BOOK III
TITLE V. – PRESCRIPTION
CHAPTER 1
GENERAL PROVISIONS
WHAT IS PRESCRIPTION?
Prescription is a mode of acquiring (or losing) ownership and other
real rights thru the lapse of time in the manner and under the conditions
laid down by law (Article 1106).
WHAT ARE THE DIFFERENT CONCEPTS OF PRESCRIPTION?
Prescription is a legal term used to refer to
a.
b.
Acquisitive prescription -- the acquisition of right by the lapse of
time under the conditions laid down by law (Article 1106, par. 1),
which may be ordinary or extra-ordinary.
Extinctive prescription (or statute of limitation or limitation of
actions)—whereby rights and actions are lost by the lapse of time
(Articles 1106, par. 2 and 1139). This refers to the time frame
within which an action should be filed in court from the time the
cause of action has accrued, failing in which, the action is
deemed barred by the lapse of the prescribed time.
WHAT IS THE DIFFERENCE BETWEEN THE TWO CONCEPTS?
a. Acquisitive prescription is a mode of acquiring ownership while
extinctive prescription is a way of extinguishing a cause of action
for failure to file it within the required period.
b. In acquisitive prescription, a party becomes the owner of a
property by prescription while the previous owner loses the
property. In extinctive prescription, if a party is barred to file an
action because of prescription, the opposite party, on the other
hand, is liberated from the obligation or liability.
c. Acquisitive prescription applies to civil cases while extinctive
prescription is applicable to all kinds of action whether civil or
criminal. There are, however, exceptions wherein the action, by
mandate of the law, does not prescribe like an action to demand a
right of way (Article 1143); action to abate nuisance (Article 1143);
action to declare the invalidity of a void contract (Article 1410).
[Vide Morales vs. Court of First Instance of Misamis Occidental, G.R.
No. L-52278, May 29, 1980, 97 SCRA 872.]
WHAT IS LACHES?
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Laches is unreasonable delay in the bringing of a cause of action
before the courts of justice.
It is failure or neglect, for an unreasonable and unexplained length
of time, to do that which, by exercising due diligence, could or should
have been done earlier; it is negligence or omission to assert a right
within a reasonable time, warranting a presumption that the party
entitled thereto either has abandoned it or declined to assert it.
The principle of laches is a creation of equity. It is applied, not
really to penalize neglect or sleeping upon one’s right, but rather to avoid
recognizing a right when to do so would result in a clearly inequitable
situation.
WHAT ARE THE REQUISITES OF LACHES?
The following are the requisites of laches:
a. Conduct on the part of the defendant, or of one under whom he
claims, giving rise to the situation of which complaint is made and
for which the complaint seeks a remedy;
b. 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;
c. Lack of knowledge or notice on the part of the defendant that the
complainant would assert the right which he bases his suit; and
d. Injury or prejudice to the defendant in the event relief is accorded
to the complainant, or the suit is not held barred (Abraham vs.
Recto-Kasten, G.R. No. L-16741, January 1962).
HOW IS PRESCRIPTION DISTINGUISHED FROM LACHES?
a. Prescription is concerned with the fact of delay while laches is
concerned with the effect of delay;
b. Prescription is a matter of time while laches is principally a
question of the inequity of permitting a claim to be enforced, this
inequity being founded on some change in the condition of the
property or the relations of the parties.
c. Prescription is statutory; laches is not.
d. Laches applies in equity, whereas prescription applies at law.
e. Prescription is based on a fixed time; laches is not (Nielson & Co.,
Inc. vs. Lepanto Mining Co., G.R. No. L-21601, December 17, 1966,
18 SCRA 1040).
WHAT ARE THE BASIC REQUIREMENTS OF PRESCRIPTION AS A MODE OF
ACQUISITION?
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As a mode of acquisition, prescription requires the following
essential elements:
a. There must be actual possession of a property, which is
susceptible of prescription;
b. Possession must be in the concept of an owner and not that of a
mere holder (Article 1118);
c. Possession must be public or open (Article 1118);
d. Possession must be peaceful (Article 1118);
e. Possession must be continuous and not interrupted (Article 1118);
f. Possession must be averse, that is, exclusive and not merely
tolerated; and
g. Possession must satisfy the full period required by law (Articles
1132; 1134; 1137).
WHO ARE
PRESCRIPTION?
THE
PERSONS
CAPACITATED
TO
ACQUIRE
PROPERTY
BY
Under Article 1107, the following may acquire property by
prescription:
a. Persons who can acquire property rights through the other modes
of acquiring ownership.
When a person is capable of becoming an owner under
Article 712, generally such a person has full civil capacity and does
not suffer from disqualification.
b. Minors or other incapacitated persons, either personally or
through their parents, guardians or legal representatives.
Minors and incapacitated persons may acquire property by
prescription personally if they have discernment. This means the
presence of an intention to appropriate the property to become
their own. This intention is an essential ingredient of possession –
the principal element of prescription.
However, if the minor or incapacitated person has no
discernment, he can become an owner by prescription only
through representatives.
WHO ARE THE PERSONS AGAINST WHOM PRESCRIPTION MAY RUN?
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Acquisitive
persons:
and
extinctive
prescriptions
run
against certain
(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
(Article 1108).
(5) Prescription, acquisitive and extinctive, runs in favor of, or
against a married woman (Article 1110). This presupposes a
situation where the parties involved are a married woman
and another person not her husband. Prescription may be in
favor of or against the married woman.
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.
MAY
PRESCRIPTION RUN BETWEEN HUSBAND AND WIFE OR BETWEEN
PARENTS AND CHILDREN OR BETWEEN GUARDIAN AND WARD?
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 (Article 1109).
Note that the prescription contemplated here is acquisitive and not
extinctive. Thus, in the filing of actions against each other, extinctive
prescription is applicable.
EXAMPLES:
Legal separation must be filed within five (5) years from the
occurrence of the ground for legal separation (Article 57, FC);
Generally, action for annulment of marriage by a spouse against the
other must be filed within five (5) years (Article 47, FC);
Alienation made by the husband without the wife’s consent provided
that the marriage was celebrated under the Civil Code (Article 173,
CC).
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WHAT IS THE EFFECT OF PRESCRIPTION OBTAINED BY A CO-PROPRIETOR OR A
CO-OWNER?
Prescription obtained by a co-proprietor or a co-owner shall benefit
the others (Article 1111). Thus, if a co-owner obtained a property by
prescription which property incidentally must be related to the property
held in common, the prescription benefits them all.
MAY PRESCRIPTION RUN AGAINST CO-OWNERS?
Prescription does not run against co-owners except when a coowner made a definite repudiation of the co-ownership disclosed to the
other co-owners (Article 494).
WHO CAN RENOUNCE PRESCRIPTION ALREADY OBTAINED?
Persons with capacity to alienate property may renounce
prescription already obtained, but not the right to prescribe in the future
(Article 1112, par. 1). The renouncing must not prejudice the rights of
others (Article 6).
WHEN IS THERE TACIT RENUNCIATION?
Prescription is deemed to have been tacitly renounced when the
renunciation results from acts which imply the abandonment of the right
acquired (Article 1112, par. 2).
WHAT THINGS MAY BE SUBJECT OF PRESCRIPTION?
All things which are within the commerce of men are susceptible of
prescription, unless otherwise provided. Property of the State or any of
its subdivisions not patrimonial in character shall not be the object of
prescription (Article 1113).
EXAMPLES OF EXCEPTION:
a. Movables possessed through a crime can never be acquired by
prescription by the offender (Article 1133);
b. Lands covered by Torrens Title;
c. Those outside the commerce of men (Article 1133);
d. Properties of spouses, parents and children, wards and guardians,
under the restrictions imposed by law (Article 1109).
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WHAT
ARE THE RIGHTS OF CREDITORS AND ALL OTHER PERSONS
INTERESTED IN MAKING THE PRESCRIPTION EFFECTIVE?
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 (Article 1114).
Thus, where a current creditor of a corporation which had
obtained prescription of its debts, may interpose and plead prescription
to stop the corporation from paying prescribed debts to the prejudice of
the said creditor. This complements Article 6 of the Civil Code.
WHAT IS THE RULE IN CASE OF CONFLICT BETWEEN THE PROVISIONS ON
PRESCRIPTION AND SPECIFIC PROVISIONS IN THE SAME CODE, OR IN SPECIFIC
LAWS?
The provisions of the present Title are understood to be without
prejudice to what in this Code or in special laws is established with
respect to specific cases of prescription (Article 1115).
Thus, specific provisions on prescription separately found in the
Code and in special laws shall prevail over the general provisions on
prescription provided under Title V of the Code.
WHAT ARE THE TRANSITIONAL RULES FOR PRESCRIPTION?
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 (Article 1116).
Thus:
a. If the period for prescription began and ended under the old laws,
said old laws govern.
b. If the period for prescription began under the new Civil Code, the
new Civil Code governs.
c. If the period began under the old law, and continues under the
new Civil Code, the old law applies.
EXCEPTION:
In this third rule, it is the new Civil Code that will apply, provided
two conditions are present:
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a. The new Civil Code requires a shorter period; and
b. This shorter period has already elapsed since August 30, 1950.
NOTE: It is more than fifty years since the new Civil Code became
effective. The transitional rules may no longer find application today,
although the same were applied before in several cases.
CHAPTER 2
PRESCRIPTION OF OWNERSHIP AND OTHER REAL RIGHTS
WHAT ARE THE KINDS OF ACQUISITIVE PRESCRIPTION?
Acquisitive prescription of dominion and other real rights may be
ordinary or extraordinary (Article 1117).
WHAT ARE ORDINARY AND EXTRA-ORDINARY PRESCRIPTIONS?
Prescription where there is good faith is called ordinary
prescription; whereas prescription where there is bad faith is called
extra-ordinary prescription.
Prescription may arise even if the possessor is in bad faith.
However, when the possessor is in bad faith, the period required for the
actual possession is much longer to the case of a possessor in good faith.
WHAT ARE THE ADDITIONAL REQUISITES IN ORDINARY PRESCRIPTION?
Aside from the basic requirements of acquisitive prescription
already stated, if prescription is ordinary, the additional requisites are:
a. Good faith (Article 1128), and
b. Just title (Article 1129)
Note that the title for prescription must be true and valid (Article
1130); and for the purposes of prescription, just title must be proved; it
is never presumed (Article 1131).
WHEN IS A POSSESSOR CONSIDERED IN GOOD FAITH?
A possessor is considered in good faith, if he is not aware of the
existence of any flaw or defect in his title or mode of acquisition which
invalidates it (Article 526 in relation to Article 1128). Good faith consists
in the reasonable belief that the person from whom he received the thing
was the owner thereof, and could transmit his ownership (Article 1127).
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The related Articles which must be considered in the determination
of good faith in prescription of ownership are the following:
a. Article 526 -- He is deemed a possessor in good faith who is not
aware that there exists in his title or mode of acquisition any flaw
which invalidates it.
He is deemed a possessor in bad faith who possesses in any
case contrary to the foregoing.
Mistake upon a doubtful or difficult question of law may be
the basis of good faith.
b. Article 527 -- Good faith is always presumed, and upon him who
alleges bad faith on the part of a possessor rests the burden of
proof.
c. Article 528 -- Possession acquired in good faith does not lose this
character except in the case and from the moment facts exist
which show that the possessor is not unaware that he possesses
the thing improperly or wrongfully.
d. Article 529 -- It is presumed that possession continues to be
enjoyed in the same character in which it was acquired, until the
contrary is proved.
WHAT IS MEANT BY “JUST TITLE”?
Just title means that the possessor obtained the possession of the
property through one of the modes recognized by law for acquiring
ownership (as enumerated under Article 712) but the transferor or
grantor was not the owner of the property or he has no power to transmit
the right (Article 1129). The just title is intended to transmit ownership
and could have actually transmitted ownership had the transferor or
grantor been the true owner of the property. This kind of possession
arising from a just title can ripen into ownership if the other elements of
prescription are present.
WHAT ARE
PRESCRIPTION?
THE
CHARACTERISTICS
OF
POSSESSION
NEEDED
FOR
Possession has to be in the concept of an owner, public, peaceful
and uninterrupted (Article 1118).
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a. Possession in the CONCEPT OF AN OWNER means the possessor is
exercising the attributes of ownership over the property. He does
not recognize any ownership over the property except his own.
b. Possession of a property is considered PUBLIC when the
employment thereof is visible to all, especially to the very person
against whom possession is being asserted. The possession must
be publicly known to the community.
c. Possession is PEACEFUL when it is acquired without force or
intimidation, and such character is maintained all throughout the
period fixed by law.
d. Possession is UNINTERRUPTED OR CONTINUOUS when the possessor
has not stopped exercising the rights of an owner over the property
during the time fixed by law. However, if the right is exercisable at
intervals, and the right is so exercised, there is still continuity in
the possession of the property. Example: Harvesting of seasonal
fruits from fruit bearing trees.
e. The possession must be ADVERSE. Thus, mere possession with
juridical title, such as by a lessee, mortgagee, usufructuary,
trustee, or agent does not hold the proper adversely and in the
concept of an owner, unless the juridical relationship is first
expressly
repudiated
and
such
repudiation
has
been
communicated to the other party.
f. The acts of possessory character must not be executed in virtue of
LICENSE OR BY MERE TOLERANCE of the owner because the acts shall
not be available for the purposes of possession (Article 1119).
HOW IS POSSESSION INTERRUPTED FOR PURPOSES OF PRESCRIPTION?
Possession is interrupted for the purposes of prescription,
naturally or civilly (Article 1120).
WHEN IS POSSESSION INTERRUPTED?
a.
b.
Possession is naturally interrupted when through any
cause it should cease for more than one year (Article
1121, par. 1).
Civil interruption is produced by judicial summons to
the possessor (Article 1123), except:
a) If it should be void for lack of legal
solemnities;
b) If the plaintiff should desist from the
complaint or should allow the proceedings
to lapse;
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c.
c) If the possessor should be absolved from
the complaint (Article 1124).
Any express or tacit recognition which the possessor
may make of the owner's right also interrupts
possession (Article 1125).
WHAT ARE THE CONSEQUENCES OF INTERRUPTION?
a. The old possession is not revived if a new possession should be
exercised by the same adverse claimant (Article 1121, par. 2).
b. If the natural interruption is for only one year or less, the time
elapsed shall be counted in favor of the prescription (Article 1122).
AGAINST
A TITLE RECORDED IN THE REGISTRY OF PROPERTY, MAY
ORDINARY PRESCRIPTION OF OWNERSHIP OR REAL RIGHTS TAKE PLACE TO THE
PREJUDICE OF A THIRD PERSON?
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 (Article 1126).
WHAT IS THE PERIOD OF PRESCRIPTION OF MOVABLES?
a. The ownership of movables prescribes through
uninterrupted possession for FOUR YEARS IN GOOD
FAITH.
b. The ownership of personal property also prescribes
through uninterrupted possession for EIGHT YEARS,
WITHOUT NEED OF ANY OTHER CONDITION.
c. 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
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merchant's store the provisions of Articles 559 1 and
1505 2 of this Code shall be observed (Article 1132).
d. Movables possessed through a crime can never be
acquired through prescription by the offender (Article
1133).
WHAT IS THE PRESCRIPTIVE PERIOD FOR IMMOVABLE?
a. Ownership and other real rights over immovable property are
acquired by ordinary prescription through possession of TEN YEARS
(Article 1134).
b. 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 (Article 1137).
WHAT IS THE RULE WHEN THERE IS DISCREPANCY IN THE AREA POSSESSED
AND IN THE AREA EXPRESSED IN THE TITLE?
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 (Article 1135).
WHAT IS THE EFFECT OF POSSESSION IN WAR TIME ON PRESCRIPTION?
Possession in wartime, when the civil courts are not open, shall
not be counted in favor of the adverse claimant (Article 1136).
WHAT
ARE THE RULES IN THE COMPUTATION OF TIME NECESSARY FOR
PRESCRIPTION?
Article 559. The possession of movable property acquired in good faith is
equivalent to a title. Nevertheless, one who has lost any movable or has been unlawfully
deprived thereof, may recover it from the person in possession of the same. If the possessor of a
movable lost or which the owner has been unlawfully deprived, has acquired it in good faith at a
public sale, the owner cannot obtain its return without reimbursing the price paid therefor.
1
2
ARTICLE 1505. Subject to the provisions of this Title, where goods are sold by a person who is
not the owner thereof, and who does not sell them under authority or with the consent of the owner, the
buyer acquires no better title to the goods than the seller had, unless the owner of the goods is by his
conduct precluded from denying the seller's authority to sell.
Nothing in this Title, however, shall affect:
(1)
The provisions of any factors' acts, recording laws, or any other provision of law enabling the
apparent owner of goods to dispose of them as if he were the true owner thereof;
(2)
The validity of any contract of sale under statutory power of sale or under the order of a court of
competent jurisdiction;
(3)
Purchases made in a merchant's store, or in fairs, or markets, in accordance with the Code of
Commerce and special laws. (n) casia
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In the computation of time necessary for prescription the following
rules shall be observed:
(1)
When the possession of the present possessor is just a
continuation of the possession of the predecessor in interest - The
present possessor may complete the period necessary for prescription by
tacking his possession to that of his grantor or predecessor in interest;
(2)
When the character of the possession of the possessor has
changed from good faith to bad faith - 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 (Article
1138).
WHAT IS
POSSESSORS?
MEANT BY TACKING OF POSSESSIONS OF TWO OR MORE
Tacking of possession is the linking of the possession of the
present possessor to the possession of the immediate past possessor of
an identical property for the purpose of completing the period needed for
the prescription.
The condition for the tacking of possession is that privity must
exist between the present possessor and the predecessor in interest. In
brief, the present possessor got his possession from the predecessor in
interest. Consequently, a mere usurper cannot invoke the possession of
the previous possessor.
There is no privity of interest where the present possessor came
into possession of the disputed land by virtue of a void and fictitious sale
(Ruiz vs. CA, 79 SCRA 525).
Tacking is not allowed if the predecessor in interest has not
satisfied the requirements of prescription. Otherwise, there can be no
continuity in the nature of the possession.
WHAT IS THE RULE TO FOLLOW WHEN THE CHARACTER OF THE
POSSESSION OF THE PREDECESSOR IS DIFFERENT FROM THAT OF THE PRESENT
POSSESSOR?
The law does not provide any solution to such kind of contingency.
Thus, sound judgment must be resorted to, thus:
a. If the predecessor was in good faith but the successor is in bad
faith, should there be any tacking of possession?
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There are different views. Some writers say there must be no
tacking. Others say, the good faith of the predecessor should not be set
at naught. The second is the better view. The computation of the periods
to be tacked should be proportionate, that is, in the proportion of what
the period of possession in good faith bears to the period of extraordinary
prescription. So it is in the proportion of 2:1 as regards movables and 3:1
for immovables.
b. If the possession of the predecessor was in bad faith and the
possession of the successor is in good faith, should there be
tacking of possession?
Possession of the predecessor in bad faith cannot be counted and
added to that of the present possessor. Here, the possession of the
predecessor cannot be considered ordinary prescription because such
requires good faith all throughout the period fixed by law.
However, for purposes of extraordinary prescription, the
possession in bad faith of the predecessor can be tacked to the
possession in bad faith of the successor. There is no prohibition to this.
CHAPTER 3
PRESCRIPTION OF ACTIONS
HOW DO ACTIONS PRESCRIBE?
Actions prescribe by the mere lapse of time fixed by law (Article
1139).
WHEN DO ACTIONS PRESCRIBE?
1. ACTIONS TO RECOVER MOVABLES:
Actions to recover movables shall prescribe EIGHT YEARS from
the time the possession thereof is lost, unless the possessor has
acquired the ownership by prescription for a less period, according
to Articles 1132, and without prejudice to the provisions of articles
559, 1505, and 1133 (Article 1140), thus:
1. The
ownership
of
movables
prescribes
through
uninterrupted possession for FOUR YEARS IN GOOD FAITH.
2. The ownership of personal property also prescribes through
uninterrupted possession for EIGHT YEARS, WITHOUT NEED OF
ANY OTHER CONDITION.
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3. 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 (Article
1132).
4. Movables possessed through a crime can never be acquired
through prescription by the offender (Article 1133).
2. REAL ACTIONS OVER IMMOVABLES:
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
(Article 1141).
3. MORTGAGE ACTION:
A mortgage action prescribes after
4. ACTIONS UPON A WRITTEN CONTRACT; UPON
LAW; UPON A JUDGMENT:
They must be brought within
right of action accrues (Article 1144).
TEN YEARS
AN
(Article 1142).
OBLIGATION CREATED BY
TEN YEARS
from the time the
5. ACTIONS UPON AN ORAL CONTRACT; ACTIONS UPON A QUASI-CONTRACT :
They must be commenced within SIX YEARS (Article 1145).
6. ACTIONS UPON AN INJURY TO THE RIGHTS OF THE PLAINTIFF; ACTIONS UPON
A QUASI-DELICT:
They must be instituted within
FOUR YEARS.
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. (Article 1146 as amended by PD No. 1755, Dec.
24, 1980.)
7. FORCIBLE ENTRY AND DETAINER; FOR DEFAMATION:
They must be filed within
ONE YEAR
(Article 1147).
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NOTE: 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 (Article 1148).
The phrase “without prejudice” means that, in proper cases, the
prescriptive period in this chapter may be availed of notwithstanding
other special provisions in other parts of the Civil Code, in the Code of
Commerce and in special laws. Thus, even though the claim falls under
the prescriptive period provided for in the Labor Code because of illegal
and unlawful dismissal, the case may still fall within the ambit of “injury
to the rights of the plaintiff (Virgilio Callanta vs. Carnation Phi., Inc., G.R.
No. L-70615, October 28, 1986, 145 SCRA 286).
WHAT RIGHTS ARE NOT EXTINGUISHED BY PRESCRIPTION?
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 (Article
1143).
OTHERS:
(1) An action to declare a contract null and void;
(2) An action to quite title initiated by the person having possession of
the property;
(3) An action to partition a property among co-heirs;
(4) When the trust is merely an implied one, unless expressly
repudiated by the trustee.
WHAT
IS THE PRESCRIPTIVE PERIOD FOR FILING ACTIONS WHOSE PERIODS
ARE NOT FIXED BY THE CIVIL CODE AND OTHER LAWS?
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 (Article1149).
EXAMPLES:
a. Action to impugn the recognition of a natural child (Article 296
Civil Code);
b. Action to impugn the legitimation of a child (Article 275, Civil
Code);
c. Action to reduce inofficious donations (to be counted from the
death of the donor) (Vide Article 772, Civil Code).
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FROM WHAT TIME SHALL THE PERIOD OF PRESCRIPTION BE COUNTED?
a.
b.
c.
d.
e.
f.
WHEN
CODE?
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
(Article 1150).
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 (Article 1151).
The period for prescription of actions to demand the
fulfillment of obligation declared by a judgment
commences from the time the judgment became final
(Article 1152).
The period for prescription of actions to demand
accounting runs from the day the persons who should
render the same cease in their functions (Article 1153).
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
(Article 1153, 2nd par.).
The period during which the obligee was prevented by a
fortuitous event from enforcing his right is not
reckoned against him (Article 1154).
IS PRESCRIPTION OF ACTIONS INTERRUPTED UNDER THE
CIVIL
The prescription of actions is interrupted when:
a. They are filed before the court; or
b. When there is a written extrajudicial demand by the creditors, and
when there is any written acknowledgment of the debt by the
debtor (Article 1155).
BOOK IV
OBLIGATIONS AND CONTRACTS
TITLE I
OBLIGATIONS
OVERVIEW OF LAW
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I.
SOURCES OF LAW
A.
B.
C.
D.
E.
Constitution
Legislative Enactment
Executive Issuance
International Law
Supreme Court Decisions
ARTICLE 8. Judicial decisions applying or interpreting
the laws or the Constitution shall form part of the legal
system of the Philippines.
II.
EFFECTIVITY AND INTERPRETATION OF LAWS
A.
EFFECTIVITY
ARTICLE 2. Laws shall take effect after fifteen days
following the completion of their publication in the Official
Gazette, unless it is otherwise provided.
While law may provide for the date of its effectivity, the
requirement of publication may not be dispensed with.
(Tanada vs. Tuvera)
ARTICLE 3. Ignorance of the law excuses no one from
compliance therewith.
ARTICLE 4. Laws shall have no retroactive effect, unless
the contrary is provided.
ARTICLE 5. Acts executed against the provisions of
mandatory or prohibitory laws shall be void, except when the
law itself authorizes their validity.
ARTICLE 7. Laws are repealed only by subsequent ones,
and their violation or non-observance shall not be excused
by disuse, or custom or practice to the contrary.
ARTICLE 14. Penal laws and those of public security
and safety shall be obligatory upon all who live or sojourn in
Philippine territory, subject to the principles of international
law and treaty stipulations.
ARTICLE 16. Real property as well as personal property
is subject to the law of the country where it is situated.
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B.
INTERPRETATION
ARTICLE 10. In case of doubt in the interpretation or
application of laws, it is presumed that the lawmaking body
intended right and justice to prevail.
ARTICLE 7. When the courts declare a law to be
inconsistent with the Constitution, the former shall be void
and the latter shall govern.
Administrative or executive acts, orders and
regulations shall be valid only when they are not contrary to
the laws or the Constitution.
III.
KINDS OF LAWS
A.
PENAL
Those which prescribe imprisonment as a penalty in
case of violation.
B.
Civil
Those which govern relations between persons.
C.
COMMERCIAL
Those which deal with transactions entered into by
persons.
D.
REMEDIAL
Those which prescribe the procedure to be followed in
order to seek remedies in law.
IV.
CONCEPT OF PERSONS
A.
NATURAL PERSONS
ARTICLE 40. Birth determines personality; but the
conceived child shall be considered born for all purposes
that are favorable to it, provided it be born later with the
conditions specified in the following articles.
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ARTICLE 41. For all civil purposes, the foetus is
considered born if it is alive at the time it is completely
delivered from the mother’s womb. However, if the foetus had
an intra-uterine life of less than seven months, it is not
deemed born if it dies within twenty-four hours after its
complete delivery from the maternal womb.
B.
ARTICLE 42. Civil personality is extinguished by death.
JURIDICAL PERSONS
ARTICLE 44. The following are juridical persons:
(1)
(2)
(3)
The State and its political subdivisions;
Other corporations, institutions and entities for public
interest or purpose, created by law; their personality
begins as soon as they have been constituted according
to law;
Corporations, partnerships and associations for private
interest or purpose to which the law grants a juridical
personality, separate and distinct from that of each
share-holder, partner or member.
ARTICLE 46. Juridical persons may acquire and possess
property of all kinds as well as incur obligations and bring
civil or criminal actions, in conformity with the laws and
regulations of their organization.
ARTICLE 47. Upon the dissolution of corporations,
institutions and other entities for public interest or purpose
mentioned in No. 2 of Article 44, their property and other
assets shall be disposed of in pursuance of law or the
charter creating them. If nothing has been specified on this
point, the property and other assets shall be applied to
similar purposes for the benefit of the region, province, city
or municipality which during the existence of the institution
benefits from the same.
V.
CAPACITY
A.
JURIDICAL CAPACITY
ARTICLE 37. Juridical capacity, which is the fitness to
be the subject of legal relations, is inherent in every natural
person and is lost only through death.
B.
CAPACITY TO ACT
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ARTICLE 37. Capacity to act, which is the power to do
acts with legal effect, is acquired and may be lost.
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.
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.
VI.
HUMAN RELATIONS
ARTICLE 19. Every person must, in the exercise of his
rights and in the performance of his duties, act with justice,
give everyone his due, and observe honesty and good faith.
ARTICLE 20. Every person who, contrary to law, willfully
or negligently causes damage to another, shall indemnify the
latter for the same.
ARTICLE 21. Any person who willfully causes loss or
injury to another in a manner that is contrary to morals,
good customs or public policy shall compensate the latter for
the damage.
ARTICLE 22. Every person who through an act of
performance by another, or any other means, acquires or
comes into possession of something at the expense of the
latter without just or legal ground, shall return the same to
him.
ARTICLE 23. Even when an act or event causing
damage to another’s property was not due to the fault or
negligence of the defendant, the latter shall be liable for
indemnity if through the act or event he was benefited.
ARTICLE 26. Every person shall respect the dignity,
personality, privacy and peace of mind of his neighbors and
other persons.
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ARTICLE 27. Any person suffering material or moral
loss because a public servant or employee refuses or
neglects, without just cause, to perform his official duty may
file an action for damages and other relief against the latter,
without prejudice to any disciplinary administrative action
that may be taken.
ARTICLE 28. Unfair competition in agricultural,
commercial or industrial enterprises or in labor through the
use of force, intimidation, deceit, machination or any other
unjust, oppressive or highhanded method shall give rise to a
right of action by the person who thereby suffers damage.
ARTICLE 29. When the accused in a criminal
prosecution is acquitted on the ground that his guilt has not
been proved beyond reasonable doubt, a civil action for
damages for the same act or omission may be instituted.
Such action requires only a preponderance of evidence.
ARTICLE 30. When a separate civil action is brought to
demand civil liability arising from a criminal offense, and no
criminal proceedings are instituted during the pendency of
the civil case, a preponderance of evidence shall likewise be
sufficient to prove the act complained of.
ARTICLE 31. When the civil action is based on an
obligation not arising from the act or omission complained of
as a felony, such civil action may proceed independently of
the criminal proceedings and regardless of the result of the
latter.
CHAPTER 1
GENERAL PROVISIONS
WHAT IS AN OBLIGATION?
An obligation is a juridical necessity to give, to do or not to do
(Article 1156).
WHAT ARE THE ELEMENTS OF AN OBLIGATION?
a.
An active subject known as the obligee or creditor – he is
the possessor of a right in whose favor the obligation is
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b.
c.
d.
constituted and who can demand the fulfillment of the
obligation;
A passive subject known as the obligor or the creditor from
whom the obligation is juridically demanded – he who has
the duty of giving, doing or not doing;
The fact, prestation or service which constitutes the object
or subject matter of the obligation and may consist of
giving a thing, doing or not doing a certain act. The law
speaks of an obligation as a juridical necessity to comply
with a prestation. There is “juridical necessity” for noncompliance can result in juridical or legal sanction.
The efficient cause or the vinculum or juridical tie which
binds the parties to the obligation, and which may arise
either from bilateral or unilateral acts of persons – this is
the reason why the obligation exists.
Example: A promises to paint B’s picture 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; and the agreement is contract which is
the efficient cause.
WHAT ARE THE SOURCES OF OBLIGATIONS?
Obligations arise from:
(1)
(2)
(3)
(4)
(5)
Law (obligations lex lege);
Contracts (obligations ex contractu);
Quasi-contracts (obligations ex-quasi contractu);
Acts or omissions punished by law (obligations ex delicto); and
Quasi-delicts (obligations ex quasi delicto) (Article 1157).
RULES :




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 (Article 1158).
Obligations arising from contracts have the force of law between
the contracting parties and should be complied with in good faith
(Article 1159).
Obligations derived from quasi-contracts shall be subject to the
provisions of Chapter 1, Title XVII, of this Book (Article 1160).
Civil obligations arising from criminal offenses shall be governed
by the penal laws, subject to the provisions of article 2177, and of
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
the pertinent provisions of Chapter 2, Preliminary Title, on Human
Relations, and of Title XVIII of this Book, regulating damages
(Article 1161).
Obligations derived from quasi-delicts shall be governed by the
provisions of Chapter 2, Title XVII of this Book, and by special laws
(Article 1162).
CHAPTER 2
NATURE AND EFFECT OF OBLIGATIONS
WHAT
IS THE DEGREE OF DILIGENCE REQUIRED OF A PERSON IN THE
PERFORMANCE OF AN OBLIGATION?
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 (Article
1163).
Notes:




This article involves the prestation “to give”.
