151646308 Oblicon Prof Crisostomo Uribe

CIVIL LAW REVIEW II OBLIGATIONS & CONTRACTS  Atty.  Atty. Crisostomo Uribe - Course Outline (Dec. 2009)

Donnell R. Agaton | Recoletos de Manila - College of Law

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The heirs can recover the excess e xcess from Y. Y. This is because the payment is not voluntary. A filed an action to compel B to fulfill the latter’s obligation to the former, will the action prosper? Not necessarily because in natural actions no court action can compel performance because it is an action based on equity, conscience and natural  justice. Natural obligations are midway between civil obligations and the purely moral obligations. In order that there may be a natural obligation, there must exist a juridical tie (vinculum juris) which is not prohibited by law and which in itself could give a cause of action, but because of some special circumstances is actually without such legal sanction or means of enforcing compliance by invoking the intervention of the court. Basis: Art. 1423 Obligations are civil or natural. Civil obligations give a right of action to compel their performance. Natural obligations, not being based on positive law but on equity performance, but after voluntary fulfillment by the obligor, they authorize the retention of what has been delivered or rendered by reason thereof. Some natural obligations are set forth in the following articles.

What are the conditions necessary for the existence of natural obligation? 1. That there be be a juridical juridical tie between between two persons. 2. This tie is is not given effect effect by by law. law. What is the distinction between a moral obligation and a natural obligation? Moral Obligation Ther There e is is no no jur jurid idica icall tie tie..

Natural Obligation Ther There e is is a juri juridi dica call tie tie..

It is an act of pure liberality It is a legal fulfillment of an which springs from blood, obligation. affection, or benevolence.

It is within the domain of morals.

It is within the domain of law.

X died, his heirs are ABC, ABC paid to Y 10 million 2 days after X’s death, after 6 months thereafter the heirs are trying to recover the excess because the estate is only 3 million. Can the heirs recover the excess of 7 million from Y?

In natural obligation, if the payer voluntarily paid, the creditor has the right to retain what he has paid. The test on whether an act is voluntary is whether the person knew that they cannot be compelled to pay but nonetheless they pay. pay. In this case, it could not be said that the payment is voluntary because when the heirs paid the amount of 10 million, it was only 2 days after the death of X, and by that time normally, the heirs still don’t know the estate of the decedent and that they would receive less. When is an act voluntary with respect to performance of a natural obligation? It is voluntary when the payer paid without fraud, threat, or any vitiation being employed. Most importantly, the payer knew that he is not compelled to pay but the payer nonetheless paid. The reason why a person who is not legally obligated to pay, voluntary pays because of CONSCIENCE. A executed a promissory note date Feb. 1, 1994 stating that “I promise to pay X the amount of 1 million, and signed by him”. To this day December 6, 2009, more than 10 years had lapsed, may X still recover from A? It may be inferred that the obligation is a pure obligation demandable at once, and as such it is due and demandable on Feb. 1 1994. Therefore the action had already prescribed because more than 10 years had lapsed from Feb. 2, 1994. This scenario may be applicable in a contract of sale. When if ever A paid to X the amount of 1 million to Y despite its prescription, A cannot recover from X because such is his natural obligation, provided it has been made voluntarily which means he knew that he is not compelled to pay but nonetheless paid it. However, when the contract is one of loan as an example. The period of prescription cannot set in because a contract of loan is intended to be paid at some future time, and not demandable at once. In this instance, resort to what is intended by the parties to be the due date is controlling to determine whether or not the action had prescribed, and any payment thereafter converts it from civil obligation to a natural obligation.

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The heirs can recover the excess e xcess from Y. Y. This is because the payment is not voluntary. A filed an action to compel B to fulfill the latter’s obligation to the former, will the action prosper? Not necessarily because in natural actions no court action can compel performance because it is an action based on equity, conscience and natural  justice. Natural obligations are midway between civil obligations and the purely moral obligations. In order that there may be a natural obligation, there must exist a juridical tie (vinculum juris) which is not prohibited by law and which in itself could give a cause of action, but because of some special circumstances is actually without such legal sanction or means of enforcing compliance by invoking the intervention of the court. Basis: Art. 1423 Obligations are civil or natural. Civil obligations give a right of action to compel their performance. Natural obligations, not being based on positive law but on equity performance, but after voluntary fulfillment by the obligor, they authorize the retention of what has been delivered or rendered by reason thereof. Some natural obligations are set forth in the following articles.

What are the conditions necessary for the existence of natural obligation? 1. That there be be a juridical juridical tie between between two persons. 2. This tie is is not given effect effect by by law. law. What is the distinction between a moral obligation and a natural obligation? Moral Obligation Ther There e is is no no jur jurid idica icall tie tie..

Natural Obligation Ther There e is is a juri juridi dica call tie tie..

It is an act of pure liberality It is a legal fulfillment of an which springs from blood, obligation. affection, or benevolence.

It is within the domain of morals.

It is within the domain of law.

X died, his heirs are ABC, ABC paid to Y 10 million 2 days after X’s death, after 6 months thereafter the heirs are trying to recover the excess because the estate is only 3 million. Can the heirs recover the excess of 7 million from Y?

In natural obligation, if the payer voluntarily paid, the creditor has the right to retain what he has paid. The test on whether an act is voluntary is whether the person knew that they cannot be compelled to pay but nonetheless they pay. pay. In this case, it could not be said that the payment is voluntary because when the heirs paid the amount of 10 million, it was only 2 days after the death of X, and by that time normally, the heirs still don’t know the estate of the decedent and that they would receive less. When is an act voluntary with respect to performance of a natural obligation? It is voluntary when the payer paid without fraud, threat, or any vitiation being employed. Most importantly, the payer knew that he is not compelled to pay but the payer nonetheless paid. The reason why a person who is not legally obligated to pay, voluntary pays because of CONSCIENCE. A executed a promissory note date Feb. 1, 1994 stating that “I promise to pay X the amount of 1 million, and signed by him”. To this day December 6, 2009, more than 10 years had lapsed, may X still recover from A? It may be inferred that the obligation is a pure obligation demandable at once, and as such it is due and demandable on Feb. 1 1994. Therefore the action had already prescribed because more than 10 years had lapsed from Feb. 2, 1994. This scenario may be applicable in a contract of sale. When if ever A paid to X the amount of 1 million to Y despite its prescription, A cannot recover from X because such is his natural obligation, provided it has been made voluntarily which means he knew that he is not compelled to pay but nonetheless paid it. However, when the contract is one of loan as an example. The period of prescription cannot set in because a contract of loan is intended to be paid at some future time, and not demandable at once. In this instance, resort to what is intended by the parties to be the due date is controlling to determine whether or not the action had prescribed, and any payment thereafter converts it from civil obligation to a natural obligation.

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For a natural obligation to arise does it require that that there is an agreement?

therefore, the transformation of the natural obligation into a civil obligation.

Not necessarily. It may either be a with or without an agreement. Why? go figure.

Illicit obligations:

When shall natural obligation be converted into civil obligation? The signing of a document has generally the effect of converting a natural obligation to a civil obligation. The signer renounces the defense which prevents enforcement of the obligation, which can thereafter be the basis of a judicial action. The promise to perform a natural obligation is as effective as performance itself, and converts the obligation into a civil obligation. A prescribed debt of the deceased mother of the debtor was held to be a sufficient consideration to make a valid and effective the promise of the son to pay the same ( Villaroel vs. Estrada 71 Phil 140) Note however, that promise to perform must be voluntary. Therefore, payment by mistake is not voluntary and may be recovered. One who pays a natural obligation believing it to be civil, does not thereby recognize the natural obligation; and there being no civil obligation either, he can recover what he has paid. Note: Partial payment of an obligation does not generally convert such into a civil obligation, the part paid cannot be recovered but, the part not paid cannot be enforced, except when such natural obligation is one that is subject to ratification or confirmation, the partial payment converts it into a civil obligation (novation or natural obligation by prescription), except when the same is contrary to law, morals or public order. ord er. Guaranty of natural obligation; when considered a civil obligation: Generally, in principle, a natural obligation cannot be guaranteed because the liability of the guarantor presupposes that there must be a prior exhaustion of the property of the principal debtor, and that the debtor after paying can recover from the principal debtor- and both of this cannot legally be done when the obligation is natural. However, because of Art. 2052 A natural obligation may be guaranteed. What really happens is that the guaranty of the natural obligation changes its character. When the debtor offers a guarantor for his natural obligation, he impliedly accepts the coercive remedies to enforce the guaranty, and

Obligations which are contrary to morals and good customs do not constitute natural obligations, as such any payment can be recovered except when both are in pari delicto, or when one was at fault (see arts. 1411 and 1412).

Art. 1424 When a right to sue upon a civil obligation has lapsed by extinctive prescription, the obligor who voluntarily performs the contract cannot recover what he has delivered or the value of the service he has rendered. Art. 1425 When without the knowledge or against the will of the debtor, a third person pays a debt which the obligor is not legally bound to pay because the action thereon has prescribed, but the debtor later voluntarily reimburses the third person, the obligor cannot recover what he has paid. Art. 1426 When a minor between (18 and 21) 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. Note: When a contract is annulled the parties are bound to make mutual restitution. However, when the ground of annulment is the incapacity of a person to enter into contract, such as minority, he is not bound to make restitution except to the extent that he was benefited. If there is no benefit he likewise not bound to make restitution. However, he has a natural obligation to do so, and he make a restitution (voluntarily) he cannot recover what he has delivered. Note: The minor cannot recover what he has voluntarily returned whether or not the other party still has it in his possession. Art. 1427 When a minor (between 18 and 21 years of age), who has entered into a contract (annulable but not yet annulled) without the consent of the parent or guardian, voluntarily pays a sum of money or delivers a fungible thing (means consumable) 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. Generally when a contract is annulled, there will be mutual restitution, except when the party who enters into a contract is a minor, he is not bound to 3

make restitution of the thing received by him except to the extent he was benefited. If he is not obliged to make restitution, but he nevertheless returns the same, he can no longer recover because such is a natural obligation. Under this article however, there is no natural obligation contemplated but a case of a civil obligation under an annullable contract. Compared to Art. 1426 the contract was already annulled, but Art. 1427, the contract is not yet annulled. Hence, the same is valid and is enforceable unless it is set aside by competent court in an action for that purpose. Any return made by the minor can be recovered, except when the creditor or obligee has spent or consumed it in good faith. How good faith of creditor established: Belief of the creditor that the debtor has capacity to deliver the object of the contract. Note: If the thing delivered is non-consumable, the debtor cannot recover if the thing delivered is no longer in the possession of the creditor who has acted in good faith, either because he has alienated it or it has been lost. Art. 1428 When, after an action to enforce a civil obligation has failed, the defendant voluntarily performs the obligation, he cannot demand the return of what he has delivered or the payment of the value of the service he has rendered. Art. 1429 When a testate or intestate heir voluntarily pays a debt of the decedent exceeding the value of the property which he received by will or by the law of intestacy from the estate of the deceased, the payment shall be valid and cannot be rescinded by the payer. Art. 1430 When a will is declared void because it has not been executed, 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.

PRESCRIPTION OF ACTIONS Art. 1139. Actions prescribe by the mere lapse of time fixed by law. (1961) Note: The mere delay in the enforcement of a claim does not result in any reduction or loss of right, unless the period required by law for prescription has expired.

Prescription is only a defense and not a basis of right of action. It must be defensively pleaded otherwise it is deemed waived if not timely raised or pleaded before or during the hearing of the case. Art. 1140. Actions to recover movables shall prescribe eight years from the time the possession thereof is lost, unless the possessor has acquired the ownership by prescription for a less period, according to Articles 1132, and without prejudice to the provisions of Articles 559, 1505, and 1133. (1962a) Art. 1132. The ownership of movables prescribes through uninterrupted possession for four years in good faith. The ownership of personal property also prescribes through uninterrupted possession for eight years, without need of any other condition. With regard to the right of the owner to recover personal property lost or of which he has been illegally deprived, as well as with respect to movables acquired in a public sale, fair, or market, or from a merchant's store the provisions of Articles 559 and 1505 of this Code shall be observed. (1955a) Art. 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. (464a) Art. 1595. Where, under a contract of sale, the ownership of the goods has passed to the buyer and he wrongfully neglects or refuses to pay for the goods according to the terms of the contract of sale, the seller may maintain an action against him for the price of the goods. Where, under a contract of sale, the price is payable on a certain day, irrespective of delivery or of transfer of title and the buyer wrongfully neglects or refuses to pay such price, the seller may maintain an action for the price although the ownership in the goods has not passed. But it shall be a defense to such an action that the seller at any time before the judgment in such action has manifested an inability to perform the contract of sale on his part or an intention not to perform it. Although the ownership in the goods has not passed, if they cannot readily be resold for a reasonable price, and if the provisions of article 1596, fourth paragraph, are not applicable, the seller may offer to deliver the goods to the buyer, and, if the buyer refuses to receive them, may notify the buyer that the goods are thereafter held by the seller as bailee for the buyer. Thereafter the seller may treat the goods as the buyer's and may maintain an action for the price. (n)

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Art. 1133. Movables possessed through a crime can never be acquired through prescription by the offender. (1956a)

Art. 1141. Real actions over immovables prescribe after thirty years. This provision is without prejudice to what is established for the acquisition of ownership and other real rights by prescription. (1963) Art. 1142. A mortgage action prescribes after ten years. (1964a) If the action to recover the mortgage debt itself has prescribed, the action to recover the interest must also prescribed. Art. 1143. The following rights, among others specified elsewhere in this Code, are not extinguished by prescription: (1) To demand a right of way, regulated in Article 649; (2) To bring an action to abate a public or private nuisance. (n) No prescription shall run in favor of a co-owner or co heir against his co-owners or co-heirs so long as he expressly or impliedly recognize the coownership, otherwise acquisitive prescription may set in. Art. 1144. The following actions must be brought within ten years from the time the right of action accrues: (1) Upon a written contract; (2) Upon an obligation created by law; (3) Upon a judgment. (n) When property is registered in another’s name, an implied or constructive trust is created by law in favor of the true owner. The action for reconveyance of the title to the rightful owner prescribes in ten years from the issuance of the title. But if fraud has been committed, and this is the basis of action, not implied trust, the action will be barred after 4 years. Art. 1145. The following actions must be commenced within six years: (1) Upon an oral contract; (2) Upon a quasi-contract. (n)

Art. 1146. The following actions must be instituted within four years: (1) Upon an injury to the rights of the plaintiff; (2) Upon a quasi-delict; However, when the action arises from or out of any act, activity, or conduct of any public officer involving the exercise of powers or authority arising from Martial Law including the arrest, detention and/or trial of the plaintiff, the same must be brought within one (1) year. (As amended by PD No. 1755, Dec. 24, 1980.) Note: A petition for quo warranto prescribes in 1 year from the date of ouster but when the plaintiff was separated from his employment for unjustifiable cause it prescribes in 4 years due to an injury to the rights of the plaintiff. An action base on fraud prescribe in 4 years from discovery of the fraud.

Art. 1147. The following actions must be filed within one year: (1) For forcible entry and detainer; (2) For defamation. (n) Art. 1148. The limitations of action mentioned in Articles 1140 to 1142, and 1144 to 1147 are without prejudice to those specified in other parts of this Code, in the Code of Commerce, and in special laws. (n) Art. 1149. All other actions whose periods are not fixed in this Code or in other laws must be brought within five years from the time the right of action accrues. (n) Note: Limitations upon the right of the government to assess and collect taxes will not be presumed in the absence of clear legislation to the contrary, and where the government has not by express statutory provision provided a limitation upon its right to assess unpaid taxes, such right is imprescriptible. Art. 1150. The time for prescription for all kinds of actions, when there is no special provision which ordains otherwise, shall be counted from the day they may be brought. (1969) The moment the right or duty occurs, then the right of action accrues, and the action can be legally instituted; from that moment, therefore, the period of prescription of action begins to run.

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When an obligation is subject to a suspensive condition, prescription runs only from the happening of the condition. Where the obligation is without date of maturity, or a note is payable on demand, prescription begins to run from the date the note or obligation and not from demand, except when the liability for the unpaid balance of a subscription to shares of a corporation, here the liability of the subscriber does not arise until call or demand for payment by the board of directors, and therefore, prescription would run only from such demand. Art. 1151. The time for the prescription of actions which have for their object the enforcement of obligations to pay principal with interest or annuity runs from the last payment of the annuity or of the interest. (1970a) Note: The period of prescription in obligations with interest runs only from the last payment of interest, is applicable only to cases where the principal debt is already due. When principal obligation is not yet due, payment of interest at stipulated intervals does not cause the running of period of prescription, which will commence only after the maturity of debt.

What is an obligation? Obligation is a juridical necessity to give, to do, or not to do (Art. 1156). Is it correct to say that the definition is not accurate, in the sense that there must be another prestation which is not to give aside from to give, to do or not to do? The definition is accurate. The obligation not to give includes not to do. Is the definition defective because it only pertains to the debtor side and it lacks the juridical relation in its entirety? The definition is not defective. The word obligation itself pertains to the debtor side, hence it is proper. The obligation pertains to the debtor and right pertains to the creditor. A person who has a right can compel the other, but he cannot be compelled to perform his right. An obligation may not be waived; but a right may be exercised or not. Rights and obligations are different matters. What is the determining factor that the definition under Art. 1156 is a civil obligation?

Art. 1152. The period for prescription of actions to demand the fulfillment of obligation declared by a  judgment commences from the time the judgment became final. (1971)

Because of the phrase “juridical necessity”

Art. 1153. The period for prescription of actions to demand accounting runs from the day the persons who should render the same cease in their functions.

1. 2. 3. 4.

The period for the action arising from the result of the accounting runs from the date when said result was recognized by agreement of the interested parties. (1972)

Who are the subjects of an obligation?

Art. 1154. The period during which the obligee was prevented by a fortuitous event from enforcing his right is not reckoned against him. (n)

In a contract of lease, who is the active subject; the passive subject?

Art. 1155. The prescription of actions is interrupted when they are filed before the court, when there is a written extrajudicial demand by the creditors, and when there is any written acknowledgment of the debt by the debtor. Note: The extinctive prescription is interrupted when the creditor made a demand before the lapse of the period fixed by law. A verbal demand upon the debtor is not sufficient to interrupt or renew the prescriptive period.

What are the essential elements of obligation? Active subject Passive subject Juridical tie (vinculum juris) Prestation

1. Active subject (creditor) 2. Passive subject (debtor)

Since it is considered a reciprocal obligation (bilateral contract), both the lessee and the lessor may be considered the passive or active subjects, depending on the aspects of delivery of the property or payment of rent. In the delivery of the property to the lessor is the passive subject and the lessee is the active subject. The former is obliged to deliver the property subject of the lease to the lessee.

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In the case of payment, the lessee is the passive subject, and the lessor is the active subject. The lessee is obliged to pay the amount of rent to the lessor.

2. It must be determinate, or at least determinable according to pre-established elements or criteria; and 3. it must have a possible equivalent in money.

In a contract of sale, who is the active and the passive subject?

Note: The prestation need not actually be of pecuniary value. The criterion to determine whether an obligation has a pecuniary value is not limited to the object or prestation thereof, but extends to the sanction which corresponds to the juridical duty.

 In a contract of sale, since it is a reciprocal obligation (bilateral contract) both the seller and the buyer may be considered the passive and the active subject depending on whether it is for payment of the amount of the thing sold, and on the obligation to deliver the thing subject of the sale. What is the reason why a debtor considered a passive subject? He is considered a passive subject because in the absence of demand from the creditor the debtor could just wait, and let the prescription run in favor of the debtor. If the creditor does not demand for the performance of the obligation, there will be no compulsion. There must be proof of demand in writing. Is there an instance in case of consignation a right may be exercised? None. Consignation is a legal obligation. An obligation and a right are two different concepts.

Therefore, the creditor’s interest need not be economic or patrimonial; it may be sentimental, moral or ideal. But the object of prestation must have an economic value or in case of nonfulfillment, be susceptible of substitution in money or something of patrimonial value. What is a juridical tie or vinculum juris? It is the efficient cause, juridical tie, or legal tie which binds the parties established either by (any source of an obligation): a. law b. bilateral acts c. unilateral acts (crimes or quasi-delicts) What obligation has no juridical tie?

Should an obligation and a right co-exist?

Moral obligations has no juridical tie because it is an act of pure liberality which springs from blood, affection or benevolence. It is within the domain of morals.

Yes. If someone has an obligation somebody is going to have a right.

What are the sources of obligations which binds the parties?

Is there an instance where a right and an obligation pertain to the same person?

1. 2. 3. 4. 5.

Yes there are is an instance where an obligation and a right pertain to the same person, such that the person acquired such right as in the case of confusion. What is the object (prestation) of an obligation? The object of an obligation is nothing but a particular conduct of the debtor. The thing is not the object of the obligation; it is his conduct necessary to produce the effects of the obligation whether it is an obligation to give, to do or not to do. It may involve a thing in an obligation to give.

Law Contracts Quasi-Contracts Delicts Quasi Delicts (Art. 1157)

Unilateral Promises; a source of obligation Generally a unilateral promise before acceptance is not binding, except by a unilateral declaration of the will with intent to be bound to a particular person. Is the enumeration exclusive? Yes. The enumeration is exclusive as provided in the case of Sagrada Orden vs. Nacoco where the SC rationalized that (not in the express manner)

What are the requisites of prestation or object? 1. It must be possible, physically and juridically

Give an instance where 2 or more sources of obligation exist at the same time?

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In the case Saludaga v. FEU,  April 30, 2008 the court ruled that the school shall be held liable for damages for breach of contract in the school’s obligation to provide students with a safe and secure learning atmosphere. FEU breached the school-student contract for negligence on its obligation to ensure and take adequate steps to maintain peace and order within the campus. It found that FEU had failed to undertake measures to ascertain and confirm that the security guards assigned in the campus possess the qualifications required in the Security Service Agreement between FEU and Galaxy (Security agency). The Court also ordered Galaxy and its president, Mariano D. Imperial, to jointly and severally pay FEU damages equivalent to the amount awarded to Saludaga for acts of negligence that resulted to FEU’s breach of obligation to its student. Galaxy was found negligent in the selection and supervision of its employees, as supported by the lack of administrative sanction against Alejandro Rosete, the security guard who shot Saludaga. Rosete, who was instead allowed to go on leave after the shooting incident, eventually disappeared. Hence, contract and quasi delict was applied at the same incident to hold the above named parties liable. CU: The security guard shot a movie goer because the latter tried to hack the former with a bolo. Because of this incident the heirs of the deceased filed a criminal case against the security guard. The case was dismissed, as a result of which the guard incurred expenses for the payment of his attorney and demands reimbursement from his employer. In this case, the employer is not liable to reimburse his employee to reimburse the expenses incurred by the employee in defending himself primarily because there is no law requiring such employer to reimburse.

E.g. The giving of legal assistance to the employee is not a legal obligation. While it might and possibly be regarded as a moral obligation, it does not at present count with the legal sanction of any man made law. If the employer is not legally obliged to give legal assistance to its employee to provide him with a lawyer, said employee cannot recover from the employer the amount he paid a lawyer hired by him. In obligations arising from law, who has the burden of proving the same? Generally, the person who alleges a fact has the burden of proving the same. However, there are certain facts which need not be proven. There is no need to allege such facts because the law presumes the existence of a right and presumes the existence of a fact. Who has the burden of proof in obligations arising from contracts? The obligee has the burden of proof because in Art. 1158, as expressly provided, obligations arising from law are not presumed. This is one instance where there is no presumption not to allege facts. The princess of stars: One of the deceased caused by the sinking of the ship were buried by a third person and asking later on for reimbursement from the decedent’s aunt on the expenses for the burial. Here there is an obligation arising from such act base on quasi contract under Art. 2164 (other quasi contracts) and under such provision only persons obliged to give support can be compelled to reimburse. In this case, since the aunt is not one of those persons obliged to give support cannot be compelled to reimburse the expenses for burial. 2. Contracts

The fact that the direct and proximate cause of the expenses incurred in defending himself was derived from the performance of his function does not make the employer liable because there is an efficient intervening cause which is the filing of the cases based on malicious prosecution. 1. Law Art. 1158 Obligations derived from law are not presumed. Only those expressly determined in this Code or in special laws are demandable, and shall be regulated by the precepts of law which establishes them; and as to what has not been foreseen, by the provisions of this book.

Art. 1159 Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. Note: This provision presupposes that the contract is valid and enforceable. The same should not be contrary to law, morals, good customs, public policy or public order. E.g. A contract stipulating that non payment of the loan considers the house and lot sold. This is a case of contract of loan and a promise of sale of a house and lot. Such contracts are perfectly legal,

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the agreement is the law between them, and must be enforced. E.g. The validity of restraints upon trade or employment is to be determined by the intrinsic reasonableness of the restriction in each case, rather than by any fixed rule, and such restriction may be upheld when not contrary to public welfare and not greater than is necessary to afford a fair and reasonable protection to the party in whose favor it is imposed. The contract in question is not obnoxious to the rule of reasonableness. While such restraint, if imposed as a condition of the employment of a day laborer, would at once be rejected as merely arbitrary and wholly unnecessary to the protection of the employer, it does not seem so with respect to an employee whose duties are such of necessity to give him an insight into the general scope and details of his employer’s business. The contract in this case, considering the circumstances, is not unreasonable. It must therefore be enforced. The rule in this jurisdiction have the force of law between the contracting parties. Pre-Contractual Obligations; when binding; gives rise to liability If the offer by one party is clear and definite, leading the offeree in good faith to incur expenses in the expectation of entering into the contract; and the withdrawal of the offer is without any legitimate cause. 3. Quasi Contracts Kinds of Quasi Contracts 1. Solution Indebiti 2. Negotorium Gestio 3. Other Quasi Contracts 1.

2.

Negotiorum gestio (officious management) Art 2144 Whoever voluntarily takes charge of the agency or management of the business or property of another, without any power from the latter, is obliged to continue the same until the termination of the affair and its incidents, or to require the person concerned to substitute him, if the owner is in a position to do so. This  juridical relation DOES NOT arise in either of these instances: 1) When the property or business is not neglected or abandoned 2) If in fact the manager has been tacitly authorized by the owner

delivered through mistake, the obligation to return it arises. 3. Other quasi-contracts (support given by strangers and other “Good Samaritans”) Art When, without the knowledge of the person obliged to 216 give support, it is given by a stranger, the latter shall have a right to claim the same from the former, 4 UNLESS it appears that he gave it out of piety and without intention of being repaid.

Art When funeral expenses are borne by a third person, 216 without the knowledge of those relatives who were obliged to give support to the deceased, said relatives 5

shall reimburse the third person, should the latter claim reimbursement.

Art When the person obliged to support an orphan, or an 216 insane or other indigent person unjustly refuses to give support to the latter, any third person may furnish 6

support to the needy individual, with right of reimbursement from the person obliged to give support. The provisions of this article apply when the father or mother of a child under eighteen years of age unjustly refuses to support him.

Art When through an accident or other cause a person is 216 injured or becomes seriously ill, and he is treated or helped while he is not in a condition to give consent to 7 a contract, he shall be liable to pay for the services of the physician or other person aiding him, UNLESS the service has been rendered out of pure generosity.

Art When during a fire, flood, storm, or other calamity, 216 property is saved from destruction by another person without the knowledge of the owner, the latter is bound 8 to pay the former just compensation.

Art When the government, upon the failure of any person 216 to comply with health or safety regulations concerning property, undertakes to do the necessary work, even 9 over his objection, he shall be liable to pay the expenses.

Art When by accident or other fortuitous event, movables 217 separately pertaining to two or more persons are commingled or confused, the rules on co-ownership 0 shall be applicable.

Art The rights and obligations of the finder of lost personal 217 property shall be governed by Articles 719 and 720. 1 Art The right of every possessor in good faith to 217 reimbursement for necessary and useful expenses is governed by Article 546. 2 Art When a third person, without the knowledge of the 217 debtor, pays the debt, the rights of the former are governed by Articles 1236 (recover what has been 3 beneficial to debtor) and 1237 (cannot compel creditor to subrogate payor in his rights).

Solutio indebiti (payment not due) Art 2154 If something is received when there is no right to demand it, and it was unduly 9

Art When in a small community a nationality of the 217 inhabitants of age decide upon a measure for protection against lawlessness, fire, flood, storm or 4

other calamity, any one who objects to the plan and refuses to contribute to the expenses but is benefited by the project as executed shall be liable to pay his share of said expenses.

