
INTENT OF THE OBLIGOR TO PREVENT FULFILMENT OF THE CONDITION
‣
The intent of the debtor to prevent the fulfilment of the condition is essential. Where the act of the debtor, although
voluntary, did not have for its purpose the prevention of fulfilment of the condition, it will not fall within the scope of
Art. 1186.
‣
Intention and prevention in the exercise of a lawful right will render the Article inapplicable — Thus, if the acts
which led to the non-fulfilment of the condition is done for a lawful purpose other than to prevent its fulfillment,
there is no constructive fulfilment.
‣
‣
Is fraud or malice essential?
‣
2.
Example — A promised to pay B a certain sum of money if the latter constructs a wall for the former within
certain number of days. Before the work is finished, A prosecutes B for a crime committed against him,
resulting in the imprisonment of B and the nonfulfillment of the condition. There is NO constructive fulfilment of
the condition in this case.
NO. TOLENTINO — Any act imputable to the debtor, whether done with or without fraud or malice will suffice,
in both cases, the debtor is responsible for his act as long as there is intent to prevent fulfilment of the
condition.
ACTUAL PREVENTION OF COMPLIANCE
‣
There is constructive fulfilment of the condition only if the act of the debtor had in fact prevented compliance with
the condition.
‣
Intention without prevention, or prevention without intention is not sufficient.
‣
Example — A promised to sell to B a car if C could pass the bar. On the day of the examination, A caused C to be
poisoned and be hospitalized. A is still bound to sell the car. (If, however, it turns out that C was really disqualified to take
the bar, as when he had not finished high school, or had taken his first year law in the prohibited special class, A is not
bound.
‣
Does Art. 1186 apply to Resolutory Conditions?
‣
PARAS — YES. Although in general, Art. 1186 applies only to a suspensive condition, it may sometimes apply to a
resolutory condition as in this case — A sold land now to B on condition that B marries C within one year, otherwise B
should return the land. If A kills C, B does not have to return the land. This is because A is at fault.
RETROACTIVE EFFECT OF THE FULFILLMENT OF SUSPENSIVE CONDITIONS
Article 1187. The effects of a conditional obligation to give, once the condition has been fulfilled, shall retroact to the day
of the constitution of the obligation. Nevertheless, when the obligation imposes reciprocal prestations upon the parties,
the fruits and interests during the pendency of the condition shall be deemed to have been mutually compensated. If the
obligation is unilateral, the debtor shall appropriate the fruits and interests received, unless from the nature and
circumstances of the obligation it should be inferred that the intention of the person constituting the same was different.
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)
APPLICABILITY OF ART. 1187
‣
It refers to the effects of the happening of suspensive conditions.
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III. KINDS OF OBLIGATIONS
A. PURE AND CONDITIONAL OBLIGATIONS
RULES IN ART. 1187
1.
IN OBLIGATIONS TO GIVE, ONCE THE SUSPENSIVE CONDITION HAS BEEN FULFILLED, IT SHALL RETROACT TO THE DAY OF THE
CONSTITUTION OF THE OBLIGATION
‣
TOLENTINO — Remember that between the moment of the creation of the conditional obligation and the fulfilment of
the suspensive condition, the creditor cannot enforce the obligation, his right during that period is a mere expectancy.
The moment the suspensive condition happens however, the obligation becomes effective and enforceable. The
debtor may legally be compelled to perform from that moment. The cause of action for the enforcement of the
obligation accrues, and the period of prescription of the action has to be computed from that moment. However, the
effects of the obligation, retroact to the moment when such obligation was constituted or created. The juridical reason
for this rule is that the condition is only an accidental, and not an essential element of the obligation. The obligation is
constituted when the essential elements which give rise thereto concur. Hence, when the condition is fulfilled,
resulting in the effectivity of the obligation, it is only logical that the effects of the obligation must be deemed to
commence, not from the time the accidental element or condition was fulfilled, but from the time the obligation itself
was constituted. By the principle of retroactivity, therefore, a citron is created whereby the binding tie of the
conditional obligation is produced from the time of its perfection, and not from the happening of the condition.
‣
‣
Thus, if the creditor, before the happening of the condition, has already disposed of his expected right, such as by
creating a mortgage over the property to be delivered to him, the happening of the suspensive condition
consolidates or makes effective the act performed pendente conditionae (pending the fulfilment of the condition).
‣
BUT —Note that this retroactive effect can apply only to consensual contracts (like sale), and not to real contracts
(such as deposit or commodatum), which are perfected only upon delivery.
PARAS — Application retroactivity rule in Art. 1187 —
‣
‣
Example — Jose in 2004 promised to sell to Maria his land provided Maria passes the bar in 2006. Maria passed
the bar in 2006. Applying the rule in Art. 1187, it is as if Maria was entitled to the land beginning 2004.Therefore, (1)
any donation or mortgage made by Maria in 2004 (before passing) will be considered valid. (Under the law of
donations, future property cannot as a rule be donated, but inasmuch as Maria is entitled to the land effective 2004,
it follows that the property cannot be considered a future one. The same is true with regard to a mortgage, for
under the law, the mortgagor must be the owner). (These are acts pendente conditionae.) (2) any alienation on the
land made by Jose (pendente conditionae) should as a rule be considered invalid.
EXCEPT — There is no retroactivity with reference to —
a.
2.
Fruits and interests in reciprocal obligations — which are deemed mutually compensated unless there is a
contrary intent/agreement.
‣
“Fruits” here refer to natural, industrial, and civil fruits (like rent). (See Art. 442)
‣
TOLENTINO — This is for reasons of practicality and convenience.
‣
Example — In 1999, A agreed to sell B his land and B agreed to pay if C passes the bar of 2006. C passed. A
must now give the land, and B must pay. The fruits of the land for the one-year period will remain with A, i.e., A
does not have to give said fruits. Upon the other hand, B will keep the 6% legal interest on his money. This is
true even if the interests be greater or lesser than the fruits.
‣
BUT — In unilateral obligations, debtor gets the fruits and interests unless there is a contrary intent/agreement.
‣
TOLENTINO — This is but just because the debtor does not get anything from the creditor in a unilateral
obligation
‣
Example — In 2005, A promised to give B his (A’s) land if B passes the bar in 2006. If the condition is
fulfilled, does A also give the fruits for the period of one year? NO, by express provision of the law unless
there is a contrary intent.
b.
Period of prescription — Here the period runs from the day the condition was fulfilled, because it can be
enforced only from said date.
c.
In case of fortuitous events — thus, if the thing is lost due to a fortuitous event before the happening of the
condition, the debtor suffers the loss because he is still the owner.
IN OBLIGATIONS TO DO AND NOT TO DO, ONCE THE SUSPENSIVE CONDITION HAS BEEN FULFILLED, THE COURTS SHALL
DETERMINE, IN EACH CASE, THE RETROACTIVE EFFECT OF THE CONDITION THAT HAS BEEN COMPLIED WITH
‣
The court use sound discretion in this case. It may permit retroactivity or refuse its application, depending on the
circumstances of each case. The intent of the parties should be taken into account.
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III. KINDS OF OBLIGATIONS
A. PURE AND CONDITIONAL OBLIGATIONS
PRESERVATION OF THE CREDITOR’S RIGHTS PENDING THE FULFILMENT OF THE CONDITION
Article 1188. The creditor may, before the fulfillment of the condition, bring the appropriate actions for the preservation of
his right.
XXXXXXX
‣
RATIONALE — Inasmuch as pending the happening of the suspensive condition, the creditor has only an expectancy and
cannot compel the debtor to perform, acts or events may take place which might render his right illusory when the
condition happens. Hence the law allows him to take appropriate steps or bring the proper actions for the preservation of
his right.
‣
The actions for the preservation of the creditor’s rights may have for their objects —
‣
1.
To prevent the loss or deterioration of the things which are the objects of the obligations by enjoining or restraining
acts of alienation or destruction by the debtor himself or by third persons
2.
To prevent concealment of the debtor’s properties which constitute guaranty in case of non-performance of the
obligation
3.
To demand security if the debtor becomes insolvent
4.
To compel the acknowledgement of the debtor’s signature on a private document or the execution of the proper
public documents for registration so as to affect third persons
5.
To register the deeds of sale or mortgages evidencing the contract
6.
To set aside fraudulent alienations made by the debtor
7.
To interrupt the period of prescription, by actions against adverse possessors of the things which are the objects of
the obligation.
NOTE —
‣
The “appropriate actions” contemplated here does not necessarily refer to judicial actions, it may cover other
remedies such as recording with the Register of Deeds. (Citing JBL Reyes)
‣
This article does not grant any preference of creditor but only allows the bringing of the proper action for the
preservation of the creditor’s rights.
‣
‣
The law says “preservation,” not “preference” over other creditor. (Jacinto v. de Leon)
Does this article also apply to obligations with a resolutory condition?
‣
TOLENTINO — YES. The party who would be entitled to restitution from the other in the event the resolutory condition
is fulfilled stands in the same position as a creditor in a obligation with a suspensive condition, in that he has an
expectancy of recovery of the thing. Thus, pending the fulfilment of the resolutory condition, he could bring the same
actions allowed to the creditor under the first paragraph of Art. 1188 for the protection of his rights. This is only just.
RECOVERY IN CASE OF PAYMENT BY MISTAKE PENDING THE FULFILMENT OF THE SUSPENSIVE
CONDITION
Article 1188. XXXXXX The debtor may recover what during the same time he has paid by mistake in case of a suspensive
condition. (1121a)
Article 2159. 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.
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)
‣
This article permits the debtor who paid before the happening of the condition to recover only when he paid by mistake
and provided the action to recover is brought before the condition happens.
‣
Proper actions —
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‣
1.
Accion reinvidicatoria — if the payment was of a determinate thing and it still exists in the hands of the creditor.
2.
Action based on solutio indebiti — If the payment was of a generic thing
What if the debtor pays with knowledge of the condition (in other words, there was no mistake)?
‣
‣
TOLENTINO — There is an implied waiver of the condition, and whatever has been paid cannot be recovered.
What if the debtor pays by mistake, but subsequently the suspensive condition was happened?
‣
‣
TOLENTINO — The subsequent fulfilment of the condition will bar recover of what has been prematurely paid,
because the retroactivity of the obligation consolidates the right of the creditor to what is paid from the moment of the
obligation was constituted.
What about the fruits and interests which accrued during the time when the thing was in the possession of the
creditor, can the debtor recover them as well?
‣
TOLENTINO — YES. The silence of the law should not bar recovery of the fruits or interest by the debtor. The
provisions on solutio indebiti under Art. 2159 can be applied.
LOSS, DETERIORATION, AND IMPROVEMENT BEFORE THE FULFILMENT OF SUSPENSIVE
CONDITIONS
Article 1189. When the conditions have been imposed with the intention of suspending the efficacy of an obligation to
give, the following rules shall be observed in case of the improvement, loss or deterioration of the thing during the
pendency of the condition:
(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;
(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)
Article 579. The usufructuary may make on the property held in usufruct such useful improvements or expenses for mere
pleasure as he may deem proper, provided he does not alter its form or substance; but he shall have no right to be
indemnified therefor. He may, however, remove such improvements, should it be possible to do so without damage to the
property. (487)
Article 580. The usufructuary may set off the improvements he may have made on the property against any damage to
the same. (488)
APPLICABILITY OF ART. 1189
1.
It applies only in obligations to give a determinate or specific thing
2.
It applies only in the case the obligation is subject to a suspensive condition, which is later fulfilled.
3.
It comprehends the following events which occur prior to the happening of the suspensive condition —
Loss of the thing — A thing is lost when it either —
a.
b.
i.
Perishes (such as when an animal dies, a house is destroyed by fire, or crop washed away by flood)
ii.
Goes out of commerce of man (such a when a thing is declared as contraband)
iii.
When it disappears in such a manner that its existence is unknown or it cannot be recovered (such as when a ship
sinks, or a thing is stolen by thieves)
Deterioration of the thing — any reduction or impairment in the substance or value of a thing which does not
amount to a loss. In other words, the thing still exists at the time the condition is fulfilled, but it is no longer intact, or
is less than what it was when the obligation was constituted.
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Improvement of the thing — Anything added to, incorporated in, or attached to the thing that is due, is an
improvement. Apply the principle of accretion.
c.
RULES IN ART. 1189
1.
LOSS
a.
If the thing is lost without the fault of the debtor — the obligation shall be extinguished
b.
If the thing is lost through the fault of the debtor — he shall be obliged to pay damages
2.
DETERIORATION
a.
When the thing deteriorates without the fault of the debtor — the impairment is to be borne by the creditor
b.
If it deteriorates through the fault of the debtor — the creditor may choose between —
3.
i.
Rescission (resolution/cancellation) of the obligation and damages
ii.
Fulfilment (specific performance) and damages
IMPROVEMENT
a.
If the thing is improved by its nature, or by time — the improvement shall inure to the benefit of the creditor
b.
If it is improved at the expense of the debtor — he shall have no other right than that granted to the usufructuary
(See Art. 579 and 580)
EFFECT OF THE FULFILLMENT OF RESOLUTORY CONDITIONS
Article 1190. When the conditions have for their purpose the extinguishment of an obligation to give, the parties, upon the
fulfillment of said conditions, shall return to each other what they have received.
In case of the loss, deterioration or improvement of the thing, the provisions which, with respect to the debtor, are laid
down in the preceding article shall be applied to the party who is bound to return.
As for the obligations to do and not to do, the provisions of the second paragraph of article 1187 shall be observed as
regards the effect of the extinguishment of the obligation. (1123)
Article 1187. XXXXXX 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.
APPLICABILITY OF ART. 1190
‣
This article applies to obligations subject to a resolutory condition and it gives the effects of the happening of such
conditions.
EFFECTS OF THE FULFILLMENT OF RESOLUTORY CONDITIONS
1.
MUTUAL RESTITUTION
‣
The parties, upon the fulfillment of resolutory conditions, shall return to each other what they have received.
‣
TOLENTINO — In obligations with resolutory conditions, the rights are always in the danger of being extinguished by
the happening of the resolutory condition. If the condition does not happen, those rights are consolidated and they
become absolute in character. But if the condition happens, such rights are extinguished, and the obligation is treated
as if it did not exist. Hence each party is bound to return whatever he has received, so that they may be returned to
their original condition before the creation of the obligation. Every vestige of the obligation is wiped out as much as
possible through the process of mutual restitution
‣
What about the fruits and interests, should these also be returned?
‣
TOLENTINO — Apply the rules in Art 1187
a.
Reciprocal obligations — no need to return, apply principle of mutual compensation
b.
Unilateral obligations — they should be returned
‣
BUT — Apply Art. 443, in determining the fruits to be returned, it should be remember that he who received
the fruits has the obligation to pay the expenses made by a third person in their production, gathering and
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preservation, therefore, these expenses incurred by the person obliged to return should be deducted from
the gross value of the fruits to be returned.
2.
IN CASE OF LOSS, DETERIORATION OR IMPROVEMENT OF DETERMINATE THINGS IN OBLIGATIONS TO GIVE
‣
Apply the rules in Art. 1189
‣
TOLENTINO — Before the resolutory condition happens, the party who has a right is practically in the same position
as one who has an obligation subject to a suspensive condition. There is the possibility that he may have to return or
deliver the thing to the other party, and that possibility becomes a positive duty when the resolutory condition is
fulfilled. Therefore, in case of loss of the thing, or deteriorations suffered by it, or improvements made thereon, the
provisions of Art. 1189 are applicable, the party who has to make restitution being considered as the debtor.
3.
IN CASE OF OBLIGATIONS TO DO OR NOT TO DO
‣
Apply the rule in Art. 1187 — The courts shall determine, in each case, the incidental effects of the happening of the
resolutory condition.
B. OBLIGATIONS WITH A PERIOD
DEFINITION OF A PERIOD OR TERM
Article 1193. Obligations for whose fulfillment a day certain has been fixed, shall be demandable only when that day
comes. Obligations with a resolutory period take effect at once, but terminate upon arrival of the day certain. A day
certain is understood to be that which must necessarily come, although it may not be known when.
If the uncertainty consists in whether the day will come or not, the obligation is conditional, and it shall be regulated by
the rules of the preceding Section. (1125a)
NATURE OF A PERIOD
‣
A period is a certain length of time which determines the effectivity or the extinguishment of obligations.
‣
A period has reference to a “day certain” which is understood to be that which must necessarily come, although it may
not be known when.
‣
NOTE — When we know that something will happen but we are uncertain as to the time it will happen, this is a term.
When we are not even sure if something will happen as a fact or not, this is a condition.
‣
A term or a period consists in a space of time which has an influence on obligations as a result of a judicial act, and either
suspends their demandableness, or produces their extinguishment. Obligations with a period are, therefore, those whose
consequences are subjected in one way or another to the expiration of said term.
‣
REQUISITES — A period must be —
1.
Future — It must refer to the future.
2.
Certain — It must be certain (sure to come) but can be extended. (If eliminated subsequently by mutual agreement,
the obligation becomes pure and immediately demandable).
3.
Possible — It must be physical and legally possible, otherwise the obligation is void.
PERIOD
CONDITION
As to their
fulfillment
A period is an event which must happen sooner or later, at a
date known beforehand, or a time which cannot be determined.
A condition is an uncertain event
As to time
A period always refers to the future
A condition may under the law refer even to the past.
As to influence on
the obligation
A period merely fixes the time or the efficaciousness of an
obligation
A condition causes an obligation to arise or to cease
As to the will of
the debtor
A period left to the debtor’s will merely empowers the court to
fix the period
A condition which depends exclusively on the will of
the debtor annuls the obligation
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KINDS OF PERIODS
1.
As to when the period will expire
a.
Definite — the exact date or time is known and given.
b.
Indefinite — something that will surely happen, but the date of happening is unknown (as in the case of death).
2.
As to the source of the period
a.
Legal — a period granted under the provisions of the law.
b.
Conventional or Voluntary — period agreed upon or stipulated by the parties.
c.
Judicial — the period or term fixed by the courts for the performance of an obligation or for its termination.
3.
As to the effect of the expiration of the period
a.
Suspensive period (ex die) — a period with a suspensive effect. Here, the obligation begins only from a day certain, in
other words, upon the arrival of the period.
b.
Resolutory period (in diem) — a period or term with a resolutory effect. Up to a time certain, the obligation remains
valid, but upon the arrival of said period, the obligation terminates
4.
As to how the period is created by the parties —
a.
Express — when specifically stated and agreed upon by the parties
b.
Implied — when the period is tacit, such as when a person undertakes to do some work which can be done only
during a particular season
EFFECT OF THE PERIOD
1.
Suspensive period — Suspends the demandability of the obligation until the period expires
‣
2.
Obligations for whose fulfillment a day certain has been fixed, shall be demandable only when that day comes.
Resolutory Period — The expiration of the period terminates the obligation, which is already immediately demandable
‣
Obligations with a resolutory period take effect at once, but terminate upon arrival of the day certain.
SUSPENSION OF THE PERIOD IN THE EVENT OF A FORTUITOUS EVENT
‣
SEE — Victorias Planters Association vs Victorias Milling, G.R. No. L-6648, July 25, 1955
‣
The stipulation that in the event of a fortuitous event or force majeure, the contract shall be deemed suspended during
the said period does not mean that the happening of any of those events stops the running of the period the contract
has been agreed upon to run. It only relieves the parties from the fulfilment of their respective obligations during that
time.
‣
Example — If during 6 of the 30 years fixed as the duration of the contract, one of the parties is prevented by force
majeure to perform his obligation during those years, he cannot after the expiration of the 30-year period, be
compelled to perform his obligation for 6 more years to make up for what he failed to perform during the said 6 years,
because it would in effect be an extension of the term of the contract. The contract is stipulated to run for 30 years,
and the period expires on the force majeure cannot be deducted from the period stipulated.
LOSS, DETERIORATION, AND IMPROVEMENT BEFORE THE EXPIRATION OF THE PERIOD
Article 1194. In case of loss, deterioration or improvement of the thing before the arrival of the day certain, the rules in
article 1189 shall be observed. (n)
Article 1189. When the conditions have been imposed with the intention of suspending the efficacy of an obligation to
give, the following rules shall be observed in case of the improvement, loss or deterioration of the thing during the
pendency of the condition:
(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;
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(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;
(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)
RECOVERY IN CASE OF PAYMENT BY MISTAKE PENDING THE EXPIRATION OF THE SUSPENSIVE
PERIOD
Article 1195. Anything paid or delivered before the arrival of the period, the obligor being unaware of the period or
believing that the obligation has become due and demandable, may be recovered, with the fruits and interests. (1126a)
‣
This article allows the recovery of the thing or money itself, plus the fruits or interests, which must be understood as those
accusing from the moment of payment to the date of recovery. If the action to recover, however, is not brought by the
debtor before the date of maturity, then the right to recover the thing or money will cease but it is submitted, the reason
for the law will still justify the recovery of the fruits from the time of payment to the date of maturity.
‣
If the payment before the period expires was made voluntarily, with knowledge of the period, the payment cannot be
recovered. The debtor can be considered as having tacitly waived the benefit of the term, hence he is not entitled to
recover anything because the obligation can then be considered as already matured.
‣
NOTE — In the following cases, however, premature payment cannot be recovered —
1.
When the obligation is reciprocal and there has been premature performance on both sides
2.
When the obligation is a loan on which the debtor is bound to pay interests
3.
When the period is exclusively for the benefit of the creditor, because the debtor by paying in advance loses nothing.
BENEFIT OF THE PERIOD
Article 1196. Whenever in an obligation a period is designated, it is presumed to have been established for the benefit of
both the creditor and the debtor, unless from the tenor of the same or other circumstances it should appear that the
period has been established in favor of one or of the other. (1127)
Article 1198. The debtor shall lose every right to make use of the period:
(1) When after the obligation has been contracted, he becomes insolvent, unless he gives a guaranty or security for the
debt;
(2) When he does not furnish to the creditor the guaranties or securities which he has promised;
(3) When by his own acts he has impaired said guaranties or securities after their establishment, and when through a
fortuitous event they disappear, unless he immediately gives new ones equally satisfactory;
(4) When the debtor violates any undertaking, in consideration of which the creditor agreed to the period;
(5) When the debtor attempts to abscond. (1129a)
‣
RULE — 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
‣
‣
EXCEPT — When 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.
What is the consequence of the benefit of the period?
1.
If the term is for the benefit of both parties — the creditor cannot demand payment and the debtor cannot make
an effective tender and consignation of payment, before the period stipulated.
2.
If the term is for the benefit of the debtor only — He may oppose a premature demand for payment, but may
validly pay at any time before the period expires
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If the term is for the benefit of the creditor only — He may demand performance at any time, but the debtor
cannot compel him to accept payment before the period expires
3.
CIRCUMSTANCES WHICH INDICATE FOR WHOM THE BENEFIT OF THE TERM BELONGS
1.
For the benefit of both parties —
a.
When there is interest stipulated (Here the creditor is interested in the term because of the interests that would be
earned; the debtor is interested because he is given enough time to pay).
b.
When the creditor is interested in keeping his money safely invested (thus making the debtor a sort of depository), or
when the creditor wants to protect himself from the dangers of currency depreciation
2.
For the benefit of the debtor
a.
When the loan is without interest, this is generally only for the benefit of the debtor.
b.
When payment is to be made “within” a certain period from date of contract or “on or before” a certain date.
3.
For the benefit of the creditor — Usually, this only exists if there is a stipulation to this effect, as when the contract
provides that no payment should be made till after a certain given period
‣
NOTE — Acceptance of partial payment even before the expiration of the period means a waiver on the part of the
creditor of his right to refuse payment before the end of said period. (Lopez v. Ochoa 1958)
DEBTOR’S LOSS OF THE BENEFIT OF THE PERIOD
‣
In the following cases enumerated in Art. 1198, the debtor loses the benefit of the period, thus, the creditor can demand
immediate performance of the obligation. The obligation becomes immediately due and demandable even if the period
has not yet expired. The obligation is thus converted into a pure obligation.
1.
When after the obligation has been contracted, he becomes insolvent
‣
EXCEPT —when he gives a guaranty or security for the debt
‣
NOTE — The insolvency referred to does not have to be judicially declared; it is sufficient for him to find a hard
time paying off his obligations because of financial reverses that have made his assets less than his liabilities
2.
When he does not furnish to the creditor the guaranties or securities which he has promised
3.
When by his own acts he has impaired the guaranties or securities after their establishment
‣
4.
EXCEPT — when he immediately gives new ones equally satisfactory
When through a fortuitous event the guaranties or securities disappear
‣
EXCEPT — when he immediately gives new ones equally satisfactory
‣
NOTE — There must be total loss in case of a fortuitous event. But if the debtor’s is at fault, mere impairment of
the securities are sufficient.
5.
When the debtor violates any undertaking, in consideration of which the creditor agreed to the period
6.
When the debtor attempts to abscond.
WHEN THE COURTS CAN FIX THE PERIOD
Article 1197. If the obligation does not fix a period, but from its nature and the circumstances it can be inferred that a
period was intended, the courts may fix the duration thereof.
The courts shall also fix the duration of the period when it depends upon the will of the debtor.
In every case, the courts shall determine such period as may under the circumstances have been probably contemplated
by the parties. Once fixed by the courts, the period cannot be changed by them. (1128a)
CASES WHERE THE COURTS CAN FIX A PERIOD
1. The obligation does not fix a period but from the nature and circumstances of the obligation, it can be inferred that a
period was intended (Art. 1197)
2. When the period depends solely on the will of the debtor (Potestative Suspensive Period) (Art. 1197)
3. When the debtor binds himself to pay when his means permit him to do so. (Art. 1180)
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4. When rescission (resolution or cancellation) is invoked in a reciprocal obligation and there is just cause to fix a period (Art.
1191)
5. When the suspensive condition depends solely on the will of the debtor (Potestative Suspensive Condition) and such
condition was imposed on the implementation of a right or the fulfilment of the obligation, leaving the obligation valid but
the condition void. The Courts will then fix a period. (Art. 1182 in relation to Patente vs Omega)
RULE TO OBSERVE ONCE THE COURT IS CALLED UPON TO FIX A PERIOD
1.
In every case, the court shall determine such period as may under the circumstances have been probably contemplated
by the parties. (Court cannot arbitrarily fix a period)
2.
Once the period is fixed by the Courts, it becomes part of the contract. The period cannot be changed without the
consent of both parties
C. ALTERNATIVE OBLIGATIONS
OBLIGATIONS WITH SEVERAL OBJECTS
Article 1199. A person alternatively bound by different prestations shall completely perform one of them.
The creditor cannot be compelled to receive part of one and part of the other undertaking. (1131)
Article 1202. The debtor shall lose the right of choice when among the prestations whereby he is alternatively bound, only
one is
practicable. (1134)
KINDS OF OBLIGATIONS BASED ON THE PLURALITY OF OBJECTS
1.
Conjunctive — one where the debtor has to perform several prestations. This is extinguished only by the performance of
all of them.
2.
Alternative — one where out of the two or more prestations which may be given, only one is due.
3.
Facultative — one where only one prestation has been agreed upon but the obligor may render another in substitution.
WHO HAS THE RIGHT OF CHOICE IN ALTERNATIVE OBLIGATIONS
Article 1200. 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)
‣
RULE — IN ALTERNATIVE OBLIGATIONS, THE DEBTOR HAS THE RIGHT OF CHOICE WHICH PRESTATION TO PERFORM
‣
‣
BUT — The debtor shall have no right to choose those prestations which are either —
1.
Impossible
2.
Unlawful
3.
Could not have been the object of the obligation
EXCEPT — If the right of choice has either been —
1.
Expressly granted to the creditor
2.
Expressly granted to a third person
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HOW THE RIGHT OF CHOICE SHOULD BE MADE
Article 1201. The choice shall produce no effect except from the time it has been communicated. (1133)
Article 1205. 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. XXXXX
‣
The notice of selection or choice may be in any form provided it is sufficient to make the other party know that the
election has been made.
‣
It is not subject to any form and may, therefore, be made —
1.
Orally
2.
In writing
3.
Impliedly
4.
By any other unequivocal means.
‣
RATIONALE — The purpose of the notice is to inform the creditor that the obligation is now a simple one, no longer
alternative, and if already due, for the creditor to receive the object being delivered, if tender of the same has been made.
‣
TOLENTINO — When the debtor performs one of the prestations with the intent to discharge the obligation, he is
released, because the selection made may be implied in the fact of performance.
EFFECT OF CHOICE
‣
The effect of the notice of choice is to limit the obligation to the object selected, with all the consequences which the law
provides. The obligation is converted into a simple obligation to perform the presentation chosen. Once the selection has
been communicated, it becomes irrevocable. To allow a change in the selection after it has been communicated to the
other party, is to expose the latter to damages arising from preparations he may make on the assumption that the
presentation selected is the one to be performed.
IMPAIRMENT OF THE CHOICES
Article 1202. The debtor shall lose the right of choice when among the prestations whereby he is alternatively bound, only
one is practicable. (1134)
Article 1203. If through the creditor's acts the debtor cannot make a choice according to the terms of the obligation, the
latter may rescind the contract with damages. (n)
Article 1204. The creditor shall have a right to indemnity for damages when, through the fault of the debtor, all the things
which are alternatively the object of the obligation have been lost, or the compliance of the obligation has become
impossible.
The indemnity shall be fixed taking as a basis the 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)
Article 1205. 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.
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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)
IMPAIRMENT OR LOSS OF SOME CHOICES
1.
When the right of choice is with the debtor
Loss due to the fault of the creditor — the debtor may rescind the contract with damages (Art. 1203)
a.
‣
2.
Rescission only applies when the thing was lost due to the fault of the creditor if the debtor was really prejudiced
(such as when he owns the thing involved in one of such choices). If the debtor is not prejudiced, then he should
still choose from the remaining choices less damages.
b.
Loss due to fault of debtor — no effect, since the right of choice is with him, he can choose what is left.
c.
Loss due to a fortuitous event — no effect, debtor must choose from the remaining choices, if one choice is left,
then the obligation ceases to be alternative and now becomes pure, the debtor loses the right of choice (Art. 1202)
When the right of choice is with the creditor
a.
Loss due to fault of 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
IMPAIRMENT OR LOSS OF ALL CHOICES
1.
2.
When the right of choice is with the debtor
a.
Loss due to the fault of the creditor — the debtor may rescind the contract with damages (Art. 1203)
b.
Loss due to fault of debtor — the debtor is liable for damages. 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. (Art. 1204)
c.
Loss due to a fortuitous event — obligation is extinguished
When the right of choice is with the creditor
a.
Loss due to fault of debtor — the choice by the creditor shall fall upon the price of any one of them, also with
indemnity for damages.
FACULTATIVE OBLIGATIONS
Article 1206. When only one prestation has been agreed upon, but the obligor may render another in substitution, the
obligation is called facultative.
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.
ALTERNATIVE
FACULTATIVE
As to the contents
of the obligation
Various things are due, but the
giving of one is sufficient.
Only one thing is principally due, and it is that one which generally is given, but
the other (the substitute) may be given to render payment or fulfillment easy.
As to nullity
If one of the prestations is illegal,
the others may be valid and the
obligation remains.
If the principal obligation is void, and there is no necessity of giving the
substitute. (“The nullity of the principal carries with it the nullity of the
accessory or substitute.’’ — this principle may by analogy be applied.)
As to the effect of
loss or impossibility
If it is impossible to give all except
one, that last one must still be
given.
If it is impossible to give the principal, the substitute does not have to be
given; if it is impossible to give the substitute, the principal must still be given.
As to influence on
the obligation
A period merely fixes the time or
the efficaciousness of an obligation
A condition causes an obligation to arise or to cease
As to the right of
choice
The right to choose may be given
either to debtor or creditor.
The right of choice is given only to the debtor.
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When is substitution effective in facultative obligations?
‣
‣
TOLENTINO — Apply the same rule as in alternative obligations, from the moment the debtor communicates such fact
to the creditor.
What is the effect of the loss of the principal?
‣
‣
TOLENTINO — The obligation is extinguished, the debtor does not have to give the substitute. The impossibility of the
principal presentation is sufficient to extinguish the obligation even if the substitute is possible.
What is the effect of the loss of the substitute?
‣
TOLENTINO — No effect. Before the substitution is effected, the substitute is not the presentation that is due, only the
principal presentation is due and enforceable by the creditor at that time. Therefore, if the substitute presentation
becomes impossible due to the fault or negligence of the debtor, the obligation is not affected, and he cannot be held
liable for damages.
D. JOINT AND SOLIDARY OBLIGATIONS
JOINT AND SOLIDARY OBLIGATIONS DEFINED
Article 1208. If 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)
Article 1207. 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)
PLURALITY OF SUBJECT PERSONS IN AN OBLIGATION
1.
Joint obligation — one in which each of the debtors is liable only for a proportionate part of the debt, and each creditor
is entitled only to a proportionate part of the credit. Each creditor can only recover his share of the obligation and each
debtor can only be made to pay his part.
‣
2.
‣
A and B are joint debtors of C to the amount of P1,000,000. C can demand only P500,000 from A, and only
P500,000 from B.
‣
A and B are joint debtors of C, D, E, and F, who are joint creditors to the amount of P1,000,000. C may demand
only P125,000 from A, and P125,000 from B. D, E, and F, have the same rights as C.
Solidary obligation — one in which each debtor is liable for the entire obligation, and each creditor is entitled to
demand the whole obligation. Each creditor may enforce the entire obligation, and each debtor may be obliged to pay it
in full.
a.
Active solidarity — if there are multiple creditors who are bound solidarily
b.
Passive solidarity — if there are multiple debtors who are bound solidarily
‣
‣
Example —
Example —
‣
A and B are solidary debtors of C to the amount of P1,000,000. C can demand the whole P1,000,000 from A. A in
turn, after paying C, can ask reimbursement from B to the amount of P500,000.
‣
A and B are solidary debtors of C, D, E, F, solidary creditors, to the amount of P1,000,000. Any creditor, like C, can
demand from any debtor, like A, the whole P1,000,000. In turn, C has to give P250,000 each to D, E, and F. B has
to reimburse A for P500,000 which is really B’s share of the obligation.
Can an obligation be both joint and solidary?
‣
TOLENTINO — YES. In case there are multiple debtors and creditors, the debtors may be solidarily liable while the
creditors are only jointly entitled, and vice-versa. The obligation may be joint on the side of the creditors and solidary
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on the side of the debtors or vice-versa. In such cases, the rules applicable to each subject of the obligation should
be applied, the character of the creditors or the debtors determining their respective rights and liabilities.
‣
Example —
‣
A and B are joint debtors of C, D, E, and F, solidary creditors to the amount of P1,000,000. How much can C
collect from A? C is a solidary creditor, so presumably he can collect the whole debt. But since A is only a joint
debtor, C is entitled to collect only P500,000 from A.
‣
A and B are solidary debtors of C, D, E, and F, joint creditors to the amount of P1,000,000. How much can C
recover from A? Since C is only a joint creditor, he can only recover his share which is P250,000 from A, a solidary
debtor.
RULE IN CASE THERE ARE MULTIPLE SUBJECT-PERSONS
‣
‣
RULE — WHEN TWO OR MORE PERSONS ARE LIABLE ON AN OBLIGATION, THE PRESUMPTION IS THAT THEIR LIABILITY IS JOINT.
EACH DEBTOR IS LIABLE ONLY FOR A PROPORTIONATE PART OF THE OBLIGATION.
‣
Joint character is presumed. Art. 1208 provides this rule — 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
‣
BUT — This is subject to the Rules of Court governing the multiplicity of suits. In joint obligations, the different shares
of the debt or the credit are considered distinct from one another. But they are subject to the Rules of Court governing
the multiplicity of suits. This means that ordinarily one creditor may sue one of the debtors for the latter’s share of the
obligation. But, in view of the fact that the aim of the Rules of Court is to obtain a just, speedy, and inexpensive
determination of every action or proceeding, it would be much better to sue all the necessary parties at the same time.
EXCEPT — THERE IS A SOLIDARY LIABILITY ONLY WHEN EITHER —
1.
The obligation expressly so states
‣
Such as when the terms of the contract use words indicative of solidary liability.
‣
Example — Where parties agree to be “individually liable”; Where a contract says “I promise” and is signed by two
or more promisors (unless the “I” is particularly specified as one person); Words such as — individually, collectively,
separately, distinctly, individually and jointly liable, respectively, severally, jointly and severally guaranteed, juntos os
sepadaramente, mancomun o insolidum, mancomunada solidaria, in solidum. (See Ronquiilo vs CA)
‣
NOTE — “We promise to pay,” when there are two or more signatures means joint liability. “I promise to pay,”
when there are two or more signatures means solidary liability.
2.
The law requires solidarity
‣
3.
Such as —
a.
Joint tortfeasors (Art. 2194)
b.
When the ACP or CPG is insufficient to cover its liabilities, the separate properties of the spouses shall be
solidarily liable. (Art. 94 and 121 of the Family Code)
c.
In CSP, the liability of the separate properties of the spouses to family expenses shall be solidary (Art. 145 of
the Family Code)
d.
In cases of inheritance, when two or more heirs take possession of the estate of the deceased, they shall be
solidarily liable for the loss or destruction of a thing devised or bequeathed, even though only one of them
should have been negligent. (Art. 927)
e.
All partners are solidarily liable with the partnership for everything chargeable to the partnership in cases
provided in Art. 1822 and 1823 (Art. 1824)
f.
When the agent acted in the excess of his authority and the principal acted as though the agent had full
powers (Art. 1911)
g.
When two or more bailees in commodatum whom a thing is loaned in the same contract, they are liable
solidarity (Art. 1945)
h.
In quasi-contract of negotorium gestio, 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 (Art. 2146)
i.
The responsibility of two or more payees, when there has been payment of what is not due, is solidary (Art.
2157)
j.
In the case of co-participants to a crime
Nature of the obligation requires solidarity
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TOLENTINO — The provisions on Human Relations (Art. 19, 20, 21) though not expressly providing for solidarity,
are nevertheless considered to give rise to soldiery obligations if violated by two or more persons
EFFECTS OF JOINT LIABILITY
1.
The demand by one creditor upon one debtor, produces the effects of default only with respect to the creditor who
demanded and the debtor on whom demand was made, but not with respect to the others. Demand by the creditor on
one joint debtor puts him in default, but not the others since the debts are distinct.
2.
The interruption of prescription by judicial demand of one creditor upon a debtor, does not benefit the other creditors nor
interrupt the prescription as to the other debtors
3.
The vices of each obligation arising from the personal defect of a particular debtor or creditor does not affect the
obligation or rights of the others. Thus, vitiated consent on the part of one debtor does not affect the others.
4.
The insolvency of a debtor does not increase the responsibility of his co-debtors, nor does it authorise a creditor to
demand anything from his co-debtors
5.
In the joint divisible obligation, the defense of res judicata is not extended from one debtor to another. Defenses of one
debtor are not necessarily available to the others.
KINDS OF SOLIDARITY
1.
ACTIVE SOLIDARITY
‣
One that exists among the creditors
‣
The essence of active solidarity consist in the authority of each creditor to claim and enforce the right of all, with the
resulting obligation of paying every one what belongs to him; there is no merger, much less a renunciation of rights,
but only mutual representation. It is thus essentially a mutual agency.
‣
Effects of active solidarity —
2.
a.
Since it is a reciprocal agency, the death of a solitary creditor does not transmit the solidarity to each of his heirs
but to all of them taken together
b.
Each creditor represents the others in the act of receiving payment, and in all the other acts which tend to secure
the credit or make it more advantageous. Hence, if he receives only a partial payment, he must divide it among
the other creditors. He can interrupt the period of prescription or render the debtor in default, for the benefit of all
other creditors.
c.
One creditor, however, does not represent the others in such acts as in novation (even if the creditor becomes
more advantageous), compensation, and remission. In these cases, even if the debtor is released, the other
creditors can still enforce their rights against the creditor who made the novation, compensation, or remission.
d.
The credit and its benefits are divided equally among the creditors, unless there is an agreement among them to
divide differently. Hence, once the credit is collected, an accounting and a distribution of the amount collected
should follow.
e.
The debtor may pay to any solidary creditor, but if a judicial demand is made on him, he must pay only to the
plaintiff.
f.
Each creditor may renounce his right even agains the will of the debtor, and the latter need not thereafter pay the
obligation to the former.
PASSIVE SOLIDARITY
‣
One that exists among the debtors
‣
In passive solidarity, the essence is that each debtor can be made to answer for others, with the right on the part of
the debtor-payor to recover from the others their respective shares.
‣
In so far as the payment is concerned, this kind of solidarity is similar to a mutual guaranty.
‣
Effects of passive solidarity —
a.
Each debtor can be required to pay the entire obligation, but after payment, he can recover from the co-debtors
their respective shares.
b.
The debtor who is required to pay may set up by way of compensation his own claim against the creditor, in this
case, the effect is the same as that of payment.
c.
The total remission of the debt in favour of a debtor releases all the debtors, but when this remission affects only
the share of one debtor, the other debtors are still liable for the balance of the obligation.
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3.
d.
All the debtors are liable for the loss of the thing due, even if such loss is caused by the fault of one one of them,
or by fortuitous event after one of the debtors has incurred in delay.
e.
The interruption of prescription as to one debtor affects all the others, but the renunciation by one debtor or
prescription already does not prejudice the others, because the extinguishment of the obligation by prescription
extinguishes also the mutual representation among the solitary debtors.
f.
The interests due by reason of the delay of one of the debtors are borne by all of them.
MIXED SOLIDARITY
‣
One that exists on the part of both creditors
PASSIVE SOLIDARITY DISTINGUISHED FROM SURETYSHIP
‣
‣
Similarities —
1.
A solidary debtor, like a surety, stands for some other person
2.
Both the debtor and the surety, after payment, may require that they be reimbursed
Differences —
1.
A solidary debtor, unlike a surety, is liable not only for his co-debtor’s obligation, but also for his own, hence he is
both a principal debtor and a surety
2.
A solidary debtor’s responsibility for his co-debtor is primary, not subsidiary.
3.
An extension of time given but the creditor to a debtor would not release a solitary co-debtor but would release a
surety.
JOINT INDIVISIBLE OBLIGATIONS
Article 1210. The indivisibility of an obligation does not necessarily give rise to solidarity. Nor does solidarity of itself
imply indivisibility. (n)
Article 1209. 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)
Article 1224. 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)
RULES WHEN THE OBLIGATION IS INDIVISIBLE AND THERE ARE MULTIPLE SUBJECT-PERSONS INVOLVED
1.
THE PRESUMPTION IS THAT THE OBLIGATION IS JOINT, EVEN IF THE PERFORMANCE IS INDIVISIBLE
‣
When there are several debtors or creditors, but the presentation is indivisible (such as the delivery of a house or other
determinate thing), the obligation is joint, unless solidarity has been stipulated.
‣
Example — A and B are jointly liable to give C this particular car.
‣
The difference between indivisibility and solidarity lies in the fact that in solidary obligations, each creditor may
demand the full presentation and each debtor has likewise the duty to comply with the entire prestation, while in
indivisible joint obligations, each creditor cannot demand more than this share and each debtor is not liable for more
than his share.
‣
Indivisibility refers to the presentation which is not capable of partial performance, while solidarity refers to the legal tie
or vinculum defining the extent of liability.
‣
Examples —
‣
Joint divisible obligation — A and B are jointly liable to X for P1 million.
‣
Joint indivisible obligation — A and B are jointly liable to give X this car.
‣
Solidary divisible obligation — A and B are solidarily bound to give X P1 million.
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‣
2.
3.
Solidary indivisible obligation — A and B are solidarily bound to give X this car.
TOLENTINO — The joint indivisible obligation is in a sense midway between the joint and the solidary, although it
preserves the characteristics of a joint obligation, in that no creditor can do an act prejudicial to the others, and no
debtor can be made to answer for the others. The peculiarity of this kind of obligation, however, is that its fulfilment
requires the concurrence of all the debtors, although each for his part. On the side of the creditors, collective action is
expressly required for acts which may be prejudicial.
IF THERE ARE SEVERAL CREDITORS IN A JOINT AND INDIVISIBLE OBLIGATION —
a.
The rights of the creditors may be prejudiced only by their collective acts — Collective action is expressly
required for acts which may be prejudicial.
b.
The acts beneficial to one of the creditors does NOT benefit the other joint creditors — As long as the
obligation is joint, the act of one creditor cannot have nay effect as to another creditor, because the creditors of each
one is separate from the credits of the others. The indivisibility requires collective action to be effective. If a written
demand is made by one creditor only, the debtor cannot pay to him alone, payment must be made to all. Hence, the
act of one alone is ineffective. It is only in solidarity that the law in Art. 1212 allows one creditor to do anything
beneficial to the others. No similar provision can be found as to join indivisible obligations. (Tolentino)
c.
The obligation can be performed only by delivering the object to all the creditors jointly — A debtor who
delivers the thing to one creditor only, becomes liable for damages because of non-performance to the other
creditors, unless they have authorized the former to receive payment for all of them.
d.
If only one or some of the creditor demand the presentation, the debtor may legally refuse to deliver to them
— He can insist that all the creditors together receive the thing, and if any of them refuses to join the others, the
debtor may deposit the thing in court by way of consignation.
IF THERE ARE SEVERAL DEBTORS IN A JOINT AND INDIVISIBLE OBLIGATION —
a.
The debt can be enforced only by proceeding against all the debtors
b.
If one of the solidary debtors should be insolvent, the others shall not be liable for his share
c.
If any one of the debtors does not comply with his undertaking, the creditor may pursue an action for damages
against all the solidary debtors.
‣
BUT — 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.
‣
If anyone of the debtors its not willing to perform, the presentation is converted into an indemnification for
damages. Once so converted, the creditor can sue the debtors separately for their respective shares the
indemnity.
VARYING TERMS AND CONDITIONS IN SOLIDARY OBLIGATIONS
Article 1211. 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)
‣
The legal bonds in solidarity may either be —
1.
Uniform — when the debtors are bound by the same conditions and clauses
2.
Varied — where the obligors, although liable for the same prestation, are nevertheless not subject to the same terms
and conditions
‣
In this case, before the fulfilment of the condition or the arrival of the term which affects a particular debtor, an
action may be brought against such debtor or any other solidary debtor for the recovery of the entire obligation,
minus the portion corresponding to the debtor affected by the condition or term, but this latter portion cannot be
demanded from anyone until the condition happens or the term arrives. Upon the happening of the condition or
the arrival of the term, however, the creditor may claim this remaining portion form any of the debtors.
SUMMARY OF RULES GOVERNING THE RELATIONSHIP OF THE PARTIES IN SOLIDARY
OBLIGATIONS
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Article 1212. 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)
Article 1215. 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)
Article 1213. A solidary creditor cannot assign his rights without the consent of the others. (n)
Article 1214. 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)
Article 1216. 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)
Article 1217. 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)
Article 1218. Payment by a solidary debtor shall not entitle him to reimbursement from his co-debtors if such payment is
made after the obligation has prescribed or become illegal. (n)
Article 1219. 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)
Article 1220. The remission of the whole obligation, obtained by one of the solidary debtors, does not entitle him to
reimbursement from his co-debtors. (n)
Article 1221. If the thing has been lost or if the prestation has become impossible without the fault of the solidary
debtors, the obligation shall be extinguished.
If there was fault on the part of any one of them, all shall be responsible to the creditor, for the price and the payment of
damages and interest, without prejudice to their action against the guilty or negligent debtor.
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)
Article 1222. A solidary debtor may, in actions filed by the creditor, avail himself of all defenses which are derived from
the nature of the obligation and of those which are personal to him, or pertain to his own share. With respect to those
which personally belong to the others, he may avail himself thereof only as regards that part of the debt for which the
latter are responsible. (1148a)
ACTIVE SOLIDARITY — IF THERE ARE MULTIPLE CREDITORS IN A SOLIDARY OBLIGATION
1.
EACH ONE OF THE SOLIDARY CREDITORS MAY DO WHATEVER MAY BE USEFUL OR BENEFICIAL TO THE OTHERS (ART. 1212)
‣
Thus, each creditor may —
a.
Collect the debt and give the to the others the share corresponding to them
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2.
b.
Interrupt prescription
c.
Constitute the debtor in default, or
d.
Bring suits so that the obligation may product interest
EACH ONE OF THE SOLIDARY CREDITORS MAY NOT DO ANYTHING WHICH MAY BE PREJUDICIAL TO THE OTHERS (ART. 1212)
‣
‣
3.
EXCEPT — Any of the solidary creditors may extinguish the obligation of the solidary debtors through any of the
following modes of extinguishment, but such creditor will be liable to the others for the share in the obligation
corresponding to them (Art. 1215) —
a.
Novation — the modification of an obligation by changing its object or principal conditions, or by substituting the
person of the debtor, or by subrogating the person of the debtor, or by subrogating a third person in the rights of
creditor. (Art. 1291)
b.
Compensation — that which takes place when two persons, in their own right, are creditors and debtors of each
other. (Art. 1278)
c.
Confusion or merger— that which takes place when the characters of creditor and debtor are merged in the
same person. (Art. 1275)
d.
Remission — that act of liberality whereby a creditor condones the obligation of the debtor; that where the
creditor tells the debtor to “forget about the whole thing. (Art. 1270)
TOLENTINO — By virtue of Art. 1215, the act of extinguishment, which is prejudicial to the co-creditors, will be valid,
so as to extinguish the claim against the debtors, but not with respect to the co-creditors whose rights subsists and
can be enforced agains the creditor who performed the act alone.
A SOLIDARY CREDITOR CANNOT ASSIGN HIS RIGHTS WITHOUT THE CONSENT OF THE OTHERS (ART. 1213)
‣
4.
TOLENTINO —
‣
A solidary creditor is an agent of the others, hence, he cannot assign that agency to a third person without the
consent of the other creditors. Mutual agency, which is the essence of active solidarity, implies mutual confidence
which may take into account the personal qualifications of each creditor, hence it is only just to require the consent
of the others when one transfers his rights to another.
‣
The law has omitted to prove what the effects of an assignment made without the consent of the co-creditors
would be. The law seems to imply, however, that since such assignment cannot be made, it products no effect
whatsoever, the co-creditors and the debtor or debtors are not bound thereby, and the assignee cannot be
regarded as a solidary creditor. Thus, a payment made by the debtor to such an assignee would be a payment to a
third person and may not extinguish the obligation, and a suit filed by such assignee cannot interrupt prescription.
‣
BUT —An unauthorized assignment to a co-creditor would be effective. The consent of the others is not required
here because the assignee is one as to whom the confidence of the others already exist.
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. (ART. 1214)
‣
‣
TOLENTINO —
‣
The solitary creditors are tacitly mutually representative of each other for demanding payment. The equality of the
rights of the solidary creditors by virtue of this mutual representation, however, lasts only until one of them goes
ahead of the others and sues the debtor. When on creditor makes a judicial demand for payment, the tacit
representation by the other creditors is considered revoked, and during the pendency of the action, the creditors
who did not sue lose they representation of the others.
‣
Up to the moment the suit is filed or extrajudicial demand is made by a one of the creditors, the debtor could free
himself from the debt by paying it to any creditor, but once the action is filed or extrajudicial demand is made
against him by one creditor, the relation with the plaintiff as the creditor if fixed definitely, he can pay only the
plaintiff or such creditor making the demand, in whom the representation of the other creditors is thus
concentrated, and he can no longer be sued by the other creditors.
‣
Hence, a payment to any of the creditors who did not sue or did not make the extrajudicial demand would be a
payment to a third person, in so far as the shares of the others in the credit are concerned. If the payee does not
turn over to the others their shares in the payment, the debtor can still be required to pay to the plaintiff the full
amount minus the share of the creditor to whom payment was made. The action however, does not definitely
eliminate the other creditors, but only during the time that the effects of the action exist. If the action is dismissed,
the other creditors may in turn sue the debtor. If before such dismissal the debtor pays to another creditor, he does
so at his own risk.
What if all or several solidary creditors demand payment separately?
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TOLENTINO — The debtor should pay to the one who first notified him. If they demand at the same time or
collectively, as when they join together in a single action or written demand upon the debtor, the latter preserves
his right to choose and may pay anyone of those demanding payment.
PASSIVE SOLIDARITY — IF THERE ARE MULTIPLE DEBTORS IN A SOLIDARY OBLIGATION
1.
THE CREDITOR MAY PROCEED AGAINST ANY ONE OF THE SOLIDARY DEBTORS OR SOME OR ALL OF THEM SIMULTANEOUSLY
(ART. 1216)
‣
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.
‣
The solitary debtors may be sued simultaneously in one suit or successively in different actions.
2.
IF TWO OR MORE SOLIDARY DEBTORS OFFER TO PAY, THE CREDITOR MAY CHOOSE WHICH OFFER TO ACCEPT. (ART. 1217)
3.
PAYMENT MADE BY ONE OF THE SOLIDARY DEBTORS EXTINGUISHES THE OBLIGATION. (ART. 1217)
‣
Payment — is one of the ways by which an obligation is extinguished and consists in the delivery of the thing or the
rendition of the service which is the object of the obligation.