The word “something” connotes a determinate object which is
definite, known, and has already been distinctly decided and
particularly specified as the matter to be given from among the
same things belonging to the same kind. Example: If the object is a
computer, it does not involve any kind of computer but a very
particular computer such as the computer with serial number
7777.
In case of a contrary stipulation of the parties, such stipulation
should not be one contemplating a relinquishment or waiver of the
most ordinary diligence.
An example where the law requires another standard of care is that
which involves common carriers. Article 1733 provides that
common carries are bound to observe extraordinary diligence in
the vigilance over the goods and for the safety of the passengers.
Article 1755 provides that common carriers is bound to carry the
passengers safely as far as human care and foresight can provide,
using the utmost diligence of very cautious persons, with due
regard for all circumstances.
WHAT IS THE DILIGENCE NEEDED IN THE PERFORMANCE OF ONE’S
OBLIGATION?
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The diligence needed is that which is required by the nature of the
obligation and corresponds with the circumstances of the persons, of the
time and of the place. This is diligence of a good father of a family. 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 (Article 1173).
However, if the law or contract provides for a different standard of
care, said law or stipulation must prevail (Article 1163) provided that it
should not be one contemplating a relinquishment or waiver of the most
ordinary diligence
IN OBLIGATIONS TO GIVE, WHEN DOES THE CREDITOR ACQUIRE A RIGHT TO
THE THING WHICH CONSTITUTES THE OBJECT OF THE OBLIGATIONS AS WELL AS
TO THE FRUITS THEREOF?
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 (Article 1164).
Thus, we must distinguish between the time when the creditor
acquires a personal right to the thing and the fruits thereof, and the time
when he acquires a real right thereto.
After the right to deliver the object of the prestation has arisen in
favor of the creditor but prior to the delivery of the same, there is no real
right enforceable or binding against the whole world over the object and
its fruits in favor of the person to whom the same should be given. The
acquisition of a real right means that such right can be enforceable
against the whole world and will prejudice anybody claiming the same
object of the prestation. The real right only occurs when the thing or
object of the prestation is delivered to the creditor.
In obligations arising from contracts, the obligation to deliver
arises from the moment of the perfection of the contract, unless there is
a stipulation to the contrary. From this it is clear that before the delivery
of the thing and the fruits thereof, the creditor has merely a personal
right against the debtor – a right to ask for the delivery of the thing and
the fruits. Once the thing and the fruits are delivered, then he acquires a
real right over them, a right which is enforceable against the whole
world.
EXAMPLE:
On February 1, 2005, A buys a mango orchard from X to be
delivered on March 1, 2005. On the latter date, A shall have the right to
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the fruits of the mango orchard. If the property is delivered only on April
1, 2005, A can nevertheless ask that the fruits accruing since March 1,
2005 be likewise delivered to him. X cannot resist by saying that he is
entitle to the fruits before the actual delivery on April 1, 2005.
If, however, X sells the fruits on March 20, 2005 to B who does not
know the previous sale to A and who immediately takes possession of the
fruits, B shall have a better right over the said fruits. Considering that
there is no delivery of the property to A on March 20, 2005, A has no real
right over the said property at that time binding upon the whole world.
A’s remedy is to seek damages from X in connection with the fruits.
If however, the mango orchard has already been delivered, A has a
real right binding upon the whole world. If X sells to B the fruits after the
delivery to A, A can recover from B who in turn can seek damages from
X.
WHEN DOES THE OBLIGATION TO DELIVER ARISE?
It depends - If there is no term or condition, then from the
perfection of the contract. If there is a term or condition, then from the
moment the term arrives or the condition happens.
IN OBLIGATIONS TO GIVE, WHAT ARE THE DIFFERENT RIGHTS WHICH ARE
AVAILABLE TO THE CREDITOR?
We must distinguish between the rights which are available to the
creditor when the obligation is determinate and those which are available
to him when the obligation is indeterminate or generic.
1. When what is to be delivered is a determinate thing (in the sense
that the object thereof is particularly designated or physically
segregated from all others of the same class), the rights of the
creditor are:
a. The creditor may compel specific performance (compel the
debtor to make the delivery (Article 1165); and
b. To recover damages in case of breach of the obligation
(Article 1170).
2. If the thing is indeterminate or generic, the rights of the creditor
are:
a. To ask for performance of the obligation (Article 1246);
b. To ask that the obligation be complied with at the expense of
the debtor (Article 1165, par. 2); and
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c. To recover damages in case of breach of the obligation
(Article 1170).
WHAT IS THE EFFECT OF FORTUITOUS EVENT IF THE OBLIGOR DELAYS, OR
HAS PROMISED TO DELIVER THE SAME THING TO TWO OR MORE PERSONS WHO DO
NOT HAVE THE SAME INTEREST?
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
(Article 1165).
IN OBLIGATION TO GIVE, WHAT ARE THE DIFFERENT DUTIES
OBLIGATIONS WHICH ARE IMPOSED UPON THE DEBTOR OR OBLIGOR?
OR
a. If the obligation is determinate, the duties which are imposed upon
the debtor are the following:
a. To deliver the thing which he has obligated himself to
give;
b. To take care of the thing with the proper diligence of a
good father of a family (Article 1163);
c. To deliver all its accessions and accessories, even though
they may not have been mentioned. (Article 1166).
d. To pay damages in case of breach of the obligation
(Article 1170).
b. If the obligation is indeterminate or generic, the duties which are
imposed are:
a.
To deliver a thing that which must be neither of superior
nor inferior quality (Article 1246);
b.
To pay damages in case of breach of the obligation (Article
1170).
IN
OBLIGATIONS TO DO OR NOT TO DO, WHAT ARE THE DIFFERENT RIGHTS
WHICH ARE AVAILABLE TO THE CREDITOR?
1. In obligations to do:
a) If a person obliged to do something fails to do it, the same shall be
executed at his cost.
b) This same rule shall be observed if he does it in contravention of the
tenor of the obligation.
c) Furthermore, it may be decreed that what has been poorly done be
undone (Article 1167).
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2. In obligations not to do:
a. When the obligation consists in not doing, and the obligor does
what has been forbidden him, it shall also be undone at his
expense (Article 1168).
IN OBLIGATIONS TO GIVE OR TO DO, WHEN DOES THE OBLIGOR DEEMED TO
HAVE INCURRED IN DELAY?
Those obliged to deliver or to do something incur in delay from the
time the obligee judicially or extrajudicially demands from them the
fulfillment of their obligation
However, the demand by the creditor shall not be necessary in
order that delay may exist:
(1)
When the obligation or the law expressly so declare; or
(2)
When from the nature and the circumstances of the obligation it
appears that the designation of the time when the thing is to be delivered
or the service is to be rendered was a controlling motive for the
establishment of the contract; or
(3)
When demand would be useless, as when the obligor has rendered
it beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if the other
does not comply or is not ready to comply in a proper manner with what
is incumbent upon him. From the moment one of the parties fulfills his
obligation, delay by the other begins (Article 1169 par. 1).
WHAT IS MORA SOLVENDI; MORA ACCIPIENDI; MORA MORAE?
Delay or default committed by the debtor is known as mora
solvendi.
The delay is called mora solvendi ex re when the obligation is
an obligation to give and mora solvendi ex persona when the obligation is
an obligation to do.
Delay or default committed by the creditor to accept the
delivery of the thing which is the object of the obligation is known as
mora accipiendi.
Compensation morae occurs when in a reciprocal obligation,
both parties are in default (here, it is as if neither is in default).
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Note: Delay in the performance of the obligation must either be
malicious or negligent. Hence, if the delay was only due to inadvertence
without any malice or negligence, the obligor will not be held liable under
Article 1170.
WHAT ARE THE REQUISITES FOR MORA SOLOVENDI?
a) The obligation must be due, enforceable, and already liquidated or
determinate in amount;
b) There must be non-performance;
c) There must be demand, unless the demand is not required; and
d) The demand must be for the obligation that is due.
Note: There is no mora solvendi in negative obligations (one cannot
be late in not doing or giving). There is no mora also in natural
obligations.
WHAT ARE THE EFFECTS OF MORA SOLVENDI?
1. If the debtor is in default, he may be liable for interest or damages;
2. He may have to bear the risk of loss;
3. He is liable for a fortuitous event (although damages may be
mitigated if he can prove that even if he had not been in default,
loss would have occulted just the same [Article 2215])
WHEN IS THE OBLIGOR DEEMED TO BE IN DEFAULT?
For an obligation to become due, there must generally be a
demand. Default generally begins from the moment the creditor demand
the performance of the obligation. Without such demand, judicial or
extra-judicial, the effects of default will not arise. Commencement of a
suit is a sufficient demand. Consequently, an obligor is liable for
damages for the delay not from the time the object of the prestation is to
be delivered but from the time of extra-judicial or judicial demand.
Note that Article 1169 is applicable only when the obligation is to
do something other than the payment of money. In obligations for the
payment of money, Article 2209 shall apply which provides that:
“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.”
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Hence, in obligation for the payment of sum of money, the interest
replaces the damages.
WHAT ARE THE GROUNDS FOR LIABILITY IN THE PERFORMANCE OF
OBLIGATIONS?
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 (Article 1170).
Responsibility arising from fraud is demandable in all obligations.
Any waiver of an action for future fraud is void (Article 1171).
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 (Article 1172).
WHAT DOES THE PHRASE “IN ANY MANNER CONTRAVENE THE TENOR” OF
THE OBLIGATION AS STATED UNDER ARTICLE 1170 COVER?
It includes any illicit act or omission which impairs the strict and
faithful fulfillment of the obligation and every kind of defective
performance (Arrieta vs. National Rice and Corn Corp., 10 SCRA 79; Magat
vs. Medialdea, L-37120, April 20, 1983)).
WHAT IS MEANT BY FRAUD OR DOLO?
Fraud or dolo consists in the conscious and intentional proposition
to evade the normal fulfillment of an obligation. It is bad faith in the
performance of an obligation oftentimes referred as malice. In contracts it
is deceit which if substantial (dolo causante) may result in annulment of
contract.
WHAT ARE THE KINDS OF FRAUD?
1. Fraud in obtaining consent (may be casual or merely incidental);
2. Fraud in performing a contract, which may either be:
A. Casual fraud or dolo causante – Fraud in the performance of
a pre-existing obligation;
B. Incidental fraud or dolo incidente – Fraud in the perfection of
contract.
WHAT
FRAUD?
ARE DISTINCTIONS BETWEEN INCIDIENTAL FRAUD AND CAUSAL
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1. The first is present only during the performance of a pre-existing
obligation, whereas the second is present only at the time of the
birth of the obligation;
2. The first is employed for the purpose of evading the normal
fulfillment of an obligation, whereas the second is employed for the
purpose of securing the consent of the other party to enter into the
contract;
3. The first results in the non-fulfillment or breach of the obligation,
whereas the second, if it is the reason for the other party upon
whom it is employed for entering into the contract, results in the
vitiation of his consent;
4. Dolo causante or causal fraud 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 in Article 1344 are
those which are not serious in character and without which the
other party would still have entered into the contract;
5. Dolo causante determines or is the essential cause of the consent;
while dolo incidente refers only to some particular or accident of
the obligation;
6. The effects of dolo causante are the nullity of the contract and the
indemnification of damages; dolo incidente obliges the person
employing it to pay damages.
7. The first gives rise to a right of the creditor or obligee to recover
damages from the debtor or obligor, whereas the second gives rise
to a right of the innocent party to ask for the annulment of the
contract if the fraud is casual (dolo causante) or to recover
damages if it is incidental (dolo incidente) (Vide Articles 1170, 1171,
1338 & 1344).
WHAT IS NEGLIGENCE OR CULPA?
It is the omission of the 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, par. 2, may 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 (Article 1173).
HOW IS FRAUD DISTINGUISHED FROM NEGLIGENCE?
a) In fraud, there is deliberate intention to cause damage or prejudice;
while in negligence, although voluntary (not done through force), still
there is no deliberate intention to cause damage;
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b) Liability arising from fraud cannot be mitigated or reduced by the
courts; while liability due to negligence may be reduced in certain
cases;
c) Waiver of an action to enforce liability die to future fraud is void; while
waiver of an action to enforce liability due to future negligence may in
a certain sense be allowed; however, gross negligence can never be
excused in advance for this would be contrary to public policy; but
simple negligence may in certain cases be excused or mitigated.
WHAT IS THE TEST OF NELIGENCE?
The test by which we can determine the existence of negligence in
a particular case may be stated as follows:
Did the defendant in doing the alleged negligent act use the
reasonable care and caution which an ordinarily prudent person would
have used in the same situation? If not, then he is guilty of negligence.
The law here in effect adopts the standard supposed to be supplied by
the imaginary conduct of the discreet pater familias of the Roman law.
The existence of negligence in a given case is not determined by reference
to the personal judgment of the actor in the situation before him. The law
considers what would be reckless, blameworthy, or negligent in the man
of ordinary intelligence and prudence and determines liability by that
(Picart vs. Smith, 37 Phil. 809).
WHAT IS THE GENERAL RULE FOR FORTUITOUS EVENT?
No person shall be responsible for those events which could not be
foreseen, or which, though foreseen, were inevitable (Article 1174).
EXCEPTIONS:
1. In cases expressly specified by the law – example, those
found in Articles 552, par. 2; 1165, par. 3, 1170; 1268;
1942; 1979; 2147; 2148; 2159 (Civil Code); and 196, par.
6 (Family Code).3
ARTICLE 552 (Par. 2). A possessor in bad faith shall be liable for deterioration or loss in
every case, even if caused by a fortuitous event.
ARTICLE 1165 (Par. 3). 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.
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. (The obligor shall be liable for damages and he cannot escape liability (Nakpil vs. CA,
144 SCRA 596).
3
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2. When it is otherwise declared by stipulation – thus, if the
contracting parties expressly agree that the debtor can be
held liable even in case of fortuitous events, such an
agreement shall be binding.
3. When the nature of the obligation requires the
assumption of risk – This is an aspect of what is known
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.
ARTICLE 1942. The bailee is liable for the loss of the thing, even if it should be through a
fortuitous event:
(1)
If he devotes the thing to any purpose different from that for which it has been loaned;
cd i
(2)
If he keeps it longer than the period stipulated, or after the accomplishment of the use for
which the commodatum has been constituted;
(3)
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;
(4)
If he lends or leases the thing to a third person, who is not a member of his household;
(5)
If, being able to save either the thing borrowed or his own thing, he chose to save the
latter.
ARTICLE 1979. The depositary is liable for the loss of the thing through a fortuitous
event:
(1)
If it is so stipulated;
(2)
If he uses the thing without the depositor's permission;
(3)
If he delays its return;
(4)
If he allows others to use it, even though he himself may have been authorized to use the
same.
ARTICLE 2147. The officious manager shall be liable for any fortuitous event:
(1)
If he undertakes risky operations which the owner was not accustomed to embark upon;
(2)
If he has preferred his own interest to that of the owner;
(3)
If he fails to return the property or business after demand by the owner;
(4)
If he assumed the management in bad faith.
ARTICLE 2148. Except when the management was assumed to save the property or
business from imminent danger, the officious manager shall be liable for fortuitous events:
(1)
If he is manifestly unfit to carry on the management;
(2)
If by his intervention he prevented a more competent person from taking up the
management.
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.
ARTICLE 129. Upon the dissolution of the conjugal partnership regime, the following
procedure shall apply: x x x (6) Unless the owner has 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 funds, if any.
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as the doctrine of assumption of risk. As applied to
obligations, it refers to a situation in which the obligor or
debtor, with full knowledge of the risk, voluntarily enters
into some obligatory relation with the creditor. It is based
on the principle of violenti non fit injuria – no wrong is
done to one who consents. This is illustrated by
obligations arising from insurance contracts and
workmen’s compensation acts.
WHAT IS A FORTUITOUS EVENT?
A fortuitous event is an event which cannot be foreseen, or which
though foreseen, is inevitable.
WHAT ARE THE REQUISITES OF FORTUITOUS EVENT?
1. The cause of the breach of the obligation must be
independent of the will of the debtor;
2. The even must either be unforseeable or unavoidable;
3. The event must be such as to render it impossible for the
debtor to fulfill his obligation in a normal manner; and
4. The debtor must be free from any participation in, or
aggravation of, the injury to the creditor.
IS THERE A DIFFERENCE BETWEEN FORTUITOUS EVENTS AND FORCE
MAJEURE?
Ordinarily, the terms “fortuitous event” and “force majeure” are
used interchangeably. There is, however, a technical difference. “Force
majeure” is a term that is applicable only to those fortuitous events
which are dependent upon human intervention, such as wars, strikes,
riots, etc., while “fortuitous event” is the general term that is applicable
regardless of whether the event is independent of or dependent upon
human intervention.
NOTE that when the object of the prestation is generic (like payment of
a sum of money as a consequence of a loan contract), the debtor cannot
avail of the benefit of a fortuitous event.
DOES THE CIVIL CODE PROHIBIT USURIOUS TRANSACTIONS?
Article 1175 provides that usurious transactions shall be governed
by special laws. The article in itself does not prohibit usurious contracts.
However, it specifically provides that it shall be governed by special laws.
A special law may prohibit usurious interest, allow it, or merely put a
ceiling as to what can be the highest interest that can be legally imposed.
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X
IS INDEBTED TO Y IN THE AMOUNT OF P50, 000.0, PAYABLE IN TEN
MONTHLY INSTALLMENBTS AND WITH INTEREST AT 30% PER ANNUM. WHAT IS
THE EFFECT IF Y WOULD BE RECEIVING PAYMENT OF THE PRINCIPAL WITHYOUT
RECEIVING FIRST THE INTEREST?
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 (Article 1176, par. 1).
WHAT IS THE EFFECT IF THE OBLIGATION IS PAYABLE FROM JANUARY
2004 TO OCTOBER 2004 AND X DID NOT PAY THE INSTALLMENT FOR JUNE
2004 BUT WHEN HE PAID IN JULY 2004, Y ISSUED A RECEIPT FOR JULY 2004?
There is a presumption that the June 2004 installment has already
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 (Article 1176).
NOTE that the presumption here is only prima facie. The
presumption can be rebutted by strong evidence to the contrary. The
burden of proof to show that the interest/installment has not been paid
shifts to the creditor.
WHAT
ARE THE RIGHTS AND REMEDIES WHICH ARE AVAILABLE TO THE
CREDITOR IN ORDER TO PROTECT HIS RIGHTS AGAINST THE DEBTOR?
a) Exact payment;
b) Pursue the property in possession of the debtor to satisfy their claims
(generally through levying by attachments and execution upon all the
property of the debtor, except such as are exempt by law from
execution),
c) Exercise all the rights and bring all the actions of the latter for the
same purpose, save those which are inherent in his person (accion
subrogatoria);
d) Impugn the acts which the debtor may have done to defraud them
(accion pauliana) (Article 1177).
NOTES:
The third and the fourth remedies are merely subsidiary to
the second.
The above-cited rights are not absolute as the creditor
cannot bring those which are inherent in the person of the obligor.
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Article1381 (1) which provides that a contract entered into
by the debtor is rescissible if it were made in fraud of creditors when the
latter cannot in any manner collect the claim due is another remedy.
WHAT IS THE RULE AS TO TRANSMISSIBILITY OF RIGHTS?
All rights acquired in virtue of an obligation are transmissible
(Article 1178).
EXCEPTIONS:
a) If there has been no stipulation to the contrary.
b) If the law provides otherwise.
c) If the obligation is purely personal.
CHAPTER 3
DIFFERENT KINDS OF OBLIGATIONS
SECTION 1
PURE AND CONDITIONAL OBLIGATIONS
WHAT ARE
CIVIL CODE?
THE DIFFERENT CLASSES OF OBLIGATIONS ACCORDING TO THE
The following is the primary classification of obligations under the
Civil Code:
a) Pure, conditional, and with a term (Articles 1179; 1179 – 1192; 1193 1198);
b) Alternative and facultative (Articles 1199 – 1206);
c) Joint and solidary (Articles 1207 – 1222);
d) Divisible and indivisible (Articles 1223 – 1225); and
e) With and without a penal clause (Articles 1226 – 1230).
There are however other classifications of a secondary character
which can be gathered from scattered provisions of the Code, such as:
a)
b)
c)
d)
e)
f)
g)
Natural and civil (Articles 1156; 1424);
Legal, conventional and penal (Articles 1158 – 1162);
Real and personal (Articles 1156; 1163 – 1168);
Determinative and generic (Articles 1163 – 1166);
Positive and negative (Articles 1163 – 1168);
Accessory and principal (Articles 1166, 1230);
Unilateral and bilateral (Article 1191);
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h) Single and multiple (Articles 1199; 1206); and
i) Individual and collective (Article 1207);
WHAT IS MEANT BY PURE OBLIGATION?
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 (Article 1179).
Here, there are no conditions imposed, except if they are
resolutory.
WHAT IS THE MOST DISTINCTIVE CHARACTERISTIC OF PURE CONDITIONS?
The most distinctive characteristic of a pure obligation is its
demandability. This quality, however, must not be understood in such a
way as to lead to absurd interpretations which would literally require the
obligor or debtor to comply immediately with his obligation. A distinction
must be made between (1) immediate demadability of the obligation; and
(2) its performance or fulfillment by the obligor or debtor. Although the
obligee or creditor can demand the performance of the obligation
immediately, the quality of immediate demandability is not infringed or
violated when a reasonable period is granted for performance.
WHAT ARE CONDITIONAL OBLIGATIONS?
Conditional obligations are those where the acquisition of a right or
the extinguishment or loss of those already acquired shall depend upon
the happening of an even which constitutes the condition.
What characterizes a conditional obligation is the fact that its
efficacy or obligatory force is subordinated to the happening of a future
or uncertain event.
WHAT ARE THE KINDS OF CONDITIONAL OBLIGATIONS?
a) RESOLUTORY CONDITION - is one which is demandable at once, but the
happening of an event would extinguish the obligation. This is
because once the condition is established and acknowledged, the right
immediately exists and therefore the obligation concomitant to the
right can be demanded at once. However, once the future or uncertain
event happens which constitutes the condition, it operates to
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b)
c)
d)
e)
f)
g)
discharge the obligation. The obligation is resolved or extinguished by
operation of law (but such resolution can be made effective at some
later date if the parties so stipulate in their contract, such as when
the parties stipulate that resolution becomes effective only from the
date of written notice thereof is sent)
SUSPENSIVE CONDITION - is one where the happening of an event gives
rise to an obligation. A suspensive obligation is not demandable at
once. It can be demanded only upon the happening of the future or
unknown event or a past event unknown to the parties, which
constitutes the condition. Happening of a suspensive condition gives
rise to the performance of the obligation. If the condition does not take
place, the parties would stand as if the conditional obligation had
never existed.
POTESTATIVE – depends upon the will of the debtor. This is also called
FACULTATIVE condition.
CASUAL – depends on chance or hazard or the will of a third person
MIXED – depends partly on the will of one of the parties and partly on
chance or the will of a third person.
CONJUNCTIVE – if all the conditions must be performed.
ALTERNATIVE – if only a few of the condition have to be performed.
WHAT IS AN OBLIGATION WITH A TERM OR PERIOD?
That which necessarily must come whether the parties know when
it will happen or not.
A AND B ENTERED INTO A CONTRACT OF LOAN, PROVIDING THAT B SHALL
PAY WHEN HIS MEANS PERMIT HIM TO DO SO. WHAT KIND OF OBLIGATION IS
THIS? WHAT IS THE REMEDY OF A IN CASE OF NON-PAYMENT BY B?
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 (Article 1180).
According to 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.
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DISTINGUISH
CONDITIONS.
BETWEEN THE EFFECTS OF SUSPENSIVE AND RESOLUTORY
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 (Article 1181).
Thus, a resolutory condition affects the obligation to which it is
attached in a manner which is diametrically opposed to that of a
suspensive condition. If the suspensive condition is fulfilled, the
obligation arises or becomes effective; if the resolutory condition is
fulfilled, the obligation is extinguished. If the first is not fulfilled, no
juridical relation is created; if the second is not fulfilled, the juridical
relation is consolidated. In other words, in the first, rights are not yet
acquired, but there is a hope or expectancy that they will soon be
acquired; in the second, rights are already acquired, but subject to the
threat of extinction.
A suspensive condition is also called a condition precedent while a
resolutory condition is also known as a condition subsequent. A
condition precedent is an act or event, other than a lapse of time, which
must exist or occur before a duty to perform a promised performance
arises. If the condition does not occur and is not excused, the promised
performance need not be rendered. A condition subsequent is an event,
the existence of which, by agreement of the parties, operates to discharge
a duty of performance that has arisen.
In case a contract involves a reciprocal obligation, the obligation of
one is a resolutory condition of the obligation of the other, the nonfulfillment of which entitles the other party to rescind the contract.
GIVE THE EFFECTS OF POTESTATIVE, CASUAL AND MIXED CONDITIONS
UPON OBLIGATION.
Article 1182 provides that 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.
The phrase “when fulfillment of a condition” connotes a suspensive
character of the prestation. There is the expectation of the existence or
accomplishment of a duty to give or to render some service in the future.
Thus:
a) If the condition is potestative in the sense that fulfillment of the
condition depends upon the sole will of the debtor, the conditional
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obligation shall be void (Article 1182). This happens when the birth of
the contract depends upon the sole will of the debtor. Hence,
according to Article 1308, this is likewise prohibited and may make
the whole contract invalid. However, if the potestative condition is
imposed not on the birth of the obligation but on its fulfillment, only
the condition is avoided, leaving unaffected the obligation itself.
b) If the condition is potestative in the sense that its fulfillment depends
upon the will of the creditor, the conditional obligation shall be valid.
This is because the provision of the first sentence of Article 1182
extends only to conditions which are potestative to the obligor or
debtor. Besides, the creditor is naturally interested in the fulfillment
of the condition since it is only such fulfillment that the obligation
arises or becomes effective.
c) If the condition is casual in the sense that its fulfillment depends
partly upon chance or upon the will of a third person, the obligation
shall take effect (Article 1182).
d) If the condition is mixed in the sense that its fulfillment depends
partly upon the will of a party to the obligation and partly upon
chance and/or will of a third person, the obligation shall be valid.
IN THE EVENT THAT THE CONDITION IS DECLARED VOID BUT THE
OBLIGATION IS STILL VALID, SHOULD THE OBLIGATION BE DECLARED PURE AND
UNCONDITIONAL?
No, because in converting it into a pure and demandable
obligation, an arrangement might be enforced which is not within the
contemplation of the parties. Hence, the best solution is to consider the
parties as having intended a period within which the valid obligation is to
be complied with such that the creditor should ask the court to fix a
period for compliance (Patente vs. Omega, 93 Phil. 218).
SUPPOSE THAT THE DEBTOR EXECUTED A PROMISSORY NOTE PROMISSING
TO PAY HIS OBLIGATION TO THE CREDITOR AS SOON AS HE HAS RECEIVED FUNDS
FROM THE SALE OF HIS PROPERTY IN A CERTAIN PLACE, IS THE CONDITION
POTESTATIVE OR MIXED?
The condition is mixed because its fulfillment depends not only
upon the will of the debtor but also upon the concurrence of other
factors, such as the acceptability of the price and other conditions of the
sale as well as the presence of the buyer, ready, able and willing to
purchase the property.
SUPPOSE
THAT IN THE ABOVE PROBLEM, THE DEBTOR PROMISED TO PAY
HIS OBLIGATION AS SOON AS HE HAS RECEIVED THE FUNDS DERIVED FROM THE
SALE OF THE PROPERTY IF HE FINALLY DECIDES TO SELL IT, WILL THAT MAKE
ANY DIFFERENCE IN YOUR ANSWER?
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Yes, in such case, the condition is potestative with respect to the
debtor because its fulfillment would then depend upon his will.
Consequently, the condition is void. The validity of the obligation is, of
course, not affected, because the rule stated in Article 1182 to the effect
that when the fulfillment of the condition depends upon the sole will of
the debtor, the conditional obligation itself shall be void, is applicable
only when the obligation shall depend for its perfection upon the
fulfillment of the condition and not when the obligation is a pre-existing
one.
WHAT
ARE THE EXCEPTIONS TO ARTICLE 1182 (CONDITIONAL
OBLIGATIONS DEPENDING UPON THE SOLE WILL OF THE DEBTOR ARE VOID)?
a) The rule is applicable only to a suspensive condition. Hence, if the
condition is resolutory and potestative, the obligation is valid even if
the fulfillment of the condition is made to depend upon the sole will of
the debtor. This is because the position of the debtor when the
condition is resolutory is exactly the same as the position of the
creditor when the condition is suspensive.
b) The rule that even the obligation itself shall be void is applicable only
to an obligation which depends for its perfection upon the fulfillment
of the potestative condition and not to a pre-existing obligation.
Example, if the debtor binds himself to pay a previous indebtedness
as soon as he decides to sell his house, although the condition is void
because of its potestative character, the obligation itself is not affected
since it refers to a pre-existing indebtedness. Thus, when the
potestative condition is imposed on the fulfillment of the obligation,
the condition alone is voided but not the obligation.
c) A condition at once facultative and resolutory is valid though the
condition is made to depend upon the will of the obligor.
d) A resolutory condition that depends upon the will of a third person is
not void.
SUMMARY:
a) If potestative (facultative) on the part of the debtor:
If also suspensive – both the condition and the obligations are
void.
If also resolutory – valid.
b) If potestative on the part of the creditor – valid.
c) If casual – valid.
d) If mixed – valid.
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WHAT
IS THE EFFECT IF IN AN OBLIGTION, IMPOSSIBLE CONDITIONS, ETC.
ARE IMPOSED?
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 (Article 1183).
NOTE: It is very clear from the law that it is not only the condition
which is annulled but the whole obligation itself. Thus, an obligation to
give money as a loan only if it snows in the Philippines destroys the
efficacy of the prestation. The condition annuls the prestation. This is
also true if the condition is against good customs, public policy or is
prohibited by law.
Also, an impossible thing can never be done. Hence, to make as a
condition the doing of an impossible thing is a useless stipulation which
should not be considered as not having been agreed upon. The whole
obligation which involves an impossible condition can be annulled.
SUMMARY:
1. If the condition is to do an impossible or illegal thing – both
condition and the obligation are void;
2. If the condition is not to do the impossible (negative) – obligation is
valid but the condition is disregarded.
3. If the condition is not to do an illegal thing (negative) – both
condition and the obligation are valid.
IN OBLIGATIONS WITH POSITIVE CONDITIONS, WHEN DOES THE OBLIGATION
DEEMED EXTINGUISHED?
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 (Article 1184).
If the period is not fixed in the contract, the court, considering the
parties’ intentions, should determine what period was really intended
(Vide Article 1185, par. 2).
IN
OBLIGATIONS WITH NEGATIVE
OBLIGATION DEEMED EFFECTIVE?
CONDITIONS,
WHEN
DOES
THE
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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 (Article 1185).
WHAT
IS THE EFFECT WHEN THE DEBTOR VOLUNTARILY PREVENTS THE
FULFILLMENT OF THE CONDITION?
The condition shall be deemed fulfilled when the obligor voluntarily
prevents its fulfillment (Article 1186).
This is known as constructive (or presumed) fulfillment. This
generally applies only to suspensive condition.
WHAT ARE THE REQUISITES IN ORDER THAT CONSTRUCTIVE FULFILLMENT
WILL ARISE?
1. It must be made by the obligor;
2. It must be voluntarily made; and
3. It must actually prevent the performance of the condition.
WHEN
DO THE EFFECTS OF THE FULFILLMENT OF A CONDITION IN AN
OBLIGATION TO GIVE RETROACT? WHAT ARE THE EXCEPTIONS?
When a suspensive condition takes effect, the obligation becomes
effective.
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. This rule is applicable only to suspensive conditions because
the efficacy of the obligation is merely suspended or held in abeyance
until the condition is fulfilled. This is not applicable to resolutory
conditions because the fulfillment of the event extinguishes the
obligation; hence, retroactivity is not relevant.