Art Any person who is constrained to pay the taxes of 217 another shall be entitled to reimbursement from the latter. 5

Basis of Quasi Contracts: Art. 2142 Certain lawful, voluntary and unilateral acts give rise to the juridical relation of quasi contract to the end that no one shall be unjustly enriched at the expense of another. The enumeration of the provisions for quasi contracts, not exclusive: Art. 2143 The provisions for quasi contracts in this Chapter do not exclude other quasi contracts which may come within the purview of the preceding article. Note: Even if not so provided by law it may be considered as falling within the purview of quasi contract when it is lawful, unilateral and voluntary, and the underlying principle is that no one shall be unjustly enriched at the expense of another. Will there be any liability even if no one has been unjustly enriched? In case of negotorium gestio, the owner has the obligation to reimburse the gestor even if the latter has not been unjustly enriched. Therefore it would appear that the principles behind quasi contracts does not really fall under the principle of unjust enrichment. The principle behind this obligation is implied contracts, which is the consent given by the obligor. The owner left his house for a short vacation, the very night they lefts, their house was burned, the neighbors saved some of their appliances. Is there negotorium gestio in this case? The appliances are not under the management of the gestor and that there must be abandonment and neglect of the property.

4. Acts or omissions punished by law (Delicts) Under Art. 100 of the RPC provides that every person criminally liable is also civilly liable. This however is not absolutely true because there are certain felonies where no civil liability will arise even if convicted of a crime. This is because there is no private offended party in some crimes. Under Art. 104 of the RPC in addition to civil liability, restitution, reparation of damage caused, indemnification of consequential damages.  Note: It is not correct to say that every time a person is held criminally liable under this source of obligation all these kinds of liability (restitution, reparation of damage caused, and indemnification of consequential damages) would arise. Note: In justifying and exempting circumstances though a person is not held criminally liable does not necessarily mean that he is not civilly liable. In justifying circumstances, generally there would be no civil liability, except in paragraph 4 where it provides that Any person who, in order to avoid an evil or injury, does not act which causes damage to another, provided that the following requisites are present: First. That the evil sought to be avoided actually exists; Second. That the injury feared be greater than that done to avoid it; Third. That there be no other practical and less harmful means of preventing it. In exempting circumstances, generally there is civil liability except paragraph 4 where it provides that: Any person who, while performing a lawful act with due care, causes an injury by mere accident without fault or intention of causing it. Note: If there is no criminal conviction, this source of obligation will not arise but may arise from other source of obligation or quasi delict. 4. Culpa Aquiliana (Quasi Delict) Is culpa extra contractual an appropriate name for quasi delict? No. In the case of Gangco vs. MRR (38 Phil 768) obligations can be classified either from contractual obligations and extra contractual obligations. As to obligations where the source is not a contract, it can called extra contractual obligations. Therefore culpa extra contractual means negligence outside of a contract.

This case therefore falls under other quasi contracts. 10

If there is negligence outside of a contract does it mean that it would fall under quasi delict? Not necessarily because there are 4 other sources of obligations outside of a contract like negligence arising from law, but the source would be the law. In quasi contracts, under negotorium gestio, the negligence of the gestor does not necessarily mean that it would fall under quasi delict because it would fall under quasi contracts. Note: The use of the word culpa extra-contractual nowadays are no longer used by the Supreme Court. Commonly what is used is the word torts. Is torts an appropriate term for quasi delict? Torts as a name is not appropriate because it is more encompassing as it would include acts which could not be the basis of an action under quasi delict. Torts would include malicious act, intentional act, wrongful, acts punished by law. In these names, it cannot be the basis of an action for quasi delict. An action for quasi delict can only arise based on a negligent act or omission. But the Supreme Court is of the view that malicious acts, intentional acts, acts punished by law can be the basis of an action for quasi delict. It is well supported by the history of the law and the present provisions of the law. Particularly Under Art. 2176 where it provides tha t whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is called quasi delict and is governed by the provisions of this chapter (chapter on quasi-delicts). Under the old civil code, in order for one to be held liable under quasi delict, the act must not be punished by law. This phrase no longer appear under the new civil code, therefore even if the act is not punished by law it cannot be the basis of an action for quasi delict. Is Fault the same as negligence? No. Because fault would cover intentional and unintentional acts. Compliance with Obligations: How should these sources of obligations be complied with? The manner of complying with this sources of obligations.

Art. 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. Art. 1163. Every person obliged to give something is also obliged to take care of it with the proper diligence of a good father of a family, unless the law or the stipulation of the parties requires another standard of care. (1094a) Art. 1164. The creditor has a right to the fruits of the thing from the time the obligation to deliver it arises. However, he shall acquire no real right over it until the same has been delivered to him. (1095) Art. 1165. When what is to be delivered is a determinate thing, the creditor, in addition to the right granted him by Article 1170, may compel the debtor to make the delivery. If the thing is indeterminate or generic, he may ask that the obligation be complied with at the expense of the debtor. If the obligor delays, or has promised to deliver the same thing to two or more persons who do not have the same interest, he shall be responsible for any fortuitous event until he has effected the delivery. (1096) Art. 1166. The obligation to give a determinate thing includes that of delivering all its accessions and accessories, even though they may not have been mentioned. (1097a) Art. 1244. The debtor of a thing cannot compel the creditor to receive a different one, although the latter may be of the same value as, or more valuable than that which is due. In obligations to do or not to do, an act or forbearance cannot be substituted by another act or forbearance against the obligee's will. (1166a) Art. 1246. When the obligation consists in the delivery of an indeterminate or generic thing, whose quality and circumstances have not been stated, the creditor cannot demand a thing of superior quality. Neither can the debtor deliver a thing of inferior quality. The purpose of the obligation and other circumstances shall be taken into consideration. (1167a) Art. 1460. A thing is determinate when it is particularly designated or physical segregated from all other of the same class. The requisite that a thing be determinate is satisfied if at the time the contract is entered into, the thing is capable of being made determinate without the necessity of a new or further agreement between the parties. (n) Art. 442. Natural fruits are the spontaneous products of the soil, and the young and other products of animals.

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Industrial fruits are those produced by lands of any kind through cultivation or labor. Civil fruits are the rents of buildings, the price of leases of lands and other property and the amount of perpetual or life annuities or other similar income. (355a) Art. 443. He who receives the fruits has the obligation to pay the expenses made by a third person in their production, gathering, and preservation. (356)

If the sources of the obligations is the law, then the provisions of the law would provide how this source of obligation can be complied with. If it is a contract then the stipulation provide how the contract shall be complied with. If it is an obligation to give, what is the manner of compliance? It depends on what is to be given, whether it is a determinate thing or an indeterminate thing. Can there be a valid obligation to deliver a generic thing? Yes. This may arise from law and not from a contract of sale. Sale of a car or of a horse cannot be considered a valid sale. But a testamentary provision in a will which is a generic thing is valid disposition. The law expressly allows this. A testamentary provision giving an heir a car, is the testamentary provision allow the heir to reject the disposition? He may validly reject or wrongfully reject the disposition. For obligations to deliver a generic thing, the debtor cannot deliver a thing which is of inferior kind, but neither can the creditor demand a thing which is of superior quality.

In an obligation to deliver a Kia Pride, the debtor offered to deliver a BMW, can the obligation be validly extinguished? Yes, though the creditor cannot be compelled to accept, he may however want to accept. Thus, the obligation will be extinguished. Is there an exception where a debtor is obliged to deliver a thing requires a different kind of diligence in taking care of the thing other than a good father of a family? Yes, if the law requires a higher degree of diligence such as what is required of common carriers. Other than the law, is the stipulation of the parties would require a higher degree of diligence. In the absence of a law or a stipulation to that effect, the diligence of a god father of a family should be observed. Kinds of Obligations: When would an obligation become due? It depends on what kind of obligation is involved. It is wrong to say that an obligation becomes due upon demand. Since there can be no valid demand when the obligation is not yet due. Therefor demand has got nothing to with an obligation becoming due. What kind of obligations become due and demandable at once? 1. In pure obligations 2. In conditional obligations if the condition is resolutory but will be extinguished at the happening of the event. 3. In obligation with a term or period if resolutory in character but it will be extinguished at the happening of the term.

However, what is superior or inferior is a very subjective determination. What may be superior to me may be inferior to most of you.

Is there such a thing as suspensive obligation?

Therefore if the purpose of the testator is to give his car is to allow the grandson to use the car in competitions, then a car insufficient to perform in race tracks is improper. Moreover, aside from the purpose is the value of the estate which should not impair the legitime of the estate.

Is there such a thing as void condition?

In obligations to give a determinate thing, what is the manner of compliance?

Void and Valid pertain to obligations. Suspensive, potestative, etc pertains to conditions.

The primary obligation of a debtor is to give the very same thing which he promised to deliver.

A pure obligation whose performance does not depend upon a future and uncertain event or

None. It only exists in suspensive term or condition.

There is no such thing as void condition. A condition is merely an event which may or may not happen. There is nothing valid or void about conditions.

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upon a past event unknown to the parties. Is this statement valid? This is not valid. To be pure it must not be conditional and not with a term. In the above statement both the future and uncertain must both concur and this would only exclude a condition. A term can never be uncertain. It is just a space of time. An event is certain to happen. Therefore it should be or. If “and” is used, it would only exclude a condition with a condition and not those with a term. If or is used it would exclude obligations with a conditions and also those with a term. If in a promissory note, on its face it does not say or it cannot be determined whether it is conditional or pure obligation. But there is a provision in the note that upon receipt from the estate there is no assurance that the creditor will receive in the estate, which presupposes a conditional obligation. Note however, the court treated it as a pure obligation because...... (Pay vs. Palanca) What is the consequence of a pure obligation or a conditional obligation but resolutory in character? It is demandable at once, and necessarily the prescriptive period starts to run from the time the cause of action accrues. It is wrong to say that a cause of action accrues from the time the demand was made. If such be the case no action shall prescribe. What are the kinds of conditions? 1. 2. 3. 4. 5. 6. 7. 8. 9.

Suspensive Resolutory Potestative Casual Mixed Possible Impossible Negative - requires the omission of an act. Positive - requires the performance of an act.

What is the effect of an impossible condition? If the obligation is with an impossible condition, it shall annul the obligation. The phraseology is defective, instead of annulled it should have been void. Annullable presupposes a valid obligation which is valid until annulled. This instance is an impossible condition with a suspensive condition. May there be a valid obligation with an impossible condition?

my wife. Negative impossible conditions are deemed not written, as such it is considered as a pure obligation unless there are other words and phrases which would not make it a pure obligation. What are the kinds of impossible conditions? Legal impossibility and physical impossibility. Is it proper to say unlawful conditions? Yes. What is improper is void conditions. In unlawful or impossible conditions in testamentary dispositions, what is the effect? It does not result in a void testamentary disposition. Under the law in succession, such unlawful or impossible condition is deemed not written. The debtor promises to pay if his son does not die of cancer within 1 year. State the status of the obligation whether it is valid or not, and if valid state whether the obligation is due and demandable? The condition is suspensive negative possible(mixed)condition. This is a valid obligation. It is due and demandable depending on what happened to the son. If the son dies of cancer within 1 year, the obligation does not arise. But even if the son did not die of cancer within 1 year the debtor can be compelled to pay, because in that moment it is already certain that the son will not die of cancer within 1 year such as when the son died of a car accident. In a condition that B should marry C within 1 year but after 2 weeks he entered the seminary? Is it certain that the condition is not longer possible? No. B may go out of the seminary before the 1 year period lapsed. However, if C married D is it possible that the condition mentioned above is no longer possible? No. because D may die and B can marry C within the time mentioned in the condition. What is a potestative conditon? Under 1182, it is a condition that is dependent upon the sole will of the debtor.

Yes. If the condition though impossible is in the negative, like i will give you 1 million if you don’t kill 13

When the condition depends upon the sole will of the debtor and it is a suspensive condition? Will such be valid? It is void. This is because a debtor who can impose a condition upon his sole will, he will make sure that the suspensive condition will not happen so that the obligation will not arise. A promise to give B his car if A will go to Baguio within 5 days? Is it potestative? Yes, such is potestative that is dependent upon the sole will of the debtor. It is because whether or not A will go to Baguio solely depend upon his will. Is passing the Bar exam a potestative condition? Casual or dependent upon chance?

However, as an exception, C may have a better right if C can prove that he is a buyer in good faith and for value, he would have a better right. But it must be noted that in order to be a purchaser in good faith and for value, such should be registered. As such, C would not be bound by the agreement made by A and B. Assuming that B has a better right, B demanded all the proceeds of the rentals from 2001 until 2005, is he entitled to the rentals? Since, under Art. 1187 the effect of the happening of the condition retroacts to the constitution of the obligation, would presuppose that B may be entitled to the proceeds of the rents as if he was the owner of the property from 2001.

It is neither a potestative nor a casual condition. The grandfather promises to give his grandson a car upon the latter’s passing the bar exam. The grandson passed the bar and demanded the delivery of the car. But the grandfather refused to deliver the car and argued that he cannot be compelled to deliver the same because it is a potestative condition. It is not a potestative condition but rather a suspensive condition. Therefore the grandfather can be compelled to deliver. Assuming for the sake of argument that such condition is a potestative condition, can the grandfather be compelled to deliver because the condition is void? The grandfather still cannot be compelled because under 1182, it provides that a condition is made by the sole will of the debtor. In this case it is not the grandson who is the debtor but rather the grandfather. It is not dependent upon the sole will of the grandfather. Hence not a potesative condition. Therefore the obligation is a valid one. A obliged herself in 2001 to sell to B a house and lot upon his passing the bar exam. B passed the bar exam in 2005. However in 2003 A sold the house and lot to C and this house from 2001 was being rented by D. B upon passing the bar exam demanded upon A to deliver to him the house and lot pursuant to the 2001 obligation made by A. Who has a better right over this house and lot? B or C? As a rule, it is B who has a better right because under Art. 1187 the effect of the happening of the condition retroacts to the time of the constitution of the obligation as if the condition already happened as early as 2001.

However, it is submitted that B is not entitled to the rentals because fruits received in reciprocal obligation (since this is a contract of sale) it is deemed mutually compensated. B is obliged to pay the price and Ahas the obligation to transfer ownership. Under the law it is deemed mutually compensated because, A is entitled to interests on the price while B is entitled to the rentals, under the law fruits received are deemed mutually compensated. Is the view that the retroactive effect of Art. 1187 does not cover fruits? No. That is why there is a provision that in reciprocal obligations, the fruits received are deemed mutually compensated. There is therefore a retroactive effect. In the above case, B is entitled to the fruits but due to the provision on mutual compensation, he shall no longer receive the fruits. In conditional obligations, if the condition is suspensive in character, the happening of the condition shall give rise to the obligation. Ordinarily if the condition did not happen, the obligation will not arise. When shall the obligation even if the condition did not happen, it shall give rise to the obligation? When it was the debtor who voluntarily prevented the happening of the condition. However, is there an instance where the debtor who voluntarily prevented the happening of the condition in order to give rise to the obligation, still not be compelled to perform? Yes, when though he prevented the happening of the condition, such prevention was made when he was exercising his right.

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In obligation is an obligation with a suspensive term , the obligation arise because the term is certain to arrive, it will only give rise to the demandability of the obligation. -

In suspensive condition, the creditor filed an action, will the action prosper? It may prosper for as long as it is not an action for specific performance because the condition being suspensive, there is yet no obligation that arise. But, the creditor may file an action for the preservation of his rights, like if the action is to compel the other party to have the agreement registered with the appropriate registry of property. In suspensive conditions imposed on an obligation, what is the effect of any improvement or deterioration on the thing to be delivered? In improvements, if the cause of the improvement is through nature, such improvements shall pertain to the creditor. If in improving the property the debtor spent a sum of money, the creditor is entitled to the improvements. Under the law the creditor in this case only has the rights of a usufructuary. The debtors rights is limited to the removal of the improvement as long as it will not cause damage to the thing to be delivered. In obligations with a term or period, may be definite if there is a day certain. Indefinite periods will arrive, but dependent on certain events which is certain to happen but the specific date is not certain. Another classifications of periods is the source of the period on whether it is by conventional or voluntary period (by agreement of the parties), fixed by law, or fixed by the court. Is a 1 year period of redemption, a period in relation to obligations? No. It is a period in the exercise of a right, because who has a right is not compelled to redeem. Give examples of period fixed by law? 1. Non payment of taxes 2. In a lease contract, even when the parties did not fix a period but it provides that the payment

of rents be paid annually, it is presumed that the period of rent is for 1 year. Under Art. 1197 it was provided that 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. What is the guidelines wherein the court in this instance may fix the period? The court having power to fix the period presupposes that there is a perfected contract. If there is no perfected contract, the court has no power to fix the period. What is the procedure for the court to fix a period? To determine whether there is a period or no period stated in the contract. If there is, the fixing of the period is not proper under Art. 1197. Secondly, to determine whether the parties intended that there be a period, if none, such as when the parties intended that it be a pure obligation, then the fixing of a period is not proper under Art. 1197. Thirdly, even if there is a period intended by the parties, the court must also determine whether such period had already prescribed or not. Such that an action for specific performance on an obligation which does not yet arise, the action cannot prosper because the action is premature. Or if a period had already lapsed and the obligation involves an obligation to do, an action for specific performance can no longer prosper, but the action for damages shall prosper. In a contract between the parties it was provided, that debtor must remit the proceeds upon the sale of the tobacco. Is a period contemplated by the parties? The argument by the debtor that the estafa case is premature because the remedy of the creditor if to go to court for the latter to fix the period is not proper because the agreement by the parties is one with a period. The argument by the debtor that there was no period fixed by the parties, which would render the provisions of Art. 1197 not to apply, will not prosper. The provisions of the agreement clearly provides for a period which is upon the sale of the tobacco. Therefore, upon the sale the debtor can be compelled to remit. There is no need for the court to fix the period (Lim vs. People).

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Under Art. 1180 which provides that 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 Art. 1197, and as such the court shall fix the period. In this case, when will the obligation become due, so that an action for the court to fix the period may prosper?

compelled to perform the obligation before the arrival of the period.

The creditor should only go to the court if he knew that the debtor already has the means to pay. If the debtor already has the means to pay, go to court to fix the period and upon the lapse of the period, the obligation become due and demandable.

Yes, when there are stipulations that the debtor cannot pay within 3 months or 2 years. This could be said to be for the benefit of the creditor because of a scenario where the creditor has the right to the fruits of the thing subject of the obligation. This is probably because the creditor would want to harvest first before the returns the thing.

When the period is solely dependent upon the will of the debtor, such is also a judicial period. Under Art. 1191 The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible. The court shall decree the rescission claimed, unless there be just cause authorizing the fixing the period. This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance, with Articles 1385 and 1388 and the Mortgage Law.

Can the debtor be compelled to perform the obligation before the arrival of the period, or can the creditor be compelled to accept the obligation even before the arrival of the period? In the second scenario the creditor cannot be compelled to accept the obligation even before the arrival of the period because the creditor may not want to accept because he had not place to store the goods which is the subject of the obligation. Is a period for the benefit of both the creditor and the debtor?

On the other hand, however, the debtor can compel the creditor to accept the performance of the obligation even before the expiration of the period. Is there contracts solely for the benefit solely of the creditor?

However, the creditor may return it at any time because the provision is solely for the benefit of the creditor. A borrowed money from B in January payable at the end of the year. To secure the fulfillment of the obligation A delivered his car to B and it was stipulated that B can use the car. After a few months, come August of the same year, the debtor offered to pay the entire amount to the creditor and also demanded for the return of his car. Can the creditor be compelled to accept the payment? Can he be compelled to return the car? While the debtor cannot be compelled to pay before the arrival of the period, the creditor cannot also be compelled to accept the performance of the obligation because of the principle that a period is both for the benefit of both the debtor and the creditor. Base on the facts the above principle finds application in the present case because the debtor cannot be compelled pay before the arrival of the period which is the end of the year. However, the creditor has an interest in the period because it was stipulated that he can use the car before the arrival of the period. Therefore under the facts, the period is both for the benefit of the debtor and the creditor.

No. It is merely a disputable presumption that the period is both for the benefit of the creditor and the debtor.

Even assuming that the period is solely for the benefit of the debtor, before the arrival of the term, is it possible that the creditor validly demand for the performance of the obligation?

If the phrase provided for in the obligation is payable on or before December 31, and no other factor has been provided for, is it both for the benefit of the creditor and the debtor?

Yes. That can happen if the debtor lost his right to make use of the period. Under Art. 1198, a debtor may lose his right to make use of the period.

No such phrase is clearly for the benefit of the debtor. This is because the debtor cannot be

Art. 1198. The debtor shall lose every right to make use of the period: 

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(1) When after the obligation has been contracted, he becomes insolvent, unless he gives a guaranty or security for the debt; 

It depends on the kind of obligation involved. It may be a conjunctive obligation, alternative obligation, facultative obligation.

(2) When he does not furnish to the creditor the guaranties or securities which he has promised; 

In conjunctive obligations, the impossibility of performance of one will not result in the extinguishment of the obligation because there is another or two or more other obligations to be performed.

(3) When by his own acts he has impaired said guaranties or securities after their establishment, and when through a fortuitous event they disappear, unless he immediately gives new ones equally satisfactory;  (4) When the debtor violates any undertaking, in consideration of which the creditor agreed to the period;  (5) When the debtor attempts to abscond.

A borrowed a sum of money from B. To secure the fulfillment of his obligation he mortgaged his house and lot. Before the arrival of the period (before the obligation became due), the house was burned due to a fortuitous event. The day after the creditor demanded the payment of the debt. Was there a valid demand?

In facultative obligations, it depends on whether there is already substitution at the time of the impossibility of the performance of one of the prestation. If before substitution the impossibility of one of the obligation becomes impossible to perform due to a fortuitous event, the obligation is extinguished. But if one of the obligation become impossible to perform due to the fault of the debtor, the obligation is not extinguished (debatable on the second scenario). If in facultative obligation what was lost or became impossible to perform was the substitute prestation and there was no substitution yet at the time of the loss, the obligation is not extinguished because the due prestation was the principal prestation.

Yes. Can the debtor be compelled to pay? He lost his right to make use of the period even if the lost was due to a fortuitous event, unless of course he gives another security for the debt. Why would the debtor lost his right to make use of the period when the lost was due to a fortuitous event and the same is not imputable to the fault of the debtor? This is because the creditor would not have left him money if not for the security. In number of Art. 1198, how can the debtor give another security if the debtor is already insolvent? If the debtor still has other properties even if he is still insolvent. Or he may not have any properties, but he can provide for a guarantor or a secure a mortgage to secure the fulfillment of the obligation. Kinds of obligations as to multiple prestations: In multiple prestations where one of the prestation is impossible to perform even if the other prestation still are possible to perform, may the obligation be considered to have been extinguished?

Conjunctive- and; alternative-or; facultative-debtor has the right to make a substitution or to perform instead a substitute prestation. In alternative obligations, if there was already a communication of a choice. By then the obligation is converted into a simple obligation and the one chosen was the one impossible to perform especially if it is due to a fortuitous event. As such, the obligation is extinguished. If there was already a communication of a choice but what become impossible was the other prestation which was not chosen, the obligation is not extinguished. B’s car was lost due to the fault of the debtor, what are the remedies of the creditor? It depends on who has the right to choose. If it shows that the choice is not expressly granted to the creditor, the right of choice pertains to the debtor. Under the law it was provided that the choice is with the debtor, unless otherwise expressly granted to the creditor. If the choice is with the debtor, even if it was due to his fault, he has other prestations to choose from without being held liable for damages. Anyway, there is yet no due prestation because the debtor has not yet able to make a choice. If however in alternative obligations, the first two prestations become impossible to perform due to the fault of the debtor, and the remaining 17

prestation becomes impossible to perform due to a fortuitous event. Can the debtor be held liable for damages?

But if the choice is with the debtor, the liability will be based on the value of the prestation which was lost last due to his fault.

The debtor can be held liable if this is the choice of the creditor. However, if the choice is with the debtor, he cannot be held liable for damages even if the loss of the last remaining prestation was due to a fortuitous event. This is because the debtor diminished the possibility of the performance of the obligation and secondly he was at fault therefore he can be held liable for damages under Art. 1170. However, the provisions in Art. 1170 presupposes a simple obligation, and thus not applicable in the present case to make the debtor liable. Secondly, even if the obligation has diminished the performance of the obligation imputable to the debtor, he cannot be held liable because it can be considered as his choosing to make the first two prestations impossible to perform, and the last prestation be considered as his choice. The last though lost due to fortuitous event, cannot make the debtor liable.

Qualification in Alternative Obligation: If one of the prestations become impossible to perform due to the fault of the debtor, and the choice is with the creditor:

Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages. (1101) The horse died due to the fault of the debtor, this time the creditor has the right to choose. What are the rights of the creditor? He can choose from one of the remaining prestations or choose the prestatation which was lost due to the fault of the debtor. If the creditor choose to demand for the value of the obligation which was lost due to the fault of the debtor, the debtor can be held liable for damages. If the creditor chose to compel performance through the remaining prestations, the debtor cannot be held liable for damages. The horse was lost due to the fault of the debtor, then after the second prestation was also lost due to the fault of the debtor, and thirdly a book was lost due to the fault of the debtor. What is the extent of the liability of the debtor under the foregoing circumstances? Can the creditor choose for the value for any of the three prestations? It depends on who has the right to choose. If the creditor has the right of choice, he can choose on the value of any of the three prestations.

The creditor can either demand for the value of the prestation with damages or he can demand for the performance of one of the remaining prestations without damages. Second view: If the creditor can demand for the performance of one of the remaining prestations, the creditor may opt to demand for the value of the thing which was lost due to the fault of the debtor. In this instance under alternative obligations, it is possible that the debtor is not the owner of the horse. In alternative obligations the debtor is not sure whether he can deliver the horse or not. if the horse was owned by the creditor, as such he can seek damages. If the thing lost was owned by the debtor as a valid premise, the debtor cannot be held liable for damages. In alternative obligations it must be remembered that the prestation may either be owned by the debtor or not. Facultative obligations In facultative obligations it is improper to say that there is only one prestation. For how could it be considered to fall in obligations with multiple prestations if there is only one prestation involved. Rather it is better to say that there is only one prestation due in a facultative obligation. At any given point in time there can only be one prestation due unlike the other prestations. When will the obligation in facultative obligation become due? If there is already a communication of the substitution. If the principal prestation before substitution became impossible to perform due to the fault of the debtor , can the creditor demand to perform the substitute prestation? No. This is because in facultative obligation, the choice is always with the debtor. The remedy of the creditor is to demand for damages.

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If before substitution became impossible to perform due to the fault of the debtor, can the debtor be held liable for damages by the creditor? The debtor cannot be held liable for damages because that was not the due prestation. The debtor will bear the lost, but he cannot be held liable for damages.

a solidary debtor. The creditor need not sue everyone. Assuming there is an issue whether the obligation is a joint or a solidary obligation, who would claim that it is a joint obligation? It would be B who would claim that the obligation is  joint. The plaintiff A on the other hand who demanded payment from only one of the debtors would definitely claim that the obligation is a solidary obligation.

-When can the debtor make the substitution?

What would be an indication in a case which will warn the examinee on whether the obligation is joint or solidary?

The debtor can make the substitution at any time. Can the debtor make the substitution if the debtor is already in delay? No. Why should the law allow the debtor to make substitution is he is already in delay. If he is already in delay he can already be liable for damages. There is no sense to give him a right if he is already liable for damages. If the obligation is already impossible, can the debtor make a substitution? No. For how can the debtor make a substitution if the obligation is already impossible, unless it was really the agreement or the intention of the parties. Otherwise, it is considered simply as an obligation with a penal clause. Upon non compliance with the obligation, the debtor can be compelled to perform the other prestation or the accessory undertaking.

The extent of the liability is the determining factor that the obligation is joint or solidary. The question is whether one of the debtors can be compelled the entire amount. A and B sold 1000 sacks of rice to X and Y. X demanded delivery of 1000 sacks of rice from A and B. A and B delivered the 1000 sacks of rice to X. Y did not receive anything out of the 1000 sacks of rice. Can Y still compel A and B to deliver a portion of the 1000 sacks of rice. If he can, how many can Y demand? It is a joint obligation unless from the stipulation of the parties or in the nature, or the law it shows solidarity. Under the facts, when A and B delivered the 1000 sacks to X it did not actually extinguished the obligation to Y because he did not receive anything from the 1000 sacks of rice, therefore it did not extinguish the obligation. What obligations are considered solidary?