‣
Payment by one of the solidary debtors and his subsequent release from liability results in release from liability of the
other debtors to the creditor.
4.
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. (ART. 1217)
‣
BUT — If the payment is made before the debt is due, no interest for the intervening period may be demanded.
‣
Basis of the right to reimbursement — The fact of payment (and not the original contract) is the basis of the right to be
reimbursed, for not until then had he the right to be reimbursed. Hence, the obligation of the others to reimburse him
arises only from the time payment is made. (Wilson v. Berkenkotter 1953)
‣
Where one of several persons who are sued upon a joint and several liability elects to pay the while, such person may
properly be substituted in the same action as plaintiff for the purpose of enforcing contribution from his former
associates, under Art. 1217.
‣
The extinction or discharge of the solidary obligation by the payment made by the co-debtor gives birth to a right in
favour of the paying co-debtor, and imposes on the other co-debtors the duty to pay him their shares in the
discharged obligation.
‣
When a solidary co-debtor pays the entire obligation there is no real case of subrogation, because the original
obligation is extinguished and a new one is created. The paying solidary co-debtor does not step into the shoes of the
creditor as he cannot collect the whole amount of the loan from anyone but is only entitled to claim from his codebtors the share pertaining to each with interest on the amount advanced. The right of the paying co-debtor to be
reimbursed is not based on the original obligation but upon the payment made by him.
‣
What if a co-debtor merely made partial payment?
‣
5.
He can still recover reimbursement from his co-debtors but only in so far as his payment exceed his share of the
obligation.
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
(ART. 1217)
‣
6.
When a solidary debtor pays the entire obligation, the resulting obligation of the co-debtors to reimburse him
becomes joint. If one, by insolvency, cannot pay his share in the reimbursement, the others (including the one who
paid) shall bear such share proportionately.
PAYMENT BY A SOLIDARY DEBTOR SHALL NOT ENTITLE HIM TO REIMBURSEMENT FROM HIS CO-DEBTORS IF SUCH PAYMENT IS
MADE AFTER THE OBLIGATION HAS PRESCRIBED OR BECOME ILLEGAL (ART. 1218)
‣
After the obligation has prescribed or has become illegal, it is no longer due, and none of the solidary debtors can be
compelled by the creditor to pay. If one of the debtors actually pays such an obligation, he does not thereby revive the
obligation as to the co-debtors, hence they cannot be made to pay anything to the debtor who has paid.
‣
The same rule applies when the obligation has already been extinguished by other causes, such as previous payment
by, or total remission in favour of another debtor.
‣
Can the solidary debtor who paid after the obligation has prescribed recover from the creditor instead?
‣
NO. 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. This is a
case of natural obligations. (Art. 1424)
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D. JOINT AND SOLIDARY OBLIGATIONS
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7.
BUT — For other grounds aside from prescription, where the obligation no longer exists, he can recover form the
creditor the amount paid, under the rules on quasi-contract. (See Art. 2154)
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 (ART. 1215)
‣
The effects of this should be considered from three aspects —
‣
i.
The relation between the creditors on one hand and the debtors on the other — such acts will extinguish the
obligation such that no creditor may thereafter sue any debtor
ii.
The relations among co-creditors themselves — the act of any of them in extinguishing the obligation with
respect tot he debtor/debtors does NOT prejudice the rights of the other creditors to recover their prospective
shares in the obligation from the creditor who effected the novation, compensation, confusion or remission of the
debt.
iii.
The relations among co-debtors themselves — the co-debtor as to whom the obligation is extinguished cannot
recover from his co-debtors more than their respective shares in whatever he may have given up or lost as the
consideration for the extinguishment of the obligation. But in case of remission, since the co-debtor in whose
favour the remission was made, gives or loses nothing, he cannot recover anything from the other co-debtors.
What if the creditor gives a co-debtor an extension of time, will this extinguish the obligation of the other
solidary debtors?
‣
TOLENTINO — NO. The mere extension of time for payment given by the creditor to a solitary debtor, does not
release the others from the obligation.
‣
8.
BUT — The rule is different in suretyship. Where the sureties are bound in solidum, a different rule applies. A
material alteration of the principal contract, effected by the creditor and the principal debtor, without the
knowledge and consent of the sureties completely discharges the sureties from all liability on the contract of
suretyship. This includes an extension of time.
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 (ART. 1219)
‣
This applies to a case where a co-debtor has already paid the obligation in full when the remission of the part affecting
another co-debtor is made.
‣
Example — Example: A and B solidarily owe X P1,000,000. A paid X the whole amount. Later, X remitted B’s share.
Can A still recover reimbursement of P500,000 from B? Yes under Art. 1219
‣
To exempt the co-debtor who part is thus subsequently remitted will give way to fraud.
‣
After one solidary debtor has paid the entire obligation, it is extinguished, and there is nothing more to remit, even
partially.
9.
THE REMISSION OF THE WHOLE OBLIGATION, OBTAINED BY ONE OF THE SOLIDARY DEBTORS, DOES NOT ENTITLE HIM TO
REIMBURSEMENT FROM HIS CO-DEBTORS (ART. 1220)
‣
This is because remission is a gratuitous act.
‣
Example — A and B are solidary debtors of C to the amount of P1,000,000. C remitted the whole obligation when A
offered to pay. A here cannot get any reimbursement from B since after all, A did not pay anything to C. To allow the
contrary would be to induce fraud and to countenance partiality.
‣
What if the remission by the creditor to a co-debtor only pertains to the portion for which the latter is
ultimately liable (in other words the remission is only partial and not entire)?
‣
The co-debtor whose share has been remitted is still liable for the others’ share as the obligation is solidary, but he
is entitled to full reimbursement from the other co-debtors as to the amount he paid.
10. IF THE THING HAS BEEN LOST OR IF THE PRESTATION HAS BECOME IMPOSSIBLE (ART. 1221) —
Without the fault of the solidary debtors — the obligation shall be extinguished
a.
‣
If the loss or impossibility is due to a fortuitous event, without fault or delay on the part of any debtor, then the
obligation is extinguished, no debtor can be held liable for damages.
With fault or delay 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
b.
‣
BUT — This is without prejudice to their action against the guilty or negligent debtor.
‣
If the loss or impossibility is due to the fault of any solidary debtor, or due to a fortuitous event after a debtor has
incurred in delay, the obligation is converted into an obligation to pay indemnity, consisting of the price, damages
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E. DIVISIBLE AND INDIVISIBLE OBLIGATIONS
and interest. Although only one debtor may have bene at fault or guilty of delay, the entire indemnity may be
recovered by the creditor from the other debtors who were free from fault or delay.
‣
TOLENTINO — the effects are different in case of loss/impossibility or delay/ —
i.
Loss or impossibility due the a co-debtors fault —The erring co-debtor will bear the full amount. If any of
co- debtors who were not at fault should pay to the creditor, they can recover from the guilty debtor the full
amount of the indemnity they have paid to the creditor. If, on the other hand, the creditor recovers the
indemnity from the guilty debtor, the latter cannot get any contribution from his co-debtors. He must shoulder
all the consequences of the loss because of his fault or delay.
ii.
Delay, fraud, fault or negligence or some other breach of the obligation (but NO loss or impossibility) —
The erring co-debtor cannot be made to shoulder, as part of the indemnity, the share of the other co-debtors
in the original obligations. In other words, the co-debtors who were not at fault are still liable for their original
shares, any liability beyond that will be borne by the erring co-debtor.
11. A SOLIDARY DEBTOR MAY, IN ACTIONS FILED BY THE CREDITOR, AVAIL HIMSELF OF THE FOLLOWING DEFENSES (ART. 1222) —
a.
Defenses which are derived from the nature of the obligation (Total defenses)
‣
These constitute a total defense. These are connected with the obligation and are derived from its nature.
‣
Such as — non-existence of the obligation, because of illegal cause or object, or absolute simulation; nullity due to
defect in capacity or consent of all the debtors, such as minority, mistake, fraud or violence; unenforceability
because of lack of proper proof under the statute of frauds; non-performance of a suspensive condition;
extinguishment of the obligation; all other means of defines which may invalidate the original contract from which
the right or the action of the creditor against the debtors arises, such as res judicata, prescription, etc.
b.
Defenses which are personal to him, or pertain to his own share (Partial defenses)
‣
These are personal defences which exist only for the benefit of the debtor himself
Defenses which personally belong to the others (Partial defenses)
c.
‣
These are personal defences which exist only for the benefit of the other co-debtors
‣
BUT — This applies only as to that part of the debt for which the others are responsible
‣
Relate this with Art. 1211 — “Solidarity may exist although the creditors and the debtors may not be bound in the
same manner and by the same periods and conditions.”
E. DIVISIBLE AND INDIVISIBLE OBLIGATIONS
DIVISIBILITY OF THINGS AND OBLIGATIONS
Article 1223. 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)
DIVISIBILITY AND INDIVISIBILITY OF THINGS
1.
Divisibility — When each of the parts into which it is divided forms a homogenous and analogous object to the other
parts as well as to the thing itself.
Qualitative divisibility — when the thing is not entirely homogenous
a.
‣
Quantitative divisibility — when the thing divided is homogenous, and the parts themselves may be separated, as in
movables, or the limits of each part may be fixed, as in the case of immovables.
b.
‣
Example — if 10 chairs are equally divided between two brothers
Intellectual or ideal divisibility — one that exists merely in the mind, and not in physical reality. When the parts are
not separated in a material way, but there are assigned to several persons the undivided portions pertaining to them,
as in co-ownership.
c.
‣
2.
Example — If one child inherits land, and another inherits cash
Example — My brother and I own in common a car. My one-half share is only in the mind.
Indivisibility — a thing is considered indivisible when, if divided into parts, its value is diminished disproportionately.
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DIVISIBLE AND INDIVISIBLE OBLIGATIONS
1.
Divisible obligations — one which is susceptible of partial performance, that is, the debtor can legally perform the
obligation by parts and the creditor cannot demand a single performance of the entire obligation.
2.
Indivisible obligations — when the obligation cannot be validly performed in parts, whatever may be the nature of the
thing (divisible or indivisible) that is the object thereof.
‣
TOLENTINO — Divisibility or indivisibility of the obligation refers to the performance of the presentation and not to the
thing which is the object thereof. The divisibility of an obligation should not be confused with the divisibility of the thing.
The thing may be divisible, yet the obligation may be indivisible. For instance, the obligation to deliver 100 sacks of rice
on a fixed date.
DETERMINATION OF DIVISIBILITY OR INDIVISIBILITY
Article 1225. 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.
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)
‣
The divisibility of the object does not necessarily determine the divisibility of the obligation. The test of divisibility of an
obligation is whether or not it is susceptible of partial performance. This susceptibility of partial performance should be
understood, not in the sense of whether the delivery of the things or the execution of the acts in parts is absolutely
impossible or not, but in the sense of whether such separation into parts is contrary or not to the end which the obligation
seeks to attain.
‣
Thus, while the indivisibility of the object carries with it the indivisibility of the obligation, the divisibility of the former does
not always mean that the latter is also divisibility. The obligation may be indivisible even when the object is divisible, by
reason of the provisions of law, of the express will of the parties, or of their presumed will, shown by the relation of the
distinct parts of the object, each of which may be a necessary complement of the others, or by the purpose of the
obligation which requires the realisation of all the parts.
‣
The following may be considered as facts which determine whether an obligation is divisible or indivisible —
1.
Will or intention of the parties, which may be expressed or presumed
2.
Objective or purpose of the stipulated prestation
3.
Nature of the thing
4.
Provisions of law
OBLIGATIONS THAT ARE DEEMED INDIVISIBLE
1.
Obligations to give definite things
2.
Those which are not susceptible of partial performance.
3.
Even if the thing is physically divisible, it may be indivisible if so provided by law.
4.
Even if the thing is physically divisible, it may be indivisible if such was the intention of the parties concerned.
OBLIGATIONS THAT ARE DEEMED DIVISIBLE
1.
When the object of the obligation is the execution of a certain number of days of work.
‣
2.
Example — When a laborer is hired to work for 10 days.
When the object of the obligation is the accomplishment of work by metrical units.
‣
Example — When a laborer is hired to construct a street 3 meters wide and 50 meters long.
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3.
When the purpose of the obligation is to pay a certain amount in installments.
‣
4.
Example — When a debtor is required to pay in ten annual installments.
When the object of the obligation is the accomplishment of work susceptible of partial performance.
F. OBLIGATIONS WITH A PENAL CLAUSE
NATURE OF A PENAL CLAUSE
Article 1226. 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)
Article 1228. Proof of actual damages suffered by the creditor is not necessary in order that the penalty may be
demanded. (n)
‣
‣
‣
What is a penal clause?
‣
It is a coercive means to obtain from the debtor compliance from the debtor.
‣
A penal clause is an accessory undertaking to assume greater liability in case of breach. It is attached to obligations in
order to insure their performance.
‣
Its principal purpose is to insure the performance of an obligation and also to substitute for damages and the payment
of interest in case of non-compliance.
What benefit does a stipulation of a penal clause give?
1.
It provides for liquidated damages and thus dispenses with the need or proof of damage suffered — It
constitutes an exception to the general rules on the recovery of losses and damages. The amount stipulated as the
penal clause represents the estimate of the damages that a party might suffer from the non-performance of the
obligation, thereby avoiding difficulties in proving such damages.
2.
It strengthens the coercive force of the obligation by the threat of greater responsibility in the event of breach
‣
Example — A promised to construct the house of B within 80 days. In the contract, there is a provision to the effect
that for every day’s delay after the stipulated 80 days, A would pay a fine or indemnity or penalty of P10,000. If the
house is, therefore, constructed finally at the end of 85 days — 5 days more than the time stipulated — A would have
to pay a penalty of P50,000, i.e., whatever sum B agreed to give A for the construction of the house will be given to A
minus, of course, the P50,000 imposed as penalty. The first purpose of the penal clause is, therefore, clear. Its insertion
was to give A a motive to finish the construction on time; otherwise, he would have to suffer the penalty. The second
purpose is also clear, namely, that instead of computing the actual damages that may have been caused by the five
days’ delay, and instead of computing the legal rate of interest as damages, the matter has become simplified by the
insertion of said penal clause, which in this case now assumes the part of liquidated damages.
What is the difference between a penal clause and a condition?
‣
‣
MANRESA — Between a condition and a penalty, there are notable differences: the latter constitutes an obligation
although accessory; the former does not. Therefore, the latter may become demandable in default of the unperformed
principal obligation, and sometimes jointly with it, while the former or the condition is never demandable.
What are the kinds of penal clauses?
1.
Subsidiary or alternative — upon non-performance only the penalty may be asked. (Purpose is reparation)
2.
Joint or cumulative — both the principal undertaking and the penalty may be demanded. (Purpose is punishment)
RULE IN THE EVENT OF NON-PERFORMANCE OF OBLIGATIONS WITH A PENAL CLAUSE
‣
RULE — IN OBLIGATIONS WITH A PENAL CLAUSE, THE PENALTY SHALL SUBSTITUTE THE INDEMNITY FOR BOTH —
1.
Damages
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F. OBLIGATIONS WITH A PENAL CLAUSE
2.
‣
‣
Interests
NOTE — even if the damages actually suffered by the creditor is far more than the amount stipulated as a penal
clause, he cannot recover such amounts.
EXCEPT — Despite the existence of a penal clause, further damages can still be demanded in the following case
—
1.
There is an express stipulation to the contrary
2.
The debtor refuses to pay the penalty
3.
The debtor is guilty of fraud in the fulfillment of the obligation.
SUBSTITUTION OF THE PENALTY FOR THE PRINCIPAL OBLIGATION
Article 1227. The debtor cannot exempt himself from the performance of the obligation by paying the penalty, save in the
case where this right has been expressly reserved for him. Neither can the creditor demand the fulfillment of the
obligation and the satisfaction of the penalty at the same time, unless this right has been clearly granted 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)
‣
Example — A promises to finish a certain piece of work within six months. The contract stipulates that in case he does not
build the house at all, he is supposed to forfeit the sum of P1,000,000. In this case, as a general rule the contractor cannot
just give the sum of P1,000,000 as a substitute for his non-performance of the obligation. It must be remembered that as a
general rule, therefore, the penal clause is not supposed to substitute the performance of the principal obligation. He may,
however, be expressly granted by the creditor the right to refrain from the execution of the contract by a forfeiture of the
penalty.
REDUCTION OF THE PENALTY BY COURTS
Article 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly
complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is
iniquitous or unconscionable. (1154a)
‣
When Penalty may be reduced by the Court —
1.
When the obligation has been partly complied with by the debtor. (Partial Performance)
2.
When the obligation has been irregularly complied with by the debtor. (Irregular Performance)
3.
When the penalty is iniquitous or unconscionable, even if there has been no performance at all. (Unconscionable or
Iniquitous).
NULLITY OF THE PENAL CLAUSE VIS-A-VIS THE PRINCIPAL OBLIGATION
Article 1230. The nullity of the penal clause does not carry with it that of the principal obligation. The nullity of the
principal obligation carries with it that of the penal clause. (1155)
‣
If the principal obligation is null and void, the penal clause will have no more use for existence and is therefore also considered null and void. Upon the other hand, just because the penal clause is not valid, it does not mean that its nullity will
also make the principal obligation null and void.
‣
This is because the principal obligation can stand alone, and the void penal clause will just be disregarded.
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IV. MODES OF EXTINGUISHMENT OF OBLIGATIONS
IV. MODES OF EXTINGUISHMENT OF OBLIGATIONS
GENERAL PROVISIONS
Article 1231. 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)
OVERVIEW OF THE MODES OF EXTINGUISHMENT (CLASSIFICATION ACCORDING TO CASTAN)
1.
VOLUNTARY CAUSES OF EXTINGUISHMENT
a.
Performance
i.
Payment or performance
ii.
Consignation
b.
Substitution of performance
i.
Compensation
ii.
Novation
iii.
Dacion en pago (dation in payment)
c.
Agreement to release
i.
Subsequent to obligation
ii.
2.
(1)
Unilateral waiver
(2)
Natural waiver
(3)
Remission or condonation
(4)
Mutual dissent or disagreement (disenso) — as when both parties to a contract refuse to go ahead with the
contract
(5)
Compromise
Simultaneous with creation of obligation
(1)
Resolutory term or extinctive period
(2)
Resolutory condition or condition subsequent
INVOLUNTARY CAUSES OF EXTINGUISHMENT
a.
By failure to bring an action
i.
Prescription of the right of action (Statute of limitations)
ii.
Laches
b.
c.
Resolutory condition or condition subsequent
i.
Merger or confusion
ii.
By the death of a party in purely personal obligations
iii.
Change of civil status (in obligations because of family relations)
Impossibility of performance or loss of the thing due (due to the happening of a fortuitous event)
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IV. MODES OF EXTINGUISHMENT OF OBLIGATIONS
A. PAYMENT OR PERFORMANCE
A. PAYMENT OR PERFORMANCE
CONCEPT AND NATURE OF PAYMENT
Article 1232. Payment means not only the delivery of money but also the performance, in any other manner, of an
obligation. (n)
‣
Payment is the fulfilment of the presentation due, a fulfilment that extinguishes the obligation by the realization of the
purposes for which it was constituted. It is a juridical act which is voluntary, licit, and made with the intent to extinguish an
obligation. In this concept, payment is made not only by one who owes money or is obliged to delivery any object, but
also by one bound to do something or to refrain from doing something. Payment and fulfilment are thus identical.
‣
REQUISITES — In order the payment may product all its effects, the series of requisites pertaining to the following should
all concur —
1. The person who pays — payor must have the capacity to pay
2. The person to whom payment should be made — payee must have the capacity to accept payment
3. The thing to be paid — payment must be made in accordance with the obligation
4. The manner, time, and place of payment, etc. — payment must be made at the right time and place
KINDS OF PAYMENT (WHICH EXTINGUISHES AN OBLIGATION)
1. Complete payment (Art. 1233)
2. Incomplete payment
a. Substantial performance (Art. 1234)
b. Waiver of defect in performance (Art. 1235)
COMPLETENESS OF PAYMENT
Article 1233. 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)
‣
REQUISITES — For payment to be deemed complete the following must be present —
1. Identity — the very thing or service due must be delivered or released
2. Integrity — the prestation must be fulfilled completely
‣
NOTE — There are rules that dictate the composition of what is included in satisfying an obligation such as —
•
The obligation to give a determinate thing includes that of delivering all its accessions and accessories, even though
they may not have been mentioned. (Art. 1166)
•
Payment of the principal includes payment of the interest
HOW PAYMENT OR PERFORMANCE IS MADE
1. If the debt is a monetary obligation — by delivery of the money. The amount paid must be full, unless of course otherwise
stipulated in the contract.
2. If the debt is the delivery of a thing or things — by delivery of the thing or things.
3. If the debt is the doing of a personal undertaking — by the performance of said personal undertaking.
4. If the debt is not doing of something — by refraining from doing the action.
‣
NOTE — Anything less than a complete performance may essentially be considered a breach of the obligation
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A. PAYMENT OR PERFORMANCE
PROOF OF PAYMENT
‣
An alleged creditor has the burden of showing that a valid debt exists. Once he does this, the debtor has the burden of
proving that he has paid the same.
‣
Thus, if a promissory note is still in the creditor’s possession, the presumption is that it has not yet been paid
‣
One good proof is the presentation of the receipt.
‣
A debtor is justified in demanding that a creditor issue a receipt when the debt is paid.
‣
What if the creditor refuses to issue a receipt, without just cause?
‣
It is a ground for consignation of payment. (Art. 1256) The court can also order the creditor to issue a receipt.
SUBSTANTIAL PERFORMANCE
Article 1234. 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)
‣
REQUISITES — For incomplete payment to extinguish an obligation as though there had been a strict and complete
fulfillment, the following must be present —
1. The omission must be slight and unimportant
‣
The derivation form the obligation must be slight, and the omission or defect must be technical and unimportant,
and must not pervade the whole or be so material that the object which the parties intended to accomplish in a
particular manner is not attained.
2. The part not performed must not destroy the value or purpose of the contract
‣
The non-performance of a material part of a contract will prevent the performance from amounting to a substantial
compliance
3. Debtor is in good faith
‣
The debtor must show that he has attempted in good faith to perform his contract, but through oversight,
misunderstanding, or any excusable neglect, he failed to completely perform in certain negligible respects, for
which the other party may be adequately indemnified by an award of damages or reduction of the contract price.
‣
Substantial performance or compliance is, in a sense, a performance according to the fair intent of the contract,
with an attempt in good faith to perform. Fair dealing and equity demand a faithful compliance of one’s contractual
obligations. (Rosete, et al. v. Perober Dev. Corp. 1981)
‣
BUT — STA. MARIA — that there are contemporary views that even a conscious and intentional departure from
the contract will not necessarily defeat substantial compliance but may be considered as merely a factor in
deciding whether there has been substantial compliance. The pertinent inquiry is not simply whether the breach
was wilful but whether the behaviour of the party in default copouts with the standards of good faith and fair
dealing
Relate Art. 1234 with Resolution or Cancellation of Obligations under Art. 1191
‣
‣
‣
Inasmuch as substantial performance in good faith may already be equivalent to “fulfillment” or “payment,” it follows
that the right to rescind (mentioned in Art. 1191) cannot be used simply because there have been slight breaches of
the obligation. In fact, such right to rescind is not absolute, and therefore the Court may even grant, at its discretion, a
period to a person in default, within which the obligation can be fulfilled. (Gaboya v. Cui 1971)
Substantial performance may constitute complete fulfilment but the debtor is liable for damages to the creditor.
WAIVER OF DEFECT IN PERFORMANCE
Article 1235. 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)
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A. PAYMENT OR PERFORMANCE
‣
A person entering into a contract has a right to insist on its performance in all particulars, according to its meaning and
spirit. But if he choose to waive any of the terms introduced for his own benefit, he may do so.
‣
Art. 1235 connotes a waiver of the creditor of damages arising from the breach of contract which resulted in the
incompleteness or irregularity of the obligation. By not expressing any protest or objection, the creditor accepts the
performance of the obligation as fully complied with despite knowledge of such irregularity or incompleteness
‣
REQUISITES —
1. Incomplete or irregular performance
2. Knowledge of the incompleteness or irregularity by the creditor
‣
TOLENTINO — For a waiver to be valid, there must have been “an intentional relinquishment of a known right”. A
waiver will not result from a mere failure to assert a claim for defective performance when the thing or work is
received, or from mere payment in accordance with the terms of the contract. There must have been acceptance
of the defective performance with actual knowledge of the incompleteness or the defect, under circumstances that
would indicate an intention to consider the performance as complete and renounce any claim arising from the
debt.
3. Acceptance of the incomplete or irregular performance
‣
NOTE — The word “accept,” as used in Art. 1235 of the Civil Code, means to take a satisfactory or sufficient, or
agree to an incomplete or irregular performance. Hence, the mere receipt of a partial payment is not equivalent to
the required acceptance of performance as would extinguish the whole obligation. (Constante Amor de Castro v.
CA 2002)
4. Absence of protest or objection by the creditor immediately OR after a reasonable amount of time
‣
The law does not require the protest or objection of the creditor to be made in a particular manner or at a particular
time. So long as the acts of the creditor, that the time of the incomplete or irregular payment by the debtor, or
within a reasonable time thereafter, show that the creditor is not satisfied with or agreeable to said payment or
performance, the obligation shall not be deemed fully complied extinguished. (Esguerra v. Villanueva 1967)
‣
PARAS — Qualified or conditional acceptance is NOT a waiver of defect in performance. Note that under this
Article, there is a possibility that a protest or objection can be made. Hence, there is what is called “qualified
acceptance of incomplete or irregular payment.” Be it remembered that a creditor who gives a receipt for a partial
payment does not necessarily acquiesce to such incomplete payment. His actuations may show his
dissatisfaction. (Esguerra v. Villanueva 1967) Thus, a creditor may conditionally accept performance by the debtor
after the time of maturity, but with the stipulation that the surety or the guarantor of the debtor should give
consent. This is to prevent the surety or guarantor from later on alleging that the creditor had given an extension of
time to the debtor. In this way, the surety or guarantor cannot claim that he has been released from the obligation.
(Joe’s Electrical Supply v. Alto Electronic Corp. 1958)
RULES AS TO PERSON OF THE PAYOR
Article 1236. 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. XXXXXX
Article 1239. 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)
Article 1427. When a minor between eighteen and twenty-one years of age, who has entered into a contract without the
consent of the parent or guardian, voluntarily pays a sum of money or delivers a fungible thing in fulfillment of the
obligation, there shall be no right to recover the same from the obligee who has spent or consumed it in good faith.
(1160A)
1.
ONLY THE DEBTOR HIMSELF MAY MAKE PAYMENT. THE CREDITOR IS NOT BOUND TO ACCEPT PAYMENT OR PERFORMANCE
FROM A THIRD PERSON.
‣
CODE COMMISSION — Under the old Civil Code, the creditor cannot refuse payment by a third person but the
Commission believes that the creditor should have a right to insist on the liability of the debtor. Moreover, the creditor
should not be compelled to accept payment from a third person whom he may dislike or distrust. The creditor may
not, for personal reasons, desire to have any business dealings with a third person; or the creditor may not have
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A. PAYMENT OR PERFORMANCE
confidence in the honesty of the third person who might deliver a defective thing or pay with a check which may be
honored
EXCEPT — In the following cases, payment by a third person is valid —
‣
2.
a.
If there is a stipulation to the contrary
b.
If the third person has an interest in the fulfilment of the obligation (such as a co-debtor, guarantor, or a joint
debtor)
c.
If the creditor voluntarily accepts payment from the third person
IN OBLIGATIONS TO GIVE, THE PAYOR MUST HAVE BOTH THE FOLLOWING REQUISITES FOR PAYMENT TO BE VALID —
a.
Free disposal of the thing due; and
b.
Capacity to alienate
‣
Persons who have no capacity to pay — minors, persons suffering from civil interdiction, insane
‣
EXCEPT — When an minor (without consent of his guardian) voluntarily pays a sum of money or delivers a fungible
thing in fulfillment of the obligation and the creditor has spent or consumed it in good faith. (Art. 1427)
PAYMENT BY A THIRD PERSON
Article 1236. XXXXX 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)
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. (1159a)
Article 1238. 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)
EFFECTS OF PAYMENT BY THIRD PERSONS
‣
RULE — PAYMENT BY A THIRD PERSON AND THE ACCEPTANCE OF THE CREDITOR PRODUCES THE EFFECT OF PAYMENT
‣
Only the consent of the creditor is required before a third person may validly make payment on behalf of a debtor. The
debtor’s consent is NOT required for it to be effectual to the creditor.
‣
However, the following consequences will arise with regard to the third person and the primary debtor —
1.
2.
THIRD PERSON PAYS WITH THE CONSENT OF THE DEBTOR —
a.
Full reimbursement — Third person may recover from the debtor what he has paid
b.
Subrogation — Third person can compel the creditor to subrogate him in his rights (such as those arising from a
mortgage, guaranty, or penalty)
THIRD PERSON PAYS WITHOUT THE CONSENT (KNOWLEDGE OR AGAINST THE WILL) OF THE DEBTOR —
Beneficial reimbursement — Third person may can recover only insofar as the payment has been beneficial to
the debtor
a.
‣
Examples —
‣
If X pays for Y’s transportation fare, without Y’s knowledge, or against Y’s will, and later discovers that Y was
entitled to half-fare, X can recover only said half-fare, even if he had paid the full-fare. This is clearly the fault
of X.
‣
A owes B P1,000,000. Later, A paid B P700,000, leaving a balance of P300,000. C, a classmate of A, and
intending to surprise A, paid B the sum of P1,000,000 thinking that A still owed B that amount. He did this
without knowledge of A. How much can C recover from A? C can recover only P300,000 from A, because it
is only up to this amount that A has been benefited. C can recover the remaining P700,000 from B who
should not have accepted complete payment for a debt already partially paid. If B incidentally is in bad faith,
B is responsible not only for the return of the P700,000 but also for the interest in lieu of damages.
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A. PAYMENT OR PERFORMANCE
‣
‣
D owes C. Without D’s knowledge, X, a friend, paid C part of D’s debt. So, D still owes the remainder. Does
X’s payment of part of the debt prevent the running of the prescriptive period regarding the remaining part?
No, because in no way may D be said to have acknowledged the existence of the debt.
NOTE — Other instances when recovery can be had from the creditor and not from the innocent debtor, since
the latter was NOT benefited by the payment by the third person —
i.
When the debt had prescribed
ii.
When the debt had been completely remitted
iii.
When the debt has already been paid
iv.
When legal compensation had already taken place.
b.
No subrogation — Third person cannot compel the creditor to subrogate him in his rights (such as those arising
from a mortgage, guaranty, or penalty)
‣
NOTE — The law makes no distinction as to the right of recovery in case payment by a stranger was made either
without the knowlege or against the consent of the debtor. In both cases, the paying stranger “can recover only
insofar as the payment has been beneficial to the debtor.
3.
THIRD PERSON PAYS WITHOUT THE INTENT TO BE REIMBURSED BY THE DEBTOR — THIRD PERSON CANNOT RECOVER
ANYTHING FROM THE DEBTOR IF HE ACCEPTS
‣
In this case, the payment 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, even if the debtor did not consent.
SUBROGATION
‣
Subrogation means the act of putting somebody into the shoes of the creditor, hence, enabling the former to exercise all
the rights and actions that could have been exercised by the latter. Subrogation transfers to the person subrogated the
credit with all the rights thereto appertaining, either against the debtor or against third persons, be they guarantors or
possessors of mortgages, subject to stipulation in a conventional subrogation. (Art. 1303)
‣
What is the difference between reimbursement and subrogation?
‣
In subrogation, recourse can be had to the mortgage or guaranty or pledge; in reimbursement, there is no such
recourse.
‣
In subrogation, the debt is extinguished in one sense, but a new creditor, with exactly the same rights as the old one,
appears on the scene. In reimbursement, the new creditor has different rights, so it is as if there has indeed been an
extinguishment of the obligation.
‣
In subrogation, there is something more than a personal action of recovery; in reimbursement, there is only a personal
action to recover the amount.
‣
In both reimbursement and subrogation, there can be recovery of what the stranger “has paid” (not necessarily the
amount of the credit)
RULES AS TO THE PERSON OF THE PAYEE
Article 1240. 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)
Article 1241. 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)
Article 1242. Payment made in good faith to any person in possession of the credit shall release the debtor. (1164)
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A. PAYMENT OR PERFORMANCE
Article 1626. The debtor who, before having knowledge of the assignment, pays his creditor shall be released from the
obligation. (1527)
Article 1243. Payment made to the creditor by the debtor after the latter has been judicially ordered to retain the debt
shall not be valid. (1165)
TO WHOM PAYMENT SHOULD BE MADE; PROPER PAYEES
1.
Creditor himself (person in whose favor the obligation has been constituted) — he may not necessarily be a
principal party to the contract but he has the power to demand fulfilment of the obligation.
2.
Creditor’s successors-in-interest — This refers to the creditors at the time of payment, NOT the original creditor at the
time the obligation was constituted. Such as the heirs when the creditor dies
3.
Any person authorized to receive it (creditor’s agent or legal representative) — The authorization may be by
agreement or by law
4.
Court — in cases where consignation is proper
TO WHOM PAYMENT SHOULD NOT BE MADE; IMPROPER PAYEES
‣
NOTE — Payment to the improper parties renders the payment “voidable” subject to ratification in the proper cases.
1.
THIRD PERSONS (ART. 1240)
‣
EXCEPT — Payment made to a third person shall also be valid in the following cases —
a. It has redounded to the benefit of the creditor (but only up to the extent of such benefit) (Art. 1241)
b. If after the payment, the third person acquires the creditor's rights (Art. 1241)
c. If the creditor ratifies the payment to the third person (Art. 1241)
d. If by the creditor's conduct, the debtor has been led to believe that the third person had authority to receive the
payment. (Art. 1241)
e. When without notice of the assignment of the credit, he pays to the original creditor (Art. 1626)
f.
When in good faith, he pays to one in possession of the credit (Art. 1242)
‣
2.
REQUISITES —
i.
Payment by payor must be made in good faith (this is presumed) (but payee may be in good or bad faith).
ii.
The payee must be in possession of the credit itself (not merely the document evidencing the credit).
‣
NOTE — When one possesses the credit, there is color of title to it.
‣
Examples —
‣
X, a presumed heir, entered upon an inheritance, collected the credits of the estate, but was later declared
by the court to be incapacitated to inherit. (Payment of the credit to X extinguished the obligation.)
‣
X found a negotiable promissory note payable to bearer. (If the maker thereof pays in good faith to X, the
debt is extinguished, even if X was not entitled to it.)
PERSONS INCAPACITATED TO ADMINISTER THEIR PROPERTIES (ART. 1241)
‣
Such as a minor, insane or a person suffering from civil interdiction.
‣
EXCEPT — Payment to such incapacitated person is considered valid if either —
3.
a.
He has kept the thing delivered
b.
Insofar, the payment has been beneficial to him
TO THE CREDITOR, IF THE DEBTOR HAS BEEN JUDICIALLY ORDERED TO RETAIN THE DEBT (ART. 1243)
‣
Payment in this case is VOID. (But authorities say it is merely voidable)
‣
The judicial order may have been prompted by an order of attachment, injunction or garnishment (garnishment takes
place when the debtor of a debtor is ordered not to pay the latter so that preference would be given to the latter’s
creditor).
‣
The payment to the creditor after the credit has been attached or garnished is void as to the party who obtained the
attachment or garnishment, to the extent of the amount of the judgment in his favor. The debtor can therefore be
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A. PAYMENT OR PERFORMANCE
made to pay again to the party who secured the attachment or garnishment, but he can recover to the same extent
what he has paid to his creditor.
‣
Example — A owes B P1,000,000. B, in turn, owes C P100,000. C brings an action against B, who, however, claims
insolvency but admits the credit which he has over A. Before A pays B, A is summoned into the proceedings, and
asked to retain the debt in the meantime. Thus, the debt is “garnished.” The reason is A should not pay B, and instead
he should pay C, should C really be adjudged the creditor of B. Any payment made by A to B in the meantime is
considered invalid under the law.
‣
Suppose in the preceding example, A and B, in the meantime, deposited the judicial order to the contrary and
supposing it should turn out that C is not really the creditor of B as a consequence of which the action and the
garnishment proceedings are dropped, should A again pay B, in view of the fact that the first payment, strictly
speaking, is not valid under the law?
‣
PARAS — It is submitted that A need not pay B a second time. True, at the beginning the payment was not
valid, but the defect here has been cured by the dismissal of the garnishment proceedings. It is as if there
never had been any judicial order asking the debtor A to retain the debt. Furthermore, why should B, the
creditor, be paid twice for the same debt? To hold that he should be is to allow a travesty of justice, an undue
enrichment of B.
‣
TOLENTINO — If the action of the attaching or garnishing creditor fails, then the garnishment his of no effect,
because not is only incidental or accessory to the main action. The payment which the garnishee has made to
his creditor must be considered valid and extinguishes the former’s liability to the latter.
RULES AS TO THE SUBJECT-MATTER OR OBJECT OF PAYMENT
Article 1244. 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.
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)
Article 1246. When the obligation consists in the delivery of an indeterminate or generic thing, whose quality and
circumstances have not been stated, the creditor cannot demand a thing of superior quality. Neither can the debtor
deliver a thing of inferior quality. The purpose of the obligation and other circumstances shall be taken into consideration.
(1167a)
Article 1248. Unless there is an express stipulation to that effect, the creditor cannot be compelled partially to receive the
prestations in which the obligation consists. Neither may the debtor be required to make partial payments.
However, when the debt is in part liquidated and 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)
1.
THE DEBTOR OF A THING CANNOT COMPEL THE CREDITOR TO RECEIVE A DIFFERENT ONE (ART. 1244)
‣
This is the case even if the substitute may be of the same value as, or more valuable than that which is due.
‣
Example — A is obliged to give B a Jaguar car. Not having any Jaguar car, A wants B to accept a Rolls Royce, a more
expensive car, but B refuses to accept. Is B justified legally in refusing to accept? Yes. Even if the Rolls Royce be more
valuable than the Jaguar, if B does not want the Rolls Royce, he cannot be compelled by A to accept it. The terms of
the contract form the law between the parties, and the subject matter cannot be changed without the consent of the
parties.
‣
EXCEPT — In the following cases —
a.
If the creditor consents (such as in the case of facultative obligations).
b.
In case of waiver by the creditor (expressly or impliedly)
c.
In case there is another agreement resulting in either —
i.
Objective novation (Art. 1291) — where debt consist of property which is substituted by another property of a
different kind. This is governed by law on obligations under the rules on novation.
ii.
Dation in payment or dacion en pago (Art. 1245) — where the debt consists of a sum of money and is
substituted by property. This is governed by the law on sales, since what occurred was essentially a sale.
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IV. MODES OF EXTINGUISHMENT OF OBLIGATIONS
A. PAYMENT OR PERFORMANCE
2.
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. (ART. 1244)
‣
EXCEPT — If the creditor consents
‣
Same rationale as the first rule.
3.
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. (ART. 1246)
‣
In determining the quality, the purpose of the obligation and other circumstances shall be taken into consideration.
‣
MANRESA — This Article gives a principle of equity in that it applies justice in a case where there is lack of precise
declaration in the obligation. It is always hard to find one thing that is exactly similar to another. But in this kind of
obligation, there is the question of relative appreciation in that one party appreciates the same thing as the other party
does. If there is disagreement between them, then the court steps in and declares whether the contract has been
complied with or not, according to the circumstances.
‣
PARAS — Note that the Article speaks of “quality and other circumstances”. When the “kind and quantity” (as
distinguished from quality) cannot be determined without need of a new agreement of the parties, the contract is VOID
(See Art. 1349 and Art. 1409, No. 6)
4.
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. (ART. 1248)
‣
Remember that under Art. 1233, 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. Hence, partial performance is
not allowed generally under Art. 1248.
‣
EXCEPT — Partial performance is allowed in the following cases —
a.
When there is an express stipulation (Art. 1248)
b.
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. (Art. 1248)
c.
When the different prestations are subject to different conditions or different terms
d.
When a joint debtor pays his share or the creditor demands the same
e.
When a solidary debtor pays only the part demandable because the rest are not yet demandable on account of
their being subject to different terms and conditions
f.
In case of compensation, when one debt is larger than the other, it follows that a balance is left (Art. 1290)
g.
When work is to be done by parts (Art. 1720)
RULES IN CASE OF MONETARY OBLIGATIONS
Article 1249. 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)
Article 1250. In case an extraordinary inflation or deflation of the currency stipulated should supervene, the value of the
currency at the time of the establishment of the obligation shall be the basis of payment, unless there is an agreement to
the contrary. (n)
1.
THE DELIVERY OF PROMISSORY NOTES PAYABLE TO ORDER, OR BILLS OF EXCHANGE OR OTHER MERCANTILE DOCUMENTS
SHALL PRODUCE THE EFFECT OF PAYMENT ONLY WHEN EITHER (ART. 1249) —
They have been cashed (this is when the check has been cleared)
a.
‣
b.
DEAN DEL CASTILLO — When the check clears, it retroacts to the time when it was issued and accepted, since
the creditor agreed to accept it.
When through the fault of the creditor they have been impaired
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‣
STA. MARIA — A check must be presented for payment within a reasonable time after its issue or the drawer will
be discharged from liability thereon to the extend the loss caused by the delay. Normally this is 6 months,
otherwise the check will become stale. If a creditor allows his checks to become stale, it does not mean that the
debtor who drew the check will necessarily be discharged from his debt, or that his obligation extinguished. Only
when the creditor does not present the check for payment and thereafter the bank upon which the check has been
drawn collapses or fails to the point that it cannot meet demands for payment, will the debtor be discharged.
‣
DEAN DEL CASTILLO — The fact that the check has become stale does NOT extinguish the obligation. The
debtor is still liable. The only consequence is that the debtor cannot be held liable for interests for delay of
payment, since the creditor agreed to accept the check and it was his fault that it became stale. The debtor
remains liable for the principal obligation. The case where the debt will be extinguished is when through the
creditor’s fault, the value of the check itself becomes impaired, such as when check was stolen, forged and
encashed by a third person because of the negligence of the creditor.
‣
RATIONALE — This is because negotiable instruments and other mercantile documents are NOT legal tender.
‣
In the meantime, the action derived from the original obligation shall be held in the abeyance.
2. THE PAYMENT OF DEBTS IN MONEY SHALL BE MADE IN THE CURRENCY STIPULATED. IF THE CURRENCY STIPULATED IS
IMPOSSIBLE TO DELIVER, OR IN THE ABSENCE OF SUCH STIPULATION, PAYMENT SHOULD BE MADE IN CURRENCY WHICH IS
LEGAL TENDER IN THE PHILIPPINES. (ART. 1249)
Obligations in foreign currency may be discharged in Philippine currency based on the prevailing rate at the time of
payment. (C.F. Sharp & Co. v. Northwest Airlines 2002)
‣
‣
‣
Thus, the creditor cannot be compelled to accept checks (including manager’s or cashier’s check) as payment
because they are NOT legal tender. (Roman Catholic Church of Malolos vs IAC)
‣
‣
3.
EXCEPT — 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 (Art. 1250)
But, the creditor may accept the checks, if he wants to. However, it is only upon the encashment of the checks will
it produce the effect of extinguishment.
NOTE —
‣
Art. 1249 was previously superseded RA 529. But the latter has been repealed. The repeal of RA 529 by RA 8183
has the effect of removing the prohibition on the stipulation of currency other than Philippine currency, such that
obligations or transactions may now be paid in the currency agreed upon by the parties.
‣
Under Sec. 231 of Presidential Decree 72 (Amending RA 265, the “Central Bank Act”), of Martial Law, and effective
Nov. 29, 1972, the 1 centavo coin and the 5- centavo coin are valid legal tender up to P20.00; the other coins (10,
25, 50, and P1) are valid legal tender up to P50; and all bills are valid legal tender for any amount.
IN CONTRACTUAL OBLIGATIONS, 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 (ART. 1250)
‣
EXCEPT — when there is an agreement to the contrary
‣
What does “extraordinary inflation or deflation” mean?
‣
‣
Inflation is a sharp sudden increase of money or credit or both without a corresponding increase in business
transaction. Since the value of money here tends to decrease, the natural result is an increase in the price of goods
and services. Deflation is the opposite of inflation.
‣
STA. MARIA — Inflation or deflation contemplated in Art. 1250 is a decrease or increase in the purchasing power
of the Philippine’s 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 the contemplation of the parties. It
must be official declared by the competent authorities.
‣
TOLENTINO — The code does not expressly define what is “extraordinary inflation or deflation. Considering the
intent of the law, however, extraordinary inflation or deflation may be said to be that which is unusual or beyond
the common fluctuations in the value of the current which the parties could not have reasonable foreseen or which
was manifestly beyond their contemplation at the time when the obligation was constituted.
‣
DEAN DEL CASTILLO — The court has said that the relation of the Philippine Peso to the US Dollar has no
relevance to the question of inflation or deflation, it is merely an incidental effect. Inflation or deflation relates to the
issue of the “purchasing power” of the Philippine Peso. It is ultimately a judicial determination which may be based
on BSP reports and reports by competent financial institutions.
Art. 1250 applies only to cases where a contract or agreement is involved. It does not apply where the
obligation to pay arises from law, independent of contracts.
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IV. MODES OF EXTINGUISHMENT OF OBLIGATIONS
A. PAYMENT OR PERFORMANCE
‣
SEE — Commissioner of Public Highways v. Hon. Burgos, et al. L-36706, Mar. 31, 1980
‣
Art. 1250 applies only to cases where a contract or agreement is involved. It does not apply where the
obligation to pay arises from law, independent of contracts. The taking of private property by the Government
in the exercise of its power of eminent domain does not give rise to a contractual obligation. Under the law, in
the absence of any agreement to the contrary, even assuming that there has been an extraordinary inflation
within the meaning of Art. 1250, the value of the peso at the time of the establishment of the obligation, which
in the instant case is when the property was taken possession of by the Government, must be considered for
the purpose of determining just compensation.
‣
Obviously, there can be no agreement to the contrary to speak of because the obligation of the Government
sought to be enforced in the present action does not originate from a contract, but from law which, generally, is
not subject to the will of the parties. And there being no other legal provision cited which would justify a
departure from the rule that just compensation is determined on the basis of the value of the property at the
time of the taking thereof in expropriation by the Government, the value of the property as it is when the
Government took possession of the land in question, not the increased value resulting from the passage of
time which invariably brings unearned increment to landed properties, represents the true value to be paid as
just compensation for the property taken.
PAYMENT OF LOANS OR MUTUUM
‣
This is taken in Credit Transaction but relate it to monetary obligations
Article 1953. A person who receives a loan of money or any other fungible thing acquires the ownership thereof, and is
bound to pay to the creditor an equal amount of the same kind and quality. (1753a)
Article 1954. A contract whereby one person transfers the ownership of non-fungible things to another with the obligation
on the part of the latter to give things of the same kind, quantity, and quality shall be considered a barter. (n)
Article 1955. The obligation of a person who borrows money shall be governed by the provisions of articles 1249 and
1250 of this Code.
If what was loaned is a fungible thing other than money, the debtor owes another thing of the same kind, quantity and
quality, even if it should change in value. In case it is impossible to deliver the same kind, its value at the time of the
perfection of the loan shall be paid. (1754a)
Article 1956. No interest shall be due unless it has been expressly stipulated in writing. (1755a)
Article 1957. Contracts and stipulations, under any cloak or device whatever, intended to circumvent the laws against
usury shall
be void. The borrower may recover in accordance with the laws on usury. (n)
Article 1958. In the determination of the interest, if it is payable in kind, its value shall be appraised at the current price of
the products or goods at the time and place of payment. (n)
Article 1959. Without prejudice to the provisions of article 2212, interest due and unpaid shall not earn interest. However,
the contracting parties may by stipulation capitalize the interest due and unpaid, which as added principal, shall earn new
interest. (n)
Article 1960. If the borrower pays interest when there has been no stipulation therefor, the provisions of this Code
concerning solutio indebiti, or natural obligations, shall be applied, as the case may be. (n)
Article 1961. Usurious contracts shall be governed by the Usury Law and other special laws, so far as they are not
inconsistent with this Code. (n)
Article 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for
damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the absence
of stipulation, the legal interest, which is six per cent per annum. (1108)
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Article 2212. Interest due shall earn legal interest from the time it is judicially demanded, although the obligation may be
silent upon this point. (1109a)
Article 2213. Interest cannot be recovered upon unliquidated claims or damages, except when the demand can be
established with reasonable certainty.
KINDS OF INTERESTS
1.
Monetary Interest — this is payment for the use of the money.
2.
Compensatory Interest — This is interest in the form of actual damages. It’s governed by Art. 2209-2213
RULES ON THE COMPUTATION AND PAYMENT OF INTEREST FOR LOANS OR FORBEARANCE OF MONEY
‣
NOTE — See Eastern Shipping Case and Nacar Case
Generally, no interest (monetary) is due unless it is expressly stipulated in writing (Art. 1956)
1.
‣
This also applies as to interest which accrues on interest (compounding). There must a written stipulation to such
effect
2.
If interest is stipulated but the amount is not, legal interest will apply
3.
Upon default or delay, compensatory interests will start to accrue on the principal, this is either based on the
stipulated rate or the legal rate (if none stipulated)
‣
This is upon extra-judicial or judicial demand or when such demand is not required under Art. 1169
‣
NOTE — If the basis of default is that extra-judicial demand may be dispensed with because the obligations expressly
declares it is not necessary, the obligation must not merely state the maturity date, but must state the the debtor “will
be in default” at a particular date (Rivera Case)
‣
BUT — No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand
can be established with reasonable certainty. In this case, the interest shall begin to run only from the date the
judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably
ascertained).
4.
Upon judicial demand, compensatory interests will still run (still based on the stipulated rate, or if none, the legal
rate), furthermore, interest upon interest will now accrue (compounding interest). The rate of interest on interest
is the legal rate
‣
Basis is Article 2212 — “Interest due shall earn legal interest from the time it is judicially demanded, although the
obligation may be silent upon this point.”
‣
Note the wording of Art. 2212, “interest due”, it is only the interest due at the time of the judicial demand (filing of the
complaint) that will earn interest.
5.
Upon finality of judgment (final and executory), the judgment award is treated as a forbearance of credit, thus, it
will earn interest at the legal rate until satisfaction
6.
The legal rate of interest is 12% (per annum) if prior to July 1, 2013, after such date, the rate is 6% (per annum)
a.
Before July 1, 2013 — Rate is 12% per annum (BSP Circular 416)
b.
On or after July 1, 2013 — Rate is 6% (BSP Circular 779)
‣
What if judgment has already become final before July 1, 2013 (thus the court imposed 12% interest at this
point), but it is satisfied only after July 1, 2013, does the interval of time between finality and satisfaction
subject the running of the interest to “biforcation”, do you “biforcate” the period? (meaning from finality until
7/1/13 you subject it to 12%, but after only 6%?)
‣
‣
NO, remember the doctrine of immutability of judgments, once the court renders judgment providing for 12%
interest, this cannot be modified by law or BSP circulars
When then does “biforcation” apply?
‣
When there is no final decision yet, such as when the July 1, 2013 hits the interval in between judicial demand and
finality, in such case, you need to “biforcate” the period, 12% is the rate prior to 7/1/13, only 6% on and after.
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IMPORTANT JURISPRUDENCE ON THE COMPUTATION AND PAYMENT OF INTERESTS
‣
IV. MODES OF EXTINGUISHMENT OF OBLIGATIONS
A. PAYMENT OR PERFORMANCE
EASTERN SHIPPING V. COURT OF APPEALS, 234 SCRA 78 (1994)
‣
With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of
interest, as well as the accrual thereof, is imposed, as follows —
1.
When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing.
‣
‣
Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded.
In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e.,
from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount
of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum.
‣
EXCEPT —No interest, however, shall be adjudged on unliquidated claims or damages except when or until the
demand can be established with reasonable certainty.
‣
Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the
time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so
reasonably established at the time the demand is made, the interest shall begin to run only from the date the
judgment of the court is made (at which time the quantification of damages may be deemed to have been
reasonably ascertained).
‣
The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal
interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such
finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of
credit.
‣
NACAR V. GALLERY FRAMES, G.R. NO. 189871, AUGUST 13, 2013
‣
This case reiterated the rules in Eastern Shipping Case regarding computing legal interest, but changed the rate form
12% to 6%
‣
In the absence of an express stipulation as to the rate of interest that would govern the parties, the rate of legal
interest for loans or forbearance of any money, goods or credits and the rate allowed in judgments shall no longer be
twelve percent (12%) per annum - as reflected in the case of Eastern Shipping Lines and Subsection X305.1 of the
Manual of Regulations for Banks and Sections 4305Q.1, 4305S.3 and 4303P.1 of the Manual of Regulations for NonBank Financial Institutions, before its amendment by BSP-MB Circular No. 799 - but will now be six percent (6%) per
annum effective July 1, 2013.
