A2016 Oblicon Reviewer - Dilag
Short Description
Prof. JJ Disini...
Description
Obligations and Contracts
Jocs Dilag Reviewer for Civil Law - Oblicon Professor E.A. Labitag Professor J.J. Disini
Obligations || General Provisions || Concept «Other Definitions»
Kinds of Prestations
Obligations
1. To Give 2. To Do 3. Not To Do
Chapter 1:
Distinction between Natural and Civil Obligations
General Provisions
Natural
Concept Article 1156
Civil
As to basis
Equity and Natural Law
Positive Law
As to
Not court action, but
Court action or coercive
enforceability good conscience of
power of the law
debtor
An obligation is a juridical necessity to give, to do or not to do.
Sources of Obligations Other Definitions -
-
An obligation is a juridical relation whereby a person (creditor) may demand from another (debtor) the observance of a determinate conduct (behaviour) and in case of non-observance, may obtain satisfaction from the assets of the latter (Arias Ramos) An obligation is a juridical relation whereby a person should engage, or refrain from engaging, in a certain activity for the satisfaction of the private interest of another, who, in case of non-fulfillment of such duty, may obtain from the patrimony of the former, through a proper judicial proceeding, the very prestation due or in default thereof, the economic value that it represents (Diaz Pairo)
Article 1157 Obligations arise from: (1) (2) (3) (4) (5)
Law Obligations derived from law are not presumed. Only those demandable, and shall be regulated by the precepts of the law which
Active Subject (Obligee, Creditor) Passive Subject (Obligor, Debtor) Prestation or Object (Conduct of Debtor) Efficient Cause / Juridical Tie / Vinculum Juris
establishes them; and as to what has not been foreseen, by the provisions of this Book. -
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OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
Article 1158 expressly determined in this Code or in special laws are
Elements 1. 2. 3. 4.
Law; Contracts; Quasi-contracts; Acts or omissions punished by law; and Quasi-delicts.
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Does not require the concurrence of the creditors and debtors
Obligations || General Provisions || Sources of Obligations «Contracts»
Kinds of Quasi-Contracts
Contracts Article 1159 Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. -
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1. Negotiorum Gestio 2. Solutio Indebiti 3. Other Quasi-contracts Negotiorum Gestio (Officious Management)
Article 2144 Whoever voluntarily takes charge of the agency or management
Meeting of the minds of 2 or more persons, whereby one binds himself with respect to the other to give something or render some service – Art. 1305 Principle of autonomy of will
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
Quasi-Contracts
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 maythe owner.
Article 1160 Obligations derived from quasi-contracts shall be subject to the provisions of Chapter 1, Title XVII, of this Book.
Article 2142
In the first case, the provisions of Articles 1317, 1403, No. 1, and 1404
Certain lawful, voluntary and unilateral acts give rise to the juridical
regarding unauthorized contracts shall govern.
relation of quasi-contract to the end that no one shall be unjustly enriched or benefited at the expense of another.
In the second case, the rules on agency in Title X of this Book shall be
No previous relations/agreements exist The relation is created by the lawful, voluntary and unilateral acts of one to another ESSENCE: - To avoid unjust enrichment
applicable.
-
Solutio Indebiti (Mistake in Delivery)
Article 2154 If something is received when there is no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises.
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OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
« Jocel Isidro S. Dilag || UP Law A-2016 »
Obligations || General Provisions || Sources of Obligations «Quasi-Contracts»
Other Quasi Contracts
Help when in an accident / seriously ill
Support given by stranger
Article 2167
Article 2164
When through an accident or other cause a person is injured or
When, without the knowledge of the person obliged to give
becomes seriously ill, and he is treated or helped while he is not in
support, it is given by a stranger, the latter shall have a right to claim
a condition to give consent to a contract, he shall be liable to pay
the same from the former, unless it appears that he gave it out of
for the services of the physician or other person aiding him, unless the
piety and without intention of being repaid.
service has been rendered out of pure generosity.
Funeral Expenses
Property saved during a calamity
Article 2165
Article 2168
When funeral expenses are borne by a third person, without the
When during a fire, flood, storm, or other calamity, property is
knowledge of those relatives who were obliged to give support to
saved from destruction by another person without the knowledge
the deceased, said relatives shall reimburse the third person, should
of the owner, the latter is bound to pay the former just
the latter claim reimbursement.
compensation.
Support to orphans, insane, indigents
Government undertaking necessary work
Article 2166
Article 2169
When the person obliged to support an orphan, or an insane or other
When the government, upon the failure of any person to comply
indigent person unjustly refuses to give support to the latter, any
with health or safety regulations concerning property, undertakes
third person may furnish support to the needy individual, with
to do the necessary work, even over his objection, he shall be liable
right of reimbursement from the person obliged to give support.
to pay the expenses.
The provisions of this article apply when the father or mother of a child under eighteen years of age unjustly refuses to support him.
Confusion/.Commingling of Movables in an accident
Article 2170 When by accident or other fortuitous event, movables separately pertaining to two or more persons are commingled or confused, the rules on co-ownership shall be applicable.
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OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
« Jocel Isidro S. Dilag || UP Law A-2016 »
Obligations || General Provisions || Sources of Obligations «»
Finders of Lost personal property
Acts or Omissions punishable by Law
Article 2171
Article 1161
The rights and obligations of the finder of lost personal property shall
Civil obligations arising from criminal offenses shall be governed by
be governed by Articles 719 and 720.
the penal laws, subject to the provisions of Article 2177, and of the pertinent provisions of Chapter 2, Preliminary Title, on Human
Possessors in good faith
Relations, and of Title XVIII of this Book, regulating damages.
Article 2172 The right of every possessor in good faith to reimbursement for
Article 100 (RPC)
necessary and useful expenses is governed by Article 546.
Every person criminally liable for a felony is also civilly liable.
Paying the debts of another
Quasi-Delicts
Article 2173 When a third person, without the knowledge of the debtor, pays the
Article 1162
debt, the rights of the former are governed by Articles 1236 and 1237.
Obligations derived from quasi-delicts shall be governed by the provisions of Chapter 2, Title XVII of this Book, and by special laws.
Project Expenses of a small community
Article 2174
Article 2176
When in a small community a nationality of the inhabitants of age
Whoever by act or omission causes damage to another, there
decide upon a measure for protection against lawlessness, fire,
being fault or negligence, is obliged to pay for the damage done.
flood, storm or other calamity, anyone who objects to the plan and
Such fault or negligence, if there is no pre-existing contractual
refuses to contribute to the expenses but is benefited by the project
relation between the parties, is called a quasi-delict and is governed
as executed shall be liable to pay his share of said expenses.
by the provisions of this Chapter.
Paying taxes of another
-
Article 2175 Any person who is constrained to pay the taxes of another shall be entitled to reimbursement from the latter.
Kinds of Negligence 1. Culpa Aquiliana 2. Culpa Contractual 3. Culpa Criminal
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OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
Based on the principle of equity, where one should be responsible for any damages caused by the abuse of his/her rights
« Jocel Isidro S. Dilag || UP Law A-2016 »
(Quasi-Delict) (Contractual Negligence) (Criminal Negligence)
Obligations || General Provisions || Sources of Obligations «Quasi-Delicts»
Culpa Aquiliana
Culpa Contractual
Negligence as source of obligation
Negligence in the performance of contract
No previous relations
Existence of an obligation
The father and, in case of his death or incapacity, the mother, are responsible for the damages caused by the minor children who live in their company.
Plaintiff must prove the existence of Law presumes the negligence
Guardians are liable for damages caused by the minors or
the negligent act
incapacitated persons who are under their authority and live in their
from the non-performance
company.
Quasi-delicts v. Crimes Quasi-Delict
Crime
Nature of
Private rights; wrong
Public rights; wrong
Right
against the individual
against the state
Condition of
Criminal intent
Criminal intent
Mind
unnecessary
necessary
Legal Basis
Actionable as long as
Need to have a penal
there is fault/negligence
statute
Liability for
Damages to the injured
Not all have civil
Damages
party
liabilities
Forms of
Indemnification to the
Indemnification + Fines
Redress
injured party
or Imprisonment
Amount of
Preponderance of
Beyond reasonable
evidence
evidence
doubt
Compromise
Can be compromised
Cannot be compromised
likewise responsible for damages caused by their employees in the service of the branches in which the latter are employed or on the occasion of their functions. 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 in any business or industry. The State is responsible in like manner when it acts through a special agent; but not when the damage has been caused by the official to whom the task done properly pertains, in which case what is provided in Article 2176 shall be applicable. Lastly, teachers or heads of establishments of arts and trades shall be liable for damages caused by their pupils and students or
Liability for fault of others
apprentices, so long as they remain in their custody.
Article 2180 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. `_______________________________________________________________
OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
The owners and managers of an establishment or enterprise are
« Jocel Isidro S. Dilag || UP Law A-2016 »
The responsibility treated of in this article shall cease when the persons herein mentioned prove that they observed all the diligence of a good father of a family to prevent damage.
Obligations || General Provisions || Classifications of Obligations «Primary Classification under the Civil Code»
Article 218 (FC)
Classifications of Obligations
The school, its administrators and teachers, or the individual,
Primary Classification under the Civil Code 1. 2. 3. 4. 5. 6.
entity or institution engaged in child care shall have special parental authority and responsibility over the minor child while under their supervision, instruction or custody. Authority and responsibility shall apply to all authorized activities whether inside or outside the premises of the school, entity or institution.
WHEN: Pure and Conditional WHEN: With a Period or Term WHAT: Alternative and Facultative WHO: Joint and Solidary HOW: Divisible and Indivisible ELSE: With a Penal Clause
Secondary Classification
Article 219 (FC) Those given the authority and responsibility under the preceding Article shall be principally and solidarily liable for damages caused by the acts or omissions of the unemancipated minor. The parents, judicial guardians or the persons exercising substitute parental authority over said minor shall be subsidiarily liable. The respective liabilities of those referred to in the preceding paragraph shall not apply if it is proved that they exercised the proper diligence required under the particular circumstances. All other cases not covered by this and the preceding articles shall be governed by the provisions of the Civil Code on quasi-delicts. Difference between Civil and Criminal Action against employers Art. 2180 (CC)
Art. 103 (RPC)
Primary action
Subsidiary Action
Employer can use the defense
Liability is absolute upon conviction
of diligence
of employee
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OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
« Jocel Isidro S. Dilag || UP Law A-2016 »
1. 2. 3. 4. 5. 6. 7. 8.
Legal, Conventional, Penal Real (to give) and Personal (To do or not to do) Determinate and Generic Positive and Negative Unilateral and Bilateral Individual and Collective Accessory and Principal As to object or prestation a. Simple b. Multiple c. Conjunctive d. Distributive e. Alternative f. Facultative 9. Possible and Impossible
Obligations || Nature and Effects of Obligations || Kinds of Prestation «Obligation to Give»
Chapter 2: Nature and Effects of Obligations
Accessions
Accessories
Items or structure that are
Necessary parts required for the
naturally/artificially incorporated
Completeness, Use or Perfection
with the principal object
[ CUP ] of the principal object
To deliver the fruits
Kinds of Prestation Obligation to Give
Article 1164
A Specific Thing
obligation to deliver it arises. However, he shall acquire no real right
The creditor has a right to the fruits of the thing from the time the
Duties of the Obligor
over it until the same has been delivered to him.
To deliver the thing itself
Article 442
Article 1244 (1)
Natural fruits are the spontaneous products of the soil, and the
The debtor of a thing cannot compel the creditor to receive a
young and other products of animals.
different one, although the latter may be of the same value as, or more valuable than that which is due.
Industrial fruits are those produced by lands of any kind through cultivation or labor.
To Preserve the thing
Civil fruits are the rents of buildings, the price of leases of lands and
Article 1163
other property and the amount of perpetual or life annuities or other
Every person obliged to give something is also obliged to take care
similar income.
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.
To deliver the accessions and accessories
Article 1166 The obligation to give a determinate thing includes that of delivering all its accessions and accessories, even though they may not have been mentioned.
Kinds of Fruits 1. Natural o Produce of the object without intervention of man o Eggs, potato, milk, apple 2. Industrial o Goods through cultivation by man o Meat, vegetable crops 3. Civil o Produced by operation of law, by reason of a juridical act o Rent, interest, dividends, etc.
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OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
« Jocel Isidro S. Dilag || UP Law A-2016 »
Obligations || Nature and Effects of Obligations || Breach of Obligation «Obligation To Do and Not To Do»
A Generic Thing
Modes of Breach
Article 1246
Article 1170
When the obligation consists in the delivery of an indeterminate or
Those who in the performance of their obligations are guilty of fraud,
generic thing, whose quality and circumstances have not been
negligence, or delay, and those who in any manner contravene the
stated, the creditor cannot demand a thing of superior quality. Neither
tenor thereof, are liable for damages.
can the debtor deliver a thing of inferior quality. The purpose of the obligation and other circumstances shall be taken into consideration.