Is the substitute prestation had already been agreed upon by the parties? Yes. There can never be a valid facultative obligation when the substitute prestation has not been agreed upon. Otherwise if the debtor has the right to make a substitution without the substitute prestation having been agreed upon, it may be prejudicial to the creditor because such will give the right to the debtor to deliver an inferior prestation. JOINT AND SOLIDARY OBLIGATIONS A filed an action against B for the recovery of a sum of money. Would it matter if it is a joint or solidary obligation? Yes. There will be an issue because A may file an action against A as a joint debtor or a solidary debtor. There is a difference on an action filed against one defendant or an action filed against a debtor. A defendant may either be a joint debtor or

Art. 927. 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. (n) Art. 1824. All partners are liable solidarily with the partnership for everything chargeable to the partnership under Articles 1822 and 1823. (n) Art. 1822. Where, by any wrongful act or omission of any partner acting in the ordinary course of the business of the partnership or with the authority of co-partners, loss or injury is caused to any person, not being a partner in the partnership, or any penalty is incurred, the partnership is liable therefor to the same extent as the partner so acting or omitting to act. (n) Art. 1823. The partnership is bound to make good the loss: 

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1) Where one partner acting within the scope of his apparent authority receives money or property of a third person and misapplies it; and  (2) Where the partnership in the course of its business receives money or property of a third person and the money or property so received is misapplied by any partner while it is in the custody of the partnership. (n)

Art. 1911. 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. (n) Art. 1915. 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. (1731) Art. 1945. When there are two or more bailees to whom a thing is loaned in the same contract, they are liable solidarily. (1748a) Art. 2157. The responsibility of two or more payees, when there has been payment of what is not due, is solidary. (n) Art. 2194. The responsibility of two or more persons who are liable for quasi-delict is solidary. (n) Art. 2146. If the officious manager delegates to another person all or some of his duties, he shall be liable for the acts of the delegate, without prejudice to the direct obligation of the latter toward the owner of the business. The responsibility of two or more officious managers shall be solidary, unless the management was assumed to save the thing or business from imminent danger. (1890a) Art. 94. (FC) The absolute community of property shall be liable for:  (1) The support of the spouses, their common children, and legitimate children of either spouse; however, the support of illegitimate children shall be governed by the provisions of this Code on Support;  (2) All debts and obligations contracted during the marriage by the designated administrator-  spouse for the benefit of the community, or by both spouses, or by one spouse with the consent of the other;  (3) (3) Debts and obligations contracted by either spouse without the consent of the other to the extent that the family may have been benefited; 

(4) All taxes, liens, charges and expenses, including major or minor repairs, upon the community property;  (5)  All taxes and expenses for mere preservation made during marriage upon the separate property of either spouse used by the family;  (6) Expenses to enable either spouse to commence or complete a professional or vocational course, or other activity for self-  improvement;  (7) Ante-nuptial debts of either spouse insofar as they have redounded to the benefit of the family;  (8) The value of what is donated or promised by both spouses in favor of their common legitimate children for the exclusive purpose of commencing or completing a professional or vocational course or other activity for self-  improvement;  (9) Ante-nuptial debts of either spouse other than those falling under paragraph (7) of this Article, the support of illegitimate children of either spouse, and liabilities incurred by either spouse by reason of a crime or a quasi-delict, in case of absence or insufficiency of the exclusive property of the debtor-spouse, the payment of which shall be considered as advances to be deducted from the share of the debtor-spouse upon liquidation of the community; and  (10)Expenses of litigation between the spouses unless the suit is found to be groundless. If the community property is insufficient to cover the foregoing liabilities, except those falling under paragraph (9), the spouses shall be solidarily liable for the unpaid balance with their separate properties. Art. 121. (FC) The conjugal partnership shall be liable for:  (1) The support of the spouse, their common children, and the legitimate children of either spouse; however, the support of illegitimate children shall be governed by the provisions of this Code on Support;  (2) All debts and obligations contracted during the marriage by the designated administrator-  spouse for the benefit of the conjugal partnership of gains, or by both spouses or by one of them with the consent of the other; 

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(3) Debts and obligations contracted by either spouse without the consent of the other to the extent that the family may have benefited; 

May an insurance company of a vehicle be held solidarily liable with the owner of the vehicle , the driver, and the employer of the driver?

(4) All taxes, liens, charges, and expenses, including major or minor repairs upon the conjugal partnership property; 

No. It is only the owner of the vehicle (Sio Choy) and the the employer of the driver (San Leon Rice Mill) should be held solidarily liable and not the insurance company.

(5)   All taxes and expenses for mere preservation made during the marriage upon the separate property of either spouse;  (6) Expenses to enable either spouse to commence or complete a professional, vocational, or other activity for self-  improvement;  (7) Ante-nuptial debts of either spouse insofar as they have redounded to the benefit of the family;  (8) The value of what is donated or promised by both spouses in favor of their common legitimate children for the exclusive purpose of commencing or completing a professional or vocational course or other activity for self-  improvement; and  (9) Expenses of litigation between the spouses unless the suit is found to groundless. If the conjugal partnership is insufficient to cover the foregoing liabilities, the spouses shall be solidarily liable for the unpaid balance with their separate properties. Give an example of an obligation which is solidary by nature?

The basis of the liability of the owner of the vehicle is Art. 2184 which provides that in motor vehicle mishaps, the owner is solidarily liable with his driver, if the former, who was in the vehicle, could have, by the use of due diligence, prevented the misfortune it is disputably presumed that a driver was negligent, if he had been found guilty of reckless driving or violating traffic regulations at least twice within the next preceding two months. Since the owner was not in the vehicle Art. 2184 is not applicable. If the owner was not in the motor vehicle, the provisions of article 2180 may be applicable. Secondly the basis of the liability of the employer is in Art. 2180 which provides: The obligation imposed by article 2176 is demandable not only for one's own acts or omissions, but also for those of persons for whom one is responsible. xxx xxx xxx Employers shall be liable for the damages caused by their employees and household helpers acting within the scope of their assigned tasks, even though the former are not engaged ill any business or industry. But the owner of the vehicle is not the employer so Art. 2180 is likewise not applicable.

The liability of those who figured in vehicular mishaps where a person is a passenger of one at the time of the mishap, such passenger hold the owner of the vehicle under breach of contract together with the driver under the contract. The owner of the vehicle as well as the driver may be held liable under quasi delict. There is no basis under the law which would make them solidarily liable the case being based on different causes of action. There is no law which provides for solidarity, but by the nature of the obligation they are held solidarily liable.

xxx xxx xxx

For contractual obligations, may the partners be held solidarily liable?

The basis of the liability of the insurer is the insurance contract while the employer and the owner is torts which could not make the insurer be solidarily liable (Malayan Insurance vs. CA)

No. because as a rule joint without prejudice that the partners binding themselves solidarily.

The responsibility treated in this article shall cease when the persons herein mentioned proved that they observed all the diligence of a good father of a family to prevent damage. Under the foregoing, the employer and the owner of the vehicle are solidarily liable as joint tortfeasors. Under the law: The responsibility of two or more persons who are liable for a quasi-delict  is solidarily.

For contractual obligations may the partners in a partnership be hold solidarily liable? 21

No. As a rule joint unless of course if the partners bind themselves solidarily and under certain specific scenarios or exceptional circumstances under the civil code which make them solidarily liable. (See provisions above) Note: In these scenarios the examinee must be able to determine under what specific circumstances that the debtor may be held solidarily liable.

However, even if A and B are solidarily liable and the action against A is dismissed, a subsequent action against B may prosper if the defenses is purely personal to A, like when A is a minor. Therefore it would depend on the defense raised which is the basis of the dismissal. If the obligation is joint, the dismissal of the first case shall not affect the action against the other debtor, because their obligations are separate and distinct from each other.

Other word or phrase for solidary? Joint and collective, joint and several, jointly and individually.

What kind of defense is minority? Is it a defense? If it is a defense, Is it partial or total defense?

Ronquillo vs. CA

It depends, if it is a joint or solidary obligation.

Clearly then, by the express term of the compromise agreement and the decision based upon it, the defendants obligated themselves to pay their obligation "individually and jointly".

If the obligation is joint, it is a defense as to the minor but not as to B. Their obligation is separate and distinct from each other.

The term "individually" has the same meaning as "collectively", "separately", "distinctively", respectively or "severally". An agreement to be "individually liable" undoubtedly creates a several obligation, 14 and a "several obligation is one by which one individual binds himself to perform the whole obligation. 15

The same is likewise a defense in solidary obligation. It is a total if it is the minor is raising the defense. If the one claiming the defense is a codebtor, it is only partial as to the share of the minor. Is there a total defense in any kind of obligation whether joint or solidary and can be invoked by any of the debtors?

In the case of Parot vs. Gemora 16 We therein ruled that "the phrase juntos or separadamente or in the promissory note is an express statement making each of the persons who signed it individually liable for the payment of the fun amount of the obligation contained therein." Likewise in Un Pak Leung vs. Negorra 17 We held that "in the absence of a finding of facts that the defendants made themselves individually liable for the debt incurred they are each liable only for one-half of said amount

If the obligation is void it it a total defense.

The obligation in the case at bar being described as "individually and jointly", the same is therefore enforceable against one of the numerous obligors.

A obliged himself to pay X or Y, X demanded payment from A, thereafter Y demanded payment from A, A paid Y. May X able to hold A liable?

A and B, debtors X and Y creditors. X filed an action against A, the action was dismissed, thereafter X filed an action against B, may the action be dismissed? It would depend on what kind of obligation is involved, whether it is joint or solidary. If the obligation is solidary, there is more reason that the action against B should likewise be dismissed since it joint obligation is solidary.

A and B are solidary debtors, A paid the creditors 1 million last year, today A demanded money from B, how much can A recover from B? Can A recover interest? A may recover 50% of the debt paid. A may recover interest from the date the obligation became due and not on the date when he paid the obligation before it was due.

It depends on the intention of the parties who has the right to choose. X may still able to hold A liable despite the fact that X has already paid Y if it is under an agreement between X and Y that X had the right to choose. Then the payment by A to Y is a payment to a wrong party.

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If in their agreement A had the right to choose, then it does not matter who made the demand because A clearly can choose to pay the obligation. Then in this case payment to Y extinguishes the obligation. If the intention of the parties is not clear as to who has the right to choose, May X still hold A liable? X may still hold A liable under the rules on solidary obligation because if one of the solidary creditors was the first one to make a demand he shall be the one who has the right to choose. Since under the facts, X was the first to make the demand, X may still hold A liable. This rule is applied because this would be conducive to the fulfillment of the obligation (Tolentino) Uribe: If the rules on solidary obligations is to be applied then there is no reason to make provisions on other kinds of obligations. The law should have made all obligations solidary because the same shall be conducive to the fulfillment of the obligation. Therefore, the view of Tolentino is incorrect. The rules on alternative obligations should be applied, and under this rule, the right to choose is with the debtor. If the intention is not clear, it is the debtor should be given the right to choose. An obligation to pay 1 million pesos is a divisible obligation? Not necessarily, because it would depend on the intention or agreement of the parties. Without any express agreement on how the obligation is to be performed, is it a divisible or an indivisible obligation? If there is no agreement it would be an indivisible obligation. Under the law, no creditor can be compelled to accept partial performance, unless there is a stipulation to the contrary. Is there an obligation which is considered divisible by nature even if there is no stipulation? If the obligation is to be performed for a number of days like the construction of a building. Is there an obligation which is considered by law an indivisible obligation?

A, B and C obliged to deliver a handy-dandy amazing thing-a-ma-jig, not your everyday complicated multi use tool worth 30,000 pesos to X. When the obligation to deliver the thing to X is due the handy dandy amazing thing-a-majig exploded due to the fault of A, X filed an action against B, may the action proper? Since this is a joint and indivisible obligation because a finite thing is involved, an action to deliver cannot prosper since it is a finite thing. But the action for money claims will prosper as to the share of B which is 10,000 with respect to his share, since the stipulation is silent as to the debtors share, they shall share equally. B cannot be liable for damages, it is only A who can be liable . When the obligation is a joint and indivisible obligation, and the obligation has become impossible of performance, the obligation is converted into a monetary obligation, and each of the debtor shall each be responsible for his share in the absence of designation of his share and the one at fault shall be liable for damages. With respect to A, he shall be liable for his share plus damages. Robes- Francisco vs. CFI In this case there was a stipulation that in case the developer fail to issue a certificate of title after the amount is paid by the buyers, the developer be liable to the amount of 4% interest. May the developer be held liable for damages? Or should the 4% interest compensate to the damages as a form of a penal clause? Art. 1226. In obligations with a penal clause, the penalty shall substitute the indemnity for damages and the payment of interests in case of noncompliance, if there is no stipulation to the contrary. Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is guilty of fraud in the fulfillment of the obligation. The penalty may be enforced only when it is demandable in accordance with the provisions of this Code. No it is not a penal clause because even without such stipulation of interests the developer may still be held for interests at the legal rate of 6% per annum. It is therefore inconceivable that the subject clause in the certificate of title be considered as a penal clause which would relieve the developer of liability.

If the obligation consists in delivering a finite thing. 23

Besides the legal interest is 6%, the interest is only charged at 4% which means it is lower. How can a lower interest be a penal clause. Penalty should charge a bigger amount, which is the purpose of a penalty. Assuming that a penal clause is contained in a contract, in case of violation may the debtor be still liable for damages in addition to the penal clause? As a general rule, the penal clause is considered as a substitute to the damages that may be suffered, however, when the debtor failed to comply with the provisions of the penal clause he may still be liable aside from the penalty. Another ground is if there was fraud and if there is stipulation. If the penal clause agreed upon is 100,000 but the damages sustained is 200.000, even assuming there was fraud, how much shall the creditor be entitled? The creditor shall be entitled to 100,000 plus actual damage of 200,000 as decided by the Supreme Court. May the court reduce the amount of the penalty agreed upon in the penal clause?

granted or stipulated because it may be inferred by the acts of the parties. If the obligation is void and there is a penal clause, may a party be held liable under the penal clause? Ordinarily no, because a penal clause is an accessory undertaking. If the obligation is void any accessory undertaking is likewise void. As an exception if the nullity of the obligation would give rise to the enforcement of the penal clause, then party thereto can be held liable under the penal clause. For instance, if one of the parties is a filipino, if that contract will be governed by Philippine law, the alien has every right to rely on the Philippine law as to the validity of the contract. Therefore if this contract is declared null and void, the Filipino shall be liable for indemnity. Such will be a valid penal clause. Breach of Obligations: Specific circumstances affecting obligations If there is an obligation, one of the parties may be held liable or even a third person may be held liable for damages incurred by one of the parties or a third person.

The court may reduce the penalty if there was already a compliance of the obligation.

Under 1170 those who in the performance of the obligation are guilty of fraud, negligence or delay can be held liable for damages.

In an obligation with a penal clause, can the debtor compel the creditor to accept the penalty instead the debtor performing the obligation?

Note that even if there is no negligence, fraud or delay those who in any manner contravene the tenor of the obligation shall also be liable for damages.

As a rule the debtor cannot compel the creditor to accept the penalty instead of performing the obligation, the creditor can compel the debtor to perform the obligation.

Generally, non performance or contravention of the tenor can be the basis of liability.

As an exception, the debtor can compel the creditor where this right has been expressly reserved for him as provided in art. 1227 of the civil code. Can the creditor both demand for the performance of the obligation and the payment of the penalty agreed upon? Generally the creditor cannot demand both the performance and at the same time compel to demand for the penalty, except: if such right is clearly granted to him. This may not be expressly

If both parties have faithfully complied with their respective obligations, no one may be held liable. The law says “those who in the performance” because it is not only the debtor who may be held liable for damages. Creditors likewise may be held liable like if they commit fraud or in delay may be held liable for damages. Fraud Fraud here means fraud in the performance of the obligation. Under Art. 1170 and Art. 1171, there is an existing obligation.

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Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages. (1101)

is, when was the waiver executed in relation to the fraudulent act.

Art. 1171. Responsibility arising from fraud is demandable in all obligations. Any waiver of an action for future fraud is void. (1102a)

Negligence, otherwise known as quasi delict is fault under Art. 2176 which provides:

Unlike the other kind of fraud which are in the law on contracts, there is fraud in obtaining consent. A person may enter into a contract because of the fraud employed upon him Without such fraud he would not have entered into such contract. This is called causal fraud or dolo causante.

Negligence

Art. 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is called a quasi-delict and is governed by the provisions of this Chapter.

Is negligence synonymous to fault? However there is another kind of fraud in obtaining consent which are not causal in character. It is merely incidental, and this would be under Art. 1344. However, this will not affect the validity of a contract, unlike causal fraud which will make the contract voidable. In incidental fraud will only make a person liable for damages in employing such fraud.

No. Negligence is just an omission of the diligence required whereas fault may actually be intentional in character. One word which would cover both fault and negligence is Culpa. How do u know that an act is negligent or not?

Art. 1344. In order that fraud may make a contract voidable, it should be serious and should not have been employed by both contracting parties. Incidental fraud only obliges the person employing it to pay damages.

However, in Art. 1170, the performance of an obligation can be the basis of liability for damages. Art. 1170 should be called malice or bad faith. The term “Dolo” cannot be used under Art. 1170 because dolo really is deceit as used in Art. 1388 known as dolo causante, and while fraud in Art 1344 above is known as dolo incidente. Art. 1388. Whoever acquires in bad faith the things alienated in fraud of creditors, shall indemnify the latter for damages suffered by them on account of the alienation, whenever, due to any cause, it should be impossible for him to return them. If there are two or more alienations, the first acquirer shall be liable first, and so on successively.

If fraud was committed which can be the basis of liability, the other party can actually waive his right to go after the party committing the fraud. This can be done through a waiver. However if the waiver is executed before the fraudulent act was committed (waiver of future fraud) the waiver is void. As such, the other party can hold the person employing fraud liable for damages. Therefore, one thing that should be considered in problems involving waivers

Under Art. 1173, this is the best definition of negligence which could be the basis on determining whether an act is a negligent act or not. Art. 1173. The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of the obligation and corresponds with the circumstances of the persons, of the time and of the place. When negligence shows bad faith, the provisions of Articles 1171 and 2201, paragraph 2, shall apply. If the law or contract does not state the diligence which is to be observed in the performance, that which is expected of a good father of a family shall be required.

Here the the law defines negligence which is the omission of the diligence required by the nature of the obligation. Say if a person slept only for two seconds, it would depend on his job on whether to make him negligent or not. If he was a driver, if he slept for two seconds, then is negligence, his omission would cause the death of so many people. The most important thing to determine whether a person is negligent or not is to consider the nature of the obligation. After considering the nature of the obligation, other things which must be considered is the time, the person and the place. In the case of Gangco vs. MRR, the Supreme court ruled that the act of alighting from the train was not 25

a negligent act because of the circumstances surrounding the event. Primarily it was because of the circumstances surrounding the person of Cangco because the Supreme Court discussed the circumstance that he was at his prime. he would ride the train everyday, and the train was about to stop when he was about to alight from the train. It is an important factor in determining negligence, because if is about to alight when the train was still running at 180 km/hr and he alighted from such train, obviously that would be considered a negligent act. However, in the case of Telefast vs. Castro, the respondent Sophia Castro asked telefast to send a fax message in the United States to tell her relatives that her mother already died, telefast was not able to send the message, allegedly because of atmospheric pressure. When the relatives knew of what happened, the deceased was already buried so they filed an action against Telefast. Telefast was willing to return the money that was paid by Sophia but moral damages was awarded by the court. Telefast questioned the validity of the award for moral damages because they said that in contracts, the award for moral damages can only be awarded if there was bad faith or there was wanton disregard of the obligation of a party in the contract. But when they failed to send the message due to atmospheric pressure, apparently there was no bad faith. However, the Supreme Court nonetheless held Telefast liable for damages because they failed to inform Sophia if the fact that they failed to send the message. As such, the Supreme Court considered the act of Telefast as a grossly negligent act, and  jurisprudence will tell you that Gross negligence amounts to fraud. Therefore it appears to be bad faith, which can be the basis of liability for moral damages. Therefore, there is a need to determine whether the act is simple negligence or a gross negligence. Note: Negligence under this topic is a negligence in the performance of an obligation and not the negligence as a separate source of obligation. If the negligent act is an act punished by law, such as those under the Revised Penal Code, that would be criminal negligence which can be the basis of liability under delict. However, the same negligent act under delict can be the basis of liability under quasi delict. Delay Delay is almost synonymous this time to default, or mora. Mora Accipiendi which is default on the part

of the creditor. Mora Solvendi or default on the part of the debtor. If a party to an obligation was able to comply with his obligation, nonetheless may he be considered in delay? Yes. This is default or delay with respect to time. Can there be a delay in obligations not to do? No, because as long as one is not doing what he is not supposed to do, he is actually fulfilling his obligation. For delay to set in the law requires demand, and for demand to be a valid one the obligation must already be due. Demand here is not necessary for the obligation to be due, rather demand here is necessary in order to hold the other part liable because he is already in delay. The demand here need not be in writing, it need not be in any particular form. A demand letter need not be notarized, a private document would suffice. Note however, that in order for delay to set in the law requires demand, such is only a general rule. A person may still be held liable even if there is no demand, like: a. By Stipulation b. By law such as in the law on partnership, where it provide that when a partner fails to make his contribution on the date agreed upon, even without need of demand from the non defaulting partners, he is deemed by law to be in delay. He will be held liable for interests but also for damages. Under the below quoted provision particularly the last paragraph of 1169 is one good provision on an obligation with reciprocal obligation such as that of sale. If a party to that contract had already complied with his obligation and the other has not, under the law he shall already be considered in delay, even if no demand was made. However, Art. 1169 as interpreted by the Supreme Court should be read or interpreted to mean that there was no agreement as to the when the other party is to perform his obligation. In other words, this provision is subject to the stipulation of the parties. When there is a stipulation to the effect that the other party must comply with the obligation, 30 days from delivery, then the other party cannot be considered in delay even if one of the parties has performed his obligation. 26

Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation. However, the demand by the creditor shall not be necessary in order that delay may exist:  (1) When the obligation or the law expressly so declare; or  (2)

(3)

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  When demand would be useless, as when the obligor has rendered it beyond his power to perform.

In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins. (1100a)

(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. (1744a and 1745)

c. When period is the controlling motive. Here the time is of the essence in this contract. d. When demand becomes useless. This presupposed that demand becomes useless because of the fault of the debtor. If the demand becomes useless due to the fault of the creditor, then of course the creditor cannot hold the debtor liable for damages. When the demand becomes useless due to fortuitous event, obviously the obligation shall be extinguished. Agcaoili vs. GSIS

Art. 1786. Every partner is a debtor of the partnership for whatever he may have promised to contribute thereto. He shall also be bound for warranty in case of eviction with regard to specific and determinate things which he may have contributed to the partnership, in the same cases and in the same manner as the vendor is bound with respect to the vendee. He shall also be liable for the fruits thereof from the time they should have been delivered, without the need of any demand. (1681a) Art. 1788. A partner who has undertaken to contribute a sum of money and fails to do so becomes a debtor for the interest and damages from the time he should have complied with his obligation. The same rule applies to any amount he may have taken from the partnership coffers, and his liability shall begin from the time he converted the amount to his own use. Art. 1896. The agent owes interest on the sums he has applied to his own use from the day on which he did so, and on those which he still owes after the extinguishment of the agency. (1724a) Art. 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;  (2)

(3)

If he keeps it longer than the period stipulated, or after the accomplishment of the use for which the commodatum has been constituted;  If the thing loaned has been delivered with appraisal of its value, unless there is a stipulation exemption the bailee from responsibility in case of a fortuitous event; 

If both parties are in delay, what will be its effect? Under the law, when both are in delay, no one is considered to be in delay, hence, no one can be held liable for damages, or no one can have a cause of action by and between the parties. In this case, Agcaoili suspended the payment of the monthly amortizations. GSIS cancelled the contract. Was GSIS correct in cancelling the contract? No.Because both are in delay. Agcaolili failed to pay his month amortization while GSIS is also in delay in not delivering a habitable house. The GSIS only delivered a structure with a roof. Kristine went to a jewelry shop to have her jewelry cleaned and it should be returned to her after a week, when she returned after a week the jewelry shop told her that the jewelry had not yet been cleaned, so she has to return again after another week. When she returned back after another week. She was informed that the ring was lost because of an alleged robbery that took place. Claiming that robbery is fortuitous event, then the jewelry shop cannot be held liable. Is such contention tenable? No. Under the facts Art. 1165 would apply. In an obligation to deliver a determinate thing, and the thing was lost even if due to a fortuitous event, the obligor would be held liable for damages if he was already in delay. 27

Clearly, the jewelry shop was already in delay. Even for the fact, that the jewelry was lost due to a fortuitous event, the shop shall be liable because there was already a delay when the creditor failed to deliver the same after as week time as promised. A leased a machine of B because he opened his own car repair shop. They agreed that the lease would only be for 1 month, and the lease was entered only in February 15 of 1985, in March 15 the next month, the lessor demanded for the return of the machine. However, the lessee was not able to return the machine because A’s truck had a mechanical problem. On MArch 16 which was still in the lessee A was destroyed in a fire that started in a neighboring house, which apparently is a fortuitous event. Can the lessee be held liable for the lost of the machine? A cannot be held liable because even if there was a demand made and the loss happened after the demand was made, the lessee was not yet in delay because at the time of the demand, the obligation was not yet due. This is because February was only 28 days. From February 15 to March 15, that was only 28 days. The delivery must be made only after a month, and a month under the law is 30 days. Then B should have made the demand only on March 17, because 1985 is not a leap year. If a leap year, of course March 16 should be the demand date, because if a leap year a month is 29 days. If a party to an obligation was not able to comply or it was not completely fulfilled or irregularly complied, does it mean that he will be liable for damages? Not necessarily. There are excuses to non performance, incomplete performance or irregular performance. E.g. Fault of the creditor or fortuitous event. Note: Not every time that there was a fortuitous event or force majeure can be an excused to non performance. Under Art. 1174 a party thereto can be held liable even if there was a fortuitous event if there was an express stipulation, if the law so provides, or because the nature of the obligation requires the assumption of risk. ....by stipulation Art. 1174. Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be responsible for those events which could not be foreseen, or which, though foreseen, were inevitable. (1105a)

.....law so provides  If the debtor promises to deliver the same thing to two persons who do not have the same interest, thereafter the thing was lost due to a fortuitous event, he will still be responsible for the loss of the thing. Note however, there should be no concurring negligence on the part of the person invoking the defense “that liability attaches even if non compliance was due to a fortuitous event if the law so provides”. Art. 1165. When what is to be delivered is a determinate thing, the creditor, in addition to the right granted him by Article 1170, may compel the debtor to make the delivery. If the thing is indeterminate or generic, he may ask that the obligation be complied with at the expense of the debtor. If the obligor delays, or has promised to deliver the same thing to two or more persons who do not have the same interest, he shall be responsible for any fortuitous event until he has effected the delivery. (1096) Art. 1166. The obligation to give a determinate thing includes that of delivering all its accessions and accessories, even though they may not have been mentioned. NPC vs. CA NAPOCOR was liable because it released the water when the dam was full. It should have released the water when the dam was not yet full so that the pressure would that be not much as would result to so much damage. Hence, to invoke fortuitous event which transpired in the case due to heavy rainfall, there should be no concurring negligence on the part of the defendant NAPOCOR. In another case, in the event that NAPOCOR would release the water of a dam, in order not to be held liable a proper notification to the proper authorities is required. Notice to persons not authorized such as a P01 officer is not a proper notification which would relieve NAPOCOR of liability. Remedies for Breach of Obligations Note: The first thing to consider in a problem with respect to the remedies for breach of obligations is the plaintiff, because if the plaintiff is not the aggrieved party, he will not have any remedy under the law. Actions by such persons who is not the aggrieved party will not prosper. Remedies are available only by the aggrieved parties. Classification of Remedies: 1. Judicial 28

2. Extra-judicial

remedies, therefore the action should be dismissed. Is this a valid defense?