‣
It should be noted, nonetheless, that the new rate could only be applied prospectively and not retroactively.
Consequently, the twelve percent (12%) per annum legal interest shall apply only until June 30, 2013. Come July 1,
2013 the new rate of six percent (6%) per annum shall be the prevailing rate of interest when applicable.
COSTS AND EXPENSES OF PAYMENT
Article 1247. 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)
1.
The extrajudicial expenses required by the payment shall be for the account of the debtor.
‣
RATIONALE — It is the debtor who benefits primarily, since his obligation is thus extinguished.
‣
EXCEPT — When it is otherwise stipulated
2.
With regard to judicial costs, the Rules of Court shall govern
‣
Generally, costs shall be awarded to the winning party. But this is subject to the discretion of the court. “Unless
otherwise provided in these rules, costs shall be allowed to the prevailing party as a matter of course, but the court
shall have power, for special reasons, to adjudge that either party shall pay the costs of an action, or that the same be
divided, as may be equitable.” (Sec. 1, Rule 142, Revised Rules of Court).
‣
BUT — No costs shall be allowed against the Republic of the Philippines, unless otherwise provided by law. (Sec. 1,
last sentence, Rule 142, Revised Rules of Court).
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IV. MODES OF EXTINGUISHMENT OF OBLIGATIONS
A. PAYMENT OR PERFORMANCE
PLACE OF PAYMENT
Article 1251. Payment shall be made in the place designated in the obligation.
There being no express stipulation and if the undertaking is to deliver a 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)
‣
RULE — PAYMENT SHALL BE MADE IN THE PLACE DESIGNATED IN THE OBLIGATION (EXPRESSLY STIPULATED). IF THERE IS NO
STIPULATION, IT SHOULD BE MADE IN EITHER —
a.
Wherever the thing might be at the moment the obligation was constituted — in obligations to give a
determinate thing
‣
b.
BUT — TOLENTINO — Even if the thing is determinate but its existence at the place where it was when the
obligation was constituted was temporary (such as a vehicle in transit), the performance must be made at the
domicile of the debtor.
The domicile of the debtor — in obligations to give a generic thing
‣
The creditor would have to go to the debtor’s house to collect payment.
‣
NOTE — If the debtor changes his domicile in bad faith or after he has incurred in delay, the additional expenses
shall be borne by him.
SPECIAL FORMS OF PAYMENT
1.
Dation in Payment (Dacion en Pago) (Art. 1245)
2.
Application of Payments (Art. 1252)
3.
Payment by Cession (Art. 1255)
4.
Tender of Payment and Consignation (Art. 1256-1261)
REQUIREMENT OF CONSENT OF THE CREDITOR
1.
Consent of the creditor is required — dation in payment and payment by cession
2.
Consent of the creditor is NOT required — application of payments and consignation
DATION IN PAYMENT (DACION EN PAGO)
Article 1245. 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)
Article 2088. The creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of them. Any
stipulation to the contrary is null and void. (1859a)
DATION IN PAYMENT (DACION EN PAGO)
‣
RULE — DATION IN PAYMENT IS A VALID FORM OF PAYMENT AND IS GOVERNED BY THE LAW ON SALES
‣
Dation in payment is that mode of extinguishing an obligation whereby the debtor alienates in favor of the creditor,
property for the satisfaction of monetary debt.
‣
Dation in payment extinguishes the obligation to the extent of the value of the thing delivered, either as agreed upon
by the parties or as may be proved, unless the parties by agreement— express or implied, or by their silence—
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consider the thing as equivalent to the obligation, in which case the obligation is totally extinguished. (Tan Shuy v.
Maulawin, 2012) The contractual intention determines whether the property subject of the dation will be considered as
the full equivalent of the debt and will therefore serve as full satisfaction for the debt. (Luzon Dev Bank v. Enriquez,
2011)
‣
‣
RATIONALE — This is so because dation in payment — the transfer or conveyance of ownership of a thing as an
accepted equivalent of performance — really partakes in one sense of the nature of sale, i.e., the creditor is really
buying some property of the debtor, payment for which is to be charged against the debtor’s debt.
‣
NOTE — If the debt consists of money it is considered dation in payment and thus governed by the law on sales,
since it is akin to a sale. However, when the debt consists of things other than a sum of money, then it will be
governed by the rules on novation.
REQUISITES —
1. There must be a performance of a prestation in lieu of payment of the debt (animo solvendi) which may consist in the
delivery of thing
2. There must be transfer of ownership of the thing
3. There must be some difference between the prestation due and that which is given is substitution
4. There must be an agreement between the creditor and the debtor that the obligation is immediatetely extinguished
by reason of the performance of a prestation different from that due
‣
‣
Conditions under which a Dation in Payment would be valid —
1.
If the creditor consents, for a sale presupposes the consent of both parties.
2.
If the dation in payment will not prejudice the other creditors, for this might lead the debtor to connive with one
creditor in defrauding the other creditors.
3.
If the debtor is not judicially declared insolvent, for here his property is supposed to be administered by the assignee.
Example —
‣
To pay my debt of P1,000,000 in favor of Bella, I gave her with her consent a diamond ring instead worth P1,000,000.
‣
To pay off his debt, an heir assigned his inheritance in an estate to his creditor.
SALE VS DATION IN PAYMENT
SALE
DATION IN PAYMENT
There is no pre-existing credit
There is a pre-existing credit
This gives rise to obligations
This extinguishes obligations
The cause or consideration here is the price (from the
viewpoint of the seller); or the obtaining of the object
(from the viewpoint of the buyer)
The cause or consideration here, from the viewpoint of
the debtor in dation in payment is the extinguishment of
his debt; from the viewpoint of the creditor, it its he
acquisition of the object offered in credit
There is greater freedom in the determination of the price
There is less freedom in determining the price
The giving of the price may generally end the obligation of
the buyer
The giving of the object in lieu of the credit generally
extinguishes completely the credit, unless the agreement
provides otherwise.
PACTUM COMMISSORIUM
‣
RULE — THE CREDITOR CANNOT APPROPRIATE THE THINGS GIVEN BY WAY OF PLEDGE OR MORTGAGE, OR DISPOSE OF THEM.
ANY STIPULATION TO THE CONTRARY IS NULL AND VOID. (ART. 2088)
‣
In Pactum Commissorium, the parties agree generally in one single contract, that, in the event that the debtor fails to
pay the debt, the mortgaged or pledged property of the debtor shall automatically be appropriated or owned by the
creditor
‣
RATIONALE — This is because of the rule that any property made as a security for a load must always be foreclosed
or subjected to a sale by public bidding in case it shall be used to satisfy a debt wholly or partially of the debtor
‣
ELEMENTS —
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IV. MODES OF EXTINGUISHMENT OF OBLIGATIONS
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1.
There must be a creditor-debtor relationship between the parties
2.
The property of the debtor was used as a security for the loan, either as a mortgage or a pledge
3.
There was automatic appropriation of the property upon failure of the debtor to pay the obligation as provided in
their agreement
APPLICATION OF PAYMENTS — PAYMENT OF SEVERAL DEBTS OF THE SAME KIND TO A SINGLE
CREDITOR
Article 1252. 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)
Article 1253. If the debt produces interest, payment of the principal shall not be deemed to have been made until the
interests have been covered. (1173)
Article 1254. When the payment cannot be applied in accordance with the preceding rules, or if application can not 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)
DEFINITION OF APPLICATION OF PAYMENTS
‣
PARAS — It is the designation of the debt to which should be applied a payment made by a debtor who owes several
debts in favor of the same creditor. Stated differently, it is the phrase applied to show which debt, out of two or more
debts owing the same creditor, is being paid.
‣
It is important to know rules on application of payments because otherwise, we may not know which one, of two or
more debts, has been extinguished.
‣
Example — A owes B P1 million payable Apr. 1. A also owes B P1 million payable Apr. 5. On Apr. 10, A pays B P1
million. Here, we will not know which debt has been extinguished unless we know the rules on the application of
payments.
REQUISITES FOR APPLICATION OF PAYMENT
1.
There must be two or more debts (severalty of debt)
2.
The debts must be of the same kind
3.
The debts are owed by the same debtor in favor of the same creditor (thus, there must be only one debtor and only one
creditor)
4.
All the debts must be due
‣
5.
EXCEPT —
a.
If the parties so stipulate
b.
When the application of payment is made by the party for whose benefit the term has been constituted.
The payment is not enough to extinguish all the debts
PREFERENTIAL RIGHT OF DEBTOR
‣
RULE — It is the debtor who is given by the law the right to select which of his debts he is paying
‣
This is subject to the following restrictions —
1.
If there was a valid prior but contrary agreement, the debtor cannot choose
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IV. MODES OF EXTINGUISHMENT OF OBLIGATIONS
A. PAYMENT OR PERFORMANCE
The debtor cannot choose to pay part of the principal ahead of the interest (Art. 1253; Sunico vs Ramirez), unless
the creditor consents.
2.
‣
‣
‣
If the debt produces interest, payment of the principal shall not be deemed to have been made until the
interests have been covered.
‣
The debtor cannot insist that his payment be credited to the principal instead of the interest. However, if the
creditor agrees, this is all right.
‣
Under the law, payment that is made to a creditor must be credited to interest (that is already due) ahead of the
principal. The interest can refer not only to interest on amounts already due but also to interest on future
installments, if said installments are eventually not paid on time. (Rosete, et al. v. Perober Dev. Corp. 1981)
‣
Effect if Payment Is Credited to the Principal — Reduction of the principal would, of course, result in the
decrease of the total interest collectible.
NOTE — If the debtor makes a proper application and the creditor refuses, the creditor will be in mora accipiendi.
What if it is the creditor who makes the application without the knowledge and consent of the debtor?
‣
The application is not valid.
HOW APPLICATION OF PAYMENT IS MADE
1.
The debtor makes the designation (Art. 1252, par. 1)
2.
If not, the creditor makes it, by so stating in the receipt that he issues, “unless there is cause for invalidating the
contract” (Art. 1251, par. 2)
‣
NOTE — If the obligation itself is void, the application and the payment are also void. But if the debtor’s consent in
accepting the receipt was vitiated — as by fraud, error, or violence — the application is not valid, it is voidable.
If neither the debtor nor the creditor has made the application, or if the application is not valid, then application is
made by operation of law (Arts. 1253 and 1254)
3.
‣
Rules in Case No Application of Payment Has Been Voluntarily Made —
Apply it to the most onerous (in case the due and demandable debts are of different natures).
a.
‣
b.
‣
‣
Sometimes it is easy, and sometimes it is hard to determine which obligation is the most onerous. The reason
is that the burden may be relative. It follows, therefore, that no hard and fast rules can be put up, because what
may be true in one case may not be true in another case.
If the debts are of the same nature and burden, application shall be made to all proportionately.
Example —
‣
If one debt is for P1 million, and another is for P2 million and only P1 million is paid, how will the payment be applied?
If the debtor makes the application, the payment should be credited to the first debt. The debtor cannot insist that the
creditor accept it for the second debt for insofar as the second debt is concerned, it is only a partial payment. And
under the law, a creditor cannot generally be compelled to receive partial payment. If no application has been made,
the law steps in, and application will be made, not equally but proportionately. (Art. 1248)
‣
If one debt is P1.2 million and the other is P600,000, and the debtor without making any application of payment gives
P300,000, how should said payment be applied, presuming that both are of the same nature and burden? The
payment will be applied proportionately. Hence, P200,000 will be deducted from the first, and P100,000 will be
deducted from the second. The first debt will now be P1 million and the second will be P500,000. The ratio here of the
first debt to the second debt is thus preserved, namely, 2 is to 1.
Examples of How a Creditor Makes the Application —
1.
When the debtor without protest accepts the receipt in which the creditor specified expressly and unmistakably the
obligation to which such payment was to be applied, said debtor renounced the right of choice. (Liggett & Myers
Tobacco Corp. v. Assn. Insurance, 1960)
2.
When monthly statements were made by the bank specifying the application and the debtor signed said statements
approving the status of her account as thus sent to her monthly by the bank. (Garcia v. Enriquez)
REVOCATION OF THE APPLICATION
‣
Once an application of payments is made, may it be revoked?
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A. PAYMENT OR PERFORMANCE
NO (Bachrach Garage & Taxicab Co. vs Golingco), unless both parties agree. Even if both parties agree, however, still
the revocation or change in the application (by crediting the payment to another debt) will not be allowed if third
persons would be prejudiced.
‣
WHEN APPLICATION MUST BE MADE
‣
Application must be made at the time when payment by the debtor is made, not afterwards. (Powell v. Nat. Bank)
PAYMENT BY CESSION
Article 1255. 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)
DEFINITION OF PAYMENT BY CESSION
‣
It is the process by which a debtor transfers all the properties not subject to execution in favor of his creditors so that the
latter may sell them, and thus apply the proceeds to their credits.
‣
It is also known as “Voluntary Assignment in Favor of Creditors”.
‣
Kinds or Classes of Assignment —
1.
Legal (This is governed by the Insolvency Law, the majority of creditors must agree)
2.
Voluntary (This is what is referred to in Art. 1255.) (All the creditors must agree.)
REQUISITES
1.
There must be more than one debt
2.
There must be more than one creditor
3.
The debtor is completely or partially insolvent
4.
The abandonment of all debtor’s property not exempt from execution (unless exemption is validly waived by debtor) in
favor of creditors
5.
Acceptance or consent on the part of the creditors (for it cannot be imposed on an unwilling creditor)
EFFECTS OF CESSION
The creditors do not become the owners; they are merely assignees with authority to sell. (If ownership is
transferred, this becomes a dation in solutum.)
1.
‣
Thus, cession is really in the nature of “agency”.
The debtor is released up to the amount of the net proceeds of the sale, unless there is a stipulation to the
contrary. (Art. 1255, 2nd sentence).
2.
‣
3.
‣
The balance remains collectible.
Creditors will collect credits in the order of preference agreed upon, or in default of agreement, in the order
ordinarily established by law.
PARAS — Some properties should not be assigned, such as —
1.
The family home, whether judicially or extrajudicially created, save in certain exceptions
2.
The amount needed by the debtor to support himself and those he is required by law to support (But if such amount
is not reserved, the cession is not void but merely reducible to the extent that the support is impaired. The party
prejudiced can ask the court for the reduction)
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IV. MODES OF EXTINGUISHMENT OF OBLIGATIONS
A. PAYMENT OR PERFORMANCE
DATION IN PAYMENT VS PAYMENT BY CESSION
DATION IN PAYMENT
CESSION
Does not affect all the properties of the debtor
In in general, affects all the properties of the debtor
Does not require plurality of creditors
Requires more than one creditor
Only the specific or concerned creditor’s consent is
required
Requires the consent of all the creditors
May take place during the solvency of the debtor
Requires full or partial insolvency
Transfers ownership upon delivery
Does not transfer ownership
This is really an act of novation
Not an act of novation
Akin to a sale
Akin to agency where the creditors are authorized to sell
the properties ceded.
TENDER OF PAYMENT AND CONSIGNATION
Article 1256. 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:
(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)
Article 1257. In order that the consignation of the thing due may release the obligor, it must first be announced to the
persons interested in the fulfillment of the obligation.
The consignation shall be ineffectual if it is not made strictly in consonance with the provisions which regulate payment.
(1177)
Article 1258. 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)
Article 1259. The expenses of consignation, when properly made, shall be charged against the creditor. (1179)
Article 1260. Once the consignation has been duly made, the debtor may ask the judge to order the cancellation of the
obligation.
Before the creditor has accepted the consignation, or before a judicial declaration that the consignation has been
properly made, the debtor may withdraw the thing or the sum deposited, allowing the obligation to remain in force. (1180)
Article 1261. 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)
TENDER OF PAYMENT
‣
It is the act of offering the creditor what is due him together with a demand that the creditor accept the same.
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A. PAYMENT OR PERFORMANCE
‣
The objective of notice prior to consignation is to give the creditor a chance to reconsider his refusal to accept payment.
In this way, consignation and litigation may be avoided. On the other hand, the purpose of notice after consignation is to
enable the creditor to withdraw the money or goods deposited with the judicial authorities. (Soco v. Judge Militante 1983)
CONSIGNATION
‣
It is the act of depositing the thing due with the court or judicial authorities whenever the creditor cannot accept or
refuses to accept payment. It generally requires a prior tender of payment. (Limkako v. Teodoro)
‣
Distinguish tender of payment and consignation — The clear meaning of these words show their difference. Tender is
the antecedent of consignation, i.e., an act preparatory to the consignation, which is the principal, and from which are
derived the immediate consequences which the debtor desires or seeks to obtain. Tender of payment may be
extrajudicial, while consignation, is necessarily judicial, and the priority of the first is the attempt to make a private
settlement before proceeding to the solemnities of consignation
RULES ON PAYMENT MUST BE COMPLIED WITH
‣
Tender of payment and consignation, to extinguish the debtor’s obligation must comply with the requisites provided in
Arts. 1256-1258 of the Civil Code. Thus, if the debtor made a tender of payment by telegraphic transfer sent to the clerk
of court, and the same was not received by the creditor, but instead returned to the debtor, it cannot be given effect.
(Alemars v. Cagayan Valley College)
EFFECT OF TENDER WITHOUT CONSIGNATION
‣
RULE — Tender of payment without consignation does not extinguish the debt; consignation must follow
‣
‣
Examples —
‣
A owes B a sum of money. A gives B the money but B refuses without just reason to accept it. What should A now
do? A must deposit the money in court, since his tender of payment was refused without just reason. His deposit in
court is called consignation.
‣
When a debtor owes money lent him with interest, is it sufficient to just tender the principal without the interest?
No. The tender of the principal must be accompanied with the tender of the interest which has accrued. Otherwise,
said tender will not be valid.
EXCEPT — Consignation is not required in certain instances —
‣
In some cases, however, consignation is not required, mere tender being needed. This is so where there really
exists no debt, no obligation, and where therefore payment is purely voluntary, that is, the person offering, at his
option, could have refused to offer. This may happen in the case of —
1.
Options
2.
Redemption
‣
Where only a right, not a duty, exists. Thus, if one is granted an option to buy he may or he may not buy, at his
choice; if one is granted the right to redeem, he may or he may not redeem also at his own choice.
WHEN CREDITOR IS JUSTIFIED IN REFUSING TENDER OF PAYMENT
‣
The creditor is justified in refusing to accept the tender of payment if the tender of payment is not valid. To be valid, the
tender of payment must have the following requisites —
1.
It must be made in legal tender (lawful currency).
2.
It must include whatever interest is due.
3.
Generally, it must be unconditional.
4.
The obligation must already be due.
VALIDITY OF CONSIGNATION; REQUISITES FOR CONSIGNATION
1. Existence of a valid debt
2. Valid prior tender, unless tender is excused
3. Prior notice of consignation (before deposit)
4. Actual consignation (deposit)
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IV. MODES OF EXTINGUISHMENT OF OBLIGATIONS
A. PAYMENT OR PERFORMANCE
5. Subsequent notice of consignation
VALIDITY OF CONSIGNATION; REQUISITES FOR CONSIGNATION (EXPOUNDED)
1. EXISTENCE OF A VALID DEBT
‣
In the following cases, there is NO valid debt —
a. In the case of an option, there is a privilege, not an obligation or a debt.
‣
Example — A was given an option to cancel a contract provided he paid P600,000. Mere tender is sufficient to
preserve the right to cancel. The same is true in the case of an option to buy given to a lessee.
b. In the case of legal redemption, there is as yet no debt (for this again is a right, not a debt or duty).
c. In the case of conventional redemption (this again is a right, not an obligation).
d. If the alleged debt has prescribed (for here, there is no more debt).
e. If the debt is founded on an illegal cause or consideration, or if for any other reason, null and void.
f.
If the obligation of the debtor is conditional, and the condition has not been fulfilled.
2. VALID PRIOR TENDER, UNLESS TENDER IS EXCUSED
‣
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. Generally, there must be prior tender of
payment prior to consignation
‣
EXCEPT — Consignation alone shall produce the same effect in the following cases —
a. When the creditor is absent or unknown, or does not appear at the place of payment
b. When he is incapacitated to receive the payment at the time it is due (But this does not apply if the creditor has a
legal representative and this fact is known to the debtor.
c. When, without just cause, he refuses to give a receipt
d. When two or more persons claim the same right to collect
e. When the title (written document) of the obligation has been lost
3. PRIOR NOTICE OF CONSIGNATION (BEFORE DEPOSIT)
‣
The law says the consignation “must first be announced to the persons interested in the fulfillment of the obligation”.
‣
Without such notice, the consignation as a payment is VOID.
‣
RATIONALE — The reason is because, had notice been made, the creditor would have had opportunity to withdraw
the money consigned and thus make use of it. To enable the creditor and other parties interested (such as the
mortgagees, pledgees, guarantors, solidary co-creditors, and solidary co-debtors) to reconsider the previous refusal,
and thus, avoid litigation by the simple expedient of accepting payment.
‣
EXCEPT — when any attempt to give such notice would be useless, as when the creditor was traveling from place to
place and could not be located.
‣
The notice of consignation may be made by merely giving notice of the debtor’s intention to take the case to court, in
the event that tender is rejected. This is to say that the first notice of consignation may be accomplished
simultaneously with the tender of payment.
4. ACTUAL CONSIGNATION (DEPOSIT)
‣
It is understood that before a deposit is made, a complaint against the creditor to compel him to accept has to be first
filed in court.
‣
The consignation must be made —
1. By depositing the very object that is due (and not another)
2. With the proper judicial authority which, in certain case, may include the sheriff
3. Accompanied by proof that tender had been duly made, unless tender is excused and that first notice of the
consignation had already been sent
5. SUBSEQUENT NOTICE OF CONSIGNATION
‣
This is mandatory and, therefore, without such subsequent notice, the consignation is VOID
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IV. MODES OF EXTINGUISHMENT OF OBLIGATIONS
B. LOSS OF THE THING DUE
EFFECTS IF CONSIGNATION HAS BEEN DULY MADE
1. The debtor may ask the judge to order the cancellation of the obligation.
2. The running of interest is suspended.
3. However, it should be observed that before the creditor ACCEPTS, or before the judge declares that consignation has
been PROPERLY MADE, the obligation REMAINS.
‣
NOTE — If the consignation is judicially approved OR if all the essential requisites are present OR if the creditor has
signified his acceptance, the creditor bears the loss; otherwise, it is the debtor who bears the burden.
EFFECTS OF IMPROPER CONSIGNATION
1. If the consignation was improperly made, the obligation remains, because the consignation is NOT EFFECTIVE as a
payment.
2. If at the time of consignation the debt was already due, and the requisites for consignation are absent, the debtor is in
DEFAULT.
WITHDRAWAL OF THE THING CONSIGNED BY THE DEBTOR
1. As a matter of right —
a. Before the creditor has accepted the consignation
b. Before there is a judicial declaration that the consignation has been properly made. (Here, the obligation and the
accessory stipulations remain.)
2. As a matter of privilege — When after consignation had been properly made (the creditor having accepted or the court
having declared it proper), the creditor authorizes the debtor to withdraw the thing.
‣
EFFECT —
a. The obligation remains.
b. The creditor loses any preference (priority) over the thing.
c. The solidary co-debtors, guarantors, and sureties are released (unless they consented).
‣
‣
BUT — the solidary co-debtors are released only from the solidarity, not from their own individual shares, since
unlike guarantors or sureties, the solidary co-debtors are in themselves principal debtors.
How can the creditor prevent the debtor from exercising the RIGHT to withdraw the thing consigned?
‣
By immediately accepting the consignation with or without reservations. If he accepts without reserving his right to
further claims such as damages, this would be a case of WAIVER.
B. LOSS OF THE THING DUE
NATURE AND CONCEPT OF “LOSS”
Article 1189. XXXXX
(2) XXXXXX 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;
‣
NOTE — Loss includes “impossibility of performance” in obligations to do.
‣
When is there a “loss”?
1. When the object perishes (physically, it is destroyed)
2. When it goes out of commerce
3. When it disappears in such a way that —
a. Its existence is unknown
b. It cannot be recovered.
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B. LOSS OF THE THING DUE
‣
When is there a “loss" or "impossibility of performance”?
1.
Physical impossibility —
a.
Total loss —
i.
When the object perishes (physically, it is destroyed)
ii.
When the thing disappears in such a way that —
(1) Its existence is unknown
(2) It cannot be recovered
iii. When performance has become physically impossible (Art. 1266)
b.
2.
Partial loss (deemed total loss by the courts) (Art. 1264)
Legal impossibility
a.
When it goes out of commerce
b.
When performance is prohibited by law (Art. 1266)
3. Moral impossibility
a.
Rebus sic stantibus (Art. 1267)
LOSS IN OBLIGATIONS TO GIVE
Article 1262. An obligation which consists in the delivery of a determinate thing shall be extinguished if it should be lost
or destroyed without the fault of the debtor, and before he has incurred in delay.
When by law or stipulation, the obligor is liable even for fortuitous events, the loss of the thing does not extinguish the
obligation, and he shall be responsible for damages. The same rule applies when the nature of the obligation requires the
assumption of risk. (1182a)
Article 1263. In an obligation to deliver a generic thing, the loss or destruction of anything of the same kind does not
extinguish the obligation. (n)
Article 1460. A thing is determinate when it is particularly designated or physical segregated from all others of the same
class. The requisite that a thing be determinate is satisfied if at the time the contract is entered into, the thing is capable
of being made determinate without the necessity of a new or further agreement between the parties. (n)
1.
OBLIGATIONS TO GIVE A SPECIFIC THING — THE OBLIGATION IS EXTINGUISHED
‣
EXCEPT — In these cases, the obligation is not extinguished but converted into a monetary obligation (payment of
damages) —
a.
If the debtor is at fault
b.
When the debtor is made liable for a fortuitous event because of—
i.
A provision of law — such as in the following cases —
(1) When the debtor is in default (mora) (Art. 1165)
(2) When the debtor has promised to deliver the same thing to two or more persons (parties) who do not have
the same interest (Art. 1165)
(3) When the obligation arises from a crime. (Art. 1268)
(4) When a borrower (of an object) has lent the thing to another who is not a member of his own household
(Art. 1942[4])
(5) When the thing loaned has been delivered with appraisal of the value, unless there is a stipulation
exempting the borrower from responsibility in case of a fortuitous event (Art. 1942[3])
(6) When the payee in solutio indebiti is in bad faith. (Art. 2159)
ii.
A contractual stipulation
iii. The nature of the obligation requires the assumption of risk on the part of the debtor
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IV. MODES OF EXTINGUISHMENT OF OBLIGATIONS
B. LOSS OF THE THING DUE
2.
OBLIGATIONS TO GIVE A GENERIC THING — THE OBLIGATION IS NOT EXTINGUISHED
‣
The obligation continues to exist because a generic thing does not really perish (genus nunquam perit — “genus never
perishes”).
‣
EXCEPT —
a.
If the generic thing is delimited (like “50 kilos of sugar from my 1999 harvest” when such harvest is completely
destroyed) (“delimited generic thing”).
b.
If the generic thing has already been segregated or set aside, in which case, it has become specific.
PARTIAL LOSS
Article 1264. 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)
‣
PARAS — In certain cases, partial loss may indeed be equivalent to a complete loss, such as the loss of a specific
fountain pen minus the cover. In other cases, the loss may be insignificant. Hence, judicial determination of the effect is
needed.
‣
NOTE — This also applies to partial impossibility of performance
PRESUMPTION OF FAULT
Article 1265. Whenever the thing is lost in the possession of the debtor, it shall be presumed that the loss was due to his
fault, unless there is proof to the contrary, and without prejudice to the provisions of article 1165. This presumption does
not apply in case of earthquake, flood, storm, or other natural calamity. (1183a)
IMPOSSIBILITY OF PERFORMANCE IN OBLIGATIONS TO DO
Article 1266. The debtor in obligations to do shall also be released when the prestation becomes legally or physically
impossible without the fault of the obligor. (1184a)
‣
PARAS — The impossibility must be AFTER the constitution of the obligation. If it was before, there is nothing to
extinguish.(Note the word “becomes”). Hence, if the performance was impossible right at the start, the obligation must be
regarded as VOID.
‣
‣
Examples —
‣
Legal impossibility — The furnishing of work on Sundays when the same is prohibited by law
‣
Physical impossibility — To install a motor in a ship that was lost after the perfection of the contract but prior to
such installation.
If the act is subjectively impossible (for the debtor himself) but otherwise objectively possible (for all others), is the
obligation extinguished?
‣
PARAS — It depends. Usually the obligation subsists unless personal considerations are involved such as when only
a particular company is prohibited by law to furnish work on a certain day.
REBUS SIC STANTIBUS
Article 1267. When the service has become so difficult as to be manifestly beyond the contemplation of the parties, the
obligor may also be released therefrom, in whole or in part. (n)
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‣
PARAS — This Article refers to moral impossibility or impracticability due to change of certain conditions (rebus sic
stantibus — a treaty or agreement remains valid only if the same conditions prevailing at the time of contracting continue
to exist at the time of performance). This is also referred to as the doctrine of “the frustration of the commercial object”
‣
‣
Example — The duty to construct a railroad when such construction was possible but very dangerous to life and
property, is excused by the law; therefore, failure to grind sugar cane in view of the non-construction of the railroad
does NOT give rise to damages. However, if instead of extreme danger there is only proved the existence of mere
inconvenience, unexpected impediments, or increased expenses, the same would not be enough to relieve a debtor
from his “bad bargain.”
REQUISITES —
1. The obligation is to do
‣
Art. 1267 speaks of a “service” — a personal obligation. Thus, real obligations (“to give”) are not included within its
scope.
2. The service must become so difficult that it was manifestly beyond the contemplation of BOTH parties.
‣
Thus, it is not enough that neither party actually anticipated or foresaw the difficulty; the difficulty could not
possibly have been anticipated or foreseen.
‣
The general rule is that impossibility of performance releases the obligor. However, it is submitted that when the
service has become so difficult as to be manifestly beyond the contemplation of the parties, the court should be
authorized to release the obligor in whole or in part. The intention of the parties should govern and if it appears
that the service turns out to be so difficult as to have been beyond their contemplation, it would be doing violence
to that intention to hold the obligor still responsible.
3. The object must be a future service with future unusual change in conditions
‣
Naturally, an aleatory contract or one dependent on chance, in view of the risks being foreseen, does not come
under the scope of Art. 1267
LOSS IN CRIMINAL OFFENSES
Article 1268. 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)
‣
Example — A commits the crime of theft, and is asked to return the car stolen to its owner B. If, before the car is delivered
to B, it is destroyed by fortuitous event, is A’s liability extinguished? No, A’s liability is not extinguished. A’s obligation to
deliver the car arose from a criminal offense, and in such a case, the rule is, he is liable even if the loss occurs because of
a fortuitous event.
‣
What if A had previously asked the owner to accept the car, but the owner without any justifiable reason refuses to
accept the car, do you believe A to still be responsible if, let us say, the car is lost later by a fortuitous event? In this
case, the criminal could no longer be liable because here the creditor is in mora accipiendi. This is the exception to the
rule.
‣
If the creditor refuses to accept the thing due from the criminal, what should the latter do? The criminal may either
consign the thing or else keep the thing in his possession. If he does the latter thing, he is still obliged to care for it with
due diligence, but this time he will not be liable if the thing is lost through a fortuitous event
TRANSFER OF RIGHTS FROM THE DEBTOR TO THE CREDITOR IN CASE OF LOSS
Article 1269. The obligation having been extinguished by the loss of the thing, the creditor shall have all the rights of
action which the debtor may have against third persons by reason of the loss. (1186)
‣
Example — S is obliged to deliver his car to B. But X destroys the car. B has a right to sue X. The right is given to B
instead of S because otherwise S would unduly profit in that he will gain two things: first, his obligation to give the car or
its value is already extinguished; second, he would be allowed to recover from X. It is obvious that S must not unduly profit
at the expense of B.
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IV. MODES OF EXTINGUISHMENT OF OBLIGATIONS
C. CONDONATION OR REMISSION
C. CONDONATION OR REMISSION
DEFINITION OF CONDONATION
Article 1270. 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)
‣
Remission or Condonation is the gratuitous abandonment by the creditor of his right.
‣
‣
It is basically a donation.
Example — A owes B P5.00. When the debt matured B told A that she need not pay the debt since he was condoning it.
A, in turn, expressed her gratitude. Here, the debt has been extinguished by remission.
REQUISITES FOR CONDONATION
1.
There must be an agreement (since acceptance of the offer is required)
2.
The parties must be capacitated and must consent
3.
There must be subject matter (object of the remission — otherwise, there would be nothing to condone).
4.
The cause or consideration must be liberality (for remission is essentially gratuitous). (Otherwise, the act may be a dation
in payment, or a novation, or a compromise)
5.
The obligation remitted must have been demandable at the time of remission (otherwise, the remission is useless).
6.
The remission must not be inofficious (It should not impair the legitimes, otherwise, it would be reducible, so that the
legitimes of the compulsory heirs would not be impaired).
7.
Formalities of a donation are required in the case of an express (but not implied) remission
‣
Example — A remission of an obligation to give land must be in a public instrument in order to be valid. (Art. 749)
‣
May an express remission defective in form be considered an implied remission?
‣
PARAS — NO, otherwise, the requirement of the law on express remission would be rendered useless. Thus, an
express remission, not made in due form, cannot affect the creditor if it is withdrawn in due time. It would affect
him only when new acts of waiver confirm the express purpose of the former, as one of the bases on which tacit or
implied remission may rest.
KINDS OF CONDONATION
1.
2.
3.
As regards its effect or extent
a.
Total
b.
Partial (only a portion is remitted or the remission may refer only to the accessory obligations)
As regards its date of effectivity
a.
Inter vivos (during life)
b.
Mortis causa (after death)
As regards its form
a.
Implied or tacit (this requires no formality) (conduct is sufficient)
b.
Express or formal (this requires the formalities of a donation if inter vivos; of a will or codicil if mortis causa)
DELIVERY OF PRIVATE DOCUMENT EVIDENCING THE CREDIT
Article 1271. 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.
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IV. MODES OF EXTINGUISHMENT OF OBLIGATIONS
C. CONDONATION OR REMISSION
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)
‣
PARAS — The Article speaks of a “private document,” not a public one because in the case of the latter, a copy is easily
obtainable, being a public record. Note that with the delivery of the private instrument, a remission or renunciation is
presumed.
‣
Example — Steffi made a promissory note in favor of Agassi in the amount of P100 million. After some time, Agassi
voluntarily delivered the promissory note to Steffi without collecting the P100 million. Steffi is now in possession of said
note. There is a disputable presumption that there has been a remission. The presumption is merely disputable and not
conclusive because it may be that the instrument was delivered only for examination by Steffi or for collection.
‣
It should be noted that Art. 1271 gives us an example of an implied remission.
‣
The voluntary destruction by the creditor of the instrument is likewise another form of implied remission
‣
It should be noted likewise that as between the presumption of remission and the presumption of payment, the first
(remission) ordinarily prevails.
PRESUMPTION OF VOLUNTARY DELIVERY
Article 1272. Whenever the private document in which the debt appears is found in the possession of the debtor, it shall
be presumed that the creditor delivered it voluntarily, unless the contrary is proved. (1189)
‣
PARAS — While Art. 1271 gives a presumption of remission, Art. 1272 gives a presumption of voluntary delivery.
‣
Note again here that the law speaks of a private document.
‣
The presumption is disputable or prima facie, for the law itself says “until the contrary is proved.”
‣
Rule if the Instrument of Credit Is Still in Creditor’s Hands — If the instrument of credit is still in the hands of the credi- tor,
this is evidence that the debt has not yet been paid, unless the contrary be fully proved. To rebut the presumption,
ordinarily, a receipt of payment must be presented.
‣
What is the effect if the obligation is joint, or if it is solidary?
‣
PARAS — Example — A and B owe C P100,000, evidenced by a private document.
1.
If the private document is found in the possession of A, who is a joint debtor, what is the presumption? The
presumption is that only A’s debt has been remitted. Reason: A’s debt is not P100,000 but only P50,000; in other
words, his debt is really distinct from B’s debt.
2.
If the private document is found in the possession of A who is a solidary debtor, what is the presumption? Since this is
a solidary obligation, the presumption is that the whole obligation (not merely A’s share) has been remitted.
3.
In both cases, may the presumption be rebutted? Yes, the presumption in both cases can be overcome by superior
contrary evidence.
EFFECT OF CONDONATION OF THE PRINCIPAL ON THE ACCESSORY
Article 1273. The renunciation of the principal debt shall extinguish the accessory obligations; but the waiver of the latter
shall leave the former in force. (1190)
‣
This follows the rule of “accessory follows the principal
REMISSION OF PLEDGE
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IV. MODES OF EXTINGUISHMENT OF OBLIGATIONS
D. CONFUSION OR MERGER
Article 1274. It is presumed that the accessory obligation of pledge has been remitted when the thing pledged, after its
delivery to the creditor, is found in the possession of the debtor, or of a third person who owns the thing. (1191a)
‣
PARAS — Note here that only the accessory obligation of pledge is presumed remitted. The principal obligation (the loan)
remains in force. The presumption is only disputable, for the debtor or the third person may be in possession of the
property by theft or because it had been sent for repairs, or for similar causes.
‣
RATIONALE — It is essential in pledge that the thing be delivered to the creditor, or to a third person by common
agreement.
‣
The law says “or of a third person who owns the thing.” Therefore, if the third person does not own the thing, the presumption does not arise. As a matter of fact, the stranger may just have found it or it may have been delivered to him
only for safekeeping.
D. CONFUSION OR MERGER
NATURE OF CONFUSION OR MERGER
Article 1275. The obligation is extinguished from the time the characters of creditor and debtor are merged in the same
person. (1192a)
NATURE OF CONFUSION OR MERGER
‣
What is confusion or merger?
‣
Merger or confusion is the meeting in one person of the qualities of creditor and debtor with respect to the same
obligation. It erases the plurality of subjects of the obligation, and extinguishes the obligation because it is absurd that
a person should enforce an obligation against himself.
‣
‣
‣
‣
Furthermore, the purposes for which the obligation may have been created are considered as fully realized by the
merger of the qualities of the debtor and creditor in the same person.
Example — A makes a check payable to bearer, and hands the check to C, who hands it to D who finally hands it to A.
Here A owes himself. This is a clear case of merger, and hence the obligation of A is extinguished.
What are the causes of confusion or merger?
‣
It arises from any act which brings about a succession to the credit, whether it be universal or particular, intervivos or
mortis causa.
‣
Example — in testate or intestate succession in which the debtor inherits the credit from the creditor. (But the reverse it
not true, where the creditor inherits from the debtor, there can be no confusion if the debt is for a sum of money,
because the debt is not transmitted to the heirs.)
What is the effect of confusion or merger?
‣
It extinguishes the obligation.
‣
Thus, it has been held that where a mortgagee of a piece of land acquires the mortgagor’s equity or right to redeem,
there is an extinguishment of the mortgage obligation by merger, as the mortgagee becomes the owner of the land.
(Enriquez vs Ranola)
REQUISITES OF CONFUSION OR MERGER
1.
It must take place between the creditor and the principal debtor
‣
Therefore, confusion of the creditor with the person of the guarantor does not extinguish the principal obligation.
‣
There can be no confusion or merger if the debtor and creditor represent (different) juridical entities even if the officers
of both are the same. (Kapisanan ng mga Manggagawa sa MRR v. Credit Union 1960)
2.
The merger must be clear and definite. (Testate Estate of Mota v. Serra)
3.
The very same obligation must be involved
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IV. MODES OF EXTINGUISHMENT OF OBLIGATIONS
D. CONFUSION OR MERGER
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Because if the debtor acquires certain rights from the creditor with respect to other things, there is no merger. (Testate
Estate of Mota v. Serra)
‣
Mere transfer to a third person of rights belonging to both the debtor and the creditor BUT not the credit as against
the debt does not result in merger.
‣
4.
Example — A and B were co-owners of a piece of property worth P1,000,000. For some repairs thereon, B paid
P200,000. Because they were co-owners, A had to share in said expenses, and so A owed B P100,000. A sold his
share in the property to C and B also sold his share in the property to C. Later B brought this action to recover
P100,000 from A. A claimed that since C is now the owner of the property, C owes himself, and therefore said
merger had extinguished his debt to B. Should A pay B? Yes, A should pay B, since there was really no merger
here. What had been sold to C were the half shares of each of the co-owners, or P500,000 worth of property from
each. C did not acquire the indebtedness of P100,000 for the repairs, hence there can be no merger with reference
to that debt.
The confusion must be total or as regards the entire obligation
CONFUSION DISTINGUISHED FROM CONSOLIDATION OF OWNERSHIP
‣
Real rights, such as usufruct over property, may be extinguished by merger of the real right with the right of ownership.
‣
Such as —
‣
Usufructuary may transmit his right to the owner of the thing in usufruct (naked owner)
‣
The dominant and servant tenements may pass to the ownership of the same person
‣
TOLENTINO — This is NOT “merger” in the concept used in the law of obligation. This is in reality, a consolidation of
ownership.
‣
Example — A had two brothers B and C. A gave a parcel of land to B in usufruct (right to the use and right to the
fruits), and the same parcel to C in naked ownership. If later C donates the naked ownership of the land to B, B will
now have the full ownership (his ownership is consolidated), and it is as if merger had resulted.
REVOCATION OF THE CONFUSION OR MERGER
‣
When the act which occasions the merger is susceptible of termination or revocation, the merger that has taken place is
also terminated or revoked, the merger that has taken place is also terminated or revoked, and the obligation is recreated
in the same condition that it had when the merger took place.
‣
Thus, when the merger takes place by a particular title, this may be set aside for causes of nullity or rescission of
contract, or by redemption, etc.
‣
BUT — the time intervening between the merger and its revocation, is NOT to be computed in the determination of
prescription of the obligation.
EFFECT IF MORTGAGEE BECOMES THE OWNER OF THE MORTGAGED PROPERTY
‣
If the mortgagee becomes the owner of the property that had been mortgaged to him, the mortgage is naturally
extinguished, but the principal obligation may remain. (Yek Ton Lin Fire v. Yusingco)
‣
Example — I borrowed P1,000,000 from my brother, and as security, I mortgaged my land in his favor. Later I sold the
land to him. The mortgage is extinguished but I still owe him P1,000,000. (NOTE: Had he assigned his credit of
P1,000,000 to a friend and the friend assigned the credit to me, both the principal obligation and the mortgage are
extinguished.)
EFFECT OF MERGER ON THE GUARANTORS
Article 1276. 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)
‣
RULE — THE EXTINGUISHMENT OF THE PRINCIPAL OBLIGATION THROUGH CONFUSION RELEASES THE GUARANTORS
‣
This is because the obligation of the guarantors is merely accessory.
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IV. MODES OF EXTINGUISHMENT OF OBLIGATIONS
E. COMPENSATION
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‣
Example — A owes B P700,000, guaranteed by C. B assigns his credit to X. X assigns the credit to Y. Y assigns the
credit to A. A’s obligation is extinguished and C is released from his obligation as guarantor.
BUT — Confusion which takes place between the creditor and the guarantor does NOT extinguish the principal
obligation, but it extinguishes the accessory obligation of the guarantor
‣
Example — A owes B P700,000, guaranteed by C. B assigns his credit to X. X assigns his credit to Y. Y assigns his
credit to C, the guarantor. Does A still have to pay C? Yes. However, the contract of guaranty is extinguished, but not
A’s obligation to pay the P700,000.
CONFUSION AND GUARANTY INVOLVING MORTGAGED PROPERTY
‣
When the mortgaged property belongs to a third person, and the mortgage acquires a part of such property subject to
mortgage, that part is released from the encumbrance, which continues to burden the rest of the property, but the credit
is NOT extinguished even in part because there is no confusion as to it.
‣
‣
Example — A owes B with C’s land given as security by way of mort- gage. Later B becomes the owner of onethird of C’s land (said one-third share having been sold or donated to him by C). Is the mortgage extinguished? The
mortgage is extinguished regarding B’s one-third share of the land because of merger. This is evident because
otherwise, if the debt is not paid, B would hold his own property as security and this would be absurd. However,
the mortgage continues to subsist on the two- thirds of the land still belonging to C.
BUT — Where the mortgage acquires ownership of the entire mortgaged property, the mortgage is extinguished, but
this does not necessarily mean the extinguishment of the obligation secured thereby, which may become an
unsecured obligation.
‣
Thus, for the same reason hereinabove given, in reference to the previous example, the mortgage is completely
extinguished. However, does A’s debt in favor of B still exist? The answer is evidently YES, for extinguishment of
the accessory obligation does not by itself extinguish the principal obligation which is the loan. This time, however,
it would be a case of a loan without security.
MERGER IN JOINT OBLIGATIONS
Article 1277. 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)
‣
Example — A and B jointly owe C P1,000,000. If C assigns the entire credit to A, A’s share is extinguished, but B’s share
remains. In other words, B would still owe A the sum of P500,000. In a joint obligation, the debts are distinct and separate
from each other.
E. COMPENSATION
NATURE AND KINDS OF COMPENSATION
Article 1278. Compensation shall take place when two persons, in their own right, are creditors and debtors of each
other. (1195)
Article 1281. Compensation may be total or partial. When the two debts are of the same amount, there is a total
compensation. (n)
NATURE OF COMPENSATION
‣
It is a mode of extinguishment to the concurrent amount, the obligations of those persons who in their own right are
reciprocally debtors and creditors of each other. It is the offsetting of two obligations which are reciprocally extinguished if
they are of equal value, or extinguished to the concurrent amount if of different values.
‣
Compensation is a sort of balancing between two obligations, it involves a figurative operation of weighting two
obligations simultaneously in order to extinguish them to the extent in which the amount of one is covered by the other.
By this means, payment is simplified and assured between persons who are indebted to each other.
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IV. MODES OF EXTINGUISHMENT OF OBLIGATIONS
E. COMPENSATION
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It is a sort of balancing (cum ponder — ‘to weigh together’) between two obligations; it involves a figurative operation of
weighing two obligations simultaneously in order to extinguish them to the extent in which the amount of one is covered
by the other.
‣
It is the extinguishment in the concurrent amount of the obligations of those persons who are reciprocally debtors and
creditors of each other.
‣
In effect, it is a specie of abbreviated payment which gives to each of the parties a double advantage —
1.
“Facility of payment
2.
Guaranty for the effectiveness of the credit because if one of the parties pays even without waiting to be paid by the
other, he could easily be made a victim of fraud or insolvency.’’
‣
Indeed, it is simplified or abbreviated payment, because the two debts are extinguished without requiring the transfer
of money or property from one party to the other.
‣
NOTE — In banking operations, a “clearing house” takes care of compensation in banking accounts.
KINDS OF COMPENSATION
1.
2.
AS TO THEIR EFFECTS
a.
Total compensation — When two obligations are of the same amount
b.
Partial compensation — When the amounts are not equal
AS TO ORIGIN
a.
Legal compensation — takes place by operation of law because all the requisites in Art. 1279 are present.
b.
Conventional or voluntary compensation — when the parties agree to compensate their mutual obligations even is
some requisite is lacking, such as that provided in Art. 1282.
c.
Facultative compensation — when compensation can be claimed by one of the parties who, however, has the right
to object to it, such as when one of the obligations has a period for the benefit of one party alone and who renounces
that period so as to make the obligation due.
d.
Judicial compensation — when compensation is decreed by the court in a case where there is a counterclaim, such
as that provided in Art. 1283.
LEGAL COMPENSATION
Article 1290. When all the requisites mentioned in article 1279 are present, compensation takes effect by operation of law,
and extinguishes both debts to the concurrent amount, even though the creditors and debtors are not aware of the
compensation. (1202a)
Article 1286. Compensation takes place by operation of law, even though the debts may be payable at different places,
but there shall be an indemnity for expenses of exchange or transportation to the place of payment. (1199a)
Article 1278. Compensation shall take place when two persons, in their own right, are creditors and debtors of each
other. (1195)
Article 1279. In order that compensation may be proper, it is necessary:
(1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of
the same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in
due time to the debtor. (1196)
Article 1284. When one or both debts are rescissible or voidable, they may be compensated against each other before
they are judicially rescinded or avoided. (n)
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IV. MODES OF EXTINGUISHMENT OF OBLIGATIONS
E. COMPENSATION
HOW LEGAL COMPENSATION TAKES PLACE
‣
RULE — WHEN ALL THE REQUISITES UNDER ART. 1279 ARE PRESENT, LEGAL COMPENSATION TAKES EFFECT BY OPERATION
OF LAW (ART. 1290)
‣
This extinguishes both debts to the concurrent amount, even though the creditors and debtors are not aware of the
compensation. “To the concurrent amount” means that if one debt is larger than the other, the balance subsists as
debt.
‣
Legal compensation takes place automatically unless there has been valid waiver thereof.
‣
Compensation which extinguishes principal obligations also extinguishes accessory obligations.
‣
It takes place by operation of law despite the fact that the debts may be payable at different places (Art. 1286)
BUT — there shall be an indemnity for expenses of exchange or transportation to the place of payment. (Art. 1286)
‣
‣
‣
Example — A owes B P1M payable in Manila and B owes A P1M payable in England. Whoever claims
compensation must pay for the exchange rate of currency.
EXCEPT — when the assignment (after compensation has already taken place) was made with the consent of the
debtor. Such consent operates as a waiver of the rights to compensation. (Art. 1285)
‣
EXCEPTION TO EXCEPTION — when at the time he gave his consent, he reserved his right to the compensation
REQUISITES OF LEGAL COMPENSATION
1.
Each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other
2.
Both debts must either consist of —
a.
A sum of money
b.
Fungible (generic) things of the same kind, and also of the same quality if such is stated
3.
The two debts be valid, due, liquidated and demandable
4.
Neither of the debts must be subject of any retention or controversy, commenced by third persons and communicated in
due time to the debtor
5.
The compensation must not be prohibited by law
6.
Any of the parties must not have waived the benefits of compensation
REQUISITES OF LEGAL COMPENSATION (EXPOUNDED)
1.
EACH ONE OF THE OBLIGORS BE BOUND PRINCIPALLY, AND THAT HE BE AT THE SAME TIME A PRINCIPAL CREDITOR OF THE
OTHER
‣
The parties must be mutually debtors and creditors —
a.
There must be a relationship of debtor and creditor between the parties in their own right, and not in a
representative capacity
‣
Examples —
‣
G, as guardian for W,is a creditor of D. D in turn is a creditor of G who owes him a personal debt. There can
be NO compensation because it is W who is the real creditor, not G.
‣
A, debtor of two partners, cannot compensate the debt with what the partnership itself owes her.
The parties must generally be bound as principals
b.
‣
No compensation can be had when one party is a principal creditor in one obligation but is only a surety or
guarantor in the other.
‣
Example — A debtor owes a creditor P1 million but the creditor owes the debtor’s guarantor P1 million. The
debtor cannot claim compensation.
‣
c.
‣
BUT — a guarantor may set up compensation as regards what the creditor may owe the principal debtor.
The reason is simple: If the principal obligation is extinguished, the accessory obligation of guaranty is also
extinguished. (See Art. 1280)
There must be two debts and two credits
These cannot be subject of compensation, as these are not “debts”, thus no debtor-creditor relation —
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IV. MODES OF EXTINGUISHMENT OF OBLIGATIONS
E. COMPENSATION
1.
Corporation cannot set-off debts owed by a shareholder to it with his share of stock in the corporation —
Under the law, the two persons concerned are creditors and debtors of each other; therefore, a debtor of a
corporation cannot compensate his debt with his share of stock in the corporation, since the corporation is not
considered his debtor. Shares of stock in a corporation is considered “equity” and not debt. “According to the
weight of authority, a share of stock or the certificate thereof is not an indebtedness to the owner nor evidence of
indebtedness, and, therefore, it is not a credit. (Garcia v. Lim Chu Sing)
2.
Internal revenue taxes cannot be the subject of compensation —The government and taxpayer “are not
mutually creditors of each other” under Art. 1278 of the Civil Code and a “claim for taxes is not such a debt,
demand, contract or judgment as is allowed to be set-off.’’ There can be no offsetting of taxes against the claims
that the taxpayer may have against the government. A person cannot refuse to pay a tax on the ground that the
government owes him an amount equal to or greater than the tax being collected. The collection of a tax cannot
await the result of a lawsuit against the government. (Francia v. IAC 1988)
‣
BUT — The government can set-off taxes owed by a taxpayer with his outstanding receivables due to a refund.
‣
2.
SEE — CIR v. Cebu Portland Cement Co., 156 SCRA 535, 541 (1987)
‣
In this case, the taxpayer won a case for refund. The BIR was accordingly order to refund a certain sum.
However, the BIR refused to do so because of an outstanding tax liability based on sales taxes of the
taxpayer. It said that it credited the refund with this liability. Note that an assessment was already issued
for the sales tax liability in this case. The taxpayer argues that set-off cannot yet take place because it
was still connecting the assessment.