Obligation To Do and Not To Do 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.
Breach of Obligation Concept Breach occurs when a party to a contract violates any provision thereof or fails to perform what is incumbent upon him
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Delay Contravention of Tenor
1. A Pre-existing obligation 2. Conduct of the party, giving rise to an injustice / violation of any part of the obligation 3. Imputability of the Conduct 4. Absence of justification or excuse 5. Injury to the other party [ PACII ] Fraud (dolo)
Substantial v. Slight/Casual Breach
Article 1171 Responsibility arising from fraud is demandable in all obligations.
Substantial Breach
Slight/Casual Breach
Refers to Major difference
Differences between the tenor of the
between the tenor of the
obligation and the actual performance
obligation and the actual
will not cause serious injury to the
performance
creditor
Amounts to non-
Partial performance almost amounts
performance
to full performance
Basis for rescission
Gives rise to liability for damages
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OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
Fraud Negligence
Requisites of Breach
Article 1244 (2)
-
-
« Jocel Isidro S. Dilag || UP Law A-2016 »
Any waiver of an action for future fraud is void. -
This fraud talks about fraud in the performance of an obligation Awareness that an act is improper and that it violates the rights of others + its execution An act or omission that prevents the normal fulfillment of an obligation
Obligations || Nature and Effects of Obligations || Breach of Obligation «Modes of Breach»
Fraud
Dolo Causante
Dolo Incidente
When
During the
During the perfection of a contract or
present
performance
obligation
Culpa Contractual
Negligence as source of obligation
Negligence in the performance of contract
of the contract Purpose
Culpa Aquiliana
No previous relations
Existence of an obligation
Disrupt the
Secure the consent
Secure consent but
Plaintiff must prove the existence of Law presumes the negligence
fulfillment of
of another in the
not the principal
the negligent act
the obligation
obligation
inducement
Result
Breach
Voidable
No Vitiation
Gives
Right to
Right to annul the
Right to claim
rise to
recover
contract
damages
from the non-performance
Standard of care required
Article 1173 The fault or negligence of the obligor consists in the omission of
damages
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
Negligence
Articles 1171 and 2201, paragraph 2, shall apply.
Article 1172 Responsibility arising from negligence in the performance of every
If the law or contract does not state the diligence which is to be
kind of obligation is also demandable, but such liability may be
observed in the performance, that which is expected of a good
regulated by the courts, according to the circumstances. -
Negligence is the failure to observe the proper diligence required by law or by the contract
Culpa
Dolo
Absence of care or diligence in Voluntary acts with deliberate acting that causes damage
intent to cause damage
Liability may be mitigated by the Liability cannot be mitigated by courts
the courts
Waiver for gross negligence is void
Waiver for future fraud is void
father of a family shall be required. Extra-ordinary diligence required in the ff: - Common Carriers – Art. 1733 - Inn or Hotel Keepers – Art. 1998 - 2002 Effects of Negligence - Damages are demandable - Bars the defense of the existence of a fortuitous event
Waiver for simple negligence may be valid `_______________________________________________________________
OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
« Jocel Isidro S. Dilag || UP Law A-2016 »
Obligations || Nature and Effects of Obligations || Breach of Obligation «Modes of Breach»
Delay
Mora Solvendi
Article 1244 (1) 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
Requisites of Mora Solvendi 1. Prestation is Due 2. Prestation is Demandable 3. Prestation is Liquidated 4. Debtor Delays in performance 5. There is a Demand (Judicial / Extra-judicial) [ DDLDD ]
order that delay may exist:
Article 1169
(1) When the obligation or the law expressly so declare; or (2) When from the nature and the circumstances of the obligation it appears that the designation of the time when the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the contract; or (3) When demand would be useless, as when the obligor has rendered it beyond his power to perform.
Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation. However, the demand by the creditor shall not be necessary in order that delay may exist: (1) When the obligation or the law expressly so declare; or (2) When from the nature and the circumstances of the obligation it appears that the designation of the time when the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the contract; or (3) When demand would be useless, as when the obligor has rendered it beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins. -
Failure to perform an obligation in due time o The period provided by law or stipulated in the contract o This is either through malice or negligence
Kinds of Delay 1. Mora Solvendi 2. Mora Accipiendi
Delay by Debtor Delay by Creditor
-
When will the effects of mora Cease? -
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OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
Law, Stipulation, Motive and Impossibility are the exceptions to the demand rule [ LIMS ]
« Jocel Isidro S. Dilag || UP Law A-2016 »
By the creditor’s will (waiver, remission, extension, etc.) By mora of creditor (compensation morae) By concession of law (moratorium)
Obligations || Nature and Effects of Obligations || Remedies of Creditor in Case of Breach «Action for Performance»
Mora Accipiendi Requisites of Mora Accipiendi 1. Obligation requires an Act of cooperation by creditor 2. Debtor has Tendered the performance / completely performs the obligation 3. Creditor Refuses to accept performance / fails to perform the required action by the obligation [ ART ]
Remedies of Creditor in Case of Breach 1. Performance 2. Damages 3. Rescission
Article 1268
To give Specific
To give generic
Things
things
Specific
Specific
Specific
Performance
Performance
Performance
Substituted
Substituted
Performance
Performance
When the debt of a thing certain and determinate proceeds from a criminal offense, the debtor shall not be exempted from the payment of its price, whatever may be the cause for the loss, unless the thing
Damages
having been offered by him to the person who should receive it, the latter refused without justification to accept it.
Parties in a reciprocal or bilateral contract both occur in delay
Damages
Damages
Article 1165 (1) addition to the right granted him by Article 1170, may compel the debtor to make the delivery. Action for Substituted Performance (To Give)
Destroys the effects of mora solvendi All expenses incurred by the debtor for the preservation of the thing after the delay is carried by the creditor Debtor may relieve himself of the obligation by consigning the thing
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OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
Undoing
When what is to be delivered is a determinate thing, the creditor, in
Mora Solvendi - Debtor must indemnify the creditor for damages due to delay - Debtor must answer for the loss or deterioration of the thing due, even in fortuitous events Mora Accipiendi
-
Undoing
Action for Specific Performance (To Give)
Effects of Delay
-
Not To Do
Action for Performance
Compensatio Morae -
Damages
To Do
« Jocel Isidro S. Dilag || UP Law A-2016 »
Article 1165 (2) If the thing is indeterminate or generic, he may ask that the obligation be complied with at the expense of the debtor.
Obligations || Nature and Effects of Obligations || Remedies of Creditor in Case of Breach «Action for Damages»
Action for Substituted Performance or Undoing Poor Work (To Do)
Action for Damages
Article 1167
Article 1170
If a person obliged to do something fails to do it, the same shall be
Those who in the performance of their obligations are guilty of
executed at his cost.
fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages.
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
Action for Rescission
has been poorly done be undone.
Article 1191
EXCEPTION: - If there is imposition of personal force, coercion or involuntary servitude / imprisonment of debtor -> No action anymore Action for Undoing (Not To Do)
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
Article 1168
rescission of the obligation, with the payment of damages in either
When the obligation consists in not doing, and the obligor does
case. He may also seek rescission, even after he has chosen
what has been forbidden him, it shall also be undone at his expense.
fulfillment, if the latter should become impossible.
EXCEPTION: - If the act done is impossible to undo, then only an action for damages can be instituted
cause authorizing the fixing of a period. This is understood to be without prejudice to the rights of third
Characteristics of Obligations Not To Do: 1. 2. 3. 4. 5.
The court shall decree the rescission claimed, unless there be just
Irregular/Improper performance is equivalent to total breach Partial performance is not possible There is no mora No accessory obligations may arise Breach may be excused in fortuitous events, when it forces the execution of the forbidden acts
persons who have acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage Law.
Article 1192 In case both parties have committed a breach of the obligation, the liability of the first infractor shall be equitably tempered by the courts. If it cannot be determined which of the parties first violated the contract, the same shall be deemed extinguished, and each shall bear his own damages.
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OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
« Jocel Isidro S. Dilag || UP Law A-2016 »
Obligations || Nature and Effects of Obligations || Subsidiary Remedies of Creditor «Accion Subragatoria»
Exception: -
Action for rescission is only available to reciprocal obligations Not absolute, not permitted in casual/slight breach, may only be claimed in substantial breach (S ONG F O V . H AWAIIAN P HILIPPINES ) Judicial approval is required to produce the legal effect of rescission o UNLESS both parties agree to a rescission
Article 772 Only those who at the time of the donor's death have a right to the legitime and their heirs and successors in interest may ask for the reduction of inofficious donations. Those referred to in the preceding paragraph cannot renounce their
Subsidiary Remedies of Creditor
right during the lifetime of the donor, either by express
Accion Subragatoria
declaration, or by consenting to the donation.
Article 1177 The creditors, after having pursued the property in possession of
The donees, devisees and legatees, who are not entitled to the
the debtor to satisfy their claims, may exercise all the rights and bring
legitime and the creditors of the deceased can neither ask for the
all the actions of the latter for the same purpose, save those which
reduction nor avail themselves thereof.
are inherent in his person; they may also impugn the acts which
1. Inherent rights of the debtor a. Right to existence b. Rights or relations of a public character c. Rights of an honorary character d. Non-patrimonial rights like actions arising from family relations 2. Mere options or powers of the debtor a. Right to exercise legal redemption b. Revocation of stipulation pour autrui 3. Property exempt from execution
the debtor may have done to defraud them. -
The debtor of my debtor is my debtor Primary action of a creditor to protect his interest over the fulfillment of the obligation. Only to the extent of the amount of credit; any extra amount would be given back to the debtor
Requisites of Accion Subragatoria 1. Creditor has an Interest in the rights of the debtor because of the latter’s insolvency 2. Malicious/Negligent Inaction by the debtor in the exercise of his rights 3. Credit must be Due and demandable. 4. Exhaustion of the assets in the hands of the debtor [ DIEE ]
Effects of Accion Subragatoria 1. Creditor may sue in the name of the debtor 2. The action is subject to all defences available to the debtor 3. The creditor may apply the proceeds of the actions to the credit, but must return all the excess to the debtor
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OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
« Jocel Isidro S. Dilag || UP Law A-2016 »
Obligations || Nature and Effects of Obligations || Subsidiary Remedies of Creditor «Accion Pauliana»
Accion Pauliana
Other Specific Remedies
Article 1177
Article 1652
…, save those which are inherent in his person; they may also
The sublessee is subsidiarily liable to the lessor for any rent due
impugn the acts which the debtor may have done to defraud
from the lessee. However, the sublessee shall not be responsible
them.
beyond the amount of rent due from him, in accordance with the terms of the sublease, at the time of the extrajudicial demand by the
Article 1381
lessor.
The following contracts are rescissible: (3) Those undertaken in fraud of creditors when the latter cannot in
Article 1729
any other manner collect the claims due them;
Those who put their labor upon or furnish materials for a piece of
-
An action available to a creditor when the debtor fraudulently alienates property to another in order to prevent his creditor from claiming any properties from him
Requisites of Accion Pauliana 1. Debtor has a credit prior to the alienation 2. Debtor made a subsequent contract to transfer property to a 3rd person 3. Creditor has no other remedy left but to rescind the debtor’s contract with the 3rd person 4. Act being impugned is fraudulent 5. Both the debtor and the 3rd person acted with bad faith Accion Subragatoria
Accion Pauliana
work undertaken by the contractor have an action against the owner up to the amount owing from the latter to the contractor at the time the claim is made. However, the following shall not prejudice the laborers, employees and furnishers of materials: (1) Payments made by the owner to the contractor before they are due; (2) Renunciation by the contractor of any amount due him from the owner. This article is subject to the provisions of special laws.
Article 1608 The vendor may bring his action against every possessor whose right is derived from the vendee, even if in the second contract no
Credit may exist before or after
Credit must exist prior to the
mention should have been made of the right to repurchase, without
any acts by the debtor
fraudulent acts
prejudice to the provisions of the Mortgage Law and the Land
No fraudulent intent needed
Fraudulent intent must exist
Registration Law with respect to third persons.
No prescription period
Action prescribes after 4 years (discovery of fraud)
`_______________________________________________________________
OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
« Jocel Isidro S. Dilag || UP Law A-2016 »
Obligations || Nature and Effects of Obligations || «Concept of Fortuitous Event»
Extinguishment of Liability
Article 1893 In the cases mentioned in Nos. 1 and 2 of the preceding article, the principal may furthermore bring an action against the substitute with respect to the obligations which the latter has contracted under the substitution
Article 1174 Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be responsible for those events which could not be foreseen, or which, though foreseen, were inevitable.