3. Remedies provided by law 4. Remedies which a party can invoke when there are no other available remedies (subsidiary remedy)

An action for rescission was filed, the defense raised was the action had already prescribed because the action had already prescribed 1 year from the date of the contract, was this a valid defense? It depends on the nature of the action. This is

because there are 2 kinds of rescission. The rescission under Art. 1191 and Art. 1380 and 1381 under rescissible contracts. Rescission under Art. 1191 should have been called resolution. This is not the right rescission, because rescission in the proper sense is under rescissible contracts. Thus if this action for rescission was filed under Art. 1380 and 1381 the defense may have been correct because it should have been filed within 4 years from the date of the contract. The defense should have been correct, however, the rescission was filed because of breach of the contract, and if there is breach or failure to comply, the action would fall under Art. 1191. Of course under Art. 1191, it is not any kind of breach that may be the subject of rescission but substantial breach or fundamental breach. Slight breach or casual breach cannot be the basis of an action for rescission under Art. 1191. Furthermore, under Art. 1191 it is a substantial remedy. Whereas in Art. 1381, it is merely a subsidiary remedy which means that it may be invoked when the adverse party had no other legal remedy. Hence, Art. 1381 is merely a last resort. Under Art. 1381, is there a need for a breach for rescission to be invoked? No. The reason why rescission is a remedy under Art. 1381 is because of omission or economic prejudice (UFC vs. CA). Therefore, under Art. 1381 the action of rescission may prosper even if there is no breach in the obligation because of omission or economic prejudice for example the act was in fraud of creditors. Universal Food Corp. vs. CA In this case, one of the defenses raised was that Magdalo Francisco has not exhausted his available

In the concurring opinion of JBL Reyes in this case provided in substance that this defense of non exhaustion is a result of the confusion to rescission under Art. 1191 and Art. 1381. That defense can validly be invoked only if the action for rescission is based on Art. 1381. But if the action was based on Art. 1191, that is not a valid defense because under this provision, the remedy is a principal remedy. A party is not required to exhaust his other remedy before he can invoke rescission under Art. 1191. Another issue raised or defense raised was that Magdalo Franciso has not complied with his obligation in the contract, therefore he should have no right to rescind. For rescission to be a remedy, or any remedy to be invoked, the party claiming the remedy must himself have complied with his obligation. Otherwise, he could not claim to be the aggrieved party. How could he be the injured party if he did not comply with his obligation. Since both have not complied, both are already in delay, and therefore, no one would be in delay, and rescission and cancellation would not be a valid defense or remedy. Therefore, the Supreme Court has to determine whether or not Magdalo Francisco has already complied with his obligation. In this case, Magdalo Francisco had the obligation to deliver the formula in the Catsup to UFC. However, MF claimed that his obligation to deliver is only to allow UFC the use of the formula and not of ownership. In order for MF to retain control over the formula he is both the chemist and at the same time he was the only one inside the laboratory for the purpose of making the catsup. This was the core issue on whether or not MF had the obligation to deliver or transfer ownership over the formula. Upon closer scrutiny of the deed of assignment it was provided that “MF was supposed to transfer all his rights” but the SC ruled that what is transferred is only the use of the catsup, hence there was no obligation to deliver ownership. However, my professor is of the view that considering the words used in the deed, is that MF is supposed to transfer all his rights, therefore it includes transfer of ownership. What could be a better right than the right to ownership. Then it should be ruled that MF has the obligation to transfer ownership. However, aside from that issue, the Supreme Court is impeccable on the issue that when MF has no obligation to transfer ownership, the non delivery of the formula to UFC does not make MF not being able to comply with his obligation, in fact he has no obligation to deliver ownership. Hence, he is able to comply with what is incumbent upon him which is to 29

allow UFC to use the formula. In this case, he may rightfully rescind the contract as he is not in delay, and it is only UFC is in delay. In the case of (Zhong ________) rescission was invoked here because the buyer of molasses failed to pay the price agreed upon. However the buyer offered to pay the seller 20 days thereafter. However, the seller did not accept the payment and told the buyer that the contract had already been rescinded. Was the rescission valid? No. Under the circumstances the delay of 30 days was not a fundamental breach or a substantial breach and therefore cannot be the basis of an action for rescission. However, it must be noted that depending on the circumstances, 20 days may already be considered a substantial breach if the goods is a perishable goods. And as decided in one case, the delivery of padlocks to the COMELEC to be used in the election, but delivered after the election, it is considered a substantial breach. xx 2 remedies under Art. 1191: Under Art. 1191 it provides for two remedies, namely: 1) rescission and 2)fulfillment. Rescission Rescission here is a principal remedy and is expressly granted by law. In the case of UP vs. de Los Angeles, this remedy can be invoked extra judicially. In judicial rescission, when the party invokes the same, and it has been the subject of appeal to the Supreme Court 3 years after, the effect of rescission is reckoned from the time of invocation of the rescission and not on a later date. In what instance where judicial rescission is required? It is required when a person invoking rescission wanted the defendant to do something, or to compel him to do something. This is so because a person cannot take the law into his own hands. If however, the person invoking rescission in order for him to grant the contract to another person, then extrajudicial rescission would suffice.

Is rescission available in unilateral obligations? No, it is only available in reciprocal obligations. In Rescission the party invoking the same is for the purpose of making the person not to comply with his own obligation. It is not available to another party who refuses to comply with his obligation. The effect of rescission therefore is for the person who invokes the same not to comply with his own obligation. Fulfillment or Specific Performance The issue here is that if the aggrieved party to a contract involving reciprocal obligations, for example has already invoked fulfillment, may he thereafter be able to rescind the obligation? Or if a person invokes rescission, can he thereafter demand fulfillment? A person invoking fulfillment may later on rescind if the fulfillment of the obligation has become impossible. This if expressly granted under the law. Note however, the impossibility of performance was to be due to the fault of the debtor. If the impossibility of performance was due to the fault of the creditor, of course he will not have the right to rescind, or if was due to a fortuitous event, then he would not be an aggrieved party, therefore he would not have the right to rescind. In the second scenario where the law was silent as when an aggrieved party who exercised his right to rescind, there is no more obligation to be fulfilled since the effect of rescission is to extinguish the obligation. Hence, there is nothing more to be fulfilled. This is the ruling of the Supreme Court in the case of Magdalena Estate vs. Myrick. The effect of rescission with respect to reciprocal obligation is mutual restitution which means that the relationship will be reverted back to their status prior to the time where the parties agreed to their obligations. May the court after an action for rescission was filed allow the other party to perform the obligation? Yes. The court may grant the debtor to perform his obligation. This is known as the judicial period. xx A obliged himself to deliver to B a refrigerator with motor number wxy123, and a brand new sony bravia 40” LCD TV. A obliged himself to repair the piano of B. None of these were performed by A. Can the court compel A to 30

perform these obligations? If not, what are the remedies of B? The remedies here would depend on the nature of the obligation. The first two are obligations to give, the first is a determinate thing, while the other is an indeterminate or generic thing. The last one is an obligation to do. With respect to the refrigerator, a determinate thing which is particularly designated from all other of its kind, the creditor can compel him through an action for specific performance. However, this action is no longer available when the very object is already owned by another person who bought it in good faith and for value, or when the object was already destroyed. With respect to the LCD TV the creditor may compel the debtor to deliver the TV even if lost or destroyed or such object has been owned by another person because it is a generic thing. The debtor may be compelled to deliver a 40” LCD TV of the same kind and quality, at the expense of the debtor. With respect to the repair of the piano, the court cannot compel A to perform the obligation because it would violate his right against involuntary servitude. The remedy of B therefore, under the law with respect to obligations to do is that the creditor may have that task performed by another person at the expense of the debtor. This is called an action for substitute performance. But note that not all obligations to do, substitute performance is available, because there are obligations to do that only the debtor can perform, because of the personal qualifications of the debtor has been considered, and will only entitle the creditor for damages. In all these remedies, damages can be claimed. Under Art. 1177 there are two remedies which are both subsidiary, what are those? a. To impugn the acts which the debtor would have done to defraud them is actually rescission under Art. 1381. These are contracts in fraud of creditors. b. Accion Subrogatoria which is to exercise all the rights and bring all the actions of the debtor as against third persons. Therefore the persons involved here are the debtors who would be subrogated in the rights of the creditor as against third person. The third person is the debtor of the debtor.

However, not all the rights of a debtor as against third person shall be the subject of subrogatory action Because there are other rights which are purely personal in nature. Generally, property rights may be the subject of subrogation, except government pensions because it goes into the existence of a person, hence cannot be a subrogatory action. Can the creditors have all the properties of the debtor levied upon and sold in an execution sale? Not all the present properties may be levied upon. Because there are certain properties are considered by law and the rules of court to be exempt from execution. May future properties of the debtor be levied upon by the creditor in an execution sale? As a rule, yes. Insolvency of a debtor as a fact does not extinguish a debtors obligation. However, if there is a judicial declaration of such insolvency and the court absolved him from this obligation then his obligations are extinguished. Under the latter scenario, the creditors can no longer reach the debtors future properties. Thus, the enumeration provided in Art. 1231 is not exclusive, because a judicial declaration of insolvency and the court absolved the debtor of his obligation, the obligation is also extinguished. Aside from those mentioned in Art. 1231, which provides for 10 modes of extinguishment of obligation, judicial declaration which are not among those mentioned may also be a mode of extinguishing the obligation, the arrival of a resolutory period, and mutuum dicencio or mutual desistance. Art. 1165. When what is to be delivered is a determinate thing, the creditor, in addition to the right granted him by Article 1170, may compel the debtor to make the delivery. If the thing is indeterminate or generic, he may ask that the obligation be complied with at the expense of the debtor. If the obligor delays, or has promised to deliver the same thing to two or more persons who do not have the same interest, he shall be responsible for any fortuitous event until he has effected the delivery. (1096) Art. 1166. The obligation to give a determinate thing includes that of delivering all its accessions and 31

accessories, even though they may not have been mentioned. (1097a)

pension or gratuity from the government is subject to attachment or execution. (n)

Art. 1167. If a person obliged to do something fails to do it, the same shall be executed at his cost.

Art. 1708. The laborer's wages shall not be subject to execution or attachment, except for debts incurred for food, shelter, clothing and medical attendance.

This same rule shall be observed if he does it in contravention of the tenor of the obligation. Furthermore, it may be decreed that what has been poorly done be undone. (1098) Art. 1168. When the obligation consists in not doing, and the obligor does what has been forbidden him, it shall also be undone at his expense. (1099a) Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages. (1101) Art. 1177. The creditors, after having pursued the property in possession of the debtor to satisfy their claims, may exercise all the rights and bring all the actions of the latter for the same purpose, save those which are inherent in his person; they may also impugn the acts which the debtor may have done to defraud them. (1111) Art. 1178. Subject to the laws, all rights acquired in virtue of an obligation are transmissible, if there has been no stipulation to the contrary. (1112) Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible. The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period. This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage Law. (1124) Art. 1192. In case both parties have committed a breach of the obligation, the liability of the first infractor shall be equitably tempered by the courts. If it cannot be determined which of the parties first violated the contract, the same shall be deemed extinguished, and each shall bear his own damages. (n)

Art. 153 (FC). The family home is deemed constituted on a house and lot from the time it is occupied as a family residence. From the time of its constitution and so long as any of its beneficiaries actually resides therein, the family home continues to be such and is exempt from execution, forced sale or attachment except as hereinafter provided and to the extent of the value allowed by law. (223a) Art. 155 (FC). The family home shall be exempt from execution, forced sale or attachment except:  (1) For nonpayment of taxes;(2) For debts incurred prior to the constitution of the family home;  (3)

For debts secured by mortgages on the premises before or after such constitution; and 

(4)

For debts due to laborers, mechanics, architects, builders, materialmen and others who have rendered service or furnished material for the construction of the building. (243a)

Rule 39 Sec 13, Civil Procedure - Property exempt from execution. Except as otherwise expressly provided by law, the following property, and no other, shall be exempt from execution: (a) The judgment obligor's family home as provided by law, or the homestead in which he resides, and land necessarily used in connection therewith;  (b) Ordinary tools and implements personally used by him in his trade, employment, or livelihood;  (c) Three horses, or three cows, or three carabaos, or other beasts of burden such as the judgment obligor may select necessarily used by him in his ordinary occupation;  (d) His necessary clothing and articles for ordinary personal use, excluding jewelry; 

Art. 2236. The debtor is liable with all his property, present and future, for the fulfillment of his obligations, subject to the exemptions provided by l aw. (1911a)

(e) Household furniture and utensils necessary for housekeeping, and used for that purpose by the  judgment obligor and his family, such as the judgment obligor may select, of a value not exceeding one hundred thousand pesos;  (f) Provisions for individual or family use sufficient for four months;  (g) The professional libraries and equipment of judges, lawyers, physicians, pharmacists, dentists, engineers, surveyors, clergymen, teachers, and other professionals, not exceeding three hundred thousand pesos in value; 

Art. 302. Neither the right to receive legal support nor any money or property obtained as such support or any

(h) One fishing boat and accessories not exceeding the total value of one hundred thousand pesos owned by 32

a fisherman and by the lawful use of which he earns his livelihood;  (i) So much of the salaries, wages, or earnings of the  judgment obligor of his personal services within the four months preceding the levy as are necessary for the support of his family;  (j) Lettered gravestones;  (k) Monies benefits, privileges, or annuities accruing or in any manner growing out of any life insurance;  (l) The right to receive legal support, or money or property obtained as such support, or any pension or gratuity from the Government;  (m) Properties specially exempt by law. But no article or species of property mentioned in his section shall be exempt from execution issued upon a  judgment recovered for its price or upon a judgment of foreclosure of a mortgage thereon.

Modes of Extinguishment of Obligations Art. 1231. Obligations are extinguished:  (1) By payment or performance:  (2) By the loss of the thing due:  (3) By the condonation or remission of the debt;  (4) By the confusion or merger of the rights of creditor and debtor;  (5) By compensation;  (6) By novation.

Aside from those mentioned in Art. 1031, death of one of the party may also extinguished an obligation as viewed by some authors. But Professor Tolentino is of the view that obligation is not extinguished by the death of one of the parties. But CU believed that the statement of Prof. Tolentino apply only to contracts, because as an example for obligations arising from law, it is the law which would determine if the death of one of the parties will extinguish the obligation. As to contracts, as a rule death of a party does not extinguish the obligation arising from contracts because under Art. 1311 obligations arising from contracts, rights and obligation are transmissible to the heirs or to the estate, and therefore they are not extinguished. On the other hand, it was said that renunciation by a creditor is a mode of extinguishment. This is considered as other causes. If it is considered as other causes it is implied that it is not covered by those mention in Art. 1231. The civil code honors renunciation as a gratuitous or an onerous act. If renunciation is a gratuitous act, clearly it would fall under condonation. If renunciation is for a consideration, then this would rightfully fall under novation. By then, he would waive his right, but he

will be demanding for another for the performance of another obligation. Hence, there is novation when there is a change in the object of the obligation. Hence from the foregoing, this would not be considered a separate and distinct mode. One other which is allegedly may be considered to be a mode of extinguishment of obligation would be compromise. This would appear to be another mode of extinguishment separate and distinct than that mentioned in Art. 1031. It is another mode of extinguishment because the effect of a compromise agreement. Ordinarily it would only decrease the liability of the debtor. As in the case of Ronquillo vs. CA, the liability was decreased from 170 to 110. Thus, a compromise agreement is only a partial extinguishment. Is this not a separate and distinct mode? No because it would fall under condonation or remission. However, can there be a compromise where the object of the obligation can be changed? Yes, such as when the obligation to deliver a horse was changed to a laptop. Would it be considered a separate and distinct obligation other than those mentioned? No, because it would fall under novation. May the unilateral act of one of the parties extinguish the obligation? Yes it may, however in contracts, as a rule it cannot. The unilateral act of one of the parties will not extinguish the obligation arising from contracts, because it would violate the fundamental principle in contracts known as the mutuality of contracts, except on those contracts which are based on trust and confidence such as when the law grant a party to a contract the right to terminate the obligation arising therefrom. For example, a contract of agency. Under the law the principal can terminate the authority of the agent and thus extinguish the contract, and thereby the obligations arising from it by revocation which is the act of the principal. And the agent may also terminate the obligation by withdrawal. Is a happening of a fortuitous event a mode of extinguishment? No. The Supreme Court has consistently ruled that a happening of a fortuitous event is not a mode of extinguishment. Rather it is the effect of the happening of the fortuitous event which is the impossibility of performance, if it would have such effect, or the loss of the thing due which is a mode of extinguishment. Likewise, if there is an obligation to deliver a generic thing or pay a sum of money, the same would not likewise extinguish the obligation even if

33

the thing is lost because the genus does not perish. This is of course as a rule. If there is an obligation to deliver a determinate thing would not necessarily result to the extinguishment of the obligation if the same is lost through a fortuitous event. If the fortuitous event does not affect the thing which is to be delivered. However if the fortuitous even caused the impossibility of the performance, then it will extinguished the obligation. It is the impossibility of performance which is the mode of extinguishment and not the fortuitous event. This impossibility of performance is considered by Prof. Tolentino as nullity of contracts. But CU is of the view that it cannot be considered as a mode of extinguishment because when a contract is null and void there is nothing to extinguish. If there is a change in civil status there may be an obligation which may be extinguished which is the obligation to give support. If the marriage is declared null and void or if there is legal separation, a spouse may no longer have the obligation to give support. Note however, the court may order the guilty spouse to continue with the support.

To the person who pays need not be the debtor, such as third party payment. Also the person to whom the payment is made need not be the creditor. He is called the payee. As to the person who pays, the requirements of the law to extinguish the obligation Payment by a minor may extinguish the obligation especially in obligation arising from quasi delict. However payment by a minor may likewise not extinguish the obligation because there are payments which may only be made by the person who has the capacity to alienate his properties. Payment may be made by the minors guardian, or if there is none to court may appoint a guardian ad litem. If the minor wanted to pay or extinguish his obligation, who may question his capacity to make payment? The other creditors. Secondly, a person who who pays must also have the free disposal of his property. Hence, a person suffering from civil interdiction cannot validly fulfill or pay his debts because he has no free disposal of his property prope rty..

Payment or Performance Payment is synonymous to performance that even an obligation to do may be extinguished by payment. Although there is a view that when the code was being drafted payment is only limited only to monetary obligations but those who advocated this view did not succeed. This mode of extinguishing an obligation is applicable to any kind of obligation, even obligations not to do, as long he is not doing what he is supposed to do he is actually fulfilling his obligation. Payment does not necessarily pertain to a monetary obligation. To determine whether an obligation is extinguished by payment, or to determine whether payment is a valid payment or not, it would be good to classify the rules of payment into 4, 1. There are rules rules which pertain pertain to the person person who pays. 2. There are rules rules which which pertain to the the person to whom payment is made. 3. There are rules rules which pertain pertain to the prestatio prestation n to be performed, or to the thing to be delivered. 4. There are rules rules which pertain pertain to the date, date, time, place and manner of payment. All these rules will have to be complied in order that payment may extinguish the obligation.

If A is indebted to B and X offered to pay B. May this extinguish the obligation? The obligation may be extinguished if B accepts. Though he may not be compelled, he may want to accept. A creditor as a rule may not accept performance from a third person, except: a. by stipulat stipulation ion b. if the third person person has an interest in the fulfillment of the obligation. Why can’t a creditor be compelled to accept payment or performance? In an obligation to do, a creditor may not want to accept performance from a person with whom the creditor does not want to make the performance, probably by taking into consideration the personal circumstances of the debtor. In an obligations to give, the creditor may not likewise be compelled to accept payment from a person other than the original debtor, probably because the money coming from another person may probably come from drugs or the money is counterfeit. Who are these persons who have an interest in the fulfillment of the obligation other than the debtor? 34

Persons with Interest in the payment are those who are subsidiarily liable like, guarantors, mortgagors, or pledgors. They have an interest because if the obligaiton is not complied their property may be lost. If there are 5 debtors in an obligation to pay 100,000 can any one of the debtors compel acceptance from the creditors the payment of the entire of the obligation? There should be no debate in solidary obligations because in a solidary obligations, any one of the debtors can be compelled to perform the fulfillment of the entire obligation. As to co-joint debtors can also compel the creditor to accept payment of the entire obligation, if the co joint debtors de btors has an interest in the fulfillment f ulfillment of the obligation. Even he cannot be compelled to pay the entire, he has an interest in the performance of the obligation. What if a person who has no interest in the fulfillment of the obligation, yet he paid the creditor voluntarily the payment of the entire obligation, can the creditor be compelled to accept payment of the entire obligation? Can the person who paid, validly demand reimbursement from one of the principal debtors? Third if the one who paid cannot validly make the demand from the debtors, can X go after the guarantors? The creditor cannot be compelled because the one paying does not have an interest, but he may accept. Assuming he accepts, the one who paid claims reimbursement the following observations are seen: As to the demand for reimbursement, the answer would depend on whether the payment was made with or without the knowledge or against the will(therefore without consent) of the principal debtors, then in such instance when there is no knowledge, the one who paid may or may not validly demand reimbursement. If there is knowledge or consent, the person who paid may validly demand without issue. With respect with the instance where there is no knowledge, under the law, the one who paid may only demand reimbursement from one of the principal debtors only to the extent that he may be benefited. Here, one of the principal debtor may have previously paid a part of the debt, hence to be asked for reimbursement of the amount paid by such third person may work to the prejudice of one of the principal debtors demanded of reimbursement, as

he can only reimburse the amount from which he was benefited. X demanded for reimbursement under the same scenario (has no interest), and he cannot demand reimbursement, may X foreclose the mortgage? No. When X paid the creditor, the obligation is extinguished. It does not matter whether the debtor consented payment or not. The fact that the creditor accepted payment, the obligation is extinguished. If the obligation is extinguished, which is the principal contract, and the mortgage was only an accessory contract, therefore the mortgage follows the principal, therefore the mortgage may likewise be extinguished. It is also argued that X cannot foreclose the mortgage because X is not a party to the mortgage. The parties to the mortgage is the mortgagor and the creditor. It was constituted to secure the debtor’s obligation and not X’s obligation. (WRONG) Assuming that this payment was with the consent of the debtor, and X cannot claim reimbursement from the former. X can foreclose the mortgage even when the obligation was already extinguished. This is because in this payment with the creditor, X will be subrogated to the rights of the principal debtor. Even when this obligation was extinguished which apparently result with the extinguishment of the mortgage, that will not prejudice X right to go over the principal debtors or guarantors under the principle of subrogation. However, when this payment is without the knowledge of the debtor or against the will, there will be no right of subrogation, hence he cannot go to the mortgagors and guarantors. If X and B (creditor) entered into an agreement without the knowledge of A (principal debtor) that if X pays B as to his obligation, X will be subrogated in the rights of B. X paid B. Can X now foreclose the mortgage if A fails to reimburse?

No X cannot foreclose the mortgage even when there is an agreement. Although the answered would be yes as implied by the provision. The provision says that if payment was without the knowledge or against the will of the debtor,l X cannot compel B for him to be reimbursed, but they can come to an agreement. But such is not the intention of the law. The intention of the law is that when there is no knowledge or it is against the will, X cannot be subrogated. Such is for the protection of the debtor.

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If X paid B, without the intention of being reimbursed by A, after two weeks he demanded what he paid to B claiming that A did not give consent to this payment. Since it is a form of an indirect donation, A did not give consent, which is a requirement in donations where the donee must accept. Here, there is no acceptance, hence the payment is void. Is the contention correct? No. Even if the payment was without the knowledge of A and did not intend to be reimbursed, as far as the creditor is concerned, he would no have the right to reclaim what was paid. To whom payment should be made in order for the obligation is to be extinguished? Payment should me made to: a. To the person in whose favor the obligation is constituted. Note: The person in whose favor the obligation is constituted need not necessarily be the person who entered into a contract, it may be another person. For example if A and B entered into a contract and A paid B, does it necessarily extinguished the obligation? No. Maybe it is not B who is the person in whose favor the obligation is constituted. b. Succesors Succesors in interests, interests, or assigns. assigns. c. To the person who has the authority authority to receive receive payment. Note: To the person who has the authority from the creditor to receive payment is not accurate because a person may have the authority to receive payment when the same is authorized or granted by law (sheriff, guardian, liquidators, receivers, conservators, etc. ). When the debtor paid the sheriff, does it extinguish the obligation when the sheriff pocketed the money? Yes. because he has the authority of the law to receive payment. If payment was made to a person who is not one of those persons mentioned in Art. 1240, what will be the effect of such payment? It will not extinguish the obligation. As a rule, payment to a wrong party is not a proper payment and therefore does not extinguish an obligation. Art. 1240. Payment shall be made to the person in whose favor the obligation has been constituted, or his successor in interest, or any person authorized to receive it. (1162a).

What is the remedy of a person to whom whom he wrongfully paid? To recover from the person with whom he pays under solution indebiti because that person will not have the right to demand for payment. By way of exception, payment to a wrong party may also extinguish the obligation, when: When the payment redounded to the benefit of the creditor, but only up to the extent that the creditor was benefited. Payment to the child of the creditor, would that extinguish the obligation? As a rule no, because the child is not the creditor. It is a payment to a wrong party. Who will have the burden in proving that the payment redounded to the benefit of the creditor? Obviously, the payer or debtor will have this burden. As an exception where the payer or debtor would not have the burden of proving that the payment redounded to the benefit of the creditor when: 1. When there is ratification of the creditor, as such it is deemed redounded to the creditors benefit. Why would he ratify if it did not redound to his benefit; 2. through the acts of the creditor, the debtor was lead to believe that the person or payee has authority to receive payment, this is under the principle of the estoppel; 3. when the payee acquired the rights of the creditor after the payment. Note: The payee should acquire the right of the creditor after the payment and not before the payment, this is because when the payee acquired the rights of the creditor before the payment, this would not be a payment to a wrong party, as this would be a payment to a successor in interest or an assignee, and such would be a valid payment. A executed a promissory note and delivered the same to B the creditor. But few weeks thereafter, the promissory note was already in the possession of C. In the hands of C the promissory note matured and C demanded payment from A. A paid C. Would payment to C by A extinguished the obligation to B? Yes. Not just because C was in possession of the promissory note does not make him a proper party to receive payment. There are two requirements which are required in order for it to be considered a valid payment: 1. This person (C) must be in possession of the credit. Note that possession of a promissory note does not necessarily mean that he was in possession of the credit. The latter is merely an evidence of credit. To be in possession of a credit is that such person must appear to have possession of the credit. For example, the promissory note provides that “payment to Jose Reyes” It could not be considered as a person 36

appearing to have possession of the credit, the same not being a negotiable instrument. It would be different if the promissory note is a negotiable and a bearer promissory note and in possession of C. Therefore under this circumstance it can be inferred that C negotatiated the note by mere delivery. He therefore is in possession of the cre dit. But note that payment to him does not necessarily extinguish the obligation because the other requirement is, 2: payment must be in good faith. meaning that when A paid C he must have no knowledge of the defect of title C.

For example when the debtor is indebted to a sum of money payable in 10 years in monthly installments. When the debtor has already paid for 8 years, the creditor can no longer rescind the contract because there is payment which is considered partial performance.

These two requirement must concur in order that the payment to a wrong party to extinguish the obligation of A to B.

8 out of 10 installments is substantial performance.

Since under the foregoing circumstance, the obligation of A is extinguished, B therefore has the remedy against C. A is the debtor of B, thereafter B assigned his credit to C. It was after the assignment that A paid B. That is a payment to a wrong party because C is not supposed to be the new creditor through assignment. May the payment of A to B, extinguish his obligation to C? Yes, when A paid B without knowledge of the assignment. May a creditor be compelled to partial performance? As a rule, no, unless there is a stipulation to the contrary or if the obligation is partly liquidated or partly unliquidated to the extent of the portion which is liquidated, the creditor may compel the debtor to perform, likewise the debtor may compel the creditor to accept. If the obligation is to deliver a determinate thing, the creditor may not be compelled to accept the delivery of another thing even if such other thing is more valuable than the thing supposed to be delivered.

If there is substantial performance in relation to Art. 1181 there is no more substantial breach. What would constitute substantial performance?

95 installments out of 120 is also substantial performance. 65% of the obligation is not substantial performance. 74% is not a substantial performance. What are the rights of the parties when there is an obligation to pay or deliver 100 sacks of rice. 85 sacks has been delivered, the other 15 can no longer be delivered despite good faith. How much can the seller recover from the buyer? Under the law the seller may recover only the value of the 85 sacks less damage that may be suffered by the creditor. The buyer not having been able to receive 100 sacks of rice, he may have suffered because if the 100 sacks of rice has been all delivered, he may have sold it for a higher prize. This is called unrealized profit where the the value of the 85 sacks of rice shall be lessened because of the unrealized profits which the buyer may have received were it not for the incomplete delivery When there is an irregular or incomplete fulfillment, there is an instance under the law that the obligation is fully complied with. However the following requisites must be complied with, namely: 1. There must be acceptance by the creditor

In Art. 1234 what is the effect of substantial performance? Art. 1234. If the obligation has been substantially performed in good faith, the obligor may recover as though there had been a strict and complete fulfillment, less damages suffered by the obligee. (n)

The premise of substantial performance is that the creditor accepted. Whether or not he can be compelled to accept does not matter, what matters is he accepted the partial performance.

2. The acceptance must be with full knowledge of the incompleteness or irregularity. 3. He must not have made an objection. Art. 1235. When the obligee accepts the performance, knowing its incompleteness or irregularity, and without expressing any protest or objection, the obligation is deemed fully complied with.