‣
The issue was whether or not the BIR can set-off the refund with the sales tax liability
‣
The court in this case allowed the set-off NOT because of the civil law principle on legal compensation
but because of the power of the BIR to enforce collection though administrative remedies (of distraint
and levy). It would be absurd for the BIR to pay the refund and later distraint it. But if the BIR hasn’t
issued an assessment yet, then it can't set-off the refund. Remember that the power of distraint and
levy arises only from the the time the taxpayer fails to pay on the date stipulated in the assessment.
BOTH DEBTS MUST EITHER CONSIST OF —
a.
A sum of money
b.
Fungible (generic) things of the same kind, and also of the same quality if such is stated
3.
‣
TOLENTINO — the use of the word “consumable” is a mistake of the old Civil Code which has been copied into
the present code. The proper word should be “fungible” pertaining to generic things which may be substituted for
each other.
‣
When the debt consists of determinate things, there can be no compensation.
‣
Example — A owes B a fountain pen (generic). B owes A also a fountain pen (generic). There can be compensation
here because the objects are fungible (although not consumable). Had specific fountain pens been agreed upon,
there can be no compensation (legal compensation).
THE TWO DEBTS BE VALID, DUE, LIQUIDATED AND DEMANDABLE
‣
‣
Both debts must be valid or at least voidable — the obligations must NOT be void. But when one or both debts are
merely rescissible or voidable, they may be compensated against each other before they are judicially rescinded or
avoided. (Art. 1284)
‣
BUT — Although a rescissible or voidable debt can be compensated before it is rescinded or annulled, the
moment it is judicially rescinded or annulled, the decree of rescission or annulment is retroactive, and the
compensation must be considered as cancelled. Rescission or annulment requires mutual restitution, the party
whose obligation is annulled or rescinded can thus recover to the extent that his credit was extinguished by the
compensation, because to that extent he is deemed to have made a payment.
‣
To avoid unfairness if rescission or annulment is later on decreed by the court, it is as if NO compensation ever
took place. The decree thus acts retroactively.
‣
Example — A owes B P1 million. Later, A forced B to sign a promissory note for P1 million in A’s favor. The first
debt is valid; the second is voidable. But if all the requisites for legal compensation are present, both debts are
extinguished since B’s debt is not yet annulled. This is obviously unfair if, later on, B’s debt is annulled by the court.
Thus here, the compensation that has taken place will be cancelled.
Both debts must be due — The fact that there is an existing debt not yet matured will not prevent the enforcement
by action of that which already due. However, if before payment of that which matured first, the second debt also
matures, there will be compensation. “Due” means that the period has arrived, or the condition has been fulfilled
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IV. MODES OF EXTINGUISHMENT OF OBLIGATIONS
E. COMPENSATION
‣
‣
Both debts must be demandable — this means that the debts are also enforceable in court, there being no apparent
defenses inherent in them. “Demandable” may refer to the fact that neither of the debts has prescribed, or that the
obligation is not invalid or illegal.
‣
‣
Example— Solita owes Edmundo P1 million payable Apr. 1, 2005. Edmundo owes Solita P1 million payable Jun. 8,
2005. Can there be legal compensation on Apr. 1, 2005? No, for one of the debts is not yet due. However, there
can be voluntary compensation upon agreement. (See Art. 1282)
Thus, there can be NO compensation if —
a.
When the obligation cannot be sued upon — such as when the obligation has already been converted into a
natural obligation because it has prescribed.
b.
When the suspensive condition has not yet happened — Obligations which are subject to suspensive
conditions cannot be set up by way of compensation before the fulfilment of the condition, although once
fulfilled, Art. 1187 should be observed as to the retroactive effect of the happening of the condition.
c.
When one of the parties is in a state of suspension of payments
d.
When there is a period which has not yet arrived
Both debts must be liquidated — a debt is liquidated when its existence and amount are determined. It is not
necessary that it be admitted by the debtor. Nor is it necessary that the credit appear in a final judgment in order that
it can be considered as liquidated, it is enough that its exact amount is known. And a debt is considered liquidated,
not only when it is expressed already in definite figures which do not require verification, but also when the
determination of the exact amount depends only on a simple arithmetical operation.
‣
Compensation takes place only if both obligations are liquidated. Therefore, it cannot take place if one’s claim
against the other is still the subject of court litigation. In no event can it include the unliquidated claims of one of
the parties for alleged damages or for untaxed court costs.
‣
4.
BUT — when the defendant who has an unliquidated claim sets it up by way of counterclaim, and a judgment
is rendered liquidating such claim, it can be compensated against the plaintiff’s claim from the moment it is
liquidated by judgment.
NEITHER OF THE DEBTS MUST BE SUBJECT OF ANY RETENTION OR CONTROVERSY, COMMENCED BY THIRD PERSONS AND
COMMUNICATED IN DUE TIME TO THE DEBTOR
‣
When one of the obligations sought to be compensated is subject to a suit between a third party and the party
interested in the compensation, each claiming to be the creditor in said obligation, there is a provisional suspension
off the possible compensation. If the third party is adjudged the creditor, there will be no compensation, otherwise,
compensation will take place.
‣
Thus, there can be no legal compensation when one’s claim against another is still the subject of court litigation.
(Miailhe v. Halili 1962)
‣
Example — A owes B P100,000, and B owes A P100,000, but A’s credit of P100,000 has been garnished by C who
claims to be an unpaid creditor of A. B has been duly notified of the controversy. There can be NO compensation here.
(See Rule 57, Sec. 8, Revised Rules of Court on Garnishment). Any possible compensation is in the meantime
suspended. If C wins his claim, there can be no compensation; if he loses, the controversy is resolved, and
compensation can take place.
5.
THE COMPENSATION MUST NOT BE PROHIBITED BY LAW
‣
6.
The compensation of the following are prohibited —
a.
Debts arising from a depositum (except bank deposits, which are by law considered as loans to the bank) (Art.
1287, 1980)
b.
Debts arising from the obligations of a depository (Art. 1287)
c.
Debts arising from the obligations of a bailee in commodatum (like the borrower of a bicycle) (Art. 1287)
d.
Debts arising from a claim for future support due by gratuitous title (Art. 1287)
e.
Debts consisting in civil liability arising from a penal offense (Art. 1288)
f.
Damages suffered by a partnership thru the fault of a partner cannot be compensated with profits and benefits
which he may have earned for the partnership by his industry. (Art. 1794)
‣
RATIONALE — Since the partner has the duty to obtain benefits for the firm, and a duty not to be at fault, there
can be no compensation because both are duties, and the partner is the debtor in both instances
‣
BUT — The courts may, however, equitably lessen this responsibility of the partner, if, thru the partner’s
extraordinary efforts in other activities of the partnership, unusual profits have been realized. (Art. 1794)
ANY OF THE PARTIES MUST NOT HAVE WAIVED THE BENEFITS OF COMPENSATION
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E. COMPENSATION
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The effects of compensation may be waived or renounced by a party, either at the time an obligation is contracted or
afterwards.
DISTINGUISHING COMPENSATION WITH THE OTHER MODES OF EXTINGUISHMENT
‣
‣
What is the difference of legal compensation and payment?
‣
In payment, capacity to dispose the thing paid and the capacity to receive payment are required for the debtor and
creditor, respectively, in compensation, such capacity is not necessary, because compensation operates by law, and
not by the act of the parties.
‣
In payment, the performance must be complete, while in compensation, there may be partial extinguishment of an
obligation.
What is the difference of legal compensation and merger?
‣
As to the number of obligations — Merger involves only one obligation, whereas in compensation, there must always
be two obligations.
‣
As to the number of persons — In merger there is only one person in whom the character of the creditor and debtor
meet, in compensation, there are two persons who are mutually debtors and creditors of each other in two separate
obligations, each arising from a different cause.
EFFECT OF COMPENSATION ON A GUARANTORS
Article 1280. Notwithstanding the provisions of the preceding article, the guarantor may set up compensation as regards
what the creditor may owe the principal debtor. (1197)
‣
RULE — THE GUARANTOR MAY SET UP COMPENSATION WITH RESPECT TO PRINCIPAL DEBT, OR THAT DEBT WHICH THE
CREDITOR MAY OWE THE PRINCIPAL DEBTOR
‣
The liability of the guarantor is only subsidiary, it is accessory to the principal obligation of the debtor. If the principal
debtor has a credit against the creditor, which can be compensated, it would mean the extinguishment of the
guaranteed debt, either totally or partially. This extinguishment benefits the guarantor, for he can be held liable only to
the same extent as the debtor.
‣
This is an exception to Art. 1279, par. 1, because a guarantor is subsidiarily, not principally, bound.
‣
RATIONALE — Extinguishment (partial or total) of principal obligation extinguishes (partially or totally) the guaranty
(which is merely an accessory obligation).
‣
Examples —
‣
A owes B P500,000. C is the guarantor of A. B owes A P100,000. When B sues A and A cannot pay, for how much
will C be liable? C will be liable for only P400,000, because he can set up the P100,000 credit of A as the basis for
partial compensation.
‣
A owes B P500,000. C is the guarantor of A. B owes C P500,000. When B sues A for the P500,000, may A
successfully put up the defense of compensation in that, after all, his creditor (B) owes C the same amount? There
can be no compensation here because in the obligation which C guaranteed for A, he (C) is not bound in his own
right. Neither is A the creditor of B (.NOTE: If A cannot pay and B sues the guaranty, C will not be liable anymore
because the obligation of guaranty has been extinguished by compensation.)
COMPENSATION WHEN THERE IS AN ASSIGNMENT OF CREDIT
Article 1285. 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.
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)
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E. COMPENSATION
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PARAS CITING MANRESA — Art. 1285 has for its purpose the prevention of fraudulent deprivation of the benefits of total
and partial compensation.
EFFECT OF ASSIGNMENT ON COMPENSATION OF DEBTS
‣
PARAS CITING MANRESA— Under Art. 1290, “when all the requisites mentioned in Art. 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.” Thus, compensation takes place automatically or ipso jure. Now then, if
AFTER compensation has taken place one of the extinguished debts is ASSIGNED to a stranger, ordinarily this would be
a useless act since there is nothing more to assign. The defense of compensation could then be set up. There is ONE
exception to said rule, and this takes place when the assignment (after compensation has already taken place) was made
WITH THE CONSENT of the debtor. Such consent operates as a WAIVER of the rights to compensation. The exception to
the exception occurs when “at the time he gave his consent, he RESERVED his right to the compensation.”
CASES COVERED BY THE ART. 1285
1.
ASSIGNMENT MADE WITH THE CONSENT OF THE DEBTOR — COMPENSATION CANNOT BE SET UP (BECAUSE THERE HAS BEEN
CONSENT AND, THEREFORE, A WAIVER).
‣
EXCEPT — If the right to the compensation (that has already taken place) is reserved.
‣
Example — A owes B P1,000,000. B in turn owes A P200,000. Because both debts are already due, and because all
other requisites for legal compensation are present, both debts are extinguished automatically up to the amount of
P200,000. Later however, B, with the consent of A, assigned his (B’s) P1,000,000 credit to C. How much can C collect
successfully from A? C can collect from A the whole P1,000,000. A cannot set up the defense of compensation as of
the P200,000 in view of his consent to the assignment. Had A reserved his right to the compensation, A would be
forced to give only P800,000.)
‣
NOTE — Par. 1 of Art. 1285 applies whether the consent to the cession was BEFORE or AFTER the debts became
compensable.
2.
ASSIGNMENT MADE WITH THE KNOWLEDGE BUT WITHOUT THE CONSENT (OR AGAINST THE WILL) OF THE DEBTOR —
COMPENSATION CAN BE SET UP REGARDING DEBTS PREVIOUS TO THE CESSION OR ASSIGNMENT.
‣
This refers to debts maturing before the assignment (that is, before the NOTICE); hence here, legal compensation has
already taken place.
‣
Examples —
3.
‣
A owes B P1,000,000. B owes A P200,000. Both debts are already due. Later B, with the knowledge but without
the consent (or against the will) of A, assigned the P1,000,000 credit to C. How much can C successfully collect
from A? If A sets up the defense of partial compensation as to previously maturing debts, C can collect only
P800,000. There had already been compensation with respect to the P200,000.
‣
A owes B P1,000,000 due on Apr. 2; B owes A P200,000 due also on Apr. 2. On Feb. 4 (when there was no legal
compensation yet), B assigned his P1,000,000 credit to C, with the knowledge but without the consent of A. On
Apr. 2, how much can C successfully collect from A? P1,000,000, because if at all there would be compensation
here, it took place after the assignment, not before. It does not matter that the P200,000 had been incurred prior to
the cession, for when the law speaks of “debts previous to the cession,” it refers to debts maturing before the
cession (not to debts incurred prior to such ces- sion which have not yet matured before said cession).
ASSIGNMENT MAY BE MADE WITHOUT THE KNOWLEDGE OF THE DEBTOR — DEBTOR CAN SET UP COMPENSATION AS A
DEFENSE FOR ALL DEBTS MATURING PRIOR TO HIS KNOWLEDGE OF THE ASSIGNMENT (WHETHER THE DEBTS MATURED
BEFORE OR AFTER THE ASSIGNMENT).
‣
PARAS — The crucial time here is the time of knowledge of the assignment, not the time of assignment itself.
‣
Example — A owes B P1,000,000. B owes A in turn P200,000. Both debts are already due. Later, B assigns the
P1,000,000 credit to C, without the knowledge of A. This assignment was made on July 1. On Jul. 15, a P250,000 debt
of B in favor of A matured. A learned of the assignment on Aug. 1. On Aug. 23, a P150,000 debt of B in favor of A
matured. Later C asks A to pay his debt. How much can C successfully collect from A? C can collect P550,000
because A can set up the defense of partial compensation regarding the P200,000 and the P250,000 debts, debts
which had matured and were therefore already compensable PRIOR to his knowledge of the assignment. But A cannot
set up the last debt of P150,000 for partial compensation because this matured only after he knew of the assignment.
CONVENTIONAL OR VOLUNTARY COMPENSATION
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Article 1282. The parties may agree upon the compensation of debts which are not yet due. (n)
‣
‣
Conventional compensation — this is compensation by agreement of the parties, even if some requisite provided by law
should be wanting. It is intended to eliminate or overcome obstacles which prevent ipso jura extinguishment of their
obligations.
‣
NOTE — It is not limited to obligations which are not yet due. The parties may compensate by agreement any
obligations, in which the objective requisites provided for legal compensation are not present. It is necessary,
however, that the parties should have the capacity to dispose of the credits which they compensate, because the
extinguishment of the obligations in this case arises from their will and not from law.
‣
The requisites mentioned in Art. 1279 do not apply.
‣
It is sufficient in conventional compensation that the agreement or contract which declares the compensation should
itself be valid; thus among other things, the parties must have legal capacity and must freely give their consent.
REQUISITES —
1.
Each of the parties has the capacity to dispose of the credit he seeks to compensate
2.
The parties agree to the mutual extinguishment of their credits
FACULTATIVE COMPENSATION
Article 1287. 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)
Article 1288. Neither shall there be compensation if one of the debts consists in civil liability arising from a penal offense.
(n) Article 1289. 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)
‣
Facultative compensation — this is compensation which can be set up only at the option of a creditor, when legal
compensation cannot take place because of the want of some legal requisites for the benefit of the creditor. The latter
can renounce his right to oppose the compensation and he himself can set it up.
‣
‣
Example — A owes B P1 million demandable and due on Jan. 12, 2004. B owes A P1 million demandable and due on
or before Jan. 31, 2004. On Jan. 12, 2004 B, who was given the benefit of the term, may claim compensation because
he could then choose to pay his debt on said date, which is “on or before Jan. 31, 2004.” If, upon the other hand A
claims compensation, B can properly oppose it because B could not be made to pay until Jan. 31, 2004.
What is the difference of facultative and conventional compensation?
‣
Facultative compensation is unilateral, it depends only on the will of one of the parties who has the right to oppose the
compensation. Conventional compensation is mutual, it depends on the agreement of both parties.
CASES WHERE FACULTATIVE COMPENSATION APPLIES
‣
NOTE — These are all cases where Legal Compensation is prohibited
1.
When one debt arises from a depositum — Only the depositor may set up compensation
‣
The purpose is to prevent breach of trust and confidence.
‣
It is the depositary who cannot claim compensation. The depositor is allowed to so claim
‣
Example — A asked B to keep P1,000,000 for him. Now, A is indebted to B for the amount of P400,000. When A asks
for the return of his money, B gives him only P600,000, alleging partial compensation. Is B correct? No, B is not
correct because the P1,000,000 deposit with him is not subject to compensation. (Art. 1287, 1st par.)
‣
NOTE — this does NOT apply to bank deposits, for these are really simple loans or mutual (Art. 1980)
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‣
2.
Example — A has a P1,000,000 savings deposit with the Phil. National Bank. One day A borrowed P200,000 from
the Bank. Without asking permission from A, the Bank subtracted the P200,000 from A’s account, leaving a balance
of P800,000 in A’s favor. Is the bank’s action proper? Yes. Compensation is allowed here because in this case, the
relationship between the bank and the depositor is that of debtor and creditor.
When one debt arises from the obligations of a depositary — Only the depositor may set up compensation
‣
3.
Again, the depositor is given the right to claim compensation.
When one debt arises from the obligations of a bailee in commodatum — Only the lender (bailor) may set up
compensation
‣
4.
The lender may claim compensation; the borrower is NOT allowed to do so.
When one debt arises because of a claim for support due to gratuitous title — Only the person entitled to receive
support may set up compensation
‣
5.
BUT — Support in arrears may be compensated, but not future support, for this is “vital to the life of the recipient”.
When one debt consists in civil liability arising from a penal offense — Only the victim may set up compensation
‣
RATIONALE — If one of the debts consist in civil liability arising from a penal offense, compensation would be
improper and inadvisable because the satisfaction of such obligation is imperative
‣
JBL REYES — This should be specifically limited to the accused to prevent his escaping liability by pleading prior
credits against the offended party. But not to the victim of a crime who happens to be indebted to the accused
JUDICIAL COMPENSATION
Article 1283. If one of the parties to a suit over an obligation has a claim for damages against the other, the former may
set it off by proving his right to said damages and the amount thereof. (n)
‣
Judicial compensation — this is compensation which takes place when the defendant, who is creditor of the plaintiff for
an unliquidated amount, sets up his creditor of the plaintiff for an unliquidated amount, sets up his credit as a
counterclaim against the plaintiff, and his credit is liquidated by the judgment, thereby compensating it with the credit of
the plaintiff. Two of debts arising from final and executory judgments may be extinguished due to compensation.
‣
Pleading and proof of the counterclaim must be made. Unless pleading and proof are made, the court cannot of its own
accord declare the compensation. This is because of “the supplicatory character of our civil procedure.”
‣
All the requisites mentioned in Art. 1279 must be present, except that at the time of pleading, the claim need not yet
be liquidated. The liquidation (or fixing of the proper sum) must be made in the proceedings.
F. NOVATION
NATURE AND KINDS OF NOVATION
Article 1291. 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)
NATURE OF NOVATION
‣
Novation is the extinguishment of an obligation by the substitution or change of the obligation by a subsequent one which
extinguishes or modifies the first, either by changing the object or principal conditions, or by substituting the person of
the debtor, or by subrogating a third person in the rights of the creditor.
‣
Unlike the other modes of extinction of obligations, novation is a juridical act of dual function in that at the time it
extinguishes an obligation it creates a new one in lieu of the old. The substitution is not merely of a new paper or
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F. NOVATION
instrument, but of a new obligation in lieu of an old one, the effect of which is to extinguish the old. It does not operate as
an absolute but only as a relative extinction.
‣
While a true or proper novation extinguishes an obligation, a partial, modificatory or imperfect novation merely modifies
the old obligation. Thus, Art. 1291 says “Obligations may be modified by”. Moreover, since a new or modified obligation
arises, novation “does not operate as an absolute but only as a relative extinction.”
KINDS OF NOVATION
1.
AS TO ITS NATURE
a.
Subjective or personal novation — it is the modification of the obligation by the change of subject
i.
Active — when there is a substitution of the debtor
ii.
Passive — when a third person is subrogated in the rights of the creditor
b.
c.
2.
Objective or real novation — it is the change of the obligation by either —
i.
Substituting the object with another, or
ii.
Changing the principal conditions.
Mixed novation — when there is a combination of the subjective and objective novation
AS TO ITS FORM
a.
Express novation — when the parties declare that the obligation is extinguished and substituted by the new
obligation
b.
Implied novation — when there is such an incompatibility between the old and the new obligation that they cannot
stand together
3.
AS TO EFFECT
a.
Total or extinction novation — when the old obligation is completely extinguished
b.
Partial or modificatory novation — when there is only a modification or change in some principal conditions of the
obligation. Here the old obligation is merely modified; thus, it still remains in force except insofar as it has been
modified.
‣
NOTE — Should there be any doubt as to whether the novation is total or partial, it shall be presumed to be merely
modificatory.
MEANING OF “CHANGE IN THE PRINCIPAL CONDITIONS”
‣
The term “principal conditions” in Art. 1291 of the New Civil Code should be construed to include a change in the period
to comply with the obligation, which change in the period would only be partial novation, since the period merely affects
the performance, not the creation of the obligation. (Ong v. Bogñalbal)
REQUISITES OF NOVATION IN GENERAL
1.
The existence of a valid and existing original obligation
2.
The intent to extinguish or to modify the old obligation by a substantial difference
3.
The capacity and consent of all the parties
4.
The validity of the new obligation
EFFECTS OF NOVATION
Article 1296. When the principal obligation is extinguished in consequence of a novation, accessory obligations may
subsist only insofar as they may benefit third persons who did not give their consent. (1207)
Article 1303. 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)
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F. NOVATION
Article 1299. If the original obligation was subject to a suspensive or resolutory condition, the new obligation shall be
under the same condition, unless it is otherwise stipulated. (n)
1.
NOVATION CAN EITHER EXTINGUISH OR MERELY MODIFY AN ORIGINAL AND EXISTING OBLIGATION (ART. 1291)
2.
WHEN THE PRINCIPAL OBLIGATION IS EXTINGUISHED BY NOVATION, ACCESSORY OBLIGATIONS ARE ALSO EXTINGUISHED (ART.
1296)
‣
Such as — pledges, mortgages, guaranties
‣
EXCEPT —
The accessory obligations may subsist only insofar as they may benefit third persons who did NOT give
their consent. (Art. 1296)
a.
b.
‣
‣
Accessory obligations or stipulations made in favor of third persons (stipulations pour autrui) remain unless
said third persons have their consent to the novation.
‣
RATIONALE — Their rights to the accessory obligations (which for them is really a distinct one) should not be
prejudiced without their consent.
Art. 1296 does NOT apply in cases of novation by subrogation of the creditor. (Art. 1303)
What if the novation is merely modificatory, are guarantors and sureties released, if the novation is made
WITHOUT their consent?
a.
If the modified obligation is now MORE ONEROUS — they are liable only for the original obligation. (Art. 2054)
b.
If the modified obligation is now LESS ONEROUS — the guarantors and sureties are still responsible.
May it be agreed that despite the extinguishment of the old obligation, the accessory obligations would still
remain as accessory to the new obligation?
‣
3.
‣
PARAS — YES, provided that the debtors of said accessory obligations give their consent.
WHEN NOVATION TAKES PLACE AND THE ORIGINAL OBLIGATION WAS SUBJECT TO A CONDITION (SUSPENSIVE OR
RESOLUTORY), THE NEW OBLIGATION SHALL BE UNDER THE SAME CONDITION
‣
EXCEPT — when it is otherwise stipulated
‣
RATIONALE —If, for example, the suspensive condition attached to the obligation is NOT fulfilled, the old obligation
never arose. Therefore, there would be nothing to novate, since novation requires the existence of a previous valid and
effective obligation.
‣
Examples —
‣
A promised to give B a car if B should pass the bar exams. Later, both agreed that what should be given would be
a diamond ring. Nothing was mentioned in the second contract regarding the condition. Is the new obligation also
subject to a suspensive condition? YES unless it was otherwise stipulated in the new contract. The delivery of the
diamond ring would, therefore, be due only after B has passed the bar exams.
‣
A promised to give B a car unless X married Y. Later A and B agreed to change the object to a precious stone. No
mention was made regarding any condition. Is the second obligation subject to a resolutory condition? YES unless
the contrary has been provided for in the contract. Supposing under the same facts, X had already married Y
before A and B novated their contract, what happens to the new obligation? It is as if the new obligation never
arose, for a contract that has already been extinguished cannot be novated.
TOTAL OR EXTINCTIVE NOVATION — EXPRESS OR IMPLIED
Article 1292. 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)
Article 1298. 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)
Article 1297. 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)
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F. NOVATION
DETERMINING THE EXISTENCE OF EXTINCTIVE NOVATION
‣
Novation of a contract may either be extinctive or modificatory, much being dependent on the nature of the change and
the intention of the parties.
‣
An extinctive novation would, thus, have the twin effects —
‣
1.
Extinguishing an existing obligation and
2.
Creating a new one in its stead
REQUISITES — For extinctive novation to arise, the following elements must be present —
1.
A previous valid and existing obligation — there must be an original existing obligation at the time of novation.
This means that the obligation must not only be valid, but also that it has not been extinguished by any cause.
2.
The agreement of all the parties to the new contract — novation requires the creation of a new contractual
relation, as well as the extinguishment of the old. There must be consent of all the parties to the substitution, resulting
in the extinction of the old obligation and the creation of a new one.
3.
The extinguishment of the old contract — this may take place by express stipulation in the new agreement
(express novation) or by implication from the incompatibility between the old the new contracts.
4.
The validity of the new contract — in order that a contract may be considered novated, it is indispensable that the
new contract which purports to annul the previous one be valid and effective.
REQUISITES OF EXTINCTIVE NOVATION (EXPOUNDED)
1.
THE EXISTENCE OF A VALID AND EXISTING ORIGINAL OBLIGATION
‣
There must be an original existing obligation at the time of novation. This means that the obligation must not only be
valid, but also that it has not been extinguished by any cause.
‣
This requisite is absent if either —
‣
a.
The original obligation was void (Art. 1298)
b.
The original obligation has already been judicially annulled.
c.
The original obligation has already been legally extinguished
BUT — when the original obligation was merely voidable, in the following instances, the novation is still valid —
‣
‣
1.
When the original obligation has already been ratified before the novation (Art. 1298)
2.
When annulment may be claimed only by the debtor (Art. 1298) — in this case, the consent of the debtor to the
novation will render the novation effective because such consent is a waiver of the action for annulment.
What if the original obligation had already prescribed, may novation still take place?
‣
TOLENTINO — YES. If the debtor consents. A new contract, recognising and assuming the prescribed debt,
would be valid and enforceable. The prescription, being available only to the debtor, can be waived by him, and he
does so by voluntarily promising to pay the prescribed debt.
‣
NOTE — A prescribed debt, constituting as it does a moral or natural obligation, may be the cause or
consideration of a new obligation to pay therefor. (Villareal v. Estrada)
What if the original obligation has been extinguished by loss or impossibility of performance, may novation still
take place?
‣
2.
PARAS — It depends —
a.
If the loss was purely because of a fortuitous event without liability on the part of the debtor — the novation is
VOID for there would be NO obligation to novate.
b.
If the loss made the debtor liable — there is still an existing monetary obligation that may be the subject of
novation.
THE AGREEMENT OF ALL THE PARTIES TO A NEW CONTRACT
‣
Novation requires the creation of a new contractual relation, as well as the extinguishment of the old. There must be
consent of all the parties to the substitution, resulting in the extinction of the old obligation and the creation of a new
one.
‣
EXCEPT — in the case of expromision, where the old debtor does not participate
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3.
BUT — The consent of the creditor to the change of debtors, whether in expromision or delegacion, is an
indispensable requirement. Substitution of one debtor for another may delay or prevent the fulfillment of the obligation
by reason of the inability or insolvency of the new debtor. Hence, the creditor should agree to accept the substitution
in order that it may be binding on him.
THE VALIDITY AND EFFECTIVITY OF THE NEW CONTRACT
‣
‣
If the new obligation is void, the original one shall subsist (Art. 1297) — In order that a contract may be considered
novated, it is indispensable that the new contract which purports to annul the previous one be valid and effective.
‣
EXCEPT — the parties intended that the former relation should be extinguished in any event. (Art. 1297)
‣
A mere draft of a contract which is not perfected because of the lack of consent of the parties, cannot extinguish a
prior and effective contract.
If the new contract is merely voidable — novation still becomes effective, as a voidable contract is considered valid
until judicially annulled.
‣
BUT — If the action to annul is brought, and the obligation is set aside, it will be deemed as if there had been no
novation, and the original obligation subsists
‣
‣
4.
EXCEPT — when the parties intended to definitely extinguish it at all events. (Art. 1297)
If the new obligation is subject to a suspensive condition — such as the obtaining of some signatures, and the
condition does not materialize, such new obligation never became valid or effective, so no novation has resulted.
Pending the happening of the condition, the old obligation cannot be considered as extinguished, nor can its
performance be enforced, it is as much in a state of suspense as the new one. If the condition is not fulfilled before
one of the parties withdraws from the proposed conditional contract, there is no novation at all.
THE EXTINGUISHMENT OF THE OLD CONTRACT, EXPRESSLY OR IMPLIEDLY
‣
Extinguishment may take place by express stipulation in the new agreement (express novation) or by implication from
the incompatibility between the old the new contracts (implied novation).
a.
Express Novation — when the novation is so declared in unequivocal terms
b.
Implied Novation — when the old and the new obligations be on every point incompatible with each other
‣
Extinctive novation is never presumed — there must be an express intention to novate. In cases where it is implied,
the acts of the parties must clearly demonstrate their intent to dissolve the old obligation as the moving consideration
for the emergence of the new one. Implied novation necessitates that the old obligation is completely superseded by
the new one.
‣
TEST — The test of incompatibility is whether they can stand together, each one having an independent existence, if
they cannot and are irreconcilable, the subsequent obligation would also extinguish the first. There must be complete
or substantial incompatibility.
‣
Implied novation is done by making substantial changes in either —
a.
The object or subject matter of the contract
‣
b.
Example — delivery of a car instead of a diamond ring
The cause or consideration of the contract
‣
c.
Example — an upward change in the price
The principal terms or conditions of the contract
‣
Examples —
‣
If a debt subject to a condition is made an absolute one without a condition. (Macondray v. Ruiz)
‣
Reduction of the term or period originally stipulated. (Kabankalan Sugar Co. v. Pacheco)
‣
When, without the consent of some subscribers, the capital stock of a corporation is increased. Here the
subscribers who did not consent to the increase are released or freed from their subscription. ((National
Exchange Co. v. Ramos)
‣
Mere accidental modifications or changes in an existing obligation do NOT extinguish it by novation — Mere
modifications of the debt do not constitute novation. When the changes refer to secondary agreements, and not to the
object or principal conditions of the contract, there is no novation, such changes will produce modifications of
incidental facts, but will not extinguish the original obligation.
‣
TOLENTINO — Ultimately, the determination of whether the changes in any given contract or obligation are sufficient
to bring about novation must depend upon the facts and circumstances of each case. The distinction between a
principal and an accidental condition inn the contract or obligation is relative. The legal effect of any change made by
the parties will depend upon a sound appreciation of their importance. The courts should consider, in each particular
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case, not only the nature of the clause that is modified, but also the intention of the parties and the economic
significance of the modification.
INSTANCES WHEN THE COURT HELD THAT THERE WAS NO EXTINCTIVE NOVATION (ONLY A MODIFICATORY NOVATION)
1.
When there are only slight alterations or modifications in the construction plans of a building. (Tiu Suico v. Habana)
2.
When the new contract merely contains supplementary agreement. (Asiatic Petroleum Co. v. Quary Sim Pao)
3.
When additional interest is agreed upon. (Bank of the P.I. v. Gooch)
4.
When additional security is given. (Bank of the P.I. v. Herridge).
5.
When, after a final judgment, a contract was entered into precisely to provide a method of payment other than that
stated in the judgment. (Zapanta v. Rotaeche)
‣
BUT — if the object of the new contract is to settle the judgment, by reducing the amount stated in the judgment, and
by stipulating an attorney’s fees in case of non-payment, and by inserting a penalty clause, the judgment may be
considered to have been novated. (Fua Cam Lu v. Yap Fauco)
6.
When a guarantor enters into an agreement with the creditor that he (the guarantor) will also be a principal debtor. (Here
the original principal debtor is not released from his obligation). (Santos v. Reyes)
7.
When the creditor in the meantime refrains from (or forbears from) suing the debtor (Teal Motors v. Continental Ins), or
even when the creditor merely extends the term of payment, for here the period merely affects the performance, not the
creation of the obligation. (Inchausti v. Yulo)
‣
BUT — guarantors who do not consent to the extension of term are released from their obligation of guaranty by
express provision of the law, and not because of any extinctive modification. (See Art. 2079)
8.
When the place of payment is changed or when there is a variation in the amount of partial payments. (Manresa).
9.
When a public instrument is executed to confirm a valid contract, whether oral or in a private instrument. (Manresa).
10. When payment of the purchase price for certain trucks is made by the execution of a promissory note for said price.
Here, there is no novation of the contract of sale. (Luneta Motor Co. v. Baguio Bus Co)
JURISPRUDENCE ON THE DETERMINATION OF THE EXISTENCE OF NOVATION
‣
‣
‣
‣
NOTE — The determination of whether implied novation is extinctive or merely modificatory is a fact-driven exercise
TIU SUICO V. HABANA 45 PHIL. 707
‣
FACTS — A engaged B to construct a building for him (A). In the process of the construction, many written alterations
were agreed upon and really made, but it was proved that essentially, the plans followed were the original plans. It
must be stated that in the contract, a specific amount for the construction was agreed upon. Later, when the building
was finished, the con- tractor wanted to abandon the original price on the ground that the alterations in the building
had caused an abandonment or a novation of the old contract. The contractor therefor wanted to be paid, not on the
basis of the contract, but on the basis of quantum meruit. The owner did not consent to this. Issue: Was there
novation here?
‣
HELD — There was no novation here. The old contract was not abandoned since, after all, the original plans were
followed. Therefore, without the consent of the owner, the contractor can- not treat the old contract as abandoned.
The contractor, without the consent of the owner, cannot recover on the basis of quantum meruit (on the work done).
Rather, the contract price will form the basis for payment, plus the cost of the alterations.
‣
NOTE — NOTE: Under Art. 1724 of the New Civil Code, the contractor cannot demand an increase in the price unless
the change in the plans and specifications was authorized in writing and the additional price to be paid was also
determined in writing by both parties. Under the old Civil Code, no such requisite in writing was essential.
ASIATIC PETROLEUM CO. V. QUAY SIM PAO (C.A.) 40 O.G. SUPP. NOV. 1, 1941
‣
FACTS — A, in a contract of agency with B, agreed to be the agent of the latter. In the course of the agency, the agent
was given certain privileges and facilities, which, however, were not incompatible with the old agreement.
‣
HELD — There was no novation here because there is real incompatibility between the old and the new agreements.
Besides, the new agreement was merely of a supplemental nature.
ZAPANTA V. ROTAECHE 21 PHIL. 154
‣
FACTS — In a final judgment, Zapanta was declared the debtor of Ortiz. Later, Zapanta and Ortiz agreed that the
judgment was to be extinguished by payment in monthly installments, with the stipulation that in case of default, Ortiz
could sue Zapanta. Zapanta later defaulted. Ortiz, to protect his rights, obtained an execution of the final judgment
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referred to, and so the property of Zapanta was levied upon. Zapanta now instituted this action for damages on the
ground that the execution was improper, the judgment having been extinguished by novation.
‣
‣
FUA CAM LU V. YAP FAUCO 74 PHIL. 287
‣
‣
‣
‣
HELD — The contract did not expressly extinguish the obligations existing in said judgment. On the contrary, it
expressly recognizes the obligations existing between the parties in said judgment, and expressly provides a method
by which the same shall be extinguished. The contract, instead of containing provi- sions absolutely incompatible with
the obligations of the judg- ment, expressly ratifies such obligations and contains provisions for satisfying them. The
said agreement simply gave Zapanta a method and more time for the satisfaction of the judgment. It did not
extinguish the obligations contained in the judgment until the terms of said contract had been fully complied with. Had
Zapanta continued to comply with the conditions of the contract, he might have successfully invoked its provisions
against the is- suance of an execution upon the said judgment. The contract and the punctual compliance with its
terms only delayed the right of the defendant to an execution upon the judgment. There was therefore no novation,
and execution was proper.
FACTS — A debtor was, by final judgment, ordered to pay P1,500, with legal interest and costs. Later, the debtor
executed a mortgage in favor of the judgment creditor containing the following terms —
1.
The debt was reduced to P1,200, payable in four monthly installments of P300 each.
2.
The debtor’s camarin was mortgaged to the creditor.
3.
In case of failure to pay any of the installments, the debtor would pay for attorney’s fees and judicial costs — in
the action to be brought by the creditor.
4.
The difference of P300 would have to be given to the creditor.
5.
The agreement was entered into as a settlement of the judgment.
HELD — There was extinctive novation, in view of the incompatibility between the judgment and the contract,
considering the fact that the judgment was payable at once, was unsecured, and contained a stipulation for attorney’s
fees. The contract was NOT a mere extension of the period within which to pay the judgment because the contract
itself stated that the promise to pay the P1,200 was precisely made as a settlement of said judgment. There would
have been no settlement had it not been implicitly agreed that the obligation in the judgment was considered by both
parties as already extinguished.
INCHAUSTI AND CO. V. YULO 34 PHIL. 978
‣
FACTS — Four people were solidarily bound in a contract made on Aug. 12, 1909. On May 12, 1911, three of them
made a contract with the creditor giving the three debtors different terms and conditions for the payment of the
obligation. Said new contract reaffirmed the liability of the debtor not present. When the absent debtor, Gregorio Yulo,
was asked to pay, he presented the defense of novation to the effect that the second contract is incompatible with the
first, and that, therefore, he should not be made to pay.
‣
HELD — Gregorio Yulo is wrong. Far from providing that the obligation of four was being substituted by the obligation
of three, the new contract ratified or reaffirmed the obligation of the absent debtor, and therefore the absent debtor,
Gregorio Yulo, must pay. With respect to the third, there can also be no doubt that the contract of May 12, 1911, does
not constitute a novation of the former one of Aug. 12, 1909, with respect to the other debtors who execute this
contract, or more concretely, with respect to the defendant Gregorio Yulo: First, because in order that an obligation
may be extinguished by another which substitutes it, it is necessary that it should be so expressly declared or that the
old and the new be incompatible in all points,’’ and the instrument of May 12, 1911, far from expressly declaring that
the obligation of the three who executed it substitutes the former signed by Gregorio Yulo and the other debtors,
expressly and clearly stated that the obligation of Gregorio Yulo to pay the two hundred and fifty-three thousand and
odd pesos sued for exists, stipulating that the suit must continue its course, and if necessary, these three parties who
executed the contract on May 12, 1911, would cooperate in order that the action against Gregorio Yulo might prosper
(7th point in the statement of facts), with other undertakings concerning the execution of the judgment which might be
rendered against Gregorio Yulo in this same suit. “It is always necessary to state that it is the intention of the
contracting parties to extinguish the former obligation by the new one. There exists no incompatibility between the old
and the new obligation as will be demonstrated in the resolution of the last point, and for the present we will merely
reiterate the legal doctrine that an obligation to pay a sum of money is not novated in a new instrument wherein the
old is ratified, by changing only the term of payment and adding other obligations not incompatible with the old one.’
PEOPLE V. NERY L-19567, FEB. 5, 1964
‣
FACTS — Soledad Nery was given by Federia Mantillaro two diamond rings to be sold by her. If successful, Nery was
supposed to receive a commission. She failed to return the rings or their cash value, so the owner sued her for estafa.
While the case was pending, she executed a deed of compromise, promising to pay for the money in installments.
After making one payment, she did not continue paying for the balance. She now contends that she ought to be
acquitted because the acceptance by the owner of the partial payment NOVATED the original relation between the
parties.
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‣
‣
‣
‣
HELD — She is still guilty of estafa, firstly, because the exaction of criminal responsibility is something that can be
renounced only by the State, not by the offended party; and secondly, because there was no intent to extinguish the
original relationship. The novation theory may perhaps apply PRIOR to the filing of the criminal information in court
because up to that time, the original trust relation may be converted by the parties into an ordinary creditor-debtor
situation, thereby placing the victim in estoppel should he insist on the original trust. But AFTER the filing of the case
in court, the offended party may no longer divest the prosecution of its power to exact the criminal liability as
distinguished from the civil. The crime being an offense against the State, only the latter may renounce the criminal
consequences. The acceptance of partial satisfaction cannot indeed effect the nullification of a criminal liability that is
already fully mature and in the process of judgment.
CARLOS B. GONZALES V. EULOGIO SERRANO L-25791, SEPT. 23, 1968
‣
FACTS — By virtue of an agreement which was on the sur- face one of C.O.D. (Cash on Delivery), but which was really
an agency to sell, Carlos B. Gonzales delivered to one Librada S. Asis certain flowers worth approximately P10,000.
When the woman took delivery of the flowers, she paid P2,000 cash and issued a check for P8,000. The next day, she
requested Gonzales not to deposit the check for she did not have sufficient funds in the bank as she had not yet been
able to dispose of the flowers. Gonzales agreed by not depositing the check. Nearly a month later she made a partial
payment of P5,500 on the balance. Regarding the remaining debt, she offered to return the unsold flowers
corresponding to the amount of the deficiency. Gonzales then sued her for estafa. Issue: Is she guilty of estafa?
‣
HELD — She is not guilty of estafa, in view of the following reasons —
1.
The agreement, although apparently one of C.O.D., was actually an agency to sell; she could return the unsold
goods instead of the price therefor. Here, she is willing to return; and even if she does not, there would only be a
civil obligation, not a criminal offense.
2.
Even granting that a trust relation had been created because of the C.O.D. and the issuance of the check, still
there would be no liability for a crime because the parties, a short time after the delivery of the check, changed
the original trust relation into an ordinary creditor-debtor situation. Hence, the novation of the contract took place
long before the filing of the criminal complaint.
LA CAMPANA FOOD PRODUCTS, INC. V. PCIB, ET AL. GR 46405, JUN. 30, 1986
‣
Where the mortgagee-bank agreed to guarantee the mortgagor’s foreign loan subject to the condition that the latter
should deposit with the former the proceeds of the loan which should be made available for payment to the
mortgagor’s obligation to a local financial institution and to serve as working capital, the mortgagee-bank did not
substitute the mortgagor as debtor to the financial institution.
‣
The mortgagee-bank’s guarantee has to be secured by the first mortgage on the assets then mortgaged to the said
bank and the assets offered as additional securities, which included the parcels of land mortgaged to the financial
institution. Hence, the mortgagee-bank requires the financial institution to lend the transfer certificates of title covering
the parcels of land mortgaged by the mortgagor to the financial institution for the mortgagee-bank to be able to
register its mortgage therein.
BISAYA LAND TRANSPORTATION CO., INC. V. SANCHEZ GR 74623, AUG. 31, 1987
‣
FACTS — A, the receiver of BISTRANCO, and S entered into a shipping agency contract whereby S was constituted
as shipping agent and was to receive 10% commission on all freight and passenger revenues coming from Butuan
City and 5% for all freight going to Butuan. Thereafter, a memorandum of agreement was entered into whereby the
rate of commission for freight and passage was reduced from 10% to 7-1/2% and the term of the contract reduced
from 5 years to a term of one year renewable yearly upon mutual consent. Later, BISTRANCO contacted the shippers
advising them to transact their business directly with its new branch office. S sued BISTRANCO for specific
performance. BIS- TRANCO answered that the working agreements executed by S and BISTRANCO novated the
agency contract.
‣
HELD — The memorandum of agreement was not meant to novate the contract. The intent of the parties was to
suspend some of the provisions of the contracts for a period of one (1) year, during which the provisions of the
Agreement will prevail. Thus, the agreement that: “It is in this spirit of cooperation with A to enable him to pay huge
obligations of the company that agent S has acceded to the request of BISTRANCO to accept the reduction of his
commissions.” It would not be equitable for S to say that the contracts were extinguished and substituted by the
Agreement. It would punish S for concessions he extended to BISTRANCO. The changes were not really substantial
to bring about novation. The changes between the contract and the agreement did not go into the essence of the
cause or object of the agreement. Under the agreement, S remains the agent of BISTRANCO. There is no clear
incompatibility. The contract and the agreement can be reconciled. The provisions of the agreement which were more
of changes on how to enforce the agency prevailed during the period provided in them, but after their expiration, the
conditions under the contracts were implemented again.
REYES V. CA 76 SCAD 29 (1996)
‣
The mere circumstance of the creditor receiving payments from a third party who acquiesced to assume the obligation
of the debtor when there is clearly no agreement to release the debtor from the responsibility does not constitute
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novation. At most, it only creates a juridical relation of co-debt- orship or suretyship on the part of the third party to
the contractual obligation of the debtor, and the creditor can still enforce the obligation against the debtor.
PASSIVE SUBJECTIVE NOVATION — SUBSTITUTION OF THE DEBTOR
Article 1293. Novation which consists in substituting a new debtor in the place of the original one, may be made even
without the knowledge or against the will of the latter, but not without the consent of the creditor. Payment by the new
debtor gives him the rights mentioned in articles 1236 and 1237. (1205a)
Article 1236. XXXX 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)
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. (1159a)
Article 1294. 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)
Article 1295. The insolvency of the new debtor, who has been proposed by the original debtor and accepted by the
creditor, shall not revive the action of the 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)
KINDS OF PASSIVE SUBJECTIVE NOVATON
1.
Expromision — substitution of the debtor without his consent
2.
Delegacion — substitution of the debtor with his consent
KINDS OF PASSIVE SUBJECTIVE NOVATON (EXPOUNDED)
1.
EXPROMISION — SUBSTITUTION OF THE DEBTOR WITHOUT HIS CONSENT
‣
REQUISITES —
a.
The initiative must come from a third person (who will be the new debtor) — The initiative for change does
not emanate from the debtor and may be made even without his knowledge, since it consists in a third person
assuming the obligation. The initiative comes from a third person and not the debtor.
b.
The new debtor and the creditor must consent — expromision merely involves the consent of a third person
(substituting the debtor) and the creditor.
‣
c.
NOTE — A substitution of debtor without the consent of the creditor is binding upon the parties to the
substitution but not on the creditor. (De Cortes v. Venturanza)
The old debtor must be excused or released from his obligation — It is essential that the old debtor be
released from his obligation, otherwise there will be no expromision, no novation.
‣
Examples —
‣
D owes C P1,000,000. F, a friend of D, approaches C and tells him: “I will pay you what D owes you.” C
agrees. Is there expromision here? NO. Under the facts given, there is no expromision because they did not
agree that D would be released from his obligation. If F therefore does not pay C, C will still be allowed to
collect from D. It is evident here that no nova- tion exists because it may be that C understood F to be
acting merely as the agent of D, although F may not have done so as such agent. Thus, it has been ruled
that if a creditor accepts partial payments from a third person who has decided to assume the obligation,
BUT there is no agreement that the first debtor shall be released from responsibility, no novation has yet
taken place, and the creditor can still enforce the obligation against the original debtor. (Magdalena Estates,
Inc. v. Rodriguez 1966)
‣
D owes C P1,000,000. F, friend of D, approaches C and tells him: “I will pay you what D owes you. From
now on, consider me your debtor, not D. D is to be excused. Do you agree?” C agrees. Is there expromision
here? YES, and even if F does not pay C, D cannot be held liable anymore because his obligation has
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already been extinguished. (Art. 1294 provides that: “If the substitution is without the knowledge or against
the will of the debtor, the new debtor’s insolvency or non-fulfillment of the obligation shall not give rise to
any liability on the part of the original debtor.”)
2.
DELEGACION — SUBSTITUTION OF THE DEBTOR WITH HIS CONSENT
‣
This is defined as a method of novation caused by the replacement of the old debtor by a new debtor, who (the old
debtor) has proposed him to the creditor, and which replacement has been agreed to by said creditor and by said new
debtor.
‣
REQUISITES —
a.
The initiative comes from the old debtor — The debtor offers and the creditors accepts a third person who
consents to the substitution. The initiative comes from the debtor, for it is he who delegates another to pay the
debt, and thus, he excuses himself.
b.
All the parties concerned must consent or agree — This involves the consent of the debtor, creditor and the
third (substituting the debtor)
Parties to delegacion —
‣
‣
i.
The delegante — the original debtor
ii.
The delegatario — the creditor
iii.
The delegado — the new debtor
The consent of the creditor may either be —
i.
Given in any form, it may be express, or may be implied from his acts
‣
c.
BUT — not from his mere acceptance of payment by a third party, for there is no true transfer of the
debt here (Pac. Com. Co. v. Sotto)
ii.
Before or after the new debtor has given his consent
iii.
May be conditional, but the condition has to be fulfilled; otherwise, there is no valid delegacion.
The old debtor must be released from the obligation — same with expromision, the debtor must be
discharged.
RIGHTS OF THE NEW DEBTOR (ART. 1236, 1237)
1.
EXPROMISION — THIRD PERSON PAYS WITHOUT THE CONSENT (KNOWLEDGE OR AGAINST THE WILL) OF THE DEBTOR
a.
Beneficial reimbursement — Third person may can recover only insofar as the payment has been beneficial to the
debtor
b.
No subrogation — Third person cannot compel the creditor to subrogate him in his rights (such as those arising from
a mortgage, guaranty, or penalty)
2.
DELEGACION — THIRD PERSON PAYS WITH THE CONSENT OF THE DEBTOR
a.
Full reimbursement — Third person may recover from the debtor what he has paid
b.
Subrogation — Third person can compel the creditor to subrogate him in his rights (such as those arising from a
mortgage, guaranty, or penalty)
IN CASE OF NON-FULFILMENT BY THE NEW DEBTOR (ART. 1294, 1295)
1.
EXPROMISION (ART. 1294)
‣
Creditor cannot recover against the original 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.
2.
DELEGACION (ART. 1295)
‣
Generally, the creditor also cannot recover against the original debtor
‣
‣
EXCEPT — the creditor can only recover in case the third person is —
a.
Insolvent at the time of the substitution
a.
Such fact of insolvency was of public knowledge, or known to the debtor at the time of substitution
NOTE — if the insolvency occurred only AFTER the delegation, the old debtor is not liable.
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Example — A owes B P1,000,000. A proposed to B that C will pay A’s debt, and that A will be released from all
liabilities. B and C agree to the proposal. Later, when B tries to collect from A, he finds out that C is insolvent. It
was proved that at the time of delegation, C was already insolvent but this was not known to A. Neither was the
insolvency of public knowledge. Nevertheless, B still sues A on the ground that it was A who made the proposal,
and that therefore A really guaranteed C’s insolvency. A is NOT liable, for the insolvency was neither of public
knowledge nor known to A at the time he delegated his debt. The law does not require A to give a blanket guaranty.
(Art. 1295).
This rule in Art 1295 does NOT apply if there really was no extinctive novation, such as —
a.
When the third person was only an agent, messenger, or employee of the debtor.
b.
When the third person acted only as guarantor or surety.
c.
When the new debtor merely agreed to make himself solidarily liable for the obligation.
d.
When the new debtor merely agreed to make himself jointly or partly responsible for the obligation. (Here the
delegacion is merely with reference to the joint or proportionate share.)
ACTIVE SUBJECTIVE NOVATION — SUBROGATION OF A THIRD PERSON IN THE RIGHTS OF THE
CREDITOR
Article 1300. 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)
Article 1301. Conventional subrogation of a third person requires the consent of the original parties and of the third
person. (n)
Article 1302. 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)
Article 2207. If the plaintiff's property has been insured, and he has received indemnity from the insurance company for
the injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be
subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract. If the amount
paid by the insurance company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover the
deficiency from the person causing the loss or injury.
Article 1303. 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)
Article 1304. A creditor, to whom partial payment has been made, may exercise his right for the remainder, and he shall
be preferred to the person who has been subrogated in his place in virtue of the partial payment of the same credit. (1213)
NATURE AND KINDS OF SUBROGATION
‣
Subrogation (extinctive subjective novation by change of the creditor) is the transfer to a third person of all the rights
appertaining to the creditor, including the right to proceed against guarantors, or possessors of mortgages, subject to
any legal provision or any modification that may be agreed upon.
‣
Kinds of of Subrogation —
1.
As to the cause or origin
a.
Conventional or voluntary subrogation — requires an agreement and the consent of the original parties and of
the creditor. It requires the intervention and consent of three persons — (a) original creditor, (b) new creditor, (c)
debtor. It must be clearly established, otherwise, it is as if no subrogation has taken place.
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Legal subrogation — takes place by operation of law. It is not presumed, except in the case expressly mentioned
in the law (such as in Art. 1302)
b.
2.
As to the extent
a.
Total subrogation
b.
Partial subrogation (here, there would now be two or more creditors)
KINDS OF SUBROGATION (EXPOUNDED)
1.