There is no retroactivity as to:
a) Fruits or interests in reciprocal and unilateral obligations (unless
there is contrary stipulation);
b) Period of prescription.
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c) This principle of retroactivity applies only to consensual contracts. In
real contracts, there is immediate delivery. In consensual ones,
delivery may be made on another day.
WHAT
ARRE THE RULES IF THE OBLIGATION (1) IMPOSES RECIPROCAL
OBLIGATIONS; (2) IF THE OBLIGATION IS UNILATERAL; (3) IN OBLIGATIONS TO DO
AND NOT TO DO?
a) 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.
b) 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.
c) 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 (Article 1187).
Fruits here refer to natural, industrial, and civil fruits (like rent)
(Vide Article 442).
WHAT IS THE RIGHT OF THE CREDITOR BEFORE THE FULFILLMENT OF THE
CONDITIONS?
The creditor may, before the fulfillment of the condition, bring the
appropriate actions for the preservation of his right (Article 1188, par. 1).
“Appropriate action” here means to sue in court. Other appropriate
actions that may be undertaken by the creditor:
1. Ask for security if the debtor is about to be insolvent;
2. Ask the court to prevent alienation or concealment pendente
conditionae.
Note that the law says “preservation”, not preference over the
creditor.
BEFORE
THE HAPPENING OF A SUSPENSIVE CONDITION, WHAT IS THE
RIGHT OF THE DEBTOR IF HE PAYS BY MISTAKE?
The debtor may recover what during the same time he has paid by
mistake in case of a suspensive condition (Article 1188, par. 2).
IF PAYMENT WAS NOT MADE BY MISTAKE, CAN THERE BE RECOVERY?
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It depends. If the condition is fulfilled, there can be no recovery
because of the principle of retroactivity. If the condition is not fulfilled,
there should be a recovery (unless a pure donation was intended).
SUPPOSE THAT AN OBLIGATION IS SUBJECT TO A SUSPENSIVE CONDITION,
BUT BEFORE THE FULFILLMENT OF THE CONDITION THE OBJET OF THE
OBLIGATION WAS LOST, OR IT HAS DETERIORATED, OR IMPROVEMENTS WERE
MADE THEREON, WHAT IS THE EFFECT OF SUCH LOSS, OR DETERIORATION, OR
IMPROVEMENTS IF THE CONDITION IS FINALLY FULFILLED?
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 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;
(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 (Article 1189).
NOTES:
a) This article applies only if the suspensive condition is fulfilled and the
object is specific (generic).
b) The option (rescission or demand fulfillment) is given to the creditor,
regardless of the degree of deterioration caused by the debtor.
c) Improvement belongs to the creditor because once the condition is
fulfilled, the effects of the conditional obligation shall retroact to the
day of the constitution of the obligation.
d) Improvement at the expense of the debtor, right of creditor like a
usufructuary – A usufruct gives a right to enjoy the property of
another with the obligation of preserving its form and substance
unless the title constituting it or the law provides otherwise (Article
562).
WHAT IS THE MEANING OF “LOSS” AS CONTEMPLATED IN THE ARTICLE?
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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 (Article 1189, par. 2).
ARE THE
RESOLUTORY?
ABOVE
RULES
ALSO
APPLICABLE
IF
THE
CONDITION
IS
Yes, Article 1190 provides that 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 (Article 1189) shall be
applied to the party who is bound to return. Thus, while the resolutory
condition has not yet been fulfilled and the (thing) prestation is destroyed
with the fault of the obligor, the obligation to return is extinguished. If
the thing is lost through the fault of the debtor, he shall be liable for
damages. If the thing deteriorates without the fault of the obligor, the
impairment is to be borne by the creditor. If the thing deteriorates
through the fault of the obligor, the creditor may choose between the
rescission of the obligation and its fulfillment, with indemnity for
damages in either case. If the thing is improved by nature, or by time,
the improvement shall inure to the benefit of the creditor. Lastly, if the
thing improves at the expense of the debtor, he shall have no other right
than that granted to the usufructuary.
However, in applying these rules, the “debtor” is the person obliged
to return the object of the obligation in case of fulfillment of the
condition, while the “creditor” is the person to whom the thing or object
must be returned.
WHAT ARE THE EFFECTS WHEN A RESOLUTORY CONDITION IS FULFILLED?
a) The obligation is extinguished (Article 1181).
b) The parties, upon the fulfillment of said conditions, shall return to
each other what they have received (Article 1190).
c) The fruits or the interest thereon should also be returned after
deducting the expenses made for their production, gathering, and
preservation (Article 443).
d) 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
(Article 1190).
e) As for obligations to do and not to do, the provisions of the second
paragraph of article 1187 (the courts shall determine, in each case,
the retroactive effect of the condition that has been complied with)
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shall be observed as regards the effect of the extinguishment of the
obligation (Article 1190).
WHAT IS MEANT BY RECIPROCAL OBLIGATIONS?
Reciprocal obligations are those which are created or established at
the same time, out if the same cause, and which result in mutual
relationship of creditor and debtor between the parties.
Reciprocal obligations are those which arise from the same cause
and in which each party is both a debtor and a creditor of the other,
such that the obligation one is dependent upon the other (Areola vs. CA,
236 SCRA 643).
WHAT IS THE EFFECT IF ONE OF THE OBLIGORS IN RECIPROCAL
OBLIGATIONS SHOULD NOT COMPLY WITH WHAT IS INCUMBENT UPON HIM?
The power to rescind (more properly to resolve) obligations is
implied in reciprocal ones, in case one of the obligors should not comply
with what is incumbent upon him.
The court shall decree the rescission claimed, unless there be just
cause authorizing the fixing of a period (Article 1191). This means that
the implied power to rescind can only be enforced through court action,
in the absence of stipulation to the contrary. The decision of the court is
the revocatory act of rescission.
In reciprocal obligations, the obligation of one is a resolutory
condition of the obligation of the other, the non-fulfillment if which
entitles the other to rescind the contract. Rescission or resolution here is
predicated on the breach of faith by any of the parties to a contract that
violates the reciprocity between them.
CHOICES OF THE INJURED PARTY:
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 (Article 1191). The options are
alternative and not conjunctive.
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 (Article 1191, par. 2).
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WHAT
ARE THE CHARACTERISTICS OF THE RIGHT TO RESCIND OR
RESOLVE UNDER ARTICLE 1191?
1. It exists only in reciprocal obligations;
2. It can be demanded only if the plaintiff is ready, willing and able to
comply with his own obligation and the other party is not.
3. The right to rescind is not absolute; thus:
a. It must be based on a serious or substantial breach of an
obligation as to defeat the object of the parties in making the
agreement. A mere casual breach does not justify rescission
of the contract. Example, if time is not of the essence in the
agreement, a slight delay on the part of the obligor in the
performance of his obligation is not sufficient ground for the
resolution of the agreement (Tan vs. CA, 21 SCRA 284).
b. If there is just cause for fixing the period within which the
debtor can comply, the court will not decree rescission;
c. If the property is already in the hands of an innocent third
party who has lawful possession of the same.
4. The right to rescind needs judicial approval in certain cases as
when there has already been delivery of the object;
5. The right to rescind is implied (presumed) to exist and, therefore,
need not be expressly stipulated upon;
6. The right to rescind may be waived.
NOTES:
a) The article entitles the injured party to payment of damages,
regardless of whether he demands fulfillment or rescission of the
obligation (Areola vs. CA, 236 SCRA 643).
b) In case a valid rescission is made, it creates an obligation to return
the things which were the object of the contract. Thus, rescission can
only be made when the one who demands rescission can return
whatever he or she may be obliged to restore.
SUPPOSE
THAT THERE IS A RESERVATION OF THE RIGHT TO RESCIND IN
CASE OF BREACH OF THE OBLIGATIONS, IS THERE A NEED TO ASK FOR JUDICIAL
INTERVENTION IN THE RECISSION OF THE CONTRACT?
No, judicial intervention is not necessary for the purpose of
obtaining a judicial declaration rescinding a contract where there is a
reserved right to rescind (Luna vs. Abrigo, January 18, 1990).
WHAT IS THE EFFECT IF BOTH PARTIES HAVE COMMITTED A BREACH?
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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 (Article 1192).
This means that if the violation can be traced to the parties and
both of them committed the beach, the article penalizes the first violator
only, if in fact or by evidence, such first violator can be determined. The
subsequent violator will not be held liable. However, the liability of the
first violator shall be equitably tempered by the court as the injury to the
other party-violator might not have been so great had it not for the
subsequent infraction of such other party-violator. The law however
states that if it cannot be determined which of the parties first violated
the contract, the obligation shall be deemed extinguished, and each shall
bear his own damages.
SECTION 2
OBLIGATIONS WITH A PERIOD
DEFINE OBLIGATIONS WITH A TERM OR PERIOD.
Obligations with a term or period may be defined as those whose
demandability or extinguishment are subject to the expiration of a term
or period.
WHAT IS MEANT BY A TERM OR PERIOD?
A term or a period is an interval (or length) of time, which, exerting
an influence of an obligation as a consequence of a juridical act, either
suspends its demandability or produces its extinguishment. If it gives
rise to the effectivity of the obligation, it is a suspensive period. If it
extinguishes, it is a resolutory one.
WHAT ARE ITS REQUISITES?
a. Futurity;
b. Certainty;
c. Physical and legal possibility.
DISTINGUISH TERM OR PERIOD FROM CONDITION.
Term and condition may be distinguished form each other in the
following ways:
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1. AS TO REQUISITES – Whereas a term or period refers to an interval of
time which is future and certain, a condition refers to a fact or
event which is future and uncertain.
2. AS TO FULFILLMENT – Whereas a term or period is an interval of time
which must necessarily come, although it may not be known when,
a condition is a future and uncertain fact or event which may or
may not happen.
3. AS TO INFLUENCE ON OBLIGATION – Whereas a term or period merely
exerts an influence upon the time of the demandability or
extinguishment of an obligation, a condition exerts an influence
upon the very existence of the obligation itself. A condition causes
an obligation to arise or to cease, but a period merely fixes the time
or the efficaciousness of an obligation.
4. AS TO RETROACTIVITY OF EFFECTS – Whereas a term or period does not
have any retroactive effects unless there is an agreement to the
contrary, a condition has retroactive effects.
5. AS TO THE EFFECT OF WILL OF DEBTOR – When a term or period is left
exclusively to the will of the debtor, the existence of the obligation
is not affected, but when a condition is left exclusively to the will of
the debtor, the very existence of the obligation is affected.
GIVE AND DEFINE THE DIFFERENT KINDS OF TERMS OR PERIODS.
1. SUSPENSIVE OR RESOLUTORY
A. Suspensive period(ex die) - when the obligation becomes
demandable only upon the arrival of a day certain;
B. Resolutory period (in diem) - when the obligation is
demandable at once, although terminated upon the arrival of
a day certain.
2. LEGAL, CONVENTIONAL OR JUDICIAL
A. Legal period – when it is granted by law;
B. Conventional period – when it is stipulated by the parties;
C. Judicial period – when it is fixed by the court
3. DEFINITE OR INDEFINITE – Article 1193 states that a day certain is
understood to be that which must necessarily come, although it
may not be known when. Thus, a period is definite when a date or
time is known beforehand, and indefinite when it can only be
determined by an event which must necessarily come to pass,
although it may not be known when
WHAT IS A DAY CERTAIN?
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A day certain is understood to be that which must necessarily
come, although it may not be known when (Article 1193, par. 3).
IN OBLIGATIONS WITH A PERIOD OR TERM, WHEN DOES THE PERIOD OF
PRESCRIPTION BEGIN?
The period of prescription commences from the time the term in
the obligation arises, for it is only from that date that it is due and
demandable.
IF THE HAPPENING OF A FUTURE EVENT IS FIXED BY THE PARTIES FOR THE
FULFILLEMTN OR EXTINGUISHMENT OF AN OBLIGAGTION, WHAT IS THE NATURE
OF THE OBLIGATION?
It depends – If the event will necessarily come, although the date or
time when it will come may be uncertain, the event constitutes a day
certain; hence, the obligation is with a term (Article 1193, par. 3).
However, if the uncertainty consists in whether the day will come or not,
the event constitutes a condition; hence, the obligation is conditional
(Article 1193, par. 4).
STATE
THE RULES IN CASE OF LOSS, DETERIORATION, OR IMPROVEMENT
OF THE THING BEFORE THE ARRIVAL OF THE TERM OR PERIOD.
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
(Article 1194).
Thus:
(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;
(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 (Article 1189).
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WHAT
IS THE REMEDY OF THE DEBTOR WHO PAID OR DELIVERED BEFORE
THE ARRIVAL OF THE PERIOD?
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 (Article 1195).
IN
OBLIGATIONS WITH A TERM OR PERIOD, FOR WHOSE BENEFIT IS THE
TERM OR PERIOD?
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 (Article 1196).
Consequently, the creditor cannot demand the performance of the
obligation before the expiration of the designated period; neither can the
creditor compel the debtor to perform the obligation before the expiration
of such period.
This rule, however, is not absolute. If it can be proved either that
the tenor of the obligation or from other circumstances that the period
has been established for the benefit of either the creditor or the debtor,
the general rule is no longer applicable. However, the benefit of the
period may be waived by the person in whose favor it was constituted.
IF THE CONTRACT DOES NOT PROVIDED FOR A PERIOD, CAN THE CREDITOR
DEMAND ITS FULFILLMENT?
No, because an action for the court to fix the period has yet to be
filed. In the meantime, no one can ask for the fulfillment of the obligation
after the court has fixed the period for its compliance (Vda de Ungson vs.
Lopez, L-10180, March 10, 1954).
WITHIN WHAT PERIOD SHOULD THE ACTION TO FIX THE PERIOD BE FILED?
It must be filed within ten (10) years, otherwise, it would prescribe
(Gonzalez vs. Jose, 66 Phil. 369).
WHAT ARE THE DIFFERENT INSTANCES UNDER THE CIVIL CODE WHERE
THE COURTS ARE EMPOWERED TO FIX THE DURATION OF A TERM OR PERIOD?
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a. 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 (Article 1197, par. 1).
b. The courts shall also fix the duration of the period when it depends
upon the will of the debtor (Article 1197, par. 2).
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 (Article 1197, par. 3).
c. If the debtor binds himself to pay when his means permit him to
do so (Article 1180). Strictly speaking, however, this case properly
falls within the purview of the second, because in such a case the
power to determine when the obligation will be fulfilled is in effect
left exclusively to the will of the debtor.
NOTE: Article 1197 involves a two-step process. The court must
first determine that the obligation does not fix a period (or that the period
is made to depend upon the will of the debtor), but from the nature and
the circumstances it can be inferred that a period was intended. This
preliminary point settled, the court must then proceed to the second
step, and decide what period was probably contemplated by the parties.
So that, ultimately, the court cannot fix a period merely because in its
opinion it is or should be reasonable, but must set the time that the
parties are shown to have intended (Gregorio Araneta, Inc. vs. Phil. Sugar
Estates Development Co., Ltd., 20 SCRA 330).
WHAT ARE THE DIFFERENT INSTANCES UNDER THE CIVIL CODE WHEN THE
DEBTOR SHALL LOSE EVERY RIGHT TO MAKE USE OF THE TERM OR PERIOD?
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; [Insolvency
here need not be judicially declared.]
(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; [Note that the debtor loses the benefit of a period even if the
loss is through a fortuitous event.]
(4)
When the debtor violates any undertaking, in consideration of
which the creditor agreed to the period;
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(5)
When the debtor attempts to abscond (Article 1198).
 HOW TERMS OR PERIODS ARE COMPUTED:
When the laws speak of years, months, days or nights, it shall be
understood that years are of three hundred sixty-five days each; months,
of thirty days; days, of twenty-four hours; and nights from sunset to
sunrise.
If months are designated by their name, they shall be computed by
the number of days which they respectively have.
In computing a period, the first day shall be excluded, and the last
day included (Article 13).
SECTION 3
ALTERNATIVE OBLIGATIONS
DEFINE ALTERNATITIVE AND FACULTATIVE OBLIGATIONS.
Alternative obligations refer to those juridical relations which
comprehend several objects or prestations which are due, but the
payment or performance of one of them would be sufficient.
Facultative obligations refer to those juridical relations where only
one object or prestation has been agreed upon by the parties to the
obligation, but the obligor may deliver or render another in substitution.
NOTES:

Under the Civil Code, there are only three prestations namely, (1)
to give; (2) to do; and (3) not to do. Strictly speaking therefore,
when the Code speaks of different prestations, it refers only to
these three prestations. Hence, technically speaking, a person who
is bound to give either a house, a car or a truck has only one
prestation which is “to give”. But a person who is obliged to either
deliver a house or to paint a picture has two prestations, namely,
“to give” and “to do”. It appears however that the phrase “different
prestations” in the law refers to both the strict sense and the
looses sense of the word “prestation”.
DISTINGUISH ALTERNATIVE FROM FACULTATIVE OBLIGATIONS.
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A. AS TO OBJECTS DUE – In facultative obligations only one object
is due, whereas in alternative obligations several objects are
due;
B. AS TO COMPLIANCE – Facultative obligations may be complied
by the delivery of another object or performance of another
prestation in substitution of that which is due, whereas
alternative obligations may be complied with by the delivery
of one of the objects or by the performance of one of the
prestations which is alternatively due;
C. AS TO THE RIGHT OF CHOICE – In the first, the right of choice
pertains only to the debtor, whereas in the second, the right
of choice may pertain even to the creditor or to a third
person;
D. AS TO EFFECT OF FORTUITOUS LOSS - In the first, the loss or
impossibility of the object or prestation which is due without
any fault of the debtor is sufficient to extinguish the
obligation, whereas in the second, the loss or impossibility of
all the objects or prrestations which are due without the
fault of the debtor is necessary to extinguish the obligation;
E. AS TO EFFECT CULPABLE LOSS – In the first, the culpable loss of
the object which the debtor may deliver in substitution
before the substitution is effected does not give rise to any
liability on the part of the debtor; in the second, the culpable
loss of any of the objects which are alternatively due before
the choice is made may give rise to a liability on the part of
the debtor.
WHAT IS THE RULE IF THE OBLIGATION IS ALTERNATIVE?
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 (Article 1199).
Partial performance of the different prestations cannot be
considered fulfillment of the obligation and therefore cannot be done
unless the creditor accepts such partial performance as complete
performance. Hence, if the obligor can either give a house and a car or
paint two murals for the satisfaction of his obligation, he cannot give the
car and one mural. The obligation will not be satisfied through partial
fulfillment of several prestations.
IN ALTERNATIVE OBLIGATIONS, WHO HAS THE RIGHT TO CHOOSE OR
SELECT THE OBJECT TO BE DELIVERED OR THE PRESTATION TO BE PERFORMED
AMONG THOSE WHICH ARE ALTERNATIVELY DUE?
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In alternative obligations the right to choose or select belongs to
the debtor.
EXCEPTIONS:
a) When the right has been expressly granted to the creditor (Article
1200); and
b) When it has been expressly granted to a third person.
The right of choice belongs to the debtor because he is the passive
subject in an obligation. He, not the creditor, is the only obliged to give,
to do or not to do.
Any doubt as to whom the choice was given must always be
interpreted in favor of the debtor. Only an express grant of choice can a
creditor have the right to choose which prestation is to be performed.
WHAT IS THE LIMITATION ON DEBTOR’S CHOICE (IF THE RIGHT OF CHOICE
HAS BEEN GRANTED TO HIM)?
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 (Article 1200).
WHEN ARE THE PARTIES BOUND BY THE CHOICE OF SELECTION?
The choice shall produce no effect except from the time it has been
communicated (Article 1201). Thus the parties are bound by the choice
or selection from the very moment that it has been communicated by the
party who has the right to make it to the other party.
WHEN DOES THE DEBTOR LOSE THE RIGHT OF CHOICE?
The debtor shall lose the right of choice when among the
prestations whereby he is alternatively bound, only one is practicable
(Article 1202).
Note that the law uses the word “practicable”. Practicable means
capable of being done, or simply feasible (The New Lexicon Webster’s
Dictionary of the English Language, 1987 Edition, Page 787). However,
prestations that are not “practicable may also include lawful and possible
prestations but, because of some special attendant circumstances which
do not necessarily make them unlawful or impossible, they can be done.
[Hence, if the debtor has the following alternatives: to kiss a highly
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contagious leper, to sing a song, or not to pay taxes, it is clear that the
last alternative is not only impracticable but also unlawful. The first
alternative, although not unlawful and not impossible, is nevertheless
practicable. In this case therefore, the debtor loses his right of choice
because only one prestation is practicable which is to sing.]
WHAT IS THE
CREDITOR’S ACTS?
RULE WHEN THE DEBTOR CANNOT CHOOSE BECAUSE OF THE
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 (Article 1203).
IN OBLIGATIONS WHERE THERE ARE THREE OR MORE OBJECTS WHICH ARE
ALTERNATIVELY DUE, IF ONE, OR MORE, OR ALL OF THE OBJECTS ARE LOST OR
DESTROYED, WHAT ARE THE EFFECTS OF SUCH LOSS OR DESTRUCTION UPON THE
OBLIGATION AS UPON THE LIABILITY OF THE DEBTOR?
It depends:
a. IF RIGHT OF CHOICE BELONGS TO THE DEBTOR –

If the loss is due to a fortuitous event:
a) If two or more objects remain, the obligation subsists
retaining its alternative character;
b) If only one remains, the obligation subsists, but it ceases to
be alternative.
c) If none remains, the obligation is extinguished.
In all these cases, the debtor cannot be held liable for
damages, applying the provisions of Articles 1174, 1262 and
1266.

If the loss is due to the fault of the debtor:
a) If two or more objects remain, the obligation subsists
retaining its alternative character. The debtor in such a case
cannot be held liable for damages because he can still
comply with his obligation.
b) If only one remains, the obligation subsists, but it ceases to
be alternative. The debtor in such a case cannot be held
liable for damages because he can still comply with his
obligation.
c) If none remains, the obligation is converted into an
obligation to indemnify for damages. The indemnity shall
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consist of the last object to be lost plus or that service which
last become impossible, consequential damages (Article
1204). Consequential damages are damages other than the
value of the last thing or service.
b. IF THE RIGHT BELONGS TO THE CREDITOR

If the loss is due to a fortuitous event, the effects are the same as
where the right belongs to the debtor.

If the loss is due to the fault of the debtor:
a) If two or more objects remain, the obligation subsists
retaining its alternative character. If the creditor chooses any
of those remaining, the debtor cannot be held liable for
damages; however, if he chooses any of those which are lost,
the debtor is liable for the value of the object plus damages.
b) If only one remains, the obligation subsists, but it ceases to
be alternative. In other words, it has become a simple
obligation to deliver the remaining object or to indemnify for
damages depending upon the discretion of the creditor. If the
latter chooses the object remaining, the debtor cannot be
held liable for damages; however, if he chooses any of those
which were lost, the debtor is liable for the value of the
object plus damages.
c) If none remains, the obligation is converted into an
obligation to indemnify for damages. The indemnity shall
consist of the price of the object chosen by the creditor plus
consequential damages (Article 1205).
NOTES:



Note that the debtor will not be liable in any way for reducing the
alternatives from three to two alternatives, provided what remains
are lawful, practicable, possible or consistent with the object of the
obligation.
Likewise, the debtor will not be liable for converting his alternative
obligation to a simple one where there is only one lawful and
possible prestation. The debtor may even cause the loss of one of
the things, or render one of the services impossible.
But when the debtor is responsible for losing or rendering
impossible all his alternative prestations, the creditor is entitled to
damages.
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IN
FACULTATIVE OBLIGATIONS, IF THE SUBSTITUTE IS LOST OR
DESTROYED THROUGH THE FAULT OF THE DEBTOR, IS HE LIABLE FOR DAMAGES?
If the loss or destruction took place AFTER the substitution has
been made, undoubtedly, the debtor is liable for damages for the reason
that once the substitution is effected by the debtor by duly notifying the
creditor of such fact, the obligation is converted into a simple one with
the substitute as the object of the obligation.

If the loss or destruction took place BEFORE the substitution could
be effected, it is believed that the debtor cannot be held liable. It
does not affect the principal obligation and hence the debtor will
not be liable.
SECTION 4
JOINT AND SOLIDARY OBLIGATIONS
DEFINE JOINT AND SOLIDARY OBLIGATIONS.
When there is concurrence of two or more creditors or of two or
more debtors in one and the same obligation, such obligation may either
be joint (obligacion mancomunada) or solidary (obligacion solidaria).
A JOINT OBLIGATION is an obligation where there is a concurrence of
several creditors, or several debtors, or of several creditors and debtors,
by virtue of which each of the creditors has a right to demand, while each
of the debtors is bound to render, compliance with his PROPORTIONATE
part of the prestation.
A SOLIDARY OBLIGATION is an obligation where there is a
concurrence of several creditors, or of several debtors, or of several
creditors and debtors, by virtue of which each of the creditors has a right
to demand, while each of the debtors is bound to render the ENTIRE
compliance with the prestation which constitutes the object of the
obligation.
WHERE THERE IS A CONCURRENCE OF SEVERAL CREDITORS, OR OF
SEVERAL DEBTORS, OR OF SEVERAL CREDITORS AND DEBTORS IN ONE AND THE
SAME OBLIGATION – WHAT IS THE NATURE OF THE OBLIGATION – IS IT JOINT OR
SOLIDARY?
As a general rule, the obligation is JOINT. Article 1207 provides
that: 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
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former has a right to demand, or that each one of the latter is bound to
render, entire compliance with the prestation.
WHAT ARE THE CONSEQUENCES OF A JOINT OBLIGATION?
If from the law, or the nature or the wording of the obligations to
which the preceding article refers the contrary does not appear –
a) The credit or debt shall be presumed to be divided into as many
shares as there are creditors or debtors,
b) The credits or debts being considered distinct from one another,
subject to the Rules of Court governing the multiplicity of suits (Article
1208).
WHEN IS AN OBLIGATION SOLIDARY?
There is a solidary liability only:
1. When the obligation expressly so states; or
2. When the law requires solidarity; or
3. When the nature of the obligation requires solidarity (Article 1207).
WHAT ARE THE OBLIGATIONS WHERE THE LAW REQUIRES SOLIDARITY?
1. If two or more heirs take possession of the estate, 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 (Article 927).
2. All partners are liable solidarily with the partnership for everything
chargeable to the partnership under articles 1822 and 1823
(Article 1824).
3. Even when the agent has exceeded his authority, the principal is
solidarily liable with the agent if the former allowed the latter to act
as though he had full powers (Article 1911).
4. If two or more persons have appointed an agent for a common
transaction or undertaking, they shall be solidarily liable to the
agent for all the consequences of the agency (Article 1915).
5. When there are two or more bailees to whom a thing is loaned in
the same contract, they are liable solidarily (1945).
6. 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 (Article 2146, par. 2).
7. The responsibility of two or more payees, when there has been
payment of what is not due, is solidary (Article 2157).
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8. The responsibility of two or more persons who are liable for quasidelict is solidary (Article 2194).
9. Several and subsidiary liability of principals, accomplices and
accessories of a felony.
WHAT ARE THE DIFFERENT KINDS OF SOLIDARITY?
1. ACTIVE (among the creditors) – A tie or vinculum among
several creditors of one and the same obligation by virtue of
which each of them, in relation to his co-creditors, possesses
the character of creditor only with respect to his share in the
obligation, but in relation to the common debtor or debtors,
represents all of the other creditors. The most fundamental
effect of active solidarity is the creation of a relationship of
mutual agency among the solidary creditors by virtue of
which each creditor is empowered to exercise against the
debtor or debtors not only the rights which corresponds to
him, but also all the rights which correspond to the other
creditors, with the consequent obligation to render an
account of his acts to such creditors.
2. PASSIVE (among the debtors) – A ties of vinculum among
several debtors of one and the same obligation by virtue of
which each of the, in relation the common creditor or
creditors, represents all of the other debtors, and in relation
to his co-debtors, possesses the character of debtor only with
respect to his share in the obligation. Here, each solidary
debtor, insofar as the creditor or creditors are concerned, is
the debtor of the entire amount; however, with respect to his
co-debtors, he is the debtor only to the extent of his share of
the obligation. Hence, the most fundamental effect of
solidarity among the debtors is the liability of each debtor for
the payment of the entire obligation, with the consequent
right to demand reimbursement from the others for their
corresponding shares once payment has been made.
3. Mixed (among the creditors and the debtors at the same
time).
WHAT ARE THE CHARACTERISTICS OF JOINT DIVISIBLE OBLIGATIONS?
1. Each creditor can demand only for the payment of his
proportionate share of the credit, while each of the debtor can be
held liable only for the payment of his proportionate share of the
debt (Articles 1207; 1208).
2. A joint creditor cannot act in representation of the other creditors,
while a joint debtor cannot be compelled to answer for the acts or
liability of the other debtors.
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3. The demand for the fulfillment made by the creditor upon one of
the debtors does not place the other debtors in default.
4. The interruption of the prescriptive period with respect to one
debtor does not affect the rights of others.
5. The defense of one debtor is not a valid defense of the others.
WHAT IS AN INDIVISIBLE JOINT OBLIGATION?
It is an obligation in which the object is indivisible but the tie
between the parties is joint who are merely proportionately liable.
The indivisibility of an obligation does not necessarily give rise to
solidarity. Nor does solidarity of itself imply indivisibility (Article 1210).
STATE THE RULES IN AN INDIVISIBLE JOINT OBLIGATION.
1. The right of the creditors may be prejudiced only by their collective
acts,
2. The debt can be enforced only by proceeding against all the debtors
(demand must be made on all of them),
3. If one of the latter should be insolvent, the others shall not be
liable for his share (Article 1209).
4. If there be joint creditors, delivery must be made to all, unless one
is specifically authorized by the others.
5. Each joint creditor is allowed to renounce his proportionate credit.
WHAT
ARE THE CHARACTERISTICS WHICH DISTINGUISH
INDIVISIBLE OBLIGATION FROM A JOINT DIVISIBLE OBLIGATION?
A
JOINT
Although in a joint indivisible obligation, the creditor cannot act in
representation of the others and the debtor cannot be compelled to
answer for the acts or liability of the others because of its joint character,
yet, a joint INDIVISIBLE obligation is distinguishable from a joint DIVISIBLE
obligation because of the presence of the following characteristics:
1. If there are two or more debtors, compliance with the obligation
requires the concurrence of all of them, although each for his own
share. Consequently, the obligation can be enforced only be
proceeding against all of the debtors (Article 1209).
2. If there are two or more creditors, the concurrence of all of them,
although each for his own share, is also necessary for the
enforcement of the obligation. This is because the obligation is
joint, and therefore, a creditor cannot act in representation of the
others, and it is also indivisible, and therefore, not susceptible of
partial fulfillment.
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IN
A JOINT INDIVISIBLE OBLIGATION, WHAT IS THE EFFECT IF ANYONE OF
THE DEBTORS SHOULD FAIL TO COMPLY WITH HIS UNDERTAKING?
If anyone of the debtors in a joint indivisible obligation should fail
to comply with undertaking, the obligation is converted into one of
indemnity for damages. However, the debtors who may have been ready
to comply with what is incumbent upon him shall not contribute to the
indemnity beyond the corresponding portion of the price of the thing or
the value of the service in which the obligation consists. On the other
hand, the debtor who failed or refused to comply with his undertaking
shall pay not only his share of such or value, but also al of the damages
suffered by the creditor or creditors as a result of the non-fulfillment of
the obligation (Article 1224).
DISTINGUISH BETWEEN SOLIDARITY AND INDIVISIBILITY.
1. AS TO NATURE – Solidarity refers to the legal tie or vinculum, and
consequently, to the parties of the obligation, whereas indivisibility
refers to the prestation which constitutes the object of the
obligation.
2. AS TO REQUISITES – Plurality of subjects is indispensable in
solidarity, whereas it is not required in indivisibility.