In the case of Azcona vs. Amandre where the Supreme Court ruled that the payment extinguished the obligation where the actual 37

amount due was 7,200 but only paid 7,000 when the seller issued a receipt 7000 as per contract, it is as if there was faithful compliance. In monetary obligations, can there be a valid obligation in money which is not in Philippine currency? Yes. with or without RA 529, as amended it will be a valid obligation. REPUBLIC ACT NO. 8183  . . AN ACT REPEALING REPUBLIC ACT NUMBERED FIVE HUNDRED TWENTY-NINE AS AMENDED, ENTITLED "AN ACT TO ASSURE THE UNIFORM VALUE OF PHILIPPINE COIN AND CURRENCY."  Section 1. All monetary obligations shall be settled in the Philippine currency which is legal tender in the Philippines. However, the parties may agree that the obligation or transaction shall be settled in any other currency at the time of payment. Sec. 2. Republic Act Numbered Five Hundred Twenty-  Nine (R.A. No. 529), as amended entitled "An Act to Assume the Uniform Value of Philippine Coin and Currency," is hereby repealed. Sec. 3. This Act shall take effect fifteen (15) days after its publication in the Official Gazette or in two (2) national newspapers of general circulation. The Bangko Sentral ng Pilipinas and the Department of Finance shall conduct an intensive information campaign on the effect of this Act. If the currency agreed upon is not in Philippine pesos, can the creditor demand fulfillment in the currency agreed upon and not in Philippine currency? Under R.A. 529 it is not allowed. Even if the parties agree to a currency expressly stipulated, under RA 529, such is a void stipulation. The obligation is not void, it is the stipulation of payment in the currency offered which is void. However in RA 8183 amending RA 529 a creditor can demand fulfillment other than Philippine currency if such was the stipulation is valid.

Can the creditor be compelled to accept payment by checks? No. whatever kind of check is not allowed, they are not legal tenders. When creditor accepted the check and the same became stale, is the obligation extinguished?

When creditor accepted the check and the same became stale, can the creditor demand for the issuance of another check? No. When the creditor was in possession of a check, there is a disputable presumption that the debt has not yet been paid. It may be rebutted when the debtor had already paid, and the creditor was still in possession of the check. What are those which are considered legal tenders? a. notes (cash) b. coins Note: Even when the money is considered legal tenders the same has been withdrawn from circulation or has been demonitized. An action was filed under quasi delict and thereafter a judgment was rendered in favor of the plaintiff on a contract entered into 10 years ago, today A filed a motion to have his judgment adjusted claiming that there is an extraordinary inflation. May the judge award A’s motion? Under Art. 1250 In case an extraordinary inflation or deflation of the currency stipulated should supervene, the value of the currency at the time of the establishment of the obligation shall be the basis of payment, unless there is an agreement to the contrary. Under the facts, for Art 1250 to apply, the same must be based on a contract and not quasi delict because the law as worded “currency stipulated”. Hence, Art 1250 will not apply and therefore adjustment cannot be allowed. If the action was filed based on contract, the judge should not grant the motion for adjustment if the same is not an extraordinary inflation. Because the adjustment should be granted if there is only an extraordinary inflation that occur, otherwise not granted. Note: Art. 1250 means that there must be an adjustment at the time of the constitution of the obligation if there is an extraordinary inflation or deflation based on a contract. If the due date for the performance of the obligation is a sunday and demand was made on that day however the debtor only performed it the next day, may he be considered in delay?

No. It is only that it cannot be be encashed. 38

Yes. Even if sunday or holiday, if the debtor promised to perform the obligation on such day and he did not perform, he is considered in delay. As an exception, even if the date agreed upon is a sunday the debtor may not be considered in delay when there is an impossibility of performance of the obligation, or when the debtor gave the creditor a check and the check’s due date is a holiday or a non banking day, in the latter case it is allowed for as long as it is the next banking day. In an obligation to give or deliver a determinate thing and the thing was delivered at the place of business of the creditor, and the creditor refused to accept. Is the creditor already in delay? Not necessarily, because there may be a stipulation that delivery be made in another place. If there is no stipulation as to the place where the thing is to be delivered, where should such thing be delivered? It depends on whether the thing is determinate or generic. If it is a determinate thing, then payment shall be made at the placer wherever the thing might be at the moment the obligation was constituted. In any other case (such as when the thing is indeterminate) then the debtors domicile shall be the place of payment. What are the special forms of payment? 1. 2. 3. 4.

Dation in payment Application of payment payment by cession or assignment tender of payment and consignation

Is payment by a third party a special form of payment? No. It is a payment by a person not a party to a contract. In these special forms of payment, do they require the consent of the parties in order that the obligation be extinguished? As to debtors, their consent is required because he is the one offering to pay. As to the creditor, as a rule the creditor’s consent is not required because the debtor under the law has the right to designate to which the payment is to be applied.

Is the consent of the creditor required in order that obligation be extinguished by way of consignation? No. Consignation does no require the creditors consent if the creditor refuses to accept, then the court shall determine whether the consignation is valid or not. The creditor cannot do anything if the consignation is a valid consignation. Hence, the obligation is to be extinguished. It may either by acceptance or by declaration of the court. In these special forms of payment, when the debtor delivers a thing to the creditor, there is transfer of ownership? Not necessarily. In case of cession. This is because when the thing is delivered to the creditor in order for him to sell. The creditor does not acquire ownership because this thing is to be sold to third persons who will be the one to acquire ownership. When can consignation to the court pass ownership to the creditor? In case of valid consignation, ownership is transferred to the creditor at the time of delivery. In case of invalid consignation, and the creditor did not accept, ownership is not transferred to the creditor. If there is dation in payment, the obligation of the debtor is totally extinguished? Not necessarily. This is because when the thing alienated is less than the value the indebtedness, the obligation is not extinguished totally. It is merely a partial performance. Note: Different view under 1235 In dation in payment if the thing is alienated by the debtor in satisfaction of his debt and the value of such thing is less than the indebtedness, is the obligation extinguished to the extent of the value unless otherwise stipulated? Or in dation in payment, it totally extinguishes the obligation, unless there is a stipulation to the contrary? It only extinguishes to the extent of the value of the thing unless agreed upon by the parties. It is a proper position because no creditor would accept less than than what is the value of the thing. This position would appear to be just. However, there is a view to the effect that it may totally extinguish the obligation under 1235, as when the obligee accepts the performance, 39

knowing its incompleteness or irregularity, and without expressing any protest or objection, the obligation is deemed fully complied with. Dation in payment shall be governed in the law on sales? Not necessarily. It will be governed in the law on sales when property is alienated to the creditor in satisfaction of a debt in money, otherwise it will be governed by the law of novation because there is a change in the object. Is it correct to say that when a property is alienated to the creditor in satisfaction of a debt in money, it can be governed by the law on novation, since there is a change in the object? It may be said that since there is a change in the object, the law on novation is proper. However, there is a law on the matter which is Art. 1245 which provides that when property is alienated to the creditor in satisfaction of a debt in money, shall be governed in the law on sales. There is wisdom in the latter view (Art. 1245) because If a person is indebted to another person, and in this pre-existing debt the debtor paid the creditor a watch, in a way it will have to be governed by the law on sales because it may be said that the debtor paid in cash and the creditor used this cash to buy the watch of the debtor. For the rules of application of payment to be invoked, there should only be one creditor? Not necessarily. There may be 2 or more creditors since the law does not specify that the debtor should only have 1 creditor. In application of payments therefore, is there a scenario where there will be total extinguishment of obligation? No. For application of payments to be applied, the debtor paid partially. If the debtor paid in a sum which is sufficient to cover all the debts, there will no longer a question to which debt is payment is to be applied. This happens when the debtor paid less than the amount of the debt. A has an obligation of 30,000, 50,000, and 500000 to X. A paid the 30,000 to satisfy the 500,000 debt? Is that allowed? Why would A apply the payment to the 500,000? It is allowed to apply the payment to 500,0000. A would apply the payment to the 500,000 because it would be more burdensome to the 500,000 because the latter is interest bearing.

To which the debt the payment is to be applied? It is a debtor as a rule, has the choice to which the payment is to be applied. Under the above scenario, if 2 of the debts is not yet due and the first one is due the debtor may apply the payment to the first debt if the debtor is the person to whom the period is fixed, otherwise, even if one is due but the period was fixed in the creditors favor, then the debtor may not apply the payment in the first debt. If all the debts is already due, the debtor cannot compel the creditor to apply the payment to the first debt by choice, under the principle that the creditor cannot be compelled to accept partial performance or by stipulation of the parties the first debt is the last to be paid or 2nd. What are the limitations to the right of the debtor for which the payment is to be applied? 1. Partial payment 2. due and demandability 3. If there is an agreement that the debtor cannot make the choice of application without the consent of the creditor. 4. When the debt produces interests All the debts are due and demandable, and one of the debt produces interests, may the debtor apply the payment to the debt which does not incur interests? If one of the demandable debt produces interest, payment of the principal shall not be deemed to have been made until the interests have been covered. What if the debtor failed to designate to which the payment is to be applied, to which the payment is to be applied? The debt designated by the creditor and such designation is to be accepted by the debtor. If the debtor and the creditor failed to designate to which the payment is to be applied, to which the payment is to be applied? It depends if the debts are of the same nature and burden, payment shall be applied to all of them proportionately under Art. 1254. However, if the debts are not of the same nature or burden, meaning one of them is more onerous, apply the payment to the most onerous obligation. If the amount of the debt is bigger does it mean that it is the most onerous? 40

Not necessarily. The smaller amount may incur bigger interests. There is no hard and fast rule to determine which of the debt is more onerous. A 6% interest in fact may be more onerous than a 12% interest when the amounts involved are different. If in one of the debt, A is a principal debtor, and in another debt, he is merely a guarantor, which is more onerous? The more onerous is the debt in which the debtor is principally bound because the guarantor can demand from reimbursement from the creditor. Payment by Cession If the client is the debtor, and he is willing to abandon his properties to his creditor, what if the creditors refused to adhere to this offer, what advice would you give to your client?

As a rule, it is not required that tender of payment be made to extinguish an obligation by way of consignation, except when the creditor to whom tender of payment has been made refuses without  just cause to accept it, the debtor shall be released from responsibility by the consignation of the thin or sum due (Art. 1256). Under the law, tender of payment is not required as provided by law, which are: a. When the creditor is absent or unknown, or does not appear at the place of payment; b. When he is incapacitated to receive the payment at the time at the time it is due; c. When, without just cause, he refuses to give a receipt; d. When two or more persons claim the same right to collect; e. When the title of the obligation has been lost (Art. 1256). Tender of payment may be extrajudicial?

Under Art. 1255. The debtor may cede or assign his property to his creditors in payment of his debts. This cession, unless there is stipulation to the contrary, shall only release the debtor from responsibility for the net proceeds of the thing assigned. The agreements which, on the effect of the cession, are made between the debtor and his creditors shall be governed by special laws. (1175a) So it means that when the value of the thing to be ceded to the creditor is less than the debt, such will be a partial payment and shall release the debtor only to the extent of the net proceeds of the thing assigned or ceded. Is insolvency a requirement that the debtor is insolvent in order for him to assign or cede his property? Not payment by cession is by agreement of the parties and therefore as long as the debtor cedes and the creditor accepts for the latter to sell, insolvency is not required.

No, it is always extrajudicial and can never be  judicial. It is not required to involve the court to make a tender of payment. By its nature it is extrajudicial. However, in a case where the SC held that tender of payment may be judicial when the tender of payment was made during the pendency of the action. But note by its nature tender of payment is extrajudicial. A has a right to redeem within the period within which A has a right to redeem, he offered the money to the other party for the redemption of a property. However, the other party refused to accept without just cause, after the lapse of the period to redeem, the redemptioner filed an action to sell the property and deliver the same to him. One of the defenses raised by the other party was the tender was not in good faith because the redemptioner did not deliver the money to the court by way of consignation, when he refused to accept the money? IS it a valid defense?

Tender of payment and consignation Is tender of payment a mode of extinguishment? Tender of payment is not a mode of extinguishment. No obligation is extinguished by mere tender of payment. Tender of payment, as a rule, required in order to extinguish an obligation by way of consignation?

In the case of Immaculata vs. Navarro, the defense is not tenable. It is not required that when the other party refused to accept by way of consignation, the redemptioner should deliver the money to the court by way of consignation before the lapse of the redemption period. The reason is that consignation is only required when there is an obligation to be extinguished. Here there was no obligation to be extinguished but only a right to be exercised.

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One of the requisite in order to have a valid consignation is that there must be a debt which is due.

No. The first notice (prior consignation) must come from the debtor but the second one (after consignation) may come from the creditor.

If the creditor refuses to issue a receipt, is it a ground to make a delivery to the court by way of consignation?

A sum of money was delivered to the court by way of consignation, however he was able to withdraw the sum of money, thereafter he paid the debt. If the obligation of the debtor is secured by a mortgage because of failure of the debtor to pay the debt, may the creditor foreclose the mortgage even if the debtor withdraw the payment by way of consignation?

Yes because a receipt is an evidence of payment, non issuance of a receipt the creditor may again demand for the payment. A law which provides that a payment is only considered as such upon issuance of the receipt, is it advantageous? Yes. It is advantageous because it would involve less litigations, secondly the debtor can compel the creditor to issue a receipt. But of course, payment is the one which extinguishes the obligation and not a receipt. In an obligation to deliver a horse, 3 persons are claiming to have a right over this horse, therefore the creditor has the right to deliver the horse to the court by way of consignation? Not necessarily because one person may have a better right than the others such as when one has a certificate of title over the horse Is the two notice requirement under consignation mandatory? Would these two notices both come from the creditor? Yes it is required as held in the case Soco vs. Militante. In order that consignation may be effective, the debtor must first comply with certain requirements prescribed by law. The debtor must show (1) that there was a debt due; (2) that the consignation of the obligation had been made because the creditor to whom tender payment was made refused to accept it, or because he was absent or incapacitated, or because several persons claimed to be entitled to receive the amount due (Art. 1176, Civil Code); (3) that previous notice of the consignation had been given to the person interested in the performance of the obligation (Art. 1177, Civil Code); (4) that the amount due was placed at the disposal of the court (Art. 1178, Civil Code); and (5) that after the consignation had been made the person interested was notified thereof (Art. 1178, Civil Code). Failure in any of these requirements is enough ground to render a consignation ineffective. Do these notice both come from the debtor?

It depends whether the withdrawal was a matter of right, the creditor may foreclose the mortgage. It would be a matter of right where the consent of the creditor is irrelevant when it is done before acceptance and there or no declaration by the court that there is a valid consignation (Art 1260). The authority of the creditor is required when the withdrawal is a matter of right, since the consent of the creditor is required, there can no longer be a foreclosure because the creditor gave his/her consent and the obligation is already extinguished. The due date was 1-1-01, tender of payment was made 1-1-02 and consignation was made 1-1-05, on 1-22-10 the court rendered judgment in relation to this consignation, would the debtor be held liable for interest from the tender of payment on 1-1-01? If there was demand made, he is liable for interest because with such he is considered in delay, without demand no liability to pay interest. The debtor may be held liable to pay interest (assuming debtor is in delay) from 1-1-01 to 1-22-01 if the court considered to consignation to be void. Assuming the court declared the consignation to be valid (there is also delay), the interest shall be counted only upto the time the debtor delivered the payment in court. But justice and equity serves that payment of interest should only be counted up to the time tender of payment is made or the principle where both the debtor and creditor is in delay, such when the debtor refuses to accept, as such the debtor can no longer be held liable for interest. when property is alienated to the creditor in satisfaction of a debt in money, it will be governed on the law on sales pursuant to Art. 1245, unless there is a stipulation to the contrary, further Loss of the Thing Due or impossibility of performance

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Can loss of the thing be invoked in all kinds of obligations? No. because there are obligations to do or not to do which does not include a thing.In the former cases it would be proper to call it impossibility of performance. In an obligation to deliver a generic thing, is loss of the thing extinguish an obligation? Impossibility pertains to physical and legal. A law which prohibits the performance of an obligation to give even if it pertains to a generic thing, in which the law became effective during the pendency of the obligation, by law it is considered legally impossible to perform. If prior the constitution of the obligation it is considered as void being contrary to law, hence there is nothing to be extinguished. Loss of the thing may be extinguished even if the thing is a generic thing, by mutual agreement of the parties, it is not because of the loss of thing. Another scenario is when the generic thing is the last of its kind, as when it goes out of commerce. In an obligation to deliver a determinate thing, when would this obligation be extinguished under the Code? If the loss of the thing is due to the fault of the debtor, it is not extinguished, but if the debtor was not at fault the obligation is extinguished. If the obligation was not extinguished and the thing was lost (a determinate thing), what is the effect? The thing itself can no longer be delivered extinguishes his obligation to deliver the thing, but would entitle the creditor to damages. Any person who in the performance of their obligations are guilty of fraud, negligence or delay and those who in any manner contravene the tenor thereof shall be liable for damages (Art 1170). If there was a lost of the thing due to the fault of the debtor, which makes him liable, who has the burden of proving that the loss was due to the fault of the debtor? The creditor absolutely has the burden of proving that it was lost if the same was lost due to the fault of the debtor. However, there when the thing lost was in the possession of the debtor, a presumption will arise

that is was due to his fault, unless there is proof to the contrary. This presumption take place only when there is no allegation that the thing was lost was not due to the fault of the debtor. However, this presumption will not apply in case of earthquake, flood, storm, or other natural calamity. When the lost of the thing was due to a fortuitous event, may the debtor shall be held liable due to the loss of the thing? Not necessarily. He may be liable when he was in delay. If he was not in delay, he will likewise be liable if there is a stipulation to the contrary. Aside from stipulation, if the law so provides. Note: When the nature of the obligation requires the assumption of risks as a defense cannot apply to determinate things. If the performance of the obligations becomes so difficult, the obligation is extinguished? Not necessarily. It may be extinguished when it became so difficult, so difficult that it is beyond the contemplation of the parties. The court may release the debtor partially or wholly from this obligation. An action was filed for the court to adjust the agreement of the parties as to their share in the profits in relation to the sale of a house and lot. Defendant was the owner of the land and the plaintiff was the owner of the materials used in the construction, the proceeds to be divided between them 60/40. The plaintiff went to court to adjust the shares due to difficulty of performance as the prices of the materials increased. The court did adjust the terms and conditions of the agreement. A motion to dismiss was filed on the adjustment. Is the motion granted? adjustment proper? The. The court has no power to change the terms and conditions of the agreement. The only power given by law to the court is to release the debtor in whole or in part . Even if the reason for the difficulty is because of an unforeseen event still the court has not power to change the terms and conditions of the contract. The court may however, release the debtor in whole or in part. That is the only power granted to the court under this provision provided in Art. 1267 which provides that 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. A has a cellphone, and it had a casing, and if someone would forcibly take his cellphone he would request that the cellphone alone should be taken. If there is an obligation to deliver a 43

cellphone with its case, and the cellphone was lost or destroyed due to a fortuitous event, the obligation therefore is extinguished? It depends on the intention of the parties as to the importance of the thing which was lost in relation to the entire obligation. In other words, when the creditor would not have entered into the contract without the other thing which was lost, the obligation would therefore be extinguished. The casing would be considered be more important when the casing was jewel encrusted. Condonation or Remission of the debt Condonation is also know as? Donation of credit or remission of the debt. Is renunciation also a good name for condonation? No because renunciation may not be a gratuitous act. The civil code would recognize an onerous renunciation. If the renunciation is a gratuitous act it will amount to condonation. Son A is indebted to his father B in the amount of 500,000. Through a check A paid his father B 300,000. B, his father died. The executor of the father of the decedent demanded payment from A 200,000. However the son raised that his obligation was totally extinguished because as shown in the annotation at the back of the check, it provides that “it was in full payment of the obligation”. Is it condoned? It will depend on who wrote the annotation. If the father who made the annotation, it depends on whether it is express or implied. If the obligation is express there must be an acceptance by the son because it is a form of donation, which requires acceptance. Hence the son is still compelled to pay. A borrowed money from B, 100,000. A executed a promissory note which he delivers to B was already in the possession of A. Was the obligation of A was extinguished by condonation? Not necessarily. There is a presumption that the obligation is extinguished when the promissory note is a private instrument. If the promissory note is contained in a public instrument the presumption will not arise. When the promissory note was a private instrument and it was already in the possession of the debtor, does it raise the presumption that

the obligation was extinguished by condonation? What the law provides under Art 1272, when the private document was in the possession of the debtor, there is a presumption that the creditor delivered it voluntarily, then it presupposes that there is payment when there is a receipt (evidence of payment) given. If there is none, a disputable presumption is given that there is condonation. A borrowed 100,000 from B. To secure fulfillment of his obligation a watch was delivered to B. Thereafter, the watch was already in the possession of X. Therefore, the obligation of A to B was extinguished? The thing that was delivered to secure was obviously a form of pledge. When the thing was found no longer in the possession of the creditor, pledgee. There is no presumption that the obligation is extinguished. What is presumed is that the pledge is extinguished. Under the facts, there would be a presumption that the obligation is extinguished if X was the owner. If X was the pledgor, then there is no presumption that such will arise. Confusion or merger of rights Confusion is also known as? Merger of rights. Can there be confusion by operation of law? Yes. If a person inherits the credit, then there will be confusion as when the son who has a debt to his father, the son may inherit from his father the credit thereby extinguishing the obligation by merger of rights, assuming he is the only heir. If it was the debtor child who died in the above scenario, will there be confusion? Not necessarily. Ordinarily there will be no confusion because the father will not accept. For transmission of successional rights the heir must accept. If he accepts then there will confusion. Normally, as to obligations or debts, no one would accept. By agreement of the parties the most common agreement which would result in confusion is known as? Merger agreement or contracts.

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Can there be a partial extinguishment of an obligation by confusion?

Art. 1281. Compensation may be total or partial. When the two debts are of the same amount, there is a total compensation. (n)

Yes. If there are two debtors. Can there be partial confusion? No. There is no partial confusion. A debt of A to B became due in 1995, a merger agreement was entered into in 2002, just like any agreement there can be a rescission, as in this case were rescission was made in 2008, today 2010 an action was filed by B against A on the debt, may the action still prosper? Observation: In the exam when CU uses the word STILL prosper, it talks of prescription. When CU uses May the action prosper, it doesn’t talk about prescription but on some other grounds. The action may still prosper. The obligation is extinguished in 2002 by merger. The merger up to the time of rescission should not be included in the computation of the prescriptive period of 10 years. During the merger period, B cannot sue A, their personality being one and the same. The effect of rescission revives the status of the parties prior to the merger, it is if A again has an obligation to B again. Therefore from 1995 to 2002 and from 2008 to 2010 the time lapsed is only 9 years, hence well within the prescriptive period.

Art. 1282. The parties may agree upon the compensation of debts which are not yet due. (n) Art. 1283. If one of the parties to a suit over an obligation has a claim for damages against the other, the former may set it off by proving his right to said damages and the amount thereof. (n) Art. 1284. When one or both debts are rescissible or voidable, they may be compensated against each other before they are judicially rescinded or avoided. (n) Art. 1285. The debtor who has consented to the assignment of rights made by a creditor in favor of a third person, cannot set up against the assignee the compensation which would pertain to him against the assignor, unless the assignor was notified by the debtor at the time he gave his consent, that he reserved his right to the compensation. If the creditor communicated the cession to him but the debtor did not consent thereto, the latter may set up the compensation of debts previous to the cession, but not of subsequent ones.

Compensation Art. 1278. Compensation shall take place when two persons, in their own right, are creditors and debtors of each other. (1195) Art. 1279. In order that compensation may be proper, it is necessary:  (1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other; (2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated; (3) That the two debts be due; (4) That they be liquidated and demandable; (5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor. (1196) Art. 1280. Notwithstanding the provisions of the preceding article, the guarantor may set up compensation as regards what the creditor may owe the principal debtor. (1197)

If the assignment is made without the knowledge of the debtor, he may set up the compensation of all credits prior to the same and also later ones until he had knowledge of the assignment. (1198a) Art. 1286. Compensation takes place by operation of law, even though the debts may be payable at different places, but there shall be an indemnity for expenses of exchange or transportation to the place of payment. (1199a) Art. 1287. Compensation shall not be proper when one of the debts arises from a depositum or from the obligations of a depositary or of a bailee in commodatum. Neither can compensation be set up against a creditor who has a claim for support due by gratuitous title, without prejudice to the provisions of paragraph 2 of Article 301. (1200a) Art. 1288. Neither shall there be compensation if one of the debts consists in civil liability arising from a penal offense. (n)

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Art. 1289. If a person should have against him several debts which are susceptible of compensation, the rules on the application of payments shall apply to the order of the compensation. (1201)

Yes. There may be partial extinguishment of an obligation. As long as the debts of one are not equal to the debts of the other, the compensation will only be to the concurrent amount and there will be no total extinguishment.

Art. 1290. When all the requisites mentioned in Article 1279 are present, compensation takes effect by operation of law, and extinguishes both debts to the concurrent amount, even though the creditors and debtors are not aware of the compensation. (1202a)

When can total extinguishment take place? When the debts of one are totally equal with the other.

Art. 1243. Payment made to the creditor by the debtor after the latter has been judicially ordered to retain the debt shall not be valid. (1165)

A owes B 100,000, but B has several debts to A 1k, 2k, 5k and 20k, 80k in total, with compensation, all the debts will be totally extinguished, because the extinguishment is for the concurrent amount, but A will still owe B 20k.

Art. 1215. Novation, compensation, confusion or remission of the debt, made by any of the solidary creditors or with any of the solidary debtors, shall extinguish the obligation, without prejudice to the provisions of Article 1219.

A has an obligation to B, and B has an obligation to A. A’s obligation is interest bearing, after compensation can B still collect interest from A?

The creditor who may have executed any of these acts, as well as he who collects the debt, shall be liable to the others for the share in the obligation corresponding to them. (1143)

It depends on whether the debt of B is larger than the debt of A. If the debt of B is larger than A, then A will not be liable for interest as there will be total extinguishment of the debt of A.

What is compensation?

What if the debt of A is secured by a mortgage, and compensation took place, may B foreclose the mortgage?

It is a mode of extinguishing to the concurrent amount, the obligations of those person who in their own right are reciprocally debtors and creditors of each other. What are the kinds of compensation? 1. Facultative - Deposit, Commodatum, Gratuitous support and civil liability from crime Requires consent of one of the parties 2. Legal - By operation of law 3. Conventional/Voluntary - by agreement of the parties. In compensation is required that the parties have capacity to receive and capacity to dispose of their properties? Not necessary. Compensation operates by operation of law. Can there be partial compensation?