CONVENTIONAL OR VOLUNTARY SUBROGATION
‣
The consent of ALL the parties is essential —
a.
Original creditor — because his right is extinguished
b.
New creditor — because he becomes a party to a new relation
c.
Debtor — because the old obligation is extinguished, and he becomes liable under a new obligation
‣
2.
NOTE — Generally, the debtor loses the right to present against the new creditor any defense which he, the
debtor, could have set up against the old creditor.
LEGAL SUBROGATION
‣
Generally, legal subrogation is NOT presumed (Art. 1300)
‣
EXCEPT — in the following cases, it is presumed that there is legal subrogation —
a. WHEN A CREDITOR PAYS ANOTHER CREDITOR WHO IS PREFERRED, EVEN WITHOUT THE DEBTOR'S KNOWLEDGE
‣
BUT — the debtor can still set up against the new creditor, the defences which he could have used against the
new creditor, such as compensation, payments already made, or vice or defect of the original obligation
‣
Examples —
‣
‣
Ligaya has two creditors: Gloria, who is a mortgage creditor for P1,500,000, and Solita, who is an ordinary
creditor for P600,000. Solita, without Ligaya’s knowledge, paid Ligaya’s debt of P150,000 to Gloria. Here
Solita will be subrogated in the rights of Gloria. This means that Solita will herself now be a mortgage
creditor for P1,500,000, and an ordinary creditor for P600,000. If Ligaya fails to pay the P1,500,000 debt,
Solita can have the mortgage foreclosed (that is, the property can be sold at public auction, with Solita
being paid from the proceeds thereof). (NOTE: The answer will be the SAME if Solita paid with Ligaya’s
knowledge.)
‣
Suppose in the above-cited example, Solita paid Gloria only P1,300,000 for Ligaya’s total indebtedness
(Gloria agreed because of friendship), how much, concerning this debt, may Solita successfully recover from
Ligaya? The whole P1,500,000 because concerning this debt, Solita steps completely into the shoes of
Gloria.
‣
Suppose in problem above, Solita paid the P1,300,000 to Gloria without Ligaya’s knowledge, but it turns out
that at said time of payment, Ligaya’s debt had already been reduced to P300,000 (because of a prior partial
payment), how much can Solita successfully recover from Ligaya concerning this debt? Only said P300,000
because this is only the extent to which Ligaya had been benefited. It is Solita’s fault that she did not first
inform Ligaya of her intention to pay. Solita’s remedy now would be to recover the excess amount from
Gloria.
In legal subrogation caused by payment to a preferred creditor, may the debtor set up against the new
creditor defenses which he, the debtor, could have set up against the old creditor?
‣
PARAS — YES, for after all, the subrogation took place by operation of law. This effect differs from the
effect of conventional subrogation where the debtor gave his consent. Examples of such defenses are the
following: causes of vitiated consent like force, intimidation, minority, undue influence, error; other causes
like prior payment whether total or partial; remission; compensation, etc.
b. WHEN A THIRD PERSON, NOT INTERESTED IN THE OBLIGATION, PAYS WITH THE EXPRESS OR TACIT APPROVAL OF THE
DEBTOR
‣
Subrogation only applies in favour of the third person, not interested in the obligation, who pays, when there is
consent from the debtor, express or tacit.
‣
If the third person pays without the debtor's consent, there is NO subrogation — If the third person pays
the creditor without the consent of the debtor, he is only entitled to reimbursement from the debtor for the
amount paid by him to the extent that the debtor was benefited (beneficial reimbursement). Also if the amount
he paid is less than the credit, even if the creditor has accepted it has full payment, the third person is entitled
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to reimbursement only for what he actually paid. He cannot proceed against sureties, guarantors, or mortgages
and pledges.
‣
Examples —
‣
Eubolo owes Luna P1,000,000 secured by a mortgage. Blesilda, a classmate of Eubolo, and having no
connection with the contract at all, paid Luna the P1,000,000 with Eubolo’s approval. Is Blesilda subrogated
in Luna’s place? Yes, because although not interested in the obligation, she nevertheless paid off Luna with
the approval of the debtor.
‣
If in the above example, Blesilda, who is Luna’s friend, paid her only P700,000 for the extinguishment of
Eubolo’s debt, but the payment was made without the express or tacit approval of Eubolo, what would be
Blesilda’s rights, if any? There is no legal subrogation here because there was no express or implied
approval of Eubolo. Therefore, all that Blesilda can recover is P700,000 for this is the amount with which she
is supposed to be REIMBURSED (a giving back to her of what she had DISBURSED). If Eubolo does NOT
pay, Blesilda cannot have the mortgage foreclosed. For, as has been said, there has been no subrogation
here.
c. 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
‣
The persons who have an interest in the fulfilment of the obligation are those who would be benefited by the
extinguishment of the obligation
‣
Such as — joint co-debtors, sureties, guarantors the owner of the property mortgaged or pledged as
security for the debtor’s debt
‣
Payment under this provision does NOT require the consent nor knowledge of the debtor,
‣
Example — D owes C P1,000,000 secured by a mortgage and by a guaranty of G. If G, even without D’s
knowledge, pays C the P1,000,000, G will be subrogated in C’s place. But of course the guaranty is
extinguished. This is what the law means when it says that there is legal subrogation “with- out prejudice to the
effects of confusion as to the latter’s (payor’s) share in the obligation.”
‣
Is a solidary debtor included in the scope of “a person interested?”
‣
PARAS — Strictly speaking, NO, because when the solidary debtor pays the whole obligation to the
creditor, solidary obligation itself is extinguished. Therefore, it cannot be truly said that said solidary debtor
steps completely into the shoes of the creditor. Moreover, although the other solidary debtors must
reimburse him, this obligation to reimburse is not solidary, but merely joint, except of course that they are all
proportionately liable in the meantime for the insolvency of one of them.
‣
‣
BUT — In another (“loose”) sense, the solidary debtor may be said to fall under the category of an
“interested person” in that he steps in a way into the shoes of the old creditor, since he would be
entitled to collect reimbursement, but of course he cannot collect the whole amount anymore in view of
the “effect of confusion (or merger) as to his share.” (See Art. 1217)
TOLENTINO — When a solitary debtor pays the obligation, he is subrogated in the rights of the creditor,
the scope of his subrogation, however, should not be misunderstood. The payor cannot take advantage of
solidarity and recover the amount in excess of his share of the obligation from any of his co-debtors, the
solidarity terminates by his payment, and the obligation among the co-debtors becomes joint, each being
liable to the payor for his respective share. (See Art. 1217)
d. IN INSURANCE, UPON THE PAYMENT OF THE LOSS, THE INSURER IS ENTITLED TO BE SUBROGATED TO ANY RIGHT OF
ACTION WHICH THE INSURED MAY HAVE AGAINST THE THIRD PERSON WHO CAUSED THE LOSS (ART. 2207)
‣
If the plaintiff's property has been insured, and he has received indemnity from the insurance company for the
injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be
subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract.
‣
If the amount paid by the insurance company does not fully cover the injury or loss, the aggrieved party shall
be entitled to recover the deficiency from the person causing the loss or injury.
CONVENTIONAL SUBROGATION DISTINGUISHED FROM ASSIGNMENT OF CREDIT
‣
NOTE — assignment of credit is taken up under the law on sales. (See Art. 1624-1635)
‣
Is “conventional subrogation” the same as “assignment of credit”?
‣
TOLENTINO — NO. They are different. In the Argentine Civil Code, there is essentially no difference between
conventional subrogation and assignment of credit. The subrogation is merely the effect of the assignment. However,
under our Civil Code, conventional subrogation is NOT identical to assignment of credit. In the former, the debtor’s
consent is necessary, in the latter, it is not required. Subrogation extinguishes an obligation and gives rise to a new
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one, assignment refers to the same right which passes from one person to another. The nullity of an old obligation
may be cured by subrogation, such that the new obligation will be perfectly valid, but the nullity of an obligation not
remedied by the assignment of the creditor’s right to another.
CONVENTIONAL SUBROGATION
ASSIGNMENT OF CREDIT
Effect on the
Original Obligation
This extinguishes the original obligation, and creates
a new one
There is mere transfer of the same right or credit (the transfer
did not extinguish the credit)
Requirement of the
Debtor’s Consent
This requires the debtor’s consent
This does NOT require the debtor’s consent (mere
notification to him is sufficient)
Effect on Defects
in the Original
Obligation
The defect of the old obligation may be cured in such
a way that the new obligation becomes entirely valid.
The defect in the credit or right is NOT cured simply by
assigning the same (
(Here, there is no right to present against the new
creditor any defense which he, the debtor, could have
set up against the old creditor.)
Here, the debtor generally still has the right to present
against the new creditor any defense available as against old
creditor.)
EFFECTS OF SUBROGATION
1. FULL SUBROGATION — It transfers to the new creditors (persons subrogated the credit) with all the rights of the
old creditor, either against the debtor or against third person, be they guarantors or possessors of mortgages.
(Art. 1303)
‣
BUT — this is subject to stipulation in a conventional subrogation. (Art. 1303)
‣
The credit and all the appurtenant rights, either against the debtor, or against third persons, are transferred (thus, in a
sense the obligation subsists, that is, it has not yet been extinguished or paid).
‣
Example — D owes C P1,000,000. G is the guarantor. A stranger S paid C the P1,000,000 with the consent of D and
C. S is now subrogated in the place of C. If D cannot pay the P1,000,000, S can proceed against the guarantor, G.
‣
Effect of Presence of a Suspensive Condition — It is understood that if the transferred credit is subject to a
suspensive condition, the new creditor cannot collect until after said condition is fulfilled.
2. PARTIAL SUBROGATION — The old creditor to whom partial payment has been made, may exercise his right for
the remainder, and he shall be preferred to the new creditor in virtue of the partial payment of the same credit. (Art.
1304)
‣
Here, there are two creditors —
a. The old creditor, who still remains a creditor as to balance (because only a partial payment has been made to him);
b. The new creditor who is a creditor to the extent of what he had paid the creditor.
‣
Example — A owes B P500,000. With the consent of both, C pays B P250,000. Now B and C are the creditors of A to
the amount of P250,000. Suppose A has only P250,000 who should be preferred? B, the original creditor, should be
preferred inasmuch as he is granted by the law (Art. 1304, Civil Code) preferential right to recover the remainder, over
the person subrogated in his place by virtue of the partial payment of the same credit.
‣
NOTE — The preference is only in the assets remaining with the debtor (not those already transferred to others).
Therefore, the old creditor must assert his claim or preference over the assets only while they are still in the hands of
the sheriff who has levied on the properties. If done later, the preference given by this article ceases. (Molina v. Somes)
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V. GENERAL PROVISIONS ON CONTRACTS
V. GENERAL PROVISIONS ON CONTRACTS
NATURE, DEFINITION AND ELEMENTS OF A CONTRACT
Article 1305. A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other,
to give something or to render some service. (1254a)
NATURE OF CONTRACTS
‣
TOLENTINO —
‣
A contract, broadly speaking, is an agreement on the declaration of a common will. It has been defined in other codes
as “a bilateral legal transaction to create, modify, or terminate a legal tie between the parties.” Our code however,
follows a more restrictive definition, giving emphasis to the obligatory concept of contracts. The error in our definition,
however, lies in imperfect phraseology. It seems to limit the definition to cases, where one party binds himself to
perform a presentation in favour of another, excluding cases or reciprocal prestations.
‣
A better definition is given by Sanchez-Roman, who defines it as a “juridical convention manifested in legal form, by
virtue of which one or more persons bind themselves in favour of another or others, or reciprocally, to the fulfilment of
a prestation to give, to do, or not to do.”
‣
Some authors define contract as “an express convention”, but this is not accurate, because a contract can exist by
implication, as an attorney-client relationship when an attorney actually rendered legal services for another who is a
close friend.
‣
As a consensual relation, a contract must be shown to exist, as a fact, clearly and convincingly.
‣
Contract distinguished from other conventions —
‣
Although a contract is a convention, or agreement of wills, not every convention is a contract. A contract is limited
to agreements which product patrimonial liabilities. Contracts, therefore, are distinguished from other acts based
on the consent of two or more persons such as marriage, donation, adoption, and succession, in the following
ways —
1. A contract creates obligations which are more particular, concrete, and transitory, because it establishes a
relation which is more limited by reason of persons, effects, and importance.
2. In contract, the freedom to stipulate predominates over the necessity of the act, in other words, the intention of
the parties is the determining factor in contracts, while the meeting of the minds is merely secondary in the
other acts.
3. The law is the principal source of rights and obligations in the other acts mentioned, but in contracts, the law
has only a suppletory effect.
‣
Contract distinguished from other terms —
1. Perfect promise — is 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; until the contract is actually made, the rights and obligations are not yet determined.
2. Imperfect promise — designated also as policitacion, constitutes a mere unaccepted offer.
3. Pact — is a special part of the contract, sometimes merely incidental and separable from the principal agreement.
4. Stipulation — is similar to a pact. When a contract is in an instrument, a stipulation refers to the essential and
dispositive part, as distinguished from the exposition of the facts and antecedents from which it is based.
PARTIES TO A CONTRACT
‣
TOLENTINO —
‣
Number of Parties — the Code requires “two persons” for the existence of a contract, obviously, what is meant by
the law is “two parties”. For a contract to exist, therefore, there must be two parties to it. Hence, if one of the
supposed parties to the contract, was, at the time of its execution, already dead, the contract does not exist. Neither
can there be a contract when one of the parties to it is a supposed corporation that has no legal existence.
‣
Husband and Wife as Parties — Under Art. 1490, the husband and wife cannot sell property to each other, unless
there is a separation of property between them. Although that article applies expressly only to sales, it has not been
construed restrictively. Sale being the prototype or model of bilateral contracts, and the intent of the legislator being to
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extend it to contracts with the same purpose, jurisprudence has applied it to other contracts. The purpose behind the
prohibition is to protect the conjugal partnership. However, the husband and wife can enter into a contract of agency.
‣
One person as two parties (Auto-contracts) — Is it necessary for the existence of a contract that two distinct
persons enter into it, or is an auto-contract, where one person contracts with himself, valid? In other words, can the
same person make a contract, acting in the name of another in one capacity, and in his own name or that of a different
person in another capacity? Under our law, there is no general prohibition, but only special prohibitions, such as those
found in Art. 1491 and 1890 (for guardians, agents, executors, administrators, public officers and employees, etc.)
Thus, the validity of auto-contracts in our law is generally accepted. The existence of a contract is not determined by
the number of persons who intervene in it, but by the number of parties thereto, not by the number of individual wills,
but by the number of declarations of will. A contract, requires, not two persons, but two parties, not two wills, but two
declarations of will. The effective element is not in the formation of the will but in its declaration. In the auto-contract,
there are two declarations although made by the same person. So long as there are two distinct patrimonies, even if
they are represented by the same person, a juridical relation can be created between them. The declaration of will may
be made only by one person, but so long as he represents two different personalities, a contract can arise, because
the declaration manifests two distinct wills. This may take place (1) when a person, in his capacity as a representative
of another, contracts with himself, or (2) when as a representative of two different persons, he brings about a contract
between his principals by contracting with himself. In the absence of a general prohibition on such auto-contracts,
they must be held to be valid, except when there is a conflict of interest or a possibility of injury, and except when the
law expressly prohibits it in specific cases.
CHARACTERISTICS OF A CONTRACT
1. Obligatory force and compliance in good faith — a contract constitutes the law as between the parties (Arts. 1159 and
1315)
2. Autonomy — the parties have the freedom to decide and stipulate the terms and conditions of their contract, provided
not contrary to law, morals, good customs, public order, or public policy. (Art. 1306)
3. Mutuality — a contract’s validity and performance cannot be left to the will of only one of the parties. (Art. 1308)
4. Relativity — a contract is generally binding only upon the parties and their successors. (Art. 1311)
5. Consensuality (as a general rule) (Art. 1315)
ELEMENTS OF A CONTRACT
1. Essential elements — those without which there can be no contract
a. Consent
b. Subject matter
c. Cause or consideration
2. Natural elements — those found in certain contracts, and presumed to exist, unless the contrary has been stipulated. It
exists as part of the contract even if the parties do not provide for them, because the law, as suppletory to the contract,
creates them.
‣
Such as — warranty against eviction and against hidden defects in the contract of sale
3. Accidental elements — These are the various particular stipulations that may be agreed upon by the contracting parties
in a contract. They are called accidental, because they may be present or absent, depending upon whether or not the
parties have agreed upon them. They cannot exist without being stipulated.
‣
Such as — the stipulation to pay credit; the stipulation to pay interest; the designation of the particular place for
delivery or payment.
STAGES OF THE LIFE OF A CONTRACT
1. Preparation (or Conception or “Generacion”) — Here the parties are progressing with their negotiations; they have not
yet arrived at any definite agreement, although there may have been a preliminary offer and bargaining.
2. Perfection (or birth) — Here the parties have at long last came to a definite agreement, the elements of definite suject
matter and valid cause have been accepted by mutual consent.
3. Consummation (or death or termination) — Here the terms of the contract are performed, and the contract may be said
to have been fully executed.
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CLASSIFICATION OF CONTRACTS
1. AS TO PERFECTION OR FORMATION
a. Consensual — perfected by mere consent
‣
Such as — sale
b. Real — perfected by delivery
‣
Such as — depositum, pledge, commodatum
c. Formal or solemn — those where special formalities are essential before the contract may be perfected
‣
Such as — donation inter vivos of real property requires for its validity a public instrument
2. AS TO CAUSE OR EQUIVALENCE OF THE VALUE OF PRESENTATIONS
a. Onerous — where there is an interchange of equivalent valuable consideration
‣
Such as — sale
b. Gratuitous or lucrative — this is free, thus one party receives no equivalent prestation except a feeling that one has
been generous or liberal
‣
Such as — donation, commodatum
c. Remunerative — one where one prestation is given for a benefit or service that had been rendered previously
3. AS TO IMPORTANCE OR DEPENDENCE OF ONE UPON ANOTHER
a. Principal — where the contract may stand alone by itself
‣
Such as — sale, lease, loan
b. Accessory — this depends for its existence upon another contract
‣
Such as — a real estate mortgage as an accessory contract to a loan
c. Preparatory — where the parties do not consider the contract as an end by itself, but as a means through which
future transaction or contracts may be made
‣
Such as — agency, partnership
4. AS TO THE PARTIES OBLIGATED
a. Unilateral — where only one of the parties has an obligation
‣
Such as — commodatum (like the borrowing of a bicycle)
b. Bilateral (or synalagmatic) — where both parties are required to render reciprocal prestations
‣
Such as — sale
5. AS TO THE GOVERNING AUTHORITIES (AS TO THEIR NAME OR DESIGNATION)
a. Nominate (Special Contracts)— where the contract is given a particular or special name which is governed by a
particular set of provisions of law
‣
Such as — commodatum, partnership, sale, agency, deposit
b. Innominate (Contratos Innominados) — those not given any special name and is governed by the general laws on
contracts
‣
Such as —“do ut des,” meaning “I give that you may give”
6. AS TO THE RISK OF FULFILMENT
a. Commutative — where the parties contemplate a real fulfillment; therefore, equivalent values are given
‣
Such as — sale, lease
b. Aleatory — where the fulfillment is dependent upon chance; thus the values vary because of the risk or chance
‣
Such as — insurance contract
7. AS TO THE TIME OF PERFORMANCE OR FULFILMENT
a. Executed — one completed at the time the contract is entered into, that is, the obligations are complied with at this
time
‣
Such as — a sale of property which has already been delivered, and which has already been paid for. (In the case of
personal property, this results in tangible property itself, a “chose in possession.”)
‣
NOTE — If the whole or a part of the property or the price has been delivered, the contract may be said to be
“partially executed.”
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b. Executory — one where the prestations are to be complied with at some future time
‣
Such as — a perfected sale, where the property has not yet been delivered, and where the price has not yet been
given) (In the meantime, there is only a “chose in action.”)
8. AS TO SUBJECT MATTER
a. Contracts involving things
b. Contracts involving rights or credits (provided these are transmissible)
‣
Such as — contract of usufruct, or assignment of credits
c. Contracts involving services
‣
Such as — agency, lease of services, a contract of common carriage, a contract of carriage (simple carriage)
9. AS TO OBLIGATIONS IMPOSED AND REGARDED BY THE LAW
a. Ordinary — like sale; the law considers this as an ordinary contract
b. Institutional — like the contract of marriage; the law considers marriage also as an “inviolable social institution.”
‣
NOTE — Under Art. 1700 of the Civil Code, the law says that “the relations between capital and labor are not
merely contractual. They are so impressed with public interest that labor contracts must yield to the common
good.
10.AS TO THE EVIDENCE REQUIRED FOR ITS PROOF
a. Those requiring merely oral or parol evidence
b. Those requiring written proof (such as contracts enumerated under the Statute of Frauds)
11.AS TO THE NUMBER OF PERSONS ACTUALLY AND PHYSICALLY ENTERING INTO THE CONTRACTS
a. Ordinary — where two parties are represented by different persons, such as a sale.
b. Auto-contracts — where only one person represents two opposite parties, but in different capacities
‣
Such as — an agent representing his principal sells a specific car to himself, as a buyer
12.AS TO THE NUMBER OF PERSONS WHO PARTICIPATED IN THE DRAFTING OF THE CONTRACT
a. Ordinary — where both parties participate in the draft and deciding the terms and conditions of the contract, like an
ordinary sale
b. Contract of adhesion — where only one party decides and drafts the terms and conditions of the contract, and the
other simply “adheres” to it.
‣
Such as — one prepared by a real estate company for the sale of real estate; or one prepared by an insurance
company. Here, the buyer, or the person interested in being insured, signifies his consent by signing the contract. If
he does not desire to enter into the contract, it is his privilege to refuse.
CONTRACTS OF ADHESION
‣
‣
What are “contracts of adhesion”?
‣
It is one in which one of the parties imposes a ready-made form of contract, which the other party may accept or
reject, but cannot modify. One party prepares the stipulation in the contract, while the other party merely affixes his
signature or his "adhesion" thereto, giving no room for negotiation and depriving the latter of the opportunity to
bargain on equal footing. (Premiere Development Bank v. Central Surety & Insurance Company 2009)
‣
Such as — in the case of employment, banking or transportation contracts
Are contracts of adhesion valid?
‣
YES. “Contracts of Adhesion” and have been generally recognized by the Supreme Court as valid and legally binding
in a long line of cases. “They are not invalid per se and are not entirely prohibited, the rationale being, the one who
adheres to the contract is, in reality, free to reject it entirely, if he adheres, he gives his consent.
‣
The rule is that, should there be ambiguities in a contract of adhesion, such ambiguities are to be construed against
the party that prepared it. If, however, the stipulations are not obscure, but are clear and leave no doubt on the
intention of the parties, the literal meaning of its stipulations must be held controlling. A contract of adhesion is just as
binding as ordinary contracts. It is true that this Court has, on occasion, struck down such contracts as being
assailable when the weaker party is left with no choice by the dominant bargaining party and is thus completely
deprived of an opportunity to bargain effectively. Nevertheless, contracts of adhesion are not prohibited even as the
courts remain careful in scrutinizing the factual circumstances underlying each case to determine the respective
claims of contending parties on their efficacy. (Pilipino Telephone Corporation vs Tecson 2004)
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AUTONOMY OF CONTRACTS
Article 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem
convenient, provided they are not contrary to law, morals, good customs, public order, or public policy. (1255a)
Article 5. Acts executed against the provisions of mandatory or prohibitory laws shall be void, except when the law itself
authorizes their validity. (4a)
1987 CONSTITUTION
ARTICLE 3 — BILL OF RIGHTS
Section 10. No law impairing the obligation of contracts shall be passed.
FREEDOM TO ENTER INTO LAWFUL CONTRACTS
‣
Art. 1306 stresses the principle of freedom. The free entrance into contracts generally without restraint is one of the
liberties guaranteed to the people. (People v. Pomar) The contract is the law between the contacting parties. And where
there is nothing in the contract which is contrary to law, morals, good customs, public order, or public policy, the validity
of the contract must be sustained.
‣
TOLENTINO —
‣
The right to enter into lawful contracts constitutes one of the liberties of the people of the state. If that right be struck
down or arbitrarily interfered with, there is a substantial impairment of the liberty of the people under the Constitution.
The legislature, under the Constitution, is not permitted to prescribe the terms of a legal contract and thereby deprive
the citizens of the state from entering freely into such contracts according to their own convenience and advantage,
so long as the contracts entered into are not prohibited by law, public policy or morals. To enter into contracts freely
and without restrains, is one of the liberties guaranteed to the people of the state.
‣
The policy of the law is that the freedom of persons to enter into contract should not be lightly interfered with, and
courts should move with all the necessary caution and prudence in holding contracts void.
‣
Save in limited and exceptional situations provided by the law itself, courts have no authority to prescribe the terms
and conditions of a contract for the parties.
PRINCIPLE OF AUTONOMY OF CONTRACTS
‣
RULE — THE CONTRACTING PARTIES MAY ESTABLISH SUCH STIPULATIONS, CLAUSES, TERMS AND CONDITIONS AS THEY MAY
DEEM CONVENIENT, PROVIDED THEY ARE NOT CONTRARY TO EITHER —
1.
LAW
‣
‣
2.
This pertains only to —
a.
Mandatory or prohibitive laws — The law which the terms of a contract must not contravene are those
which expressly declare their obligatory character, or which are prohibitive, or which express fundamental
principles of justice which cannot be overlooked. Directory and suppletory laws need not be complied with,
since these are either discretionary, or merely supply the omissions of the parties. (See Art. 5)
b.
Laws in force at the time of the perfection of the contract — The contract of the parties must conform
with the law in force at the time the contract was executed. Statutes generally have no retroactive effect and
only the laws existing at the time of the execution of the contract are applicable to the transaction. (Relate this
with the non-impairment clause)
Contracts must respect the law, for the law forms part of the contract. Indeed, the provisions of all laws are
understood to be incorporated in the contract.
MORALS
‣
Morals deal with right and wrong (De los Reyes v. Alojado) and with human conscience. (Ibarra v. Aveyro)
‣
These are generally accepted principles of morality which have received some kind of social and practical
confirmation.
‣
There are certain matters with respect to which, in consonance of our concept of life under our social and
economic conditions, man must have freedom or decision, as to them, there cannot validly be bound by an
contractual stipulations.
‣
Examples of provisions which are contrary to morals —
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3.
‣
A promise to marry or not to marry, to secure legal separaton, 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
‣
A contract not to engage in work or labor
‣
A penalty clause providing for the payment of excessive interests which is immorally inequitable, shocking to
the human conscience.
‣
A promise of marriage based on a carnal consideration
‣
A contract to pay a sum in money in consideration of a crime
GOOD CUSTOMS
‣
TOLENTINO — This has the same meaning as “morals”. It is redundant.
‣
PARAS — Good customs are those that have received for a period of time practical and social confirmation.
According to the Code Commission, good customs and morals “overlap each other; but sometimes they do not.”
4.
PUBLIC ORDER
‣
Public order signifies the public weal, and includes public safety.
‣
Every contract affecting public interest suffers a con- genital infirmity in that it contains an implied reservation of
the police power as a postulate of the existing order. This power can be activated at any time to change the
provisions of the contract, or even abrogate it entirely, for the promotion or protection of the general welfare. Such
act will not militate against the impairment clause, which is subject to and limited by the paramount police power.
(Villanueva v. Castañeda, Jr. 1987)
5.
PUBLIC POLICY
‣
Public policy, which varies according to the culture of a particular country, is the “public, social and legal interest in
private law.” It is said to be the manifest will of a State.
‣
A contract is contrary to public policy if it “has a tendency to injure the public, is against the public good, or
contravenes some established interest of society, or is inconsistent with sound policy and good morals, or tends
clearly to undermine the security of individual’s rights.” (Gabriel v. Monte de Piedad)
‣
Examples of agreements which are contrary to public policy —
‣
Those denying access to the courts. (Manila Electric Co. v. Pasay Transportation)
‣
Those which tend to stifle the prosecution of a person charged with a crime, for a pecuniary or other valuable
consideration. (Arroyo v. Berwin) (NOTE: In a few cases, a compromise is, however, permitted.)
‣
Those exempting a carrier from liability for gross negligence. (Heacock v. Macondray)
‣
Those which encourage fraud. (Bough v. Cantiveros)
‣
Those which authorize any attorney selected by the creditor to state before the court, should suit for collection
be brought, that the debtor recognizes the existence and validity of the debt. (These are called “warrants of
attorney to confess judgment.” These are void because they deprive the debtor of his day in court.) (National
Bank v. Manila Oil Refining Co.)
‣
Those which constitute an undue or unreasonable restraint of trade, such as a prohibition to engage in any
enterprise (whether similar or not with the enterprise of the employer) within a period of five years after leaving
the service of the employer. (Ferrazzini v. Gsell) (If the restraint is reasonable, it should be given effect.)
(Ollendorf v. Abrahamson)
‣
A stipulation bargaining away or surrendering for a consideration the right to vote and to run for public office.
These are rights conferred not for individual or private benefit or advantages but for the public good and
interest. (Saura v. Sindico)
LAW WHICH GOVERNS CONTRACTS
Article 1307. Innominate contracts shall be regulated by the stipulations of the parties, by the provisions of Titles I and II
of this Book, by the rules governing the most analogous nominate contracts, and by the customs of the place. (n)
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KINDS OF CONTRACTS AS TO THE GOVERNING AUTHORITIES
V. GENERAL PROVISIONS ON CONTRACTS
Nominate contracts (Special Contracts) — where the contract is given a particular or special name which is governed
by a particular set of provisions of law
1.
‣
Such as —
‣
a.
Contract of sale
b.
Contract of loan
c.
Contract of lease
d.
Contract of agency
e.
Contract of partnership
f.
Contract of usufruct
g.
Contract of mortgage
h.
Contract of guaranty
i.
Contract of suretyship
Governing authorities — In the order of preference —
a.
Specific law under the civil code (law on sales, law on agency, etc.)
b.
Law on obligations and contracts
Innominate contracts (Contratos Innominados) — those not given any special name and is governed by the general
laws on contracts
2.
‣
‣
Classes of innominate contracts —
a.
I give and you give (Do ut des)
b.
I give and you do (Do ut facias)
c.
I do and you give (Facio ut des)
d.
I do and you do (Facio ut facias)
Governing authorities — In the order of preference —
a.
Law on obligations and contracts
b.
Rules governing the most analogous nominate contracts
c.
Customs of the place
OBLIGATORY FORCE OF CONTRACTS
Article 1159. Obligations arising from contracts have the force of law between the contracting parties and should be
complied with in good faith. (1091a)
Article 1315. Contracts are perfected by mere consent, and from that moment the parties are bound not only to the
fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may
be in keeping with good faith, usage and law.
‣
‣
Once contracts are perfected —
1.
It has the force of law between the contracting parties
2.
It should be complied with in good faith and in keeping with usage and law
TOLENTINO — The binding force of contracts are not limited to what is expressly stipulated, but extends to all
consequences which re thee natural effect of the contract, considering its true purpose, the stipulation it contains, and
the object involved. This extension is not determined by the name which the contracting parties may have given to the
contract, for the exact qualification of a contract is one of the limitations which are imposed on the liberty of the parties.
Contracts are not what the parties choose to call them, but what they really are as determined by principles of laws.
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MUTUALITY OF CONTRACTS
Article 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of
them. (1256a)
Article 1309. The determination of the performance may be left to a third person, whose decision shall not be binding
until it has been made known to both contracting parties. (n)
Article 1310. The determination shall not be obligatory if it is evidently inequitable. In such case, the courts shall decide
what is equitable under the circumstances. (n)
‣
RULE — THE CONTRACT MUST BIND BOTH CONTRACTING PARTIES, ITS VALIDITY OR COMPLIANCE CANNOT BE LEFT TO THE WILL
OF ONE OF THEM
‣
The principle is based on the essential equality of the parties. It is repugnant to bind one party, and yet leave the other
free. (Garcia v. Rita Legarda)
‣
The ultimate purpose of the principle of mutuality is to render void a contract containing a condition which makes its
fulfilment dependent exclusively upon the uncontrolled will of one of the parties.
‣
Consequences of the principle of mutuality —
Unilateral cancellations are NOT allowed — A party cannot revoke or renounce a contract without the consent
of the other, nor can it have it set aside on the ground that he had made a bad bargain. (Fernandez v. MRR)
1.
‣
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 if unilaterally or without the consent of the other. It is a general principle of law that no one
may be permitted to change his mind or disavow and go back upon his own acts, or to proceed contrary
thereto, to the prejudice of the other party. The unilateral act of one party in terminating the contract without
legal justification makes it liable for damages
‣
BUT — an agreement of the parties that either one of them may terminate the contract upon a
reasonable period of notice is valid.
‣
A judicial action for the cancellation or resolution of the contract is NOT necessary where the contract
provides that it may be revoked and cancelled for the violation of any of its terms and conditions.
‣
It is perfectly legal to leave the fulfilment of the contract to the will of either parties in the negative form of
rescission, a case which is frequent in certain contracts, for in such case neither is the principle of mutuality
violated, nor is there any lack of equality between the persons contracting, since they remain with the same
facilities in respect to fulfilment. Such cancellation of the contract is in accordance with the contract is as
much in the fulfilment of the contract as any other act which may have been subject of agreement.
Potestative suspensive conditions are void — When the fulfillment of the suspensive condition depends upon
the sole will of the debtor, the conditional obligation is void (Art. 1182)
2.
‣
BUT — a potestative resolutory condition is valid. It is all right for the contract to expressly give to one party
the right to cancel the same. This is because, when the contract is thus cancelled, the agreement is really
being fulfilled.
DETERMINATION BY A THIRD PERSON
‣
RULE — WHILE THE VALIDITY OR COMPLIANCE CANNOT BE LEFT TO THE WILL OF ONE OF THE PARTIES, THE DETERMINATION
OF THE PERFORMANCE MAY BE LEFT TO A THIRD PERSON
‣
NOTE — The decision the third person shall NOT be binding until it has been made known to BOTH contracting
parties.
‣
Examples —
‣
In a contract of sale, the fixing of the price and the delivery date can be left to a third person.
‣
An arbitration clause — If in a contract, there is a stipulation for arbitration, and one party, in case of dispute,
refuses to submit the matter to arbitration, the aggrieved party who goes to court to request it to order the other
party to submit the matter to arbitration, should NOT anymore present to the court the merits of the disputed
matters. The decision on said merits will be up to the arbitrator. The only function of the Court in this case would be
to decide whether or not the parties should proceed to arbitration. (Maguindanao Portland Cement Corp. v.
McDonough 1967)
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‣
BUT — The determination of such third person shall NOT be obligatory if it is evidently inequitable
‣
What is equitable is a question of fact, to be ascertained from the attendant circumstances.
‣
The court is called upon to decide what is equitable.
RELATIVITY OR PRIVITY OF CONTRACTS
Article 1311. Contracts take effect only between the parties, their assigns and heirs, except in case where the rights and
obligations arising from the contract are not transmissible by their nature, or by stipulation or by provision of law. The heir
is not liable beyond the value of the property he received from the decedent.
If a contract should contain some stipulation in favor of a third person, he may demand its fulfillment provided he
communicated his acceptance to the obligor before its revocation. A mere incidental benefit or interest of a person is not
sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a third person. (1257a)
Article 1178. Subject to the laws, all rights acquired in virtue of an obligation are transmissible, if there has been no
stipulation to the contrary. (1112)
Article 1312. In contracts creating real rights, third persons who come into possession of the object of the contract are
bound thereby, subject to the provisions of the Mortgage Law and the Land Registration Laws. (n)
Article 1313. Creditors are protected in cases of contracts intended to defraud them. (n)
Article 1314. Any third person who induces another to violate his contract shall be liable for damages to the other
contracting party. (n)
‣
RULE — CONTRACTS TAKE EFFECT AND BIND ONLY THE FOLLOWING PERSONS, AND THEY CANNOT AFFECT THIRD PERSONS —
1.
THE PARTIES TO THE CONTRACT THEMSELVES
‣
Contracts product the effect as between the parties who execute them.
‣
Even when the contract is ostensibly in the name of one person, if the other party knew that the person named did
not have any legal existence or any real interest in the contract, but that another person had the interest in and
was the real party to the contract, such contract will product effect with respect to the latter.
2.
THE PARTIES’ SUCCESSORS-IN-INTEREST (ASSIGNEES AND HEIRS)
‣
Generally, rights and obligations arising from contract are transmissible in nature. (Art. 1178)
‣
a.
The law provides otherwise;
b.
The contract provides otherwise
c.
The obligation is purely personal in nature
‣
Only parties and their successors-in-interests may sue to enforce the contract — only they can maintain an
action to enforce the obligations arising under the contract. Further, only they can ask for the declaration of its nullity
or annulment.
‣
Third persons are NOT bound or affected by the contract to which they are not a party of — The rights of a
person cannot be prejudiced by the act, declaration or omission of another. A contract cannot be binding upon and
cannot be enforced against one who is not a party to it, even if he is award of such contract and has acted with
knowledge thereof.
‣
‣
EXCEPT — they are in transmissible when either —
It is a basic principle in civil law that, with certain exceptions not obtaining in this case, a contract can only bind
the parties who had entered into it or their successors who assumed their personalities or their juridical positions,
and that, as a consequence, such contract can neither favor nor prejudice a third person. The obligation of
contracts is limited to the parties making them and, ordinarily, only those who are parties to contracts are liable for
their breach. Parties to a contract cannot thereby impose any liability on one who, under its terms, is a stranger to
the contract, and, in any event, in order to bind a third person contractually, an expression of assent by such
person is necessary. (Quano v. CA 1992)
EXCEPT — IN THE FOLLOWING CASES, THIRD PERSONS WHO ARE NOT PARTIES TO A CONTRACT MAY BE BOUND OR AFFECTED
BY IT —
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1.
Stipulation pour autrui (Art. 1311)
2.
Contracts creating real rights (Art. 1312)
3.
Contracts executed to defraud creditors (Art. 1313)
4.
Tortious interference (Art. 1314)
5.
Where the law authorizes the creditor to sue on a contract entered into by his debtor (accion directa)
6.
Where in some cases, third persons may be adversely affected by a contract where they did not participate or assent
to.
EXCEPTIONS TO THE PRINCIPLE RELATIVITY OF CONTRACTS (WHEN THIRD PERSONS ARE BOUND)
1.
STIPULATION POUR AUTRUI (ART. 1311)
‣
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.
‣
Stipulation pour autrui — is a stipulation in favor of a third person conferring a clear and deliberate favor upon him,
and which stipul tion is merely part of a contract entered into by the parties, neither of whom acted as agent of the
third person.
‣
REQUISITES —
‣
‣
2.
a.
There must be a stipulation in favor of a third person
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.
The third person must have communicated his acceptance (expressly or impliedly) to the obligor before its
revocation (revocation of the contract or the stipulation by the original parties)
e.
Neither of the contracting parties bears the legal representation or authorization of the third party.
Examples —
‣
D purchased C’s land for P10,000,000. It was also agreed that only P8,000,000 would be given to C, because the
remaining P2,000,000 would be given by D to X, a creditor of C. If X communicates his acceptance of the
stipulation to D, X can demand its fulfillment.
‣
Insurance taken by a taxi company in favor of its passengers.
‣
Insurance taken by the employer in favour of his employees
‣
When a bank enters into a contract with retail establishment to give honour the creditor card purchases of the
bank’s credit card holders
‣
A stipulation in a contract stating that the fruits of a certain parcel of land will be used for expenses connected with
specified religious festivities
‣
A stipulation in a contract whereby a letter of credit is opened in favor of a third party
NOTE —
‣
A stipulation pour autrui need not be in any particular form, and may even be inferred from the fact that the
beneficiary has enjoyed the same for a considerable period. (Florentino v. Encarnacion, Sr.)
‣
After acceptance of the stipulation by the third person, and there is non-performance, he can sue for action for
specific performance, resolution, and/or damages.
‣
Since the right of the third person is based directly on the contract, it is also subject to all the defences available
against the contract, such as those affecting the validity of the contract. Thus, the right of the third person does
not exist if the contract is void, and it disappears if it is annulled or rescinded.
CONTRACTS CREATING REAL RIGHTS (ART. 1312)
‣
In contracts creating real rights, third persons who come into possession of the object of the contract are bound
thereby, subject to the provisions of the Mortgage Law and the Land Registration Laws.
‣
A real right directly affects the property subject to it, hence whoever comes into possession of such proper must
respect that real right.
‣
Real rights over real property must be respected by third persons if either —
a.
Such real rights are registered
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b.
‣
3.
If the third person has actual knowledge of the existence of such rights (actual knowledge being equivalent to
registration)
Examples —
‣
A leased his land to B. The lease right was duly recorded in the Registry of Property. If A subsequently sells the
land to C while the lease still subsists, must C respect the lease? Yes, even if C did not participate in the lease
contract. This is because the land has now come into his possession, and there being a duly registered real right
thereon, he must respect said real right.
‣
A mortgages his land to B and subsequently registers the mortgage, and then sells it to C. The mortgage contract
creates a real right over the property, and if duly registered is binding on C. Although C is not a party to the
mortgage contract, he has to respect the mortgage in favour of B.
CONTRACTS EXECUTED TO DEFRAUD CREDITORS (ART. 1313, 1177, 1381, 1387)
‣
4.
When a debtor enters into a contract in fraud of his creditors, such as when he alienates property gratuitously without
leaving enough for his creditors, the latter, although not parties to the contract of alienation, may ask for its rescission.
TORTIOUS INTERFERENCE (ART. 1314)
‣
A third person may be held liable for damages because he has induced a party to the contract to violate the terms
thereof. An injured party may recover damages for unlawful interference with the contract by a third party.
‣
REQUISITES —
1.
The existence of a valid contract
2.
Knowledge by the third person of the existence of the contract
3.
Interference by the third person in the contractual relation without legal justification
‣
Example — S, a movie actress, has a one-year contract with XYZ Studio. If F, a friend of S induces her, without any
justifiable cause, to break the contract, then XYZ Studio can sue F for damages.
‣
Is “malice” an essential element?
‣
‣
5.
‣
It depends on the remedy sought. If the remedy sought is merely an injunction, whether mandatory (to compel) or
prohibitory (to prohibit), malice is NOT an element. BUT, if damages is sought, then malice is an element in tort
interference. (So Ping Bun vs CA, 1999; See also Gilchrist vs Cuddy)
‣
TOLENTINO — YES. Malice in some form is generally supposed to be an essential ingredient in cases of
interference with contract relations. But upon authorities it is enough if the wrongdoer, having knowledge of the
existence of the contract relation, in bad faith, sets about to break it up. Whether his motive is to benefit himself or
gratify his spite by working mischief to the other party to the contract, is immaterial. Malice in the sense of ill-will or
spite is not essential.
Is actual knowledge of the existence of the contract or the identity of the injured person required?
‣
NO. It is not necessary to prove actual knowledge on the part of the defendant, but he must nonetheless be aware
of the facts which, if followed by a reasonable inquiry, will lead to a complete disclosure of the contractual relations
and rights of the parties in the contract. (Lagon vs CA 2005)
‣
Knowledge of the identity of the injured person is NOT required. Nothing in Art. 1902 (provision on quasi-delict
under the old Civil Code) requires as a condition precedent to the liability of a tort-feasor that he must know the
identity of a person to whom he causes damages. In fact, the chapter wherein this article is found clearly shows
that no such knowledge is required in order that the injured party may recover for the damage suffered. (Gilchrist
vs Cuddy 1915)
What is the liability of the person liable for tortious interference?
‣
He is solidarily liable with the party obligated under the contract as joint-tortfeasors. The rule is that the defendant
found guilty of interference with contractual relations cannot be held liable for more than the amount for which the
party who was inducted to break the contract can be held liable. (Go vs Cordero 2010)
‣
The stranger cannot become more extensively liable in damages for the nonperformance of the contract than the
party in whose behalf he intermeddles. To hold the stranger liable for damages in excess of those that could be
recovered against the immediate party to the contract would lead to results at once grotesque and unjust. (Daywalt
v. Corporacion de PP Agustinos Recoletos 1919)
WHERE THE LAW AUTHORIZES THE CREDITOR TO SUE ON A CONTRACT ENTERED INTO BY HIS DEBTOR (ACCION DIRECTA)
‣
Examples —
‣
Even if a lessor does not have to respect a sublease, still the “sub-lessee is subsidiarily liable to the lessor for any
rent due from the lessee.” (Here is an instance where the lessor can sue the sub-lessee.) (Art. 1652). Moreover,
“without prejudice to his obligation toward the sub-lessor, the sub-lessee is bound to the lessor for all acts which
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refer to the use and preservation of the thing leased in the manner stipulated between the lessor and the
lessee.” (Art. 1651)
6.
‣
That given under Art. 1729 of the Civil Code which states: “Those who put their labor upon or furnish materials for
a piece of work undertaking by the contractor have an action against the owner up to the amount owing from the
latter to the contractor at the time claim is made. However, the following shall not prejudice the laborers,
employees, and furnishers of materials: (1) Payment made by the owner to the contractor before they are due; (2)
Renunciation by the contractor of any amount due him from the owner. This article is subject to the provisions of
special laws.”
‣
A house owner, even if he did not participate therein, is bound by the contracts entered into between contractors
on the one hand, and laborers or materialmen on the other hand, such that the owner may be held liable for
payment by such laborers or materialmen. This is an exception to the rule on privity of contracts enunciated in Art.
1311, and is justified by the provision of Act 3959 and Art. 2242(3 and 4). (Velasco vs CA 1980)
WHERE IN SOME CASES AUTHORIZED BY LAW, THIRD PERSONS MAY BE ADVERSELY AFFECTED BY A CONTRACT WHERE THEY
DID NOT PARTICIPATE OR ASSENT TO
a.
Contracts creating real rights (Art. 1312)
b.
Collective contracts
‣
This is clearly evident in the case of “collective contracts”. These are cases where there law authorizes the will of
the majority to bind a minority to an agreement notwithstanding the opposition of the latter, when all have a
common interest in the juridical act.
‣
The basis of the rule on collective contracts is that a co-ownership is legally presumed among the persons having
a common interest, hence the rule of the required majority is imposed on the minority.
‣
Examples —
‣
In collective bargaining contracts by labor organizations under the Labor Code
‣
In suspension of payments and compositions under the Insolvency Law.
c.
In the quasi-contract of “negotiorum gestio,” some contracts entered into by the unauthorized manager
(gestor) may bind the owner. (Arts. 2150-2151)
d.
In a contract which creates a status, the whole world must respect such status
‣
Example — when X marries Y, the whole world must realize that the marriage subsists, and that to have carnal
knowledge with the wife would not result in the commission of adultery
PERFECTION OF CONTRACTS
Article 1315. Contracts are perfected by mere consent, and from that moment the parties are bound not only to the
fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may
be in keeping with good faith, usage and law. (1258)
Article 1316. Real contracts, such as deposit, pledge and commodatum, are not perfected until the delivery of the object
of the obligation. (n)
EFFECT OF PERFECTION OF CONTRACTS
‣
The perfection of a contract is the moment from which it exists, the juridical tie and obligatory force of the contract
between the parties arises from that time.
KINDS OF CONTRACTS AS TO THE MODE OF PERFECTION
1.
Consensual contracts — that referred to in Art. 1315, these are contracts which are perfected by mere consent, which
is the meeting of the minds of the parties upon the terms of the contract. The consent may be made expressly or
impliedly. They are are perfected from the moment there is agreement (consent) on the subject matter, and the cause or
consideration.
2.
Real contracts — that referred to in Art. 1316, these are contracts which are not perfected by mere consent perfected
but such perfection also requires the delivery of the object of the contract.
‣
Such as — deposit, pledge and commodatum
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3.
Formal or solemn contracts — contracts which require compliance with special external formalities for the validity and
perfection of the contract
‣
Such as — A simple donation inter vivos of real property, to be valid and perfected, must be in a public instrument (Art.
749)
CONTRACTS MADE BY A PERSON ON BEHALF OF ANOTHER
Article 1317. No one may contract in the name of another without being authorized by the latter, or unless he has by law a
right to represent him.
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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VI. ESSENTIAL REQUISITES OF CONTRACTS
VI. ESSENTIAL REQUISITES OF CONTRACTS
IN GENERAL
Article 1318. There is no contract unless the following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established. (1261)
ESSENTIAL REQUISITES OF CONTRACTS
1.
2.
3.
Consensual contracts
a.
Consent — of the contracting parties
b.
Object— the subject-matter of the contract, which should be an object certain
c.
Cause or consideration — of the obligation which is established
Real contracts
a.
Consent
b.
Object
c.
Cause or consideration
d.
Delivery — of the object of the contract
Formal or solemn contracts
a.
Consent
b.
Object
c.
Cause or consideration
d.
Compliance with the formalities prescribed by law
CONSENT
REQUISITES
CAUSE
1.
There must be a meeting of the
minds
1.
It must be within the commerce
of man
2.
There must be at least two parties
to the contract who are legally
capacitated to give consent
2.
It must be licit, or not contrary to
law, morals, good customs
public order or public policy
It must be voluntarily, freely,
wilfully, and intelligently given
(there must be no mistake, fraud,
violence, intimidation or undue
influence)
3.
It must be possible
4.
It must be an object certain such
that it is determinate at least as
to its kind
3.
EFFECT OF
ABSENCE IN
THE
REQUISITES
OBJECT
4.
It must have been intended and
truly given (intent to be bound)
1.
Contract is void — if the first
requisite is absent, such that there
is no meeting of the minds
2.
Contract is merely voidable — if
the second or third requisite is
absent
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1.
It must exist
2.
It must be
true
3.
It must be licit
Contract is void
OBLIGATIONS AND CONTRACTS
CIVIL LAW REVIEWER
VI. ESSENTIAL REQUISITES OF CONTRACTS
A. CONSENT OR MEETING OF THE MINDS
A. CONSENT OR MEETING OF THE MINDS
CONSENT IN GENERAL
REQUISITES OF CONSENT IN GENERAL
1.
There must be a meeting of the minds — culminating in the knowledge of the unconditional acceptance of the offer
‣
NOTE — The acceptance may be subject to a suspensive condition, in such case, the ultimate contract is perfected
only upon the fulfilment of the suspensive condition. (Such as a contract to sell)
2.
There must be at least two parties to the contract who are legally capacitated — this must not be confused with the
number of persons. A single person can represent two parties, and one party can be composed of two or more persons.
Also, the parties must be legally capacitated under the law.
3.
It must be voluntarily, freely, wilfully, and intelligently given — there must be no vitiation of consent
4.
It must have been intended and truly given (intent to be bound) — the consent must not have been simulated and the
parties must have intended to be bound. There should be a conformity of the internal will and its manifestation.
EFFECT OF ABSENCE IN THE REQUISITES
1.
Contract is void — if the first requisite is absent, such that there is no meeting of the minds
2.
Contract is merely voidable — if the second or third requisite is absent
‣
NOTE — Only the absence of the first requisite renders consent inexistent, the other two requisites, if absent, only
renders the consent defective but nonetheless existent. Thus, the 2nd and 3rd requisites are not really requisites to the
validity of the contract but merely to a perfect or non-defective contract as they only render the contract voidable in their
absence.
MEETING OF THE MINDS — OFFER AND ACCEPTANCE; STAGES IN THE PERFECTION OF A
CONTRACT
Article 1319. Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which
are to constitute the contract. The offer must be certain and the acceptance absolute. XXXXXX
Article 1321. The person making the offer may fix the time, place, and manner of acceptance, all of which must be
complied with.
(n)
Article 1323. An offer becomes ineffective upon the death, civil interdiction, insanity, or insolvency of either party before
acceptance is conveyed. (n)
Article 1324. When the offerer has allowed the offeree a certain period to accept, the offer may be withdrawn at any time
before acceptance by communicating such withdrawal, except when the option is founded upon a consideration, as
something paid or promised. (n)
Article 1325. Unless it appears otherwise, business advertisements of things for sale are not definite offers, but mere
invitations to make an offer. (n)
Article 1326. 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)
Article 1320. An acceptance may be express or implied. (n)
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VI. ESSENTIAL REQUISITES OF CONTRACTS
A. CONSENT OR MEETING OF THE MINDS
Article 1319. XXXX The offer must be certain and the acceptance absolute. A qualified acceptance constitutes a counteroffer.
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)
Article 1322. An offer made through an agent is accepted from the time acceptance is communicated to him. (n)
CONCEPT AND NATURE OF CONSENT
‣
The essence of consent is the conformity of the parties on the terms of the contract, the acceptance by one of the offer
made by the other.
‣
It is the concurrence of the minds of the parties on the object and the cause which shall constitute the contract. The area
of agreement must extend to all points that the parties deem material or there is no consent.
‣
When there is merely an offer by one party without an acceptance by the other there is no consent.
STAGES IN THE PERFECTION OF A CONTRACT; HOW CONSENT IS ACHIEVED
1.
STEP 1 — There is an offer initiated and made by one of the parties which is certain, definite, complete and intentional
2.
STEP 2 — There is an unconditional acceptance by the other party
3.