3. AS TO EFFECT OF BREACH – In solidarity, when the obligation is
converted into one of indemnity for damages because of breach,
the solidary character of the obligation remains, whereas in
indivisibility, the indivisible character of the obligation is
terminated.
CAN SOLIDARITY EXIST ALTHOUGH THE CREDITORS AND DEBTORS MAY
NOT BE BOUND IN THE SAME MANNER AND BY THE SAME PERIODS AND
CONDITIONS?
Solidarity may exist although the creditors and the debtors may
not be bound in the same manner and by the same periods and
conditions (Article 1211).
WHAT ARE THE RULES IN SOLIDARY OBLIGATIONS?
a) 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
(Article 1212).
b) A solidary creditor cannot assign his rights without the consent of the
others (Article 1213).
IN SOLIDARY OBLIGATIONS, TO WHOM MUST THE DEBTOR PAY?
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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 (Article 1214).
WHAT
IS THE EFFECT OF NOVATION, COMPENSATION, CONFUSION OR
REMISSION OF DEBT MADE BY A SOLIDARY CREDITOR?
Novation, compensation, confusion or remission of the debt, made
by any of the solidary creditors or with any of the solidary debtors, shall
extinguish the obligation, without prejudice to the provisions of Article
1219.
The creditor who may have executed any of these acts, as well as
he who collects the debt, shall be liable to the others for the share in the
obligation corresponding to them (Article 1215).
IN SOLIDARY OBLIGATION, AGAINST WHOM MAY THE CREDITOR PROCEED?
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 (Article 1216).
WHAT
IS THE EFFECT OF PAYMENT MADE BY ONE OF THE SOLIDARY
DEBTORS?
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 (Article 1217).
WHAT IS THE RIGHT OF THE SOLIDARY DEBTOR WHO PAID?
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 (Article 1217, par. 2).
STATE THE RULE IF ONE OF THE SOLIDARY DEBTORS CANNOT PAY HIS
SHARE TO THE DEBTOR WHO PAID.
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 (Article 1217, par. 3).
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HOWEVER:
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 (Article 1218).
WHAT
IS THE EFFECT OF REMISSION OF A SOLIDARY OBLIGATION
EFFECTED BY A SOLIDARY CREDITOR (1) UPON THE OBLIGATION ITSELF, (2) UPON
THE RELATIONSHIP OF THE CREDITORS THEMSELVES, AND (3) UPON THE
RELATIONSHIP OF THE DEBTORS THEMSELVES?
1. UPON THE OBLIGATION – If the remission is total, the entire obligation
is extinguished; if it is partial, the obligation is extinguished in that
part or aspect to which the remission refers (Article 1215).
2. UPON THE SOLIDARY CREDITOR – The solidary creditor responsible for
the remission shall be liable to the other solidary creditors for the
shares in the obligation corresponding to them (Ibid).
3. UPON THE SOLIDARY DEBTORS – As far as the solidary debtors are
concerned, the effects of remission may be summarized as follows:
a. 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 (Article 1219).
b. The remission of the whole obligation, obtained by one of the
solidary debtor, does not entitle him to reimbursement from
his co-debtors (Article 1220).
WHAT IS THE EFFECT OF THE LOSS OF THE THING DUE?
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 (Article
1221).
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WHAT ARE THE DEFENSES WHICH ARE AVAILABLE TO A SOLIDARY DEBTOR
IF THE CREDITOR PROCEEDS AGAINST HIM ALONE FOR THE PAYMENT OF THE
ENTIRE OBLIGATION?
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 (Article 1222).
SECTION 5
DIVISIBLE AND INDIVISIBLE OBLIGATIONS
DEFINE DIVISIBLE AND INDIVISIBLE OBLIGATIONS.
Divisible obligations are those which have as their object a
prestation which is susceptible of partial performance without the
essence of the obligation being changed.
Indivisible obligations are those which have as their object a
prestation which is not susceptible of partial performance, because
otherwise the essence of the obligation will be changed.
WHEN IS A THING DIVISBLE OR INDIVISIBLE?
A thing is divisible when, if separated into parts, its essence is not
changed or its value is not decreased disproportionately, because each of
the parts into which it is divided are homogeneous and analogous to
each other as well as to the thing itself.
A thing is indivisible when, if separated into parts, its essence is
changed or its value is decreased disproportionately.
DISTINGUISH BETWEEN INDIVISIBILITY FROM SOLIDARITY.
SOLIDARITY
1. Refers to the tie between the
parties.
2. Needs at least two debtors or
creditors.
3. The fault of one is the fault of
the bothers.
INDIVISIBILITY
1. Refers to the nature of the
obligation.
2. May exist even if there is only
one debtor and only one creditor.
3. The fault if one is not the fault of
the others.
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GIVE AND DEFINE THE DIFFERENT KINDS OF DIVISION.
The division of a thing may be:
a. QUANTITATIVE – when the thing can be materially divided into parts
and such parts are homogeneous to each other, such as when the
parts are separated from each other as in the case of movables, or
when the limits of the parts are fixed by metes and bounds as in
the case of movables. This depends on quantity.
b. QUALITATIVE – when the thing can be materially divided, but the
parts are not homogenous to each other, such as in the partition of
an inheritance. This depends on quality, irrespective of quantity.
c. IDEAL OR INTELECTUAL OR MORAL – when the thing can only be
separated into ideal or undivided parts, not material parts, as in
the case of ownership. This exists only in the mind and not in
physical reality.
GIVE THE DIFFERENT KINDS OR CLASSES OF INDIVISIBLITY.
Indivisibility may be:
a. CONVENTIONAL - Indivisible by common agreement;
b. NATURAL OR ABSOLUTE – indivisible by the nature of the
object of undertaking; and
c. LEGAL – indivisible as provided by law.
DISTINGUISH BETWEEN THE DIVISIBILITY OF AN OBLIGATION AND THE
DIVISIBILITY OF THE THING WHICH CONSTITUTES THE OBJECT OF THE
OBLIGATION.
The divisibility of an obligation refers to the PERFORMANCE of the
prestation which constitutes the object of the obligation, whereas the
divisibility of the thing which constitutes the object if the obligation
refers to the PRESTATION itself.
IF THE THING WHICH CONSTITUTES THE OBJECT OF THE OBLIGATION TO
GIVE IS DIVISIBLE, DOES IT NECESSARILY FOLLOW THAT THE OBLIGATION IS ALSO
DIVISIBLE? SUPPOSE THAT THE THING IS INDIVISIBLE, DOES IT NECESSARILY
FOLLOW THAT THE OBLIGATION TO GIVE IS ALSO INDIVISIBLE?
If the thing which constitutes the object of an obligation to give is
by its nature divisible, the general rule is that the obligation is also
divisible since it is evidently susceptible of partial compliance.
This rule is subject to the following exceptions:
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a. That the obligation is indivisible by express provision of law;
and
b. That it is indivisible by intention of the parties (Article 1225).
If the thing which constitutes the object of the obligation to give is
by its very nature indivisible, the obligation is also indivisible since it is
evident that it is not susceptible of partial compliance. This rule is
absolute in character.
The nature and effect of obligations are very much different from
and do not affect the divisibility or indivisibility of the things that are the
object of obligations in which there is only one debtor and only one
creditor (Article 1223).
WHAT IS A JOINT INDIVISIBLE OBLIGATION?
It is an obligation where the object or prestation is indivisible but
the parties are bound jointly. Example: A and B are jointly bound to give
a specific car to C.
WHAT IS THE EFFECT OF NON-COMPLIANCE OF A JOINT INDIVISIBLE
OBLIGATION?
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 (Article 1224).
WHAT OBLIGATIONS ARE DEEMED INDIVISIBLE?
a. Obligations to give definite things;
b. Those which are not susceptible of partial performance
(Article 1225, par. 1);
c. Those so provided by law;
d. Those things which, though physically divisible, are
intended by the parties to be indivisible (Article 1225, par.
3).
WHAT OBLIGATIONS ARE DEEMED DIVISIBLE?
When the obligation has for its object:
a. The execution of a certain number of days of work;
b. The accomplishment of work by metrical units;
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c. Analogous things which by their nature are susceptible of partial
performance (Article 1225, par. 2);
d. When the purpose of the obligation is to pay a certain amount in
installment.
IN OBLIGATIONS NOT TO DO, HOW IS THE DIVISIBILITY OR INDIVISIBILITY
THEREOF DETERMINED?
In obligations not to do, divisibility or indivisibility shall be
determined by the character of the prestation in each particular case
(Article 1225, par. 4).
WHAT IS THE EFFECT OF ILLEGALITY OF THE TERMS OF A DIVISIBLE
CONTRACT?
In case of a divisible contract, if the illegal terms can be separated
from the legal ones, the latter may be enforced (Article 1420).
SECTION 6
OBLIGATIONS WITH A PENAL CLAUSE
DEFINE OBLIGATIONS WITH A PENAL CLAUSE.
An obligation with a penal clause is one with an accessory
undertaking by virtue of which the obligor assumes a greater liability in
case of breach of the obligation.
WHAT IS MEANT BY PENAL CLAUSE OR PENALTY?
A penal clause is an accessory obligation attached to a principal
obligation by virtue of which the obligor is bound to pay a stipulated
indemnity or to perform an agreed prestation for the purpose of insuring
the performance of the principal obligation.
It is a coercive means to obtain from the debtor compliance of the
obligation.
IN
OBLIGATIONS WITH A PENAL CLAUSE, WHEN SHALL THE PENALTY BE
CONSIDERED AS A SUBSTITUTE FOR DAMAGES OR INTERESTS? WHAT ARE THE
EXCEPTIONS?
As a general rule, in obligations with a penal clause, the penalty
shall substitute the indemnity for damages and the payment of interests
in case of noncompliance (Article 1226, par. 1). In such a case, proof of
actual damages suffered by the creditor is not necessary in order that the
penalty may be demanded (Article 1228).
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There are three EXCEPTIONS to the rule that a penalty clause shall
not be a substitute for the payment of interest and damages:
1. If there is no stipulation to the contrary;
2. When the obligor is sued for refusal to pay the agreed penalty; and
3. When the obligor is guilty of fraud in the fulfillment of the
obligation (Article 1226, par. 1).
In all of these cases, it is evident that the purpose of the penalty is
to punish the obligor. Consequently, the obligee can recover from him
not only the penalty, but also the damages resulting from the breach of
the principal obligation.
MAY ANY PENALTY BE DEMANDABLE?
No. The penalty may be enforced only when it is demandable in
accordance with the provisions of the Civil Code (Article 1226, par. 2),
and one which states that the penalty may be reduced if it is iniquitous
or unconscionable (Article 1229).
WHAT ARE THE PURPOSES OF A PENAL CLAUSE IN AN OBLIGATION?
A penal clause has three purposes:
a. Funcion coercitiva o de garantia – to insure the
performance of the obligation;
b. Funcion liquidatoria – to liquidate the amount of
damages to be awarded to the injured party in case
of breach of the principal obligation; and
c. Funcion estrictamente penal – in certain exceptional
cases, to punish the obligor in case of breach of the
principal obligation.
The second is compensatory, while the third is punitive in
character; the first, on the other hand, is the general purpose regardless
of whether the penalty is compensatory or punitive.
WHAT ARE THE DIFFERENT KINDS OF PENALTIES?
Penalty may be classified as follows:
a. AS TO ORIGIN:
a) Legal – when it is constituted by law.
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b) Conventional – when it is constituted by agreement of the
parties.
b. AS TO PURPOSE:
a) Compensatory – when it is established for the purpose of
indemnifying the damages suffered by the obligee or creditor
in case of breach of the obligation.
b) Punitive – when it is established for the purpose of punishing
the obligor or debtor in case of breach of the obligation.
c. AS TO EFFECT:
a) Subsidiary – when only the penalty may be demanded in
case of breach of the obligation.
b) Joint – when the injured party may demand the enforcement
of both the penalty and the principal obligation.
IS THERE ANY DIFFERENCE BETWEEN THE PENALTY IN OBLIGATIONS WITH
A PENAL CLAUSE AND LIQUIDATED DAMAGES?
As a general rule, there is none. In other words, the penalty in its
compensatory aspect is exactly the same as the liquidated damages
defined in Article 2226 of the Civil Code. In both cases, proof of actual
damages suffered by the creditor is unnecessary. However, the penalty in
its punitive aspect is different from liquidated damages. Thus, when
there is a stipulation that the creditor can recover damages in addition to
the penalty, or when the debtor is sued for refusal to pay the penalty, or
when the debtor is guilty of fraud, it is clear that in such cases the
creditor can recover not only the agreed penalty but also damages
suffered by him.
Imposition of the liquidated damages for breach of contract, such
as in a building contract, bars any award for additional damages at large
for the same breach (Navarro vs. Mallari, 45 Phil. 242).
CAN
THE
DEBTOR
SUBSTITUTE
THE
PENALTY
FOR
THE
PRINCIPAL
OBLIGATION?
No. The debtor cannot exempt himself from the performance of the
obligation by paying the penalty. He can only do so if the right has been
expressly reserved for him (Article 1227).
This is so because the payment of the penalty is merely an
accessory obligation. It is not the principal obligation.
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CAN
THE CREDITOR DEMAND BOTH FULFILLMENT AND THE PENALTY AT
THE SAME TIME?
No. The creditor cannot demand the fulfillment of the obligation
and the satisfaction of the penalty at the same time. He can only do so if
the 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 (Article 1227).
WHAT ARE THE DIFFERENT CASES UNDER THE CIVIL CODE WHERE COURTS
MAY REDUCE THE PENALTY WHICH IS ATTACHED TO AN OBLIGATION?
A contract is a source of obligation. It is the law between the
parties, hence, neither the law nor the courts will extricate a party from
an unwise or undesirable contract he or she entered into with all the
required formalities and with full awareness of its consequences. One
exception to this rule, however is the matter of penalties. Courts may
reduce the penalty attached to an obligation:
1. When the principal obligation has been partly complied with by the
debtor.
2. When the principal obligation has been irregularly complied with
by the debtor.
3. When the penalty is iniquitous or unconscionable, even if there
has been no performance (Article 1229).
A penalty clause is construed against the one enforcing it. If it is so
unconscionable that its enforcement, in effect, constitutes an undue
deprivation or confiscation of the property of the obligor, the courts can
strike it down as an invalid one.
WHAT
ARE THE RULES IN CASE THE PRINCIPAL OBLIGATION OR THE PENAL
CLAUSE IS VOID?
1. The nullity of the penal clause does not carry with it that of the
principal obligation.
2. The nullity of the principal obligation carries with it that of the
penal clause (Article 1230).
The penal clause, being merely an accessory obligation, does not
invalidate the principal obligation in the event that such penalty clause
is void or without effect. Being merely accessory to enforce the main
obligation, such penal clause could never exist if the main obligation
does not exist. Hence, the nullity of the principal obligation carries with
it that of the penal clause.
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SUMMARY ON RULES IN OBLIGATIONS WITH A PENAL CLAUSE:
1. The penalty shall substitute the indemnity for damages and the
payment of interests in case of noncompliance (Article 1226, par.
1), EXCEPT if there is no stipulation to the contrary; when the
obligor is sued for refusal to pay the agreed penalty; and when the
obligor is guilty of fraud in the fulfillment of the obligation (Article
1226, par. 1).
2. 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
(Article 1227).
3. Proof of actual damages suffered by the creditor is not necessary in
order that the penalty may be demanded (Article 1228).
CHAPTER 4
EXTINGUISHMENT OF OBLIGATIONS
GENERAL PROVISIONS
WHAT ARE THE DIFFERENT MODES OF EXTINGUISHING OBLIGATIONS?
Obligations are extinguished:
(1)
(2)
(3)
(4)
(5)
(6)
By
By
By
By
By
By
payment or performance;
the loss of the thing due;
the condonation or remission of the debt;
the confusion or merger of the rights of creditor and debtor;
compensation;
novation.
Other causes of extinguishment of obligations, such as annulment,
rescission, fulfillment of a resolutory condition, and prescription, are
governed elsewhere in this Code (Article 1231).
HOW
ARE THE CAUSES OF EXTINGUISHMENT OF OBLIGATIONS CLASSIFIED
ACCORDING TO THE CIVIL CODE?
ORDINARILY BY:
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a)
b)
c)
d)
e)
f)
Payment of performance
Loss of the thing due
Condonation or remission of the debt or waiver
Confusion or merger of the rights of creditor and debtor
Compensation
Novation (Article 1231)
OTHER CAUSES IN ARTICLE 1231 BUT GOVERNED BY OTHER CHAPTERS:
a)
b)
c)
d)
Annulment
Rescission
Fulfillment of resolutory condition
Prescription
STILL OTHER CAUSES:
a)
b)
c)
d)
e)
f)
g)
Death of a party in case the obligation is personal
Resolutory term
Change in civil status
Compromises
Mutual dissent
Impossibility of fulfillment
Fortuitous event
SECTION 1
PAYMENT OR PERFORMANCE
DEFINE PAYMENT.
Payment is a mode of extinguishing obligations which consists not
only the delivery of money but also the performance, in any other
manner, of an obligation (Article 1232). `
IF
A THIRD PERSON PAYS AN OBLIGATION, WHAT ARE THE RIGHTS WHICH
ARE AVAILABLE TO HIM?
If a third person pays the obligation with the knowledge and
consent of the debtor, there are two rights which are available to him:
a. He can recover from the debtor the entire amount which he has
paid (Article 1236, par. 2);
b. He is subrogated to all of the rights of the creditor (Article 1302,
No. 2).
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However, if the payment is made without the knowledge or against
the will of the debtor, there is only one right which is available to him:
a. He can recover only insofar as the payment has been beneficial to
the said debtor (Article 1236, par. 2).
WHAT ARE THE REQUISITES FOR A VALID PAYMENT?
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 (Article 1233).
WHAT IS THE EFFECT OF SUBSTANTIAL PERFORMANCE IN GOOD FAITH?
If the obligation has been substantially performed in good faith, the
obligor may recover as though there had been a strict and complete
fulfillment, less damages suffered by the obligee (Article 1234).
WHAT
IS THE EFFECT IF THE OBLIGEE ACCEPTS PERFORMANCE KNOWING
ITS INCOMPLETENESS OR IRREGULARITY?
When the obligee accepts the performance, knowing its
incompleteness or irregularity, and without expressing any protest or
objection, the obligation is deemed fully complied with (Article 1235).
There is waiver and estoppel here.
IF THERE IS DEFAULT IN THE PERFORMANCE OF ONE’S OBLIGATION, WHAT
IS THE EFFECT OF THE ACCEPTANCE OF DELAYED PAYMENT?
Rescission is impliedly waived. Failure to exercise the right of
rescission after the debtor defaulted constitutes a waiver of such right.
The continued acceptance of payments after the default places the debtor
in estoppel.
MAY
A THIRD PERSON COMPEL THE CREDITOR TO ACCEPT PAYMENT OR
PERFORMANCE OF AN OBLIGATION?
No, as a general rule because there is no privity of contract
between the third person and a party to a contract. This rule is, however
subject to the following exceptions:
a. When it is made by a third person who has an interest in the
fulfillment of the obligation (Article 1236). Thus, a guarantor or a
co-debtor can compel the creditor to accept payment or
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performance, since in this case, the payor is not a stranger to the
obligation.
b. When there is a stipulation to the contrary (Article 1236). In this
case, the creditor waives his right to refuse to deal with strangers
to the obligation.
WHAT
IS THE EFFECT IF A THIRD PERSON PAYS ON BEHALF OF THE
DEBTOR WITHOUT HIS KNOWLEDGE OR AGAINST HIS CONSENT?
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
(Article 1237).
WHAT IS 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 (Article 1303).
HOW IS SUBROGATION DISTINGUISHED FORM REIMBURSEMENT?
a) In subrogation, recourse can be had to the mortgage or guaranty
or pledge; in reimbursement, there is no such recourse.
b) 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 been an extinguishment of the obligation.
c) In subrogation, there is something more than a personal action for
recovery; in reimbursement, there is only a personal action to
recover to the amount.
Note however, that in both reimbursement and subrogation, there
can be recovery of what the stranger has paid (Article 1236).
WHEN IS PAYMENT BY A STRANGER DEEMED A DONATION?
Payment made by a third person who does not intend to be
reimbursed by the debtor is deemed to be a donation, which requires the
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debtor's consent. But the payment is in any case valid as to the creditor
who has accepted it (Article 1238).
WHAT IS THE EFFECT OF PAYMENT MADE BY AN INCAPACITATED PERSON?
In obligations to give, payment made by one who does not have the
free disposal of the thing due and capacity to alienate it shall not be
valid, without prejudice to the provisions of article 1427 under the Title
on "Natural Obligations" (Article 1239); thus:
If a person has no capacity to give:
a) Payment is not valid if accepted;
b) Creditor cannot be compelled to accept it;
c) The remedy of consignation is not proper.
Exception as provided for in Article 1427:
When a minor below eighteen and twenty-one years of age, who
has entered into a contract without the consent of the parents 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.
TO WHOM MUST PAYMENT BE MADE?
Payment shall be made, as a general rule, to:
a) The person in whose favor the obligation has been constituted, or
b) His successor in interest, or
c) Any person authorized to receive it (Article 1240).
WHAT
IS THE EFFECT IF PAYMENT IS MADE TO A PERSON OTHER THAN
THOSE ENUMERATED IN ARTICLE 1240?
The payment shall not be valid; except:
a) Payment made to a third person provided that it has redounded to
the benefit of the creditor;
b) Payment made to the possessor of the credit provided that it was
made in good faith (Articles 1241, par. 2, and 1242).
WHAT IS THE
EFFECT OF PAYMENT MADE TO A PERSON INCAPACITATED TO
MANAGE OR ADMINISTER HIS PROPERTY?
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Payment to a person who is incapacitated to administer his
property shall be valid only:
a) If he has kept the thing delivered, or
b) Insofar as the payment has been beneficial to him (Article 1241,
par. 1).
WHAT IS THE EFFECT OF PAYMENT MADE TO AN UNAUTHORIZED THIRD
PERSON?
Payment made to a third person shall be valid insofar as it has
redounded to the benefit of the creditor (Article 1241, par 2).
MUST THE BENEFIT TO THE CREDITOR BE PROVEN?
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 (Article 1241).
WHAT
IS THE EFFECT OF PAYMENT MADE TO THE CREDITOR BY THE
DEBTOR AFTER THE LATTER HAS BEEN JUDICIALLY ORDERED TO RETAIN THE
DEBT?
Payment made to the creditor by the debtor after the latter has
been judicially ordered to retain the debt shall not be valid (Article 1243).
The judicial order in this case may have been prompted by an
order of attachment, injunction or garnishment
CAN A DEBTOR OF A THING COMPEL THE CREDITOR TO RECEIVE A
DIFFERENT ONE?
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 (Article 1244, par. 1).
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
(Article 1244, par 2).
UNDER
WHAT CIRCUMSTANCES MAY A DEBTOR COMPEL THE CREDITOR TO
ACCEPT A THING DIFFERRENT FROM THAT WHICH WAS AGREED UPON?
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a) When the obligation is a facultative obligation. Here, one prestation
has been agreed upon; but the obligor may render another in
substitution of the same (Article 1206).
b) When there is another contract entered into between the parties
resulting in dacion en pago or novation;
c) When there is a waiver made by the creditor as when he accepted a
thing other than what was agreed upon. This constitutes estoppel.
WHAT IS DATION IN PAYMENT?
Dation in payment, whereby property is alienated to the creditor in
satisfaction of a debt in money, shall be governed by the law of sales
(Article 1245)
It is a mode of extinguishing an obligation whereby the debtor
alienates in favor of the creditor, property for the satisfaction of monetary
debt.
WHAT ARE THE REQUISITES FOR A VALID DATION IN PAYMENT?
a) Consent of the creditor (for sales presupposes consent of both
parties)
b) It must not be prejudicial to the other creditor;
c) The debtor must not have been declared insolvent by judicial
decree.
WHAT MUST BE DELIVERED IN OBLIGATIONS TO GIVE INDETERMINATE OR
GENERIC THINGS?
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 (Article 1246).
WHO PAYS FOR THE EXTRAJUDICIAL EXPENSES REQUIRED BY THE
PAYMENT?
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.
Exception: When there is stipulation to the contrary (Article 1247).
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MAY A CREDITOR BE COMPELLED TO PARTIALLY RCEIVE THE PRESTATIONS
CONSTITUTING THE OBLIGATION?
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 (Article 1248).
EXCEPTIONS:
a) When there is stipulation to this effect;
b) When the different prestations are subject to different conditions or
different terms;
c) When the debt is in part liquidated and in part unliquidated,
performance of the liquidated part may be insisted upon either by
the debtor or creditor;
d) When a joint debtor pays his share or the creditor demands the
same;
e) When a solidary debtor pays only the part demandable because the
rest are not yet demandable on account 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;
g) When work is to be done by parts.
WHAT IS MEANT BY LEGAL TENDER?
Legal tender, within the meaning of Article 1249, refers to such
currency which may be used for the payment of all debts, whether public
or private.
It is that which a debtor may compel a creditor to accept in
payment of the debt whether private or public.
IN
MONETARY OBLIGATIONS, IN WHAT CURRENCY SHALL PAYMENT BE
MADE?
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 (Article 1249).
This has been modified by RA 529 which provides that obligations
incurred after June 16, 1950, which are for the purpose of payment a
foreign currency or an amount of Philippine money to be measured by
gold or foreign currency, shall be null, void and of no effect. However, in
such a case, only the stipulation with respect to the currency is void. The
creditor can still demand payment in Philippine legal tender measured at
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the exchange rate prevailing not at the time of payment, but at the time
of contracting or incurring the dent.
RA 529 has in turn been amended by RA 4100, which took effect
on June 1964 which provides that in import-export and other
international banking, financial investment and industrial transactions,
the parties’ agreement a to currency in which an obligation will be paid is
binding.
CAN A MONETARY OBLIGATION BE PAID WITH PROMISSORY NOTES PAYABLE
TO ORDER, OR BILLS OF EXCHANGE, OR OTHER MERCANTILE DOCUMENTS?
As a general rule, no, except:
a) When they have been cashed or,
b) When through the fault of the creditor they have been impaired, as
when the check its lost its value.
c) When the creditor is in estoppel or he had previously promised he
would accept a check.
In the meantime, the action derived from the original obligation
shall be held in abeyance (Article 1249, par. 2).
A check, even a manager’s check, is not a legal tender, therefore
the creditor cannot be compelled to accept payment through this means.
IN CASE AN EXTRAORDINARY INFLATION OR DEFLATION OF THE PHILIPPINE
CURRENCY SHOULD SUPERVENE, WHAT VALUE WILL BE THE BASIS OF PAYMENT?
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 (Article 1250).
Note that this article has no more application today. The article
speaks of the inflation or deflation of the currency stipulated, meaning
the currency other than Philippine legal tender as allowed by Article
1249. But since today, no foreign currency can be stipulated under RA
529, it follows that literally construed, Article 1250 cannot be made used
of for the present. By analogy or extension, it may be possible to include
the extraordinary inflation or deflation of the Philippine currency.
WHERE MUST PAYMENT BE MADE?
RULES:
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a) Payment shall be made in the place designated in the obligation.
b) 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.
c) In any other case the place of payment shall be the domicile of the
debtor.
d) If the debtor changes his domicile in bad faith or after he has
incurred in delay, the additional expenses shall be borne by him.
e) These provisions are without prejudice to venue under the Rules of
Court (Article 1251).
SUBSECTION 1
Application of Payments
WHAT ARE THE SPECIAL FORMS OF PAYMENT?
a. Application (or “imputation”) of payment (Article 1252)
b. Dation in payment (“adjudication en pago” or datio in solutum)
(Article 1245)
c. Assignment in favor of creditors (“cession”) (Article 1255)
d. Tender of payment or consignation (Articles 1256-1261)
DEFINE APPLICATION OF PAYMENT.
Application of payment is the designation of the debt to which the
payment must be applied when the debtor has several obligation of the
same kind in favor of the same creditor.
It is the phrase applied to show which debt, out of two or more
debts owing the same creditor, is being paid.
WHAT ARE THE REQUISITES OF APPLICATION OF PAYMENT?
a.
b.
c.
d.
e.
There must be two or more debts;
There must only one debtor and only one creditor;
There must be two or more debts of the same kind;
All of the debts must be due; and
The amount paid by the debtor must not be sufficient to cover the
total amount of all the debts.
WHAT ARE THE EXCEPTIONS TO THE RULE THAT IN APPLICATION OF
PAYMENT, THER MUST BE ONLY ONE DEBTOR AND ONLY ONE CREDITOR?
The case of a solidary debtor who may have obligations other than
the solidary obligation in favor of the creditor to whom payment is made
is sometimes given as an exception. Although there is no question that
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such a debtor can designate the debt to which the payment must be
applied, yet, this doe not constitute an exception because of the principle
of mutual agency existing among the solidary debtors.
A real exception is the one given in Article 1792. Under this article,
if a debtor is indebted to a partnership and also to the managing partner
at the same time and both debts are already demandable, such debtor, if
he pays, may apply the payment to his debt to the managing partner,
provided that such debt is more onerous to him. Here, actually there are
two creditors since the personality of the partnership is separate and
distinct from that of the partners.
TO WHOM DOES THE RIGHT TO MAKE AN APPLICATION OF PAYMENT
BELONG?
As a general rule, the right to make an application of payment
belongs to the debtor. (Similar to a case where the obligation is subject to
an alternative obligation or prestation, the choice as to which debt the
payment is to be applied is given to the debtor. For this purpose, the
debtor must make a declaration as to which debt should the payment be
applied.) However, if he does not avail himself of this right, the creditor
may wrest the initiative from him by giving to him a receipt designating
the debt to which the payment shall be applied. But even this does not
really constitute an exception, because the debtor may either accept or
reject the application (Article 1252).
The rule on application of payment by the debtor must conform to
the general rules on payment provided for from Articles 1232 up to 1251.
Thus if the debtor makes a declaration as to the particular debt (from
among a number of debts) to which his payment is to be applied, the
creditor can validly refuse such declaration or application if the payment
is to be applied to a debt which will only partially pay the particular
indebtedness. This is so because according to Article 1233, payment
must, as a general rule, be always completely delivered or rendered, and,
according to Article 1248, the creditor cannot be compelled partially to
receive the prestation in which the obligation consists. The debtor must
apply the payment to an indebtedness which, through such application,
shall be completely extinguished.
IF THE DEBTS ARE NOT YET DUE, MAY THERE BE APPLICATION OF
PAYMENT?
Yes, but only:
a. If the parties so stipulate, or
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b. When the application of payment is made by the party (which may
either be the debtor or the creditor) for whose benefit the term has
been constituted (Article 1252).
How is application made?
a. The debtor makes the designation (Article 1252, par. 1)
b. If not, the creditor makes it, by so stating in the receipt that he
issues (Article 1251, par. 2)
c. 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 (Articles 1253, 1254)
WHAT
IS THE RULE IF THE DEBTOR ACCEPTS FROM THE CREDITOR A
RECEIPT IN WHICH AN APPLICATION OF PAYMENT IS MADE?
The law provides that if the debtor accepts from the creditor a
receipt in which an application of payment is made, the former cannot
complain of the same, unless there is a cause for invalidating the
contract (Article 1252, par. 2).
It must be noted that the debtor must not only merely receive the
receipt but he must accept the receipt. Thus, if A is indebted to B for P1,
000, P2, 000 and P900, and A pays B P500 without mentioning as to
which debt the P500 will be applied and if B is agreeable to any partial
payment, and issues a receipt indicating that the P500 shall be applied
to the P1, 000 debt, and A readily accepts the said receipt, A cannot later
complain that the P500 should have been applied to the P2, 000 debt
unless there exists a cause to invalidate the contract in connection with
the indebtedness in the amount of P1, 000. This is based on the doctrine
of estoppel. However, if the indebtedness has been obtained through
fraud or intimidation which is a cause to annul the contract, the debtor
is not estopped from questioning the application.