Yes. because there will still be a balance of 50k. A mortgage is an indivisible contract, until the obligation is extinguished the mortgage will remain in force. If A failed to pay the 50k then B can foreclose on the mortgage. A opened a savings account with Y Bank in the amount of 1 M, thereafter A borrowed money from the same bank 800k, thereafter A wanted to withdraw the 1M, the bank refused to allow A to withdraw the 1M as A can only withdraw up to the extent of 200k and invoking compensation. Can the bank deposits be a subject of compensation with the debt? No. Under Art. 1287 it was provided that there can be no compensation when one of the debts arises from a deposit. But a bank deposit is not a contract of deposit which is prohibited. The opening of a savings account is a contract of loan. Since both are simple loan there can be compensation. What if A delivered a thing to the bank as a depositary for safekeeping, can this be a subject of compensation? 46

Yes it can be a subject of compensation, but only the depositor can invoke compensation. What is A promised to give B a specific kind of bike, in the meantime A already had a bike. B borrowed the bike. Can the borrowed bike be a subject of compensation? Yes. But only the bailor A can invoke compensation and not the bailee B. This is commodatum. Can support be a subject of compensation? It depends, if it is legal support it cannot because it is needed for a person’s survival. It should be gratuitous support and not contractual support. If gratuitous compensation can take place. A is indebted to B 100k, when B tried to collect the debt from A, A refused to pay, so B stabbed A and hold B criminally liable. Can there be compensation? Yes, but only the aggrieved party A (offended party)can invoke compensation and not B (convict) If A and B are indebted to each other and the debts are not yet due, can compensation take place? Yes, by voluntary compensation. If A is indebted to B of a carabao while B is indebted to A of a car, can compensation take place? Yes, by voluntary compensation. A owes B a sum of money due in 1992, B owes A a sum of money due 1999, both debts valued at 1 million. A filed an action against B and invoke compensation, A however said that B cannot invoke compensation because B’s credit had already prescribed. Is A correct? No. In 1999 even without the parties knowledge, when the debts become due and demandable, compensation took place by operation of law. What are the compensation?

requirements

of

legal

1. They must be mutual creditors and debtors

2. Both debts must be in sums of money or if they pertain to goods, they must be of the same kind and quality. 3. Both parties must be principally bound. 4. They must be creditors and debtors of each other in their own right. Is it correct to say reciprocal creditors? No, this is because this would pertain to reciprocal obligations, which would necessarily require that the same arose from the same transaction. Therefore in reciprocal obligations, there can no no legal compensation even if they are said to be mutual creditors and debtors of each other. Francia's property was expropriated by the Republic of the Philippines. Since 1963 up to 1977 inclusive, Francia failed to pay his real estate taxes. Thus, on December 5, 1977, his property was sold at public auction by the City Treasurer of Pasay City pursuant to Section 73 of Presidential Decree No. 464 known as the Real Property Tax Code in order to satisfy a tax delinquency of P2,400.00. May compensation take place? No. There can be no off-setting of taxes against the claims that the taxpayer may have against the government. A person cannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater than the tax being collected. The collection of a tax cannot await the results of a lawsuit against the government. A claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off under the statutes of set-off, which are construed uniformly, in the light of public policy, to exclude the remedy in an action or any indebtedness of the state or municipality to one who is liable to the state or municipality for taxes. Government and taxpayer are not mutually creditors and debtors of each other under Article 1278 of the Civil Code and a claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off. By legal compensation, obligations of persons, who in their own right are reciprocally debtors and creditors of each other, are extinguished (Art. 1278, Civil Code). The circumstances of the case do not satisfy the requirements provided by Article 1279, to wit: “(1) that each one of the obligors be bound principally and that he be at the same time a 47

principal creditor of the other; xxx (3) that the two debts be due. PNB's main thesis is that when it opened a savings account for ISABELA on March 9, 1979 in the amount of P 2M, it (PNB) became indebted to ISABELA in that amount. 11 So that when ISABELA itself subsequently came to be indebted to it on account of ISABELA's breach of the terms of the Credit Agreement of October 13, 1977, and therefore ISABELA and PNB became at the same time creditors and debtors of each other, compensation automatically took place between them, in accordance with Article 1278 of the Civil Code. The amounts due from each other were, in its view, applied by operation of law to satisfy and extinguish their respective credits. More specifically, the P2M owed by PNB to ISABELA was automatically applied in payment and extinguishment of PNB's own credit against ISABELA. This having taken place, that amount of P2M could no longer be levied on by any other creditor of ISABELA, as the ACEROS attempted to do in the case at bar, in order to satisfy their judgment against ISABELA. Is there compensation by operation of law between PNB and ISABELA? No. The court ruled in PNB vs. Acero, that even though that PNB was a debtor of ISABELA under the latter’s savings deposit in the bank, which is considered a simple loan, there was no proof shown by PNB in the case that ISABELA was also indebted to PNB, the only evidence present by PNB towards this end consists of two (2) documents marked in its behalf as Exhibits 1 and 2, But as the IAC has cogently observed, these documents do not prove any indebtedness of ISABELA to PNB. All they do prove is that a letter of credit might have been opened for ISABELA by PNB, but not that the credit was ever availed of. May there be obligations both in sums of money in reciprocal obligations? It cannot happen. In reciprocal obligation there are different prestations, one is delivery of a thing and the other is monetary. Will there be legal compensation only if the debt in money arose from contract? No, there are cases where compensation by operation of law took place when there was award of attorney’s fees and the court ruled that legal compensation may take place.

May all monetary obligation be the subject of legal compensation?

No. Legal compensation cannot take place in certain monetary obligations such as taxes, customs duties, tariff etc. Where A is indebted to B and this obligation is secured by a guarantor G, on the other hand B is also a debtor of G, if G demands payment from B, can B claim that since G is a guarantor on A’s debt to be, compensation may take place on A’s debt and B’s debt to G? No because the guarantor is not principally bound, but the moment A defaults and his properties are already exhausted, the guarantor will not be primarily liable to B, and from then on compensation may take place. The owner of a share of stock authorized L to sell the same, L on the other hand authorized S to sell it, the latter was able to sell the share of stock, however, despite demand of A from S to remit the proceeds of the sale he refused to do so. S was charged for estafa and was convicted, on appeal S claimed that L owed him also, so compensation took place, therefore he cannot be liable for estafa. Is S’s contention correct? No, even assuming that L is indebted to S, the latter is really not indebted to L in his own right. The real creditor of L is the buyer of the shares. L and S should be debtors and creditors of each other. Is it required that when both debts are due and demandable means that they are due at the same time? No. What is required is that both debts are due. So if one of the debts became due 3 years ago, and the debt became due today, compensation will only take place today because it is only today that both debts became due. A borrowed from B, B bought a car from A on credit, can there be legal compensation? There can be legal compensation because when B bought the car from A on credit, the buyer B is also going to pay the price in money, so there can be legal compensation. Fajardo borrowed money from ICB in the sum of 50M, the bank released 20M, to secure this obligation Fajardo mortgaged properties amounting 110M, thereafter she also delivered 1M to the bank for money market investment, so like just other investments it matured, so Fajardo demanded for the return of the 1M, the 48

bank claimed that Fajardo has nothing to recover from the bank because as to her loan which Fajardo failed to pay, upon foreclosure of the mortgage Fajardo still has a deficiency of 6 million, so compensation took place. Fajardo questioned the mortgage. Can there be legal compensation?

Assuming the 100k debt of B to A is due on Nov. 15, 2002 and A assigned his credit X on March 2002, how much can X recover from B?

No. There can be no legal compensation while the claim of Fajardo questioning the mortgage is being litigated. As one of the requirement of legal compensation, the debts must be liquidated and demandable. Here, the amounts of the debt is not yet identified or liquidated, the foreclosure being subjected to litigation.

Assuming the due date of the 100k debt is on Nov. 15, 2002, and the assignment is in July 2002, how much can X (assignee) recover from B?

May legal compensation take place in depositum or commodatum? No. As expressed in Art. 1287. In such cases legal compensation will not take place since in depositum the depositor or the bailor must invoke legal compensation? May legal compensation take place in debts which consists of civil liability arising from a criminal offense? No as expressed in Art. 1288. Only the the aggrieved party may invoke compensation. Assignment of Credit as a right to invoke compensation A was indebted to B for 50k, 30k, and 20k, B on the other hand is indebted to A for 100k, A assigned his credit to X, X demanded payment from B, how much can X demand from B? It depends on when did this assignment occur, before or after the debt became due. If the 50k was made on June 15, 2002, the 30k was made on Oct. 15, 2002, and the 20k was on Dec. 15, 2002, the deed of assignment was made on Jan. 15, 2003, and the 100k debt of B to A was due on Nov. 15, 2002. How much can X recover from B? Since the debt became due on Nov. 15, 2002 which is prior to the debt incurred on Dec. 15, 2002 and the assignment was made long before the debt of 100k became due, compensation took place only to the extent of 80k. Hence, X can recover as much as 20k only, for the latter was made after the debt of 100k became due.

Since the assignment was made before the debt became due, X can recover nothing. The obligation is not yet due until Nov. 15, 2002.

The only debt subject to compensation is the 50k and the 30k and 20k is not covered. Hence, only 50k is subject to compensation. The Oct and Dec. 2002 debts may be recovered by X subject to certain requirements required by law. What are these requirements? Determine if B had knowledge or without knowledge of the assignment. If B is with knowledge of the assignment, determine whether there is consent or none. If consent is given, determine whether he has made a reservation as to B’s right to the compensation at the time his consent is given. What are the effects of reservation at the time of consent? If the debtor reserves there is compensation. If there is no reservation, the debtor waived his right to compensation. If B did not reserve his right to compensation, what is his remedy? Demand the debts on the 50, 30 and 20k. If B is without knowledge of the assignment, what is the effect? There is compensation. Novation Art. 1291. Obligations may be modified by: (1) Changing their object or principal conditions; (2) Substituting the person of the debtor; (3) Subrogating a third person in the rights of the creditor. (1203)

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- Novation is the extinguishment of an obligation by

the substitution or change of the obligation by a subsequent one which extinguishes or modifies the first, either by changing the object or principal condition, or by substituting the person of the debtor, or by subrogating a third person in the rights of the creditor. The effect of which is to extinguish the old. What are the classifications of novation? Novation is the extinguishment of an obligation by the substitution or change of the obligation by a subsequent one which terminates it, either by changing its object or principal conditions, or by substituting a new debtor in place of the old one, or by subrogating a third person to the rights of the creditor. 4 Novation through a change of the object or principal conditions of an existing obligation is referred to as objective (or real) novation. Novation by the change of either the person of the debtor or of the creditor is described as subjective (or personal) novation. Novation may also be both objective and subjective (mixed) at the same time. In both objective and subjective novation, a dual purpose is achieved-an obligation is extinguished and a new one is created in lieu thereof. 5 If objective novation is to take place, it is imperative that the new obligation expressly declare that the old obligation is thereby extinguished, or that the new obligation be on every point incompatible with the old one. 6 Novation is never presumed: it must be established either by the discharge of the old debt by the express terms of the new agreement, or by the acts of the parties whose intention to dissolve the old obligation as a consideration of the emergence of the new one must be clearly discernible. 7 Again, if subjective novation by a change in the person of the debtor is to occur, it is not enough that the juridical relation between the parties to the original contract is extended to a third person. It is essential that the old debtor be released from the obligation, and the third person or new debtor take his place in the new relation. If the old debtor is not released, no novation occurs and the third person who has assumed the obligation of the debtor becomes merely a co-debtor or surety or a cosurety. It may be express (by agreement) or implied (incompatible). It may be partial or total. What are the requisites of novation?

1. 2. 3. 4.

A previous valid obligation agreement f all the parties to the new contract extinguishment of the old contract validity of the new one

Art. 1292. In order that an obligation may be extinguished by another which substitute the same, it is imperative that it be so declared in unequivocal terms, or that the old and the new obligations be on every point incompatible with each other. (1204) Can novation be presumed? It is never presumed. What is the test of incompatibility between the old and the new obligation in order to effect novation?  The change must refer to the object, the cause, or the principal conditions of the obligation. In other words there must be an essential change. Accidental modifications in an existing obligation do not extinguish it by novation. Mere modifications of the debt, agreed upon between the parties do not constitute novation. When the changes refer to secondary agreements, and not the the object or principal conditions of the contract, there is no novation; such changes will produce modifications of incidental facts, but will not extinguish the original obligation. E.g. A mere extension of the term of payment does not result in novation, for the period affects only the performance, and NOT THE CREATION OF THE OBLIGATION. Ultimately, the determination of whether the changes in any given contract or obligation are sufficient to bring about a novation, must depend upon the facts and circumstances of each case. The distinction between a principal and an accidental condition in the contract or obligation is relative. The legal effect of any change made by the parties will depend upon a sound appreciation of their importance. The courts should consider, in each particular case, not only the nature of the clause that is modified, but also the intention of the parties and the economic significance of the modification. Art. 1293. Novation which consists in substituting a new debtor in the place of the original one, may be made even without the knowledge or against the will of the latter, but not without the consent of the creditor. Payment by the new debtor gives him the rights mentioned in Articles 1236 and 1237. (1205a) 50

What are the two forms of substitution of debtor? 1. Expromission which the initiative for the change does not emanate from the debtor and may be made even without his knowledge, since it consists in a third person assuming the obligation. 2. Delegacion is by the debtor who offers and the creditor accepts a third person who consents to the substitution, so that the consent of these three are necessary. Is the release of the old debtor required in order that a new debtor may be substituted? It is required. Is the consent of creditor required? Whether expromission or delegacion, the consent of the creditor is required. This is so because substitution of one for another may delay or prevent the fulfillment of the obligation by reason of the inability or insolvency of the new debtor; hence the creditor should agree to accept the substitution in order that it may be binding on him. It may be express or implied, simultaneous or not, nor is it required to be in any particular form. Is the consent of the old debtor required? In expromission the consent of the old debtor is not necessary, while in delegacion the old debtors consent is required for it shall be initiated in his instance.

In case the new debtor became insolvent, can the new debtors liability be enforced against the old debtor who has no knowledge of the novation? If novation is by expromission, no liability for the new debtor’s insolvency can be enforced against the old debtor, because the latter did not have the initiative in making the change, which might have been made without his knowledge. In case the new debtor became insolvent, can the new debtors liability be enforced against the old debtor who has knowledge of the novation? It depends. In case of expromission he is also released from liability notwithstanding his knowledge because obvious intent of the code is the release the old debtor. To make the old debtor liable in expromission simply because he has knowledge of the assumption of his debt by another, or that he assented to it, would make his liability even greater that that of a debtor who took the initiative and offered a new debtor in his place; in the latter case, the liability of the old debtor would be limited to the two exceptions provided in art. 1295, while in the former, his liability in all cases on non fulfillment would be without limitation. Art. 1295. The insolvency of the new debtor, who has been proposed by the original debtor and accepted by the creditor, shall not revive the action of the latter against the original obligor, except when said insolvency was already existing and of public knowledge, or known to the debtor, when the delegated his debt. (1206a) (DELEGACION)

Is the consent of the new debtor necessary?

Other modes which does not exempt the old debtor from liability due to the new debtor’s insolvency?

Ofcourse, because he is to assume an obligation.

a. if the new debtor is only secondarily liable

To whom can the new debtor demand reimbursement?

b. if the third person is only an agent of the debtor

If the novation is by delegacion, and the new debtor pays the obligation, he could demand from the old debtor what he has paid. If the novation is by expromission, and the new debtor pays the debt without the knowledge of the old debtor, the former can recover only insofar as the payment has been beneficial to the old debtor. Art. 1294. If the substitution is without the knowledge or against the will of the debtor, the new debtor's insolvency or non-fulfillment of the obligations shall not give rise to any liability on the part of the original debtor. (n)

c. where the new debtor is bound solidarily with the old debtor. Art. 1296. When the principal obligation is extinguished in consequence of a novation, accessory obligations may subsist only insofar as they may benefit third persons who did not give their consent. (1207) Accessory obligation such as pledges, mortgages as well as guarantors and sureties, unless the latter agree to be bound under the new obligation. The exception provided has reference to a stipulation in favor of the third person, which is 51

subordinated by the principal obligation. Although technically it is an accessory obligation, it in ins reality a distinct obligation in favor of a third person, and cannot be extinguished by novation without the consent of the latter. Art. 1297. If the new obligation is void, the original one shall subsist, unless the parties intended that the former relation should be extinguished in any event. (n) What if the new obligation is voidable, or not entirely void, will the old obligation subsist? The novation becomes effective, it is valid until annulled. What if there is a conditional new obligation, is there novation? It depends, if the condition is attached to the old obligation or not. Because if it is attached to the old obligation, there is no novation at all. If the condition on the new obligation is intended to substitute the original pure obligation, the novation itself, and the consequent extinguishment of the original obligation, is subject to the condition, the novation itself did not take place, until the happening of the condition. Pending the happening of the condition, novation did not yet take place, the original obligation not extinguished. Can the creditor demand from the object of the old obligation if the novated object is loss? The creditor cannot demand from the original object, the latter is already extinguished by the new obligation. Art. 1298. The novation is void if the original obligation was void, except when annulment may be claimed only by the debtor or when ratification validates acts which are voidable. (1208a) May a void original obligation be validated? No. It is void and cannot be ratified. What can be ratified is a voidable obligation. A void obligation cannot be a source or rights, or waivable by the parties. Art. 1299. If the original obligation was subject to a suspensive or resolutory condition, the new obligation shall be under the same condition, unless it is otherwise stipulated. (n) What if both obligations are conditional, old and new?

They must all be fulfilled in order that novation may become effective and the new obligation be enforceable. If only the conditions affecting the old obligation are fulfilled, and those affecting the new obligation are not, then, there is no novation, and the old obligation subsists, because the requisite of a new valid obligation would be lacking. Art. 1300. Subrogation of a third person in the rights of the creditor is either legal or conventional. The former is not presumed, except in cases expressly mentioned in this Code; the latter must be clearly established in order that it may take effect. (1209a) Art. 1301. Conventional subrogation of a third person requires the consent of the original parties and of the third person. (n) Art. 1302. It is presumed that there is legal subrogation: •

•

(1) When a creditor pays another creditor who is preferred, even without the debtor's knowledge;(2) When a third person, not interested in the obligation, pays with the express or tacit approval of the debtor; (3) When, even without the knowledge of the debtor, a person interested in the fulfillment of the obligation pays, without prejudice to the effects of confusion as to the latter's share. (1210a)

Art. 1303. Subrogation transfers to the persons subrogated the credit with all the rights thereto appertaining, either against the debtor or against third person, be they guarantors or possessors of mortgages, subject to stipulation in a conventional subrogation. (1212a) Art. 1304. A creditor, to whom partial payment has been made, may exercise his right for the remainder, and he shall be preferred to the person who has been subrogated in his place in virtue of the partial payment of the same credit. (1213) What obligation may be novated? Is it required that an obligation must arise from a contract? No, any obligation may be the subject of novation. Is it required that there be agreement between the parties in order that novation will take place? Yes. Agreement is required. There may only be a novation as a result of the agreement of the parties. What is the effect of novation?

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There will be extinguishment of the old obligation and a new one exist, except prescription. In prescription there is no existence of a new obligation. ?????? If there are changes in the original obligation does it mean that there is novation? No. If the changes does not result in novation, there is no novation. Aside from the classification, it goes into the nature of the extinguishment.

1. Quasi Delict - The employer of the security guard may be held liable. FEU however, will not be liable under quasi delict because FEU was not the employer of the security guard. 2. Contract - FEU is liable under the contract because when the student enrolls in a University, a contract is entered into. In that contract it includes the duty of the school to maintain a peaceful environment and conducive to learning. Is the right to enter into a contract a purely statutory right? No. This right is protected by the constitution. This is called the non impairment clause. Not even the State can impair the freedom of parties to enter into contracts, with the exception if it is in the exercise of police power.

Contracts Are agreements contracts? Contracts are agreements but not all agreements are contracts. If A and B had an agreement, is it a contract? A mere agreement will not necessarily constitute a contract. The nature of a contract is one of the sources of obligations. In an agreement where there is meeting of the minds between two persons as defined in Art. 1305 where one binds himself to give something or to render some service. Thus, for an agreement to become a contract there must be a corresponding obligation arising from that agreement. Is dacion en pago a contract? No. Dacion en pago is the delivery of the debtor of a thing in satisfaction of his debt. It is not mere agreement to deliver, but rather it is the delivery. Without the delivery there is no dacion en pago. Dacion is a mode of extinguishing obligation. Contracts creates an obligation. Is a contract an obligation? No. It is one of the sources of an obligation. Is there such a thing as a mode of extinguishing a contract? Yes. If a mode of extinguishment is a mode of extinguishing obligations that would also be a mode of extinguishing contracts because, if it extinguishes a contract then the obligation arising from the contract will likewise be extinguished, except those which has already been vested. Saludaga vs. FEU A sophomore law student of FEU was shot by the security guard of FEU. He survived and sued FEU. What possible liabilities may arise?

Is marriage a contract? No it is considered as a special contract because: 1. parties - in contracts it does not require that parties be male and a female. 2. governing law - the stipulation of the parties will primarily govern the relation of the parties, whereas in a contract of marriage, it is the law which will govern the rights and obligations of the parties to such marriage. 3. termination - there are so many modes of extinguishing a contract, whereas in a contract of marriage it is only death primarily which will cause the extinguishment of the obligation of the parties and annulment. Contracts is defined as the meeting of the minds between two persons. May a person contract with himself? Contracts is a meeting of the minds between two persons (parties) whereby one (reciprocal-two) binds himself, with respect to the other to give something or to render some service (includes not to do) (Art. 1305). Yes. This contract is known as an auto contract. In one capacity acting for one person and in another capacity for himself or yet another person. E.g. When a person is authorized to borrow money, he himself may be the lender. When a person is authorized to borrow money, can he himself be the lender? Yes. In that loan agreement he will be signing as representative of the principal or the borrower and he himself be signing for himself as a lender. This authority is subject to the rule that the interest shall be only for the market rate. What auto contracts which are prohibited under Philippine law? 53

1. A guardian is prohibited from acquiring by purchase the property of his ward (art. 1491[1]). This is because the guardian cannot sell for himself the property of the ward.

As to law, whether this stipulation is contrary to law or not is to know the laws which declares certain stipulations to be void. May a forfeiture clause in a contract be void?

Is it correct to say that only one of the parties to a contract will be obligated to perform the contract because as defined that an obligation is the meeting of the minds of the parties where one binds himself to give something or to perform a service? No. It is a defect in the definition because reciprocal obligations may arise from contracts. It is not merely unilateral. Is there an obligation not to do arise from contracts because as defined that an obligation is limited to an obligation to give and to render some service?

Yes. The law renders it to be void if confronted by the maceda law. If the problem covers issues under the maceda law, then that clause declares to be a void clause. Are waivers valid? Generally, yes. However there are laws where waivers are not valid. For example in Sales, if there is a waiver as against the seller in case of eviction. That would be a void waiver if the seller is in bad faith. Waiver as to future fraud is a void waiver.

Yes there is an obligation “not to do” which may arise from a contract and would render the definition defective. As an example, in the dealers of Honda the buyers are obligated not to use the cars as a taxicab.

Pactum Commissorium in a contract of a pledge or mortgage is a void stipulation where it provides that upon default of the principal debtor, the property pledge or mortgage will automatically be owned by the pledgee or mortgagee.

Fundamental Principles/Characteristics of Contracts: What are the fundamental characteristics of a contracts? (5) 1. autonomy of contracts (Art. 1306) 2. consensuality of contracts 3. mutuality of contracts 4. obligatory force of contracts 5. relativity of contracts What is autonomy of contracts or freedom of contract or liberty to stipulate? 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 (Art. 1306). Stipulations contrary to law In a contract of partnership entered into by A, B and C, in that contract it was stipulated that of the profits of the partnership, 50% will go to A, the other 50% will go to B. Thus, if a 100,000 profit was earned by the business of the partnership, who will share this profit? Will A and B share 50,000 each?

Pactum Leonina where there is a stipulation between the partners which excludes on of the partners from sharing in the partnership profits. Pactum de non aliendo is a void stipulation prohibiting the mortgagor from alienating his property without the consent of the mortgagee. July 1, 1998 Brian leased and office space of a building at the rental rate of 1,000 a month. The lease contract stipulated that in case of inflation or devaluation of the Philippine peso the monthly rental may be increased depending on the amount of devaluation of inflation of the peso to the dollar. Starting July 2000 the lessor increased the monthly rental to 2,000 a month on the ground that there is inflation proven by the fact that the exchange rate of peso to the dollar is 25 pesos to 50 pesos. Brian refused to pay in the increased rate, and an action for unlawful detainer was filed against him. Will the action prosper? Why?

No. This is because this stipulation as to the division of sharing is void under the law. While the parties can establish such stipulations, clauses, terms and conditions as they may deem convenient, the requirement of the law is that theses stipulations should not be contrary to law, morals, good customs, public order or public policy.

The action will prosper. The parties may establish such stipulations, clauses, terms and condition as they may deem convenient. The stipulation that in case of devaluation of the peso, the increase in rentals may be done. Such stipulation is not a void stipulation, as it is not contrary to law, morals, good customs, public order or public policy. Such is a reasonable stipulation between the parties, because when the value of the peso devaluates, then the rental of 1,000 pesos a month is no longer a reasonable rent, hence proper increase in rentals as a result of the devaluation may prosper.

This is a stipulation pactum leonina, where there is a stipulation between the partners which excludes on of the partners from sharing in the partnership profits.

This is called an escalation clause where the happening of a certain contingency, the compensation of one of the parties may be increased. May an escalation clause be rendered void or ineffective? 54

Yes if this escalation clause is provided in the contract of loan which would give the bank the right to increase the interest. The reason why this escalation clause be considered void is because there is no de-escalation clause. This is because there is a monetary board resolution as far as loans are concerned, in order for an escalation clause to be valid, there should be a deescalation clause. Further, such escalation or increase in interest should be only once a year. It must be stressed that an escalation clause to be valid must not be solely potestative in character. The clause should not be based on one of the whim of one of the parties. It should be based on a reasonable and valid standard. Non involvement clause in an employment contract, is it valid? In the case of daisy tiu vs. platinum plans it was stipulated that “the employee during his engagement with the employer, and in case of separation from the company whether voluntary or for cause, he/she shall not for the next two years, engage in or be involve with any association, corporation or entity, whether directly or indirectly engage in the same business or belonging to the same pre-need industry as the employer. Any breach of the foregoing provision shall render the employee liable to the employer in the amount of 100,000 pesos for and as liquidated damages. Generally a non involvement clause is not a valid clause because it will limit the right of a person as far as his livelihood is concerned, and this would be an unreasonable restraint of trade. However, in this case such is not a void provision because this is not an absolute prohibition. This is not absolute prohibition in relation to the period (2 years) and trade or area of engagement (pre-need business only in the Philippines). Daisy Tiu was an Executive Vice President of the Company and her job is highly confidential and having sufficient knowledge of the strategies of the company, it is but proper for the company to take measures to preserve their trade secrets. Hence, such stipulation constitute a reasonable clause which does not impair the rights of the employee. Contrary to morals What stipulation may be considered immoral by the Supreme Court? Interest or penalties stipulation. If the penalties should be 5 pesos a day for every day of delay may either be immoral or moral depending on the principal amount. In one case, where the principal amount is 400 pesos, the Supreme Court said that the 5 peso penalty is void for being contrary to morals, unconscionable, and excessive. It is almost 400% per annum penalty. The 5.5. interest per month is considered contrary to morals it being almost 76 percent interest per annum.

The interest of 3 percent per month plus penalty (36% per annum) on the credit card decided by the Supreme Court is considered unconscionable, inequitous, and contrary to morals. Such interest and penalties being rendered void by the S.C. does not render the Bank unable to recover interest, but reduced the interest and penalty to 1 percent per month (Macalinao vs. BPI 2009 Case). Contrary to public policy How would you know if there is a certain public policy involved in relation to a certain topic? If a law is passed, normally there will be a public policy behind the law that may be cited by the lawmakers. Public policies may be seen on the fundamental law of the land, which is the constitution. Alma was hired as a domestic helper in Hong Kong by the Dragon Services Limited, through its local agent. She executed a standard employment contract designed by the Philippine Overseas Workers Administration for overseas Filipino workers. It provided for a salary for one year with a salary of 1,000 U.S. dollars a month. It was submitted to and approved by the POEA, however when she arrived in Hong Kong she was asked to sign another contract, which reduced her salary to only 600 U.S. dollars per month. Having no other choice she signed the contract, but when she returned to the Philippines, she demanded a salary differential of at least 400 US dollars a month. Both dragon services limited and its local agency claimed that the 2nd contract is valid under the laws of Hong Kong and therefore binding on Alma. Is their claim correct? The claim is not correct even if the stipulation in Hong Kong where the salary is 600 dollars is a valid stipulation under the law of Hong Kong, it cannot be enforced in the Philippines. Such stipulation is contrary to our public policy under the Constitution which provides full protection to labor. Cui was a student and enjoyed a scholarship. However, it was stipulated that if he would transfer to another law school he will have to reimburse Arellano for the amounts which he should have paid had he not been a scholar. The Law Dean of Arrellano at that time was the uncle of Cui. When the law dean transferred to another law school, Cui also transferred. When he was about to take the bar exams, he asked for his grades from Arellano, but the latter refused to release the grades until he would reimburse Arellano as so provided in the scholarship agreement. He paid under protest. He passed the bar exam and sued Arellano. What was the ruling of the Supreme Court? The agreement requiring reimbursement is contrary to public policy. The public policy involved in this case is that scholarship grants are granted on the basis of merit and should not be granted in order to bolster the reputation of law schools. If a student wants to transfer to another law school, he should not be required to reimburse (Cui vs. Arrellano School of Law). 55

An agreement of two persons vying for special nomination as an official candidate of a congressional seat of the Nationalista party. It was stipulated in the agreement that they w ould have to go through the process of convention, and whoever would lose in that convention shall not run as an independent or rebel candidate. Syndico the defendant lost in the party convention but she still run and won. Saura sued Syndico for damages, will the action prosper? The action will not prosper because the stipulation which prohibited Syndico from running is a void stipulation because it is contrary to public policy. A mere agreement of two persons cannot not limit himself as a candidate in an electoral contest. An agreement between two persons cannot limit the right of the electorate to choose who among the candidates is fit for that particular position. Consensuality of Contracts For a contract to be valid, the parties must voluntarily give their consent. No one can be compelled to enter into a contract. Republic vs. PLDT Republic filed an action to compel PLDT to enter into an interconnection agreement. At that time when the action was filed, the telecommunication services within the country was controlled by PLDT. Will the action prosper? PLDT cannot be compelled by the Republic to enter into a contract. Consent must be voluntarily given in order to have a valid contract. Consent must be freely given. However, this action was treated as an expropriation proceeding. Contract of Adhesion There is a contract which is claimed to be void allegedly for lack of consent of one of the parties because the contract was prepared only by one of the parties. Such contract was presented to the other party for his adhesion, and there is practically no negotiation or consent as to the contracts terms and conditions. This is a contract of adhesion. Atty. Ong Yu was on his way to Butuan City and his luggage was lost and he filed an action against PAL claiming damages. PAL invoke a provision in the contract “If at all PAL shall be held liable for the luggage, such cannot exceed 100 pesos”. Atty. Ong Yu interpose that such stipulation was in a contract of adhesion and he did not consent to such contract. A contract of adhesion is a valid contract. The reason is that a party has a choice whether to accept or to reject the contract. If bought the ticket, he practically accepted the terms and conditions (Ong Yu vs. CA).