STEP 3 — Knowledge of the acceptance by the offeror
STAGES IN THE PERFECTION OF A CONTRACT (EXPOUNDED)
1.
STEP 1 — THE OFFER — THERE IS AN OFFER INITIATED AND MADE BY ONE OF THE PARTIES WHICH IS CERTAIN, DEFINITE,
COMPLETE AND INTENTIONAL
‣
An offer is a unilateral proposition which one party makes to the other for the celebration of the contract. It exists only
if the contract can come into existence by the mere acceptance by the offer, without any further act on the part of the
offeror. It must be —
a.
Certain or definite — the offer must be definite, so that upon acceptance an agreement can be reached on the
whole contract. The offer must be distinguished from mere communications indicating that a party is disposed to
enter into a certain contract, or inviting the other to make an offer.
b.
Complete — the offer must indicate with sufficient clearness the kind of contract intended and definitely stating
the essential conditions of the proposed contract, as well as the non-essential ones desired by the offeror. Thus,
in a contract of sale, the offer must specify the object and price.
c.
Intentional — an offer without seriousness made in such manner that the other party would not fail to notice such
as lack of seriousness is absolutely without juridical effects and cannot give rise to a contract. These are those
made for fun or in jest, or as merely for courtesy, or as examples in teaching or apparent promises whose
inconsistency for the promisor is evident, etc.
‣
‣
‣
In order that an offer can be considered certain, it must not be vague, misleading, or made as a joke. Therefore, a
declaration of a person of “his intention to enter into a contract” is not an offer that is certain. If the offer is
withdrawn before it is accepted, there is no meeting of the minds.
If the offer is not definite or complete, it is merely an “invitation to make an offer” and NOT an offer —
‣
‣
BUT — If by reason of the form or the circumstances surrounding it, or because of the fault of the offeror, the
offer is induced to take it seriously, it becomes necessary to determine whether the real intention or the
manifested intention should prevail.
Such as — Business advertisements of things for sale are not definite offers, but mere invitations to make an offer.
(Art. 1325) 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. (Art. 1326)
When the offer becomes ineffective —
When either any of the following occurs against either party before acceptance is conveyed. (Art. 1324) —
a.
i.
Death
ii.
Civil interdiction
iii.
Insanity
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VI. ESSENTIAL REQUISITES OF CONTRACTS
A. CONSENT OR MEETING OF THE MINDS
iv.
Insolvency
b.
When the offeree expressly or impliedly rejects the offer.
c.
When the offer is accepted with a qualification or condition (for here, there would merely arise a counter-offer).
d.
When before acceptance is communicated, the subject matter has become illegal or impossible.
e.
When the period of time given to the offeree within which he must signify his acceptance has already lapsed.
f.
When the offer is revoked in due time (that is, before the offeror has learned of its acceptance by the offeree).
‣
Examples —
‣
A makes an offer to B on Jan. 1. B makes known his acceptance in a letter received at the house of A on Jan. 5.
However, on Jan. 4, A had died. Here, the offer is ineffective because there was no meeting of the minds.
‣
A makes an offer to B on Jan. 1. B writes a letter on Jan. 3, accepting the offer. This letter is received by A on
Jan. 5. But on Jan. 4, B had died. Here the offer is also ineffective, because there was no meeting of the minds.
‣
‣
NOTE — If one of the parties at the time of making the offer OR the acceptance was already insane, it may
be said that there is a meeting of the minds, in a sense, because the contract is not void, but merely
VOIDABLE, that is, it is valid until annulled.
The offeror determines how the offer should be accepted — The person making the offer may fix the time, place,
and manner of acceptance, all of which must be complied with (Art. 1321)
a.
Period or time for acceptance — when the offeror has stated a fixed period for acceptance, the offeree may
accept at any time until such period expires.
‣
Examples —
‣
B, interested in a particular car at a car exchange company, asked S for the price. S said: “P3,500,000.” B
however could not make up his mind whether to buy or not. So S told B, “B, I’ll give you a week to make up
your mind. In the meantime, I will reserve this car for you.” Before the week is over, can S withdraw the offer
to sell the car for P3,500,000? Yes, provided B has not yet signified his acceptance of the offer to sell, that
is, B has not yet bought the car, and provided that S communicates such withdrawal to B. Thus, S may,
without liability to B, sell to another.
‣
A offered to sell his house and lot for P10M to B, who was interested in buying the same. In his letter to B, A
stated that he was giving B a period of one month within which to raise the amount, and that as soon as B is
ready, they will sign the deed of sale. One week before the expiration of the one-month period, A went to B,
and told him that he is no longer willing to sell the property unless the price is increased to P15M. May B
compel A to accept the P10M first offered, and execute the sale? Reasons. No, because here the promise
to sell (or the option granted B to buy) had no cause or consideration distinct from the selling price. (Arts.
1479 and 1324
b.
No period or time for acceptance — the offer must accept immediately, otherwise, the offer becomes
ineffective.
c.
Offeror may grant an option contract — this is a preparatory contract in which the offeror grants to the offeree,
for a fixed period and under specified conditions, the power to decide whether or not to enter into a principal
contract.
‣
It must be supported by an independent consideration, and the grant must be exclusive. It binds the party who
has given the option not to enter into the principal contract with any other person during the period designated,
and, within that period, to enter into such contract with the one to whom the option was granted if the latter
should decide to use the option.
‣
An option is a contract granting a person the privilege to buy or not to buy certain objects at any time within
the agreed period at a fixed price. The contract of option is a separate and distinct contract from the contract
which the parties may enter into upon the consummation of the contract. Therefore, an option must have its
own cause or consideration, a cause distinct from the selling price itself.
‣
NOTE — If there is an option contract, the offeror can still withdraw the offer but is liable for damages based on
the breach of the option contract —
‣
i.
Acceptance after withdrawal — a contract CANNOT arise, but the grantor is liable for damages on the
basis of breach on the option contract
ii.
Acceptance before withdrawal — there is already a perfected contract
BUT — If the option is NOT supported by an independent consideration, the offer can withdraw the privilege at
any time by communicating the withdrawal to the other party, even if the option had already been accepted.
This is particularly so in a promise to buy and sell, for under Art 1479 “an accepted unilateral promise to buy or
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A. CONSENT OR MEETING OF THE MINDS
sell a determinate thing for a price certain is binding upon the promisor if the promise is supported by a
consideration distinct from the price. This means that the option can still be withdrawn even if accepted if the
same is not supported by any consideration.
‣
2.
NOTE — Option money is NOT earnest money. Option money is the consideration of an option contract, while
earnest money is considered part of the price in a contract of sale and can be a proof of the perfection of the
contract of sale
STEP 2 — THE ACCEPTANCE — THERE IS AN UNCONDITIONAL ACCEPTANCE BY THE OTHER PARTY
‣
If there is completely no acceptance or if the offer is expressly rejected, there is no meeting of the minds.
‣
Form of acceptance (Art. 1320) — Acceptance may either be —
a.
Express
b.
Implied — from conduct, or acceptance of unsolicited services
c.
Presumed — presumed by law as when there is failure to repudiate hereditary rights within the period fixed by
law (See Art. 1057); or when there is silence in certain specific cases as would tend to mislead the other party,
and thus place the silent person in estoppel.
Qualified acceptance — To produce a contract, the acceptance must not qualify the terms of the offer. There is no
acceptance sufficient to product consent, when a condition in the offer is removed, or a pure offer is accepted with a
condition, or when a term is established, or changed, in the acceptance, or when a simply obligation is converted by
the acceptance into an alternative one. In other words, something else is desired which is not exactly what is
proposed in the offer.
‣
‣
‣
There may be a conditional acceptance by the other party this is considered as a “counter-offer” subject again to
unconditional acceptance by the other. If the acceptance be qualified or not absolute, there is no concurrence of
minds. There merely is a counter-offer.
‣
Example — A went to a store and offered to buy a certain watch for P100,000. The seller said he was willing to give
it for P120,000. Whereupon, A turned to go away because he did not want to pay that price. The seller called him
back and said he was willing to sell the watch for P100,000. Is A allowed not to buy said watch? Yes. A’s offer was
P100,000. This was not accepted. Or granting that the proposal of P120,000 was a sort of acceptance, the
statement that the buyer could have it for P120,000 was not absolute. It was a qualified acceptance and hence,
under the law, constitutes a counter-offer. Hence, when the seller said P120,000, he was not really accepting the
offer to buy. Now, when he was going to give it for P100,000, he was not really accepting the offer of A, but was
making another offer, a counter-offer since the offer made by A previously had been rejected by him (the seller).
Offer and acceptance made through another person —
a.
Agent — an offer made through an agent is accepted from the time acceptance is communicated to such agent
(In this case, the agent is specifically empowered to act for the offeror)
b.
Intermediary —an intermediary who has no power to bind either the offeror or the offer is not an agent, his
situation is similar to that of a letter carrier. The communication of the acceptance to him does not perfect the
contract, this occurs only when he in turn communicates such acceptance to the offeror.
‣
What if the principal himself made the offer, and acceptance is communicated to the agent, would the
Article apply? In other words, would there already be a meeting of the minds?
‣
3.
PARAS — It is submitted that as a general rule, there would as yet be no meeting of the minds, for the agent
may be an ordinary one, not authorized to receive the acceptance for the PARTICULAR transaction. However, if
the agent was expressly authorized to receive the acceptance, or if the offeree had been told that acceptance
could be made direct with the agent, who would then be given freedom to act or to proceed, there can be a
meeting of the minds and a perfection of the contract.
STEP 3 — KNOWLEDGE OF ACCEPTANCE — KNOWLEDGE OF THE ACCEPTANCE BY THE OFFEROR
‣
A contract is perfected only from the time an acceptance of an offer is made known to the offeror.
‣
Even if there bas been an unconditional acceptance of the offer by the offer, no contract will arise unless that
acceptance is made known to the offeror. Unless the offeror knows of the acceptance, there is no meeting of the
minds of the parties, no real concurrence of offer and acceptance.
‣
This is known as the “cognition theory”
‣
Knowledge may be actual or constructive — The knowledge may be actual or constructive (as when the letter of
acceptance has been received in the house of the offerer by a person possessed of reasonable discernment). If actual
knowledge be required, proof of this would be almost impossible, for even when the letter containing the answer has
been opened and read, the offerer can always claim, in some cases truthfully, that while he was reading the same, his
mind was elsewhere, and he did not actually know the contents of said answer.
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VI. ESSENTIAL REQUISITES OF CONTRACTS
A. CONSENT OR MEETING OF THE MINDS
WITHDRAWAL OF THE OFFER OR ACCEPTANCE
‣
‣
Both the offer and the acceptance can be revoked before the contract is perfected.
‣
Since the contract is perfected only from the time the acceptance is known to the offeror, it is clear that said offeror
may withdraw his offer at any time before he learns of the acceptance, even if such acceptance has already been
made, but not made known to him.
‣
The acceptance may also be revoked before it comes to the knowledge of the offeror. Thus, where the offer has sent
his acceptance, but then sends a rejection or a revocation of the acceptance, which reaches the offeror before the
acceptance, there is no meeting of the minds, because the revocation has cancelled or nullified the acceptance which
thereby ceased to have any legal effect.
TOLENTINO — An offer without a period must be considered as become ineffective after the lapse of more than the time
necessary for its acceptance, taking into account the circumstances and social conditions.
LEGAL INCAPACITY OF THE PERSONS TO GIVE CONSENT
Article 1327. 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)
Article 1328. Contracts entered into during a lucid interval are valid. Contracts agreed to in a state of drunkenness or
during a hypnotic spell are voidable. (n)
Article 1329. 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)
Article 1403. The following contracts are unenforceable, unless they are ratified:XXXXX
(3) Those where both parties are incapable of giving consent to a contract.
Article 1489. XXXX Where necessaries are those sold and delivered to a minor or other person without capacity to act, he
must pay a reasonable price therefor. Necessaries are those referred to in article 290.
Article 38. Minority, insanity or imbecility, the state of being a deaf-mute, prodigality and civil interdiction are mere
restrictions on capacity to act, and do not exempt the incapacitated person from certain obligations, as when the latter
arise from his acts or from property relations, such as easements. (32a)
Article 39. The following circumstances, among others, modify or limit capacity to act: age, insanity, imbecility, the state
of being a deaf-mute, penalty, prodigality, family relations, alienage, absence, insolvency and trusteeship. The
consequences of these circumstances are governed in this Code, other codes, the Rules of Court, and in special laws.
Capacity to act is not limited on account of religious belief or political opinion.
NATURE OF VOIDABLE CONTRACTS
‣
A voidable contract is binding and valid, unless annulled by a proper action in court.
‣
It is, however, susceptible of ratification before annulment. (Art. 1390) Annulment may be had even if there be NO damage
to the contracting parties. (Art. 1390)
TWO CLASSES OF VOIDABLE CONTRACTS
‣
Art. 1327 to 1344 cover two classes of voidable contracts —
1.
THOSE WHERE ONE PARTY IS INCAPACITATED TO GIVE CONSENT
‣
TOLENTINO — Consent of the contracting parties is an essential element for the validity of a contract, while Art.
1327 says that the persons indicated “cannot give consent to a contract”. The logical consequence is that the a
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A. CONSENT OR MEETING OF THE MINDS
contract entered into by one of these persons would be wanting in consent, and hence inexistent and void. This is
incorrect. The contract will either be unenforceable or voidable.
2.
a.
Both parties are NOT capable of giving consent — unenforceable
b.
Only one party is incapable of giving consent — voidable
THOSE WHERE THE CONSENT OF ONE PARTY HAS BEEN VITIATED
‣
Such as by error, fraud, violence, intimidation, and undue influence)
PERSONS INCAPACITATED TO CONSENT
1.
UNEMANCIPATED MINORS (ART. 1327)
‣
These are persons under 18 years of age.
‣
The contracts that are entered by a minor is voidable
‣
EXCEPT — in the following cases the contract is rendered valid despite the defect—
a.
Upon reaching the age of majority, they ratify the same.
b.
They were entered into thru a guardian, and the court having jurisdiction had approved the same.
c.
They were contracts where the minor misrepresented his age, and pretended to be one of major age
and is, thus, in estoppel. (Marcelo v. Espiritu)
‣
Where necessaries are those sold and delivered to a minor or other person without capacity to act, he
must pay a reasonable price therefor. (Thus, the contract here is valid) (Art. 1489)
d.
‣
2.
It is, however, essential here that the other party must have been misled. (Bambalan v. Maramba)
Necessaries include everything that is indispensable for sustenance, dwelling, clothing, and medical
attendance.
INSANE OR DEMENTED PERSONS (ART. 1327)
‣
EXCEPT — If they acted during a lucid interval (Art. 1328)
‣
It is not necessary that there be a previous judicial declaration of mental incapacity in order that a contract entered
into by a mentally defective person may be annulled. It is enough that the insanity existed at the time the contract was
made. In the case of lunatics, it is possible that there are lucid intervals, and a contract executed during such lucid
interval is valid.
‣
There mere fact that a person, days after the execution of a contract, was declared mentally incapacitated by a
competent court, does NOT automatically mean that she was incapacitated at the time of the execution of the
contract. The burden of proving such incapacity at the time of execution rests upon he who alleges it, if no sufficient
proof to this effect is presented, his capacity will be presumed.
3.
DEAF-MUTES WHO DO NOT KNOW HOW TO READ AND WRITE (ART. 1327)
‣
PARAS — If they know how to read, but do not know how to write, it is submitted that the contract is valid, for then
they are capable of understanding, and therefore capacitated to give consent.
‣
TOLENTINO — Being a 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. But the old doctrine that a deaf-mute was presumed too be an idiot no
longer previails, and such persons are now held capable of entering into contracts if shown to have sufficient mental
capacity.
4.
ALCOHOL AND DRUG INTOXICATION (ART. 1328)
‣
5.
TOLENTINO —This ground courts the use of intoxicants such as alcohol and drugs. The mere use of alcohol and
drugs does not incapacitate a person to give consent, it must be at such a degree as to obscure completely the
faculties and almost extinguish the consciousness of acts of the person giving such consent to be a sufficient ground
for annulment.
HYPNOTISM AND SONAMBULISM (ART. 1328)
‣
6.
TOLENTINO — Although the law mentions only hypnotism as avoiding a contract, the same is true of somnambulism
(sleepwalking). The utter want of understanding is a common element in both.
OTHER GROUNDS PROVIDED BY LAW (ART. 1329)
‣
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.
‣
Under the Rules of Court, the following are considered incompetents, and may be placed under guardianship —
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a.
Those under civil interdiction
b.
Hospitalized lepers
c.
Prodigals (spendthrifts)
d.
Deaf and dumb who are unable to read and write
e.
Those of unsound mind even though they have lucid inter- vals
f.
Those who by reason of age, disease, weak mind, and other similar causes, cannot without outside aid, take care
of themselves and manage their property, becoming thereby an easy prey for deceit and exploitation.
‣
TOLENTINO — If these persons have not been [placed under guardianship, there is a presumption in favour of
their capacity to contract. However, even if there is no guardianship over such other incompetents, if it can be
shown that at the time of the contract they do not have the necessary understanding of the nature and
consequences of their agreement, by reason of age, diseases, weakness of mind, then their contract is voidable
for lack of capacity. Principles on the mental incapacity of a person to make a will can be applied by analogy.
SPECIAL DISQUALIFICATIONS
‣
PARAS — There are people who are specially disqualified in certain things. Here, the transaction is VOID because the
right itself is restricted, that is, the right is withheld. (In the case of mere legal incapacity, the transaction is voidable
because the right itself is not restricted, but merely its exercise, that is, it can still be exercised but under certain
conditions, such as when the parents of an unemancipated minor consent.
‣
TOLENTINO — There is a distinction between the incapacity to give consent to contracts, and the special
disqualifications to enter into contracts. The former is a restriction upon the exercise of the right, while the latter is a
restriction on the very right itself. The incapacity renders the contract merely voidablee, but the disqualification makes it
void.
1.
As a general rule, the husband and wife cannot sell to each other (Art. 1490) nor can they donate to each other.
Violations are considered VOID contracts.
2.
Insolvents before they are discharged cannot, for example, make payments.
3.
Persons disqualified because of fiduciary relationship, such as the guardian, who is not allowed to purchase the
property of his ward; or judges, with reference to the property under litigation. (Art. 1491)
VITIATION OF CONSENT
Article 1330. A contract where consent is given through mistake, violence, intimidation, undue influence, or fraud is
voidable. (1265a)
Article 1331. In order that mistake may invalidate consent, it should refer to the substance of the thing which is the object
of the contract, or to those conditions which have principally moved one or both parties to enter into the contract.
Mistake as to the identity or qualifications of one of the parties will vitiate consent only when such identity or
qualifications have been the principal cause of the contract.
A simple mistake of account shall give rise to its correction. (1266a)
Article 1332. 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)
Article 1333. There is no mistake if the party alleging it knew the doubt, contingency or risk affecting the object of the
contract. (n)
Article 1334. Mutual error as to the legal effect of an agreement when the real purpose of the parties is frustrated, may
vitiate consent. (n)
Article 1335. There is violence when in order to wrest consent, serious or irresistible force is employed.
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VI. ESSENTIAL REQUISITES OF CONTRACTS
A. CONSENT OR MEETING OF THE MINDS
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)
Article 1336. 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)
Article 1337. 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 been unduly influenced
was suffering from mental weakness, or was ignorant or in financial distress. (n)
Article 1338. There is fraud when, through insidious words or machinations of one of the contracting parties, the other is
induced to enter into a contract which, without them, he would not have agreed to. (1269)
Article 1344. In order that fraud may make a contract voidable, it should be serious and should not have been employed
by both contracting parties.
Incidental fraud only obliges the person employing it to pay damages. (1270)
Article 1339. Failure to disclose facts, when there is a duty to reveal them, as when the parties are bound by confidential
relations, constitutes fraud. (n)
Article 1340. The usual exaggerations in trade, when the other party had an opportunity to know the facts, are not in
themselves fraudulent. (n)
Article 1341. A mere expression of an opinion does not signify fraud, unless made by an expert and the other party has
relied on the former's special knowledge. (n)
Article 1342. Misrepresentation by a third person does not vitiate consent, unless such misrepresentation has created
substantial mistake and the same is mutual. (n)
Article 1343. Misrepresentation made in good faith is not fraudulent but may constitute error. (n)
CAUSES OF VITIATED CONSENT
1.
CAUSES AFFECTING THE INTELLECT AND COGNITION
a.
Mistake
b.
Fraud
2.
CAUSES AFFECTING THE WILL OR VOLITION
a.
Violence
b.
Intimidation
c.
Undue influence
CAUSES OF VITIATED CONSENT (EXPOUNDED)
1.
MISTAKE (ART. 1331-1334)
‣
It is a false belief about something.
‣
REQUISITES —
a.
THE ERROR MUST BE SUBSTANTIAL REGARDING ANY OF THE FOLLOWING—
‣
NOTE — The error is substantial if because of it, the party gave his consent. Therefore, if a party would still
have entered into the contract even if he had known of the error, the error is NOT substantial.
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VI. ESSENTIAL REQUISITES OF CONTRACTS
A. CONSENT OR MEETING OF THE MINDS
i.
The object of the contract
‣
ii.
The conditions which principally moved or induced one of the parties (error in quality or in quantity)
‣
iii.
b.
c.
Identity or qualifications (error in personae), but only if such was the principal cause of the contract
‣
This vitiates consent only when such identity or qualifications have been the principal cause of the contract.
‣
Such as — Hiring of a pre-bar reviewer, a particular singer for a concert, contracts involving partnership,
agency, deposit — since these require trust and confidence.
The error does not vitiate consent if the party in error was negligent, or if having had an opportunity to
ascertain the truth, he did not do so.
THE ERROR MUST BE A MISTAKE OF FACT, AND NOT OF LAW
‣
The error must be one of fact, not of law. This is because ignorance of the law does not excuse anyone from
compliance therewith
‣
EXCEPT — Mutual error as to the legal effect of an agreement when the real purpose of the parties is
frustrated, may vitiate consent (Art. 1334)
‣
2.
Such as — Error in knowledge about the true boundaries of a parcel of land offered for sale; A person buys
a fountain pen thinking it to be made of solid gold when as a matter of fact, it is merely gold- plated; A
person buys a CD record thinking it to be Stateside, but it turns out to be merely a local imitation, a pirated
one; A person desiring to buy land consisting of 100 hectares discovers that the land has only 60 hectares.
THE ERROR MUST BE EXCUSABLE (NOT CAUSED BY NEGLIGENCE)
‣
‣
Such as — A person signed a contract of sale thinking it was only a contract of loan.
Example — A and B entered into a contract, which they intended should result in a co-ownership between
them, but which turned out later to be a mortgage, as a result of their mutual error as to the legal effect of
the agreement. Here the contract is voidable.
BUT — The following mistakes do NOT vitiate consent —
a.
Mistake is not substantial
b.
Mistake is inexcusable and negligent
c.
Mistake is one of law (Except in Art. 1334)
d.
Mistake as to personal motive (Example — a boy buys an engagement ring in the false belief that his girl loves
him.)
e.
Mistake in accounting or computation caused for example by wrong arithmetical computation, would ordinarily
give rise merely to correction, and not annulment of the contract.
f.
If the party alleging it knew the doubt, contingency or risk affecting the object of the contract (Art. 1333) — It is to
be assumed here that the party was willing to take the risk. This is particularly true in contracts which are
evidently aleatory in nature. (Example — A bought a fountain pen which was represented as possibly being able to
write even underwater. A also knew that the pen’s ability was questionable, and yet A bought said pen. Here, A
cannot allege mistake since he knew beforehand of the doubt, risk, or contingency affecting the object of the
contract.)
FRAUD (ART. 1338 — 1344)
‣
TEST — 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. (Art. 1338)
‣
BUT — Failure to disclose facts, when there is a duty to reveal them, as when the parties are bound by confidential
relations, constitutes fraud. (Art. 1339)
‣
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 execute a particular act. It must have
a determining influence on the consent of the victim Error of one party is produced by the bad faith of the other
contracting party, it presupposes an illicit act.
‣
Kinds of Fraud —
Fraud in the Perfection of the Contract — This is fraud employed in obtaining consent
a.
i.
Dolo causante (causal fraud) — Here, were it not for the fraud, the other party would not have consented.
(This is the fraud referred to in Art. 1338). The effect is that the contract is voidable
ii.
Dolo incidente (incidental fraud) — Here, even without the fraud the parties would have agreed just the
same, hence the fraud was only incidental in causing consent. Very likely though, different terms would have
been agreed upon. The effect is that the contract is still valid, but there can be an action for damages.
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VI. ESSENTIAL REQUISITES OF CONTRACTS
A. CONSENT OR MEETING OF THE MINDS
b.
Fraud in the Performance of the Obligations Stipulated in the Contract — this kind of fraud presupposes the
existence of an already perfected contract. It is the fraud referred to in Art. 1170 and 1171. It merely gives rise to
an action for damages.
‣
‣
Example — Although real vinegar was sold, what was really delivered was diluted vinegar.
NOTE — The fraud contemplated in Art. 1338 to 1344 which vitiates consent is dolo causante
REQUISITES — For dolo causante to exist the following must be present —
‣
‣
a.
The fraud must be material and serious, that is, it really induced the consent. (Art. 1344)
b.
The fraud must have been employed by only one of the contracting parties, because if both committed fraud, the
contract would remain valid. (Art. 1344)
c.
There must be a deliberate intent to deceive or to induce; therefore, misrepresentation in GOOD FAITH is not
fraud. (Art. 1343)
d.
The other party must have relied on the untrue statement, and must himself not be guilty of negligence in
ascertaining the truth.
Examples of dolo causante —
‣
‣
A wanted to have himself insured, but because he was afraid he could not pass the medical examination, he had
another person examined in his place. Here the contract of insurance is voidable
‣
Concealment by the applicant for insurance that he had suffered from a number of ailment, including incipient
pulmonary tuberculosis, and of the name of the hospital and of the physician who had treated him.
‣
Misrepresentation by the vendor of the boundaries of his land by showing valuable properties not really included in
his title.
‣
Misrepresentation of law.
The following are NOT fraud in themselves —
a.
The usual exaggerations in trade, when the other party had an opportunity to know the facts (Art. 1340)
b.
A mere expression of an opinion (Art. 1341)
‣
EXCEPT — when made by an expert and the other party has relied on the former's special knowledge (Art.
1341)
Misrepresentation by a third person (Art. 1342)
c.
‣
EXCEPT — when such misrepresentation has created substantial mistake and the same is mutual. (Art. 1342)
‣
‣
NOTE — Distinguish this from the fact that force or intimidation by a third person already makes the contract
voidable
Misrepresentation made in good faith (Art. 1343)
d.
‣
3.
BUT — In this case, the contract may be annulled, not principally on the ground of fraud, but on the
ground of error or mistake.
BUT — It may be considered as mistake (Art. 1343)
VIOLENCE (ART. 1335, 1336)
‣
Violence refers to physical coercion; intimidation, to moral coercion.
‣
Example — If a person signs a contract only because a gun is pointed at him, this is intimidation because he is afraid
he would be killed. But if he signs because his left hand is being twisted painfully, this is violence or force
‣
REQUISITES —
‣
4.
a.
Employment of serious or irresistible force
b.
It must have been the reason why the contract was entered into
NOTE — Even if a third person exercised the violence or intimidation, the contract may be annulled. This is because
the consent is still vitiated
INTIMIDATION (ART. 1335, 1336)
‣
REQUISITES —
a.
Reasonable and well-grounded fear — Whether the fear is reasonable and well-grounded or not depends upon
many circumstances, including the age, condition, and sex of the person concerned.
b.
The fear is of an imminent and grave evil upon his person, property, or upon the person or property of his
spouse, descendants, or ascendants
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VI. ESSENTIAL REQUISITES OF CONTRACTS
A. CONSENT OR MEETING OF THE MINDS
‣
5.
c.
It must have been the reason why the contract was entered into — If the person concerned would have
entered into the con- tract even without the presence of intimidation, it is clear that the contract should be
considered valid, for the consent certainly cannot be considered vitiated.
d.
The threat must be of an unjust act, an actionable wrong
‣
A threat to enforce one’s claim through competent authority, if the claim is just or legal, does not vitiate
consent. (Art. 1335). A threat to prosecute is not considered as intimidation.
‣
If a contract is signed merely because of “fear of displeasing persons to whom obedience and respect are
due,” the contract is still valid, for by itself reverential fear is not wrong.
NOTE — Even if a third person exercised the violence or intimidation, the contract may be annulled. This is because
the consent is still vitiated
UNDUE INFLUENCE (ART. 1337)
‣
‣
‣
REQUISITES —
a.
Improper advantage
b.
Power over the will of another
c.
Deprivation of the latter’s will of a reasonable freedom of choice
Circumstances to be Considered —
a.
Confidential, family, spiritual, and other relations between the parties
b.
Mental weakness
c.
Ignorance
d.
Financial distress
PARAS — Undue influence exercised by a third party vitiates consent, just like in the case of violence and intimidation.
RULE IN CASE OF INABILITY TO READ OR UNDERSTAND
‣
RULE — The person enforcing the contract must show that the terms thereof have been fully explained to the
former
‣
This applies when —
‣
1.
When one of the parties is unable to read OR if the contract is in a language not understood by him; and
2.
Mistake or fraud is alleged
RATIONALE — This rule is especially necessary in the Philippines where unfortunately there is still a fairly large number of
illiterates, and where documents are usually drawn up in English or Spanish
ABSOLUTE AND RELATIVE SIMULATION OF CONTRACTS
Article 1345. Simulation of a contract may be absolute or relative. The former takes place when the parties do not intend
to be bound at all; the latter, when the parties conceal their true agreement. (n)
Article 1346. An absolutely simulated or fictitious contract is void. A relative simulation, when it does not prejudice a third
person and is not intended for any purpose contrary to law, morals, good customs, public order or public policy binds the
parties to their real agreement. (n)
NATURE OF SIMULATION OF CONTRACTS
‣
Simulation is 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. Simulation of a contract involves a defect in declaration.
‣
REQUISITES — for simulation in general to exist —
1.
An outward declaration of will different from the will of the parties
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VI. ESSENTIAL REQUISITES OF CONTRACTS
A. CONSENT OR MEETING OF THE MINDS
2.
The false appearance must have been intended by mutual agreement
3.
The purpose is to deceive third persons.
KINDS OF SIMULATION OF CONTRACTS
1.
‣
ABSOLUTE SIMULATION
There is a color of a contract, without any substance thereof, the parties not having any intention to be bound. Here is
absolutely no valid contract at all
‣
Example — As a joke, A and B executed a deed of sale although they did not intend to be bound at all by the contract.
‣
Can the parties to an absolutely simulated contract recover what they have given to each other?
‣
YES. If the absolute simulation does not have an illicit purpose, the parties to the contract may prove the
simulation in order to recover whatever may have been given under such simulated act.
BUT — if the simulated contract has an illegal object, the provisions on Art. 1411 and 1412 on pari delicto will
apply.
‣
2.
RELATIVE SIMULATION
‣
The parties have an agreement which they conceal under the guise of another contract. Here there is a void contract
(the simulated contract) and a valid contract (the concealed contract unless it is void for different reasons). There are
two juridical acts involved in relative simulation —
a.
Ostensible (apparent or fictitious) act — which is the contract that the parties pretend to have executed
b.
Hidden (real) act — which is the true agreement between the parties.
‣
Example — a deed of sale of a piece of law is executed by the parties to conceal their true agreement which is a
donation
‣
Can the hidden contract be enforced by the parties?
‣
‣
YES. The concealed or hidden act is enforceable provided that —
a.
The essential requisites for validity are present
b.
It does not prejudice third persons; and
c.
It is not intended for any purpose contrary to law, morals, good customs, public order, or public policy
Are there cases when relative simulation is presumed by law?
‣
YES. Such as in Art. 1602 where it presumes as an equitable mortgage, a contract of sale with a right to
repurchase under the mentioned circumstances.
EFFECT OF SIMULATION AS TO THIRD PERSONS
‣
What is the effect of the simulated contract on third persons?
‣
TOLENTINO — A third person may avail himself of the conduct of the parties to the simulated contract which is most
favourable to himself. The simulated contract will therefore be binding if it is favourable to him to consider it so. This is
not only a protection to him who has relief in good faith upon appearances, but a penalty to those who conceal their
act from innocent persons. A third person, if he is prejudiced, may invoke the nullity of a simulated contract. This, a
creditor may ask for the declaration of nullity of an absolutely fictitious sale made by his creditor, or of a sale in which
a much lower price than that agreed upon is made to appear.
‣
For registered real properties — apply doctrines in land titles on good faith or bad faith of the buyer of the title
depending on if he had knowledge of the simulation or not
ABSOLUTE SIMULATION DISTINGUISHED FROM FRAUDULENT ALIENATION
‣
NOTE — Fraudulent alienation may and probably involves a relative simulation as the parties would want to make it
appear like a legitimate transfer
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VI. ESSENTIAL REQUISITES OF CONTRACTS
B. OBJECT OR SUBJECT-MATTER
ABSOLUTE SIMULATION
FRAUDULENT ALIENATION
Implies that there is no existing contract, no real act
executed
There is a true and existing transfer or contract
Can be attacked by any creditor, including one
subsequent to the contract
Can only be assailed by the creditors before the
alienation
The insolvency of the debtor making the simulated
transfer is not a prerequisite to the nullity of the contract
The action to rescind, or accion pauliana, requires that the
creditor cannot recover in any other manner what is due
to him
Imprescriptible
Prescribes in 4 years
B. OBJECT OR SUBJECT-MATTER
Article 1347. All things which are not outside the commerce of men, including future things, may be the object of a
contract. All rights which are not intransmissible may also be the object of contracts.
No contract may be entered into upon future inheritance except in cases expressly authorized by law.
All services which are not contrary to law, morals, good customs, public order or public policy may likewise be the object
of a contract. (1271a)
Article 1348. Impossible things or services cannot be the object of contracts. (1272)
Article 1349. The object of every contract must be determinate as to its kind. The fact that the quantity is not determinate
shall not be an obstacle to the existence of the contract, provided it is possible to determine the same, without the need
of a new contract between the parties. (1273)
NATURE OF THE OBJECT AS AN ESSENTIAL ELEMENT OF CONTRACTS
‣
The object of the contract is its subject-matter. It is the thing, right, or service which is the subject-matter of the obligation
arising from the contract.Hence, it is said that under the Code, the object of the contract and the object of the obligation
cerated thereby are identical.
‣
REQUISITES— In order that a thing, right or service may be a valid object of contracts, it is necessary that the following
requisites concur —
1.
The object must be within the commerce of man (Art. 1347)
2.
It must be licit, or not contrary to law, morals, good customs, public policy, or public order (Art. 1347)
3.
It must be possible (Art. 1348)
4.
It must be determinate as to its kind (generic at least) (Art. 1349)
REQUISITES OF THE OBJECT (EXPOUNDED)
1.
THE OBJECT MUST BE WITHIN THE COMMERCE OF MAN (ART. 1347)
‣
REQUISITES —
a.
The object must be in existence at the time of the perfection of the contract OR it has the possible or
potentiality of coming into existence at some future time.
‣
Thus, even future things can be the object of contracts.
‣
Future things — those which do not belong to the obligor at the time the contract is made, and may be made,
raised or acquired by the obligor after the perfection of the contract. It includes not only material objects but
also future rights. In this case, the coming into being of the future thing is a suspensive condition.
‣
Emptio rei speratae is a conditional sale. There is a suspensive condition. If the future thing does not come
into existence, then there is no contract of sale.
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VI. ESSENTIAL REQUISITES OF CONTRACTS
B. OBJECT OR SUBJECT-MATTER
‣
‣
EXCEPT — Future inheritance (one where the source of property is still alive) cannot be the subject of a
contract
‣
‣
EXCEPTIONS TO EXCEPTION — It is a valid object in the case of partitions of property inter vivos by the
deceased. (Art. 1080)
b.
It must be susceptible of appropriation
c.
It must be transmissible
What are things outside the commerce of man?
‣
TOLENTINO — All kinds of things and interests whose alienation or free exchange is restricted by law or
stipulation, which party cannot modify at will. It comprehends things who are —
a.
Not susceptible of appropriation or of private ownership
‣
b.
2.
Emptio spei is the sale of a hope. Even if the future thing does not materialize, the buyer must pay since the
buyer is taking a chance. Hope is a present thing. (Such as the sale of lotto ticket).
Such as — sidewalks, public plazas public bridges, lands of the public domain, the right to present one’s
candidacy for a public office, services which imply an absolute submission by those who render them
(slavery or perpetual servitude), public offices,
Not transmissible
‣
All rights which are not intransmissible may be the object of contracts. But strictly political rights or strictly
personal rights cannot be the subject of a contract.
‣
Such as — personal rights, parental authority, the right to vote,
IT MUST BE LICIT (ART. 1347)
‣
3.
The object must not contrary to law, morals, good customs, public policy, or public order
IT MUST BE POSSIBLE (ART. 1348)
‣
Things are impossible when they are not susceptible of existing or they are outside the commerce of man.
‣
Personal services or acts are impossible when they are beyond the ordinary strength or power of man.
‣
The impossibility must be actual and contemporaneous with the making of the contract, and not subsequent thereto.
‣
Kinds of impossibility —
‣
4.
a.
Absolute or objective impossibility — when nobody can perform it. This nullifies the contract all the time.
b.
Relative or subjective impossibility — when due to special conditions or qualifications of the debtor, it cannot
be performed. This nullifies the contract only if it it is permanent and NOT temporary
i.
Permanent — If a blind man enters into a contract which requires the use of his eyesight (unless in the future,
blindness can be cured)
ii.
Temporary — when a partner agrees to contribute to the partnership at an amount more than permissible by
his means
NOTE — Impossibility must not be confused with difficulty. Hence, a showing of mere inconvenience, unexpected
impediments, or increased expenses is not enough
IT MUST BE DETERMINATE AS TO ITS KIND (GENERIC AT LEAST) (ART. 1349)
‣
The object need not be specific or determinate but it must be determinate as to its kind or species.
‣
‣
Such as — a horse, a cow, a car
The quantity of the object may be indeterminate so long as the right of the creditor is not rendered illusory, provided it
is possible to determine the same, without the need of a new contract between the parties
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VI. ESSENTIAL REQUISITES OF CONTRACTS
C. CAUSE OR CONSIDERATION
C. CAUSE OR CONSIDERATION
NATURE AND KINDS OF CAUSES
Article 1350. 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)
NATURE OF CAUSE OR CONSIDERATION
‣
The cause of the contract is the “why” of it. It is the immediate and most proximate purpose of the contract, the essential
reason which impels the contracting parries to enter into it and which explains and justifies the creation of the obligation
through such contract
‣
It may or may not be tangible. It can take different forms, such as a prestation or promise of a thing or service by another.
It can be the giving of sum of money, an object or even an expectation of profits from a subdivision project.
‣
What is the difference between the cause and object?
‣
PARAS — The difference is only a matter of viewpoint in some way, because what may be the subject matter for one
party will be the cause or consideration for the other party.
‣
Example — A is obliged to sing at a concert, in return for which she will receive a car from B. Regarding A, the
subject matter is the singing; the cause is the car. Regarding B, the subject matter is the car; the cause is the
singing. Hence, we can form this general conclusion: In reciprocal contracts, the subject matter for one is the
cause for the other, and vice versa.
‣
TOLENTINO — There are some who believe that the objects of the contract are inversely the cause of the contract
from the viewpoint of the other party. However, it is believed that the subject-matter or object in onerous contracts is
the thing, service or act, which forms the basis of the entire contract, the starting point of agreement, without which
the negotiations or bargaining between the parties would never even have begun. Thus, while the object of the
onerous contract is the same as to both parties and determined irrespective of them, the cause is different with
respect to each party for it is the impelling or essential reason for his entering into the contract.
‣
Example — If a particular piano is sold for P500,000 what is the object and what is the cause?
‣
MANRESA AND PARAS — for the seller the object is the piano and the cause is the price; for the buyer the object
is the price and the cause is the piano.
‣
TOLENTINO — for both the seller and the buyer, there is just one object, namely, the piano. The cause for the
seller is the price; the cause for the buyer is the delivery of the piano.
KINDS OF CAUSES
Onerous — here the cause is, for each contracting party, the prestation or promise of a thing or service by the other.
1.
‣
Example — contract of sale
Remuneratory — the past service or benefit which by itself is a recoverable debt.
2.
‣
Example — A gives B a piece of law in consideration of services rendered by B in saving A from drowning on some
previous occasion
Gratuitous (or contracts of pure beneficence) — here, the cause is the mere liability of the benefactor.
3.
‣
Example — pure donation
CAUSE VS MOTIVE
Article 1351. The particular motives of the parties in entering into a contract are different from the cause thereof. (n)
‣
RULE — THE PARTICULAR MOTIVES OF THE PARTIES IN ENTERING INTO A CONTRACT ARE DIFFERENT FROM THE CAUSE
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VI. ESSENTIAL REQUISITES OF CONTRACTS
C. CAUSE OR CONSIDERATION
‣
‣
The fundamental distinction between cause and motive is that cause os 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.
‣
The cause is the objective of a party in entering into the contract, while the motive is a person’s reason for wanting to
get such objective.
‣
The cause in each contract is the same, while the motive differs with each person.
‣
The motive of a person may vary although he enters into the same kind of contract; the cause is always the same.
‣
The motive may be unknown to the other; the cause is always known.
‣
The presence of motive cannot cure the absence of cause.
‣
The motives which impel one to a sale or purchase are not always the consideration (cause) of the contract as that
term is understood in law. One may purchase an article not because it is cheap, for in fact, it may be dear, but
because he may have some particular use to which it may be put because of a par- ticular quality which that article
has or the relation to which it will be associated. These circumstances may constitute the motive which induces the
purchase, but the real consideration of the purchase is the money which passed. With one’s motives the law cannot
deal in civil actions of this character, while with the consideration the law is always concerned.” (De Jesus v. G. Urrutia
& Co)
‣
Examples —
‣
I buy a gun from a store for P50,000 because I want to kill myself. The cause of the contract is the gun (for me); the
money (for the seller). My motive, however, is the killing of myself. Motives do not enter at all in the validity or
invalidity of cause or consideration.
‣
In a contract of sale, the objective of the seller is to receive the price, but one seller may want it in order to pay his
debts, while a different seller may want it for buying other property. On the other hand, the objective of the buyer is
to get the thing, but he may want ti because of some particular use he intends for it, or because of a particular
quality thereof which appeals to him, or because of the relation it will bear to other articles with which it will be
associated.
‣
The cause in a contract of loan for the borrower is the acquisition of money, and for the lender, the right to require
payment. If at all, payment of interest may be considered as a motive of the lender, which is different from the
cause thereof.
EXCEPT — THE MOTIVE MAY BE CONSIDERED AS THE CAUSE WHEN IT PREDETERMINES THE PURPOSE OF THE CONTRACT
‣
As a general principle, motive or particular purpose of a party in entering into a contract does not affect the validity or
the existence of a contract. An exception is when the realisation of such motive or particular purpose has been made
a condition upon which the contract is made to depend. (PNCC vs CA)
‣
In this case, the motive is part of the contract as a condition
EFFECT OF MOTIVE
‣
RULE — THE MOTIVES OF THE CONTRACT DO NOT AFFECT THE VALIDITY OR EXISTENCE OF THE CONTRACT
‣
The mere presence of motives cannot cure the absence of consideration. Thus a simulated contract, not having any
consideration, cannot be sustained simply because the vendor had some motives in agreeing to such contract, such
as the desire to evade the effects of execution or attachment.
‣
An illegal cause makes a contract void; an illegal motive does not necessarily render the transaction void —
Example — If I buy a knife to kill X, the purchase is still valid. But if the purpose is to stifle a criminal prosecution, the
contract is void.
‣
EXCEPT — IN THE FOLLOWING CASES, THE MOTIVES MAY AFFECT THE CONTRACT —
1.
When a motive of a debtor in alienating the property is to defraud his creditors, the alienation is rescissble
2.
When the motive of a person in giving his consent to avoid a threatened injury, as in case of intimidation, the
contract is voidable
3.
When the motive of a person induced to him to act on the basis of fraud or misrepresentation by the other party,
the contract is voidable.
4.
When the motive may be considered as the cause when it predetermines the purpose of the contract
REQUISITES OF A VALID CAUSE
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VI. ESSENTIAL REQUISITES OF CONTRACTS
C. CAUSE OR CONSIDERATION
Article 1352. Contracts without cause, or with unlawful cause, produce no effect whatever. The cause is unlawful if it is
contrary to
law, morals, good customs, public order or public policy. (1275a)
Article 1353. The statement of a false cause in contracts shall render them void, if it should not be proved that they were
founded upon another cause which is true and lawful. (1276)
Article 1354. Although the cause is not stated in the contract, it is presumed that it exists and is lawful, unless the debtor
proves the contrary. (1277)
Article 1355. Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a contract, unless there
has been fraud, mistake or undue influence. (n)
REQUISITES OF THE CAUSE
1.
IT MUST BE PRESENT AND EXISTING (ART. 1352, 1354)
‣
This is presumed
‣
Contracts with no cause produce NO EFECTS whatsoever
‣
Consent necessarily means the agreement as to the cause, therefore there can be no consent if there is no cause .
‣
The cause must exist at the time of the perfection of the contract but it need not exist later. (Juan Serrano v. Federico
Miave 1965)
‣
Example — On Jan. 5, A sold and delivered his truck together with the corresponding certificate of public convenience
to B for the sum of P1.6 million, payable within 60 days. Two weeks after the sale, and while the certificate of public
convenience was still in the name of A, the certificate was revoked by the Land Transportation Commission thru no
fault of A. Upon the expiration of the 60-day period, A demanded payment of the price from B. B refused to pay,
alleging that the certificate of public convenience which was the main consideration of the sale no longer existed. Is
the contention of B tenable? No, for the certificate was in existence at the time of the perfection of the contract. Its
subsequent revocation is of no consequence insofar as the validity of the contract is concerned. Besides, B was
negligent in not having caused the immediate transfer of the certificate to his name. After all, it had already
2.
IT MUST BE TRUE (ART. 1353, 1354)
‣
If the cause is false, the contract is not valid unless some other cause which is lawful really exists
‣
The parties are given a chance to show that a cause really exists, and that said cause is true and lawful.
‣
NOTE — In this case, apply the rules on simulation of contracts (whether absolute or relative)
3.
IT MUST BE LICIT (ART. 1352, 1354)
LESION OR ADEQUACY OF THE CAUSE
‣
Lesion — it is inadequacy of cause, like an insufficient price for a thing sold.
‣
This is NOT an essential element of the cause. It does not invalidate a contract
‣
EXCEPT — If there has been fraud, mistake or undue influence.
‣
In this case, apply the rules in rescission relating to lesion
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VII. OTHER PROVISIONS ON CONTRACTS
VII. OTHER PROVISIONS ON CONTRACTS
A. FORM OF CONTRACTS
Article 1356. Contracts shall be obligatory, in whatever form they may have been entered into, provided all the essential
requisites for their validity are present. However, when the law requires that a contract be in some form in order that it
may be valid or enforceable, or that a contract be proved in a certain way, that requirement is absolute and indispensable.
In such cases, the right of the parties stated in the following article cannot be exercised. (1278a)
Article 1357. If the law requires a document or other special form, as in the acts and contracts enumerated in the
following article, the contracting parties may compel each other to observe that form, once the contract has been
perfected. This right may be exercised simultaneously with the action upon the contract. (1279a)
Article 1358. 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 are 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)
B. REFORMATION OF INSTRUMENTS
Article 1359. 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.
Article 1360. 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.
Article 1361. When a mutual mistake of the parties causes the failure of the instrument to disclose their real agreement,
said instrument may be reformed.
Article 1362. 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.
Article 1363. 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.
Article 1364. 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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VII. OTHER PROVISIONS ON CONTRACTS
Article 1365. If two parties agree upon the mortgage or pledge of real or personal property, but the instrument states that
the property is sold absolutely or with a right of repurchase, reformation of the instrument is proper.
Article 1366. There shall be no reformation in the following cases:
(1) Simple donations inter vivos wherein no condition is imposed; (2) Wills;(3) When the real agreement is void.
Article 1367. When one of the parties has brought an action to enforce the instrument, he cannot subsequently ask for its
reformation.
Article 1368. 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.
Article 1369. The procedure for the reformation of instrument shall be governed by rules of court to be promulgated by
the Supreme Court.
C. INTERPRETATION OF CONTRACTS
Article 1370. 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.
If the words appear to be contrary to the evident intention of the parties, the latter shall prevail over the former. (1281)
Article 1371. In order to judge the intention of the contracting parties, their contemporaneous and subsequent acts shall
be principally considered. (1282)
Article 1372. 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)
Article 1373. 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)
Article 1374. 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)
Article 1375. 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)
Article 1376. 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)
Article 1377. The interpretation of obscure words or stipulations in a contract shall not favor the party who caused the
obscurity. (1288)
Article 1378. 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)
Article 1379. The principles of interpretation stated in Rule 123 of the Rules of Court shall likewise be observed in the
construction of contracts. (n)
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VIII. DEFECTIVE CONTRACTS
VIII. DEFECTIVE CONTRACTS
KINDS OF DEFECTIVE CONTRACTS
1.
Rescissible contracts — a contract that has caused a particular damage to one of the parties or to a third person, and
which for equitable reasons may be set aside even if it is valid. There is a sort of extrinsic defect consisting of an
economic damage or lesion.
2.
Voidable or annullable contracts — a contract in which the consent of one party is defective, either because of want of
capacity or because it is vitiated, but which contract is valid until set aside by a competent court. It cannot be annulled,
however, if there has been a ratification. The defect is more or less intrinsic, as in the case of vitiated consent.
3.
Unenforceable contracts — a contract that for some reason cannot be enforced, unless it is ratified in the manner
provided by law. In a way, it may be considered as a validable transaction, that is, it has no effect now, but it may be
effective upon ratification.
4.
Void or inexistent contracts — an absolute nullity and produces no effect, as if it had never been executed or entered
into. It cannot be ratified or validated.
5.
Relatively ineffective contracts — contracts which are ineffective only with respect to certain parties, but are effective
as to other persons.
‣
TOLENTINO — The code commission failed to provide expressly under a separate class those contract which are
relatively ineffective. A relatively ineffective contract is distinguished form the voidable contract in that its
ineffectiveness, with respect to the party concerned, is produced ipso jure, while a voidable contract does not
become inoperative unless an action to annul it is instituted and allowed. It differs from the void or inexsitence
contract, in that the ineffectiveness of the latter is absolute, because it cannot be ratified, while the relatively
ineffective contract can be made completely effective by the consent of the person as to whom it is ineffective, or by
the cessation of the impediment which prevents its complete effectiveness
‣
Such as —
‣
an assignment of the lease by the lessee without the consent of the lessor is ineffective only as regards the lessor
‣
the transfer of the debt by the debtor to another, without the consent of the creditor, is ineffective as to the latter
‣
the payment by a debtor to his creditor after the credit has been garnished or attached by a third person, is
ineffective as to the latter
RESCISSIBLE CONTRACTS
Requisites
1.
There must be a valid
ground for rescission (Art.
1380)
2.
The party asking for
rescission must have no
other legal means to obtain
reparation for the damages
suffered by him. (Art. 1383)
3.
Generally, the person
demanding rescission must
be able to return whatever
he may be obliged to restore
if rescission is granted. (Art.
1385)
4.
The things which are the
object of the contract must
not have passed legally to
the possession of a third
person acting in good faith.
(Art. 1385)
5.
Action has not prescribed
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VOIDABLE CONTRACTS
1.
There is a valid ground for
annulment
2.
Action has not prescribed
3.
Must be brought by the
proper parties
4.
The party capacitated to
bring the action for
annulment must NOT
have lost the thing he
received as the object of
the contract through his
fault (Art. 1401)
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UNENFORCEABLE
CONTRACTS
VOID CONTRACTS
As long as the
contract falls under the
grounds for
unenforceability under
Art. 1403 and provided
and is NOT ratified, it
is unenforceable
As long as the contract falls
under the grounds for nullity
under Art. 1409, it is void.
OBLIGATIONS AND CONTRACTS
CIVIL LAW REVIEWER
VIII. DEFECTIVE CONTRACTS
RESCISSIBLE CONTRACTS
Grounds
1. Contracts which cause lesion
or economic damage (of 1/4
of the value of the thing)
a. Contracts which are
entered into by
guardians
VOIDABLE CONTRACTS
1.
Incapacity to consent —
Those where one of the
parties is incapable of
giving consent to a
contract
2.
Vitiated consent — Those
where the consent is
vitiated by either —
b. Contracts agreed upon
in representation of
absentees
a. Mistake
2. Contracts which defraud
creditors
b. Violence
c. Intimidation
3. Things in litigation
d. Undue influence
Unauthorized
contracts —
those entered into
in the name of
another person by
one who has
either —
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;
a. Been given no
authority or
legal
representation
3. Those whose cause or
object did not exist at the
time of the transaction;
b. Acted beyond
his powers
4. Those whose object is
outside the commerce of
men;
5. Those which contemplate
an impossible service;
5. Payments made in a state of
insolvency for obligations to
whose fulfillment the debtor
could not be compelled at
the time they were effected.