ONCE AN APPLICATION OF PAYMENTS IS MADE, MAY IT BE REVOKED?
No, unless both parties agree. Even if both parties agree, however,
still the revocation or change in the application will not be allowed if
third persons would be prejudiced.
WHAT IS THE RULE OF THE DEBT PRODUCES INTEREST?
If the debt produces interest, payment of the principal shall not be
deemed to have been made until the interests have been covered (Article
1253).
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This article is merely directory, and not mandatory. Although
interest attaches to the principal, the payment of both principal and
interest, in effect, constitutes two payment by the debtor. In fact
according to the law, the receipt of the principal by the creditor without
reservation with respect to the interest, shall give rise to the presumption
that the interest has been paid (Article 1176).
WHAT IS MEANT BY LEGAL APPLICATION OF PAYMENT? (WHAT IS THE RULE
IF THE PAYMENT CANNOT BE APPLIED IN ACCORDANCE WITH THE PRECEDING
RULES, OR IF APPLICATION CAN NOT BE INFERRED FROM OTHER
CIRCUMSTANCES?)
a. The debt which is most onerous to the debtor, among those due,
shall be deemed to have been satisfied.
b. If the debts due are of the same nature and burden, the payment
shall be applied to all of them proportionately (Article 1254).
EXAMPLES:
a. Where there are various debts which are due and they were
incurred at different dates, the oldest are more onerous.
b. When one bears interest and the other does not, the former is more
onerous.
c. Where one is secured and the other is not, the former is more
onerous.
d. Where the debtor is bound as principal in one and as guarantor or
surety in another, the former is more onerous.
e. Where the debtor is bound as a solidary debtor in one and as the
sole debtor in another, the former is more onerous.
SUBSECTION 2
Payment by Cession
WHAT IS PAYMENT BY CESSION?
Cession or assignment may be defined as a special form of
payment whereby the debtor abandons all of his property for the benefit
of his creditors in order that from the proceeds thereof the latter may
obtain payment of their creditors.
Article 1255 provides:
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
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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.
WHAT ARE ITS REQUSITES?
In order that the debtor can avail himself of this form of payment,
it is essential that:
a. There must be plurality of debts;
b. There must be more than one creditor;
c. There must be complete or partial or relative insolvency of the
debtor;
d. There is abandonment of all debtor’s property not exempt from
execution (unless exemption is validly waived by the debtor) in
favor of creditors; and
e. It must be accepted by the creditor.
WHAT ARE THE DIFFERENT KINDS OF PAYMENT BY CESSION?
Payment by cession may either be contractual (voluntary) or
judicial. The cession referred to in Article 1255 is contractual, while the
cession which is regulated by the Insolvency Law, and which may be
voluntary or involuntary, is judicial.
WHAT ARE THE EFFECTS OF VOLUNTARY ASSIGNMENT?
1. The creditors do not become the owners; they are merely
assignees with authority to sell (If ownership is transferred,
this becomes a datio in solutum).
2. The debtor is released up to the amount of the net proceeds
of the sale, unless there is a stipulation to the contrary
(Article 1255, 2nd sentence). The balance remains collectible.
3. Creditors will collect credits in the order of preference agreed
upon, or in default of agreement, in the order ordinarily
established by law.
DISTINGUISH BETWEEN DATION IN PAYMENT AND PAYMENT BY CESSION.
1. As to number of parties: Whereas in dacion en pago there may be
only one creditor, in payment by cession plurality of creditor is
essential;
2. As to financial condition: Whereas in dacion en pago the debtor is
not necessarily in a state of financial difficulty, in payment by
cession the debtor is in a state of partial or relative insolvency.
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3. As to object: Whereas in dacion en pago what is delivered by the
debtor is merely a thing to be considered as the equivalent of the
performance of the obligation, in payment by cession what is ceded
by the debtor is the universality of all his property.
4. As to effect: Whereas in dacion en pago the payment extinguishes
the obligation to the extent of the value of the thing delivered either
as agreed upon or as may be proved, unless the silence of the
parties signifies that they consider the delivery of the thing as the
equivalent of the performance of the obligation, in payment by
cession the effect is merely to release the debtor for the net
proceeds of the things ceded or assigned, unless there is a contrary
intention.
OTHER DISTINCTIONS:
DACION EN PAGO
Does not affect all the properties
CESSION
In general, affects all the properties
of the debtor
of Requires more than one creditor
Does not require plurality
creditors
Only
specific
or
concerned
creditor’s consent is required
May take place during the solvency
of the debtor
Transfers ownership upon delivery
This is really an act of novation
Requires the consent if all the
creditors
Requires full or partial insolvency
Does not transfer ownership
Not an act of novation
SUBSECTION 3
Tender of Payment and Consignation
DEFINE TENDER OF PAYMENT AND CONSIGNATION.
Tender of payment consists in the manifestation made by the
debtor to the creditor of his decision to comply immediately with his
obligation. It is the act of offering the creditor what is due him together
with a demand that the creditor accept the same. Consignation, on the
other hand, refers to the deposit of the object of the obligation in a
competent court in accordance with the rules prescribed by law after
refusal or inability of the creditor to accept the tender of payment. It
generally requires a prior tender of payment.
DISTINGUISH BETWEEN TENDER OF PAYMENT AND CONSIGNATION.
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1. Tender of payment is the antecedent of consignation; in other
words, while the first is the preparatory act, the second is the
principal act which will produce the effects of payment. The
priority of tender of payment is the attempt to make a private
settlement before proceeding to the solemnities of consignation.
2. Tender of payment is by its very nature extrajudicial in character,
while consignation is judicial.
STATE THE RATIONALE FOR CONSIGNATION.
The rationale for consignation is to avoid the performance of an
obligation becoming more onerous to the debtor by reason of causes
imputable to him. `
WHAT ARE THE SPECIAL REQUISITES OF CONSIGNATION?
In order that consignation shall produce the effects of payment, it is
not only essential that it must conform with all of the requisites of
payment, but it is also essential that certain special requirements
prescribed by law must be complied with. The debtor must show:
1. That the debt is due;
2. That there must be prior tender, unless tender is excused;
3. The consignation has been made either because the creditor to
whom tender of payment was made refused to accept the payment
without just cause, or because any of the causes stated by law for
effective consignation without previous tender of payment exists
(Article 1256);
4. That previous notice of the consignation had been given to the
persons interested in the fulfillment of the obligation (Article 1256);
5. That the thing or amount due had been placed at the disposal of
judicial authority (Article 1258, par. 1) accompanied by proof that
tender had been duly made, unless tender is excused;
6. That after the consignation had been made, the persons interested
in the fulfillment of the obligation had been notified thereof (Article
1258, par. 2).
WHAT IS THE EFFECT OF TENDER WITHOUT CONSIGNATION?
Tender of payment without consignation does not extinguish the
debt; consignation must follow.
WHAT ARE THE EXCEPTIONS TO THE RULE THAT BEFORE CONSIGNATION
SHALL PRODUCE THE EFFECTS OF PAYMENT, IT IS ESSENTIAL THAT THERE MUST
BE A PREVIOUS TENDER OF PAYMENT?
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Consignation alone shall produce the same effect in the following
cases:
(1)
place
(2)
due;
(3)
(4)
(5)
When the creditor is absent or unknown, or does not appear at the
of payment;
When he is incapacitated to receive the payment at the time it is
When, without just cause, he refuses to give a receipt;
When two or more persons claim the same right to collect;
When the title of the obligation has been lost (Article 1256).
WHEN
MUST THE SPECIAL REQUISTES OF A VALID AND EFFECTIVE
CONSIGNATION BE PROVED?
Under the law, after the consignation has been made, it is required
that the debtor shall notify the creditor and all of the persons interested
in the fulfillment of the obligation of such fact (Article 1258). It is at this
stage that three possible situations may arise:
1. The creditor may accept the ting or amount deposited. In such a
case, the question of payment is settled altogether. The question as
to whether the consignation is valid or not becomes moot.
2. The creditor may refuse to accept the thing or amount deposited.
In such as case, the debtor shall then bring an action against him
in order to compel him to accept said thing or amount. In order
that such action shall prosper, all of the requisites of a valid and
effective consignation must be proved.
3. The creditor may neither accept nor impugn the consignation
because he is not interested, or he is not known, or he is absent.
In such a case, the debtor shall then file a motion in court asking
for the cancellation of the obligation (Article 1260). In order that
such motion shall be granted, all of the requisites of a valid and
effective consignation must be proved.
WHO BEARS THE EXPENSES OF CONSIGNATION?
The expenses of consignation, when properly made, shall be
charged against the creditor (Article 1259).
WHAT ARE THE EFFECTS OF CONSIGNATION DULY MADE?
1. Once the consignation has been duly made, the debtor may ask
the judge to order the cancellation of the obligation (Article 1260).
2. The running of interest is suspended.
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WHEN MAY THE DEBTOR WITHDRAW THE THING OR SUM CONSIGNED?
As a matter of right:
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 (Article 1260).
As a matter of privilege:
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 (Article 1261).
SECTION 2
Loss of the Thing Due
DEFINE LOSS OF THE THING DUE.
In its strict sense, “loss of the thing due” means that the thing
which constitutes the object of the obligation perishes or goes out of
commerce of man, or disappears in such a way that its existence is
unknown or it cannot be recovered (Article 1189, par. 2).
In its broad sense, it means impossibility of compliance with the
obligation through any cause. In other words, it is synonymous with
what other codes term “impossibility of performance.”
This is the sense in which it is understood in Articles 1262 to
1269.
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 (Article 1264).
WHAT REQUISITES MUST CONCUR IN ORDER THAT AN OBLIGATION SHALL
BE EXTINGUISHED BY THE LOSS OR DESTRUCTION OF THE THING DUE?
a) The thing which is lost is determinate;
b) The thing is lost without any fault of the debtor. If the thing is lost
through the fault of the debtor, the obligation is transformed into an
obligation to indemnify the oblige or creditor for damages;
c) The thing is lost before the debtor has incurred in delay (Article 1262).
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WHAT ARE THE EXCEPTIONS TO THE RULE ABOVE?
1. When by law, the obligor is liable for fortuitous events, (Article
1262, par. 2).
2. When by stipulation, the obligor is liable for fortuitous events,
(Article 1262, par. 2).
3. When the nature of the obligation requires the assumption of risk
(Article 1262, par. 2 & 1174).
4. When the loss of the thing is due to the fault of the debtor (Article
1262, par.1)
5. When the loss of the thing occurs after the debtor has incurred in
delay (Article 1262, par. 1 & Article 1165, par. 3).
6. When the debtor promised to deliver the same thing to two or more
persons who do not have the same interest (Article 1165, par. 3).
7. When the obligation is generic (Article 1263); except when the
generic thing is delimited, or when the generic thing has already
been segregated or set aside..
8. When the debt of a certain and determinate thing proceeds from a
criminal offense, unless the thing having been offered by him to
the person who should receive it, the latter refused without
justification to accept it. (Article 1268).
WHAT IS
THE DEBTOR?
THE PRESUMPTION IF THE THING IS LOST IN THE POSSESSION OF
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 (Article 1265).
IN
OBLIGATIONS TO DO, WHAT IS THE EFFECT IF THE PRESTATION WHICH
CONSTITUTES THE OBJECT OF THE OBLIGATION BECOMES LEGALLY OR
PHYSICALLY IMPOSSIBLE?
The debtor in obligations to do shall also be released when the
prestation becomes legally or physically impossible without the fault of
the obligor (Article 1266); provided that such impossibility was not due to
his fault and that it took place before he has incurred in delay.
CAN THE SAME RULE BE APPLIED TO OBLIGATIONS NOT TO DO?
In rare or exceptional cases, the same rule applies to obligations
not to do, such as when the obligor is compelled to do that which he had
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obligated himself to refrain from performing or doing. In such cases, his
obligation is extinguished applying the same principle invoked in Article
1266.
WHAT IS THE EFFECT
PARTIES’ CONTEMPLATION?
OF DIFFICULTY OF THE SERVICE BEYOND THE
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 (Article 1267).
WHAT
IS THE RIGHT OF THE CREDITOR WHEN THE OBLIGATION HAS BEEN
EXTINGUISHED BECAUSE OF THE LOSS OF THE THING?
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 (Article 1269).
SECTION 3
Condonation or Remission of the Debt
DEFINE CONDONATION OR REMISSION.
Remission is an act of liberality by virtue of which the oblige,
without receiving any price or equivalent, renounces the enforcement of
the obligation, as a result of which it is extinguished in its entirety or in
that part or aspect of the same to which the remission refers.
It is the gratuitous abandonment by the creditor of his right.
WHAT REQUISITES MUST CONCUR IN ORDER THAT AN OBLIGATION SHALL
BE EXTINGUISHED BY REMISSION?
In order that there will be a remission or condonation which will
result in the total or partial extinguishment of the obligation, it is
essential that the following requisites must concur:
a) The condonation or remission must be essentially gratuitous;
b) There must be acceptance by the obligor. It may be made expressly or
impliedly; and
c) The obligation must be demandable.
WHAT RULES GOVERN REMISSION AND CONDONATION?
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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. (Article 1270)
WHAT ARE THE DIFFERENT KINDS OF REMISSION?
Remission or condonation may be classified as follows:
1. AS TO FORM – It may be express or implied. It is express when it is
made in accordance with the formalities prescribed by law for
donations. It is implied when, although it is not made in
accordance with the formality prescribed by law for donations, it
can be deduced from the acts of the obligee or creditor.
2. AS TO EXTENT – It may be total or partial. It is total when the entire
obligation is extinguished. It is partial when it refers to the
principal or accessory obligation or to an aspect thereof which
affects the debtor, as for instance solidarity.
3. AS TO CONSTITUTION – It may be inter vivos or mortis causa. The first
refers to that which is constituted by agreement of the obligee and
the obligor, in which case it partakes of a donation inter vivos (See
Article 725, et. seq.); the second, on the other hand, refers to that
which is constituted of the nature of a donation mortis causa (See
Articles 935, 936 and 937).
WHAT ARE EXAMPLES OF IMPLIED REMISSION?
1. The delivery of a private document evidencing a credit, made
voluntarily by the creditor to the debtor, implies the renunciation
of the action which the former had against the latter.
If in order to nullify this waiver it should be claimed to be
inofficious, the debtor and his heirs may uphold it by proving that
the delivery of the document was made in virtue of payment of the
debt. (Article 1271)
2. 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.
(Article 1272)
3. 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. (Article 1274)
WHAT IS THE EFFECT OF RENUNCIATION OF THE PRINCIPAL DEBT?
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The renunciation of the principal debt shall extinguish the
accessory obligations; but the waiver of the latter shall leave the former
in force. (Article 1273)
SECTION 4
Confusion or Merger of Rights
DEFINE CONFUSION.
Confusion may be defined as the merger of the characters of
creditor and debtor in the same person by virtue of which the obligation
is extinguished (Article 1275). It is the meeting in the same person of the
qualities of creditor and debtor with respect to one and the same
obligation.
WHAT
REQUISITES MUST CONCUR IN ORDER THAT AN OBLIGATION SHALL
BE EXTINGUISHED BY CONFUSION?
In order that there will be a confusion of rights which will result in
the extinguishment of the obligation, it is essential that the following
requisites must concur:
1. The merger of the characters of creditor and debtor must be in the
same person (Article 1275);
2. It must be placed in the person of either the principal creditor or
the principal debtor (Article 1276); and
3. It must be complete or definite.
The requisite that the merger of rights of creditor and debtor must
be complete and definite does not mean that the extinguishment of the
obligation should be complete or total in character; it merely means that
whether the merger refers to the entire obligation or only a part thereof,
it must be of such a character that there will be a complete and definite
meeting of all the qualities of creditor and debtor in the obligation or in
the part or aspect thereof which is affected by the merger.
WHAT IS THE
CREDITOR? WHAT IS
GUARANTORS?
EFFECT OF MERGER IN THE PRINCIPAL DEBTOR OR
THE EFFECT OF CONFUSION IN THE PERSON OF THE
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. (Article
1276)
WHAT IS THE EFFECT OF CONFUSION IN A JOINT OBLIGATION?
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Confusion does not extinguish a joint obligation except as regards
the share corresponding to the creditor or debtor in whom the two
characters concur. (Article 1277)
SECTION 5
Compensation
DEFINE COMPENSATION.
Compensation is a mode of extinguishing in their concurrent
amount those obligations of persons who in their own right are creditors
and debtors of each other. It is 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 amount of the other.
WHAT
REQUISITES MUST CONCUR IN ORDER THAT AN OBLIGATION SHALK
BE EXTINGUISHED BY COMPENSATION?
The essential requisites of compensation are:
1. There must be 2 parties who, in their own right, are principal
creditors and principal debtors of each other (Articles 1278, 1279,
No. 1);
2. Both debts must consist in money, or if the things due are
fungibles (consumables), they must be of the same kind and
quality (Article 1279, No. 2);
3. Both debts must be due (Article 1279, No. 3);
4. Both debts must be liquidated and demandable (Article 1279, No.
4);
5. There must be no retention or controversy commenced by third
persons over either of the debts and communicated in due time to
the debtor (Article 1279, No. 5);
6. The compensation must not be prohibited by law (Articles 1287,
1288).
GIVE EXAMPLES OF COMPENSATION PROHIBITED BY LAW.
The compensation of the following are prohibited:
1. Debts arising from a depositum (except bank deposits, which
are by law considered as loans to the bank) (Articles 1287,
1980).
2. Debts arising from the obligation of a depositary (Article
1287)
3. Debts arising from the obligations of a bailee in commodatum
(Article 1287).
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4. Debts arising from a claim for future support due by
gratuitous title (Article 1287).
5. Debts consisting in civil liability from a penal offense (Article
1288).
6. 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 (Article 1794).
WHAT ARE THE DIFFERENT KINDS OF COMPENSATION?
Compensation may be classified into:
AS TO CAUSE:
1. LEGAL – when it takes effect by operation of law from the moment
all of the requisites prescribed by law are present. This is the fixed
type which is regulated by Articles 1278 and 1279.
2. VOLUNTARY – when the parties who are mutually creditors and
debtors agree to compensate their respective obligations, even
though all of the requisites for compensation may not then be
present.
3. JUDICIAL – when it takes effect by judicial decree. This occurs, for
instance, where one of the parties to a suit over an obligation has a
claim for damages against the other and the former sets it off by
proving his right to said damages and the amount thereof (Article
1283).
AS TO EFFECT:
1. TOTAL – when the debts to be compensated are equal in amount
(Article 1281);
2. PARTIAL – when the debts to be compensated are not equal in
amount (ibid).
HOW
IS COMPENSATION DISTINGUISHED FROM PAYMENT, CONFUSION AND
COUNTERCLAIM?
Compensation may be distinguished from payment in the following
ways:
1. The requisites prescribed by law for compensation are different
from those prescribed by law for payment,
2. Compensation takes effect by operation of law, whereas payment
takes effect by act of the parties.
3. Capacity to give and acquire is not necessary in compensation, but
it is essential in payment.
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4. Compensation is, as a rule, partial, whereas payment is, as a rule,
complete and indivisible.
Compensation may be distinguished form confusion in the following
ways:
1. As to number of persons, in compensation there must be two
persons who, in their own right, are creditors and debtors of each
other; whereas in confusion there is only one person in whom is
merged the qualities of creditor and debtor.
2. As to number of obligations, in compensation there must be at
least 2; whereas in confusion there is only one.
Compensation may be distinguished from set-off or counter-claim
in the following ways:
1. Compensation requires that the 2 debts must consist in money, or
if the things due are fungibles, they must be of the same kind and
quality; but in counter-claim this is not necessary.
2. Compensation, as a general rule, requires that the debts must be
liquidated, but counter-claim does not.
3. Compensation need not be pleaded, whereas a counter-claim must
be pleaded to be effectual.
MAY
A GUARANTOR SET UP COMPENSATION WITH RESPECT TO PRINCIPAL
DEBT?
Notwithstanding the provisions of the preceding article, the
guarantor may set up compensation as regards what the creditor may
owe the principal debtor (Article 1280). This is an exception to Article
1279, par. 1, because a guarantor is subsidiarily liable, nor principally
bound.
WHEN IS THERE CONVENTIONAL OR VOLUNTARY COmpensation?
When the parties may agree upon the compensation of debts which
are not yet due (Article 1282). Here the requisites mentioned in Article
1279 do not apply.
WHEN IS THERE JUDICIAL COMPENSATION OR SET-OFF?
If one of the parties to a suit over an obligation has a claim for
damages against the other, the former may set it off by proving his right
to said damages and the amount thereof. (Article 1283)
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Pleading and proof of the counter-claim must be made. All the
requisites mentioned in Article 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.
MAY THERE BE COMPENSATION IF ONE OR BOTH DEBTS ARE RESCISSIBLE
OR ANNULABLE?
When one or both debts are rescissible or voidable, they may be
compensated against each other before they are judicially rescinded or
avoided (Article 1284). This is so because these debts are valid until
rescinded or voided, hence compensation is allowed.
WHAT IS THE EFFECT OF ASSIGNMENT ON COMPENSATION OF DEBTS?
1. 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.
2. 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.
3. 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. (Article
1285)
WHEN IS THERE COMPENSATION BY OPERATION OF LAW?
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.
(Article 1286)
This takes place 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. (Article 1290)
WHAT RULE SHOULD BE APPLIED IF A PERSON SHOULD HAVE AGAINST HIM
SEVERAL DEBTS WHICH ARE SUSCEPTIBLE OF COMPENSATION?
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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. (Article 1289)
SECTION 6
Novation
DEFINE NOVATION.
Novation is the substitution or change of an obligation by another,
resulting in its extinguishment or modification, either by:
1. Changing its object or principal conditions, or
2. By substituting another in place of the debtor, or
3. By subrogating a third person in the rights of the creditor (Article
1291).
It is one of the modes of extinguishing obligations through the
creation of a new one effected by the change or substitution of an
obligatory relation by another with the intention of substantially
extinguishing or modifying the same.
WHAT ARE THE KINDS OF NOVATION?
Novation may be classified into:
1. AS TO ITS ESSENCE – it may be:
a) Objective or real – when it refers to the change either
in the cause, object of principal conditions of the
obligation (Article 1291, No. 1);
b) Subjective or personal – when the substitution of
another in the person of the debtor or to the
subrogation of a third person in the rights of the
creditor (Article 1291, Nos. 2 and 3). Kinds:
a. Passive – when there is substitution of the
debtor.
b. Active – when there is subrogation in the rights
of the creditor.
c. Mixed – when there is combination of objective
and subjective novation.
2. AS TO ITS FORM – it may be:
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a) Express – when it is declared in unequivocal terms that the
obligation is extinguished by a new one which substitutes
the same.
b) Tacit – when the old and the new obligations are
incompatible with each other on every point (Article 1292).
3. AS TO ITS EXTENT OR EFFECT – it may be total or partial, depending
upon whether there is an absolute extinguishment of the old
obligation or merely a modification.
WHAT REQUISITES MUST CONCUR IN ORDER THAT AN OBLIGATIN SHALL BE
EXTINGUISHED OR MODIFIED BY NOVATION?
In order that an obligation may be extinguished by another which
substitute the same, there are four requisites:
a.
b.
c.
d.
A previous valid obligation;
Agreement of the parties to the new obligation;
Extinguishment of the old obligation; and
Validity of the new obligation (Tiu Siuco vs. Habana, 45 Phil. 707).
WHEN
CAN AN OBLIGATION BE IMPLIEDLY EXTINGUISHED BY ANOTHER
WHICH SUBSITUTE THE SAME?
In order that an obligation may be extinguished by another which
substitutes 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. (Article 1292)
The test of incompatibility between the old and the new obligations
is to determine whether or not both of them can stand together, each
having its own independent existence. If they can stand together, there is
no incompatibility; consequently, there is no novation. If they cannot
stand together, there is incompatibility; consequently, there is novation
(Borja vs. Mariano, 66 Phil. 93; Guerrero vs. Court of Appeals, 29 SCRA
791; Millar vs. Court of appeals, 38 SCRA 642).
SUPPOSE THAT IN A SECOND AND NEW CONTRACT, THE DEBTOR
ACKNOWLEDGES OR RATIFIES THE OLD CONTRACT, IS THERE NOVATION?
There is no novation. It is clear that the first contract and the
second contract can stand together; and consequently, there can be no
incompatibility between them (Ramos vs. Gibbon, 67 Phil. 371; Padilla vs.
Levy Hermanos, Inc., 69 Phil. 681; Pablo vs. Sapungan, 71 Phil. 145;
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Magdalena Estate, Inc. vs. Rodriguez, 18 SCRA 967; Millar vs. Court of
Appeals, supra).
SUPPOSE THAT IN THE SECOND AND NEW CONTRACT, THERE IS A
POSTPONEMENT OF THE DATE OF PAYMENT OR AN EXTENSION OF THE PERIOD OF
PAYMENT, IS THERE A NOVATION?
There is no novation because in such cases there is no clear case
of incompatibility between the 2 obligations; neither is there a change in
the obligatory relation between the parties which will alter the essence of
the old obligation (Ynchausti & Co., vs. Yulo, 34 Phil. 978; Pascual vs.
Lacsamana, 100 Phil. 381; La Tondeña, Inc. vs. Alto Surety & Insurance
Co., 101 Phil. 879).
SUPPOSE THAT IN A SECOND AND NEW CONTRACT, THERE IS ANOTHER
METHOD OF PAYMENT AGREED UPON, OR THERE IS AN ADDITIONAL SECURITY, IS
THERE A NOVATION?
There is no novation. It is clear that the two contracts can stand
together; and consequently, there can be no incompatibility between
them (Zapanta vs. De Rotaeche, 21 Phil. 154; Bank of the P.I. vs. Herridge,
47 Phil. 57; Millar vs. Court of Appeals, supra).
SUPPOSE
THAT IN A SECOND AND NEW CONTRACT, A SURETY BOND IS
FILED, OR A THIRD PERSON ASSUMES PAYMENT OF THE OBLIGATION AND THE
CREDITOR ACCEPTS PARTIAL PAYMENTS FORM SUCH THIRD PERSON, IS THERE A
NOVATION?
There is no novation so long as there is no agreement that the first
debtor shall be released from responsibility. This is so even when a
surety bond is filed, for the simple reason that such bond is not a new
and separate contract but merely an accessory of the original contract. In
such a case, the third person who has assumed payment of the
obligation merely becomes a co-debtor or surety. If there is no agreement
as to solidarity, the first and second debtors are considered obligated
jointly (Dungo vs. Lopena, 6 SCRA 1007; Magdalena Estate, Inc. vs.
Rodriguez, supra).
WHAT
ARE THE 2 FORMS OF NOVATION BY SUBSTITUTION OF THE PERSON
OF THE DEBTOR? DEFINE THEM AND GIVE THEIR ESSENTIAL REQUISITES.
There are 2 forms of novation by substitution:
a. Expromision – If the substitution of debtors is effected with the
consent of the creditor at the instance of the new debtor even
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without the knowledge or against the will of the debtor. There are
two kinds of substitution by expromision:
a) Substitution with the knowledge and consent of the old
debtor; and
b) Substitution without the knowledge or against the will of the
old debtor.
b. Delegacion – If the substitution of debtors is effected with the
consent of the creditor at the instance of the old debtor with the
concurrence of the new debtor. In other words, delegacion refers to
the substitution of debtors effected when the original debtors offers
and the creditor accepts a third person who consents to the
substitution.
REQUISITES OF EXPROMISION:
a. The initiative for the substitution must emanate from the new
debtor; and
b. There must be consent of the creditor to the substitution.
REQUISITES OF DELEGACION:
a) The initiative for the substitution must emanate from the old
debtor;
b) Consent of the debtor; and
c) Acceptance by the creditor.
IN
EXPROMISION, SUPPOSE THAT THE NEW DEBTOR EVENTUALLY PAID THE
OBLIGATION WHEN IT BECAME DUE AND DEMANDABLE, WHAT ARE THE RIGHTS
WHICH ARE AVAILABLE TO HIM?
According to Article 1293, payment by the new debtor gives him
the right mentioned in Article 1236 and 1237. Consequently –
a) If the substitution was effected with the knowledge and consent of
the original debtor; and consequently, payment is made by the new
debtor with or without the knowledge and consent of the original
debtor, the new debtor cannot demand reimbursement form the
original debtor the entire amount which he has paid and, at the
same time, be subrogated to all the rights of the creditor (Article
1236, 1237, 1302, 1303)
b) If the substitution was effected without the knowledge and consent
of the original debtor, and consequently, payment is made by the
new debtor again without the knowledge and consent of the
original debtor; the new debtor can demand reimbursement from
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the original debtor only insofar as the payment has been beneficial
to such debtor; but he cannot be subrogated to the rights of the
creditor. However, if payment is made with the knowledge and
consent of the original debtor, although the substitution had been
effected without his knowledge and consent, the new debtor can
still demand reimbursement from the original debtor of the entire
amount which he has paid and, at the same time, be subrogated to
all the rights of the creditor (Articles 1236, 1237, 1302, 1303).
IN
DELEGACION, SUPPOSE THAT THE NEW DEBTOR EVENTUALLY PAID THE
OBLIGATION WHEN IT BECAME DUE AND DEMANDABLE, WHAT ARE THE RIGHTS
WHICH ARE AVAILABLE TO HIM?
According to Article 1293, payment by the new debtor gives him
the rights mentioned in Articles 1236 and 1237. Consequently, since the
substitution was effected with the consent of all the parties, the new
debtor (delegado) can demand reimbursement from the original debtor
(delegante) of the entire amount which he has paid (Article 1236) as well
as compel the creditor (delegatorio) to subrogate him in all of his rights
(Articles 1302 and 1303).
IN
EXPROMISION, IF THE NEW DEBTOR IS UNABLE TO PAY THE OBLIGAION
BY REASON OF INSOLVENCY, CAN THE CREDITOR THEN PROCEED AGAINST THE
OLD DEBTOR FOR PAYMENT?
According to Article 1294, if the substitution was effected without
the knowledge or against the will of the original debtor, the new debtor’s
insolvency or non-fulfillment of the obligation shall not revive the original
debtor’s liability to the creditor. Thus, if the substitution was effected
with the knowledge and consent of the original debtor, the new debtor’s
insolvency or non-fulfillment of the obligation shall revive the original
debtor’s liability to the creditor.
IN DELEGACION, IF THE NEW DEBTOR IS UNABLE TO PAY THE OBLIGATION
BY REASON OF INSOLVENCY, CAN THE CREDITOR THEN PROCEED AGAINST THE
OLD DEBTOR FOR PAYMENT?
If the substitution was effected by delegacion, according to Article
1295, the right of action of the creditor can no longer be revived except in
the following cases:
a) When the insolvency of the new debtor (delegado) was already
existing and of public knowledge at the time when the original
debtor (delegante) delegated his debt;
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b) When such insolvency was already existing and known to the
original debtor (delegante) when he delegated his debt.
PURPOSE OF THE TWO EXCEPTIONS:
The purpose of the two exceptions is to prevent the commission of
fraud. With regard to the first exception, the condition of the insolvency
of the delegado was of public knowledge and should exist at the time the
delegation was made, because if it were otherwise, the delegante cannot
then be held responsible since he himself was not aware of it.
WHAT IS THE EFFECT OF NOVATION ON ACCESSORY OBLIGATION?
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. (Article 1296)
This Article applies to extinctive novation. If the novation is merely
modificatory, the rules as to guarantors who did not consent are as
follows:
a. If the modified obligation is more onerous, they are
liable only for the original obligation;
b. If the modified obligation is now less onerous, the
guarantors and sureties are still responsible.
WHAT IS THE EFFECT OF NOVATION IF (1) THE NEW OBLIGATION IS VOID OR
IF THE OLD OBLIGATION WAS VOID, OR (3) IF THE ORIGINAL OBLIGATION WAS
CONDITIONAL?