These are either Acts of God or Acts of Man These events would be a justification for the non-compliance or delay in the performance of an obligation “Casus fortuito” = general term “Force majeure” = Acts of God
Requisites of the applicability of Fortuitous Event 1. Must be Independent of human will 2. Either Impossible to be seen or if not, Unavoidable 3. Must render the debtor Impossible to fulfil the obligation normally 4. There is No concurrent fault or aggravation by the debtor [ III N ] `_______________________________________________________________
OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
or more persons who do not have the same interest, he shall be responsible for any fortuitous event until he has effected the
Article 552 A possessor in good faith shall not be liable for the deterioration or loss of the thing possessed, except in cases in which it is proved that he has acted with fraudulent intent or negligence, after the judicial summons. A possessor in bad faith shall be liable for deterioration or loss in every case, even if caused by a fortuitous event.
Article 1942
Concept of Fortuitous Event
-
If the obligor delays, or has promised to deliver the same thing to two
delivery.
Extinguishment of Liability in Case of Breach Due to Fortuitous Event
-
Article 1165 (3)
« Jocel Isidro S. Dilag || UP Law A-2016 »
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) If he keeps it longer than the period stipulated, or after the accomplishment of the use for which the commodatum has been constituted; (3) If the thing loaned has been delivered with appraisal of its value, unless there is a stipulation exemption the bailee from responsibility in case of a fortuitous event; (4) If he lends or leases the thing to a third person, who is not a member of his household; (5) If, being able to save either the thing borrowed or his own thing, he chose to save the latter.
Obligations || Nature and Effects of Obligations || Usurious Transactions «Presidential Decrees»
Usurious Transactions
Article 1979 The depositary is liable for the loss of the thing through a fortuitous
Article 1175
event: (1) (2) (3) (4)
Usurious transactions shall be governed by special laws. If it is so stipulated; If he uses the thing without the depositor's permission; If he delays its return; If he allows others to use it, even though he himself may have been authorized to use the same.
Article 1961 Usurious contracts shall be governed by the Usury Law and other special laws, so far as they are not inconsistent with this Code.
Article 1413
Article 2001
Interest paid in excess of the interest allowed by the usury laws
The act of a thief or robber, who has entered the hotel is not
may be recovered by the debtor, with interest thereon from the date
deemed force majeure, unless it is done with the use of arms or
of the payment.
through an irresistible force.
-
Article 2147 The officious manager shall be liable for any fortuitous event: (1) If he undertakes risky operations which the owner was not accustomed to embark upon; (2) If he has preferred his own interest to that of the owner; (3) If he fails to return the property or business after demand by the owner; (4) If he assumed the management in bad faith.
Usury is the act of contracting to earn more than what is allowed by law, usually in the form of interest in the forbearance of money, good or chattels
Presidential Decrees PD 858 The Monetary Board is hereby authorized to prescribe the maximum rate or rates of interest for the loan or renewal thereof or the forbearance of any money, goods or credits, and to change such rate of rates whenever warranted by prevailing economic and social conditions.
Exceptions to the rule on extinguishment of liability 1. Specified by law 2. Expressly declared by stipulation 3. When the nature of the obligation requires the assumption of risk – Art. 1717, 1724 4. When debtor is guilty of fraud, delay or negligence
PD 1685 Foreign loans obtained by the Central Bank from international or regional financial organizations of which the Republic of the Philippines is a member may be guaranteed by the Republic of the Philippines if required by the charter, regulation or policy of the lender.
`_______________________________________________________________
OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
« Jocel Isidro S. Dilag || UP Law A-2016 »
Obligations || Nature and Effects of Obligations || Usurious Transactions «Central Bank Circulars»
Two Concepts on Payment of Interest (from Sir Labitag)
Central Bank Circulars
Interest for the Use or Loan/Forbearance of money, goods or credit
CBC 416 Removed loans to exporters to the extent guaranteed by the Guarantee
There is No stipulation
No interest
Fund for Small and Medium Enterprises (GFSME) from the list of 0% risk
There is stipulation, but No Rate
12% per annum (MB 905)
weighted assets
There is Stipulation and Rate
No ceiling rate (MB 905)
Monetary Board Circular Lifting the Interest Rate Ceiling
Interest as damages from breach or default in payment of loan or
MB 905 (1982)
forbearance of money, goods or credit
SECTION 2.The rate of interest for the loan or forbearance of any money,
There is No stipulation
goods or credits and the rate allowed in judgments, in the absence of
12% per annum from date of judicial/extrajudicial demand
express contract as to such rate of interest, shall continue to be twelve
There is Stipulation and Rate
per cent (12%) per annum.
12% interest on the Loan + Stipulated Interest from date of judgement
SECTION 26.Subsection 4303Q.1 to 4303Q.9 of the Manual of Regulations are hereby amended to read as follows:
Interest in obligations NOT consisting of forbearance of money,
Subsection 4303Q.2. Loans. — The rate of interest, including
goods or credit
commissions, premiums, fees and other charges, on loan transactions,
There is No stipulation
regardless of maturity and whether secured or unsecured, shall not be
6% per annum from date of judicial/extrajudicial demand
subject to any ceiling prescribed under or pursuant to the Usury Law,
There is Stipulation and Rate
Interest agreed upon
as amended. All money judgement shall earn 12% from finality of judgement
Article 2209 If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for damages, there being no
until full payment, as they are considered as forbearance of credit (E ASTERN S HIPPING L INES V . CA )
stipulation to the contrary, shall be the payment of the interest agreed upon, and in the absence of stipulation, the legal interest, which is six per cent per annum.
`_______________________________________________________________
OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
« Jocel Isidro S. Dilag || UP Law A-2016 »
Obligations || Different Kinds of Obligations || Fulfillment of Obligations «Payment»
Fulfillment of Obligations
Chapter 3:
Payment
Different Kinds of Obligations
Article 1232 Payment means not only the delivery of money but also the performance, in any other manner, of an obligation.
Pure and Conditional Obligations Pure Obligations Article 1179 (1)
Presumptions in payment of interests and installments
Every obligation whose performance does not depend upon a
Article 1176
future or uncertain event, or upon a past event unknown to the parties,
The receipt of the principal by the creditor without reservation with
is demandable at once.
respect to the interest, shall give rise to the presumption that said
-
interest has been paid. The receipt of a later installment of a debt without reservation as to prior installments, shall likewise raise the presumption that such installments have been paid.
Though demandable at once, the court may grant the debtor a reasonable time to comply with the obligation, if the circumstances so justify
Conditional Obligations Article 1181 In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend upon
Transmissibility of Rights
the happening of the event which constitutes the condition.
Article 1178 Subject to the laws, all rights acquired in virtue of an obligation are transmissible, if there has been no stipulation to the contrary.
Condition -
A future and uncertain event The happening of the uncertain event must not be impossible Condition
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OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
« Jocel Isidro S. Dilag || UP Law A-2016 »
Period/Term
Future and Uncertain
Future and Certain
Determines the existence of an
Determines the demandability of
obligation
an obligation
Obligations || Different Kinds of Obligations || Pure and Conditional Obligations «Conditional Obligations»
Kinds of Condition
Article 1188
As to Effect of on Obligation
The creditor may, before the fulfillment of the condition, bring the
Suspensive Condition -
appropriate actions for the preservation of his right.
A condition precedent on the existence of an obligation The effectiveness of the obligation and the acquisition of the creditor’s rights depend upon the fulfillment of the condition
The debtor may recover what during the same time he has paid by mistake in case of a suspensive condition.
Resolutory Condition -
Suspensive
A condition subsequent to the existence of an obligation The obligation is immediately effective but is subject to extinguishment upon fulfillment of the condition
Resolutory
Fulfillment
Obligation arises
Obligation is extinguished
Non-
No Obligation
Obligation continues
No Obligation
Obligation is effective
fulfillment
Article 1187
Pendency
The effects of a conditional obligation to give, once the condition has been fulfilled, shall retroact to the day of the constitution of the
As to the Cause/Origin
obligation. Nevertheless, when the obligation imposes reciprocal prestations upon the parties, the fruits and interests during the pendency of the condition shall be deemed to have been mutually compensated. If the obligation is unilateral, the debtor shall appropriate the fruits and interests received, unless from the nature and circumstances of the obligation it should be inferred that the intention of the person constituting the same was different. In obligations to do and not to do, the courts shall determine, in
Article 1182 When the fulfillment of the condition depends upon the sole will of the debtor, the conditional obligation shall be void. If it depends upon chance or upon the will of a third person, the obligation shall take effect in conformity with the provisions of this Code. -
each case, the retroactive effect of the condition that has been
Potestative Casual Mixed
Depending on the sole will of a party Depending upon chance or a will of a stranger Partly will of a party and partly chance/will of a stranger
complied with.
Suspensive
Resolutory
Potestative (Creditor)
VALID
VALID
Potestative (Debtor)
VOID
VALID
`_______________________________________________________________
OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
« Jocel Isidro S. Dilag || UP Law A-2016 »
A potestative (debtor) resolutory condition is valid, as the obligation is already effective
Obligations || Different Kinds of Obligations || Pure and Conditional Obligations «Conditional Obligations»
As to Possibility -
As to Mode
Possible Impossible
Positive
Article 1184 The condition that some event happen at a determinate time shall
Article 1183
extinguish the obligation as soon as the time expires or if it has
Impossible conditions, those contrary to good customs or public
become indubitable that the event will not take place.
policy and those prohibited by law shall annul the obligation which depends upon them. If the obligation is divisible, that part thereof which is not affected by the impossible or unlawful condition shall
Negative
be valid.
Article 1185 The condition that some event will not happen at a determinate
The condition not to do an impossible thing shall be considered as
time shall render the obligation effective from the moment the time
not having been agreed upon.
indicated has elapsed, or if it has become evident that the event cannot occur.
Type of Impossibility - Physical (contrary to law of nature) - Juridical (contrary to law, morals, good customs, etc.)
If no time has been fixed, the condition shall be deemed fulfilled at such time as may have probably been contemplated, bearing in mind the nature of the obligation.
Effects of Impossibility GENERAL RULE (ANNULS BOTH THE OBLIGATION AND CONDITION: -
POSITIVE and SUSPENSIVE conditions only.
Loss, Deterioration and Improvement
EXCEPTIONS (CONVERTS TO A PURE OBLIGATION): -
Negative conditions (Not to do Simple, remuneratory and testamentary donations and dispositions – Art. 727 and 873
*These are impossibility that existed at the time of making of the contract. Impossibility arising after is covered by Art. 1266
“Loss” - Perishes - Goes out of commerce - Disappears in such a way that its existence is unknown or is unrecoverable “Deterioration” - Any reduction/impairment in the substance/value of a thing that does not result to a loss. “Improvement” - Anything added, incorporated or attached to a thing.
`_______________________________________________________________
OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
« Jocel Isidro S. Dilag || UP Law A-2016 »
Obligations || Different Kinds of Obligations || Pure and Conditional Obligations «Conditional Obligations»
Rules in case of Loss, Deterioration, Improvement
Rules in case of Loss, Deterioration, Improvement
(Pending the happening of a Suspensive Condition)
(Pending the happening of a Resolutory Condition)
Article 1189
Article 1190
When the conditions have been imposed with the intention of
When the conditions have for their purpose the extinguishment
suspending the efficacy of an obligation to give, the following rules
of an obligation to give, the parties, upon the fulfillment of said
shall be observed in case of the improvement, loss or
conditions, shall return to each other what they have received.
deterioration of the thing during the pendency of the condition: (1) If the thing is lost without the fault of the debtor, the obligation shall be extinguished; (2) If the thing is lost through the fault of the debtor, he shall be obliged to pay damages; it is understood that the thing is lost when it perishes, or goes out of commerce, or disappears in such a way that its existence is unknown or it cannot be recovered; (3) When the thing deteriorates without the fault of the debtor, the impairment is to be borne by the creditor; (4) If it deteriorates through the fault of the debtor, the creditor may choose between the rescission of the obligation and its fulfillment, with indemnity for damages in either case; (5) If the thing is improved by its nature, or by time, the improvement shall inure to the benefit of the creditor; (6) If it is improved at the expense of the debtor, he shall have no other right than that granted to the usufructuary. -
Only applicable to the delivery of specific things, not to generic things If the suspensive condition never happens, the creditor does not obtain any cause of action to demand any of the above
In case of the loss, deterioration or improvement of the thing, the provisions which, with respect to the debtor, are laid down in the preceding article shall be applied to the party who is bound to return. As for the obligations to do and not to do, the provisions of the second paragraph of Article 1187 shall be observed as regards the effect of the extinguishment of the obligation. Improvement
Without
Obligation is
Creditor bears the
Creditor to
Fault
extinguished impairments
benefit
Debtor’s Pay
Creditor to choose either
Debtor has
Fault /
fulfillment or rescission
rights only to
(always with damages)
the usufruct
Damages
Effect of Prevention of the Fulfillment of the Condition by the Obligor
To be determined by the courts
Article 1186 The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment. -
`_______________________________________________________________
OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
Deterioration
Expense
Loss, deterioration and Improvement in Obligations To Do -
Loss
« Jocel Isidro S. Dilag || UP Law A-2016 »
Only applies to Suspensive conditions that do not depend upon chance
Obligations || Different Kinds of Obligations || Reciprocal Obligations «Concept»
Reciprocal Obligations
Concept -
Article 1191 The power to rescind obligations is implied in reciprocal ones, in
A reciprocal obligation is an obligation with all the requisites of a valid obligation occurs simultaneously for both parties (Each is a creditor & debtor of the other simultaneously)
case one of the obligors should not comply with what is incumbent
Alternative remedies of injured party in case of breach
upon him.