(Art. 1381, 1382)
3. Contracts where
both parties are
incapable of giving
consent
6. Those where the intention
of the parties relative to the
principal object of the
contract cannot be
ascertained;
1.
Can be made directly by an action for such purpose, or
2.
Indirectly by way of defense to an action (but it should be set
up as a counterclaim)
It is not an action but a
defense that should be
claimed at the earliest
instance
Prescriptiv
e Period
When
prescripti
on
commenc
es
1.
VOID CONTRACTS
2. Contracts that fail
to comply with the
Statute of Frauds
4. All other contracts specially
declared by law to be subject
to rescission
How
availed of
UNENFORCEABLE
CONTRACTS
e. Fraud
7. Those expressly prohibited
or declared void by law
4 years
N/A
1.
Generally — From the date
the contract was entered
into and all legal remedies
have been exhausted
1.
Intimidation, violence,
or undue influence —
form the time the defect
of the consent ceases.
2.
For minors — Within four
years after attaining the age
of majority and all other
legal remedies have been
exhausted
2.
Mistake or fraud —
from the time of the
discovery of the same
3.
Contracts entered into
by minors or other
incapacitated persons
— from the time the
guardianship ceases
3.
For absentees — when he
learns of the contract (when
his domicile is known) and
all legal remedies have been
exhausted
4.
For contracts in fraud of
creditors — From the time
the fraud is discovered and
all other legal remedies have
been exhausted
5.
Things in litigation — after
knowledge of the
transaction and all other
legal remedies have been
exhausted
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1.
May be made in proper
and direct action filed for
such purpose, or
2.
It may be claimed as an
affirmative defense (but it
need not be a
counterclaim)
Imprescriptible (Art. 1410)
N/A
OBLIGATIONS AND CONTRACTS
CIVIL LAW REVIEWER
VIII. DEFECTIVE CONTRACTS
Who can
file
RESCISSIBLE CONTRACTS
VOIDABLE CONTRACTS
UNENFORCEABLE
CONTRACTS
1. The person who is injured by
the rescissible contract
The person who has interest in
or is a party to the contract,
provided he must be the
victim, and NOT the party
responsible for the defect
Only the parties to the
contract can assert its
unenforceability and
NEVER third persons
(Art. 1408)
1.
May be ratified either
expressly or impliedly by
the party who is
incapacitated or whose
consent is vitiated
1.
2.
May be ratified by lapse
of time due to
prescription
a. Ward or absentee in the
case of lesion
VOID CONTRACTS
1.
Contracting parties
2.
Third persons who
interests are directly
affected (Art. 1421)
b. Plaintiff in a case where
a thing in litigation is
alienated by the
defendant
c. Defrauded creditors in
case of an accion
pauliana
2. The heirs of these persons
3. The debtor’s creditors by
virtue of their right granted by
Art. 1177 (accion
subrogatoria)
Ratificatio
n
May be ratified by lapse of time
due to prescription
2.
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In the case of
the Statute of
Frauds it may be
ratified by —
a.
Partial
performance
of the
obligation
arising from
the contract
b.
Nonobjection
during the
trial when oral
evidence is
presented
Cannot be ratified
In the case of
other grounds —
Ratification either
expressly or
impliedly by the
proper parties
OBLIGATIONS AND CONTRACTS
CIVIL LAW REVIEWER
VIII. DEFECTIVE CONTRACTS
Effects
RESCISSIBLE CONTRACTS
VOIDABLE CONTRACTS
UNENFORCEABLE
CONTRACTS
VOID CONTRACTS
1.
Rescission shall be only to
the extent necessary to
cover the damages caused
(Art. 1384)
The contracting parties shall
restore to each other the
following —
The contract cannot
be given effect
The contract cannot be given
effect and both parties may
generally recover what each
has given
2.
Creates the obligation to
return and/or pay (mutual
restitution) the following (Art.
1385) —
a. Things which were the
object of the contract or
the price paid
b. Fruits
c. Interest
‣
BUT — Mutual
restitution ONLY applies
to—
i.
Defective contracts
causing lesion in
numbers 1 and 2 of
Art. 1381 (by
guardians and
administrators)
ii.
Mutual dissent
iii. Resolution or
cancellation or
reciprocal
obligations under
Art. 1191
3.
1.
Things which have been
the subject matter of the
contract
2.
Fruits
3.
The price with its interest
(Art. 1398)
EXCEPT —
1.
‣
EXCEPT — In the following
cases, a party is NOT obliged
to return fully or partially
1.
In cases provided by law
(Art. 1398)
2.
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 (Art. 1399)
3.
When the principle of
unjust enrichment applies
(Tolentino)
No recovery is allowed —
when the nullity proceeds
from the illegality of the
cause or object of the
contract AND both parties
are guilty (pari delicto)
2.
EXCEPT — See
exceptions in Art.
1414, 1415, & 1416
(recovery by one party)
here is allowed)
Partial recovery (recovery
by one party) is allowed —
When the nullity proceeds
from the illegality of the
cause or object of the
contract BUT only one
party is guilty
In case the objects of the
contract are legally in the
possession of third persons
in good faith, then damages
instead should be paid by
the party causing the loss
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VIII. DEFECTIVE CONTRACTS
A. RESCISSIBLE CONTRACTS
A. RESCISSIBLE CONTRACTS
NATURE OF RESCISSION
Article 1380. Contracts validly agreed upon may be rescinded in the cases established by law. (1290)
Article 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply
with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages
in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with
articles 1385 and 1388 and the Mortgage Law. (1124)
Article 1190. When the conditions have for their purpose the extinguishment of an obligation to give, the parties, upon the
fulfillment of said conditions, shall return to each other what they have received. XXXXX
Article 1193. XXXX Obligations with a resolutory period take effect at once, but terminate upon arrival of the day certain.
XXXX
KINDS OF RESCISSION UNDER THE CIVIL CODE
1.
Rescission of rescissible contracts (Art. 1380)
2.
Rescission by means of resolution or cancellation
a.
Resolution of reciprocal obligations due to non-performance or substantial improper performance (Art. 1191)
b.
Resolution of obligations due to the fulfilment of a resolutory condition (Art. 1190)
c.
Resolution by mutual dissent or consent (See Aquino vs Tanedo)
CONCEPT OF RESCISSION OF RESCISSBLE CONTRACTS
‣
Rescission is a process designated to render inefficacious a contract validly entered into and normally binding, by reason
of external conditions, causing an economic prejudice to a party or to his creditors.
‣
This is a remedy granted by law to the contracting parties and even to third persons, to secure the reparation of damages
caused to them by contract, even if this should be valid, by means of the restoration of things to their condition at the
moment prior to the celebration of said contract.
‣
It is a relief for the protection of one of the contracting parties and third persons from all injury and damage the contract
may cause, or to protect some incompatible and preferential right created by the contract.
‣
It implies a contract, which even if initially valid, produces lesion or pecuniary damage to someone.
‣
It sets aside the act or contract for justifiable reasons of equity.
‣
Rescission is perfectly compatible with the validity of the contract, but it does not require such validity as an essential
condition. Hence, a voidable contract may also be rescinded.
‣
Judicial Action to Rescind Required — Rescindible contracts are not void, and until set aside in a rescissory action, they
are legally effective, convey title, and cannot be attacked collaterally upon the grounds for recsission in a land registration
proceeding. (Borja v. Addison)
REQUISITES FOR RESCISSION OR RESCISSIBLE CONTRACTS (IN GENERAL)
1.
The contract must be a rescissible contract, such as those mentioned in Art. 1381 and 1382
2.
The party asking for rescission must have no other legal means to obtain reparation for the damages suffered by him.
(Art. 1383)
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VIII. DEFECTIVE CONTRACTS
A. RESCISSIBLE CONTRACTS
3.
The person demanding rescission must be able to return whatever he may be obliged to restore if rescission is granted.
(Art. 1385)
4.
The things which are the object of the contract must not have passed legally to the possession of a third person acting in
good faith. (Art. 1385)
5.
The action for rescission must be brought within the prescriptive period of 4 years. (Art. 1389)
RESCISSION OF RESCISSIBLE CONTRACTS (ART. 1380) VS RESCISSION OF RECIPROCAL OBLIGATIONS (ART. 1191)
‣
‣
Similarities —
‣
Both presuppose contracts validly entered into and existing (or at least voidable)
‣
Both require mutual restitution when declared proper
Differences —
RESCISSION UNDER ART. 1380
RESCISSION UNDER ART. 1191
May be demanded by a third party prejudiced by the
contract
May be demanded only by a party to the contract
May not be denied by the court if the conditions for
rescission are present. The courts cannot grant a period
or term within which to comply
May be denied by the court when there is sufficient
reason to justify extension of time to the defendant in
which to perform
There are various reasons of equity provided as grounds
for rescission under Art. 1381 and 1382. The nonperformance by the other party is immaterial.
Non-performance or substantial improper performance is
the basis for rescission
Applies whether the contract produces unilateral or
reciprocal obligations and even when the contract has
been fully fulfilled
Applies only to reciprocal obligations where one party has
not performed and the other is ready to comply with his
obligation
Must be rescinded by judicial action
May be done extra-judicially if there is a stipulation
RESCISSION OF RESCISSIBLE CONTRACTS VS MUTUAL DISSENT
‣
Rescission should also be clearly distinguished from mutual dissent.
‣
Mutual dissent — is an agreement of the parties to cancel their contract and mutually return the object and cause thereof.
‣
In mutual withdrawal, it is the will of the parties that constitutes the basis, whereas in rescission (properly called), it is
the law that constitutes the basis.
‣
Example — when the purchaser returned the thing purchased from the vendor, saying that he was no longer able to
pay for it, and the vendor took possession thereof, the contract is rescinded (or resolved), and the vendor cannot
recover the balance of the purchase price from the vendee.
GROUNDS FOR RESCISSION
Article 1381. The following contracts are rescissible:
(1) Those which are entered into by guardians whenever the wards whom they represent suffer lesion by more than onefourth of the value of the things which are the object thereof;
(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;
(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)
Article 1382. Payments made in a state of insolvency for obligations to whose fulfillment the debtor could not be
compelled at the time they were effected, are also rescissible. (1292)
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Article 1098. A partition, judicial or extra-judicial, may also be rescinded on account of lesion, when any one of the coheirs received things whose value is less, by at least one-fourth, than the share to which he is entitled, considering the
value of the things at the time they were adjudicated. (1074a)
Article 1386. Rescission referred to in Nos. 1 and 2 of article 1381 shall not take place with respect to contracts approved
by the courts. (1296a)
Article 1177. The creditors, after having pursued the property in possession of the debtor to satisfy their claims, may
exercise all the rights and bring all the actions of the latter for the same purpose, save those which are inherent in his
person; they may also impugn the acts which the debtor may have done to defraud them. (1111)
Article 1313. Creditors are protected in cases of contracts intended to defraud them. (n)
Article 1387. 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
rendered in any instance or some writ of attachment 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)
GROUNDS FOR RESCISSION
1. Contracts which cause lesion or economic damage (of 1/4 of the value of the thing)
a. Contracts which are entered into by guardians
b. Contracts agreed upon in representation of absentees
c. Partition, judicial or extra-judicial
2. Contracts which defraud creditors
3. Things in litigation
4. All other contracts specially declared by law to be subject to rescission
a. Payments made in a state of insolvency for obligations to whose fulfillment the debtor could not be compelled at the
time they were effected. (Art. 1382)
b. When the conditions have been imposed with the intention of suspending the efficacy of an obligation to give, and the
thing 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. (Art. 1189)
c. Right of the unpaid seller of goods to rescind, notwithstanding that the ownership in the goods may have passed to
the buyer. (Art. 1526, 1534)
d. Buyer of real estate may rescind when the inferior value of the thing sold exceeds one- tenth of the price agreed upon.
Also, if the vendee would not have bought the immovable had he known of its smaller area of inferior quality, he may
rescind the sale. (Art. 1539)
5. Sale by the seller violative of a person’s right of first refusal (Riviera Filipina vs CA 2002)
GROUNDS FOR RESCISSION (EXPOUNDED)
1. CONTRACTS WHICH CAUSE LESION OR ECONOMIC DAMAGE (ART. 1381 [1,2], 1098)
a. Contracts which are entered into by guardians — whenever the wards whom they represent suffer lesion by more
than 1/4 of the value of the things which are the object thereof
b. Contracts agreed upon in representation of absentees — if the latter suffer the lesion by more than 1/4 of the value
of the things which are the object thereof
c. Partition, judicial or extra-judicial — when any one of the co-heirs received things whose value is less, by at least
1/4, than the share to which he is entitled, considering the value of the things at the time they were adjudicated.
‣
What does “lesion” mean?
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“Lesion” — is the injury which one of the parties suffers by virtue of a contract which is disadvantageous for him.
Its is generally, disparity between the price and the value.
‣
TOLENTINO — To give rise to rescission must be known or could have been known at the time of making the
contract, and not due to circumstances subsequent thereto or unknown to the parties. In view of the basis of
lesion, great difficulties arise in its actual determination and appreciation because of its eminently subjective
character. The idea is to establish parity between the value of the thing and its price, so that if the price is less than
the true value of the thing at the time of perfection of the contract, there is lesion.
‣
JBL REYES — Modern legislation generally does not favor rescission on account of lesion, because “goods do not
have a fixed true value; value is always variable and fluctuating, being a function of supply and demand. The
modern codes tend to view lesion of certain proportions (1/4, 1/2, etc.) as merely raising a presumption of undue
influence that vitiates consent and renders the contract voidable whenever the lesion is coupled with exploitation
by the others.
‣
Indeed, mere inadequacy of price, unless shocking to the conscience, is not a sufficient ground for setting aside a
sale, if there is no showing that, in the event of a resale, a better price can be obtained. (Tayengco v. Sydecohautea
1965)
‣
Contracts for Absentees — The powers and duties of a legal representative of an absentee, appointed by the court
are the same as those of guardians. Thus, the discussion of guardians are applicable.
‣
EXCEPT — Rescission will NOT take place if the contract is approved by the courts (Art. 1386)
‣
Effect of contracts entered into in behalf of wards —
a. If an act of ownership — court approval is required; otherwise, contract is unenforceable (Art. 1403) whether
there is lesion or not.
b. If merely an act of administration —
‣
i.
if with court approval — valid, regardless of lesion. (Art. 1386).
ii.
if without court approval — rescissible, if lesion is more than one-fourth. (Art. 1381)
NOTE — Rescission only applies if the contract entered into by the guardian or administrator was an act of
administration and it was without court approval
2. CONTRACTS WHICH DEFRAUD CREDITORS (ART. 1381[3], 1177, 1313)
‣
The action to rescind contracts made in fraud of creditors is called “accion pauliana.”
‣
REQUISITES —
a. The that plaintiff asking for rescission has a credit prior the alienation, even if it is not yet due (EXCEPT — In
case of anticipatory fraud where the debtor had fraudulently disposed of his properties prior to incurring the debt.
This can be rescinded if the alienation was made precisely in view of such future obligation [Tolentino])
b. That the debtor has made a subsequent contract conveying a patrimonial benefit to a third person
c. That the creditor no other legal remedy to satisfy his claim, but would benefit by the rescission of the
conveyance to the third person.
d. That the act being impugned is fraudulent
e. That the third person who received the property conveyed is in bad faith — that is, he knew that damages
would be caused his creditors whether or not he intended to cause such damage. (BUT — If by gratuitous title, the
third person need not be in bad faith for rescission to prosper since he gave nothing and will not be prejudiced
[Tolentino])
f.
At the time the action pauliana is being brought, the credit must already be due and demandable.
‣
PARAS — An action to rescind may be brought even if the debtor has not been judicially declared insolvent and even
if the creditor has not yet brought an action to collect his credit. Since the law makes no distinction, both secured and
unsecured creditors may bring the action; the important thing is that they be prejudiced.
‣
TOLENTINO — These are contracts executed with the intention to prejudice the rights of creditors and should not be
confused with those entered into without such intention, even if, as a consequence thereof, some particular damage
may be caused to a creditor. The existence of the intention to prejudice creditors should be determined, either by the
presumption established in Art. 1387 or by proof presented in trial. And, since the patrimony of the debtor includes not
only things but also rights, the remission of credits should be considered as included within the provision of law.
‣
Rules and Presumptions of Fraud
‣
Generally, the party desiring to rescind must show that the conveyance or alienation was fraudulent. He has the
burden of proof. The design to defraud creditors may be proved in any other manner recognized by the law of
evidence. (Art. 1387)
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EXCEPT — in the following cases when there is a presumption of fraud —
i.
Alienation by gratuitous title — are presumed fraudulent when the donor did not reserve sufficient property to
pay all debts contracted before the donation.
ii.
Alienations by onerous title — are presumed fraudulent when made by persons against whom some
judgment has been rendered in any instance or some writ of attachment has been issued.
‣
NOTE — The decision or attachment need NOT refer to the property alienated, and need not have been
obtained by the party seeking the rescission.
3. THINGS IN LITIGATION (ART. 1381 [4])
‣
Contracts involving 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.
‣
Example — A sues B for recovery of a diamond ring. Pendente lite, B sells the ring to C without the approval of A or of
the court. The sale to C is rescissible at A’s instance in case A wins in the original litigation, unless C is in good faith.
‣
PARAS — The property is said to be in litigation here after the defendant has received the service of summons. To
protect himself, the plaintiff must register his claim in the registry of property, pending litigation, if the suit is about real
property. This is the notice of lis pendens. The purpose is to give notice to the whole world. If personal property is
involved, the property may be levied upon by a writ of preliminary attachment or else, it may be placed in the hands of
a receiver.
‣
TOLENTINO — As in the case of a contract in fraud of creditors, the remedy of rescission in this case is given to a
third person who is not a party to the contract. Essentially the purpose is the same in both cases, it is to prevent injury
to the plaintiff. But while in the rescission of a contract in fraud of creditors, a personal right is protected by giving it
the guaranty of the debtor’s proper, in the rescission on things in litigation, a real right is rendered effective with
respect to particular property.
‣
TOLENTINO — Importance of the nature of the transfer —
a. Good faith of the transferee is a defense in onerous transfers — Where the claim of the plaintiff in the pending
litigation has not been registered, and there is nothing in the register of deeds showing any legal obstacles to the
transfer, the transferee of a property in litigation, who acquires the same in good faith and for valuable
consideration, without knowledge or notice of the litigation or claim of the plaintiff cannot be deprived of such
property by a rescissory action. The good faith of the transferee protects him. But where the transferee knew of the
claim of the plaintiff, either actually or constructively (through a notice of lis pedens) he acts in bad faith, and the
transfer can be rescinded.
b. Good faith of the transferee is immaterial in gratuitous transfers — if the transfer is gratuitous, the transferee
loses nothing by the rescission, and the contract may be rescinded even if he acted in good faith. The right of the
plaintiff being prior to his, the former should prevail as it causes no injury to the transferee.
‣
NOTE — This distinction by Tolentino has no legal basis, in fact Art. 1385 says that rescission cannot 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 (without distinction as to onerous or gratuitous transfers).
4. ALL OTHER CONTRACTS SPECIALLY DECLARED BY LAW TO BE SUBJECT TO RESCISSION (ART. 1381 [5])
a. Payments made in a state of insolvency for obligations to whose fulfillment the debtor could not be compelled
at the time they were effected. (Art. 1382)
‣
Insolvent debtor— debtor whose liabilities exceed his asset.
‣
Insolvency may not be insolvency in fact which requires judicial proceedings on insolvency. It is a matter of
evidence and can be established by proving that the debtor did not have properties with which to satisfy his
creditors except that which was given payment for the debt which has not yet matured
‣
Art. 1386 contemplates a situation where an insolvent debtor pays off a creditor whose credit is not yet due, such
payment may be rescinded
‣
REQUISITES —
i.
The debtor-payer must have been insolvent (the insolvency need not be a judicially declared one)
ii.
The debt was not yet due and demandable
‣
PARAS — Art. 1382 does not exactly speak of a contract; it refers to a payment; hence, it is not included under
Art. 1381.
‣
SEE — Asia Banking Corporation v. Corcuera 51 Phil. 781
‣
The Lichauco Corporation owed Noble Jose P70,000. The Corporation was involvent and although the debt
was not yet enforceable, the Corporation gave to Noble Jose a deed of sale to one of its properties (the value
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of which was much greater than the debt) in payments for the debt. At the same time, the Corporation paid off
a certain Corcuera its debt of P24,000 by giving him a piece of land. This latter debt was already due and
demandable at the time payment was made. Are the two transactions rescindable?
‣
‣
The first is rescindable because it was made in a state of insolvency for an obligation to whose fulfillment the
debtor could not be compelled at the time it was effected. But the second debt is not rescindable because at
the time of payment, even if the Corporation was already insolvent, the debt was already due, owing and
enforceable.
NOTE — Where the transfer of property was made after an insolvency proceeding was filed with the competent
court, and where such transfer was also claimed as in fraud of creditors, the SC said that the transfer was not
rescissible but VOID under the Insolvency law. (De La Paz vs Garcia)
b. When the conditions have been imposed with the intention of suspending the efficacy of an obligation to give,
and the thing 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. (Art. 1189)
c. Right of the unpaid seller of goods to rescind, notwithstanding that the ownership in the goods may have
passed to the buyer. (Art. 1526, 1534)
d. Buyer of real estate may rescind when the inferior value of the thing sold exceeds one- tenth of the price
agreed upon. Also, if the vendee would not have bought the immovable had he known of its smaller area of
inferior quality, he may rescind the sale. (Art. 1539)
e. Sale by the seller violative of a person’s right of first refusal
‣
SEE — Riviera Filipina v. CA, GR 117355, April 5, 2002
‣
‣
SEE — Equatorial Realty vs Mayfair Theatre (1996)
‣
‣
The prevailing doctrine is that a right of first refusal means identity of terms and conditions to be offered to the
lessee and all other prospective buyers. And a contract of sale entered into in violation of a right of first refusal
of another person, while valid, is rescissible.
Rescission is a relief allowed for the protection of one of the contracting parties and even third persons from all
injury and damage the contract may cause or to protect some incompatible and preferred right by the contract
BUT —Rescission CANNOT be granted if the third person was in good faith or that he is NOT in bad faith (he did
not know that the grantee had a right of first refusal)
RESCISSION AS A REMEDY OF LAST RESORT
Article 1383. 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)
‣
The plaintiff asking for rescission must prove that he has no other legal means to obtain reparation. Where he does not
show that he has no other legal recourse to obtain satisfaction of his claim, he is not entitled to the rescission asked. The
action for rescission is but a subsidiary remedy, available only when the aggrieved party has no the legal means to obtain
reparation for damages suffered.
‣
Rescission is not a principal remedy; it is only subsidiary and may only be availed of by the injured party if it has no other
legal means of seeking redress or reparation for the damages caused. If, therefore, it is found out that the debtor has no
other property than that which is the object of the rescindable contract, rescission may merely be applied provided that all
the essential requisites for rescission are present. (Regalado v. Luchsinger)
EXTENT AND EFFECTS OF RESCISSION
Article 1384. Rescission shall be only to the extent necessary to cover the damages caused. (n)
Article 1385. Rescission creates the obligation to return the things which were the object of the contract, together with
their fruits, and the price with its interest; consequently, it can be carried out only when he who demands rescission can
return whatever he may be obliged to restore.
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Neither shall rescission take place when the things which are the object of the contract are legally in the possession of
third persons who did not act in bad faith.
In this case, indemnity for damages may be demanded from the person causing the loss. (1295)
Article 1388. Whoever acquires in bad faith the things alienated in fraud of creditors, shall indemnify the latter for
damages suffered by them on account of the alienation, whenever, due to any cause, it should be impossible for him to
return them.
If there are two or more alienations, the first acquirer shall be liable first, and so on successively. (1298a)
RULES ON THE EXTENT AND EFFECTS OF RESCISSION
1. RESCISSION SHALL BE ONLY TO THE EXTENT NECESSARY TO COVER THE DAMAGES CAUSED
‣
This means that rescission is only in favour of the plaintiff creditor, and NOT all the creditors. Only the creditor who
has asked for rescission, not the other creditors, benefits from the rescission.
‣
The extent of revocation is only to the amount of the prejudice suffered by the creditor. As to the excess, the alienation
is maintained.
‣
‣
Thus, when a debtor has sold all his properties in fraud of creditors, the rescission can be applied only to such as
may be necessary to cover the credit. And if the transferee is willing to pay the amount of such credit, rescission
will not lie.
PARAS — Art. 1384 makes partial rescission a possibility, since after all, the only purpose of rescission is to repair or
cover the damages caused. Complete rescission will not therefore be allowed, if it is not justified by the circumstances
of the case. Insofar as it is not rescinded, the alienation is valid.
2. RESCISSION CREATES THE OBLIGATION TO RETURN AND/OR PAY (MUTUAL RESTITUTION) THE FOLLOWING —
a. Things which were the object of the contract or the price paid
b. Fruits
c. Interest
‣
Rescission can be carried out only when he who demands rescission can return whatever he may be obliged to
restore.
‣
TOLENTINO — This rule ONLY applies to rescission involving —
i.
Defective contracts causing lesion in numbers 1 and 2 of Art. 1381 (by guardians and administrators)
ii.
Mutual dissent
iii. Resolution or cancellation or reciprocal obligations under Art. 1191
iv. Fulfilment of a resolutory condition
‣
‣
BUT — in the case of a resolutory condition, treatment on the “fruits and interest” is different. In this case,
apply the rules in Art 1187 —
a.
Reciprocal obligations — no need to return, apply principle of mutual compensation
b.
Unilateral obligations — they should be returned
PARAS — The obligation of restitution does not obviously apply to creditors who seek to impugn fraudulent
transactions of their debtors. The obligation of mutual restitution applies to others so that the status quo may be
restored.
3. IN CASE THE OBJECTS OF THE CONTRACT ARE LEGALLY IN THE POSSESSION OF THIRD PERSONS IN GOOD FAITH, THEN
DAMAGES INSTEAD SHOULD BE PAID BY THE PARTY CAUSING THE LOSS (ART. 1385, 1388)
‣
Rescission cannot be effected when the things which are the object of the contract are legally in the possession of
third persons who did not act in bad faith. In this case, an the action is converted into an action for damages.
‣
REQUISITES — For the third person to claim the defense against rescission —
a. Such third person is in lawful possession of the property
b. He did not act in bad faith
‣
EXCEPT — If the transfer is gratuitous, even if the third person is in good faith, rescission can prosper
‣
TOLENTINO — The right of the transferee (third person) to retain the property fraudulently alienated by the debtor
depends upon the nature of the transfer and upon the complicity of the former in the fraud. If the transfer is
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gratuitous, the creditor will have aa better right than the transferee who has given nothing and who would unjustly
be enriched at the expense of the creditor if the transfer was upheld. The rescission will, therefore, be allowed,
irrespective of the good or bad faith of the transferee. But if the transfer was by onerous title, the transferee in
good faith is protected. As far as prejudice is concerned, the creditor and the transferee would be in the same
position, hence the transferee, who acquired ownership by tradition, must be maintained in his rights. To deprive
the transferee of the thing in such case would cause him injury to the extent of the consideration he has paid,
because he cannot recover this from the insolvent debtor. Besides, as between two persons who both stand to
suffer loss, the possessor of the property should be preferred in that possession, the ownership having been
transferred by delivery. To permit rescission when the alienation is by onerous title, the transferee must be a party
to the fraud, that is he must have knowledge that the transfer to him would prejudice existing creditors of the
transferor.
‣
‣
NOTE — This opinion of Tolentino on gratuitous transfers to persons in good faith still being rescissible seems to
have no legal basis.
What if there are successive transfers?
‣
If there are two or more alienations, the first acquirer shall be liable first, and so on successively. (Art. 1388)
‣
DEAN DEL CASTILLO — The alienation can only be rescinded against a transferee in bad faith, if the alienation is
subsequently made to a transferee in good faith, then rescission does not apply anymore, even if the transfer in
good faith subsequently transfers it to a person in bad faith. Once the alienation is made to a transferee in good
faith, rescission is cut-off, regardless of subsequent transfers.
EXAMPLES
‣
A bought real property from B. A brought action to rescind the contract on the ground of non-delivery of the property.
Does B have to give also the fruits received in the meantime? No, the fruits received need not be given to A because the
right takes place only when “delivery of the thing sold has been made.” (Hodges v. Granada)
‣
A sold to B a piece of land in fraud of his (A’s) creditors. B took legal possession. If no other means are found to exact the
satisfaction of the credits owing the creditors, may the sale to B be rescinded? It depends upon whether B was in good
faith or in bad faith. If B was in good faith, rescission cannot take place, because the object of the contract is legally in the
possession of a third person who did not act in bad faith. If B was in bad faith, rescission is proper.
‣
To defraud his creditors A sold to B a piece of land. B is an innocent purchaser in good faith, who takes legal possession
of the land. Since the creditors cannot rescind the contract, what is their remedy? Their remedy in this case would be to
demand indemnity for damages from the person causing the loss.
‣
To really protect himself against rescission, what should an innocent third party, who in good faith purchases real property,
do after having acquired the property? He must register the realty purchased in the registration office.
‣
To defraud his creditor, A sold his property to B (who is in good faith). Later B sold the property to C, who is in bad faith.
May the creditor rescind, although the property is now in the possession of C? No, for it does not matter whether C is in
good or bad faith, since he obtained the same from B who is in good faith. It is B’s good faith that is important.
PRESCRIPTIVE PERIOD FOR RESCISSION
Article 1389. The action to claim rescission must be commenced within four years.
For persons under guardianship and for absentees, the period of four years shall not begin until the termination of the
former's incapacity, or until the domicile of the latter is known. (1299)
PRESCRIPTIVE PERIOD FOR RESCISSION
‣
RULE — The action to claim rescission must be commenced within 4 years
‣
When does prescriptive period commences or when does the cause of accrue?
1.
Generally — From the date the contract was entered into and all legal remedies have been exhausted
2.
For minors — Within four years after attaining the age of majority and all other legal remedies have been exhausted
3.
For absentees — when he learns of the contract (when his domicile is known) and all legal remedies have been
exhausted
4.
For contracts in fraud of creditors — From the time the fraud is discovered and all other legal remedies have been
exhausted
5.
Things in litigation — after knowledge of the transaction and all other legal remedies have been exhausted
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Examples —
‣
Five years after a rescindable contract was made, action was brought for its rescission. The person who asked for the
rescission was neither a ward nor an absentee at the time of the transaction of the rescindable contract. Will rescission
still be allowed? No, the rescission will no longer be allowed because the action has already prescribed. “The action to
claim rescission must be commenced within four years.” (1st paragraph, Art. 1389, Civil Code).
‣
At the time he was 12 years old, A was under a guardian who sold, in behalf of the ward but without judicial authority,
the harvest of the ward’s farm, and in so doing the ward suffered a lesion of more than one-fourth of the property. How
many years will be given the ward to rescind the contract? The ward will be given 4 years after reaching the age of
majority (the time the guardianship ceases); hence, before reaching 22 years of age, the former ward should already
have sued for the rescission of the contract.
WHO MAY BRING THE ACTION FOR RESCISSION
1. The person who is injured by the rescissible contract — such as the —
a. Ward or absentee in the case of lesion
b. Plaintiff in a case where a thing in litigation is alienated by the defendant
c. Defrauded creditors in case of an accion pauliana
2. The heirs of these persons
3. The debtor’s creditors by virtue of their right granted by Art. 1177 (accion subrogatoria)
B. VOIDABLE CONTRACTS
NATURE OF VOIDABLE CONTRACTS
‣
Voidable or annullable contacts are existent, valid, and binding, although they can be annulled because of want of
capacity or vitiated consent of one of the parties, but before annulment, they are effective and obligatory between the
parties. Hence, it is valid until it is set aside and its validity may be assailed only in an action for that purpose. They can
be confirmed and ratified.
RESCISSIBLE VS VOIDABLE CONTRACTS
RESCISSIBLE CONTRACTS
VOIDABLE CONTRACTS
Renders the contract inefficacious
The defect did not exist essentially in the contract
Declares the inefficacy which the contract already carries
itself, from the start
The basis here is lesion
The basis here is vitiated consent or incapacity to
consent
The defect here is external or intrinsic
The defect here is intrinsic (in the meeting of the minds)
The action is subsidiary
The action is principal
This is a remedy.
This is a sanction
Private interest governs
Public interest governs
Equity predominates
Law predominates
Plaintiff may be a party or a third person
Plaintiff must be a party to the contract (whether bound
principally or subsidiarily)
There must be damage to the plaintiff
Damage to the plaintiff is immaterial
If plaintiff is indemnified, rescission cannot prosper
Indemnity here is no bar to the prosecution of the action
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VOIDABLE CONTRACTS
Compatible with the perfect validity of the contract in
relation to the essential elements
Here, a defect is presupposed on the essential elements
of contract
To prevent rescission, ratification is not required
To prevent annulment, ratification is required
GROUNDS FOR ANNULMENT OF CONTRACTS
Article 1390. 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.
These contracts are binding, unless they are annulled by a proper action in court. They are susceptible of ratification. (n)
GROUNDS FOR ANNULMENT
1. Incapacity to consent — Those where one of the parties is incapable of giving consent to a contract
2. Vitiated consent — Those where the consent is vitiated by either —
a. Mistake
b. Violence
c. Intimidation
d. Undue influence
e. Fraud
‣
NOTE — Repentance at having entered into the transaction is NOT a ground for annulment. It is not the function of the
law to protect or relieve a man from the consequences of a bad bargain.
PRESCRIPTIVE PERIOD FOR ANNULMENT
Article 1391. 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)
‣
‣
RULE — THE ACTION FOR ANNULMENT SHOULD BE BROUGHT WITHIN 4 YEARS
‣
Extinctive prescription applies not only to the action for annulment, but also to the defense of nullity. Hence, if the
period of prescription has already expired, the nullity of the contract can no longer be set up as a defense to an action
to enforce the same.
‣
After the action has prescribed, the contract is deemed valid, thus, the contract can no longer be set aside.
When does prescriptive period commences or when does the cause of accrue?
1. Intimidation, violence or undue influence — from the time the defect of the consent ceases.
2. Mistake or fraud — from the time of the discovery of the same.
‣
Examples —
‣
A was intimidated into signing a contract on June 1, 1999. The intimidation continued until Sept. 1, 2001. From what
time should we compute the four-year period for annulment? From Sept. 1, 2001, the time the intimidation ceased.
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On June 1, 2005, A entered into a contract with B. On Jan. 4, 2006, A discovered that fraud had been present at the
time he entered into the contract. Such a fraud vitiated his consent. Within what time must A bring the action for
annulment? Within 4 years from Jan. 4, 2006 A must bring action for annulment; otherwise, his right to sue for said
annulment will have prescribed. Jan. 4, 2006 should be the starting point because it was on this date that the fraud
was discovered.
‣
In the case of contracts entered into by minors or incapacitated persons, from what time will the period within which to
bring the annulment begin? From the time the guardianship ceases.
RATIFICATION OF VOIDABLE CONTRACTS
Article 1390. XXXXX These contracts are binding, unless they are annulled by a proper action in court. They are
susceptible of ratification. (n)
Article 1392. Ratification extinguishes the action to annul a voidable contract. (1309a)
Article 1396. Ratification cleanses the contract from all its defects from the moment it was constituted. (1313)
Article 1393. Ratification may be effected expressly or tacitly. It is understood that there is a tacit ratification if, with
knowledge of the reason which renders the contract voidable and such reason having ceased, the person who has a right
to invoke it should execute an act which necessarily implies an intention to waive his right. (1311a)
Article 1394. Ratification may be effected by the guardian of the incapacitated person. (n)
Article 1395. Ratification does not require the conformity of the contracting party who has no right to bring the action for
annulment. (1312)
DISTINCTIONS BETWEEN CONFIRMATION, RATIFICATION, AND ACKNOWLEDGMENT
‣
TOLENTINO — The present code makes no more distinction between information ratification, and acknowledgement, but
technically and properly speaking, the following terms must be distinguished—
1. Confirmation — the act by which a person, entitled to bring an action for annulment, with knowledge of the cause of
annulment and after it has ceased to exist, validates the contract either expressly or impliedly. (Art. 1396)
2. Ratification — the act of approving a contract entered into by another without authorization of the person in whose
name it was entered into, or beyond the scope of authority of the former. (Arts. 1317, 1405)
3. Acknowledgment — to remedy a deficiency of proof (Art. 1405) (thus, an oral loan may be put in writing, or when a
private instrument is made a public instrument). (Luna v. Linatoc)
‣
TOLENTINO — Confirmation is proper in voidable contracts, while ratification applies to unenforceable contracts. When a
contract entered through error is approved by a party discovering the error, there is confirmation. But when what has
been agreed upon orally, or put in writing, or when a private document is converted into a public instrument there is
acknowledgment.
‣
PARAS — Under the New Civil Code, all the three terms are now uniformly called RATIFICATION. Thus, a sale made to a
buyer by a seller who would be entitled to the land only when a certain suspensive condition is fulfilled, but which sale
was made prior to the fulfillment of said condition is confirmed when, after the fulfillment of the condition, the seller
executes an affidavit acknowledging the transfer of the property to the buyer. (Dalay v. Aquiatin)
EFFECTS OF RATIFICATION
1. The action to annul is extinguished (Art. 1392)
‣
Thus, the contract becomes a completely valid one.
‣
After a contract has been validly ratified, no action to annul the same can be maintained based upon defects relating
to its original validity.
2. The contract is cleansed of its defect from the beginning. (Art. 1396)
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Ratification is merely declaratory of the waiver of the right to ask for annulment. Hence, its effects retroact to the
moment when the contract was entered into.
‣
BUT — Although there is a retroactive effect, the rights of innocent third persons must not be prejudiced
‣
Example — A minor sold his land to X. When he became 22 years old, he became indebted to Y. To avoid paying Y,
the former minor decided to ratify the sale of the land. He then had no other property. May Y still rescind the sale
although at the time it was made he was not yet a creditor? Yes. Although ratification has a retroactive effect, still
his rights as an innocent third person must not be prejudiced.
REQUISITES OF RATIFICATION
1. The contract must be a voidable one.
2. The person ratifying must know the reason for the contract being voidable (that is, the cause must be known).
3. The cause must not exist or continue to exist anymore at the time of ratification.
4. The ratification must have been made expressly or by an act implying a waiver of the action to annul.
5. The person ratifying must be the injured or proper party
‣
NOTE —
‣
The right to ratify is transmitted to the heirs of the party entitled to such right.
‣
Ratification does NOT require the conformity of the contracting party who has no right to bring the action for
annulment.
KINDS OF RATIFICATION
1. Express ratification — any oral or written manifestation of the person entitled to ask for annulment that he agrees to be
bound by the contract or that he will not seek its annulment
2. Implied or tacit ratification — ratification implied from the conduct or acts of the party entitled to ask for annulment. Any
act evincing an intent to abide by the contract is evidence of the affirmance of the contract and a waiver of the right to
ask for annulment.
‣
This may take diverse forms, such as by silence or acquiescence, by acts showing approval or adoption of the
contract, or by acceptance and retention of benefits flowing therefrom.
‣
Examples —
‣
A minor bought land, but sold the same, after reaching 21 years of age, to a 3rd person.
‣
A minor sold land, and upon reaching majority age, collected the unpaid balance of the selling price
‣
Use of the proceeds by a person who had been previously intimidated into selling his property.
‣
Voluntary performance by the injured party of his own obligation, after the cause of the nullity was known to him.
WHO MAY EFFECT RATIFICATION
1. The guardian of the incapacitated person
2. The injured party himself, provided he is capacitated, or has become capacitated
‣
The right to ratify pertains to the incapacitated person, hence, during the existence of incapacity, it may be exercised by
the guardian for him.
WHO MAY BRING AN ACTION FOR ANNULMENT
Article 1397. 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)
‣
RULE — FOR A PARTY TO BRING AN ACTION FOR ANNULMENT, HE MUST HAVE THE FOLLOWING REQUISITES —
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1. He must have an interest in or is party to the contract — a person who is not principally or subsidiarily bound
cannot attack the validity of an annullable contract, he has no legal capacity to challenge such contract.
‣
Thus, the creditors of the victim cannot ask for annulment for they are not bound by the contract.
‣
Example — A was forced by B to sign a contract. C, a creditor of A, wants to annul the contract. Is C allowed to do
so? No, C is not allowed to do so. If the contract prejudices him, and A has no other property, then C may ask for
the rescission of the contract, not its annulment. C cannot ask for annulment because he is not obliged by the
terms of said contract, either principally or subsidiarily.
2. He must be the victim, and NOT the party responsible for the defect — one who has capacity to contract may not
invoke the incapacity of the party with whom he has contracted as a defense against performance. This is consistent
with the principle that he who comes to court must come with clean hands.
‣
Example — A minor forces X to sign a contract. May the minor later on ask for annulment? No, because he himself
is at fault.
MISREPRESENTATION OF CAPACITY
‣
If a minor misrepresents his age and the other party is misled as to his age, may the minor later on sue for
annulment?
‣
NO, because of estoppel. (Mercado v. Espiritu, Sia Suan & Chao v. Alcantara)
‣
EXCEPT — When the other party had reason to believe that the person he was dealing with was not really a minor
EFFECTS OF ANNULMENT
Article 1398. An obligation having been annulled, the contracting parties shall restore to each other the things which have
been the subject matter of the contract, with their fruits, and the price with its interest, except in cases provided by law.
In obligations to render service, the value thereof shall be the basis for damages. (1303a)
Article 1399. When the defect of the contract consists in the incapacity of one of the parties, the incapacitated person is
not obliged to make any restitution except insofar as he has been benefited by the thing or price received by him. (1304)
Article 1400. Whenever the person obliged by the decree of annulment to return the thing can not do so because it has
been lost through his fault, he shall return the fruits received and the value of the thing at the time of the loss, with interest
from the same date. (1307a)
Article 1401. The action for annulment of contracts shall be extinguished when the thing which is the object thereof is lost
through the fraud or fault of the person who has a right to institute the proceedings.
If the right of action is based upon the incapacity of any one of the contracting parties, the loss of the thing shall not be
an obstacle to the success of the action, unless said loss took place through the fraud or fault of the plaintiff. (1314a)
Article 1402. As long as one of the contracting parties does not restore what in virtue of the decree of annulment he is
bound to return, the other cannot be compelled to comply with what is incumbent upon him. (1308)
‣
RULE — WHEN ANNULMENT IS DECREED, THE CONTRACTING PARTIES SHALL RESTORE TO EACH OTHER THE FOLLOWING —
1. Things which have been the subject matter of the contract
2. Fruits
3. The price with its interest (Art. 1398)
‣
EXCEPT — IN THE FOLLOWING CASES, A PARTY IS NOT OBLIGED TO RETURN FULLY OR PARTIALLY —
1. In cases provided by law (Art. 1398)
2. 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
(Art. 1399)
‣
NOTE — This only applies if the ground for annulment is incapacity
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Here restitution is only to the extent of enrichment (pecuniary or otherwise).
‣
The law does not presume this enrichment or benefit; therefore, the capacitated person has the burden of showing
such enrichment. Just because the property had been delivered, it does not necessarily follow that there was
enrichment.
3. When the principle of unjust enrichment applies
‣
TOLENTINO — The principle of mutual restitution cannot be applied to all contract. The principle against unjust
enrichment must be taken into account. If one of the contracting parties received some benefit and he has not
given anything for it to the other, it is only equitable that he should return the amount by which he was unjustly
enriched. Example, in a contract of lease, if a piece of land is leased for one year, with the land delivered and the
rent paid in advance for the full period, and then the contract is annulled after 4 months, the mutual restitution
cannot be total. The lessee has to return the land, but the lessor should not be obliged to return the full amount of
rent received by him but only the rent corresponding to the unexpired portion of 8 months.
RULES WHEN THE OBJECT OF THE VOIDABLE CONTRACT HAS BEEN LOST OR DESTROYED
1. LOSS OF THE THING RECEIVED BY THE PLAINTIFF (PERSON ENTITLED TO ANNUL THE CONTRACT_
a. Loss due to his fault — action for annulment is extinguished and cannot be brought (Art. 1401)
b. Loss without his fault — action for annulment is extinguished and cannot be brought because of Art. 1402
‣
EXCEPT —
i.
If the right of action is based upon the incapacity of any one of the contracting parties (Art. 1401)
‣
Example — A, a minor, was sold a house by B. The house was destroyed by a fortuitous event. May A still
annul the contract so as to recover from B the price (and interest) he (A) had given? Yes. As a rule, if the right of
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ii.
action is based upon the incapacity of anyone of the contracting parties, the loss of the thing shall not be an
obstacle to the success of the action. Here, the minor was not guilty of fraud or fault. (Art. 1401, 2nd par.)
When he offers to give the value of the thing (Paras and Tolentino)
‣
PARAS — Suppose the innocent party cannot restore because of a loss thru a fortuitous event, may he still
compel the other to return what he had given? It would seem that the answer is NO, because before
annulment, the contract is valid, and the innocent party, being the owner of the thing lost by a fortuitous event,
must bear the loss. There is however an exception, and it occurs when he offers to give the value of the thing.
(He does not have to give interest in view of the fortuitous event.) He must be allowed this remedy; otherwise,
he would be in a worse position than one who had destroyed the thing thru his fault. Once he exercises this
remedy, he can recover from the other what has been previously given.
2. LOSS OF THE THING RECEIVED BY THE DEFENDANT (PERSON NOT ENTITLED TO ANNUL THE CONTRACT)
‣
This is when the person obliged by the decree of annulment to return the thing can not do so because it has been lost
a. Loss due to his fault — he shall return the fruits received and the value of the thing (damages) at the time of the loss,
with interest from the same date (Art. 1400)
b. Loss without to his fault — he must pay the value of the thing at the time of its loss by fortuitous event, but without
interest (Tolentino)
‣
NOTE — In both cases, annulment should still prosper
C. UNENFORCEABLE CONTRACTS
NATURE OF UNENFORCEABLE CONTRACTS
‣
An unenforceable contract is one which cannot be enforced unless it is first ratified in the manner provided by law. It is
distinguished from the rescissible and the annullable contracts in that the latter two contracts produce legal effects unless
they are set aside by a competent court, while the unenforceable contract does not product any effect unless it is ratified.
‣
As regards the degree of defectiveness, voidable or annullable contracts are farther away from absolute nullity than
unenforceable contracts. In other words, an unenforceable contract occupies an intermediate ground before between the
voidable and the void contract.
GROUNDS FOR UNENFORCEABILITY
Article 1403. 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 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 for 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.
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Article 1404. Unauthorized contracts are governed by article 1317 and the principles of agency in Title X of this Book.
Article 1317. No one may contract in the name of another without being authorized by the latter, or unless he has by law a
right to represent him.
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)
Article 1443. No express trusts concerning an immovable or any interest therein may be proved by parol evidence.
KINDS OF UNENFORCEABLE CONTRACTS
1. UNAUTHORIZED CONTRACTS (ART. 1403[1]), 1317)
‣
These are those entered into in the name of another person by one who has either —
a. Been given no authority or legal representation
b. Acted beyond his powers
‣
When a person enters into a contract for and in the name of another, without authority to do so, the contract does not
bind the latter, unless he ratifies it. The agent who has entered into the contract in the name of the purported principal,
but without authority from him, is liable to third persons upon the contract, it must have been the intention of the
parties to bind someone, and, as the principal was not bound, the agent should be.
‣
NOTE — Unauthorized contracts are governed by —
a.
Article 1317 — it may be ratified, expressly or impliedly, by the person on whose behalf it has been executed,
before it is revoked by the other contracting party.
‣
b.
NOTE — Ratification is retroactive. The ratification of a contract by the person in whose name it has been
entered into without authority, validates the act from the moment of its celebration and not merely from the
time of its ratification, for the ratification operates upon or applies to the act already performed.
Laws on Agency
‣
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 shall be void.” (Art. 1874). It is “void,” not merely unenforceable.
2. CONTRACTS THAT FAIL TO COMPLY WITH THE STATUTE OF FRAUDS
‣
The term “statute of fraud” is descriptive of statutes which require certain classes of contracts to be in writing
— This statute does not deprive the parties of the right to contract with respect to the matters therein involved, but
merely regulates the formalities of the contract necessary to render it enforceable.
‣
A contract falling under the statute of frauds cannot be proved without the writing or memorandum thereof —
Hence, an oral contract of sale of real property cannot be enforced, even if at the time of the suppose sale the vendor
had delivered to the vendee the possessory information title covering the property. Neither can such an oral contract
be made the basis of an action for damages caused by non-performance thereof.
‣
‣
TOLENTINO — A note or memorandum is evidence of the agreement, and is used to show the intention of the
parties. No particular form of language or instrument is necessary to constitute a memorandum or note as a
writing under the statute of frauds. It may consist of any kind of writing, from a solemn deemed to a mere hasty
note or memorandum in books or papers, and may be in ink, or in pencil, typed or printed. It meets the
requirement of statute of frauds if it contains the names of the parties, the terms and conditions of the agreement,
a description of the subject-matter sufficient to render it capable of identification, the date and place of the making
of the agreement and the signature of the party assuming the obligation. If there are two or more writings which
are properly connected, they may be considered together; omissions in one may be supplied or clarified by the
other, and their sufficiency will depend as to whether or not, when construed together, they are able to satisfy the
requirement of the Statute of Frauds as to signature. (Berg v. Magdalen)
RATIONALE — The purpose of the statute of frauds is to prevent fraud and perjury in the enforcement of obligations
depending for their evidence upon the unassisted memory of witness by requiring certain enumerated contracts and
transactions to be evidenced by a writing signed by the party to be charged.
3. CONTRACTS WHERE BOTH PARTIES ARE INCAPABLE OF GIVING CONSENT
‣
Where both contracting parties do not have the capacity to consent, the contract is unenforceable.
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BUT — the ratification of one party, converts the contract into a voidable contract, voidable at the option of the party
who has not ratified, the latter can enforce the contract against the party who has ratified.
BASIC AND FUNDAMENTAL PRINCIPLES CONCERNING THE STATUTE OF FRAUDS
1. THE STATUTE OF FRAUDS APPLIES ONLY TO EXECUTORY CONTRACTS (CONTRACTS WHERE NO PERFORMANCE HAS YET BEEN
MADE) AND NOT PARTIALLY OR COMPLETELY EXECUTED (CONSUMMATED CONTRACTS)
‣
Since the statute of frauds was enacted for the purpose of preventing frauds, it should not be made the instrument to
further them. Thus, where one party has entirely performance his obligation under an oral contract, equity would agree
that all evidence by admitted to prove the alleged agreement.
‣
Performance of the contract takes it out the operation of the statute.
‣
The statute of frauds is not applicable to contracts which are either totally or partially performed, on the theory that
there is a wide field for the commission of frauds in executory contracts which can only be prevented by requiring
them to be in writing, a fact which is reduced to a minimum in executed contracts because the intention of the parties
becomes apparent by their execution and execution concludes, in most cases, the rights of the parties.
‣
Examples —
‣
A sold to B real estate for a stipulated price. The agreement was oral. A has not yet delivered the real estate. B has
not yet paid the price. B offered to buy, but A refused to go ahead with the agreement. Under the Statute of
Frauds, to be enforceable, an agreement for the sale of real estate must be in writing (Art. 1403, [2e]); B sued for
specific performance. A’s attorney objected, setting up the Statute of Frauds as the reason for the objection. May
the contract be proved by oral evidence? No. The agreement being merely executory, the agreement cannot be
proved. Therefore also, A cannot be compelled to deliver. (See Santos v. Rivera) BUT — Had A’s attorney not
objected, the defense would have been waived, and specific performance could have been ordered.
‣
‣
Suppose the price had already been paid, would your answer be the same? No, the answer would not be the
same. Here the objection of A’s lawyer will not prosper. The Statute of Frauds will not apply because the
contract has already been executed or performed, at least on the side of B
By virtue of an oral contract of sale, seller delivered to buyer a piece of land which was partially paid. May seller
recover balance of price? Yes, since the contract has already been partially executed
2. THE STATUTE OF FRAUDS CANNOT APPLY IF THE ACTION IS NEITHER FOR DAMAGES BECAUSE OF THE VIOLATION OF AN
AGREEMENT NOR FOR THE SPECIFIC PERFORMANCE OF SAID AGREEMENT
‣
Examples —
‣
Tenant and landlord had an oral contract of lease for two years. [Under the Statute, to be enforceable, this must be
in writing (Art. 1403, No. 2).] It was also orally agreed that half of the crops should belong to the tenant; the other
half, to the landlord. Landlord, in violation of this agreement, sold all the crops and refused to give tenant the
latter’s share. Statute of Frauds in defense. ANS: Tenant can recover. While it is true that the lease should have
been in writing, tenant is not asking for damages because of the breach of the contract of lease. (As a matter of
fact, he was occupying the land.) Rather, the tenant is asking for damages, because of the violation of the
agreement regarding the crops. Statute of Frauds is not therefore applicable. (Lim v. Lim)
‣
Landlord orally agreed with tenant that the former would sell for a certain price the house occupied by tenant to the
latter, at the end of the lease. Because of said agreement, tenant introduced improvements amounting to P4,500.