(2)
a) If the new obligation is void, the original one shall subsist, unless
the parties intended that the former relation should be
extinguished in any may be agreed upon. (Article 1297)
b) 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. (Article 1298)
c) 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. (Article 1299)
DEFINE SUBROGATION.
Subrogation (extinctive and 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
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possessors of mortgages, subject to any legal provision or any
modification that may be agreed upon.
WHAT ARE THE 2 FORMS OF NOVATION BY SUBROGATING A THIRD PERSON
IN THE RIGHTS OF THE CREDITOR?
a) CONVENTIONAL SUBROGATION – that which takes place by the
agreement of the original creditor, the third person substituting the
original creditor and the debtor (Articles 1300 and 1301).
b) LEGAL SUBROGATION – that which takes place by operation of law
(Articles 1300 and 1302).
DISTINGUISH BETWEEN CONVENTIONAL SUBROGATION AND ASSIGNMENT OF
RIGHTS.
a) AS TO THE Rules WHICH GOVERN – Conventional subrogation is
governed by Articles 1300 to 1304, whereas assignment of rights is
governed by Articles 1624 to 1627.
b) AS TO THE NECESSITY OF DEBTOR’S CONSENT – In conventional
subrogation, the debtor’s consent is required, whereas in
assignment of rights it is not.
c) AS TO EFFECT UPON THE OBLIGATION – Conventional subrogation has
the effect of extinguishing the obligation and giving rise to a new
one, whereas assignment of rights has the effect of transmitting
the rights of the creditor to another person without modifying or
extinguishing the obligation.
d) AS TO EFFECT UPON VICES – In conventional subrogation, defects or
vices in the original obligation are cured, whereas in assignment of
rights they are not.
e) AS TO THE TIME OF EFFECTIVITY – In conventional subrogation, the
effect arises from the moment of novation or subrogation, whereas
in assignment of rights the effect, as far as the debtor is concerned,
arises from the moment of notification.
WHAT
ARE THE DIFFERENT EXCEPTIONS TO THE RULE THAT LEGAL
SUBROGATION CANNOT BE PRESUMED?
a) When a creditor pays another creditor who is preferred even
without the debtor’s knowledge;
b) When a third person, not interested in the obligation, pays with the
express or tacit approval of the debtor; and
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 (Article
1302)
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WHAT IS THE EFFECT OF SUBROGATION?
If the subrogation is total, it 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.
If the subrogation is partial, the same rule is applicable, but the
creditor to whom partial payment has been made may exercise his right
for the remainder. In other words, both the right of the subrogee and the
right of the creditor shall co-exist. In case of conflict between the 2,
however, the right of the latter shall be preferred (Article 1304).
TITLE II
CONTRACTS
CHAPTER 1
GENERAL PROVISIONS
DEFINE CONTRACTS.
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 (Article 1305).
A contract is defined as a juridical convention manifested in legal
form, by virtue of which one or more persons bind themselves in favor of
another or others, or reciprocally, to the fulfillment of a prestation to
give, to do, or not to do (Jardine Davies vs. CA, G.R. No. 12066, June 19,
2000).
In its broadest sense, a contract has likewise been defined as an
agreement whereby at least one of the parties acquires a right, either in
rem or in personam, in relation to some person, thing, act or forbearance.
DISTINGUISH A CONTRACT FROM AN OBLIGATION.
Contract is the cause, whereas obligation is the effect. There are
five sources of obligations, one of which is contract. Consequently, there
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can be an obligation without a contract, but there can be no contract
without a resultant obligation.
WHAT ARE THE ELEMENTS OF A CONTRACT?
The elements of a contract may be classified as follows:
a. ESSENTIAL – The essential elements are those without which there
can be no contract. The elements are, in turn, subdivided into:
a) Common – those which are present in all contracts, such as
consent, object certain and cause.
b) Special – those which are present only in certain contracts,
such as delivery in real contracts or form in solemn ones.
c) Extraordinary – those which are peculiar to a specific
contract, such as the price in a contract of sale.
b. NATURAL - The natural elements are those which are derived from
the nature of the contract and ordinarily accompany the same.
They are presumed by law, although they can be excluded by the
contracting parties if they so desire. Thus, warranty against
eviction is implied in a contract of sale, although the contracting
parties may increase, diminish or even suppress it.
c. ACCIDENTAL – The accidental elements are those which exist only
when the parties expressly provided for them for the purpose of
limiting or modifying the normal effects of the contract. They are
called accidental because they may be present or absent,
depending upon whether or not the parties have agreed upon
them. Examples of these are conditions, terms and modes.
WHAT ARE THE CLASSIFICATIONS OF CONTRACTS?
a. ACCORDING TO PERFECTION OR FORMATION:
a) Consensual – perfected by mere consent; example – sale
b) Real – perfected by delivery; examples – depositum, pledge,
commodatum
c) Formal or solemn – those were special formalities are
essential before the contract may be perfected; example –
donation inter vivos of real property requires for its validity a
public instrument.
b. ACCORDING TO CAUSE OR EQUIVALENT OF THE VALUE OF PRESTATIONS:
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a) Onerous – when there is an interchange of equivalent
valuable consideration
b) Gratuitous or lucrative – this is free, this one party receives
no equivalent prestation
c) Remunerative – one where one prestation is given for a
benefit or service that had been rendered previously.
c. ACCORDING TO IMPORTANCE OF ONE UPON ANOTHER:
a) Principal – the contract may stand alone by itself; example,
sale, lease
b) Accessory – this depends for its existence upon another
contract; example, mortgage where the principal contract is
one of loan.
c) Preparatory – here, the parties do not consider the contract
as an end by itself, but as a means thru which future
transaction or contracts may be made; examples, agency,
partnership
d. ACCORDING TO THE PARTIES OBLIGATED:
a) Unilateral – where only one of the parties has an obligation;
example, commodatum
b) Bilateral – where both parties are required to render
reciprocal prestations; example, sale
e. ACCORDING TO THEIR DESIGNATION:
a) Nominate – where the contract is given a particular or
special name like commodatum, partnership, agency, sale,
deposit
b) Innominate – those which are not given any special name;
they lack individuality and are not regulated by special
provisions of law. These contracts shall be regulated by the
stipulation of the parties; by the general principles of
obligations and contracts, by the rules governing the most
analogous nominate contracts, and by the customs of the
place. Example:
1) Du ut des - I give that you give.
2) Du ut facias – I give that you do.
3) Facio ut facias – I do that you do.
f. ACCORDING TO THE RISK OF FULFILLMENT:
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a) Commulative – where the parties contemplate a real
fulfillment; therefore, equivalent values are given, like sale,
lease
b) Aleatory – where the fulfillment is dependent upon chance,
thus the values may vary because of the risk or chance, like
an insurance contract.
g. ACCORDING TO THE TIME OF PERFORMANCE OR FULFILLMENT:
a) Executed – one completed at the time the contract is entered
into, that is, the obligations are complied with at this time;
example, a sale of property which has already been delivered
and which has already been paid for.
b) Executory – one where the prestations are to be complied
with at some future time; example, a perfected sale where
the property has not yet been delivered and where the price
has not yet been given
h. ACCORDING TO SUBJECT MATTER:
a) Contracts involving things (like sale)
b) Contracts involving rights and credits (like usufruct or
assignment of credits)
c) Contracts involving services (like agency, contract of
common carrier)
i. ACCORDING TO OBLIGATIONS IMPOSED AND REGARDED BY THE LAW:
a) Ordinary – like sale
b) Institutional – like contract of
MARRIAGE
j. ACCORDING TO THE EVIDENCE FOR ITS PROOF:
a) Those requiring merely oral or parol evidence
b) Those requiring written proof (like contracts enumerated
under the Statute of Frauds)
k. ACCORDING
TO THE NUMBER OF PERSONS ACTUALLY AND PHYSICALLY
ENTERING INTO THE CONTRACT:
a) Ordinary – where two parties are represented by different
persons, like sale
b) Auto-contracts – where only one person represents two
opposite parties but in different capacities
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l. ACCORDING
TO THE NUMBER OF PERSONS WHO PARTICIPATED IN THE
DRAFTING OF THE CONTRACT:
a) Ordinary – like an ordinary sale
b) Contract of adhesion – like one prepared by a real estate
company for the sale of real estate; or one prepared by an
insurance company where the buyer or the person interested
in being insured signifies his consent by signing the contract
m. ACCORDING TO THE NATURE OF THE CONTRACT:
a) Personal
b) Impersonal
WHAT
CONTRACT?
ARE
THE
DIFFERENT
PHASES/
STAGES
IN
THE
LIFE
OF
A
a) PREPARATION OR GENERATION – where the parties are progressing
with their negotiations; they have not yet arrived to any definite
agreement, although there may have been a preliminary offer and
bargaining. Negotiation covers the period from the time the
prospective contracting parties indicate interest in the contract to
the time the contract is concluded (perfected).
b) PERFECTION OR BIRTH – where the parties have at long last came to a
definite agreement, the elements of definite subject matter and
valid cause have been accepted by mutual consent. The perfection
takes place upon the concurrence of the essential elements thereof.
c) CONSUMMATION – where the terms of the contract are performed,
and the contract may be said to have been fully executed. The
stage of consummation begins when the parties perform their
respective undertakings under the contract culminating in the
extinguishment thereof.
WHAT ARE THE BASIC PRINCIPLES OR CHARACTERISTICS OF A CONTRACT?
a) FREEDOM TO STIPULATE OR AUTONOMY OF CONTRACTS – the contracting
parties are free to enter into a contract and to 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
b) OBLIGATORY FORCE OR CHARACTER OF CONTRACTS AND COMPLIANCE IN
GOOD FAITH – once the contract has been perfected, it shall be of
obligatory force upon both of the contracting parties
c) PERFECTION BY MERE CONSENT as a rule
d) BOTH PARTIES ARE MUTUALLY BOUND OR MUTUALLY OF CONTRACTS – the
essential equality of the contracting parties whereby the contract
must bind both of them
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e) RELATIVITY – generally, it is binding only between the parties, their
assigns and heirs.
WHAT ARE THE LIMITATIONS UPON THE RIGHT OF THE CONTRACTING
PARTIES TO ESTABLISH SUCH STIPULATIONS, CLAUSES, TERMS, AND CONDITIOS
AS THEY MAY DEEM CONVENIENT?
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
(Article 1306).
This is the principle of freedom to stipulate or autonomous nature
of contracts. Freedom to stipulate terms and conditions is the essence if
the contractual system provided such stipulations are not contrary to
law, morals, good customs, public order, or public policy. This freedom
also prohibits a party from coercing or intimidating or unduly influencing
another to enter into a contract.
WHAT LAWS GOVERN CONTRACTS?
It is a rule that only laws existing at the time of the execution of a
contract are applicable thereto and that later statutes do not govern
contracts unless the latter is specifically intended to have a retroactive
effect. A later law which enlarges, abridges or in any manner changes the
intent of the parties to the contract necessarily impairs the contract itself
and cannot be given retroactive effect without violating the constitutional
prohibition against impairment of contracts. However, non-impairment of
contracts or vested rights clauses will have to yield to the superior and
legitimate exercise by the State of police power.
WHAT ARE
REGULATED?
THE KINDS OF INNOMINATE CONTRACTS AND HOW ARE THEY
1) Du ut des - I give that you give.
2) Du ut facias – I give that you do.
3) Facio ut facias – I do that you do
Innominate contracts shall be regulated by:
1) The stipulations of the parties,
2) The provisions of Titles I and II of this Book,
3) The rules governing the most analogous nominate contracts,
and
4) The customs of the place (Article 1307).
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WHAT IS MEANT BY MUTUALITY OF CONTRACTS?
The mutuality of contracts refers to the position of essential
equality which must be occupied by both of the contracting parties in
relation of the contract.
The contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them (Article 1308).
CAN
PERSON?
THE DETERMINATION OF THE PERFORMANCE BE LEFT TO A THIRD
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 (Article 1309).
WHEN IS THE DECISION OF THE THIRD PERSON BINDING?
The determination shall not be obligatory if it is evidently
inequitable. In such case, the courts shall decide what is equitable under
the circumstances (Article 1310).
WHAT IS MEANT BY RELATIVITY OF CONTRACTS?
Relativity of contracts refers to the principle of the civil law that a
contract can only bind the parties who had entered into it or their
successors who have assumed their personality or their judicial position,
and that, as a consequence, such contract can neither favor or prejudice
a third person, in conformity with the axiom res inter alios acta aliis nocet
prodest (the act, declaration, or omission of another, cannot affect
another, except as otherwise provided by law or agreement) [Vide Section
25, Rule 130, Rules of Evidence]. Thus Article 1311 declares that
“contracts take effect only between the parties, their assigns and heirs.”
WHAT
ARE THE EXCEPTIONS TO THE PRINCIPLE OF RELATIVITY (WHERE A
CONTRACT MAY EITHER FAVOR OR PREJUDICE A THIRD PERSON)?
a) 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 (Article 1311).
b) Stipulation Pour Autrui – where a contract contains a beneficial
stipulation in favor of a third person provided he communicated
his acceptance to the obligor before its revocation. (Article 1311,
par. 2).
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c) In contracts creating real rights where third persons come into
possession of the object of the contract, subject to the provisions of
the Mortgage Law and the Land Registration Laws (Article 1312).
d) Where the contract is entered into in order to defraud a third
person, in which case, creditors are protected in cases of contracts
intended to defraud them (Article 1313).
e) Where the third person induces a contracting party to violate his
contract. The third person who induces another to violate his
contract shall be liable for damages to the other contracting party
(Article 1314). This is called TORT INTERFERENCE.
f) Where, in some cases, third persons may be adversely affected by a
contract where they did not participate (Articles 2150, 2151).
g) Where the law authorizes the creditor to sue on a contract entered
into by his debtor (Accion Directa).
WHAT
IS MEANT BY STIPULATION POUR AUTRUI?
WHAT
REQUISITES MUST
CONCUR IN ORDER THAT SUCH A STIPULATION MAY BE ENFORCED?
A stipulation pour autrui is a stipulation in a contract, clearly and
deliberately conferred by the contracting parties as a favor upon a third
person who must accept it.
Before such a stipulation may be enforced, it is necessary that the
following requisites must concur:
a)
b)
c)
d)
That it must be for the benefit or interest of the third person;
The stipulation must be a part, not the whole of the contract;
That such benefit or interest must not be merely incidental;
That the contracting parties should have clearly and deliberately
conferred such benefit or interest upon the third person;
e) That neither of the contracting parties bears the legal
representation or authorization of the third party; and
f) That the third person should have communicated his acceptance
or interest to the obligor before its revocation (Article 1311, par. 2).
It is not, however necessary that such third person be always
named in the contract.
WHAT ARE THE REQUISITES FOR TORT INTERFERENCE?
a) Existence of a valid contract;
b) Knowledge on the part of the third person of the existence of
contract; and
c) The interference of the third person is without legal justification or
excuse.
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HOW ARE CONTRACTS PERFECTED?
Distinguish:
a) If the contract is consensual (Consensuality of Contracts) –
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 (Article 1315).
b) If the contract is realReal contracts, such as deposit, pledge and commodatum,
are not perfected until the delivery of the object of the obligation
(Article 1316).
MAY A PERSON CONTRACT IN THE NAME OF ANOTHER?
EFFECTS?
WHAT
ARE THE
No one may contract in the name of another, except when
1. He has been authorized or
2. Unless he has by law a right to represent
him, or
3. 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 (Article 1317).
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 (Article 1317, par 2.).
CHAPTER 2
ESSENTIAL REQUISITES OF CONTRACTS
GENERAL PROVISIONS
WHAT ARE THE ESSENTIAL REQUISITES OF A CONTRACT?
There is no contract unless the following requisites concur:
(1)
(2)
Consent of the contracting parties;
Object certain which is the subject matter of the contract;
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(3)
Cause of the obligation which is established (Article 1318).
This applies to consensual contracts. If the contract is real, a
fourth requisite – delivery – is required, if the contract is formal or
solemn, there must be compliance with the formalities required by law.
When the law uses the word “concur”, it means that all the three
(3) requisites must be present. The absence of one requisite negates the
existence of a contract.
SECTION 1
CONSENT
WHAT IS MEANT BY CONSENT?
As applied to contracts, consent signifies the concurrence of the
wills of the contracting parties with respect to the object and the cause
which shall constitute the contract.
It is the concurrence of the will of the offerer and the acceptor as to
the thing and the cause which constitute a contract. An offer is a
manifestation of a willingness to enter into a bargain so made as to
justify another person in understanding that his assent to that bargain is
invited and will conclude it.
It is manifested by the meeting of the offer and the acceptance
upon the thing and the cause which are to constitute the contract (Article
1319).
WHAT ARE THE REQUISITES OF CONSENT?
In order that there is consent, the following elements must concur:
1. The consent must be manifested by the
concurrence of the offer and the acceptance
(Articles 1319-1326).
2. The contracting parties must possess the
necessary legal capacity (Articles 1327-1329)
3. The consent must be intelligent, free,
spontaneous and real (Articles 1330-1346).
The first is expressly stated in the Code; the second and third are
implied.
WHEN ARE CONTRACTS PERFECTED?
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In general, contracts are perfected from the moment there is a
manifestation of the concurrence between the offer and the acceptance
with respect to the object and the cause which shall constitute the
contract (Article 1319, par. 1).
However, if the acceptance is made by letter or telegram, we must
distinguish. According to Article 1319, par. 2, the contract is perfected
from the moment that the offeror has knowledge of such acceptance. The
said article provides that “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.
An acceptance may be express or implied (Article 1320).
WHAT ARE THE DIFFERENT THEORIES AS APPLIED TO PERFECTION OF
CONTRACTS?
There are actually four different theories which have been
advanced in order to pin-point the exact moment when a contract is
perfected if the acceptance by the offeree is made by a letter or telegram.
They are:
1. MANIFESTATION THEORY – the contract is perfected from
the moment the acceptance is declared or made. This
is the theory which is followed by the Code of
Commerce.
2. EXPEDITION THEORY – the contract is perfected from
the moment the offeree transmits the notification of
acceptance to the offeror, as when the letter is placed
in the mailbox. This is the theory which is followed
by the majority if American courts.
3. RECEPTION THEORY – the contract is perfected the
moment that the notification of acceptance is in the
hand of the offeror in such a manner that he can
under conditions, procure the knowledge of its
contents, even if he is not able actually to acquire
such knowledge by reason of absence, sickness or
some other cause. This is the theory which is
followed by the German Civil Code.
4. COGNITION THEORY – the contract is perfected from the
moment the acceptance comes to the knowledge of
the offeror. This is the theory followed in the
Philippines as provided by Article 1319 of the Civil
Code.
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“X
SENT A LETTER TO Y AND OFFERED HIS HOUSE AND LOT FOR SALE.
TWO DAYS AFTER RECEIPT, Y SENT X A LETTER ACCEPTING THE OFFER, BUT
WHEN THE LETTER OF ACCEPTANCE REACHED X’S RESIDENCE, HE WAS ALREADY
DEAD. WAS THERE A MEETING OF THE MINDS?”
None. Acceptance made by a letter does not bind the offerer except
from the time it came to his knowledge (Article 1319). Since X was
already dead when the letter of acceptance reached his residence, he
could not have known the said acceptance.
“SUPPOSE THE ACCEPTANCE WAS COMMUNICATED TO THE AGENT OF X
WHO WAS ALIVE AT THE TIME HIS AGENT CAME TO KNOW OF SUCH ACCEPTANCE,
IS THERE A BINDING CONTRACT?”
Yes, because the act of the agent or knowledge acquired by the
agent duly authorized is also the act of the principal, provided tat he
acted within the scope of his authority.
IF THERE IS AN OFFER AND THERE IS AN ACCEPTANCE WITH CONDITIONS,
IS THERE A PERFECTED CONTRACT?
None, because an offer must be clear and definite while an
acceptance must be unconditional in order that their concurrence can
give rise to a perfected contract. If there are conditions imposed, there is
no meeting of the minds, as the same is a mere counter-offer.
WHAT ARE THE THINGS THAT MAY BE FIXED BY THE OFFEROR?
The person making the offer may fix the time, place, and manner of
acceptance, all of which must be complied with (Article 1321).
WHEN IS THERE ACCEPTANCE WHEN OFFER IS MADE THRU AN AGENT?
An offer made through an agent is accepted from the time
acceptance is communicated to him (Article 1322).
WHEN DOES AN OFFER BECOME INEFFECTIVE?
An offer becomes ineffective upon the death, civil interdiction,
insanity, or insolvency of either party before acceptance is conveyed
(Article 1323)
The phrase “before acceptance is conveyed” means
acceptance has come to the actual knowledge of the offeror.
before
WHAT IS THE NATURE AND CONCEPT OF A CONTRACT OF ADHESION?
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A contract of adhesion is one where its terms are prepared by only
one party while the other party merely affixes his signature signifying his
adhesion thereto. Such contracts are not void in themselves. They are
binding as ordinary contracts. However, contracts of adhesion are
construed against the party preparing such contracts.
WHAT IS AN OPTION?
It is a contract granting a person the privilege to buy or not to buy
certain objects at anytime within the agreed period at a fixed price. 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.
WHAT IS THE RULE ON OPTIONS?
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 (Article 1324).
Thus, we must distinguish between the effect of an option which is
without a consideration and one which is founded upon a consideration
upon the right of the offeror to withdraw his offer or proposal. If the
option is without any consideration, the offeror may withdraw his offer by
communicating such withdrawal to the offeree at any time before
acceptance; if it is founded upon a consideration, the offeror can not
withdraw his offer. Upon the expiration of the option period and the
person given such option does not manifest his or her acceptance, the
offeror may offer the intended contract to somebody else.
DISTINGUISHED FROM EARNEST MONEY:
Option money in an option contract must be differentiated from an
earnest money. Earnest money is considered part of the price in a
contract of sale and can be proof of perfection of the contract. However, it
is not the giving of the earnest money per se but the proof of the
concurrence of all the essential elements of the contract of sale which
establishes the existence of a perfected sale.
WHAT IS THE RULE WITH RESPECT TO BUSINESS ADVERTISEMENTS AND
ADVERTISEMENTS FOR BIDDERS?
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a) Unless it appears otherwise, business advertisements of
things for sale are not definite offers, but mere invitations to
make an offer (Article 1325).
b) 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 (Article
1326).
WHO ARE INCAPACITATED TO GIVE THEIR CONSENT?
The following cannot give consent to a contract:
a) Unemancipated minors;
b) Insane or demented persons, and deaf-mutes who do not know how
to write (Article 1327) ;
c) Deaf-mutes who do not know how to write;
d) Married women of age in cases specified by law;
e) Persons suffering from civil interdiction; and
f) Incompetents under guardianship (Rules 93-94, Rules of Court).
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 (Article
1329).
Under the Family Code, emancipation takes place by the
attainment of the age of majority and, unless otherwise provided,
majority commences at the age of eighteen years.
WHAT ARE THE EXCEPTIONS TO THE RULE THAT A CONTRACT ENTERED
INTO BY AN UNEMANCIAPTED MINOR WITHOUT THE CONSENT OF HIS PARENTS OR
GUARDIAN IS VOIDABLE?
a) Where the contract is entered into by a minor who misrepresents
his age, applying the doctrine of estoppel;
b) Where the contract involves the sale and delivery of necessaries to
the minor (Article 1489, par. 2);
c) Where it involves a natural obligation and such obligation is
voluntarily fulfilled by the minor (Articles 1426 and 1427);
WHAT IS THE STATUS OF A CONTRACT ENTERED INTO DURING LUCID
INTERVALS, IN A STATE OF DRUNKENESS OR DURING HYPNOTIC SPELLS, OR WHEN
CONSENT WAS GIVEN THROUGH MISTAKE, VIOLENCE, INTIMIDATION, UNDUE
INFLUENCE OR FRAUD?
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Contracts entered into during a lucid interval are valid. Contracts
agreed to in a state of drunkenness or during a hypnotic spell are
voidable (Article 1328).
Lucid interval is that period of time when an insane person acts
with reasonable understanding, comprehension and discernment with
respect to what he is doing.
Contracts entered into a state of drunkenness may likewise be
annullable. However, the intoxication must be of such character as to
perpetuate undue advantage over the drunken person.
A contract where consent is given through mistake, violence,
intimidation, undue influence, or fraud is voidable (Article 1330)
WHAT ARE THE VICES OF CONSENT?
a) VICES OF THE WLL - mistake, violence, intimidation, undue influence,
or fraud (Article 1330)
b) VICES OF DECLARATION – comprehends all forms of simulated
contracts.
WHAT
CONSENT?
ARE THE REQUISITES IN ORDER THAT MISTAKE MAY INVALIDATE
In order that mistake may invalidate consent, it should refer to:
a) The substance of the thing which is the object of the contract, or
b) Those conditions which have principally moved one or both parties
to enter into the contract.
DEFINE MISTAKE OF FACT AND MISTAKE OF LAW.
There is mistake of fact when one or both of the contracting parties
believe that a fact exists when in reality it does not, or that such fact
does not exist when in reality it does. On the other hand, there is a
mistake of law when one or both of the contracting parties arrive at an
erroneous conclusion regarding the interpretation of a question of law or
the legal effects of a certain act or transaction.
WHICH OF THESE MISTAKES CAN VITIATE CONSENT RENDERING THE
CONTRACT VOIDABLE?
As a general rule, it is only a mistake of fact which will vitiate
consent, thus rendering the contract voidable; a mistake of law, on the
other hand, does not render the contract voidable because of the well-
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known principle that ignorance of the law does not excuse anyone from
compliance therewith.
WHAT MISTAKES OF FACT WILL RENDER A CONTRACT VOIDABLE?
a) MISTAKE
refer to:
AS TO THE OBJECT OF THE CONTRACT
(Error in re) – This may
1) Mistake as to the identity of the thing, or
2) Mistake as to the substance of the thing, or
3) Mistake as to the condition of the thing, provided such
condition has principally moved one or both of the parties to
enter into the contract; or
4) Mistake as to the quantity of the thing, provided that the
extent or dimension of the thing was one of the principal
reasons of one or both of the parties for entering into the
contract.
b) MISTAKE AS TO PERSON:
1) 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.
2) A simple mistake of account shall give rise to its correction
(Article 1331).
WHAT IS THE RULE IN CASE OF INABILITY TO READ OR UNDERSTAND?
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 (Article 1332).
WHAT IS THE EFFECT OF KNOWLEDGE OF DOUBT OR RISK?
There is no mistake if the party alleging it knew the doubt,
contingency or risk affecting the object of the contract (Article 1333). It
does not therefore vitiate consent.
IS THERE ANY EXCEPTION TO THE RULE THAT A MISTAKE OF LAW CANNOT
VITIATE CONSENT RENDERING THE CONTRACT VOIDABLE?
Mistake of law as a rule will not vitiate consent? There is however
an exception to this rule. According to Article 1334, mutual error as to
the legal effect of an agreement when the real purpose of the parties is
frustrated, may vitiate consent.
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Three requisites are therefore necessary:
a) The mistake or error must be with respect to the legal effect of an
agreement;
b) The mistake or error must be mutual; and
c) The real purpose of the parties must be frustrated.
WHAT IS MEANT BY VIOLENCE AND INTIMIDATION?
There is violence when in order to wrest consent, serious or
irresistible force is employed.
There is intimidation when one of the contracting parties is
compelled by a reasonable and well-grounded fear of an imminent and
grave evil upon his person or property, or upon the person or property of
his spouse, descendants or ascendants, to give his consent.
To determine the degree of intimidation, the age, sex and condition
of the person shall be borne in mind.
A threat to enforce one's claim through competent authority, if the
claim is just or legal, does not vitiate consent (Article 1335).
WHAT
ARE THE REQUISITES OF VIOLENCE AND INTIMIDATION WHICH WILL
RENDER THE CONTRACT VOIDABLE?
In order that consent is vitiated through violence, it is essential
that the following requisites must concur:
a) The force employed to wrest consent must be serious and
irresistible; and
b) It must be the determining cause for the party upon whom it is
employed in entering into the contract.
Intimidation, on the other hand, requires the concurrence of the
following requisites:
a) One of the contracting parties is compelled to give his consent by a
reasonable and well-grounded fear of evil;
b) The evil must be imminent and grave;
c) Upon his person, property, or upon the person or property of his
spouse, descendants, or ascendants.
d) The evil must be unjust, an actionable wrong; and
e) The evil must be the determining cause for the party upon whom it
is employed in entering into the contract.
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DISTINGUISH BETWEEN VIOLENCE AND INTIMIDATION.
a) While violence is external, intimidation is internal
b) While violence prevents the expression of the will substituting it
with a material act dictated by another, intimidation influences the
operation of the will, inhibiting it in such a way that the expression
thereof is apparently that of a person who has freely given his
consent.
c) Violence is physical compulsion, while intimidation is moral
compulsion.
WHAT
IS THE EFFECT IF VIOLENCE OR INTIMIDATION WAS EMPLOYED BY
THIRD PERSON?
Violence or intimidation shall annul the obligation, although it may
have been employed by a third person who did not take part in the
contract (Article 1336).
WHAT IS MEANT BY UNDUE INFLUENCE?
There is undue influence when a person takes improper advantage
of his power over the will of another, depriving the latter of a reasonable
freedom of choice.
The following circumstances shall be considered:
a. the confidential, family, spiritual and other relations between the
parties, or
b. the fact that the person alleged to have been unduly influenced
was suffering from mental weakness, or was ignorant or in
financial distress (Article 1337).
WHAT ARE THE REQUISITES FOR UNDUE INFLUENCE TO VITIATE CONSENT?
a) Improper advantage
b) Power of the will of another
c) Deprivation of the latter’s will of a reasonable freedom of choice
WHAT IS MEANT BY FRAUD?
There is fraud when, through insidious words or machinations of
one of the contracting parties, the other is induced to enter into a
contract which, without them, he would not have agreed to (Article 1338).
WHAT ARE THE DIFFERENT CLASSES OF CIVIL FRAUD?
Civil fraud may be classified as:
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a. FRAUD IN THE PERFECTION [OR CELEBRATION] OF THE CONTRACT (Article
1338, et seq.) – Fraud which is employed by a party to the contract
in securing the consent of the other party. This may either be:
1) DOLO CAUSANTE OR CAUSAL FRAUD – refers to those deceptions or
misrepresentations of a serious character employed by one
party without which the other party would not have entered into
the contract.
2) DOLO INCIDENTE OR INCIDENTAL FRAUD – Refers to those incidental
deceptions and misrepresentations employed by one party
without which the other party would still have entered into the
contract.
b. FRAUD IN THE PERFORMANCE OF THE OBLIGATION (Article 1170) – Fraud
which is employed by the obligor in the performance of an existing
obligation
WHAT
ARE THE REQUISITES OF FRAUD
[DOLO
CAUSANTE] WHICH WILL
RENDER A CONTRACT VOIDABLE?
In order that the consent of a party to a contract is vitiated by
fraud thus rendering such contract voidable, it is essential that the
following requisites must concur:
a) Fraud or insidious words or machinations must be employed by
one of the contracting parties;
b) The fraud or insidious words or machinations must be serious;
c) There must be deliberate intent to deceive or to induce;
d) The fraud or insidious words or machinations must induce the
other party to enter into the contract, that is, the other party must
have relied on the untrue statement and must himself not be guilty
of negligence in ascertaining the truth; and
e) The fraud should not have been employed by both of the
contracting parties or by third persons.
DISTINGUISH BETWEEN DOLO CAUSANTE AND DOLO INCIDENTE.
Dolo causante (Article 1338) and Dolo incidente (Article 1344) may
be distinguished from each other in the following ways:
a) The first refers to a fraud which is serious in character, whereas
the second is not serious;
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b) The first is the cause which induces the party upon whom it is
employed in entering into the contract, whereas the second is not
the cause;
c) The effect of the first is to render the contract voidable, whereas
the effect of the second is to render the party who employed it
liable for damages.
DOES FAILURE TO DISCLOSE FACTS TO THE OTHER PARTY, EXAGGERATION
IN TRADE, EXPRESSION OF AN OPINION CONSTITUTE FRAUD WHICH WILL RENDER
A CONTRACT VOIDABLE?