A case involving a trust receipt which is a contract of adhesion. Jimmy Go questioned the validity of the trust receipt claiming that it is a contract of adhesion. The trust receipt is valid however, if there is ambiguity in the contract, such ambiguity shall be construed against the party who prepared the contract. Since it was Metrobank who prepared the contract, such ambiguity was ruled in favor of Jimmy Go. The ambiguity is to when Jimmy Go would deliver the goods, the Supreme Court said this stipulation should be construed against Metrobank. The obligation became due when the demand was made by Metrobank (Metropolitan Bank vs. Jimmy Go). Stipulation pour atrui (Stipulation in a contract for the benefit of a third person)/ Mutuality of Contracts. In order for this stipulation be binding on the beneficiary, he must communicate his acceptance before the revocation of such benefit to the obligor. What if one of the parties to the contract (not the beneficiary) revoked the benefit, in fact he may have sent a letter to the beneficiary informing the latter that the benefit in your favor in the contract which i entered into with B has already been revoked. This revocatory letter has been sent by A before the beneficiary communicated his acceptance. Does it mean that the beneficiary would no longer be entitled to this benefit? Not necessarily. He may still be entitled because in order for the revocation to be effective it has to be consented to by both parties. Otherwise if only one of the parties revoked the benefit in favor of the beneficiary, that would be contrary to the fundamental principle of contracts which is the mutuality of contracts. Under this mutuality of contracts principle, a contract must bind both contracting parties and its validity and compliance cannot be left to the will of one of them. So, as far as the benefit is concerned as it was agreed upon by both parties, it can only be revoked by both parties. A revocation by only one is a violation of this fundamental principle of mutuality of contracts. If an escalation clause would be invoked by one of the parties without a reasonable and valid standard, the Supreme Court would rule that it is contrary to the mutuality of contracts principle. To be a valid clause, it must be based on a valid and reasonable standard. It should not solely be potestative in character. May the termination of the contract by one of the parties be violative of this fundamental principle of mutuality of contracts? No. In the case of Philbanking vs. Louie Sy involving a contract of lease where the lessee was given the right to terminate the contract by merely giving notice to the lessor, and the termination shall take effect after 15 days from receipt of the notice of the termination. The S.C. ruled that such stipulation does not violation the mutuality of contracts principle. It is not covered by the mutuality of 56

contract, what is covered is the validity or compliance, it does not pertain to the termination of the contract. Obligatory Force of Contracts Under this principle, obligations arising from contracts have the force of law between the contracting parties, and should therefore be complied with in good faith. When would a contract have the force of law between the contracting parties? The fact that there is already a meeting of the minds between the object and subject matter of the cause, does it mean that the contract already has the force of law? Not necessarily. In order for a contract to have the force of law, the contract must have been perfected. It is at the time of the perfection of the contract that either parties to the contract can compel the other party to perform the obligations under that contract. Just because the contract has been perfected does it mean that such is already enforceable? Not necessarily. Because such perfection of the contract is subject to the statute of frauds. A contract of sale may have been perfected because there is already a meeting of the minds as to the object and the price, however if it is not in the form prescribed by law or it is not covered by Article 1403, that would be an unenforceable contracts. Autonomy of contracts The parties to the contract in the loan for money agreed that the yearly interest rate is 12% will be increased if there is a law authorize the increase of the interest rates. Suppose OB would increase the interest rate by 5% to be paid by TY the borrower without a law authorizing such increase, would that increase would be just and valid? Would TY has a remedy against the imposition of such interest rate increase. Would OB’s action be just and valid? Ofcourse no. Under the autonomy of contracts principle the parties can establish such stipulations terms and clauses as they may deem convenient. They agreed that there can only be an increase if there is a law. Since there was no law, there can be no valid increase. In one case, similar to this scenario that there should be law authorizing such increase. Thereafter at that time, the usury law has not yet been suspended. The Central Bank at that time issued a monetary board resolution authorizing an increase rate. With that monetary board resolution authorizing the increase in the rate, would that now give the lender the increase in the rate considering their stipulation? The SC said no because a law is not the same as a monetary board resolution. Although such monetary board resolution may have the force of law, but it is not a law. Since the parties agreed only if there is a law. Since there is no law, but only a monetary board resolution, there can be no valid increase in the interest rate.

Don, an American businessman secured parental consent for the employment of 5 minors to certain roleses in two movies he was producing at home in Makati. They work 5 hours a day and night but always accompanied by their parents or other adults. The producer paid the children talent fees better than adult wages, but a social worker reported to SWF that these children often missed going to school. They sometimes drank wine and in some cases they were exposed to drugs and sometimes they were filmed naked or in revealing costumes. Don, in his defense, all these are part of artistic freedom and cultural creativity. None of the parents complained said Don, and he said that the contract containing a waiver of the right to file any complaint in any office or tribunal concerning the working conditions of the children acting in the movies. Is the waiver valid and binding? The waiver here is a void waiver because this would be contrary to the law which provides for the protection of minors. Any waiver as to the rights of minors in relation to the law protecting them would be a void waiver because it is contrary to law. Relativity of contracts A sold an item to B, thereafter B sold the same item to C. Ordinarily would A have the cause of action against C? None because there is no privity of contracts between A and C. It is only A and B and B and C who has privity of contract. So who would be bound to a contract? Ordinarily the parties, their assigns and heirs and those who would be affected, benefited and who can be liable under the contract. The assigns and heirs are privy to the contract. Under Art. 1311, contracts take effect between the parties, their assigns, and heirs. Is it possible that a contract will not affect the heirs, or not to benefit the heirs? Yes, under this provision. A contract may take effect only upon the parties when the rights and obligations arising from this contract are intransmissible. Three scenarios where rights and obligations are intransmissible: 1) When the law so provides; 2) If there is a stipulation; 3) If the nature of the rights and obligations would not allow the transmissibility of these rights and obligations. (Stipulation) In a lease contract decided by the Supreme Court, there was a stipulation in the contract that the rights and obligations of the parties are intransmissible. The lessee died, would his heir would still have the right to the possession of the leased premises until the expiration of the period? The S.C. said no because with the death of the lessee, the contract was extinguished because the rights and obligations arising from the contract are intransmissible by stipulation. 57

But ordinarily, the heirs will still have the right to possess because a lease contract is not a purely personal contract. Therefore the rights and obligations of the parties in relation to the contract may be transmitted to heirs and assigns. Even in lease contracts, also a lessee ordinarily sublease the premises in whole and in part, unless he is prohibited from subleasing the property. (Law) Under the law on usufruct, ordinarily, when the usufructuary dies, will his rights be transmitted to his heirs? No because the law so provides, except when there is a contrary stipulation in their agreement. (By Contract or agreement) A property right of a partner known as the right in a specific partnership property. A partner cannot assign his rights in a specific partnership property without all partners making the same assignment over the same property. A partner alone without the consent or knowledge of the other partners cannot transmit his rights to an assignee by law. (By nature) When the rights and obligations are purely personal or the qualifications of the parties have been considered in the establishment of the contract. This is common in contracts which will involve skills because with the nature of such rights it cannot be assigned to another person, for such is a purely personal right. In the principle of privity of contracts, in what circumstances may a third person may be bound to a contract? A third person may be held liable in a contract in which he is not a party or in which he is not privy, or a third person may have a cause of action in relation to a contract, when he may be benefited or prejudiced by such contract. In contracts involving or creating real rights, third persons who would take possession of the object or subject matter of the contract, subject to the requirements of mortgage laws and registration laws, etc. (In contracts involving real rights) In a contract involving a real estate mortgage on a parcel of land entered into between A and B, A being the mortgagee and B being the mortgagor. A sells his land to C and thereafter if A the mortgagor is also the principal debtor, he defaulted. Can the mortgagagee foreclose the mortgage of this parcel of land? With the sale and the land may have been delivered to C, C may already be the owner of the land. May there be still a valid foreclosure over the land, if the land is no longer owned by the mortgagor? Yes it is possible because in such contracts which creates real rights, the rights of the mortgagee attaches to the property whoever may be the owner over the property who may be bound to this mortgage. Even if C is the owner, his rights will be subject to the rights of the

mortgagee, subject to the qualification of the law on mortgage and registration law. In this case, for C to be bound to this contract, though C is not a party or privy to this contract, nonetheless he would be bound if this contract is registered or even if not registered, C has actual knowledge of this contract. Actual knowledge has the same effect as registration. (In contracts in fraud of creditors) A sold a parcel of land to B, but the sale is in fraud of creditor X. Ordinarily B being a third person will not be bound to the contract or will have a cause of action to this contract. But because this contract is in fraud of creditors, the law grants him the right to rescind the contract. This is one contract which is rescissible under Art. 1381. When may a third person be held liable under a contract which he is not a party or privy to such contract? Under Art. 1314 when a third person interferes in a contract subject to the requirement that there must be malice in the interference. Francis Albert, a citizen and resident of New Jersey USA, under whose law, he is still a minor being only 20 years of age which was hired by ABC corporation Manila to serve for 2 years as its chief computer programmer. After serving for only 4 months he resigned to join XYZ corporation which entice him by offering more advantages terms. His first employer sued him for damages arising from the breach of contract arising from his employment, he sets up his minority defense as for annulment of the contract on that ground. The plaintiff disputes this by alleging that the contract was executed in the Philippines under whose law the age of majority is 18, he was only a minor. Suppose XYZ corporation was impleaded as a co-defendant, what would be the basis of its liability? XYZ Corp. is a third person in a contract entered into between ABC and Francis Albert. XYZ Corp. may be held liable under Art. 1314 when he maliciously induced a party to a contract to violate the contract. Since XYZ Corp. enticed Francis Albert offering the latter more advantages terms mean that the former may be held liable for malicious interference because of such enticement. For liability to arise under Art. 1314, the first requirement of the law is that there must be knowledge of such third person of the existence of a contract. If he has no knowledge and merely asks the person to join the company, apparently there can be no malice. By the use of the term enticement and giving more advantageous terms, to that extent it can mean that there is such malicious interference on the part of XYZ. The basis of liability of XYZ would be solidary liability with Francis Albert because such is a tortious act and under Art. 2194 where it provide that when 2 or more persons are held liable for quasi delict, shall be solidarily liable.

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May the liability of a third person who maliciously interfered to the contract be more than the liability of a party to a contract who violated the contract? No. In one case the S.C. held that the liability of such third person cannot be more than the liability of a party to the contract who himself violated the contract. Roland, a basketball star was under a contract for 1 year to play for and exclusively for lady love. Even before the basketball season could open, he was offered a more attractive pay plus fringe benefits. Roland accepted the offer for sweet taste. Lady love sued Roland and Sweet taste. Defendants claimed that the restriction to play for lady love alone i

A chattel mortgage being an accessory contract, and although such accessory contract is extinguished, that will not extinguish the principal because the accessory follows the principal. So, even if the crops were destroyed due to a fortuitous even, at best it would only extinguish the chattel mortgage. Being an accessory contract it does not at all affect the obligations under the principal contract.

contracts which is pledge deposit or commodatum, clearly mutuum or simple loan is also a real contract as expressly provided under the provisions of simple loan. This contract can only be perfected upon the delivery of the thing or money borrowed to the borrower or the lender, as the case may be. Consensual Contracts: These are contracts which is perfected by mere consent.

The effect of such extinguishment on the loan contract is that it will not be unsecured.

This should be considered as the meeting of the minds as to the object and the consideration

If the scenario would pertain to the extinguishment of the principal contract, then the accessory contract would necessarily include the extinguishment of the accessory contract by operation of law. The accessory will follow the principal (Republic vs. Grihaldo).

Note: If there is a meeting of the minds as to the object and not to a consideration, there is a meeting of the minds but there is no perfected contract.

What are the accessory contracts?

What contract is not perfected by mere consent even if it is not a real contract?

1. Guarantee 2. Suretyship 3. Pledge 4. Chattel Mortgage 5. Real Estate Mortgage 6. Antichresis Are preparatory contracts accessory contracts? No. Preparatory contracts are principal contracts. principal contracts will not necessarily be the end by themselves. They are entered into for other contracts to be made like agency or partnership. If the agent did not enter into a contract as he bound himself to do so in an agency to sell such that he did not sell anything of the goods of the principal. Will it affect the validity of the contract of agency? No. preparatory contracts can stand on their own. Though they cannot be the end by themselves, they can stand on their own, they are not accessory contracts. If he failed to comply with his obligation under the contract, as a rule, he can be held liable for not performing his obligation. Real Contracts: Perfected by delivery of the object or the sub ject matter of the obligation. A borrowed money from B. To secure the fulfillment of his obligation, A agreed to deliver his watch to B as a security in a verbal agreement. Without this watch being delivered to B and before the delivery of the sum of money borrowed. Was there a perfected contract involve in the problem? The contracts involve in the problems are 1) contract of loan and 2) pledge. No contracts has been perfected to both. These contracts are real contracts. For the perfection of this contract, delivery of the object or the subject matter of the contract is required. Art. 1316 enumerates real contracts, though there are only 3 enumerated real

Formal Contracts: Contracts require certain form.

If such contracts is required to be in a certain form to be valid. If a contract is not valid, may it be perfected? Ofcourse not. In fact, no obligation would even arise, if it is a void contract. As an example in antichresis, the law requires that the agreement as to the principal and interest shall be in writing, otherwise the antichresis is void. Other example would pertain to a donation, where the object of the donation is a real property, the donation should be in a public instrument, otherwise, the donation is void. Merly offered to sell an automobile to Violy for 60k, after inspecting the automobile Violy offered to buy it for 50k. The offer was accepted by Merly. The next day Merly offered to deliver the automobile but Violy being short of funds secured postponement of the delivery. Promising to pay the price upon arrival of the steamer Helena. The steamer however, never arrived because it was wrecked by a typhoon and sunk somewhere over the coast of Samar. Is there a perfected contract in this case? Why? Since this is a contract of sale, and it being a consensual contract, there was a perfected contract of sale because when Violy’s counter offer was accepted, then there was already a perfected contract of sale. Although, Violy’s delivery of the car is conditioned that steamship Helena would arrive, does not affect the perfection of the contract. The condition here is not a condition for the obligation to arise, because the contract had already been perfected. The condition here is only to the fulfillment of the obligation. This is not an obligation to arise. In a problem involving a contract where a thing was delivered, what contract was entered into. What rights and obligations of the parties under the contract? 60

It depends on the intention of the parties as to the effect of the delivery. Would the delivery result in the transfer of ownership? Was the purpose of the delivery was only for the use and enjoyment of the thing by the other party? Was the delivery only for the purpose of safekeeping?

When must the cause exist?

If it involves transfer of ownership it may be a contract or transaction. If it is a contract it could be a sale, barter. But it cannot be a lease or commodatum because there is transfer of ownership. If it is merely a transaction this could be dacion en pago since there is transfer of ownership.

As to the seller, it is the price, as to the buyer it is the thing sold.

If the purpose is only for the use and enjoyment of the thing by the other party to whom the thing was delivered, the contract could be a lease or commodatum. The difference this time goes into the nature of the contract as to the cause. Because if there is a price to be paid for the use and enjoyment of the thing, that is a lease. But if the use or enjoyment is gratuitous, this could be commodatum.

It mist exist at the time the contract is entered into. In a deed of sale, what is the cause?

If the price does not appear in the contract, is the contract void? No. the cause is presumed to exist, so even if not stated in the contract it is presumed to be lawful. If the buyer bought a gun for the purpose of killing a person, was the sale void? No, because cause is different from motive. Cause is the essential reason, motive i s the personal reason. A personal reason even if unlawful or illegal does not affect the validity of the contract.

Kinds of Contracts as to cause: 1. Onerous 2. Contracts of pure beneficience 3. Remuneratory Onerous Contract - Lease of Service Art. 1350 In onerous contracts the cause is understood to be, for each contracting party, the prestation or promise of a thing or service by the other; in remuneratory ones, the service or benefit which is remunerated; and in contracts of pure beneficience the mere liberality of the benefactor. Commutative - Equivalent in the value of the prestation (in a contract of sale the value of the thing to be delivered is equal to the value of the price).

If the person entered into a contract to avoid a threatened injury, would that be affected by the motive? Yes. As a rule, the illegality of motive will not affect the validity of the contract. It might affect the validity if the purpose of the person or motive predominates the purpose of the contract. May a contract be void because the motive is illegal or unlawful? Yes in cases where the sale to a person whose motive is only to circumvent the prohibition under Art. 1490 where the husband and wife cannot sell property to each other subject to certain exceptions as provided therein.

Are all contracts of sale commutative?

If the cause or reason why the seller sold the thing is to defraud his creditors, is the contract valid?

No Sale of Hope is not commutative, like lotto or sweepstakes.

It is valid but the contract may be considered defective, it is a rescissible contract.

Nominate - Special Rules governing this contract.

Deed of Sale over a certain car for P1, is the sale valid?

Inominate - Without a name

If the stipulation of the parties are not sufficient to resolve the controversy, what rules should apply?

Yes the sale is valid. Lesion does not affect the validity of a contract except in cases provided by law such as lesion suffered by a ward under rescissible contracts. However, when there is fraud, mistake or undue influence, then it is not valid, it is voidable (Art. 1355)

Rules on obligations and contracts. If not, rules analogous to obligations and contracts.

If the cause stated in the contract is a false cause, is the contract valid?

In accessory contracts, what is the cause?

The cause is false if it is fictitious or simulated. If the cause is false, it does not follow that the contract is void; it is considered only as a voidable contract because if it can be proven that there is another cause which is true and lawful, the contract is valid.

It depends on the contract. The pledgor or mortgagor may be a 3rd person. If the pledgor or mortgagor is the same person, the cause is the same.

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E.g. In a contract executed between S and B, it was made to appear that S delivered to B a parcel of land, and B paid S 10,000, when in fact there was indeed a delivery but no payment was ever made. The contract of sale executed is not valid because the cause stated is false. However, if the parties can prove that the cause of S giving the land to B is pure liberality, then that contract may be considered as a donation. Kinds of contracts according to subject matter: 1. Thing 2. Service 3. Right Does it mean that all special contracts will have the 3 subject matters as valid subject matters of contract?

No requiring a particular form or to require delivery is not an ESSENTIAL element of a contract. It is only consent, object and cause which are the essential elements of a contract. An action was filed to nullify or to declare null and void a contract, will the action prosper? In case of action to annul a contract, which pertains to a voidable contract, the action may prescribe because a voidable contract prescribes in 4 years from the time the defect of the consent ceases in case of Intimidation, Violence or Undue Influence. In case of mistake or fraud, 4 years from the time of the discovery of the same. What distinguishes an absolutely simulated contract from a relatively simulated contract?

No. In a contract of sale, there can be no service. Stages of a Contract: 1. Negotiation (Preparation) 2. Perfection 3. Consummation May there be a perfected contract during the negotiation stage? Yes in option contract. Before the preparation of the contract, what if the offerer withdrew the offer? As a rule the offerer has the right to withdraw his offer at anytime unless there is option money or there is a consideration as something paid or promise.

In absolutely simulated there is only one contract, while in relatively simulated contract, there are actually two contracts where the true intention or true contract of the parties are concealed. In absolutely simulated there is actually no contract and the parties did not intend to be bound by any contract at all, while in relatively simulated, there is a contract. What are the kinds of capacity? 1. Juridical capacity - To become the subject of juridical relations. 2. Capacity to act - power to do acts with legal effects (but may be subject of juridical relations). A person without juridical personality entered into a contract, status of the contract?

If there is a withdrawal of the offer and there is no option contract, may the offeror be held liable for damages?

Void.

As a rule, no because there is no perfected contract. But the offeror may be liable because there are other sources of obligation. He may be liable under torts.

Minors are incapable of giving consent, except where necessities are sold and delivered to a minor or other person without capacity to act, then he must pay only a reasonable price (Art. 1489).

He may be liable under torts when for example the offeror has already decided to withdraw the offer 3 months before he made the communication to the other party, he may be considered negligent. At the performance stage, will the statute of frauds apply? No it will apply if the contract is executory. If the parties have already performed the obligation there is no room for the statute of frauds to apply. Requisites of Validity of Contracts: 1. Consent 2. Object 3. Cause Is a particular form or delivery an essential requisite of contracts?

Can minors enter into a contract of sale?

A contract entered into by a minor without the consent of the parents or guardian is voidable, what are the exceptions? 1. Where the contract is entered into by a minor who misrepresents his age, applying the doctrine of estoppel. 2. Where the contract involves the sale and delivery of necessities to the minor (Art. 1489). X, of age entered into a contract with a minor, Y knew the age of Y. May X demand annulment of the contract? No. A contract entered into by a person who is capacitated cannot allege the incapacity of the person who is incapacitated by reason of estoppel. 62

What is absolute incapacity? Persons who are prohibited by law to enter into any contracts. It is void from the beginning. What is relative incapacity? Persons who are capacitated to enter into contracts but for other contracts they are not allowed by reason of their relationship to the person with whom they represent. (e.g. Art. 1491). May an agent buy the property of the principal?

No. Not every time there is mistake would give a person a right to annul the contract. The error or mistake in order for annulment to prosper must be substantial regarding: a.object of the contract b.conditions which principally moved one or both parties to enter into the contract c. identity or qualifications of persons d.error must be excusable, and not caused by negligence e.the error must be a mistake of fact and not of law. Simple error or mistake as to account will give rise to correction, not annulment of the contract.

Yes, provided it is consented to by the principal.

Yes, an alien may acquire property by purchase in the Philippines, provided he is a former natural born citizen as provided in the Constitution.

The mistake in the brand of the stereo may not be the condition which impels the buyer to purchase the car. The possible mistake which would give rise to a condition which would principally move the buyer to purchase the car is the engine, because it goes into the essence of the thing, probably because he is a race car driver, and he would want a car with a powerful engine.

May there be a contract of sale over a private land even if the alien is not a natural born citizen?

A entered into a contract of sale payable on installment, may annulment be a remedy?

Yes, if the alien is disposing of the property. What is prohibited is acquiring property.

For the buyer, it may be a condition which impels him to enter into a contract, when there is an error that the payment will not be in installment. Annulment is a remedy because he could not have entered into such contract when he knew that the sale was on a cash basis.

May an alien may acquire property by purchase in the Philippines?

How can the alien sell if he did not acquire? He may have acquired it by succession. A contract was entered into by a person who has capacity to give consent, is the contract valid?

May the mistake in the identity or qualification of persons required in order to be a ground for annulment?

Not necessarily because even if consent was given by a person who has capacity to act, the contract may be voidable when there is vitiated consent.

Not necessarily. It is necessary however, as in the case of contract of guaranty when the principal cause which moves the creditor to accept him as a guarantor.

A gave consent with a contract with C. He gave consent in representation of B. If B did not authorize A to enter into the contract, what is the status of the contract?

Violence/Intimidation

It may be unenforceable. It may be valid if A is given authority of the law to enter into such contract such as guardians, executors or administrators. What are the vices of consent? 1. Mistake or error 2. Intimidation or threat 3. Violence or force 4. Undue influence 5. Fraud or Deceit (Art. 1330) Mistake An action was filed by the buyer of a car for the annulment of a contract on the ground that he was mistaken as to the brand of stereo of the car which is alleged to be Pioneer but it was Sanyo. Would the court grant the prayer of the plaintiff for the annulment of the contract?

Violence - There is violence when in order to wrest consent, serious or irresistible force is employed (Art. 1335). 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 (Art. 1335). Violence was employed upon the spouse of the party claiming vitiation of consent? Would that be a valid ground for annulment? View 1: No. He cannot invoke annulment because it was not employed upon his person. View 2: But, if in intimidation, the person may already invoke the remedy of annulment with more reason that such remedy should be available there being physical compulsion. If the plaintiff claims that he sold his fish pond at a time where there were lawless elements roving in 63

that area where his fish pond was located. His neighbors also did the same. May he invoke that they were compelled to sell because of lawless violence? No. In order for violence or intimidation to be a valid ground for annulment, it should not be a general duress. It has to be actually employed upon the party or those persons so provided by law. This duress is called collective duress which is not a ground for annulment of the contract. Note: 1. A threat to enforce one’s claim through competent authority, if the claim is just and legal does not vitiate consent. 2. In determining the degree of intimidation, the sex, age and condition of the person intimidating and intimidated should be taken into consideration. 3. Violence or intimidation shall annul the obligation although it may have been employed by a third person who did not take part into the contract (Art. 1336). If it was undue influence that was exerted by a 3rd person upon one of the contracting parties, would that party have a right to annul if he can prove collusion upon a 3rd person? Though the law does not provide, the answer is yes because undue influence would also affect volition or voluntariness just like violence and intimidation. If violence, intimidation or undue influence is employed by a 3rd person upon one of the contracting parties, would that party have a right to annul the obligation if he cannot prove collusion by the 3rd person and the other contracting party? With or without collusion, there is a right to annul the contract. 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, without which, he would not have agreed (Art. 1338). Dolo Incidente - Committed after the perfection of the contract; the party would have entered into that contract under different terms and conditions. The remedy of the party is to ask for damages. Dolo Causante - Committed before or at the time of perfection. Causal fraud that would make the contract voidable, and a ground for annulment of the contract.

1. Must be given by two or more parties 2. Parties must be capacitated to give consent, as a rule 3. Consent must be intelligently or freely given, as a rule 4. Express manifestation of the will of the contracting parties.

A offered to sell his parcel of land to B. B could not decide whether he would but the land or not. A granted B 2 years to decide. This agreement was put into writing (option agreement). Assuming 3 months from the time the offer was made the offeror withdrew the offer and informed B. One year thereafter B said I am buying the land. A said he does not want to sell the land. May A be compelled to sell the land? No. A cannot be compelled to sell. When B finally decided to accept the offer, A had already withdrawn the offer. There is no more offer to be accepted. In an instance where B accepted the offer was withdrawn, B cannot compel A to accept the price because that would amount to involuntary servitude. The remedy of B is an action for damages due to breach of contract. In the above scenario where there is an option money given after the withdrawal by A, may B compel A to accept the price? No. There can never be a meeting of the offer and acceptance because there is no contract to talk about. In a scenario where A can withdraw but has not withdrawn, an option money is given, may B compel A to accept the price? Since the giving of an option money amounts to reservation of acceptance, and gives A no right to withdraw, B is nonetheless precluded from compelling A to accept the price because that would amount to involuntary servitude. The remedy of B is to ask for damages for breach of contract. If there is an option agreement, should it always be money which is the consideration to the option agreement? Not necessarily, It is a consideration which is something paid or promised which is separate and distinct from the price. 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 (art. 1324).

How is Consent manifested? Note: Consent is manifested by the meeting of the offer and the acceptance of the object and the cause. What are the requisites of consent?

1. Acceptance made by letter or telegram does not bind the offeror except from the time it comes to his knowledge. An offer becomes ineffective upon the death, 64

civil interdiction, insanity or insolvency of either party before acceptance is conveyed. 2. The acceptance by the offeree may be revoked before reaching the knowledge of the offeror. If it is revoked, the contract is not perfected if the notice of revocation reaches the offeror before the letter of acceptance is received. 3. If an obligor promises a reward for the realization of an act or achievement of a particular result, said obligor is obliged to pay the reward to anyone who performs the act or attains the result. No specific acceptance is required because the offer is made to the public. This is an exception to the rule of law that if the offer is not accepted the same is not binding. 4. Unless it appears that the offer is definite or certain, business advertisements of things for sale are not definite offers, but mere invitations to make an offer (Art. 1325). 5. 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. An offer was made on January 2, 2008 when A sent a letter offering to sell his land to B. This letter was received 2 weeks after (1-14-08), two days thereafter (1-16-08) he sent his letter accepting the offer. The letter was received (1-25-08). If A died on 1-23-08 would there a perfected contract? None. The acceptance must be from the time it was made known to the offeror and not from the time the offeree manifested his desire to enter into a contract. If A was insane on 1-23-08, would there be a perfected contract? None. Even if A was merely insane at the time he receives the letter, there will be no perfected contract. There is no meeting of the minds because he was already insane at the time he has knowledge of the acceptance.