When lease expired, landlord wanted a higher rent. Ten- ant refused. Tenant wants to recover the value of the
improvements, and tries to prove the oral agreement of sale. Landlord sets up the Statute of Frauds. ANS: Tenant
can prove by parol (oral) evidence the oral agreement of sale; after all he was not interested in the sale, but merely
brought it out to justify his claim for reimbursement for the improvements introduced. (Robles, et al. v. Lizarraga)
3. THE STATUTE OF FRAUDS IS EXCLUSIVE, THAT IS, IT APPLIES ONLY TO THE AGREEMENTS OR CONTRACTS ENUMERATED IN ART.
1403 (INCLUDING ART. 1443)
a. A contract 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. A contract made in consideration of marriage, other than a mutual promise to marry
d. An contract for the sale of personal property (goods, chattels or things in action), at a price not less than P500
e. A contract of lease of real property for a longer period than one year
f.
An contract of sale of real property or of an interest therein
g. A representation as to the credit of a third person
h. Express trusts concerning an immovable or any interest therein (Art. 1443)
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4. THE DEFENSE OF THE STATUTE OF FRAUDS MAY BE WAIVED. (ART. 1405)
‣
In an oral executory contract, if one party fails to timely object to oral evidence presented by the other, it is as if there
was a waiver, and the agreement can be considered completely valid, provided all the other essential requisites for the
transaction are present.
‣
There are two ways to waive this defense —
a. Timely failure to object to the presentation of oral evidence to prove the oral agreement.
b. Acceptance of benefits under them (as when contract is totally or partially performed).
5. THE STATUTE OF FRAUDS IS A PERSONAL DEFENSE, THAT IS, A CONTRACT INFRINGING IT CANNOT BE ASSAILED BY THIRD
PERSONS. (ART. 1408)
‣
Example — Tenant was occupying landlord’s house on a lease contract when landlord sold the house to a buyer orally.
The buyer has not yet given the price and the seller has not delivered the house. If buyer asks tenant to pay the rent to
him, and tenant refuses on the ground that the sale is unenforceable, will the tenant’s contention prosper?No, because
not being a party to said sale, he cannot set up the Statute of Frauds.
6. CONTRACTS INFRINGING THE STATUTE OF FRAUDS ARE NOT VOID; THEY ARE MERELY UNENFORCEABLE. (ART. 1403)
‣
It simply provides for the manner in which contracts under it shall be proved. It does not attempt to make such
contracts invalid if not executed in writing, but only makes ineffective the action for specific performance. the contract
exists and is valid, though it may not be clothed with the necessary form, and the effect of non-compliance with the
statute is simply that no action can be proved unless the requirement is complied with.
7. THE STATUTE OF FRAUDS IS A RULE OF EXCLUSION
‣
Oral evidence might be relevant to the agreements enumerated therein and might therefore be admissible were it not
for the fact that the law or the statute excludes said oral evidence. It does not determine the credibility or weight of
evidence. It merely concerns itself with the admissibility thereof.
8. THE STATUTE OF FRAUDS DOES NOT APPLY IF IT IS CLAIMED THAT THE CONTRACT DOES NOT EXPRESS THE TRUE AGREEMENT
OF THE PARTIES
‣
As long as the true or real agreement is not covered by the Statute of Frauds, it is provable by oral evidence. (Cayugan
v. Santos)
CONTRACTS WHICH ARE COVERED UNDER THE STATUTE OF FRAUDS
1. A CONTRACT THAT BY ITS TERMS IS NOT TO BE PERFORMED WITHIN A YEAR FROM THE MAKING THEREOF
‣
The “making” of an agreement, for the purpose of determining whether or not the period for performance brings the
agreement within the statute of frauds, means the day on which the agreement is made, and the time begins to run
from the day the contract is entered into, and not from the time that performance of it is entered upon.
‣
In order for this provision of the statute to be applicable, it must appear that the parties intended when they
made the contract that it should not be performed within a year — In other words, that a contract cannot be
performed within 1 year means not a natural or physical impossibility, but an impossibility by the terms of the contract
itself, or by the understanding and intention of the parties to the contract. A contract is within the statute if the time for
the full performance of the contract exceeds a year, although the excess is ever so little.
‣
The broad view is that the statute of frauds applies only to agreements not to be performed “on either side"
within a year form the making thereof — Agreements to be fully performed on one side within the year are taken
out of the operation of the statute. (Nat. Bank v. Phil. Veg. Oil Co.)
‣
Partial performance removes the contract from the operation of the statute — in order that partial performance
of the contract may take the case out of the operation of the Statute, it must appear clearly that full performance
had been made by one party within one year. All that is required is complete performance has been made by one
party, no matter how many years may have to elapse before the agreement is performed by the other party, but
nothing less than full performance by one party will suffice. If anything remains still to be done after the expiration of
the year besides the mere payment of money, the Statute will apply. (Babao vs Perez 1957)
‣
PARAS — It would seem from this case that while in general partially executed contracts are NOT covered by the
Statute of Frauds, still under “No. 1, specific agreement,” only full or complete performance by one side will take
the case out of the operation of the Statute.
‣
Where no time is fixed by the parties for the performance of their agreement, and there is nothing in the agreement
itself to show that it cannot be performed within a year according to its terms and understanding of the parties, the
agreement is NOT within the statute of frauds.
‣
Examples —
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C. UNENFORCEABLE CONTRACTS
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A and B, neighbors, orally agreed that A would sell and B would buy A’s transistor radio for P200 three years from
the date of the agreement. At the end of three years, A refused to hand over the radio although B was willing to
pay. Is the agreement enforceable under the Statute of Frauds? No, because under the terms of the contract, the
sale was to be performed at the end of three years. It should have been, therefore, made in writing. The Statute
recognizes the frailty of man’s memory, and apparently only 1 year is the limit. Had the agreement been that
performance would be made within three months, the agreement, even if oral, would have been enforceable.
‣
A and B, neighbors, orally agreed that from that day, B would not erect a garage on his property till after three
years. A week later, B began to erect the garage in violation of the agreement. A complains and B sets up the
Statute of Frauds. Decide. A is correct in complaining. This agreement does not come under the Statute of Frauds,
because here the performance was to begin right on that day they agreed, namely, the obligation not to construct.
This is not an agreement that will be performed after a year; performance was to begin right away.
‣
A servant had an oral contract which allowed him P10 a month salary. He served continuously for twelve years.
Master refused payment on the ground that the contract having lasted for more than 1 year, the same should have
been in writing to be enforceable. Question: Is the servant entitled to be paid? Yes. Firstly, the Statute of Frauds
(Art. 1403, No. 2-a) is not applicable because here the performance began right away; there was no postponement
of performance for a year. Secondly, the Statute is not applicable to executed or partially executed contracts.
Thirdly, the Statute was designed to prevent, not foster, fraud. To prevent the servant from collecting would be to
encourage the commission of fraud
‣
A and B orally agreed in 2006 to marry each other in 2000. When 2010 came, A refused to marry B, who now seeks
damages. Question: Would B be allowed to prove the oral agreement? No, because since the performance was to
be made 4 years after the agreement, it had to be in writing to be enforceable. Having been made orally, it cannot
be proved over and above the objection of A or A’s counsel. [See Atienza v. Castillo: J. Moran dissented on the
ground that in a mutual promise to marry, it does not matter how long the marriage is deferred because the first
agreement in the Statute is not applicable but the third agreement does apply — “An agreement made in
consideration of marriage, other than a mutual promise to marry” (no period of time being stated).]
2. A SPECIAL PROMISE TO ANSWER FOR THE DEBT, DEFAULT, OR MISCARRIAGE OF ANOTHER
‣
This is defined as an undertaking by a person, not before liable, for the purpose of securing or reframing the same
duty which the original debtor continues to be liable.
‣
RATIONALE — Because it is so obviously just that a promisor receiving none of the benefit for which the debt was
incurred should be bound only by the exact terms of his promise.
‣
“Special promise” refers to a subsidiary or collateral promise to pay, like a contract of guaranty.
‣
The special promise need not state the consideration, it is presumed.
‣
The terms “default or miscarriage” include liability for tort and are not to be restricted to defaults or miscarriages
arising out of contracts.
‣
TEST — The test as to whether a promise is within the statute has been said to lie in the answer to the question
whether the promise is an original or a collateral one.
a. If the promise is an original or an independent one (that is, if the promisor becomes thereby primarily liable for
the payment of the debt) — the promise is not within the statute.
b. If the promise is collateral to the agreement of another and the promisor becomes thereby merely a surety
— the promise must be in writing.
‣
‣
TOLENTINO — it has been held that if the person for whose benefit the promise is made was himself liable at all,
the promise of the defendant must be in writing.
Examples —
‣
A borrowed money from B, with C as guarantor. The contract of guaranty between B, the creditor, and C, the
guarantor, must be in writing to be enforceable.
‣
A was having his house repaired by B, who needed certain materials. So A told storeowner (of materials), “Give B
the materials. I shall be responsible. I shall stand good.” This was orally made. Is this a special promise? Is this oral
agreement enforceable? This is not a special promise. This is not a guaranty. Only A obligated himself. Since this is
not a guaranty, the contract is enforceable, so that the seller can properly sue A and prove the oral agreement by
parol evidence, over and above A’s objection.
‣
A asked B to purchase certain properties from C who was orally assured by A that he (A) would pay for them. Later
C sued A, who pleaded in defense the Statute of Frauds. Decide. The promise is enforceable even if orally made,
for A was not guaranteeing another’s debt. He merely promised to pay HIS OWN debt. (Colbert v. Bachrach)
3. A CONTRACT MADE IN CONSIDERATION OF MARRIAGE, OTHER THAN A MUTUAL PROMISE TO MARRY
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When the law says “in consideration of marriage,” it really means “by reason of the marriage.” Thus, the cause of the
donation propter nuptias is not the marriage but the liberality or the generosity of the giver.
‣
‣
Examples —
‣
Marriage settlements
‣
Donations propter nuptias — BUT — this is governed by the law on donations, thus it must be in writing for
validity
Note that the law says “other than a mutual promise to marry.” Hence, an oral mutual promise to marry is NOT
embraced by the Statute of Frauds. The injured party may present oral evidence of the promise in an action to obtain
actual damages for breach thereof
‣
Example — A and B mutually promised to marry each other. The promise need not be in writing unless the
marriage be de- ferred till after the lapse of one year from the agreement. (See Atienza v. Castillo, et al., 71 Phil.
589). For breach of a mutual promise to marry, the groom may sue the bride for actual damages and oral evidence
of such mutual promise is admissible.
4. AN CONTRACT FOR THE SALE OF PERSONAL PROPERTY (GOODS, CHATTELS OR THINGS IN ACTION), AT A PRICE NOT LESS THAN
P500
‣
‣
This covers both tangible and intangible property for a price not less than P500. It also covers the assignment of
choses in action. Thus, an assignment of a credit over P500 is governed by the provision of the statute of frauds
which requires the sale of choses in action over a certain amount to be in writing.
‣
Things in action — incorporated or intangible personal property
‣
NOTE — if the price is exactly P500, the contract must be in writing to be enforceable.
EXCEPT — when 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
‣
‣
In this case there is partial delivery or payment, removing the contract from the operation of the statute of frauds.
Rule in case of auction sale — 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.
5. A CONTRACT OF LEASE OF REAL PROPERTY FOR A LONGER PERIOD THAN ONE YEAR
‣
NOTE — If lease of real property is exactly one year, the contract may be oral, since here the period does not exceed
one year.
6. AN CONTRACT OF SALE OF REAL PROPERTY OR OF AN INTEREST THEREIN
‣
“Interest” in real property may include easement or usufruct.
7. A REPRESENTATION AS TO THE CREDIT OF A THIRD PERSON
‣
TOLENTINO — A representation made by a stranger to the contract with the intent that the person for whom it is
made should obtain credit thereby, must be in writing in order to be a basis of an action for damages against the party
who made the representation, if this turns out to be false or incorrect. The representation that must be in writing are
limited to those which operate to induce the person to whom they are made to enter into contractual relations with the
third person, but not to those representations tending to induce action for the benefit of the person making them.
‣
BUT — The representations must NOT be made with intent to defraud. The statutes of frauds does not embrace
representations that are deceitfully made for it was not intended to protect wrongdoers. It was designed to protect
persons who honestly and in good faith make assurances respecting the credit or standing of another.
‣
DEAN DEL CASTILLO — This is not really a contract, it is not a surety or guaranty agreement. It is merely a
representation or warranty.
‣
PARAS — This must not be confused with a guaranty. Here no promise to answer for another’s debt is made; there is
merely an assurance that somebody has a certain amount of credit, made with the intention of enabling the person in
whose favor it is made to obtain credit by virtue of such assurance or representation.
‣
JBL REYES — The basis of liability here is not contract, but really, tort.
‣
Example — A was borrowing money from B, and gave C as his reference. When C was asked regarding A’s credit C
said: “You can safely lend money to A because A is the owner of a parcel of land and I have the title deeds in my
possession.” This was made orally. Incidentally, A was C’s client, C being a lawyer. This representation by C is not
enforceable against him because it is not in writing. A representation as to the credit of a third person must be in
writing to be enforceable.
8. EXPRESS TRUSTS CONCERNING AN IMMOVABLE OR ANY INTEREST THEREIN (ART. 1443)
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PARAS — It will be observed that while the Statute of Frauds makes no mention of it, still under Art. 1443 of the Civil
Code, “no express trusts concerning an immovable or any interest therein may be proved by parol (oral) evidence.”
Hence, we can safely conclude that the Statute of Frauds also applies to such express (conventional) trust.
RATIFICATION OF UNENFORCEABLE CONTRACTS
Article 1317. XXXXX 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)
Article 1405. 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.
Article 1407. 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.
1. RATIFICATION OF UNAUTHORIZED CONTRACTS (ART. 1317)
‣
It may be ratified, expressly or impliedly, by the person on whose behalf it has been executed, before it is revoked by
the other contracting party.
2. RATIFICATION OF CONTRACTS THAT FAIL TO COMPLY WITH THE STATUTE OF FRAUDS (ART. 1405)
a.
Failure to object — if the parties to the action make no objection (such as does not file a motion to dismiss) to the
admissibility of oral evidence to support a contract covered by the statute of frauds, and thereby permit such
contract to be proved orally, it will be just as binding upon the parties as if it had been reduced in writing. Crossexamination of the witnesses testifying orally on the contract also amounts to a waiver or to a failure to object.
b.
Acceptance of benefits — the statute of frauds cannot be invoked when the contract has already been partly
executed, it applies only to executory contracts.
3. RATIFICATION OF CONTRACTS WHERE BOTH PARTIES ARE INCAPABLE OF GIVING CONSENT (ART. 1407)
‣
There may be express or implied ratification by the parent, or guardian
‣
Example — A and B, both 15 years old, entered into a contract. The contract is unenforceable because both parties
cannot give consent. Now if the guardian or parent of A ratifies expressly or impliedly the contract, it becomes
voidable, valid unless annulled by the guardian or parent of B. However, if the guardian or parent of B also ratifies, the
contract is validated right from the time it was first entered into.
RIGHT OF ONE PARTY TO COMPEL THE OTHER TO EXECUTE THE NEEDED INSTRUMENT
Article 1406. 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.
‣
NOTE — the right of one party to have the other execute the public document needed for convenience in registration, is
given only when the contract is both valid and enforceable.
‣
Example — A sale of realty in a private instrument is not valid and enforceable; hence, a public document may be
executed so that the sale could be registered. An oral sale of real property is not enforceable; hence, one party cannot
compel the other to execute the public document. However, if said oral sale of real property has been ratified, then it is
now both valid and enforceable, and a public document may be made so that the sale can be registered.
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UNENFORCEABILITY AS A PERSONAL DEFENSE
VIII. DEFECTIVE CONTRACTS
C. UNENFORCEABLE CONTRACTS
Article 1408. Unenforceable contracts cannot be assailed by third persons.
‣
The defense of the statute of frauds is personal to the party to the agreement. It is like minority, fraud, mistake and other
similar defences, which may be asserted or waived by the party affected. Hence, it can be relied upon only by the parties
to the contract or their representatives and cannot be set up by strangers to the agreement.
‣
Just as strangers cannot attack the validity of voidable contracts, so also they cannot attack a contract because of its
unenforceability. Indeed, the Statute of Frauds cannot be set up as a defense by strangers to the transaction.
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VIII. DEFECTIVE CONTRACTS
D. VOID AND INEXISTENT CONTRACTS
D. VOID AND INEXISTENT CONTRACTS
NATURE OF VOID CONTRACTS
‣
A void or inexistent contract is one which has no force and effect from the very beginning, as if it had never been
rendered into, and which cannot be validated either by time or ratification.
‣
These kinds of contract include not only those contracts in which one of the essential requisites is totally wanting, but
also those which are declared void by positive provision of law or statute.
‣
A void contract is equivalent to nothing, it is absolutely wanting in civil effects.
‣
Characteristics of Void Contracts —
‣
1.
It produces no effect whatsoever either against or in favour of anyone, hence, it does not create, modify or extinguish
the juridical relation to which it refers
2.
No action for annulment is necessary, because the nullity exists ipso jure, a judgment of nullity would merely be
declaratory
3.
It cannot be confirmed or ratified
4.
If it has been performed, the restoration of what has been given is in order
5.
Any person may invoke the inexistent of the contract whenever its juridical effects are asserted against him
6.
The right to set up the defense of illegality cannot be waived
7.
A contract which is the direct result of a previous illegal contract is also void and inexistent
Ratification by new contract — If a new and valid contract is entered into about the same thing, the new contract is of
course binding, but this is not technically the “ratification” referred to in the law. Thus, a donation of land in a private
instrument is void, but if a month later the same donation is made in a public instrument, the donation becomes valid, but
this time, the new contract becomes valid and effective, not from the date of the original agreement, but from the date of
the new agreement, for technically there has been no ratification
VOID VS VOIDABLE CONTRACTS
VOID CONTRACTS
VOIDABLE CONTRACTS
cannot be ratified
may be ratified
generally, effects are not produced at all
produces effects until anulled
the defect here is that ordinarily, public policy is militated
against
defect is due to incapacity or vitiated consent
void from the very beginning so generally, no action is
required to set it aside, unless the contract has already
been performed
valid until annulled
cannot be cured by prescription
may be cured by prescription
defense may be availed of by anybody, whether he is a
party to the contract or not, as long as his interest is
directly affected.
defense may be invoked only by the parties (those
principally or subsidiarily liable), or their successors in
interest and privies
referred to as absolute nullity
referred to as relative or conditional nullity
VOID VS UNENFORCEABLE CONTRACTS
VOID CONTRACTS
UNENFORCEABLE CONTRACTS
cannot be ratified
may be ratified
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D. VOID AND INEXISTENT CONTRACTS
VOID CONTRACTS
UNENFORCEABLE CONTRACTS
no contract at all
there is a contract but it cannot be enforced by a court
action
cannot be assailed by third parties
can be assailed by anybody directly affected
VOID VS RESCISSBLE CONTRACTS
VOID CONTRACTS
RESCISSIBLE CONTRACTS
Defect is inherent in the contract itself
Defect is in the effect of the contract
The nullity is a matter of law and public interest
It is a matter of equity and private interest
There are no legal effects even if no action is taken to set
it aside
If no action is taken to set it aside, it remains valid and
produces all its effects
imprescriptible
may prescribe
GROUNDS FOR NULLITY OF CONTRACTS
Article 1409. The following contracts are inexistent and void from the beginning:
(1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy;
(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.
1.
LACK OF ESSENTIAL REQUISITES
a.
Those which are absolutely simulated or fictitious
i.
Absolute simulation — the contract is void for utter lack of consent.
ii.
Relative simulation — hidden or intended contract is generally binding but the apparent contract is void
c.
Those whose cause or object did not exist at the time of the transaction
‣
2.
PARAS — This is not exactly correct because there can be valid contracts involving future property, such as sale of
future or after-acquired property. This should be read as “objects which could not come into existence”
d.
Those which contemplate an impossible service
e.
Those where the intention of the parties relative to the principal object of the contract cannot be ascertained
CONTRACTS DECLARED ILLEGAL OR VOID BY LAW
a.
Those whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy
b.
Those whose object is outside the commerce of men
c.
Those expressly prohibited or declared void by law
IMPRESCRIPTIBILITY OF VOID CONTRACTS
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D. VOID AND INEXISTENT CONTRACTS
Article 1410. The action or defense for the declaration of the inexistence of a contract does not prescribe.
‣
If a contract is null and void, the action to declare it null and void or to declare its non-existence is imprescriptible. On the
other hand, the illegality of the contract can always be set up as a defense, despite the passage of time.
‣
Thus, the defect is incurable either by ratification or prescription. The only way to cure it is of course to enter into a
new but valid contract
DECLARATION OF NULLITY — EFFECTS AND CONSEQUENCES
Article 1411. 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.
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)
Article 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the
following rules shall be observed:
(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;
(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)
Article 1414. 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.
Article 1415. 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.
Article 1416. When the agreement is not illegal per se but is merely prohibited, and the prohibition by the law is designed
for the protection of the plaintiff, he may, if public policy is thereby enhanced, recover what he has paid or delivered.
Article 1413. 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.
Article 1417. 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.
Article 1418. 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.
Article 1419. 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.
Article 1420. In case of a divisible contract, if the illegal terms can be separated from the legal ones, the latter may be
enforced.
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D. VOID AND INEXISTENT CONTRACTS
VOID CONTRACTS WHICH HAVE NOT BEEN EXECUTED
‣
RULE — IN VOID CONTRACTS, NEITHER PARTY MAY BE COMPELLED TO PERFORM OR COMPLY WITH HIS UNDERTAKING
‣
The nullity of the contract may be asserted as a defense against a demand or action filed by the other party
PARTIALLY OR FULLY EXECUTED VOID CONTRACTS — RULES ON RECOVERY
‣
RULE — WHEN A VOID CONTRACT HAS BEEN PARTIALLY OR FULLY PERFORMED, THE PARTIES MAY FILE AN ACTION FOR TO
DECLARE ITS NULLITY AND FULLY RECOVER WHAT HAS BEEN GIVEN
‣
‣
This rule particularly applies to a case where the nullity is based on the absence of any of the essential elements
‣
TOLENTINO — There is no need of an action to set aside a void or inexistent contract, in fact, such action cannot
logically exist. However, an action to declare the non-existence of the contract can be maintained, and in the same
action, the plaintiff may recover what he has given by virtue of the contract. The power to ask for the declaration of
non-existence of the contract cannot be assigned.
‣
A transferor can recover the object of a void contract (void due to absence of the essential requisites) by accion
reividicatoria and any possessor may refuse to deliver it to the transferee, who cannot enforce the transfer. (Modina vs
CA)
EXCEPT — IN THE FOLLOWING CASES, THERE IS NO FULL RECOVERY —
1.
NO RECOVERY IS ALLOWED — WHEN THE NULLITY PROCEEDS FROM THE ILLEGALITY OF THE CAUSE OR OBJECT OF THE
CONTRACT AND BOTH PARTIES ARE GUILTY (ART. 1411, ART. 1412[1]))
‣
This is regardless of whether the act constitutes a criminal offense or NOT
‣
Effects —
‣
a.
In these cases, neither party may recover, each must bear the consequences of his own acts
b.
Since they are in pari delicto, they shall have no action against each other.
c.
Both shall be prosecuted.
d.
The effects or the instruments of the crime (things or price of the contract) shall be confiscated in favor of
government.
Examples —
‣
Criminal offense — both entered into a contract for smuggling or importation of contraband
‣
Not a criminal offense — A Filipino sold land to a Chinese after the effective date of the Constitution.
‣
It is based on the principle of pari declito — “in equal fault” It is a legal term used to indicate that two persons or
entities are equally at fault.
‣
EXCEPTION TO EXCEPTION — In the following cases, even if both parties are guilty, recovery may be
allowed —
2.
a.
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. (Art. 1414)
b.
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. (Art. 1415)
c.
When the agreement is not illegal per se but is merely prohibited, and the prohibition by the law is designed for
the protection of the plaintiff, he may, if public policy is thereby enhanced, recover what he has paid or
delivered. (Art. 1416)
PARTIAL RECOVERY IS ALLOWED (RECOVERY ONLY ON THE PART OF ONE PARTY) — WHEN THE NULLITY PROCEEDS FROM
THE ILLEGALITY OF THE CAUSE OR OBJECT OF THE CONTRACT BUT ONLY ONE PARTY IS GUILTY (ART. 1411, ART. 1412[2])
‣
This is regardless of whether the act constitutes a criminal offense or NOT
‣
PARAS — This also applies where, even if both are guilty, they are not equally guilty, therefore, “not in pari delicto”,
“not in equal guilt”.
‣
In this case, pari delicto does NOT apply as only one of the parties was at fault
‣
Effects —
a.
The guilty party will be prosecuted.
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D. VOID AND INEXISTENT CONTRACTS
b.
The guilty party cannot recover what he has given by reason of the contract, or ask for the fulfillment of what
had been promised him.
c.
The instrument of the crime (or object of the contract) will be confiscated (as in the case of government
property illegally sold).
d.
The innocent party demand the return of what he has given, without any obligation to comply with his promise.
Examples —
‣
‣
Criminal offense — X sold government property to Y, who was in good faith; or where a person of age gave a
donation to a minor for the purpose of illicit sexual intercourse.
‣
Not a criminal offense — A husband and his wife executed a void contract dividing their conjugal properties, as
a result of which the wife was given a certain parcel of land. A certain Bough, who wanted to get the land, lied
to the wife and told her falsely that her husband was in town and was going to contest the deed of property
separation, in an attempt to induce her to transfer the land to him (Bough), so that the husband could not get
hold of the properties. So, the wife agreed to fictitiously transfer the land to him. Later, Bough brought this
action to recover the land and presented as proof the deed of sale to him. The wife, on the other hand, asked
for the declaration of the sale as null and void. Although the wife was in delicto, she was not in pari delicto with
Bough who, by fraud, induced her to enter into an agreement that was against public policy. Therefore, Bough
cannot get the land, and the wife will retain possession of the same.
EXCEPTIONS TO THE PARI DELICTO RULE
‣
NOTE — These are also cases where partial recover (recovery by one party is allowed)
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. (Art. 1414)
1.
‣
REQUISITES — recovery can be done only if —
1.
If the purpose has not yet been accomplished; and
2.
If damage has not been caused any third person
‣
Example — For a reward, A promised to kill C for B. B gave the reward. Before A could kill C, B repudiated the
contract. Is B allowed to do so? Yes, because here, the purpose has not yet been accomplished and no damage has
as yet been caused to a third person. May B recover what he has paid? It depends on the discretion of the court. If
public interest allows the party repudiating the contract to recover the money or property given. If, however, the
repudiation took place after the crime has been done, such repudiation is invalid and both parties will be guilty.
‣
NOTE — This rule also applies if the parties are not equally guilty, and where public policy would be advanced by
allowing the suit for relief. (Bough v. Cantiveros)
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. (Art. 1415)
2.
Example — An insane man gave money to another to kill X. May the insane man recover what he has paid? Yes, since
the interest of justice so demands.
‣
When the agreement is not illegal per se but is merely prohibited, and the prohibition by the law is designed for
the protection of the plaintiff, he may, if public policy is thereby enhanced, recover what he has paid or delivered.
(Art. 1416)
3.
‣
‣
Art. 1416 distinguishes between void contracts that are —
a.
Illegal per se — are those forbidden because of public interest.
b.
Merely prohibited contracts — forbidden because of private interests
Recovery in case of merely prohibited contracts is allowed if —
a.
The prohibition is designed for the protection of the plaintiff; and
b.
Public policy would be enhanced by allowing the recovery.
‣
‣
Example — A donated to B everything that he (A) possessed and owned, leaving nothing for himself. This is
prohibited but not illegal per se. Since public policy is hereby enhanced, A will be allowed to recover, at least that
necessary for his own support and the support of his relatives.
Art. 1413, 1417 to 1419 are really cases of merely prohibited contracts designed for the protection of one of the
parties, in such cases, such party may recover —
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VIII. DEFECTIVE CONTRACTS
D. VOID AND INEXISTENT CONTRACTS
a.
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. (Art. 1413)
b.
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. (Art. 1417)
‣
Example — If the ceiling price for a pack of cigarettes is pegged at P300.00 a carton and you paid P400.00 for
it, you may recover the excess of P100.00.
c.
When the law fixes, or authorizes the fixing of the maximum number of hours of labor, and a contract is entered
into whereby a laborer undertakes to work longer than the maximum thus fixed, he may demand additional
compensation for service rendered beyond the time limit. (Art. 1418)
d.
When the law sets, or authorizes the setting of a minimum wage for laborers, and a contract is agreed upon by
which a laborer accepts a lower wage, he shall be entitled to recover the deficiency. (Art. 1419)
NULLITY AS A DEFENSE BY THIRD PARTIES
Article 1421. The defense of illegality of contract is not available to third persons whose interests are not directly affected.
‣
The right to set up the nullity of a void or non-existent contract is not limited to the parties, as in the case of annullable or
voidable contracts, it is extended to third persons who are directly affected by the contract. Thus, where a contract is
absolutely simulated, third persons who may the prejudiced thereby may set up its inexistence.
‣
Third persons whose interests are served by the nullity of the contract may attack it, especially creditors of those who
dispose of their property under a void contract. The creditor may attach the property thus alienated, asserting the nullity
of the alienation.
CONTRACT RESULTING FROM A VOID CONTRACT
Article 1422. A contract which is the direct result of a previous illegal contract, is also void and inexistent.
‣
Example — A promised to give B a car as a reward after B has killed C. Later, after the killing, the contract was changed to
a lease of a big house for a certain period. The second contract here is the direct result of a previous illegal contract and
is, therefore, null and void.
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IX. NATURAL OBLIGATIONS
IX. NATURAL OBLIGATIONS
RATIONALE OF PROVISIONS ON NATURAL OBLIGATIONS
‣
CODE COMMISSION — In all the specific cases of natural obligations recognized by the Civil Code, there is a moral duty,
but not a legal duty to perform or to pay, but the person thus performing or paying feels that in good conscience, he
should comply with his undertaking which is based on moral grounds. Why should the law permit him to change his mind,
and recover what he has delivered or paid? Is it not wiser and more just that the law should compel him to abide by his
honor and conscience? Equity, morality, natural justice — those are after all the abiding foundations of positive law. A
broad policy justifies as a legal principle that would encourage persons to fulfill their obligations.
Article 1423. Obligations are civil or natural. Civil obligations give a right of action to compel their performance. Natural
obligations, not being based on positive law but on equity and natural law, do not grant a right of action to enforce their
performance, but after voluntary fulfillment by the obligor, they authorize the retention of what has been delivered or
rendered by reason thereof. Some natural obligations are set forth in the following articles.
‣
‣
What does “voluntary fulfilment” mean?
‣
It means that the debtor complied with the same even if he knew that he could not have been le- gally forced to do so.
Thus, payment through a coercive process of the writ of execution issued at the instance and insistence of the
prevailing party, is NOT considered voluntary, and the provisions of the law on natural obligations cannot be applied
thereto. Payment thru a coercive process of the writ of execution issued at the instance and insistence of the
prevailing party, is NOT considered voluntary and the provisions of the law on natural obligations, cannot be applied
thereto.(Manila Surety & Fidelity Co. v. Lim 1959)
‣
Example — If I pay a debt that has prescribed —
Not knowing it has prescribed, I can recover on the ground of undue payment.
2.
Knowing it has prescribed, I cannot recover for this would be a case of a natural obligation.
In case of partial voluntary fulfillment, can the unpaid balance be recovered?
‣
‣
1.
PARAS — NO. In case of partial voluntary fulfillment, the balance cannot be recovered, since on said balance, there
has not yet been created a legal obligation.
Other examples of natural obligations
‣
Obligation to pay interest for use of money, even if not agreed upon in writing. (See Arts. 1956, 1960)
‣
Duty to support natural or spurious children (even if not recognized voluntarily or by judicial compulsion and even if
there is a judgment denying recognition).
‣
Giving of material and financial assistance to children upon their marriage.
PAYMENT OR PERFORMANCE OF PRESCRIBED OBLIGATIONS
Article 1424. When a right to sue upon a civil obligation has lapsed by extinctive prescription, the obligor who voluntarily
performs the contract cannot recover what he has delivered or the value of the service he has rendered.
‣
Example — A’s debt to C has been extinguished by prescription. Yet A, knowing of the prescription, voluntarily paid the
prescribed debt. A cannot now recover what he has paid C. Prescribed debt may indeed give rise to new obligation.
(Villaroel v. Estrada)
REIMBURSEMENT OF THIRD PERSON
Article 1425. When without the knowledge or against the will of the debtor, a third person pays a debt which the obligor is
not legally bound to pay because the action thereon has prescribed, but the debtor later voluntarily reimburses the third
person, the obligor cannot recover what he has paid.
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‣
Here the third person pays —
1.
Without the knowledge (of the debtor), or
2.
Against the will (of the debtor)
‣
Example — A owes B P700,000. But the debt soon prescribes. Later C, against the consent of A, pays B the P700,000. A
here does not have to reimburse C because he (A) has not at all been benefited by the transaction. However, A later
voluntarily reimburses C. May A cannot recover what he has given to C.
‣
NOTE — If payment is made with the consent of the debtor, a civil obligation arises.
RETURN OF THE THING IN AN ANNULLED CONTRACT DUE TO MINORITY
Article 1426. When a minor between eighteen and twenty-one years of age who has entered into a contract without the
consent of the parent or guardian, after the annulment of the contract voluntarily returns the whole thing or price
received, notwithstanding the fact that he has not been benefited thereby, there is no right to demand the thing or price
thus returned.
‣
Example — A, a minor, entered into a contract with a sui juris, without the consent of his (A’s) parents. In said contract, A
received a car. This car was afterwards destroyed by a fortuitous event. Later when the contract was annulled, A returned
voluntarily the value of the car although he had not profited or benefited a single centavo from the car. Has he now the
right to demand that the price be returned? No more.
CONSUMPTION IN GOOD FAITH OF A THING ACQUIRED FROM A MINOR
Article 1427. When a minor between eighteen and twenty-one years of age, who has entered into a contract without the
consent of the parent or guardian, voluntarily pays a sum of money or delivers a fungible thing in fulfillment of the
obligation, there shall be no right to recover the same from the obligee who has spent or consumed it in good faith.
(1160A)
‣
If the object is non-consumable, does the Article apply?
‣
PARAS — YES, if there has been loss by fortuitous event or alienation in good faith (this is equivalent to spending or
consuming it), if the proceeds thereof have already been spent in good faith.
VOLUNTARY FULFILLMENT OF THE WINNER IN AN ACTION
Article 1428. When, after an action to enforce a civil obligation has failed the defendant voluntarily performs the
obligation, he cannot demand the return of what he has delivered or the payment of the value of the service he has
rendered.
‣
Example — A owes B P500,000. B brings a suit against A, but B loses the case for insufficient evidence. No appeal is
made from the decision, and the judgment becomes final. Later, A paid B voluntarily the debt. May A now recover from B
what he (A) has paid? No.
PAYMENT OF DEBTS BY AN HEIR BEYOND THE VALUE OF HIS INHERITANCE
Article 1429. When a testate or intestate heir voluntarily pays a debt of the decedent exceeding the value of the property
which he received by will or by the law of intestacy from the estate of the deceased, the payment is valid and cannot be
rescinded by the payer.
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IX. NATURAL OBLIGATIONS
‣
Example — A dies, leaving an estate of P10,000,000 and debts amounting to P15,000,000. His heir here is not expected
to make up for the difference, BUT if he does so voluntarily, then he cannot recover said difference. After all, one does
have a moral duty to see to it that the dead relative’s or friend’s obligations in life are all carried out. Here, the heir is not
really required by law to shoulder the deficit, but since he does so voluntarily, he cannot now back out.
PAYMENT OF LEGACIES DESPITE THE FACT THAT THE WILL IS VOID
Article 1430. When a will is declared void because it has not been executed in accordance with the formalities required
by law, but one of the intestate heirs, after the settlement of the debts of the deceased, pays a legacy in compliance with
a clause in the defective will, the payment is effective and irrevocable.
‣
PARAS — If the will is void, the legacy would also be void and the deceased is considered to have died without a will.
This is the reason for the existence of the Article. By analogy, all alienations defective for lack of the proper formalities
may be included under Art. 1430.
‣
Example — In a will defective for lack of the needed legal formalities, X, a friend, was given a legacy. The legacy is void,
and the whole estate should go to the intestate heirs. If however, the intestate heirs give X the legacy, they cannot get it
back now, provided that the debts of the deceased have been settled.
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X. ESTOPPEL
X. ESTOPPEL
NATURE AND CONCEPT
Article 1431. 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.
‣
Speaking generally, it may be said that estoppel is a bar which precluded a person from denying or asserting anything
contrary to that which has been, in contemplation of law, established as the truth either by acts of judicial or legislative
officers, or by his own deed or representation either express or implied
‣
The doctrine of estoppel has its origin in equity, and is based on moral rights and natural justice. Its applicability to any
particular case depends to a very large extent upon the special circumstances of the case. (Mirasol v. Municipality of
Tabaco)
‣
Is a waiver the same as estoppel?
‣
‣
Waiver and estoppel are frequently used as convertible terms. The doctrine of waiver belongs to the family of, is of the
nature of, is based on, estoppel. The essence of waiver is estoppel, and where there is no estoppel, there is no waiver.
This is especially true where the waiver relied upon is constructive or implied from the conduct of a party. Thus, when
it is asserted that a “party is in estoppel,” this is the same as saying that said party had made a waiver. (Lopez vs
Ochoa 1958)
Examples of the Application of Estoppel —
‣
If a husband in a sworn declaration constituting a family home has stated in said documents that he was married,
naming his wife, he cannot thereafter be heard to say that he and the girl are not married. Therefore, the family home
should be considered as conjugal property. (Montoya v. Ignacio)
‣
A holder of a promissory note given because of gambling who indorses the same to an innocent holder for value and
who assures said party that the note has no legal defect, is estopped from asserting that there had been an illegal
consideration for the note, and so, he has to pay its value. (Rodriguez v. Martinez)
‣
A person who alleged at one time in court that he was the owner of a certain cabaret cannot afterwards deny his
ownership thereof. (Patricio v. Patricio,)
‣
A person claiming for his salary was selling his interest in the stock of a corporation to said corporation. The
corporation refused to consider the sale unless the claim for salary was omitted. So, the seller drew another contract,
this time with no mention of the salary. He cannot now claim the salary in view of estoppel. (Herman v. Radio
Corporation of the Phil)
‣
A vendee a retro who at one time recognized ownership in the subject matter by the vendor a retro cannot now claim
ownership over the same. (Matienzo & Palileo v. CFI of Laguna)
‣
He who prevents a thing from being done may not avail himself of the non-performance which he himself has
occasioned,” for the law says to him in effect, ‘this is your own act, and therefore you are not damnified.’ Where,
therefore, a taxpayer repeatedly requested for reinvestigation of his case and therefore persuaded the government to
postpone collection of the tax, he cannot set up prescription of the action. (Coll. v. Suyoc Consol)
‣
If the registered owner of a private or public vehicle sells it to another, but does not cancel its registration under his
name, he will still be responsible if the buyer causes damage or injury to another. He will be estopped from asserting
that the property had already been transferred by him to another. The Motor Vehicle Law requires registration so as to
identify the owner in case of an accident or injury on the highways. Responsibility is thus fixed on a definite individual,
the registered owner. If this were not the rule, it would be very easy for the registered owner to escape responsibility by
simply transferring the property to an indefinite person or to one who possesses no property with which to respond
financially for the damage or injury done. However, the registered owner who has already conveyed or transferred a
vehicle has a right to be indemnified by the vendee or transferee for the amount that he may be required to pay as
damages to the person injured by the vehicle. (Erezo, et al. v. Jepte 1957; Montoya v. Ignacio 1953)
‣
A government employee who accepts the benefits accruing from the abolition of his office is estopped from
questioning the validity of the abolition and is deemed to have waived the right to contest the same. (Magana v.
Agregado)
SUPPLETORY APPLICATION OF THE PRINCIPLES OF ESTOPPEL
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X. ESTOPPEL
Article 1432. 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.
KINDS OF ESTOPPEL
Article 1433. Estoppel may in pais or by deed.
1.
ESTOPPEL IN PAIS (EQUITABLE ESTOPPEL)
‣
This arises when one, by his acts, representations or admissions, or by his silence when he ought to speak out,
intentionally or thru culpable negligence, induces another to believe certain facts to exist, and such other rightfully
relies and acts on such belief, so that he will be prejudiced if the former is permitted to deny the existence of such
facts.
‣
This may be in the form of either —
‣
2.
a.
By conduct or by acceptance of benefits
b.
By representation or concealment
c.
By silence
d.
By omission
e.
By laches (unreasonable delay in suing)
Examples —
‣
If a vendee a retro agrees to accept a check in payment of the repurchase price, he cannot afterwards allege that
the check is not legal tender. He is bound by his own act. (Gutierrez v. Carpio)
‣
If the real owner of a house pretends to be merely a broker in the sale thereof, he is estopped from asserting
ownership over the same. (Bachrach Motor Co. v. Kane)
‣
If the NAMARCO has entered into a valid contract with a certain Federation for the sale of certain goods imported
by the former, it (NAMARCO) cannot question the validity of the transaction particularly after it has received and
accepted certain benefits from the Federation as a result of the contract. (NAMARCO v. Tan)
ESTOPPEL BY DEED (TECHNICAL ESTOPPEL)
‣
This is a bar which precludes a party to a deed and his privies from asserting as against the other and his privies any
right or title in derogation of the deed, or from denying the truth of any material fact asserted in it.
‣
This may be in the form of either —
‣
a.
Estoppel by deed proper (written instrument may also be in the form of a bond or a mortgage).
b.
Estoppel by judgment as a court record (this happens when there could have been res judicata). (See Rule 131,
Sec. 3[3] and Rule 39, Sec. 47, Revised Rules of Court)
‣
While res judicata makes a judgment conclusive between the parties as to things which were directly adjudged,
estoppel by judgment prevents the parties from raising questions that could have been put in issue and decided in
the previous case.
‣
This is also known as “conclusiveness of judgment”
Examples —
‣
If several persons, each claiming ownership over cer- tain property deposited in a warehouse, in a written
document agree it should be sold, said persons can- not later on modify the terms of the agreement. (Cu Unjieng v.
Asia Banking Corporation)
‣
If a shipper has his goods valued at only P200, he can- not later on recover damages for its value more than what
he has declared in the bill of lading, even if the value of the goods be worth much more, for he is in estoppel.
(Friexas and Co. v. Pacific Mail Steamship Co.)
‣
Purchase in one’s own name with another’s money generally gives title to the purchaser, that is, to him who
appears in the deed to have made the purchase in his own name. (Enriquez v. Olaguer)
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X. ESTOPPEL
REQUISITES OF LACHES AS A FORM OF ESTOPPEL BY PAIS
1.
Conduct on the part of the defendant, or of one under whom he claims, giving rise to the situ- ation of which the
complaint is made and for which the complaint seeks a remedy
2.
Delay in asserting the complainant’s rights, the complainant having had knowledge or notice of the defendant’s conduct
and having been afforded an opportunity to institute a suit
3.
Lack of knowledge or notice on the part of the defendant that the complainant would assert the right on which he bases
his suit
4.
Injury or prejudice to the defendant in the event relief is accorded to the complainant, or the suit is not held to be barred.
(Viloria v. Sec. of Agriculture and Natural Resources 1960)
SALE BY NON-OWNER; AFTER-ACQUIRED PROPERTY
Article 1434. 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.
‣
In this kind of estoppel, prejudice is not essential. (Vda. de Cruz v. Ilagan)
‣
NOTE — Art. 1434 applies to the sale of “after-acquired property.” This is allowed by the law on Sales under the Civil
Code.
‣
Example — Jose sold in his own name Brigitte’s car to Gina. He also delivered the car to Gina. If later on Brigitte donates
the car to Jose, ownership over the same passes to Gina, not by tradition or delivery, but by operation of law.
SALE OR ALIENATION IN REPRESENTATION OF ANOTHER
Article 1435. 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.
‣
This is estoppel created in a representative capacity. In this kind of estoppel, prejudice is also not essential. (Molina vs
CA)
‣
Example — Amalia, in representation of Romeo, sells to Juanito a car. Amalia cannot afterwards allege that she was really
the owner of the car, and that, therefore, the sale is not valid.
ESTOPPEL ON THE PART OF A LESSEE OR A BAILEE
Article 1436. A lessee or a bailee is estopped from asserting title to the thing leased or received, as against the lessor or
bailor.
‣
Under the Revised Rules of Court, one of the instances of conclusive presumptions is in the case of the tenant, who is not
permitted to deny the title of his landlord at the time of the commencement of the relation of landlord and tenant between
them. (Sec. 3-b, Rule 131)
‣
When Presumption does NOT Apply — If the alleged tenant does not admit expressly or implicitly the existence of the
lease contract (such as when the landlord did not attach or plead in his complaint the contract of lease), the presumption
does not apply. (Andres v. Judge Soriano)
ESTOPPEL CONCERNING IMMOVABLE PROPERTY
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X. ESTOPPEL
Article 1437. 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.
‣
To apply this Article, one should have been misled, otherwise there is no estoppel. (Fabie, et al. v. City of Manila)
ALLOWING SOMEONE TO ASSUME APPARENT OWNERSHIP OF PERSONAL PROPERTY
Article 1438. 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.
‣
This is estoppel that results from acceptance of benefits (with knowledge of the true facts).
‣
Even if there be NO benefits, estoppel would also apply if the “agent” was given apparent authority, and the other party
was misled into giving him credit. (Siy Cong Bieng v. HSBC)
‣
Example — A has a diamond ring. He allowed B to assume apparent ownership over the ring so that B might sell the
same. Instead, B pledged the ring with C to obtain a loan. The money lent was later handed over to A. Later A attacks the
validity of the pledge claiming that under the law, the pledgee must be the owner thereof, and since B in this case acted
without authority, the pledge is invalid. Is A allowed to do this? No, A is not allowed to do this. His receipt of the sum for
which the pledge was made is an implied ratification of the pledge and A is, therefore, in estoppel.
PERSONS BOUND BY ESTOPPEL
Article 1439. Estoppel is effective only as between the parties thereto or their successors in interest.
‣
Third parties are NOT bound by estoppel
‣
Is the Government Bound by Estoppel?
‣
NO. Generally, the Government is not bound by estoppel, particularly so if there has been an erroneous application
and enforcement of the law. (Phil. Long Distance Tel. Co. v. Coll. of Int. Rev)
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XI. PRESCRIPTION
XI. PRESCRIPTION
Sorry tinamad nako :( zzzzzz
A. GENERAL PROVISIONS
Article 1106. 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 conditions are lost by prescription. (1930a)
Article 1107. Persons who are capable of acquiring property or rights by the 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)
Article 1108. 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 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)
Article 1109. Prescription does not run between husband and wife, even though there be a separation of property agreed
upon in the marriage settlements or by judicial 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)
Article 1110. Prescription, acquisitive and extinctive, runs in favor of, or against a married woman. (n) Article 1111.
Prescription obtained by a co-proprietor or a co-owner shall benefit the others. (1933)
Article 1112. Persons with capacity to alienate property may renounce prescription already obtained, but not the right to
prescribe in the future.
Prescription is deemed to have been tacitly renounced when the renunciation results from acts which imply the
abandonment of the right acquired. (1935)
Article 1113. All things which are within the commerce of men are susceptible of prescription, unless otherwise provided.
Property of the State or any of its subdivisions not patrimonial in character shall not be the object of prescription. (1936a)
Article 1114. 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)
Article 1115. 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)
Article 1116. 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)
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B. PRESCRIPTION OF OWNERSHIP AND OTHER REAL RIGHTS
Article 1117. Acquisitive prescription of dominion and other real rights may be ordinary or extraordinary.
Ordinary acquisitive prescription requires possession of things in good faith and with just title for the time fixed by law.
(1940a)
Article 1118. Possession has to be in the concept of an owner, public, peaceful and uninterrupted. (1941)
Article 1119. Acts of possessory character executed in virtue of license or by mere tolerance of the owner shall not be
available for the purposes of possession. (1942)
Article 1120. Possession is interrupted for the purposes of prescription, naturally or civilly. (1943)
Article 1121. Possession is naturally interrupted when through any cause it should cease for more than one year.
The old possession is not revived if a new possession should be exercised by the same adverse claimant. (1944a)
Article 1122. If the natural interruption is for only one year or less, the time elapsed shall be counted in favor of the
prescription. (n)
Article 1123. Civil interruption is produced by judicial summons to the possessor. (1945a)
Article 1124. Judicial summons shall be deemed not to have been issued and shall not give rise to interruption:
(1) If it should be void for lack of legal solemnities;
(2) If the plaintiff should desist from the complaint or should allow the proceedings to lapse; (3) If the possessor should
be absolved from the complaint.
In all these cases, the period of the interruption shall be counted for the prescription. (1946a)
Article 1125. Any express or tacit recognition which the possessor may make of the owner's right also interrupts
possession. (1948)
Article 1126. 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.
As to lands registered under the Land Registration Act, the provisions of that special law shall govern. (1949a)
Article 1127. The good faith of the possessor consists in the reasonable belief that the person from whom he received the
thing was the owner thereof, and could transmit his ownership. (1950a)
Article 1128. The conditions of good faith required for possession in articles 526, 527, 528, and 529 of this Code are
likewise necessary for the determination of good faith in the prescription of ownership and other real rights. (1951)
Article 1129. For the purposes of prescription, there is just title when the adverse claimant came into possession of the
property through one of the modes recognized by law for the acquisition of ownership or other real rights, but the grantor
was not the owner or could not transmit any right. (n)
Article 1130. The title for prescription must be true and valid. (1953)
Article 1131. For the purposes of prescription, just title must be proved; it is never presumed. (1954a)
Article 1132. The ownership of movables prescribes through uninterrupted possession for four years in good faith.
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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)
Article 1133. Movables possessed through a crime can never be acquired through prescription by the offender. (1956a)
Article 1134. Ownership and other real rights over immovable property are acquired by ordinary prescription through
possession of ten years. (1957a)
Article 1135. 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)
Article 1136. Possession in wartime, when the civil courts are not open, shall not be counted in favor of the adverse
claimant. (n)
Article 1137. 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. (1959a)
Article 1138. In the computation of time necessary for prescription the following rules shall be observed:
(1) The present possessor may complete the period necessary for prescription by tacking his possession to that of his
grantor or predecessor in interest;
(2) It is presumed that the present possessor who was also the possessor at a previous time, has continued to be in
possession during the intervening time, unless there is proof to the contrary;
(3) The first day shall be excluded and the last day included. (1960a)
C. PRESCRIPTION OF ACTIONS
Article 1139. Actions prescribe by the mere lapse of time fixed by law. (1961)
Article 1140. Actions to recover movables shall prescribe eight years from the time the possession thereof is lost, unless
the possessor has acquired the ownership by prescription for a less period, according to articles 1132, and without
prejudice to the provisions of articles 559, 1505, and 1133. (1962a)
Article 1141. Real actions over immovables prescribe after thirty years.
This provision is without prejudice to what is established for the acquisition of ownership and other real rights by
prescription. (1963)
Article 1142. A mortgage action prescribes after ten years. (1964a)
Article 1143. 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)
Article 1144. 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)
Article 1145. The following actions must be commenced within six years:
(1) Upon an oral contract;
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(2) Upon a quasi-contract. (n)
Article 1146. The following actions must be instituted within four years:
(1) Upon an injury to the rights of the plaintiff;
(2) Upon a quasi-delict;
However, when the action arises from or out of any act, activity, or conduct of any public officer involving the exercise of
powers or authority arising from Martial Law including the arrest, detention and/or trial of the plaintiff, the same must be
brought within one (1) year. (As amended by PD No. 1755, Dec. 24, 1980.)
Article 1147. The following actions must be filed within one year:
(1) For forcible entry and detainer;
(2) For defamation. (n)
Article 1148. 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)
Article 1149. 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)
Article 1150. 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)
Article 1151. 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)
Article 1152. The period for prescription of actions to demand the fulfillment of obligation declared by a judgment
commences from the time the judgment became final. (1971)
Article 1153. 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)
Article 1154. The period during which the obligee was prevented by a fortuitous event from enforcing his right is not
reckoned against him. (n)
Article 1155. The prescription of actions is interrupted when they are filed before the court, when there is a written
extrajudicial demand by the creditors, and when there is any written acknowledgment of the debt by the debtor. (1973a)
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