Failure to disclose facts, when there is a duty to reveal them, as
when the parties are bound by confidential relations, constitutes fraud
(Article 1339).
The usual exaggerations in trade, when the other party had an
opportunity to know the facts, are not in themselves fraudulent (Article
1340).
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 (Article 1341).
WHAT IS THE EFFECT IF THERE IS MISREPRESENTATION BY THIRD
PERSON?
Misrepresentation by a third person does not vitiate consent,
unless:
a) Such misrepresentation has created substantial mistake and
b) Such misrepresentation is mutual (Article 1342).
WHAT IS THE EFFECT OF MISREPRESENTATION MADE IN GOOD FAITH?
Misrepresentation made in good faith is not fraudulent but may
constitute error (Article 1343).
WHEN
SHALL FRAUD MAKE A CONTRACT VOIDABLE?
FRAUD TO VITIATE CONSENT]
[REQUISITES
FOR
In order that fraud may make a contract voidable:
a) Fraud should be serious, and
b) Fraud should not have been employed by both contracting parties
[the parties must not be in pari delicto] (Article 1344).
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This refers to causal fraud. If the fraud is merely incidental fraud,
it only obliges the person employing it to pay damages.
WHAT IS MEANT BY SIMULATION OF CONTRACTS?
Simulation of a contract which is referred to as “vices of
declaration” is the process of intentionally deceiving others by producing
the appearance of a contract that really does not exist (absolute
simulation) or which is different from the true agreement (relative
simulation). Simulation is absolute when the parties do not intend to be
bound at all, as when a debtor simulates the sale of his properties to a
friend in order to prevent their possible attachment by creditors; while
simulation is relative when the parties conceal their true agreement, as
when a person conceals donation by simulating a sale of the property to
the beneficiary for a certain consideration (Article 1345).
WHAT ARE THE REQUISITES FOR SIMULATION?
a) An outward declaration of will different from the will of the parties;
b) The false appearance must have been intended by mutual
agreement;
c) The purpose is to deceive third persons.
WHAT ARE THE EFFECTS OF SIMULATION?
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 (Article 1346).
SECTION 2
OBJECT OF CONTRACTS
WHAT IS MEANT BY OBJECT OF CONTRACTS?
The object of a contract may be defined as the thing, right or
service which is the subject matter of the obligation which is created or
established.
WHAT
REQUISITES MUST CONCUR IN ORDER THAT A THING, RIGHT OR
SERVICE MAY BE THE OBJECT OF CONTRACTS?
As a general rule, all things, rights or services may be the object of
contracts. It is however, essential that the following requisites must
concur:
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a) The object should be within the commerce of men; in other words,
it should be susceptible of appropriation and transmissible from
one person to another;
b) The object should be real and possible; in other words, it should
exist at the moment of the celebration of the contract, or at least, it
can exist subsequently or in the future;
c) The object should be licit; in other words, it should not be contrary
to law, morals, good customs, public order or public policy;
d) The object must be transmissible;
e) The object should be determinate, or at least, possible of
determination, 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 (Article 1349).
WHAT
THINGS,
CONTRACTS?
RIGHTS
OR
SERVICES
CANNOT
BE
THE
OBJECT
OF
a) Things which are outside the commerce of men, including future
things;
b) Rights which are intransmissible;
c) Future inheritance except in cases expressly authorized by law;
d) Services which are contrary to law, morals, good customs, public
order or public policy (Article 1347);
e) Impossible things or services (Article 1348);
f) Objects which are not determinate as to their kind (Article 1349).
If the parties enter into a contract with respect to the above
contracts, the contract is void or inexistent.
SECTION 3
CAUSE OF CONTRACTS
WHAT IS MEANT BY CAUSE OF CONTRACTS?
In general, cause is the why of the contract or the essential reason
which moves the contracting parties to enter into the contract. In other
words, it is the immediate, direct or proximate reason which explains
and justifies the creation of an obligation through the will of the
contracting parties.
In particular:
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a) 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;
b) In remuneratory ones, the service or benefit which is remunerated;
and
c) In contracts of pure beneficence, the mere liberality of the
benefactor (Article 1350).
DISTINGUISH CAUSE AND CONSIDERATION.
In this jurisdiction, cause and consideration are used
interchangeably. After all, causa is merely the civil law term, while
consideration is the common law term. However, causa in civil law
jurisdictions is broader in scope than consideration in Anglo-American
jurisdictions. Many agreements which cannot be supported in AngloAmerican law for want of consideration can be enforced under the
broader doctrine of causa.
DISTINGUISH THE CAUSE FROM THE OBJECT OF CONTRACTS.
The cause must not be confused with the object of the contract. Of
course, there can be no question about the difference between the two
cases of remuneratory and gratuitous contracts; thus, in the first, the
cause is the service or benefit which is remunerated, while the object is
the thing which is given in remuneration, and in the second the cause is
the liberality of the donor or benefactor.
In onerous contracts, however, there is a tendency to confuse one
with the other. Nevertheless, it is clear that the cause, for each
contracting party, is the prestation or promise of a thing or service by the
other, while the object of the contract, on the other hand, is the thing or
service itself.
Thus, in a contract of sale, the cause as far as the vendor is
concerned is the acquisition of the purchase price, and as far as the
vendee is concerned, it is the acquisition of the thing, or stated in a
different way, the cause of the obligation of the vendor is the obligation of
the vendee and the cause of the obligation of the vendee is the obligation
of the vendor, while the object of the contract, on the other hand, is the
thing which is sold and the price which is paid [Castan’s and Manresa’s
view].
DISTINGUISH
THE CAUSE OF A CONTRACT FROM THE MOTIVES OF THE
PARTIES IN ENTERING INTO A CONTRACT.
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The particular motives of the parties in entering into a contract are
different from the cause thereof (Article 1351).
The differences between the two are as follows:
a) Whereas the cause is the direct or most proximate reason of the
contract, the motives are the indirect or remote reasons;
b) Whereas the cause is the objective or juridical reason of a contract,
the motives are the psychological or purely personal reasons;
c) Whereas the cause is always the same, the motives may differ for
each contracting party.
d) The motive may be unknown to the other, the cause is always
known.
e) The presence of motive cannot cure absence of cause.
IS
THERE ANY EXCEPTION TO THE RULE THAT THE PARTICULAR MOTIVES
OF THE PARTIES IN ENTERING INTO A CONTRACT ARE DIFFERENT FROM THE
CAUSE THEREOF?
There is an exception to the rule and that is when the contract is
conditioned upon the attainment of the motive of either contracting
parties. In other words, the motive may be regarded as causa when it
predetermines the purpose of the contract.
WHAT REQUISITES MUST CONCUR IN ORDER THAT THERE WILL BE A
SUFFICIENT CAUSE UPON WHICH A CONTRACT MAY BE FOUNDED?
In order that there will be a sufficient cause upon which a contract
may be founded, it is essential that the following requisites must concur:
a) The cause should be in existence (it must be present);
b) The cause should be licit or lawful; and
c) The cause should be true.
Thus, contracts without cause, or with unlawful cause, produce no
effect whatsoever. The cause is unlawful if it is contrary to law, morals,
good customs, public order or public policy (Article 1352). The same is
true if the cause stated in the contract is false, unless it is proven that
they were founded upon another cause which is true and lawful (Article
1353).
WHAT IS THE PRESUMPTION AS TO CAUSE?
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Although the cause is not stated in the contract, it is presumed
that it exists and is lawful, unless the debtor proves the contrary (Article
1354).
WHAT IS LESION?
It is inadequacy of cause, like insufficient price for a thing sold.
WHAT ARE THE RULES ON LESION?
As a general rule, lesion or inadequacy of price does not invalidate
a contract. Lesion, however, may be evidence of the presence of fraud,
mistake or undue influence.
Exceptions (when lesion may invalidate the contract):
a) When together with lesion, there is fraud, mistake or undue
influence (Article 1355).
b) In cases expressly provided for by law (Articles 13814 and 10985)
CHAPTER 3
FORM OF CONTRACTS
AS A RULE, WHAT IS THE FORM OF A CONTRACT IN ORDER THAT IT WILL BE
OF OBLIGATORY FORCE?
Contracts shall be obligatory, in whatever form they may have been
entered into, provided all the essential requisites for their validity are
present (Article 1356).
We have therefore retained the “spiritual system” of the Spanish
Civil Code by virtue of which the law looks more at the spirit rather than
at the form of contracts. Hence, under our legal system, the form in
which a contract is executed has no effect, as a general rule, upon its
obligatory force, provided all of the essential requisites for its validity are
present.
4
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 one-fourth 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;
ARTICLE 1098.
A partition, judicial or extra-judicial, may also be rescinded on account
of lesion, when any one of the co-heirs 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) aisa dc
5
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However, this principle merely applies to CONSENSUAL CONTRACTS. In
FORMAL CONTRACTS, certain form is required while a REAL CONTRACT
requires delivery in addition to the essential requisites of a contract.
WHAT ARE THE EXCEPTIONS TO THE ABOVE RULE?
When Article 1356 speaks of contracts as being obligatory
regardless of the form in which they may have been entered into, it does
not include those contracts for which the law prescribes form either for
validity or for enforceability. There are therefore exceptions to the general
rule:
1. When the law requires that a contract be in some form in order
that it may be valid or enforceable, or
2. That a contract be proved in certain way.
In such instances, the requirement is absolute and indispensable
and the right of the parties stated in the following article cannot be
exercised (Article 1356).
WHAT ARE THE DIFFERENT KINDS OF
PRESCRIBED BY LAW FOR CERTAIN CONTRACTS?
FORMALITIES
WHICH
ARE
Article 1358 enumerates certain kinds of contracts which must
appear either in a public instrument or in a private document. The
purpose of the requirement, however, is not to validate or to enforce the
contract, but to insure its efficacy; in other words, the form required is
neither for validity or enforceability but for CONVENIENCE of the
contracting parties. Hence, the forms required by law for the execution of
certain contracts may be divided into:
1. Those which are merely for CONVENIENCE (governed by Articles 1356
to 1358);
2. Those which are necessary for the VALIDITY of the contracts
(governed by scattered provisions of the Civil Code and by special
laws); and
3. Those which are necessary for the ENFORCEABILITY of the contract
(governed by the Statute of Frauds).
WHAT IS THE RIGHT OF THE CONTRACTING PARTIES IF THE LAW REQUIRES
A DOCUMENT OR OTHER SPECIAL FORM?
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
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perfected. This right may be exercised simultaneously with the action
upon the contract (Article 1357).
This article is applicable only when form is needed only for
not for validity or enforceability. In other words, before the
contracting parties may be compelled to execute the needed form, it is
essential that the contract be PERFECTED (valid) (Article 1357) and
ENFORCEABLE under the Statute of Frauds (Article 1356).
CONVENIENCE,
The right to compel under Article 1357 cannot be exercised if the
law requires that a contract be in some form in order that it may be VALID
and ENFORCEABLE, because Article 1356 provides that that requirement is
ABSOLUTE and INDISPENSABLE.
WHAT ARE THE FORMALITIES WHICH ARE MERELY FOR THE CONVENIENCE
OF THE CONTRACTING PARTIES?
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 (Article 1358).
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 (Article 1358).
Note that the necessity for the public document in the contracts
enumerated above is only for CONVENIECE, not for VALIDITY or
ENFORCEABILITY. Formal requirements are for the benefit or third parties.
Noncompliance therewith does not adversely affect the validity of the
contract or the contractual rights and obligations of the parties
thereunder (Fule vs. CA, G.R. No. 112212, March 2, 1998)
WHAT ARE THE FORMALITIES WHICH ARE NECESSARY FOR THE VALIDITY
OF CONTRACTS?
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These contracts may be classified as follows:
1. Those which must appear in writing;
2. Those which must appear in a public document; and
3. Those which must be registered.
CONTRACTS WHICH MUST APPEAR IN WRITING:
1. Donations of personal property whose value exceeds five thousand
pesos. According to Article 748, the donation and the acceptance
shall be made in writing; otherwise, it shall be void.
2. Sale of piece of land or any interest therein by an agent. According
to Article 1874, if the authority of the agent is not in writing, the
sale is void.
3. Antichresis. According to Article 2134, in contracts of antichresis,
the amount of the principal and of the interest shall be specified in
writing; otherwise, the contract shall be void.
4. Agreements regarding payment of interest in contracts of loan.
According to Article 1956, no interest shall be due unless it has
been expressly stipulated in writing. The validity of the contract of
loan, however, is not affected.
CONTRACTS WHICH MUST APPEAR IN A PUBLIC DOCUMENT:
1. Donations of immovable property. According to Article 1749, the
donation must be made in a public document. The acceptance, on
the other hand, may be made in the same deed of donation or in a
separate public document. If the acceptance is made in a separate
public document, the donor shall be notified in authentic form and
such fact shall be noted in both instruments. Noncompliance with
any of these formalities shall render the donation void.
2. Partnerships where immovable property or real rights are
contributed to the common fund. According to Articles 1771 and
1773, in a contract of partnership where immovable property or
real rights are contributed to the common fund, it is necessary
that the contract must appear in a public instrument and that
there must be an inventory of the immovable property and real
rights, signed by the partners, and attached to the public
instrument; otherwise, the contract is void.
CONTRACTS WHICH MUST BE REGISTERED:
1. Chattel mortgages. According to Article 2140, by a chattel
mortgage, personal property is recorded in the Chattel Mortgage
Register as a security for the performance of an obligation. If the
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movable, instead of being recorded, is delivered to the creditor or a
third person, the contract is a pledge and not a chattel mortgage.
2. Sales or transfers of large cattle. According to the Cattle
Registration Act, no sale or transfer of large cattle shall be valid
unless it is duly registered and a certificate of transfer is secured.
CHAPTER 4
REFORMATION OF INSTRUMENTS (N)
WHAT IS
CIVIL CODE?
THE DOCTRINE OF REFORMATION OF INSTRUMENTS UNDER THE
When the 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 (Article 1359).
WHAT REQUISITES
REFORMED?
MUST CONCUR IN ORDER THAT AN INSTRUMENT MAY BE
1. There must be meeting of the minds of the parties;
2. Their true intention is not expressed in the instrument; and
3. Such failure to express their true intention is due to mistake,
fraud, inequitable conduct or accident.
4. There must be convincing proof thereof;
5. It must be brought within the proper prescriptive period;
6. The document must not refer to a simple unconditional donation
inter vivos, or to wills, or to a contract where the real agreement is
void (Article 1366).
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 1359).
WHAT ARE THE DISTINCTIONS BETWEEN REFORMATION AND ANNULMENT?
The most fundamental distinctions between an action for
reformation of an instrument and an action for the annulment of a
contract are:
1. Whereas the first presupposes a perfectly valid contract in which
there has already been a meeting of the minds of the contracting
parties, the second is based on a defective contract in which there
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has been no meeting of the minds because the consent of one of
the contracting parties has been vitiated.
2. Reformation does not invalidate a contract; annulment invalidates
a contract.
WHAT IS THE RULE IN CASE OF CONFLICT BETWEEN THE
THE PRINCIPLES OF GENERAL LAW ON REFORMATION?
CIVIL CODE
AND
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 1360).
WHAT ARE THE INSTANCES IN WHICH REFORMATION MAY BE ASKED?
1. When a mutual mistake of the parties causes the failure of the
instrument to disclose their real agreement, said instrument may
be reformed (Article 1361).
2. 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 1362).
3. 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
1363).
4. 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
(Article 1364).
5. 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 1365).
WHAT INSTRUMENTS CANNOT BE REFORMED?
There shall be no reformation in the following cases:
(1)
(2)
(3)
Simple donations inter vivos wherein no condition is imposed;
Wills;
When the real agreement is void (Article 1366).
WHAT IS THE EFFECT ON REFORMATION IF ONE OF THE PARTIES HAS
BROUGHT AN ACTION TO ENFORCE THE INSTRUMENT?
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When one of the parties has brought an action to enforce the
instrument, he cannot subsequently ask for its reformation (Article
1367).
WHO ARE
INSTRUMENT?
THE
PERSONS
WHO
MAY
ASK
FOR
REFORMATION
OF
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 1368).
The procedure for the reformation of instrument shall be governed
by rules of court to be promulgated by the Supreme Court (Article 1369).
CHAPTER 5
INTERPRETATION OF CONTRACTS
RULES:
1. 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 (Article 1370).
2. In order to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally
considered (Article 1371).
3. 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
(Article 1372).
4. 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 (Article 1373).
5. 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 (Article 1374).
6. Words which may have different significations shall be understood
in that which is most in keeping with the nature and object of the
contract (Article 1375).
7. 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
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omission of stipulations which are ordinarily established (Article
1376).
8. The interpretation of obscure words or stipulations in a contract
shall not favor the party who caused the obscurity (Article 1377).
9. 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 (Article 1378).
10.
The principles of interpretation stated in Rule 123 of the
Rules of Court shall likewise be observed in the construction of
contracts (Article 1379).
DEFECTIVE CONTRACTS
WHAT ARE THE FOUR KINDS OF DEFECTIVE CONTRACTS?
1. Rescissible – valid until rescinded; there is a sort of extrinsic defect
consisting of economic damage or lesion.
2. Voidable – valid until annulled, unless there has been ratification.
The defect is more or less intrinsic, as in the case of vitiated
consent.
3. Unenforceable – cannot be sued upon or enforced, unless it is
ratified. In a way, it may be considered a validable transaction,
that is, it has no effect now, but it may be effective upon
ratification.
4. Void – has no effect at all, it cannot be ratified or validated.
The contracts provided above are in the decreasing order as to
their effectiveness.
CHAPTER 6
RESCISSIBLE CONTRACTS
DEFINE RESCISSIBLE CONTRACTS.
A rescissible contract is a contract which is valid because it
contains all of the essential requisites prescribed by law, but which is
defective because of the injury or damage to either of the contracting
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parties or to third persons, as a consequence of which it may be
rescinded by means of a proper action for rescission.
DEFINE RESCISSION.
Rescission 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 a contract, even if the same should be valid, by means of the
restoration of things to their condition prior to the celebration of the
contract.
DISTINGUISH
RESCISSION OF CONTRACTS
RESOLUTION OF RECIPROCAL OBLIGATIONS.
FROM
RESCISSION
OR
Rescission of rescissible contracts must not be confused with the
rescission or resolution of reciprocal obligation under Article 1191 of the
Civil Code. Although there are similarities both with respect to validity
and effects, they are distinguished from each other in the following ways”
1. AS TO PARTY WHO MAY INSTITUTE ACTION: In rescission the action may
be instituted not only by a party to the contract but even by third
persons, whereas in resolution the action may be instituted only by
a party to the contract.
2. AS TO CAUSES: In rescission there are several causes or grounds
such as lesion, fraud and others expressly specified by law,
whereas in resolution the only ground is failure of one of the
contracting parties to comply with what is incumbent upon him.
3. AS TO POWER OF THE COURTS: In rescission there is no power of the
courts to grant extension of time for performance of the obligation
so long as there is a ground for rescission, whereas in resolution
the law expressly declares that courts shall have a discretionary
power to grant an extension for performance provided that there is
just cause
4. AS TO CONTRACTS WHICH MAY BE RESCINDED OR RESOLVED: In rescission,
any contract, whether unilateral or reciprocal, may be rescinded;
whereas in resolution only reciprocal contracts may be resolved.
WHAT CONTRACTS ARE RESCISSIBLE?
The following contracts are rescissible:
(1)
Those which are entered into by guardians whenever the wards
whom they represent suffer lesion by more than one-fourth of the value
of the things which are the object thereof;
(2)
Those agreed upon in representation of absentees, if the latter
suffer the lesion stated in the preceding number;
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(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. (Article 1381)
(6)
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. (Article 1382)
WHAT
REQUISITES MUST CONCUR
RESCINDED ON THE GROUND OF LESION?
BEFORE
A
CONTRACT
MAY
BE
Whether the contract is entered into by a guardian in behalf of his
ward or by a legal representative in behalf of an absentee, before it can
be rescinded on the ground of lesion, it is indispensable that the
following requisites must concur:
a. The contract must be entered into by the guardian in behalf
of his ward or by the legal representative in behalf of an
absentee (Article 1381, Nos. 1 and 2);
b. The ward or absentee suffered lesion of more than onefourth of the value of the property which is the object of the
contract (ibid);
c. The contract must be entered without judicial approval
(Article 1386)
d. There must be no legal means for obtaining reparation for
the lesion (Article 1385, par. 1);
e. The person bringing the action must be able to return
whatever he may be obliged to restore (Article 1385, par. 1);
and
f. The object of the contract must not be legally in the
possession of a third person who did not act in bad faith
(Article 1385, par. 1)
WHAT
REQUISITES MUST CONCUR BEFORE A CONTRACT ENTERED INTO IN
FRAUD OF CREDITORS CAN BE RESCINDED?
Before a contract can be rescinded on the ground that it has been
entered into in fraud of creditors, it is indispensable that the following
requisites must concur:
a. There must be a credit existing prior to the celebration of the
contract;
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b. There must be fraud, or at least the intent to commit fraud, to the
prejudice of the creditor seeking rescission;
c. The creditor cannot in any other legal manner collect his credit;
and
d. The object of the contract must not be legally in the possession of a
third person who did not act in bad faith.
WHO ARE THE PERSONS WHO MAY INSTITUTE AN ACTION FOR THE
RESCISSION OF A RESCISSIBLE CONTRACT?
The action for rescission may be instituted by the following:
a. The person who is prejudiced, such as the person suffering
the lesion in rescissory actions based on lesion, the creditor
who is defrauded in rescissory actions based on fraud, and
other persons authorized to exercise the same in other
rescissory actions;
b. Their representatives;
c. Their heirs; and
d. Their creditors by virtue of the subrogatory action defined in
Article 1177.
IN RESCISSORY ACTIONS BASED ON FRAUD, IT IS ESSENTIAL THAT FRAUD
OR THE INTENT TO DEFRAUD MUST BE PROVED. HOW CAN THIS BE DONE?
Such fraud or the intent to defraud may be either presumed in
accordance with Article 1387 or duly proved in accordance with the
ordinary rules of evidence.
The law presumes that there is fraud of creditors in the following
cases:
a. Alienation of property by gratuitous if the donor did not
reserve sufficient property to pay all debts contracted before
the alienation.
b. Alienations of property by onerous title if 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. (Article 1387)
WHAT IS THE EXTENT OF RESCISSION?
Rescission shall be only to the extent necessary to cover the
damages caused. (Article 1384)
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WHAT
GRANTED?
ARE THE OBLIGATIONS OF THE PLAINTIFF IN CASE RESCISSION IS
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. (Article
1385)
WHAT ARE THE INSTANCES WHEN RESCISSION CANNOT BE DEMANDED?
a. When the plaintiff who demands rescission cannot anymore
return the thing;
b. 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. (Article 1385)
c. Rescission referred to in Nos. 1 and 2 of Article 1381 with
respect to contracts approved by the courts. (Article 1386)
WHAT IS THE LIABLITY OF ONE WHO ACQUIRES IN BAD FAITH THE THINGS
ALIENATED IN FRAUD OF CREDITORS?
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. (Article 1388)
WHAT IS THE PRESCRIPTIVE PERIOD OF RESCISSION?
The action to claim rescission must be commenced within four
years.
For persons under guardianship and for absentees, the period of
four years shall not begin until the termination of the former's
incapacity, or until the domicile of the latter is known. (Article 1389)
CHAPTER 7
VOIDABLE CONTRACTS
DEFINE VOIDABLE CONTRACTS.
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Voidable contracts are those in which all of the essential elements
for validity are present, but the element of consent is vitiated either by
lack of legal capacity of one of the contracting parties, or by mistake,
violence, intimidation, undue influence, or fraud.
DISTINGUISH VOIDABLE CONTRACTS FROM RESCISSIBLE CONTRACTS.
Voidable and rescissible contracts may be distinguished from each
other in the following ways:
a. In a voidable contract, the defect is instrinsic because it consists of
a vice which vitiates consent, whereas in a rescissible contract the
defect is external because it consists of damage or prejudice either
to one of the contracting parties or to a third person (Articles 1381,
1390);
b. In the former, the contract is voidable even if there is not damage
or prejudice, whereas in the latter, the contract is not rescissibloe
if there is not damage or prejudice;
c. In the former, the annulability of the contract is based on law,
whereas in the latter the rescissibility of the contract is based on
equity. Hence, annulment is not only a remedy but a sanction,
whereas rescission is a mere remedy. Public interest, therefore,
predominates in the first, whereas private interest predominates in
the second;
d. The causes of annulment are different from the causes of
rescission;
e. The former is susceptible of ratification, whereas the latter is not
(Articles 1381, 1390); and
f. Annulment may be invoked only by a contracting party, whereas
rescission may be invoked either by a contracting party or by a
third person who is prejudiced.
WHAT CONTRACTS ARE VOIDABLE?
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. (Article 1390)
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WHAT
CONTRACT?
IS
THE
PRESCRIPTIVE
PERIOD
OF
ANNULING
A
VOIDABLE
The action for annulment shall be brought within four years.
(Article 1391)
This period shall begin:
a. In cases of intimidation, violence or undue influence, from the time
the defect of the consent ceases.
b. In case of mistake or fraud, from the time of the discovery of the
same.
c. And when the action refers to contracts entered into by minors or
other incapacitated persons, from the time the guardianship
ceases.
HOW MAY A VOIDABLE CONTRACT BE CONVALIDATED?
There are 3 ways or modes of convalidating a voidable contract.
They are:
a. By prescription of the action for annulment (Article 1391);
b. By ratification or confirmation (Articles 1392-1396); and
c. By the loss of the thing which is the object of the contract through
the fraud or fault of the person who is entitled to institute the
action for the annulment of the contract (Article 1401)
WHAT
IS MEANT BY RATIFICATION OF VOIDABLE CONTRACTS? WHAT ARE
ITS REQUISITES?
Ratification, or confirmation as it is known in the Spanish Civil
Code, is defined as the act or means by virtue of which efficacy is given
to a contract which suffers from a vice of curable nullity.
Ratification or confirmation requires the concurrence of the
following requisites:
a. The contract should be tainted with a vice which is
susceptible of being cured (the contract must be a
voidable one);
b. The confirmation should be effected by the person who is
entitled to do so under the law;
c. It should be effected with knowledge of the reason which
renders the contract voidable; and
d. The reason which renders the contract voidable should
have already disappeared.
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e. The person ratifying must be the injured party.
HOW MAY RATIFICATION BE MADE?
Ratification may be effected expressly or tacitly.
There is an express 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 expressly declare his
renunciation of his right to annul the contract.
On the other hand, 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. (Article 1393)
WHO
MAY EFFECT THE RATIFICATION?
Ratification may be effected by the guardian of the incapacitated
person. (Article 1394)
Ratification does not require the conformity of the contracting
party who has no right to bring the action for annulment. (Article 1395)
WHAT IS THE EFFECT OF RATIFICATION?
a. Ratification cleanses the contract from all its defects from the
moment it was constituted. (Article 1396) There is retroactive
effect of ratification, thus, once ratification has taken place,
annulment based on the original defects cannot prosper.
b. The action to annul is extinguished (Article 1392), thus the
contract becomes a completely valid one.
WHO MAY INSTITUTE AN ACTION FOR ANNULMENT OF A VOIDABLE
CONTRACT?
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. (Article 1397)
There are therefore 2 different requisites in order that a person
may institute the action for the annulment of a voidable contract:
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a. The plaintiff must have an interest in the contract in the
sense that he is obliged thereby either principally or
subsidiarily; and
b. The victim and not the party responsible for the vice or
defect must be the one who must assert the same.
IF
A PERSON IS NOT OBLIGED PRINCIPALLY OR SUBSIDIARILY UNDER A
CONTRACT, WOULD IT BE POSSIBLE FOR HIM TO INSTITUTE AN ACTION FOR THE
ANNULMENT OF THE CONTRACT?
As a rule, a contract cannot be assailed by one who is not a party
thereto. However, the Supreme Court in several cases has held that a
person, who is not a party obliged principally or subsidiarily under a
contract, may bring an action for annulment of the contract if he is
prejudiced in his rights with respect to one of the contracting parties,
and can show detriment which would positively result to him from the
contract in which he has no intervention (Singson vs. Isablea Sawmill, 88
SCRA 623, citing Teves vs. People’s Homesite and Housing Corp, 23 SCRA
1114 and De Santos vs. City of Manila, 45 SCRA 409).
WHAT ARE THE OBLIGATIONS OF THE CONTRACTING PARTIES AFTER AN
OBLIGATION IS ANNULED? WHAT ARE THE EFFECTS OF ANNULMENT?
a. If the contract has not yet been complied with, the parties
are excused from their obligation.
b. If the contract has already been performed, 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.
c. In obligations to render service, the value thereof shall be the
basis for damages. (Article 1398)
WHAT ARE THE INSTANCES WHERE THERE IS NO OBLIGATION TO MAKE ANY
RESTITUTION?
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. (1399)
WHAT
THING?
IS THE LIABILITY OF THE OBLIGOR IF HE CANNOT RETURN THE
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
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shall return the fruits received and the value of the thing at the time of
the loss, with interest from the same date. (Article 1400)
WHAT IS THE EFFECT ON THE RIGHT TO ANNUL IF THE THING WHICH IS
THE OBJECT OF THE CONTRACT IS LOST?
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. (Article 1401)
WHEN MUST THE THING BE RETURNED?
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. (Article 1402)
CHAPTER 8
UNENFORCEABLE CONTRACTS (N)
DEFINE UNENFORCEABLE CONTRACTS.
Unenforceable contracts are those which cannot be enforced by a
proper action in court, unless ratified.
WHAT ARE THE KINDS OF UNENFORCEABLE CONTRACT?
a. Those entered into without or in excess of authority
(unauthorized contracts);
b. Those that do not comply with the Statute of Frauds;
c. Those where both of the contracting parties do not possess
the required legal capacity.
DISTINGUISH
CONTRACTS.
UNENFORCEABLE
CONTRACTS
FROM
OTHER
DEFECTIVE
In general, unenforceable contract may be distinguished from the
other defective contracts in the following ways:
a. FROM RESCISSIBLE CONTRACTS – First, unenforceable contracts cannot
be enforced by a proper action in court, whereas rescissible
contracts are valid and enforceable unless they are rescinded.
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Second, the former cannot be assailed by third persons, whereas
the latter may be assailed by third persons who are prejudiced.
b. FROM Voidable contracts – unenforceable contracts cannot be
enforced by a proper action in court, whereas voidable contracts
are binding and enforceable unless they are annulled by a proper
action in court.
c. FROM VOID CONTRACTS – There are some unenforceable contracts
which are valid and, therefore, may produce effects, although they
cannot be enforced by a proper action in court; void or inexistent
contracts, on the other hand, do not produce, as a general rule,
any effect whatsoever. Hence, unenforceable contracts are
susceptible of ratification, whereas void contracts are not.
WHAT CONTRACTS ARE UNENFORCEABLE?
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.
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(3)
HOW
Those where both parties are incapable of giving consent
to a contract (Article 1403).
MAY
RATIFIED?
CONTRACTS
INFRINGING
THE
STATUTE
OF
FRAUDS
BE
Contracts infringing the Statute of Frauds may be ratified either:
a. by the failure to object to the presentation of oral evidence to prove
the same, or
b. by the acceptance of benefits under them (Article 1405).
DISTINGUISH FROM EACH OTHER “CONFIRMATION”, “RATIFICATION”,
“RECOGNITION” (OR “ACKNOWLEDGMENT”).
AND
Ratification is curing the defect of lack of authority in an
authorized contract (entered into by another) (Articles 1317, 1405).
Under the present Code, the term ratification is used to designate the act
of validating any kind of defective contract.
Confirmation is curing a defect of a voidable contract (Article
1396). It tends to cure a vice of nullity and ratification is for the purpose
of giving authority to a person who previously acted in the name of
another without authority (Luna vs. Linatoc, 74 Phil. 15).