1. Action for Fulfillment 2. Action for Rescission
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.
Action for Fulfillment -
Action for Rescission
The court shall decree the rescission claimed, unless there be just
Requisites of Rescission 1. One of the obligors should not comply with what is incumbent upon him 2. The injured party chose rescission OR chose performance but it became impossible 3. Breach is substantial and must be through fault or fraud
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.
How Made
Article 1192
GENERAL RULE: - Rescission must be asked from the courts EXCEPTIONS:
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. Unilateral Obligations - Resolution must be expressed in the contract Bilateral/Reciprocal Obligations - Can be either expressed or implied BREACH is a tacit resolutory condition
-
If there is a stipulation for extra-judicial rescission (UP V . D E L OS A NGELES ) If the obligation has not yet been performed
Other cases where it resolution may not be granted - If the courts find just cause to fix a period o Delay but there is possibility of fulfillment, unless time is of the essence - Contract of life annuities
`_______________________________________________________________
OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
If suddenly becomes impossible, rescission is the only option
« Jocel Isidro S. Dilag || UP Law A-2016 »
Obligations || Different Kinds of Obligations || Reciprocal Obligations «Differences of Arts. 1191 & 1380»
Effects of Rescission -
Annuls the principal and accessory obligations Art. 1192’s rule on mitigation of liabilities Does not affect 3rd persons who acted in good faith
Differences of Arts. 1191 & 1380 Resolution (1191) Only by a contracting party
Rescission (1380) Party suffering from lesion / third party prejudiced
Non-performance of obligation
Article 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.
Various reasons of equity, mainly economic injury
Court determines sufficiency of
Only needs to satisfy the
reason (Slight or Casual Breach)
requisites. No need to measure sufficiency of reason
Only to reciprocal obligations
Unilateral or reciprocal obligations
Principal Remedy
Subsidiary Remedy
Article 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
Article 1484 In a contract of sale of personal property the price of which is payable in installments, the vendor may exercise any of the following remedies: (1) Exact fulfillment of the obligation, should the vendee fail to pay; (2) Cancel the sale, should the vendee's failure to pay cover two or more installments; (3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendee's failure to pay cover two or more installments. In this case, he shall have no further action against the purchaser to recover any unpaid balance of the price. Any agreement to the contrary shall be void.
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
Article 1485
for the fruits thereof from the time they should have been delivered,
The preceding article shall be applied to contracts purporting to be
without the need of any demand.
leases of personal property with option to buy, when the lessor has deprived the lessee of the possession or enjoyment of the thing.
`_______________________________________________________________
OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
« Jocel Isidro S. Dilag || UP Law A-2016 »
Obligations || Different Kinds of Obligations || Obligation with a Period «Period or Term»
Obligation with a Period
Article 1486 In the case referred to in two preceding articles, a stipulation that
Article 1193
the installments or rents paid shall not be returned to the vendee
Obligations for whose fulfillment a day certain has been fixed, shall
or lessee shall be valid insofar as the same may not be
be demandable only when that day comes.
unconscionable under the circumstances.
Obligations with a resolutory period take effect at once, but terminate upon arrival of the day certain.
RA 6552 – Realty Installment Buyer Act Rights of Buyers in case he defaults in payments of succeeding installments: - To pay, without additional interest, the unpaid installments due within the total grace period earned by him which is hereby fixed at the rate of one month grace period for every one year of installment payments made: Provided, That this right shall be exercised by the buyer only once in every five years of the life of the contract and its extensions, if any. - If the contract is cancelled, the seller shall refund to the buyer the cash surrender value of the payments on the property equivalent to fifty per cent of the total payments made, and, after five years of installments, an additional five per cent every year but not to exceed ninety per cent of the total payments made: Provided, That the actual cancellation of the contract shall take place after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act and upon full payment of the cash surrender value to the buyer. Down payments, deposits or options on the contract shall be included in
A day certain is understood to be that which must necessarily come, although it may not be known when. If the uncertainty consists in whether the day will come or not, the obligation is conditional, and it shall be regulated by the rules of the preceding Section.
Article 1180 When the debtor binds himself to pay when his means permit him to do so, the obligation shall be deemed to be one with a period, subject to the provisions of Article 1197
Period or Term
the computation of the total number of installment payments made.
`_______________________________________________________________
OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
« Jocel Isidro S. Dilag || UP Law A-2016 »
-
-
A period/term is a span of time where it either suspends the demandability of an obligation produces the extinction of a contract It must be a day certain, and not a condition
Obligations || Different Kinds of Obligations || Obligation with a Period «Kinds of Period/Term»
Kinds of Period/Term
Rules in case of Loss, Deterioration, or Improvement before arrival of period
As to Effect Suspensive - A suspensive period fixes a period when the demandability of an obligation will arise (e.g. In one year, when his means allows him) Resolutory - A resolutory period fixes a period when the obligation should run. It starts from the establishment of the obligation and ends in a particular day. o Failure to perform the obligation during the period is a substantial breach of the obligation
Article 1194 In case of loss, deterioration or improvement of the thing before the arrival of the day certain, the rules in Article 1189 shall be observed. Rules in Art. 1189 and 1190 Loss
Deterioration
Improvement
Without
Obligation is
Creditor bears the
Creditor to
Fault
extinguished impairments
benefit
As to Expression
Debtor’s Pay
Creditor to choose either
Debtor has
Express - Period is specified in the contract, obligation or by law Implied
Fault /
fulfillment or rescission
rights only to
Expense
(always with damages)
the usufruct
-
Period can be inferred from the nature and circumstances surrounding the obligation
Damages
Effect of Payment in Advance Article 1195
As to Definiteness
Anything paid or delivered before the arrival of the period, the
Definite - Period is fixed Indefinite
obligor being unaware of the period or believing that the obligation
-
has become due and demandable, may be recovered, with the fruits and interests.
Period was intended, so must be fixed by the courts Period will happen but its definiteness is not yet known (death, movable holidays, etc.)
As to Source Voluntary
Fixed by the parties
Legal
Fixed by law
Judicial
Fixed by the courts
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OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
« Jocel Isidro S. Dilag || UP Law A-2016 »
-
Applicable only to Obligations To Do Bad faith/good faith of creditor is immaterial Action must be done before arrival of the period
Obligations || Different Kinds of Obligations || Obligation with a Period «Benefit of a Period»
GENERAL RULE:
When debtor loses right to make use of period
- Payment in advance does not allow recovery EXCEPTIONS: - If the debtor was unaware of the period - If the debtor believed that the obligation was due and demandable
Article 1198 The debtor shall lose every right to make use of the period: (1) When after the obligation has been contracted, he becomes insolvent, unless he gives a guaranty or security for the debt; (2) When he does not furnish to the creditor the guaranties or securities which he has promised; (3) When by his own acts he has impaired said guaranties or securities after their establishment, and when through a fortuitous event they disappear, unless he immediately gives new ones equally satisfactory; (4) When the debtor violates any undertaking, in consideration of which the creditor agreed to the period; (5) When the debtor attempts to abscond.
Benefit of a Period For whose benefit and its effects - Creditor o May demand performance anytime, but cannot be compelled to receive anytime (Before or after period) - Debtor o May oppose premature demand - Both o Cannot compel the debtor to pay in advance and cannot compel the creditor to receive in advance Presumption
-
Obligation then turns into a pure obligation
When Court may Fix a Period
Article 1196 Whenever in an obligation a period is designated, it is presumed to have been established for the benefit of both the creditor and the debtor, unless from the tenor of the same or other circumstances it should appear that the period has been established in favor of one or of the other.
Article 1197 If the obligation does not fix a period, but from its nature and the circumstances it can be inferred that a period was intended, the courts may fix the duration thereof. The courts shall also fix the duration of the period when it depends upon the will of the debtor. In every case, the courts shall determine such period as may under the circumstances have been probably contemplated by the parties. Once fixed by the courts, the period cannot be changed by them.
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OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
« Jocel Isidro S. Dilag || UP Law A-2016 »
Obligations || Different Kinds of Obligations || Alternative Obligations «Concept»
Alternative Obligations
Effect of Notice of Choice -
Concept Article 1199
-
A person alternatively bound by different prestations shall completely perform one of them.
The obligation ceases to be alternative and becomes a pure obligation This notice is also irrevocable
When Notice produces effect Article 1201
The creditor cannot be compelled to receive part of one and part
The choice shall produce no effect except from the time it has been
of the other undertaking.
communicated.
Characteristics of an alternative obligation 1. Plurality of the prestations 2. Only one of the prestations is required to be performed
Right of Choice Article 1200 The right of choice belongs to the debtor, unless it has been
Ways in order to communicate choice 1. Orally 2. In Writing 3. Tacit declaration (creditor sues or debtor just performs) 4. Only one prestation remains What if the debtor elects a prestation that is not part of the choices? -
expressly granted to the creditor. The debtor shall have no right to choose those prestations which
It shall be valid if the creditor accepts it (Novation)
Effect of Loss or Impossibility of one or all prestations
are impossible, unlawful or which could not have been the object
Article 1202
of the obligation.
The debtor shall lose the right of choice when among the prestations whereby he is alternatively bound, only one is practicable.
GENERAL RULE: -
Debtor has the right of choice o But if the debtor does not choose a prestation, the creditor can sue him to make a choice EXCEPT: - If they stipulate for the creditor or a third party to choose
Article 1203 If through the creditor's acts the debtor cannot make a choice according to the terms of the obligation, the latter may rescind the contract with damages.
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OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
« Jocel Isidro S. Dilag || UP Law A-2016 »
Obligations || Different Kinds of Obligations || Alternative Obligations «»
Article 1204
Article 1205
The creditor shall have a right to indemnity for damages when,
When the choice has been expressly given to the creditor, the
through the fault of the debtor, all the things which are
obligation shall cease to be alternative from the day when the
alternatively the object of the obligation have been lost, or the
selection has been communicated to the debtor.
compliance of the obligation has become impossible.
Until then the responsibility of the debtor shall be governed by the following rules:
The indemnity shall be fixed taking as a basis the value of the last thing which disappeared, or that of the service which last became impossible. Damages other than the value of the last thing or service may also be awarded.
Comparative Table
(1) If one of the things is lost through a fortuitous event, he shall perform the obligation by delivering that which the creditor should choose from among the remainder, or that which remains if only one subsists; (2) If the loss of one of the things occurs through the fault of the debtor, the creditor may claim any of those subsisting, or the price of that which, through the fault of the former, has disappeared, with a right to damages; (3) If all the things are lost through the fault of the debtor, the choice by the creditor shall fall upon the price of any one of them, also with indemnity for damages.