In all other contracts? No, as in sale only things and rights may be to subject of sale. Rights Does the law require it to be licit? No. Because by their very nature , it should be licit. Does the law require rights to be transmissible to be the subject matter of contracts? No. It may or may not be transmissible. It may not be transmissible if the law or stipulation of the parties provide otherwise. May future rights be sold? Yes. Rights over a book which is still to be written may be sold. Requirements in order that service may be the subject matter of contracts? It must not be contrary to law, morals, good customs or public policy. It must not be impossible. Requirements in order that a thing may be the subject matter of contracts? It must be within the commerce of men, otherwise it is void. Form of Contracts Does the law require a particular form for the validity and enforceability of contracts? As a rule, the law does not require a particular form, except when the law requires that a contract must be in a certain form to be valid and enforceable then this requirement is absolute and indispensable. When the law requires a particular form and the parties failed to comply, the contract is void?

Requirements for object of contracts? 1. The thing must be within the commerce of men 2. Transmissible 3. Licit 4. Possible 5. Determinate If the object of a contract a thing? Not necessarily. It may pertain to performance of obligations to do (things, rights, services). Is it correct that in special contracts 3 subject matters (thing, right and service) may be a valid subject matter of the contract? Yes. In a contract of lease.

Not necessarily. If the law requires a particular form, the contract need not be void if the law did not provide for nullity of contract. What contracts would be void if the parties failed to comply? Donation of real property must be in a public instrument in order to be valid, even between the donor and the donee (Art. 749), otherwise if is void. If the value of the personal property donated exceeds 5 thousand pesos , the donation and the acceptance shall be made in writing, otherwise the donation shall be void (Art. 748). In antichresis, the agreement as to the principal and interest must be in writing, otherwise it is void. 65

Contribution of a partner ins a partnership of an immovable property, must be in writing, otherwise, void (Art. 1773). Sale of land through an agent, the authority of the agent to sell must be in writing, otherwise void (Art. 1874).

Note: The requirement of the law whereby a public instrument is required is only for convenience and to bind 3rd persons, not for validity and enforceability. The contract remains to be valid, the right of the parties is to compel each other to execute a public instrument if made in a private instrument.

A creditor can only demand interest if it is in writing.

Reformation of Instruments:

A stipulation reducing the degree of diligence required that should be observed by the common carrier should be in writing.

May a verbal agreement be the subject of reformation?

Oral sale of large cattle, is the sale valid? The sale is void because the anti-cattle rustling law requires that it must be in a public instrument and must be registered. S sold orally to B a parcel of land for 10,000. B needed a public instrument to register the sale at the register of deeds. Can B compel S to execute a public instrument of sale? No, because the contract is unenforceable because the same is not in writing. The requirement that a party may compel the other to execute the necessary form is when the contract is valid and enforceable. Since in this case the contract is unenforceable, although valid, the right to execute the required form cannot be enforced.

No. Only instruments may be reformed and the reason for reformation is that the instrument does not reflect the real intention of the parties. Requisites for reformation of instruments in a contract? 1. Meeting of the minds of the parties 2. Instrument does not express the real intention of the parties 3. Failure of intention due to mistake, fraud, inequitable conduct or accident. 4. There must be clear and convincing proof. Note: If the mistake, fraud, inequitable conduct or accident has prevented the meeting of the minds of the parties, the proper remedy is annulment of contract and not reformation of the instrument.

S sold to B in writing a parcel of land for 10,000. Later, B wanted to register the sale with the Register of Deeds, but registration requires a public instrument. B, therefore, requested S to execute the public instrument of sale but the latter refused. Can B compel S to execute the public instrument of sale?

A delivered a sum of money to B which was accepted by B. One year thereafter, A went back to B and demanded the return of the money plus interest. B asked why should I return the money, it was a donation. A told him it is not a donation but a loan. Is reformation a remedy?

Yes, because the contract is valid and enforceable.

It will not be a remedy. Reformation presupposes a meeting of the minds. Since there is no meeting of the minds because the parties does not know whether it is a sale or donation, and secondly there is no instrument to be reformed, reformation shall not be a remedy.

In what contracts would the law require a particular form for enforceability of contract? Contracts covered by statute of fraud under Art. 1403. Contracts covered by Art. 1878 -- e.g. agent must have SPA to be enforceable against the principal.

If the plaintiff asked for reformation of the instrument where it was stated “cocaine”, but the real intention was morphine, may reformation prosper?

Sale of public land, if not in a public instrument would that be valid and enforceable?

Yes because the real contract is not a void contract. The content of the instrument is being reformed.

It depends on whether the contract of sale was only a verbal sale or in writing but not in a public instrument.

What instances where reformation cannot prosper?

If verbal sale it will be unenforceable because it will be covered by the Statute of Frauds. If in writing, even if not in a public instrument, that will already be valid and binding at least between the parties. If in a public instrument, it may also bind 3rd persons because only public instruments may be registered in the register of deeds. If private instrument, the register of deeds has no business of registering the instrument.

1. Simple donations inter vivos wherein no condition is imposed since the intentions of the donor will prevail, because donations reflect the liberality of the benefactor. 2. Wills because the testator is already dead, and the will reflect his personal intentions. 3. When the real agreement is void. Void contracts are inexistent, so there is nothing to reform.

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In case of conflict between intention and the words or phrases which shall prevail? The real intention of the parties prevail even if the words and phrases are clear as to their meaning. Rules in Interpretation of Contracts: If the terms of the contract is clear, the literal meaning shall control? Not necessarily. If the stipulation is contrary to the intention of the parties, the intention shall prevail and the literal meaning will not bind the parties.

Defective Contracts Is defective contracts a good classification under this title? No. Because the term defective contract mean that there is an existing contract. In Void Contracts there is no contract to speak of. May a contract be rescissible, voidable and unenforceable all at the same time?

How to determine the real intention of the parties? The contemporaneous and subsequent acts of the parties, such as the subsequent payments and the subsequent execution of real estate mortgage shows that there is no dation in payment. A stipulation in a contract of sale that payment is deemed made upon the signing of the contract. Despite such stipulation, seller filed an action for recovery of purchase price. Will the action prosper? Yes. because there is no presumption that payment is made. By the contemporaneous and subsequent acts of the parties, it was shown that indeed payment was not made. Rules in the interpretation of words and phrases shall not favor who? The party who caused the ambiguity. In the case of ESL vs, Margarine, the shipper who prepared the bill of lading, it was stipulated as to the extent of the liability of the common carrier in case damage is sustained. The SC held that it will be interpreted against the shipper who prepared the document. In a sale of one of the cars, the seller, despite the application of the rules on interpretation of contracts and the circumstances surrounding it, there is ambiguity as to which car is the object of the sale. What is the effect? The contract is void when it is absolutely impossible to settle the doubt. A obliged himself to deliver and transfer ownership over a specific car. During the negotiation B already saw the car with stereo. When the car was delivered, there was no stereo. B demanded delivery of stereo. If the claim of B a valid claim? It depends on what contract was entered into. If gratuitous, the doubt refers only to the incidental circumstance pertaining to the contract, and because the principle of least transmission of rights shall prevail. If it is an onerous contract, the he will be entitled to the stereo because in onerous contracts the greatest reciprocity of interest shall govern.

Yes because the defects differ depending on the status of the contract. What are the four kinds of defective contracts? 1. Rescissible Contracts; Valid until rescinded; the defect is extrinsic defect consisting of an economic damage or lesion. 2. Voidable Contracts; Valid until annulled. Annullable unless ratified. If ratified, the contract is cleansed of its defect. This contract is effective now, but may be invalidated. 3. Void Contracts is one that has no effect at all; it cannot be ratified or validated. This is called inexistent contracts. Distinguish Rescission under Art. 1191 and Rescission under Rescissible Contracts?

1. In 1191 there must be a breach while in Rescissible Contracts there may or may not be a breach. 2. The prescriptive period under 1191 is 1 years while rescission under 1380 and 1381 should be filed within 4 years from the date of the contract. 3. The breach under Art. 1191 should be a substantial breach or fundamental breach. Slight breach or casual breach cannot be the basis on an action for rescission under 1191. 4. Under 1191 it is a principal remedy, while in 1380 and 1381, it is a subsidiary remedy. May the defect of the contract be void and voidable at the same time? No, because void contracts are inexistent while voidable contracts exist. May rescissible, unenforceable and voidable contracts be ratified? Unenforceable contracts and voidable contracts may be ratified. Rescissible contracts cannot be ratified because it has no inherent defect as to the requisite. 67

May a void contract be ratified? before Yes, under Art. 1898 the principal can ratify the contract as when the agent acted in excess of authority and the 3rd person was aware that the agent acted in excess of authority. However, the enumeration under Art. 1409 cannot be ratified for they are void and inexistent from the beginning. Rescissible Contracts How may contracts be considered rescissible? Contracts may only be considered rescissible because the law so provides. If there is no law declaring the contract to be rescissible, it is not.

Note: Even if the contract was entered into the obligation arose, it is still in fraud of creditors when the purpose is really to defraud creditors.

3. The existence of fraud or bad faith on the part of the debtor which can either be presumed or proven; and 4. The creditors cannot recover their credits in any other manner. In what instance may a contract be said to be in fraud of creditor even before the obligation arose? In a contract of loan where a person is supposed to mortgage his property as security for the loan. Here the debtor owns the property at the time of the loan but before the money to be loaned was released by the Bank, the person disposed of the property. There was no perfected loan but there was already fraud of creditors, even before the money was released, the titles will already be delivered to the bank.

What contracts are considered rescissible? 1. Those which are entered into by guardians whenever the wards whom they represent suffer lesion by more than 1/4 of the value of the things which are the object thereof;

How to prove fraud in (contracts in fraud of creditors)? Creditor may prove fraud by invoking the presumptions provided for by law. It may be proved by proving badges of fraud.

2. Those agreed upon in the representation of absentees, if the latter suffer the lesion stated in the preceding number.

What are some instances considered by the Court as badges of fraud?

3. Those undertaken in fraud of creditors when the latter cannot in any manner collect the claims due them;

1. The fact that the consideration of the conveyance is fictitious or inadequate;

4. Those which refer to things under litigation if they have been entered into by the defendants without knowledge and approval of the litigants or competent  judicial authority.

2. A transfer made by a debtor after suit has begun and while it is pending against him;

5. All other contracts specially declared by law to be subject to rescission (Art. 1381).

4. Evidence of large indebtedness or complete insolvency;

What other contracts declared by law to be rescissible?

5. Transfer of all or nearly all if his property by a debtor especially when he is insolvent or greatly embarassed financially;

1. The right to rescind as provided under Art. 1189 in case of deterioration of the thing delivered. 2. The right to rescind given an unpaid seller as provided for in Art. 1526. 3. The right to rescind given to a vendee in sale of real property per unit of measure or lump sum price. 4. Violation of warranty against hidden defects under Art. 1567. How to determine whether a contract is entered into in fraud of creditors? 1. There must be an intention to defraud creditors. 2. There must be a pre-existing obligation at the time it was entered into.

3. A sale on credit by an insolvent debtor;

6. The fact that the transfer is made between father and son, when the above circumstances are present; 7. The failure of the vendee to take exclusive possession of all the property. May a contract be considered rescissible even without badges of fraud? Yes, in: 1. Gratuitous contracts - Contracts entered into by the debtor when he did not reserve sufficient property to pay his debts before donation are considered fraudulent. 2. Onerous contracts 68

a.Made by a person against whom some judgment has been rendered even if not yet final. b. Made by person against whom some writ of attachment has been issued. The decision or attachment has been issued. The decision or attachment need not refer to the property alienated.

It

Note: Even if the order of attachment is not yet final and the executor 2 days after the issuance disposed of it, the presumption would still arise. is not necessary that the order becomes final.

A donated a property worth 5M to X, and the debt is 500k, is there a presumption that the donation is in fraud of creditors? Not necessarily because A may have reserved sufficient property to pay his debts.

2. In case of absentees, within 4 years from the time the domicile is known. B.In certain contracts of sale which are specially declared by law to be rescissible, the period is 6 mos. or even 4 days counted from the day of delivery (Arts. 1543, 1571, 1577). Who are the persons who can bring the action for rescission? 1. the injured party 2. the heirs of the injured party 3. the creditors if the transaction is fraudulent Two parcels of land are alienated in fraud of creditors in one contract, may the contract be rescinded?

Does it matter whether the debtor was aware of the order?

The contract may be rescinded by the restitution of both properties is not required because the restitution may only be to the extent to recover damages caused.

It does not mater.

Voidable Contracts

Are the presumptions conclusive or disputable?

What are voidable contracts?

The presumptions are merely disputable and the debtor can prove good faith. But with respect to donations, the fraud of creditors should be conclusive because debts should be satisfied first before any gratuitous transactions should be made by the debtor.

Those which possess all the essential requisites of a valid contract but one of the parties is INCAPABLE OF GIVING CONSENT, or CONSENT IS VITIATED by mistake, violence, intimidation, undue influence or fraud.

Because there was lesion of 25%, is it rescissible?

Who may avail of the remedy of annulment of a voidable contract?

Not necessarily. It is void if the guardian is the buyer. It is valid if it is made with judicial authority.

Only those principally and subsidiarily obliged can be a party.

Because there was lesion of 25%, is rescission a remedy?

The capacitated person cannot invoke the incapacity of the other party. Only the incompetent party may avail of this remedy.

No because there are requirements for rescission to prosper. Rescission is merely subsidiary and there must be prior exhaustion of all legal remedies. If there is rescission, should there be a return of what has been received? Not necessarily because if the thing which is the object of the contract is legally in the possession of another who did not act in bad faith, rescission will not prosper.

May a 3rd party who is subsidiarily obliged have the contract annulled? An action for annulment by 3rd person may be allowed if that person can show to the court damages that he may incur if the contract is not allowed. Guardians, guarantors or pledgors are subsidiarily liable, they will be benefited if annulled and prejudiced if not annulled. Do void contracts produces no legal effect?

May a 3rd person pay for the damage or indebtedness of the debtor who is the seller in fraud of creditors? No. The creditor can no longer rescind. What is the prescriptive period for rescission? A.General Rule

Void contracts produces no legal effect whatsoever. An action to recover from a void contract, can it prosper? If so, there is an effect of a void contract? It can prosper, there is a right to recover in case the parties are in par delicto (Art. 1411, 1412, 1414, 1416). There is right to recover because the law so provides. It is not an effect of contracts.

Within 4 years from the date it was entered into: Unenforceable Contracts 1. If the person is under guardianship, within 4 years from the time the guardianship ceases; 69

These contracts cannot be enforced through court action unless ratified. If there is a proper objection there is obviously no ratification. One kind of ratification is when there is failure to properly object, when oral evidence is presented to prove the existence of a contract. What contracts are considered as unenforceable contracts? 1. Contracts where both parties are incapacitated; 2. Contract entered into in representation of another but he does not have the authority of that person. 3. Contracts enumerated under Art. 1878 entered into by an agent without a Special Power of Attorney. 4. Contracts entered into under 1403 more properly known as the Statute of Frauds. What are the unenforceable contracts under Art. 1403? The following contracts are unenforceable, unless they are ratified: 1. Those entered into in the name of another person by one who has been given no authority or legal representation, or who has acted beyond his powers. 2. Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases an agreement hereafter made shall be unenforceable by action, unless the same, or some note or memorandum thereof, be in writing, and subscribed by the party charged, or by his agent; evidence, therefore, of the agreement cannot be received without the writing, or a secondary evidence of its contents: a.An agreement that by its terms is not to be performed within a year from the making thereof; b. A special promise to answer for the debt, default, or miscarriage of another; c.An agreement made in consideration of marriage, other than mutual promise to marry; d. An agreement for the sale of goods, chattels or things in action, at a price not less than P500, 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 persons on whose account the sale is made, it is a sufficient memorandum; e.an agreement for the leasing for a longer period than 1 year, or for the sale of real property or of an interest therein; f. A representation as to the credit of a third person. 3. Those where both parties are incapable of giving consent to a contract.

If both parties are incapacitated and one of the parties ratified, what is the status of the contract? Voidable because by then only one party is incapacitated. If a person entered into a contract in representation of another but does not have the authority of that person, is the contract unenforceable? Not necessarily because such person may have entered into a contract through legal representation (authorized by law or by the court), even if he is not authorized by the person represented. Statute of Frauds Is the Statute of Frauds applicable only in Contracts of Sale and/or Lease? No. Under Art 1403 it was provided that any agreement under its terms is not to be performed within 1 year and it is not in writing would be unenforceable. Thus a contract for piece of work or contract of agency, or any contract for that matter may be covered by the Statute of Frauds if under the terms of such contract, is not to be performed within 1 year. It will be unenforceable if not in writing. What is the purpose of the law in requiring a contract to be in writing if it is to be performed within 1 year, is it to prevent fraud from being committed? It is not necessarily to prevent fraud from being committed but rather because that even honest men may commit mistakes. An oral partnership is valid? True, even if one of the parties contributed an immovable property. What the law requires is that the partnership itself should be in writing, which require to have an inventory of such immovable property, to be signed by all the contracting parties. There is no debate to the fact that the provision under ARt. 1771 where it provides that where immovable property or real rights are contributed thereto, a public instrument shall be necessary. In relation to Art. 1773 where it provides that whenever an immovable property or real rights is contributed, if an inventory is not made, the contract of partnership is void. Nowhere in these two provisions that would tell that whenever the contract of partnership is entered and a contribution of real property is made, if not in a public instrument, it is void. What is void is when there is no inventory of the real property, that would make the contract of partnership void. It is valid, the purpose of inventory is to notify third persons who would enter into contracts with the partnership. Oral promise of guarantee is valid? An oral guarantee is alway entered into by a 3rd person. The guarantor here is not the principal debtor. This would fall under the statute of frauds, a special promise to answer for the debt of another. Since it is not in writing, it 70

is merely an oral promise of guaranty, it cannot be a valid and binding contract, it will be unenforceable under Art. 1403. Cabagui vs. Roxillo The father and his son had a verbal agreement with another father with his daughter, that the son and the daughter will get married, but the father and the son will cause the repair of the house of the father and the daughter. Pursuant to this agreement the father and the son had the house of the father and the daughter repaired. They spent 700 pesos. However, after the house of the father and the daughter repaired, the daughter refused to marry the son. The father and the son filed an action for damages against the father and the daughter. Will the action prosper? As to the cause of action the father as against the father and the daughter, this would be an action based on an agreement, in consideration of marriage. Therefore, under the statute of frauds it should be in writing, since this is merely a verbal agreement, that agreement is unenforceable. The action should be dismissed. (Art. 1403) However, as to the son, the cause of action pertains to an action under a mutual promise to marry which is not covered by the statute of frauds. Under the law, An agreement made in consideration of marriage other than a mutual promise to marry. (Art. 1403). Note: A mere breach of a mutual promise to marry is not actionable, but the manner by which the breach of promise to marry may be the basis of an action for damages. Does the law require that for the statute of fraud to apply it had to be in a public instrument? No. It merely require that it be in writing to be a valid and binding contract. If the contract of sale involves an immovable property, and it is not in writing, it will be unenforceable? In sale of an immovable property as long as it is in writing, it would be a valid and binding contract between the parties. But it will not bind 3rd persons, because a private instrument cannot be registered except if such 3rd person have actual knowledge of this contract. Does it matter if the purchase price of the immovable property is only 300 pesos? No. The price in sale of immovable is irrelevant. If A sold a bag to B, which bag he purchased 3 days ago for 3500 but he sold it to a friend today and it is not in writing, is it covered by the statute of frauds? Not necessarily. Even if the value of the bag is 3500, and he sold it merely for P350, it will not be covered by the

statute of frauds. The law on sales follow the principle that lesion does not affect the validity of contracts. A contract of sale involving a movable property, wort P300, may that contract still be covered by the statute of frauds? Yes it may still be covered when under the terms of the contract, it is not to be performed within one year. In a contract of lease which is for a period of 3 years, it is merely a verbal contract, would that be covered by the statute of frauds? Not necessarily. Under the law an agreement for leasing for a longer period than one year, must be in writing to be enforceable pertains to a real property or an interest therein. If the subject of the lease is a personal property, then it cannot be subject to the provision of the statute of fraud pertaining to lease contracts. In a contract of lease entered into by an agent, and the contract will involve a real property and the period is more than 1 year. What is required for this to be enforceable? It has to be in writing and the agent should have a special power of attorney. X came across an advertisement in the Manila Daily Bulletin about the rush sale of three slightly used Toyota Corollas model 1989 for 200k pesos each. Finding the price to be very cheap and in order to be sure he gets 1 of the unit ahead of the others, X immediately phoned the advertiser and placed an order for 1 car. Y accepted the order and promised to deliver the ordered unit on July 15, 1989. On the said date, however, Y did not deliver the unit. X brings an action to compel Y to deliver the unit. Will such action prosper? This action will not prosper is there is a proper objection on the part of Y. But if oral evidence is presented to prove the existence of the contract, and there is no proper objection on the part of Y, then the action may prosper to prove the existence of the contract. As stated under the facts, the contract is a sale of a movable property valued more than 500 pesos, hence covered by the Statute of Frauds which require that the contract be in writing. In this case there is only a verbal contract. A and B entered into a verbal contract whereby A agreed to B to sell his only parcel of land for 20k pesos. B agreed to buy the land on the aforementioned price. B went to the bank to withdraw the money to be paid to A and immediately returned A for the consummation of the contract. A however, changed his mind and refused to go through with the sale. Is the agreement valid? Will the action by B against A for specific performance prosper? The agreement is valid but this cannot be enforced through court action because the facts involve a parcel of land which is required to be in writing to be enforceable. 71

The action for specific performance may prosper if there is no proper objection on the part of A when B offered his evidence to prove the existence of the contract, otherwise such action will not prosper. This action may also prosper notwithstanding the failure on the part of A to object to the evidence when B raises the defense of partial fulfillment. However, under the facts there is no partial fulfillment. B just went to the Bank and withdraw the money and returned to A. Such fact does not prove partial performance, but merely an act preliminary to the fulfillment of the obligation to pay. He only planned to pay. In an oral contract which by its terms is not to be performed within 1 year from the execution thereof, One of the contracting parties already complied within the year with the obligation imposed upon him by said contract. Can the other party avoid fulfillment of those incumbent upon him by invoking the Statute of Frauds? No. He can no longer invoke the Statute of Frauds had there been performance of the obligation by one of the parties. The reason why a person can invoke the Statute of Frauds is because the contract is still wholly executory thus there is no proof of the existence of the contract. If there had been performance already of the contract, even if partial, it presupposes there has been a contract in the first place. One half of a parcel of land belonging to A and B was sold by X to Y for the amount of 1500. The sale was executed verbally. One year later A and B sold the entire land to X. Is the sale executed verbally by X to Y, valid and binding? The sale between X and Y being a verbal sale which involves a parcel of land. On its face it appears to be covered by the Statute of Frauds. Alt. 1 But the answer would be, as suggested by the UP Law Center, the sale is valid and binding because of the payment, and that took the contract outside the operation of the Statute of Frauds. Accdg. to Professor Uribe, under the facts there was no payment. There was no mention that Y paid X 1500. Alt.2 Even if X was not the owner at the time of the sale, when he thereafter acquired ownership because A and B sold the entire land to X, by operation of law, ownership passes to his own buyer (Y). The basis of which is Art. 1434. Accdg. to Professor Uribe however, the above basis cannot also apply because for Art. 1434 to apply the law further requires there must have been delivery of the thing by the seller to the buyer, even if the seller was not the owner and no right to sell, he must deliver the thing to the buyer in order that ownership to automatically pass to the buyer, the moment the seller acquires ownership over the thing. Under the facts, there was no mention of delivery.

Alt. 3 Since this a sale of an immovable property and this is a verbal sale, there being no partial fulfillment of any obligations arising from this contract, this is unenforceable under the Statute of Frauds. (proper answer) An agreement or contract which involves a Real Property is covered by the Statute of Frauds? Not necessarily. An agreement as to the partition of a parcel of land, but that agreement is not covered by the Statute of Frauds. The Statute of Frauds would be applicable if the action filed is to enforce a contract which is covered to claim damages because of breach of that contract. Where an ejectment suit was filed and the plaintiff was about to testify as to the existence of a contract in relation to the land to prove his right to evict the occupant. The lawyer of the defendant invoked the Statute of Frauds. Should the judge sustain the objection of the defendant? No. The action was not an action to enforce an unenforceable contract, nor an action covered by the Statute of Frauds, nor an action to claim damages based on an unenforceable contract. This involves a third person. A third person under the law cannot assail an unenforceable contract. If there is no partial payment or no partial delivery, the doctrine of part performance shall not apply, which will bring the contract outside the coverage of the Statute of Frauds? No True. Partial fulfillment may pertain to any obligation arising from a verbal contract. For example in a case decided by the Supreme Court involving a sale of a parcel of land, as verbally agreed upon buyer paid the real property taxes. The buyer also had the property surveyed. The buyer also constructed a building, more or less permanent in character. These obligations does not have anything to do with payment or delivery, but nonetheless the S.C. ruled that because of partial fulfillment of the obligations arising from that contract, the contract was taken out of the Statute of Frauds. Fulfillment does not necessarily be related to payment or delivery. If a contract is covered by the Statute of Frauds, and the plaintiff would want to present a witness who would testify without any document at hand. In other words, oral testimony is being presented, and there is an objection under the Statute of Frauds, does it necessarily mean that the judge should sustain the objection, because the contract is covered by the Statute of Frauds? It depends on the purpose of the testimony. If the purpose of the testimony is to prove partial fulfillment, then the Statute of Frauds is not applicable. Partial fulfillment may be proven wholly by oral testimony. No documentary evidence is required in relation to partial 72

fulfillment. Hence, the judge should not sustain the objection. Moreover, even if three (3) witnesses would testify in court as to partial fulfillment. The court should not automatically conclude that there was in fact partial fulfillment. The court should satisfy itself base on the testimony that indeed there was partial fulfillment. On the other hand the Statute of Frauds does not pertain to the weight of evidence. The Statute of Frauds affects the admissibility of the evidence. In other words if the contract is covered by the Statute of Frauds, the testimony may not even be allowed under this objection. It goes into the admissibility of the evidence. How shall unenforceable contracts be ratified? 1. By acceptance of the benefits under such contract. 2. For failure to object to the presentation of oral evidence at the proper time.

The following persons cannot acquire by purchase, even at public or judicial auction, either in person or through the mediation of another: 1. The guardian, the property of the person or person who may be under his guardianship; 2. Agents, the property whose administration or sale may have been intrusted to them, unless the consent of the principal have been given; 3. Executors and administrators, the property of the estate under administration; 4. Public officers and employees, the property of the State or of any subdivision thereof, or of any government owned and controlled corporation, or institution, the administration of which has been intrusted to them; this provision shall apply to judges and government experts who, in any manner whatsoever take part in the sale;

Void Contracts or Inexistent Contracts What contracts are void or inexistent 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;

5. Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and other officers and employees connected with the administration of  justice, the property and rights in litigation or levied upon an execution before the court within whose  jurisdiction or territory they exercise their respective functions; this prohibition includes the act of acquiring by assignment and shall apply to lawyers, with respect to the property and rights which may be the object of any litigation in which they may take part by virtue of their profession;

4. Those whose object is outside the commerce of men;

6. Any others specially disqualified by law (Art. 1491 - law on sales).

5. Those which contemplate an impossible service;

A void contract produces no legal effect whatsoever?

6. Those where the intention of the parties relative to the principal object of the contract cannot be ascertained;

True, a void contract produces no legal effect whatsoever. Under Art. 1352, Contracts without cause, or with unlawful cause, produce no effect whatsoever. Secondly, a void contract is being categorized as inexistent. If a contract is inexistent, how can it produce any legal effect.

7. Those expressly prohibited or declared void by law (Art. 1409). Are relatively simulated contracts void? The relatively simulated contract is void but they will be bound to the contract or transaction which the parties actually entered into. The cause or object of the contract need not exist as long as such cause has the potentiality of existence? False. The object is not a thing, the object is the subject matter of the contract. Such view may be right in a contract of sale, where the contract of sale may be valid even if the thing is not yet in existence as long as it has the potentiality of existence. But in contracts, there has to be a cause or object at the time of the transaction. If there will be no subject matter, it lacks one of the essential requisite of a contract.

If an action is filed to enforce a void contract, will the action prosper? No. Any action to enforce a void contract will never proper because there is nothing to be enforced. If the contract is void, and pursuant to that contract, one of the parties delivered a sum of money or a thing to the other party, may he be able to recover what he delivered to the other party? Ordinarily if a contract is an illegal contract, meaning the object or the cause is contrary to law, morals, good customs, public order or public policy, he can no longer deliver under the principle of in pari delicto. The court should leave the parties as they are, and no aid should be given to either party to this contract.

What other contracts expressly prohibited or declared void by law? 73