Recognition or acknowledgment, on the other hand, is merely to
cure a defect of proof (Article 1405). In recognition, there is no vice to be
remedied, such as fraud, violence, or mistake, so that the case is
distinguished from confirmation. In Recognition, the person on behalf of
another is duly authorized to do so, so the situation is different from
ratification (Ibid).
Under the new Civil Code, all three terms are now uniformly called
RATIFICATION.
WHAT
IS
UNENFORCEABLE
REGISTRATION?
THE
AND
REMEDY OF A PARTY
A PUBLIC DOCUMENT
WHEN THE CONTRACT IS
IS NECESSARY FOR ITS
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 (Article
1406).
WHAT IS THE EFFECT IF BOTH PARTIES ARE INCAPACITATED, AND THE
GUARDIAN OF ONE OF THEM RATIFIES THE CONTRACT?
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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 (Article 1407).
WHAT
CONTRACT?
IS THE EFFECT IF BOTH PARENTS OR GUARDIANS RATIFY THE
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 (Article 1407, par. 2).
WHO CAN ASSAIL UNENFORCEABLE CONTRACTS?
It is only the parties who can assail an unenforceable contract. It
cannot be assailed by third persons (Article 1408).
CHAPTER 9
VOID OR INEXISTENT CONTRACTS
DEFINE VOID AND INEXISTENT CONTRACTS.
In general, void and inexistent contracts may be defined as those
which lack absolutely either in fact or in law one or some or all of those
elements which are essential for its validity.
In particular, void contracts are contracts where all of the
requisites prescribed by law for contracts are present, but the cause,
object or purpose is contrary to law, morals, good customs, public order
or public policy, or they are prohibited by law, or they are decalred by
law to be void.
Inexistent contracts, on the other hand, are those contracts which
lack absolutely one or some or all of thoser requisites which are essential
for validity.
DISTINGUISH BETWEEN VOID AND INEXISTENT CONTRACTS.
Void and inexistent contracts may be distinguished from each
other in the following ways :
a) Void contracts refer to those where all of the the requisites of a
contract are present but the cause, object or purpose is contrary to
law, morals, good customs, public order or public policy, or the
contract itself is prohibited or declared by law to be void ;
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inexistent contracts, on the other hand, refer to those where one or
some or all of those requisites which are essential for validity are
absolutely lacking (Liguez vs. Court of Appeals, 102 Phil. 577).
b) The principle of in paru delicto is applicable in the first, but not in
the second. Consequently, the first may produce effects (Articles
1411, 1412), but the second does not produce any effect
whatsoever.
WHAT ARE THE CHARACTERISTICS OF VOID CONTRACTS ?
a. The right to set up the defense of illegality cannot be waived
(Article 1409), and may be considered on appeal even if not raised
in the trial court.
b. The action or defense for their declaration as inexistent does not
prescribe (Article 1410)
c. The defense of illegality of contracts is not available to third persos
whose interests are not directly affected (Article 1412)
d. Cannot give rise to a contract ; thus ‘a contract which is the direct
result of a previous illegal contract is also void and inexistent
(Article 1422)
e. Generally produces no effect.
f. They cannot be ratified (Article 1409).
DISTINGUISH
VOID
DEFECTIVE CONTRACTS.
AND
INEXISTENT
CONTRACTS
A VOID OR INEXISTENT CONTRACT MAY
RESCISSIBLE CONTRACT IN THE FOLLOWING WAYS :
BE
FROM
THE
OTHER
DISTINGUISHED FROM
A
a. A void or inexistent contract produces, as a rule, no effect even if it
is not set aside by a direct action, whereas a rescissible contract is
valid unless it is rescinded (Articles 1380, 1409).
b. The defect of the former consists in absolute lack in fact or in law
of one or some or all of the essentail elements of a contract,
whereas the defect of the latter consists in lesion or damage to one
of the contracting parties or to third persons.
c. In the former, the nullity or inexistence of the contract is based on
the law, whereas, in the latter its rescissible character is based on
equity. Hence, an actin for declaration of absolute nullity or
inexistence is not only a remedy but a sanction, whereas an action
for rescission is a mere remedy. Public interest, therefore,
predominates in the first, whereas private interest predominates in
the second.
d. The action for the declaration of the nullity or inexistence of a
contract is imprescriptible, whereas the action for the rescission of
a contract is prescriptible (Articles 1389, 1410)
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e. The nullity or inexistence of a contract cannot as a rule be assailed
by third persons, whereas the rescissible character of a contract
may be assailed by third persons (Articles 1381, 1382, 1409)
A
VOID CONTRACT MAY BE DISTINGUISHED FROM A VOIDABLE CONTRACT IN
THE FOLLOWING WAYS:
a. A void or inexistent contract produces, as a general rule, no effect
even if it is not set aside by a direct action, whereas a voidable
contract is binding unless it is annulled (Articles 1390, 1409)
b. The causes for the inexistence or absolute nullity of the former are
different from the causes for the annulability or relative nullity of
the latter (Ibid).
c. The former is not susceptible of ratification, whereas the latter is
susceptible of ratification.
d. The action for the declaration of the nullity or inexistence of a
contract is imprescriptible, whereas the action for the annulment
of a contract is prescriptible (Articles 1391, 1140)
e. The defense of inexistence or absolute nullity is available to third
persons whose interests are directly affected, whereas the defense
of annulability is not available to third persons (Articles 1397,
1421)
A VOID CONTRACT MAY BE DISTINGUISHED FROM AN UNENFORCEABLE
CONTRACT IN THE FOLLOWING WAYS:
a. In a void or inexistent contract, there is in law or in reality no
contract at all, whereas in an unenforceable contract, there is
actually a contract which cannot be enforced by a court action
unless ratified (Articles 1403, 1409).
b. The causes for the inexistence or absolute nullity of the former are
different from the causes for the unenforceability of the latter
(Ibid).
c. The former is not susceptible of ratification, while the latter is
susceptible of ratification (Articles 1404, 1405, 1407, 1409).
d. The former can be assailed by third persons whose interests are
directly affected, whereas the latter cannot be assailed by third
persons (Articles 1408, 1421).
WHAT CONTRACTS ARE VOID OR INEXISTENT ?
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;
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(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. (Article 1409)
These contracts cannot be ratified. Neither can the right to set up
the defense of illegality be waived.
In addition, we can also include:
a. Those which are direct results of previous illegal contract (Article
1422);
b. Those where there is no concurrence between offer and acceptance
with regard to the object and the cause of the contract; and
c. Those which do not comply with the required form where such
form is essential for validity.
WHAT IS THE PRINCIPLE OF IN PARI DELICTO?
When the defect of a void contract consists in the illegality of the
cause or object of the contract, and both parties are at fault or in pari
delicto, the law refuses them every remedy and leaves them where they
are. This rule, which is embodied in Articles 1411 and 1412, is what is
commonly known as the principle of in pari delicto. It is a rule which is
expressed in the maxims: “Ex dolo malo non oritur action” and “In pari
delicto potior est condition defendentis”. The law will not aid either party
to an illegal agreement; it leaves then where they are.
WHAT
IS THE EFFECT IF BOTH PARTIES TO AN ILEGAL CONTRACT ARE IN
PARI DELICTO?
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:
a. They shall have no action against each other, and
b. Both shall be prosecuted.
c. 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. (Article 1411)
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WHAT ARE THE EXCEPTIONS TO THE PRINCIPLE OF IN PARI DELICTO?
The exceptions to the principle of in pari delicto are the following:
a. Payment of usurious interest. In such a case, the law allows the
debtor to recover the interest paid in excess of that allowed by the
usury laws, with interest thereon from the date of payment (Article
1413).
b. Payment of money or delivery of property for an illegal purpose,
where the party who paid or delivered repudiates the contract
before the purpose has been accomplished, or before any damage
has been caused to a third person. In such a case, the courts may
allow such party to recover what he ahs paid or delivered, if the
public interest will thus be subserved (Article 1414).
c. Payment of money or delivery of property by an incapacitated
person. In such a care, the courts may allow such person to
recover what he ahs paid or delivered, if the interest of justice so
demands (Article 1415).
d. Agreement or contract which is not illegal per se but is merely
prohibited by law, and the prohibition is designed to the protection
of the plaintiff. In such a case, such plaintiff, if public policy is
thereby enhanced, may recover what he has paid or delivered
(Article 1416).
e. Payment of any amount in excess of the maximum price of any
article or commodity fixed by law. In such a case, the buyer may
recover the excess (Article 1417).
f. Contract whereby a laborer undertakes to work longer than the
maximum number of hours fixed by law. In such a case, the
laborer may demand for overtime pay (Article 1418).
g. Contract whereby a laborer accepts a wage lower than the
minimum wage fixed by law. In such case, the laborer may
demand for the deficiency (Article 1419).
WHAT
IS THE RULE IF THE ACT IN WHICH THE UNLAWFUL OR FORBIDDEN
CAUSE CONSISTS DOES NOT CONSTITUTE A CRIMINAL OFFENSE?
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,
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may demand the return of what he has given without any obligation to
comply his promise. (Article 1412)
WHAT IS THE RULE IF THE CONTRACT IS DIVISIBLE AND THE ILLEGAL
TERMS CAN BE SEPARATED FROM THE LEGAL ONES?
In case of a divisible contract, if the illegal terms can be separated
from the legal ones, the latter may be enforced (Article 1420).
WHO CAN RAISE THE DEFENSE OF ILLEGALITY OF A CONTRACT?
The defense of illegality of contract is not available to third persons
whose interests are not directly affected (Article 1421).
TITLE III
NATURAL OBLIGATIONS
WHAT ARE THE KINDS OF OBLIGATIONS? DEFINE EACH.
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
(Article 1423).
DEFINE VOLUNTARY FULFILLMENT.
Voluntary fulfillment means
same even if he knew that he could
In the case of partial voluntary
recovered, since on said balance,
obligation.
that the debtor complied with the
not have been legally forced to do so.
fulfillment, the balance cannot be
there has not been created a legal
HOW IS UNDUE PAYMENT DISTINGUISHED FROM NATURAL OBLIGATION?
If a debt that has prescribed is paid not knowing it has prescribed,
the payor can recover on the ground of undue payment. But if it is paid
knowing that it has prescribed already, the payor cannot recover for this
would be a case of a natural obligation.
IS THERE A JURIDICAL TIE IN MORAL OBLIGATIONS?
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While there is a juridical tie in natural obligations, there is none in
moral obligations.
GIVE EXAMPLES OF NATURAL OBLIGATIONS.
1. 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 (Article 1424).
2. 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 (Article 1425).
3. 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 (Article 1426).
4. 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 (Article 1427).
5. 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 (Article 1428).
6. 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 (Article
1429).
7. 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 (Article 1439).
TITLE IV
ESTOPPEL (N)
WHAT IS ESTOPPEL?
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Through estoppel an admission or representation
conclusive upon the person making it, and cannot be denied
as against the person relying thereon. (Article 1431) It is a
state by virtue of which an admission or representation
conclusive upon the person making it, and cannot be denied
as against the person relying thereon.
is rendered
or disproved
condition or
is rendered
or disproved
WHAT ARE THE KINDS OF ESTOppeL?
Estoppel may be:
a. Estopple in pais (by conduct or equitable estoppel);
This may be estoppel:
a)
b)
c)
d)
e)
by
by
by
by
by
conduct or acceptance of benefits;
representation or concealment;
silence;
omission;
laches.
b. Estoppel by deed (technical estoppel (Article 1433);
This may be estoppel:
a) by deed proper (written instrument may also be in the form
of a bond or mortage;
b) by judgment as a court record.
c. Estoppe by laches (Tijam vs. Sibonghanoy, 23 SCRA 29).
DEFINE EACH KIND OF ESTOPPEL.
a. Estoppel in pais or by conduct is that which arises when one by
his acts, representations or admissions, or by his silence when he
ought to speak out, intentionally or through culpable negligence,
induces another to believe that certain facts to exist and such
other rightfully relies and acts on such belief, as a consequence of
which he would be prejudiced if the former is permitted to deny the
existence of such facts.
b. Estoppel by deed is a type of technical estoppel by virtue of which
a party to a deed and his privies are precluded from asserting as
against the other party and his privies any right or title in
derogation of the deed, or from denying any material fact asserted
therein. On the other hand, estopel by record is a type of technical
estoppel by virtue of which a party and his privies are precluded
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from denying the truth of matters set forth in a record, whether
judicial or legislative.
c. Laches, in general sense, is failure or neglect, for an unreasonable
and unexplained length of time, to do that which, by exercising
due diligence, could or should have been done earlier; it is
negligence or omission to assert a right within reasonable time,
warranting a presumption that the party entitled to assert it either
has abandoned it or declined to assert it (Tijam vs. Sibonghanoy,
supra; Heirs of Lacamen vs. Heirs of Laruan, 65 SCRA 605). It is
therefore, a type of equitable estoppel which arises when a party,
knowing his rights as against another, takes no step or delays in
enforcing them until the condition of the latter, who has no
knowledge or notive that the former would assert such rights, has
become so changed that he cannot, without injury or prejudice, be
restored to his former state.
WHAT IS THE BASIS OF THE DOCTRINE OF LACHES?
The doctrine of laches or of “stale demands” is based on public
policy which requires, for the peace of society, the discouragement of
stale claims and, unlike the statute of limitations, is not a mere question
of time but is principally a question of the inequity or unfairness of
permitting a right or claim to be enforced or asserted (Tijam vs.
Sibonghanoy, supra).
WHAT ARE THE ESSENTIAL ELEMENTS OF LACHES?
The four (4) essential elements of laches are:
a. Conduct on the part of the defendant, or of one under whom he
claims, giving rise to the situation of which the complaint seeks a
remedy;
b. 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;
c. Lack of knowledge or notice on the part of the defendant that the
complainant would assert the right on which he bases his suit;
and
d. Injury or prejudice to the defendant in the event relief is accorded
to the complainant, or the suit is not held barred (Miguel vs.
Catalino, 26 SCRA 234 and cases cited therein).
DISTINGUISH BETWEEN LACHES AND PRESCRIPTION.
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The defense of laches applies independently of prescription. Laches
is different from the statute of limitations in that:
a) Prescription is concerned with the fact of delay, whereas laches is
concerned with the effect of delay.
b) Prescription is a matter of time; laches is principally a question of
inequity of permitting a claim to be enforced, this inequity being
founded on some change in the condition of the property or the
relation of the parties.
c) Prescription is statutory; laches is not.
d) Laches applies in equity; whereas prescription applies at law.
e) Prescription is based on fixed time, laches is not. 6
f) While prescription is unavailing against a holder of a valid certificate
of title, the equitable doctrine of laches may be applied against the
plaintiffs for failure to assert their ownership for such an
unreasonable length of time against its occupant. 7
WHAT IS MEANT BY ESTOPPEL BY SILENCE?
Estoppel by silence or inaction refers to a type of estoppel in pais
which arises when a party, who has a right and opportunity to speak or
act as well as a duty to do so under the circumstanc4es, intentionally or
through culpable negligence, induces another to believe certain facts to
exist and such other relies and acts on such belief, as a consequence of
which he would be prejudiced if the former is permitted to deny the
existence of such facts.
On the other hand, estoppel by acceptance of benefits refers to a
type of estoppel in pais which arises when a party, by accepting benefits
derived from a certain act or transaction, intentionally or through
culpable negligence, induces another to believe certain facts to exist and
such other relies and acts on such belief, as a consequence of which he
would be prejudiced if the former is permitted to deny the existence of
such facts.
GIVE AN EXAMPLE OF ESTOPPEL BY SILENCE.
Nielson & Co., Inc. v. Lepanto Consolidated Mining Co., 18 SCRA 1040, December 17,
1966, per Zaldivar, J. See also Heirs of Batiog Lacamen v. Heirs of Laruan, 65 SCRA 605, 609, July
31, 1975; Radio Communication of the Philippines, Inc. v. NLRC, 223 SCRA 656; June 25, 1993;
Jimenez v. Fernandez, 184 SCRA 190, 196, April 6, 1990; Santiago v. Court of Appeals, 278 SCRA
98, August 21, 1997, per Hermosisima, Jr. J.
7
Republic vs. Court of Appeals, 204 SCRA 160 [1991].
6
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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. (Article 1437)
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. (Article 1438)
WHAT IS MEANT BY ESTOPPEL BY JUDGMENT?
Estoppel by judgment is merely a type of estoppel by record. It may
be defined as the preclusion of a party to a case from denying the facts
adjudicated by a court of competent jurisdiction.
This type of estoppel must not be confused with res judicata.
Estoppel by judgment bars the parties from raising any question that
might have been put in issue and decided in a previous litigation,
whereas res judicata makes a judgment conclusive between the same
parties as to the matter directly adjudged (Phil. Nat’l. Bank vs. Barreto,
52 Phil. 818; NAMARCO vs. Macadaeg, 52 Off. Gaz. 182).
WHAT
IS THE EFFECT IF 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?
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 (Article 1434).
WHAT
IS THE EFFECT IF A PERSON IN REPRESENTATION OF ANOTHER
SELLS OR ALIENATES A THING VIZ A VIS THE BUYER OR GRANTEE?
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 (Article 1435).
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CAN A LESSEE OR BAILEE ASSERT TITLE TO THE THING LEASED OR
RECEIVED?
A lessee or a bailee is estopped from asserting title to the thing
leased or received, as against the lessor or bailor (Article 1436).
WHO ARE THE PERSONS BOUND BY ESTOPPEL?
Estoppel is effective only as between the parties thereto or their
successors-in-interest (Article 1439).
TITLE V
TRUSTS (N)
CHAPTER 1
GENERAL PROVISIONS
DEFINE TRUST.
Trust may be defined as the legal relationship between one person
having an equitable ownership over a certain property and another
having the legal title thereto.
WHO ARE THE PARTIES TO A TRUST?
A person who establishes a trust is called the trustor (or settler);
one in whom confidence is reposed as regards the property for the benefit
of another person is known as the trustee (he holds the property in trust
for the benefit of another); and the person for whose benefit the trust has
been created is referred to as the beneficiary or cestui que trust (Article
1440). The trustor may at the same time be the beneficiary.
GIVE AND DEFINE THE DIFFERENT KIND OF TRUSTS.
Trusts are either express or implied.
EXPRESS TRUSTS are created by the intention of the trustor or of the
parties.
IMPLIED TRUSTS come into being by operation of law (Article 1441).
They are those which, without being expressed, are deducible from the
nature of the transaction as matters of intent, or which are superinduced
on the transaction by operation of law as matters of equity, independently
of the particular intention of the parties. They are ordinarily subdivided
into resulting and constructive trusts.
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Implied trusts may be resulting or constructive.
A RESULTING TRUST (bare or passive trust), in its more restricted
sense, is a trust raised by implication of law and presumed always to
have been contemplated by the parties, the intention as to which is to be
found in the nature of the transaction, but not expressed in the deed or
instrument of conveyance.
A CONSTRUCTIVE TRUST, in its more restricted sense, as
contradistinguished from a resulting trust, is a trust not created by
words, either expressly or impliedly evincing a direct intention to create a
trust, but by the construction of equity in order to satisfy the demands of
justice. If a person obtains legal title to property by fraud or
concealment, courts of equity will impress upon the title a so-called
constructive trust in favor of the defrauded party (Ramos vs. Ramos, 61
SCRA 284). A constructive trust is not, therefore, a trust in the technical
sense (Article 1456).
DISTINGUISH BETWEEN EXPRESS TRUST AND IMPLIED TRUST.
Express trust and implied trust may be distinguished from each
other in the following ways:
a) Express trust is one created by the intention of the trustor or of the
parties, while an implied trust is one that comes into being by
operation of law.
b) Express trusts are those created by the direct and positive acts of the
parties, by some writing, or deed, or will, or by words evidencing an
intention to create a trust. On the other hand, implied trusts are
those which, without being expressed, are deducible from the nature
of the transaction by operation of law as matters of equity,
independently of the particular intention of the parties.
c) Thus, if intent to establish a trust is clear, the trust is express; if the
intent to establish a trust is to be taken from the circumstances or
other matters indicative of such intent, then the trust is implied
(Cuaycong vs. Cuaycong, 21 SCRA 1192).
d) No express trust concerning an immovable or any interest therein
may be proved by parol evidence (Article 1443), while the existence of
an implied trust may be proved by parol evidence.
e) Laches and prescription do not constitute a bar to enforce an express
trust, at least while the trustee does not openly repudiate the trust,
and make known such repudiation to the beneficiary, while laches
and prescription may constitute a bar to enforce an implied trust, and
no repudiation is required unless there is a concealment of the facts
giving rise to the trust (Fabian vs. Fabian, 21 SCRA 213).
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WHAT ARE THE CHARACTERISTICS OF TRUST?
a. It is a fiduciary relationship.
b. It is created by law or by agreement.
c. It is one where the legal title is held by one, and the equitable title
or beneficial title is held by another.
HOW IS TRUST DISTINGUISHED FROM STIPULATION POUR AUTRUI?
a. A trust may exist because of a legal provision or because of an
agreement; a stipulation pour autrui can arise only in the case of
contracts.
b. A trust refers to specific property; a stipulation pour autrui refers to
specific property or to other things.
CHAPTER 2
EXPRESS TRUSTS
WHAT ARE THE FORMALITIES OF EXPRESS TRUSTS?
No express trusts concerning an immovable or any interest therein
may be proved by parol evidence (Article 1443). Therefore:
a. The requirement that the express trust be in writing is only for
enforceability, not for validity between the parties. Hence, this
Article may by analogy be included under the Statute of Frauds.
b. By implication, for a trust over personal property, an oral
agreement is valid and enforceable between the parties.
c. Regarding third persons, the trust must be in a public instrument
and registered in the Registry of Property, if it concerns real
property.
HOW IS AN EXPRESS TRUST CREATED?
No particular words are required for the creation of an express
trust, it being sufficient that a trust is clearly intended (Article 1444). An
express trust is therefore created:
a. By conveyance to the trustee by an act inter vivos or mortis causa
(as in a will).
b. By admission of the trustee that he holds the property only as
trustee.
WHAT IS THE EFFECT OF THE EXPRESS TRUST IF THE TRUSTEE APPOINTED
DECLINES THE DESIGNATION?
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No trust shall fail because the trustee appointed declines the
designation, unless the contrary should appear in the instrument
constituting the trust. (Article 1445)
WHAT IS REQUIRED IN ORDER TO CREATE AN EXPRESS TRUST?
Acceptance by the beneficiary is necessary. Nevertheless, if the
trust imposes no onerous condition upon the beneficiary, his acceptance
shall be presumed, if there is no proof to the contrary. (Article 1446)
HOW ARE EXPRESS TRUSTS ENDED?
a.
b.
c.
d.
e.
f.
g.
h.
Mutual agreement by all the parties
Expiration of the term
Fulfillment of the resolutory condition
Rescission or annulment (as in contracts)
Loss of the subject matter of the trust
Order of the court
Merger
Accomplishment of the purpose of the trust
CHAPTER 3
IMPLIED TRUSTS
In Cabacungan vs. Laigo, G.R. No. 175073, August 15, 2011, the
SC explained as follows:
“A trust is the legal relationship between one person having an
equitable ownership of property and another person owning the legal title
to such property, the equitable ownership of the former entitling him to
the performance of certain duties and the exercise of certain powers by
the latter. Trusts are either express or implied. Express or direct trusts
are created by the direct and positive acts of the parties, by some writing
or deed, or will, or by oral declaration in words evincing an intention to
create a trust. Implied trusts - also called "trusts by operation of law,"
"indirect trusts" and "involuntary trusts" - arise by legal implication
based on the presumed intention of the parties or on equitable principles
independent of the particular intention of the parties. They are those
which, without being expressed, are deducible from the nature of the
transaction as matters of intent or, independently of the particular
intention of the parties, as being inferred from the transaction by
operation of law basically by reason of equity.
Implied trusts are further classified into constructive trusts and
resulting trusts. Constructive trusts, on the one hand, come about in
the main by operation of law and not by agreement or intention. They
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arise not by any word or phrase, either expressly or impliedly, evincing a
direct intention to create a trust, but one which arises in order to satisfy
the demands of justice. Also known as trusts ex maleficio, trusts ex
delicto and trusts de son tort, they are construed against one who by
actual or constructive fraud, duress, abuse of confidence, commission of
a wrong or any form of unconscionable conduct, artifice, concealment of
questionable means, or who in any way against equity and good
conscience has obtained or holds the legal right to property which he
ought not, in equity and good conscience, hold and enjoy. They are aptly
characterized as "fraud-rectifying trust," imposed by equity to satisfy the
demands of justice and to defeat or prevent the wrongful act of one of the
parties. Constructive trusts are illustrated in Articles 1450, 1454, 1455
and 1456.
On the other hand, resulting trusts arise from the nature or
circumstances of the consideration involved in a transaction whereby one
person becomes invested with legal title but is obligated in equity to hold
his title for the benefit of another. This is based on the equitable doctrine
that valuable consideration and not legal title is determinative of
equitable title or interest and is always presumed to have been
contemplated by the parties. Such intent is presumed as it is not
expressed in the instrument or deed of conveyance and is to be found in
the nature of their transaction. Implied trusts of this nature are hence
describable as "intention-enforcing trusts." Specific examples of resulting
trusts may be found in the Civil Code, particularly Articles 1448, 1449,
1451, 1452 and 1453.
Articles 1448 to 1456 of the Civil Code enumerate cases of implied
trust, but the list according to Article 1447 is not exclusive of others
which may be established by the general law on trusts so long as the
limitations laid down in Article 1442 are observed, that is, that they be
not in conflict with the New Civil Code, the Code of Commerce, the Rules
of Court and special laws.
While resulting trusts generally arise on failure of an express trust
or of the purpose thereof, or on a conveyance to one person upon a
consideration from another (sometimes referred to as a "purchase-money
resulting trust"), they may also be imposed in other circumstances such
that the court, shaping judgment in its most efficient form and
preventing a failure of justice, must decree the existence of such a
trust. A resulting trust, for instance, arises where, there being no fraud
or violation of the trust, the circumstances indicate intent of the parties
that legal title in one be held for the benefit of another. It also arises in
some instances where the underlying transaction is without
consideration, such as that contemplated in Article 1449 of the Civil
Code. Where property, for example, is gratuitously conveyed for a
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particular purpose and that purpose is either fulfilled or frustrated, the
court may affirm the resulting trust in favor of the grantor or
transferor, where the beneficial interest in property was not intended to
vest in the grantee.
Intention - although only presumed, implied or supposed by law
from the nature of the transaction or from the facts and circumstances
accompanying the transaction, particularly the source of the
consideration - is always an element of a resulting trust and may be
inferred from the acts or conduct of the parties rather than from direct
expression of conduct. Certainly, intent as an indispensable element, is a
matter that necessarily lies in the evidence, that is, by evidence, even
circumstantial, of statements made by the parties at or before the time
title passes. Because an implied trust is neither dependent upon an
express agreement nor required to be evidenced by writing, Article
1457 of our Civil Code authorizes the admission of parole evidence to
prove their existence. Parole evidence that is required to establish the
existence of an implied trust necessarily has to be trustworthy and it
cannot rest on loose, equivocal or indefinite declarations.”
WHAT ARE EXAMPLES OF RESULTING TRUSTS?
a) There is an implied trust when property is sold, and the legal estate is
granted to one party but the price is paid by another for the purpose
of having the beneficial interest of the property. The former is the
trustee, while the latter is the beneficiary. However, if the person to
whom the title is conveyed is a child, legitimate or illegitimate, of the
one paying the price of the sale, no trust is implied by law, it being
disputably presumed that there is a gift in favor of the child. (Article
1448)
b) There is also an implied trust when a donation is made to a person
but it appears that although the legal estate is transmitted to the
donee, he nevertheless is either to have no beneficial interest or only a
part thereof. (Article 1449)
c) When land passes by succession to any person and he causes the
legal title to be put in the name of another, a trust is established by
implication of law for the benefit of the true owner. (Article 1451)
d) If two or more persons agree to purchase property and by common
consent the legal title is taken in the name of one of them for the
benefit of all, a trust is created by force of law in favor of the others in
proportion to the interest of each. (Article 1452)
e) When property is conveyed to a person in reliance upon his declared
intention to hold it for, or transfer it to another or the grantor, there is
an implied trust in favor of the person whose benefit is contemplated.
(Article 1453)
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WHAT IS AN EXAMPLE OF CONSTRUCTIVE TRUST?
a. If the price of a sale of property is loaned or paid by one person for
the benefit of another and the conveyance is made to the lender or
payor to secure the payment of the debt, a trust arises by
operation of law in favor of the person to whom the money is
loaned or for whom it is paid. The latter may redeem the property
and compel a conveyance thereof to him. (Article 1450)
b. If an absolute conveyance of property is made in order to secure
the performance of an obligation of the grantor toward the grantee,
a trust by virtue of law is established. If the fulfillment of the
obligation is offered by the grantor when it becomes due, he may
demand the reconveyance of the property to him. (Article 1454)
c. When any trustee, guardian or other person holding a fiduciary
relationship uses trust funds for the purchase of property and
causes the conveyance to be made to him or to a third person, a
trust is established by operation of law in favor of the person to
whom the funds belong. (Article 1455)
d. If property is acquired through mistake or fraud, the person
obtaining it is, by force of law, considered a trustee of an implied
trust for the benefit of the person from whom the property comes.
(Article 1456)
WHAT
IS THE PERIOD OF PRESCRIPTION OF AN
RECONVEYANCE OF REAL PROPERTY BASED ON IMPLIED TRUST?
ACTION
FOR
It depends:
a) If the action for reconveyance involves the annulment of a voidable
contract which became the basis for the fraudulent registration of the
subject property, then the period of prescription is 4 years from the
discovery of the fraud. This finds codal support in Article 1391, par. 4
of the Civil Code (Gerona vs. De Guzman, 11 SCRA 153; Fabian vs.
Fabian, 22 SCRA 231; Carantes vs. Court of Appeals, 76 SCRA 514;
Alarcon vs. Bidin, 120 SCRA 390).
b) If the action does not involve the annulment of a contract, but there
was fraud in the registration of the subject property, then the period
of prescription is 10 years from the discovery of the fraud. This finds
codal support in Article 1144, No. 2 (Bueno vs. Reyes, 27 SCRA 1179;
Varsity Hills, Inc. vs. Navarro, 43 SCRA 503; Escay vs. Court of
Appeals, 61 SCRA 360; Jaramil vs. Court of Appeals, 78 SCRA 420;
Vda. De Nacalaban vs. Court of Appeals, 80 SCRA 428; Duque vs.
Domingo, 80 SCRA 654).
c) If the action involves the declaration of nullity or inexistence of a void
or inexistent contract which became the basis for the fraudulent
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registration of the subject property, then the action is imprescriptible.
This finds codal support in Article 1410 (Article Tongoy vs. Court of
Appeals, 123 SCRA 718).
d) If the action for reconveyance is in reality an action to quiet title and
the legitimate owner of the subject property which was fraudulently
registered in the name of another had always been in possession
thereof so that the constructive notice rule cannot be applied, then
the action is imprescriptible (Caragay-Lagno vs. Court of Appeals, 133
SCRA 718).
CAN A TRUSTEE ACQUIRE ABSOLUTE OWNERSHIP OVER THE PROPERTY
HELD IN TRUST BY ACQUISITIVE PRESCRIPTION?
Whether the trust is express or implied, as a general rule, the
trustee cannot acquire absolute ownership over the trust by acquisitive
prescription.
However, if (1) he repudiates the right of the beneficiary; and (2)
such act of repudiation is brought to the knowledge of the beneficiary,
and (3) the evidence thereon is clear and conclusive, he may be able to
acquire absolute ownership over the trust but only (4) after the lapse of
the period fixed by law.
HOW MAY IMPLIED TRUST BE PROVED?
An implied trust may be proved by oral evidence. (Article 1457)
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