Debtor’s Choice
Creditor’s Choice*
One is lost through
Debtor to choose
Debtor to comply
a fortuitous event
from the others
with creditor’s choice
The same rules shall be applied to obligations to do or not to do in
One is loss through
No indemnity for
Creditor can choose
case one, some or all of the prestations should become impossible.
debtor’s fault
loss. Same rule above
any or the value of
All are lost through
Indemnity for value
the one that is lost,
fault of debtor
of the last thing
with indemnity for
which disappeared
damages
All are lost through
No indemnity and obligation is
a fortuitous event
extinguished**
* Same rules apply to choices assigned to a third person ** Even if the other prestations were lost through the fault of the debtor, there will still be no indemnity if the LAST prestation was lost through a fortuitous event `_______________________________________________________________
OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
« Jocel Isidro S. Dilag || UP Law A-2016 »
Obligations || Different Kinds of Obligations || Joint and Solidary Obligations «Facultative Obligation»
Joint and Solidary Obligations
Facultative Obligation
Joint Obligations
Article 1206 When only one prestation has been agreed upon, but the obligor may render another in substitution, the obligation is called facultative. The loss or deterioration of the thing intended as a substitute,
Concept - Obligations existing among several persons (whether creditors or debtors), among whom the benefit/burden is divided - Each debtor is only liable for their part of the debt; each creditor is only entitled to their share in the obligation
through the negligence of the obligor, does not render him liable. But once the substitution has been made, the obligor is liable for
Requisites of a Joint Obligation 1. Plurality of subjects 2. Determinability of shares in the demandability of the obligation a. Shares may be unequal b. Share must be distinct from each other
the loss of the substitute on account of his delay, negligence or fraud. -
-
Also called a substitutable obligation This is akin to a simple/pure obligation but the debtor has the option of substituting another prestation for the principal one o Rules on pure obligation applies to it + Art. 1206 The creditor cannot compel the debtor to make the substitution Alternative Obligations
Facultative Obligations
Words Used - Mancomunada - Pro rata
- Jointly - We promise to pay
Presumption
Obligation is only demandable Obligation is demandable at once
Article 1207
upon choice
The concurrence of two or more creditors or of two or more
Several prestations due
Only one prestation is due
debtors in one and the same obligation does not imply that each
Loss of any of the prestation Loss of the substitute does not
one of the former has a right to demand, or that each one of the latter
renders the debtor liable if choice render him liable
is bound to render, entire compliance with the prestation. There is a
is by creditor (through fault)
solidary liability only when the obligation expressly so states, or
Choice may be granted to the Choice is only reserved to the
when the law or the nature of the obligation requires solidarity.
creditor or to a third person
debtor
-
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OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
« Jocel Isidro S. Dilag || UP Law A-2016 »
Presumption of a joint obligation Presumption of equality of shares
Obligations || Different Kinds of Obligations || Joint and Solidary Obligations «Joint Obligations»
Extent of right of creditor
Article 1208
1. Demand by one creditor upon one debtor produces the effects of default only with respect to the creditor who demanded and the debtor on whom the demand was made, but not with respect to others 2. Interruption of prescription by the judicial demand of one creditor upon a debtor does not benefit the other creditors nor interrupt the prescription as to other debtors
If from the law, or the nature or the wording of the obligations to which the preceding article refers the contrary does not appear, the credit or debt shall be presumed to be divided into as many shares as there are creditors or debtors, the credits or debts being considered distinct from one another, subject to the Rules of Court governing the multiplicity of suits.
In case of:
Effects
Novation:
Article 1277
whom the novation is created
Confusion does not extinguish a joint obligation except as regards
Compensation:
the share corresponding to the creditor or debtor in whom the two characters concur.
Affects only the share of the joint co-debtor in whom the compensation takes place
Confusion:
Confusion does not extinguish a joint obligation except as regards the share corresponding to the
Extent of liability of debtor 1. Only with respect to his particular share in the debt 2. Vices of each obligation arising from the personal defect of a particular debtor or creditor does not affect the obligation or rights of the others 3. The insolvency of a debtor does not increase the responsibility of his co-debtors nor does it authorize a creditor demand anything from his co-creditors 4. JOINT DIVISIBLE OBLIGATION: defense of res judicata is not extended from one debtor to another
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OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
Affects only the share of the joint co-debtor in
« Jocel Isidro S. Dilag || UP Law A-2016 »
creditor or debtor in whom the two characters concur. Remission:
Benefits only the joint co-debtor in whom the remission is granted, obligation extinguished
Obligations || Different Kinds of Obligations || Joint and Solidary Obligations «Solidary Obligations»
Solidary Obligations
Article 1915
Article 1207
If two or more persons have appointed an agent for a common
There is a solidary liability only when the obligation expressly so
transaction or undertaking, they shall be solidarily liable to the agent
states, or when the law or the nature of the obligation requires
for all the consequences of the agency.
solidarity. Concept - There is a concurrence of several debtors or creditors to a particular obligation, where they bind themselves each the ability to perform the obligation or the right to demand the performance, respectively - It must either be: o Expressly stipulated o Mandated by law o Inferred by the nature of the obligation o Imputed by final judgement
When there are two or more bailees to whom a thing is loaned in the same contract, they are liable solidarily.
Article 2194 The responsibility of two or more persons who are liable for quasidelict is solidary.
Article 2146 (2) The responsibility of two or more officious managers shall be solidary, unless the management was assumed to save the thing or
Requisites of a Solidary Obligation 1. Plurality of subjects 2. Unity of prestation without definite shares a. Ability to perform/demand 3. Distribution among solidary parties
business from imminent danger.
Article 2157 (Solutio Indebiti) The responsibility of two or more payees, when there has been payment of what is not due, is solidary.
Words used -
Article 1945
Mancomunada solidaria In solidum Individually and collectively
- Solidarily - Joint and several - “I promise to pay”
Article 110 - RPC Notwithstanding the provisions of the next preceding article, the
Kinds
principals, accomplices, and accessories, each within their
As to Source
respective class, shall be liable severally (in solidum) among
1. Legal 2. Conventional 3. Real
By Law By Stipulation By Nature of the obligation
`_______________________________________________________________
OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
« Jocel Isidro S. Dilag || UP Law A-2016 »
themselves for their quotas, and subsidiaries for those of the other persons liable.
Obligations || Different Kinds of Obligations || Joint and Solidary Obligations «Solidary Obligations»
As to Parties bound 1. Active 2. Passive 3. Mixed
(Creditors) (Debtors)
As to Uniformity 1. Uniform 2. Varied / Non-Uniform
Article 1215 Novation, compensation, confusion or remission of the debt, made by any of the solidary creditors or with any of the solidary debtors, shall extinguish the obligation, without prejudice to the provisions of Article 1219.
Same terms/conditions for all Different terms/conditions
The creditor who may have executed any of these acts, as well as
Article 1211
he who collects the debt, shall be liable to the others for the share in
Solidarity may exist although the creditors and the debtors may
the obligation corresponding to them.
not be bound in the same manner and by the same periods and conditions.
Article 1216 The creditor may proceed against any one of the solidary debtors
Effects
or some or all of them simultaneously. The demand made against
Solidary Creditor in relation to:
one of them shall not be an obstacle to those which may subsequently
> Common Debtor
be directed against the others, so long as the debt has not been
Article 1214
fully collected.
The debtor may pay any one of the solidary creditors; but if any demand, judicial or extrajudicial, has been made by one of them, payment should be made to him.
> Solidary Co-Creditors
Article 1212 Article 1217 (1)
Each one of the solidary creditors may do whatever may be
Payment made by one of the solidary debtors extinguishes the
useful to the others, but not anything which may be prejudicial to the
obligation. If two or more solidary debtors offer to pay, the creditor
latter.
may choose which offer to accept.
Article 1213 A solidary creditor cannot assign his rights without the consent of the others.
`_______________________________________________________________
OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
« Jocel Isidro S. Dilag || UP Law A-2016 »
Obligations || Different Kinds of Obligations || Joint and Solidary Obligations «Solidary Obligations»
Solidary Debtor in relation to:
Article 1219
> Common Creditor
The remission made by the creditor of the share which affects
Article 1207
one of the solidary debtors does not release the latter from his
The concurrence of two or more creditors or of two or more debtors
responsibility towards the co-debtors, in case the debt had been
in one and the same obligation does not imply that each one of the
totally paid by anyone of them before the remission was
former has a right to demand, or that each one of the latter is bound
effected.
to render, entire compliance with the prestation. There is a solidary liability only when the obligation expressly so states, or when the
Article 1220
law or the nature of the obligation requires solidarity.
The remission of the whole obligation, obtained by one of the solidary debtors, does not entitle him to reimbursement from his co-
> Solidary Co-Debtors
debtors.
Article 1217 Payment made by one of the solidary debtors extinguishes the
Article 1221
obligation. If two or more solidary debtors offer to pay, the creditor
If the thing has been lost or if the prestation has become impossible
may choose which offer to accept.
without the fault of the solidary debtors, the obligation shall be extinguished.
He who made the payment may claim from his co-debtors only the share which corresponds to each, with the interest for the
If there was fault on the part of any one of them, all shall be
payment already made. If the payment is made before the debt is
responsible to the creditor, for the price and the payment of damages
due, no interest for the intervening period may be demanded.
and interest, without prejudice to their action against the guilty or negligent debtor.
When one of the solidary debtors cannot, because of his insolvency, reimburse his share to the debtor paying the obligation,
If through a fortuitous event, the thing is lost or the performance
such share shall be borne by all his co-debtors, in proportion to the debt
has become impossible after one of the solidary debtors has
of each.
incurred in delay through the judicial or extrajudicial demand upon him by the creditor, the provisions of the preceding paragraph
Article 1218
shall apply.
Payment by a solidary debtor shall not entitle him to reimbursement from his co-debtors if such payment is made after the obligation has prescribed or become illegal.
`_______________________________________________________________
OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
« Jocel Isidro S. Dilag || UP Law A-2016 »
Obligations || Different Kinds of Obligations || Joint and Solidary Obligations «Joint Indivisible Obligations»
Defenses available to a solidary debtor against the creditor
Indivisibility Source Arises from the nature of
Article 1222 A solidary debtor may, in actions filed by the creditor, avail himself of all defenses which are derived from the nature of the his own share. With respect to those which personally belong to the
Effects
others, he may avail himself thereof only as regards that part of the debt for which the latter are responsible. Possible Defenses based on nature: - Vices of consent - Prescription - Illegality - Absence of a requisite of an obligation/contract
tie among debtors/creditors
of partial performance)
(defines the extent of liability) Must have at least 2 debtors
debtor and creditor
or creditors
Breach by debtor does not
Breach by one affects
affect co-debtors
everyone
Effects
Article 1209 If the division is impossible, the right of the creditors may be prejudiced only by their collective acts, and the debt can be enforced only by proceeding against all the debtors. If one of the latter should be insolvent, the others shall not be liable for his share.
Effects of the defense: -
Arises from the nature of the
the prestation (not capable Parties Can happen between one
obligation and of those which are personal to him, or pertain to
Solidarity
If from nature: Everyone is benefited If personal: Only him benefited If from co-debtor: Partial defense
Article 1224 A joint indivisible obligation gives rise to indemnity for damages from the time anyone of the debtors does not comply with his undertaking. The debtors who may have been ready to fulfill their
Joint Indivisible Obligations
promises shall not contribute to the indemnity beyond the
Concept -
A special kind of joint obligation where the prestation is indivisible Usually found in obligations To Do or Not To Do
Indivisibility v. Solidarity
Article 1210 The indivisibility of an obligation does not necessarily give rise to solidarity. Nor does solidarity of itself imply indivisibility. `_______________________________________________________________
OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
« Jocel Isidro S. Dilag || UP Law A-2016 »
corresponding portion of the price of the thing or of the value of the service in which the obligation consists. 1. 2. 3. 4.
Need to proceed against all debtors In case of Breach, need to pay the value Damage is liability of guilty party There is no mutual agency
Obligations || Different Kinds of Obligations || Divisible and Indivisible Obligations «Divisible Obligations»
Divisible and Indivisible Obligations
Indivisible Obligations
Divisible Obligations
Concept -
Concept
Article 1225 (2) When the obligation has for its object the execution of a certain
Kinds and Presumptions
number of days of work, the accomplishment of work by metrical
Article 1225
units, or analogous things which by their nature are susceptible of
For the purposes of the preceding articles, obligations to give
partial performance, it shall be divisible. -
Obligations that are not susceptible of partial performance Partial performance shall constitute a breach of the obligation
definite things and those which are not susceptible of partial performance shall be deemed to be indivisible.
An obligation which is susceptible of partial performance Creditor cannot demand a single performance of the obligation
However, even though the object or service may be physically divisible, an obligation is indivisible if so provided by law or
Effects
intended by the parties.
Article 1223
1. Natural Determinate things 2. Conventional Determined by the parties 3. Legal Provided by law
The divisibility or indivisibility of the things that are the object of obligations in which there is only one debtor and only one creditor does not alter or modify the provisions of Chapter 2 of this Title.
In obligations Not To Do
Article 1233
Article 1225 (3)
A debt shall not be understood to have been paid unless the thing
In obligations not to do, divisibility or indivisibility shall be
or service in which the obligation consists has been completely
determined by the character of the prestation in each particular
delivered or rendered, as the case may be
case.
`_______________________________________________________________
OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
« Jocel Isidro S. Dilag || UP Law A-2016 »
Obligations || Different Kinds of Obligations || Obligations with a Penal Clause «Concepts»
Cessation of Indivisibility 1. Natural Indivisibility o Will only turn into a divisible obligation if it is converted into an obligation to pay damages 2. Conventional/Legal Indivisibility o Contract is novated o Death of the debtor/creditor (as it gets divided to the heirs)
Obligations with a Penal Clause Concepts Principal Obligation
Accessory Obligation
Can stand alone, independent of
Must attach to a principal
other obligations
obligation in order to have effect
Obligations with a Penal Clause Obligation is in existence already
Conditional Obligation Needs to wait for the happening of a condition for the obligation to take place
Accessory obligation is dependent
Principal obligation is
upon the non-performance of the
dependent upon the happening
principal obligation
of the condition
Obligations with a Penal Clause
Two or more prestations
Impossibility of the obligation
Impossibility of one of the
annuls the penal clause
prestations does not annul the Debtor chooses the prestation to
penalty
perform
Power of the debtor to choose is
principal = only by express
absolute
Creditor may demand both
Creditor can never demand both
obligations in case of stipulation
prestations
Kinds of Penal Clause As to effect: 1. Subsidiary 2. Complementary
Only the penalty may be enforced Both the principal obligation and penalty are enforced
As to source: 1. Conventional 2. Legal As to purpose:
`_______________________________________________________________
OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
Payment of penalty in lieu of the
Penal Clause - An accessory stipulation added to an obligation, which would be effective upon failure to perform the obligation or upon violation of any part of the contract - Purpose is to induce performance - These are construed strictly against the creditor
obligation Cannot choose to pay the
Facultative Obligation
stipulation
Alternative Obligation
Only one prestation
Obligations with a Penal Clause
« Jocel Isidro S. Dilag || UP Law A-2016 »
1. Punitive 2. Reparatory
Damages and Penalty Penalty only over damages
Obligations || Different Kinds of Obligations || Obligations with a Penal Clause «Demandability of Penalty»
Debtor not exempt from Performance
Demandability of Penalty Article 1226 (2)
Article 1227
The penalty may be enforced only when it is demandable in
The debtor cannot exempt himself from the performance of the
accordance with the provisions of this Code.
obligation by paying the penalty, save in the case where this right has been expressly reserved for him. Neither can the creditor
Requisites for Enforcement of Penalty 1. Only the debtor must have breached the obligation 2. Penalty must not be illegal
demand the fulfillment of the obligation and the satisfaction of the penalty at the same time, unless this right has been clearly granted him. However, if after the creditor has decided to require the fulfillment of the obligation, the performance thereof should
Effects of Penal Clause
become impossible without his fault, the penalty may be enforced.
Substitute for Indemnity and Payment of Interest
Article 1226 (1) In obligations with a penal clause, the penalty shall substitute the
When Penalty shall be equitably reduced
indemnity for damages and the payment of interests in case of
Article 1229
noncompliance, if there is no stipulation to the contrary.
The judge shall equitably reduce the penalty when the principal
Nevertheless, damages shall be paid if the obligor refuses to pay the
obligation has been partly or irregularly complied with by the
penalty or is guilty of fraud in the fulfillment of the obligation.
debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable.
GENERAL RULE: - Penalty substitutes for damages and interests EXCEPTIONS: - Obligor refuses to pay the penalty - Obligor is guilty of fraud in the fulfilment of the obligation
Nullity of Principal Obligation or Penal Clause Article 1230 The nullity of the penal clause does not carry with it that of the principal obligation.
Article 1228 Proof of actual damages suffered by the creditor is not necessary in order that the penalty may be demanded.
penal clause.
`_______________________________________________________________
OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
The nullity of the principal obligation carries with it that of the
« Jocel Isidro S. Dilag || UP Law A-2016 »
Obligations || Extinguishment of Obligations || Modes of Extinguishment «»
[ PP II TPC ]
Chapter 4: Extinguishment of Obligations
1. Payor – Who can pay Debtor / Duly authorized agent Debtor’s Heir / Successor-in-interest Any Interested person [A person who will benefit from the fulfilment of the obligation like a co-debtor] (with or without consent OR knowledge) - A Stranger with consent from debtor (creditor is not bound to accept, unless there is a stipulation to the contrary - Art. 1236 (1)) [ DHIS ] -
Modes of Extinguishment Article 1231 Obligations are extinguished: (1) By payment or performance: (2) By the loss of the thing due: (3) By the condonation or remission of the debt; (4) By the confusion or merger of the rights of creditor and debtor; (5) By compensation; (6) By novation.
Rules on Payment by Strangers
Payment or Performance Article 1232 Payment means not only the delivery of money but also the performance, in any other manner, of an obligation. -
Execution or carrying out of an obligation (Planiol) Performance of the prestation due under the obligation, whether it consists in delivering money or not (Crome)
Requisites of a Valid Payment 1. 2. 3. 4. 5. 6. 7.
Payor Payee Identity Integrity Time Place Costs
(Who can pay) (Who can receive payment) (What is to be paid) (How is payment to be paid) (When payment is to be made) (Where to be paid) (Expenses of making payment)
`_______________________________________________________________
OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
« Jocel Isidro S. Dilag || UP Law A-2016 »
1. Whoever pays without the knowledge or against the will of the debtor: a. Can only recover only insofar as the payment has been beneficial to the debtor – Art. 1236 (2) b. Cannot compel the creditor to subrogate him in his rights, such as those arising from a mortgage, guaranty, or penalty. – Art. 1237 2. There is legal subrogation when a stranger pays with express or tacit approval of the debtor. – Art. 1302 (2) 3. Payment by a stranger who does not intend to be reimbursed, is deemed to be a donation a. Requires the debtor’s consent b. BUT is still valid payment, regardless of acceptance by the debtor
Obligations || Extinguishment of Obligations || Payment or Performance «Requisites of a Valid Payment»
Rules on Capacity of Payor
Rules on Capacity of Payee
In obligations to GIVE: 1. No free disposal / no capacity to alienate = INVALID – Art. 1239 2. IF payment was done voluntarily by a minor between 18-21, without the consent of his parent or guardian, of a fungible thing, does not entitle him to recover the payment thus made, IF the creditor spent/consumed it in good faith – Art. 1427
Payment to a person incapacitated to administer his property is valid if: - Payee has kept the thing delivered - Insofar as payment has been beneficial to him (Proof of benefit required. Art. 1241 (1st paragraph)
Rules on Solidarity - The debtor may pay any of the solidary creditors, but if demand is made by one of them, payment should be made to him – Art. 1214 - Payment made by one of the solidary debtors extinguishes the obligation. – Art. 1217
Instances where benefit need not be proved -
2. Payee – Who can receive payment Creditor at the time of payment (To whom the payment is expected to be made) - Successor-in-interest - Authorized person to receive payment (law/stipulation) - A person Not authorized, provided that the creditor is benefited (Proof of benefit required) - Payment made in good faith to any Person in Possession of the credit Arts. 1240, 1241 & 1242 -
If after the payment, the third person acquires the creditor's rights; If the creditor ratifies the payment to the third person; If by the creditor's conduct, the debtor has been led to believe that the third person had authority to receive the payment. Art. 1241 (2nd paragraph) Payment made in good faith to any person in possession of the credit shall release the debtor. Art. 1242
3. Identity – What is to be paid -
The very prestation (thing/service/abstention) due
In obligations to GIVE A SPECIFIC THING
[ CSANP ]
Article 1244 (1) The debtor of a thing cannot compel the creditor to receive a different one, although the latter may be of the same value as, or more valuable than that which is due.
Article 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.
`_______________________________________________________________
OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
« Jocel Isidro S. Dilag || UP Law A-2016 »
Obligations || Extinguishment of Obligations || Payment or Performance «Requisites of a Valid Payment»
R.A. 8183 (1996)
Exceptions to the ‘No substitution’ rule - If the obligation is facultative - If the creditor agrees to the substitution = dation in payment (datio in solutum)
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. Repealed R.A. 529
In obligations to GIVE A GENERIC THING -
Generally, the thing paid must be of the quantity and quality specified
Article 1246 When the obligation consists in the delivery of an indeterminate or generic thing, whose quality and circumstances have not been stated, the creditor cannot demand a thing of superior quality. Neither can the debtor deliver a thing of inferior quality. The purpose of
When payment is tendered through check/negotiable instrument - Payment shall only be valid if: o The instrument has been cashed o Through the fault of the creditor, they have been impaired Art. 1249 (2)
the obligation and other circumstances shall be taken into
Article 1250
consideration. -
In case an extraordinary inflation or deflation of the currency
The Kind and Quantity (not Quality) must be determinable, without a new agreement of the parties, otherwise the contract is VOID
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.
In obligations TO DO or NOT TO DO
Article 1244 (2) In obligations to do or not to do, an act or forbearance cannot be
In obligations to PAY INTEREST
substituted by another act or forbearance against the obligee's will.
Article 1956 No interest shall be due unless it has been expressly stipulated in
In obligations to PAY MONEY
writing.
Article 1249 (1) The payment of debts in money shall be made in the currency
Article 1253
stipulated, and if it is not possible to deliver such currency, then in
If the debt produces interest, payment of the principal shall not be
the currency which is the legal tender in the Philippines.
deemed to have been made until the interests have been covered.
`_______________________________________________________________
OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
« Jocel Isidro S. Dilag || UP Law A-2016 »
Obligations || Extinguishment of Obligations || Payment or Performance «Requisites of a Valid Payment»
4. Integrity – How payment is to be paid
-
Requisites of Substantial Performance 1. Attempt in good faith to perform, without any wilful or intentional
It must be complete
departure
Article 1233
2. Deviation from the obligation must be slight
A debt shall not be understood to have been paid unless the thing or
3. Omission or defect is unimportant and technical
service in which the obligation consists has been completely
4. Must not be so material that intention of the parties is not
delivered or rendered, as the case may be.
attained
No Partial payment is allowed – Art. 1248
Estoppel
Exceptions: 1. In cases of Express stipulation
Article 1235
2. Debt is in Part liquidated and part unliquidated, creditor may
When the obligee accepts the performance, knowing its
demand and the debtor may effect payment WITHOUT
incompleteness or irregularity, and without expressing any protest
awaiting liquidation of the rest. - Art. 1248
or objection, the obligation is deemed fully complied with.
3. In cases of Compensation, both debts are extinguished to the concurrent amount, with the remainder of the larger amount still outstanding – Art. 1290
Presumptions in payment of interests and installments
4. When several guarantors invoke the benefit of division, each guarantor can pay only his share – Art. 2073 5. When the debtor dies, the obligation is divided to his/her heirs unless the obligations is indivisible 6. When work is to be done by arts, if there is no contrary stipulation – Art. 1720
Article 1176 The receipt of the principal by the creditor without reservation with respect to the interest, shall give rise to the presumption that said interest has been paid. The receipt of a later installment of a debt without reservation as to prior installments, shall likewise raise the presumption that such
Substantial performance in good faith
installments have been paid.
Article 1234 If the obligation has been substantially performed in good faith, the obligor may recover as though there had been a strict and complete fulfilment, less damages suffered by the obligee. `_______________________________________________________________
OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
« Jocel Isidro S. Dilag || UP Law A-2016 »
Obligations || Extinguishment of Obligations || Payment or Performance «Application of Payments»
5. Time – When payment is to be made -
When the debt has become due and demandable Upon demand – Art. 1169 No demand needed when time is essential When the debtor loses the benefit of the period (immediately due and demandable) – Art. 1198 When the obligation is reciprocal, tender of performance must accompany the demand
Application of Payments Article 1252 He who has various debts of the same kind in favor of one and the same creditor, may declare at the time of making the payment, to which of them the same must be applied. Unless the parties so stipulate, or when the application of payment is made by the party for whose benefit the term has been constituted, application shall not be made as to debts which are not yet due.
6. Place – Where to be paid
Article 1251
If the debtor accepts from the creditor a receipt in which an
Payment shall be made in the place designated in the obligation.
application of the payment is made, the former cannot complain of the same, unless there is a cause for invalidating the contract.
There being no express stipulation and if the undertaking is to deliver a determinate thing, the payment shall be made wherever the thing might be at the moment the obligation was constituted. In any other case the place of payment shall be the domicile of the debtor.
Concept Designation of payment by a debtor to a creditor, where the former has several obligations of the same kind Requisites of Application of Payment 1. Same creditor and debtor
If the debtor changes his domicile in bad faith or after he has incurred in delay, the additional expenses shall be borne by him.
2. Several debts owed
These provisions are without prejudice to venue under the Rules of
4. Debts are of the same Kind
Court.
3. Debts are Due 5. Payment is Not sufficient to cover all the debts [ SS DKN ]
7. Costs – Expenses of making the payment -
Paid according to stipulation ABSENT THE STIPULATION: Debtor to pay the required extrajudicial expenses of the payment. – Art. 1247 (1) Judicial costs governed by the Rules of Court
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OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
« Jocel Isidro S. Dilag || UP Law A-2016 »
Obligations || Extinguishment of Obligations || Payment or Performance «Payment by Cession / Assignment»
Rules on Application of Payment
Payment by Cession / Assignment
1. Debtor may exercise the right to designation at the time of
Article 1255
payment – Art. 1252 (1)
The debtor may cede or assign his property to his creditors in
2. Creditor may also undertake the application (if debtor did not
payment of his debts. This cession, unless there is stipulation to the
exercise the right), subject to debtor’s approval.
contrary, shall only release the debtor from responsibility for the
Upon approval and receipt of application, the debtor cannot
net proceeds of the thing assigned. The agreements which, on the
complain unless there is cause in invalidating the contract –
effect of the cession, are made between the debtor and his creditors
Art. 1252 (2)
shall be governed by special laws.
3. If BOTH creditor and debtor did not apply the payment: a. Apply to interest first. – Art. 1253 i. Interest as stipulated
Concept
ii. OR legal interest
An act whereby the debtor abandons all of his/her properties to his/her
b. If the debts are of the same nature and burden – Art. 1254 (2)
creditors, for the latter to apply the proceeds of the sale of the said properties to the debts.
i. Payment shall be made in proportion
Requisites of Cession/Assignment:
c. If there is no interest to apply payment OR if application
1. Plurality of debts
cannot be inferred from other circumstances
2. Plurality of creditors
Debt which is most onerous to the debtor
3. Partial or Complete insolvency of the debtor
i. Secured v. Unsecured (M ISION V . R EYES )
4. Abandonment of the totality of the debtor’s properties for the
ii. Guaranteed v. Not Guaranteed
benefit of the creditors
iii. Sole Debtor v. Co-debtor
5. Acceptance/Consent by the creditors
iv. Older v. Younger debt (same amount)
[ PPP AA ]
v. Debts affecting honor or good reputation vi. Debts with penal cause
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OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
« Jocel Isidro S. Dilag || UP Law A-2016 »
Obligations || Extinguishment of Obligations || Payment or Performance «Dation in Payment»
Effects of Cession/Assignment 1. Debtor is released from the indebtedness only up to the amount
Dation in Payment
of the proceeds of the sale
There is transfer of ownership
a. Unless the contrary is stipulated May totally extinguish the debt
a. They merely have the right to sell/liquidate upon a. By default, order as established by law.
Dation in Payment (dacion en pago / datio in solutum)
All properties
Any number of creditors
Needs 2 or more creditors
Does not presupposes
Presupposes insolvency
Novatory
Not novatory
(changes the payment from money to property)
Dation in payment, whereby property is alienated to the creditor in satisfaction of a debt in money, shall be governed by the law of sales.
Requisites of Dation in Payment: 1. 2. 3. 4.
Concept A special kind of payment, where instead of money, property is given Onerous in nature, as the creditor still needs to liquidate said property in order to get the money Lacks the “Identity” element of payment o Not the exact thing intended as payment
Dation will not prejudice other creditors Consent of creditor Debtor is not declared judicially Insolvent Not a Pactum commissorium (a stipulation when the property is used as a security, where there is automatic appropriation by the creditor in case debtor fails to pay) [ DC I P ] Effects of Dation in Payment:
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OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
Specific properties
insolvency
Article 1245
-
Only to the extent of the price obtained
3. Creditor will collect credits in the order of preference agreed
-
Only possession and administration + authority to sell
2. Creditors do not own the properties
-
Cession / Assignment
« Jocel Isidro S. Dilag || UP Law A-2016 »
1. Obligation is extinguished 2. Dation is governed by the law of sales
Obligations || Extinguishment of Obligations || Payment or Performance «Tender of Payment and Consignation»
When Tender & Refusal is not required - Art. 1256
Tender of Payment and Consignation
1. When the creditor is absent or unknown, or does not appear at the place of payment; 2. When he is incapacitated to receive the payment at the time it is due; 3. When, without just cause, he refuses to give a receipt; 4. When two or more persons claim the same right to collect; 5. When the title of the obligation has been lost.
Tender of Payment Concept - Act of offering payment by the debtor to a creditor, coupled with demand from creditor, in order to satisfy the obligation o Refusal without just cause gives rise to the opportunity to consign payment o Desire to comply with the obligation must be present - Preparatory act to consignation - Extinguishment of obligation only happens after proper consignation
Two Notice Requirements 1st Notice:
Article 1257 (1)
Requisites of Tender of Payment:
In order that the consignation of the thing due may release the
1. Made in lawful currency 2. Should include interest 3. Must be unconditional
obligor, it must first be announced to the persons interested in the fulfillment of the obligation. -
Consignation -
Act of depositing the thing due by the debtor whenever the creditor cannot accept or refuses to accept payment The thing deposited must be at the disposal of judicial authorities PURPOSE: To avoid delay (mora)
-
-
Requisites of Consignation: 1. There is a Debt due 2. Consignation was made because of a Legal cause a. Creditor did not accept without just cause b. Creditor cannot accept payments 3. Prior Notice of Consignation (1st Notice) 4. Actual deposit / Consignation with Judicial authorities 5. Subsequent Notice of Consignation (2nd Notice) [ DL 1C2 ]
2nd Notice:
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OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
PURPOSE: To give creditors a chance to reconsider and accept payment CONTENTS: - Fact and date of tender and undue refusal - Intention to make deposit - Date and Hour to make the deposit - The Court where the deposit will be made Must be given to all interested parties
« Jocel Isidro S. Dilag || UP Law A-2016 »
Article 1258 (2) The consignation having been made, the interested parties shall also be notified thereof. -
PURPOSE: So that the creditor knows if he/she can already claim the item consigned to avoid deterioration of the thing
Obligations || Extinguishment of Obligations || Loss or Impossibility «Loss of the Thing Due»
Effects of Non-Compliance
Withdrawal by Debtor after proper consignation If the creditor authorizes the withdrawal of the thing consigned 1. Obligation is revived 2. Co-debtors, guarantors and sureties are released If the creditor does not authorize - Reverts back to the original condition
-
Article 1257 (2) The consignation shall be ineffectual if it is not made strictly in consonance with the provisions which regulate payment.
Effects of Consignation
-
Expenses of Consignation
Article 1259
Article 1260 (1)
The expenses of consignation, when properly made, shall be charged
Once the consignation has been duly made, the debtor may ask the
against the creditor.
judge to order the cancellation of the obligation.
1. Obligation is extinguished AND debtor is liberated - Creditor/Court accepts consignation 2. The debtor is released in the same manner as if he had performed the obligation at the time of consignation, because this produces the effect of a valid payment. 3. The accrual of interest on the obligation is suspended from the moment of the consignation. 4. The deteriorations/loss of a thing/amount consigned occurring without fault of the debtor must be borne by the creditor, because the risks of the thing are transferred to the creditor from the moment of deposit. 5. Any increment or increase in value of the thing after the consignation inures to the benefit of the creditor.
Loss or Impossibility Loss of the Thing Due Concept
Withdrawal by Debtor before proper consignation -
Debtor is still the owner and he may withdraw it (TLG V . F LORES ) Obligation remains in force Debtor bears all the expenses incurred because of the consignation
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OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
« Jocel Isidro S. Dilag || UP Law A-2016 »
Article 1189 (2) If the thing is lost through the fault of the debtor, he shall be obliged to pay damages; it is understood that the thing is lost when it: -
Perishes Goes out of commerce Disappears in such a way that its existence is unknown Cannot be recovered; Generally applies to determinate things
Obligations || Extinguishment of Obligations || Loss or Impossibility «Loss of the Thing Due»
Kinds of Loss
Effects of Loss
As to Extent 1. Total 2. Partial
In Obligations to Give a Specific Thing - Obligation shall be extinguished – Art. 1262 - If the debt is from the proceeds of a criminal offense - Will always be liable for the loss EXCEPT: i. If the receiver refuses without just cause – Art. 1268
Requisites of Loss 1. Without the fault of the debtor 2. Before the debtor incurs delay (mora) 3. After the obligation is constituted
In Obligations to Give a Generic Thing - Does not extinguish the obligation EXCEPT: - When the kind/class is limited in itself and the whole class perishes - The goods are made specific by segregation - Monetary obligations Art. 1263
Presumptions - Loss through the Debtor’s fault - If it was lost in the possession - Burden of proof: Debtor - Does not apply in case of: - Earthquake - Flood - Storm - Other natural calamity Art. 1265 -
In Case of Partial Loss
If through delay / debtor promising delivery to two/more persons who do not have the same interest - Debtor shall be responsible for any fortuitous event until he has effected delivery Art. 1165
Article 1264 The courts shall determine whether, under the circumstances, the partial loss of the object of the obligation is so important as to extinguish the obligation. -
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OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
« Jocel Isidro S. Dilag || UP Law A-2016 »
Provided that there was no fault/negligence on the debtor’s part Intention of the parties was the controlling factor in the solution of each case
Obligations || Extinguishment of Obligations || Loss or Impossibility «Impossibility»
Actions against 3rd Persons
Effects of Impossibility
Article 1269 The obligation having been extinguished by the loss of the thing, the creditor shall have all the rights of action which the debtor may have against third persons by reason of the loss. -
Pertains to rights, actions, benefits or indemnities the debtor may get from 3rd persons.
Impossibility Concept - Includes legal or physical impossibility and impracticability because of extreme difficulty Art. 1266 and 1267 Kinds of Impossibility As to Extent 1. Total 2. Partial As to Source 1. Legal 2. Physical Requisites of Impossibility 1. Without the fault of the debtor 2. Before the debtor incurs delay (mora) 3. After the obligation is constituted [ WBA ]
In Obligations to Do - Debtor is released when the prestation becomes legally/physically impossible (Impossibility) - Through fortuitous event / force majeure Art. 1266 - Debtor is released (partially/totally) when the performance has become so difficult to be manifestly beyond the contemplation of the parties (Difficulty) – Art. 1267 EXCEPT: - By law - By stipulation - When there is an assumption of risk Art. 1262 (2) by analogy - When there is partial impossibility, the courts can only extinguish the obligation NOT modify the contract - Art. 1264 Impossibility v. Difficulty - “Impossibility” = Inability to perform - “Difficulty” = Manifest disequilibrium in the prestation, such that one party would be placed at a disadvantage by the unforeseen event. Rules on Difficulty - Must be such neither part could have possibly anticipated it - Must be beyond the capacity of most people, not just the debtor - If performance would be dangerous to life and property, debtor is released - Inconvenience, unexpected impediments or increases in expenses are not excuses
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OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
« Jocel Isidro S. Dilag || UP Law A-2016 »
Obligations || Extinguishment of Obligations || Condonation or Remission «Concept»
Presumptions
Condonation or Remission Concept -
Article 1271 (1)
The gratuitous abandonment by a creditor of his right (Sanchez Roman) This is done without receiving anything in return, in effect extinguishing the obligation
The delivery of a PRIVATE DOCUMENT evidencing a credit, made voluntarily by the creditor to the debtor, implies the renunciation of the action which the former had against the latter. -
Kinds of Condonation/Remission As to Extent 1. Total 2. Partial As to Form – Art. 1270 (1) 1. Express 2. Implied
Article 1272 Whenever the PRIVATE DOCUMENT in which the debt appears is found in the possession of the debtor, it shall be presumed that the creditor delivered it voluntarily, unless the contrary is proved.
Requisites of Condonation/Remission 1. 2. 3. 4.
Capacity and Consent of Parties Object to be remitted Liberality as consideration Formalities required by law a. Both – At least comply with Rules on Inofficious Donations b. Implied Remissions – No other c. Express Remissions – Must comply further with Rules on Donations [ COLF ] - Art. 1270
Article 1274 It is presumed that the accessory obligation of pledge has been remitted when the thing pledged, after its delivery to the creditor, is found in the possession of the debtor, or of a third person who owns the thing.
Effects of Condonation/Remission -
Proof and Presumptions of Condonation/Remission Proof - Clearer and more convincing evidence than what is required to establish payment `_______________________________________________________________
OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
In order to nullify: - Should be claimed to be inofficious - Debtor and heirs to prove that the delivery was made by virtue of payment of the debt - Creditor to prove that it was for examination only
« Jocel Isidro S. Dilag || UP Law A-2016 »
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Extinguishes Totally/Partially the obligation In case of Joint/Solidary Obligations: - Affects only the share corresponding to the debtor receiving the condonation/remission Renunciation of the Principal Obligation also extinguishes the Accessory Obligations, but not the other way around – Art. 1273
Obligations || Extinguishment of Obligations || Confusion or Merger of Rights «Concept»
Confusion or Merger of Rights
Compensation
Concept
Concept
-
Meeting in one person of the qualities of creditor and debtor of the same obligation (Sanchez Roman) Erases the plurality of subjects in an obligation May be revoked, which would recreate the same condition before the merger happened
Article 1278 Compensation shall take place when two persons, in their own right, are creditors and debtors of each other. -
Requisites 1. It should take place between the Principal Debtor and Creditor 2. Very same obligation 3. Confusion must be Total or the whole obligation [ PVT ]
-
-
Obligation is extinguished Benefits the guarantors by releasing them, as they are accessories to the obligation – Art. 1276 In Joint obligations - Does not extinguish the whole obligation, but only to the share of the solidary creditor/debtor in whom the two characters concur – Art. 1277
Compensation
Only 1 obligation
At least 2 obligations
person
in
whom
the Two persons who are mutually
characters of the creditor and debtors and creditors of each debtor concur
other in two separate obligations
Kinds of Compensation As to Extent
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OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
Confusion One
Effects
Extinction in the concurrent amount of the obligations whose persons who are reciprocally debtors and creditors of each other (Castan) Offsetting of two obligations if they are of equal value or extinguishing only the concurrent amount
« Jocel Isidro S. Dilag || UP Law A-2016 »
1. Total - When the 2 debts are of the same amount – Art. 1281 2. Partial
Obligations || Extinguishment of Obligations || Compensation «Legal Compensation»
As to Origin 1. Legal 2. Conventional - Parties may agree to the compensation of the debts which are not yet due – Art. 1282 - The requisites for compensation need not apply 3. Judicial - Also called as “set-off”, must be pleaded and only effective by decision of the Court 4. Facultative - When one of the parties can choose to claim compensation or to object to it
1. Principal debtor and creditor a. Must be principal creditor/debtor and not just a guarantor, guardian, trustee or agent 2. Both debts must be of the Same kind a. Either both are sums of money, or same kind of thing (with same amount, if quantifiable) b. If quality was included, then both should be of the same quality 3. Debts are Due a. A thing is due when a suspensive condition or a period has been satisfied b. In pure obligations, a thing is due after the obligation was constituted 4. Debts are Liquidated and Demandable a. “Liquidated” = existence and amount are determinable b. “Demandable” = enforceable in court c. Not all debts that are Due are Demandable (e.g. Prescribed debts) 5. Should Not be subject of retention/controversy by third persons a. Must not have been waived b. Must be communicated in due time to debtor
Legal Compensation Requisites of Legal Compensation:
Article 1279 In order that compensation may be proper, it is necessary: (1) That each one of the obligors be bound Principally, and that he be at the same time a principal creditor of the other; (2) That both debts consist in a sum of money, or if the things due are consumable, they be of the Same kind, and also of the same quality if the latter has been stated; (3) That the two debts be Due; (4) That they be Liquidated and demandable; (5) That over Neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor.
Exception to Paragraph (1)
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OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
« Jocel Isidro S. Dilag || UP Law A-2016 »
Article 1280 Notwithstanding the provisions of the preceding article, the guarantor may set up compensation as regards what the creditor may owe the principal debtor.
Obligations || Extinguishment of Obligations || Compensation «When Compensation is not allowed»
Effects of Legal Compensation 1. Both debts are extinguished to the concurrent amount 2. Interest stops accruing on the amount extinguished 3. Period of prescription stops with respect to the amount extinguished 4. All accessory obligations of the principal which was extinguished are also extinguished 5. If a person has several debts that are susceptible of compensation, the rules on Application of Payments shall be applied
When Compensation is not allowed 1. 2. 3. 4.
Depositum (Art. 1287) Commodatum (Art. 1287) Support due by gratuitous title (Art. 1287) Civil liability arising from a penal offense (Art. 1288)
Effect of Nullity of debts to be compensated Article 1284 When one or both debts are rescissible or voidable, they may be compensated against each other before they are judicially rescinded or avoided.
Effects of Assignment of Credit Basic Rules: - Debtor needs to be notified for the assignment to have effect - If the assignment is made after the debts have been due and the other requisites under Art. 1279 concur, the assignment is ineffective due to legal compensation With Consent of Debtor GENERAL RULE: - Debtor who consented to the creditor’s assignment of rights to a third person cannot set up against the assignee (3rd person) the compensation that pertains to debtor-creditor UNLESS:
REASON: - The thing is given as a deposit/commodatum on the basis of confidence of the owner. That is why it is important that the depository/borrower performs the obligation, else the trust is broken.
Compensation of debts payable in different places Article 1286
-
At the time the debtor consented, he notified the creditor that he reserves his right to the compensation
With Knowledge but Without Consent of Debtor - Debtor may set up the compensation of debts (maturing) before the cession, but not subsequent ones
Compensation takes place by operation of law, even though the
Without Knowledge of Debtor
debts may be payable at different places, but there shall be an
Debtor may set up the compensation of all the credits prior to the assignment and also later ones until he had knowledge of the assignment - Art. 1285 REASON:
indemnity for expenses of exchange or transportation to the place of payment. -
NOTE: Legal Compensation only, other forms of compensation not covered
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OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
« Jocel Isidro S. Dilag || UP Law A-2016 »
-
-
To prevent one party from being fraudulently deprived of the benefits of compensation (Manresa)
Obligations || Extinguishment of Obligations || Novation «Concept»
-
Novation Concept Article 1291 Obligations may be modified by: (1) Changing their object or principal conditions; (2) Substituting the person of the debtor; (3) Subrogating a third person in the rights of the creditor. -
Requisites of Novation: 1. 2. 3. 4. 5.
The substitution/alteration of an obligation by a new one that cancels/modifies the old one (Manresa)
Kinds of Novation As to Effect 1. Total / Novation Proper 2. Partial / Improper Novation
Subjective / Personal - Change of debtor (Passive) i. Expromision ii. Delegacion - Subrogation of right of creditor to another (active) i. Conventional ii. Legal Subrogation An Old valid (or voidable but not yet void) obligation A New valid obligation A Substantial difference (aliquid novum) Capacity of the parties Intention to extinguish/modify (animus novandi)
Effects of Novation Extinctive Novation
As to Form 1. Express - Parties declare that there is novation 2. Implied - The old and new obligations are incompatible (cannot stand together)
1. The Old obligation is Extinguished and is replaced by the new one 2. Accessory obligations are also extinguished - But they may subsist insofar as they may benefit 3rd persons who did not consent to the novation – Art. 1296 - But the parties may agree that the said obligations shall not be affected, PROVIDED that the debtors of such obligations give their consent
As to Origin 1. Legal - E.g. Breach of a joint indivisible obligation – Art. 1224 2. Conventional
Modificatory Novation
As to Object - Objective / Real - Cause, object, principal obligations `_______________________________________________________________
OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
« Jocel Isidro S. Dilag || UP Law A-2016 »
1. The obligation remains, subject to the modification established 2. If the obligation becomes more onerous, the modification will not bind the sureties/guarantors, who stand on the original obligation, unless they consented
Obligations || Extinguishment of Obligations || Novation «Effect of the Status of the Original/New Obligation»
Effect of the Status of the Original/New Obligation Nullity/Voidability of Original Obligation -
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. – Art. 1298
Nullity/Voidability of New Obligation -
If the new obligation is void, the original shall subsist UNLESS the parties intended that the former relation should be extinguished in any event – Art. 1297
Suspensive/Resolutory Condition of Original Obligation -
If the original obligation was subject to a suspensive/resolutory condition, the new obligations shall be under the same condition UNLESS otherwise stipulated – Art. 1299
Objective / Real Novation -
Change in the object of the prestation, cause for its establishment or the principal conditions “Principal Conditions” = the conditions or terms of the obligation, when removed or changed, will make a substantial change in the fulfilment of the obligation
Subjective / Personal Novation -
Change in the active/passive subjects of an obligation
Change in the Active Subject (Debtor) 1. Expromision - Creditor allows a third person (new debtor) to substitute the old debtor Requisites of Expromision 1. Consent of the Creditor 2. Consent of the new debtor `_______________________________________________________________
OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
« Jocel Isidro S. Dilag || UP Law A-2016 »
Effects of Expromision - Old debtor is released - If done without the knowledge / against the will of the old debtor, Insolvency and Non-fulfillment of the obligation shall not give rise to any liability on the part of the old debtor – Art. 1294 2. Delegacion - Old debtor substitutes a third person to be the new debtor Requisites of Delegacion 1. Consent of the old debtor 2. Consent of the new debtor 3. Consent of the Creditor i. May be express or implied 1. But acceptance of payment is not necessarily consent ii. May be given at any time (not necessarily upon assent of new debtor) iii. If consent is conditional, there is no novation until the condition is complied with Effects of Delegacion - Old debtor is released - Insolvency of the new debtor shall not revive any action against the old debtor EXCEPT when he delegated the debt: i. The said insolvency was already existing AND ii. It is either of public knowledge OR known to the old debtor Art. 1295
Obligations || Extinguishment of Obligations || Novation «Subjective / Personal Novation»
Change in the Passive Subject (Creditor)
Effects of Subrogation
1. Conventional Subrogation - Takes place by agreement of the parties Requisites of Conventional Subrogation a. Consent of old creditor b. Consent of new creditor c. Consent of debtor
Article 1303 Subrogation transfers to the persons subrogated the credit with all the rights thereto appertaining, either against the debtor or against third person, be they guarantors or possessors of mortgages, subject to stipulation in a conventional subrogation.
Article 1304 Conventional Subrogation
Assignment of Credit
A creditor, to whom partial payment has been made, may exercise
Debtor’s Consent –Necessary
Debtor’s Consent – Not
his right for the remainder, and he shall be preferred to the person
Necessary
who has been subrogated in his place in virtue of the partial payment
Extinguished the old obligation
Right is preserved and only
of the same credit.
and gives rise to a new one
transferred to another person
Nullity of an old obligation may be Nullity is not remedied cured by a new valid obligation 2. Legal Subrogation - Not presumed, unless in cases enumerated in the Civil Code When is Legal Subrogation presumed? a. When a creditor pays another creditor who is preferred even without the knowledge of the debtor b. When a third person, not interested in the obligation, pays with the express/tacit approval of the debtor c. When a third person, interested in the fulfilment of the obligation, pays even without the knowledge of the debtor, without prejudice to the effects of confusion
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OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
« Jocel Isidro S. Dilag || UP Law A-2016 »
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Obligation is not yet extinguished until paid
Contracts || General Provisions || Definition «1. Obligatory Force»
Characteristics
Contracts
1. 2. 3. 4. 5.
Chapter 1: General Provisions Definition
1. Obligatory Force
Article 1305
Article 1159
A contract is a meeting of minds between two persons whereby one
Obligations arising from contracts have the force of law between the
binds himself, with respect to the other, to give something or to
contracting parties and should be complied with in good faith.
render some service. -
“Force of Law” - a party is bound by the stipulations in the contract, given that these are not contrary to law - a party may not remove himself from the fulfilment of the contract without the consent of the other party - the Court may not relieve any party from the contract unless provided by law or in the stipulation - Even if the contract is foolish, unwise or disastrous, it still must be upheld if entered into with all the required legal formalities and with full awareness.
It may be to create, modify or extinguish a juridical relation between parties Obligations arising from contracts have the force of law between the contracting parties
Elements 1. Essential elements - Without which, there can be no contract a. Consent b. Object c. Causa 2. Natural elements - Presumed to exist unless the contrary is stipulated 3. Accidental elements - Will only exist when they are stipulated
2. Mutuality Article 1308 The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them. -
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OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
Obligatory Force Mutuality Relativity Consensuality Freedom
« Jocel Isidro S. Dilag || UP Law A-2016 »
Also the fixing of the price can never be left to the discretion of the contracting parties - Acceptance by the other is required to perfect the sale – Art. 1473
Contracts || General Provisions || Characteristics «»
2. Strangers are adversely affected by a contract in which they did not intervene - Insolvency law states that the creditors are bound by the contracts of the majority - In collective labor contracts/bargains - In negotiorum gestio, the owner is bound by the contracts entered by the gestor - In contracts creating real rights, third persons who come into possession of the object of the contract, are bound thereby, subject to the provisions of the Mortgage Law and Land Registration Law - In contracts creating status, the resulting status must be respected while the contract is in force (marriage, incorporation, etc.) 3. But creditors may rescind the contracts intended to defraud them although they did not intervene therein. – Art. 1313 4. Strangers must respect the effects of the contract on the contracting parties 5. In case of conflicting rights, the one who contracted/acted with knowledge of the prior rights of another, is deemed in bad faith, and is not protected by law.
EXCEPTION: -
rd
The determination of the performance may be left to a 3 person whose decision shall not be binding UNTIL the decision has been made known to both contracting parties - If the obligation is inequitable, the determination is not obligatory - In such a case, the courts shall decide what is equitable under the circumstances Arts. 1309 and 1310
3. Relativity -
GENERAL RULE: - No one may contract in the name of another without being authorized by the latter, or unless he has by law a right to represent him – Art. 1317 - Contracts take effect between the parties, their assigns and heirs - Heir is not liable beyond the value of the property he inherited - EXCEPTIONS: - When the rights and obligations arising from the contract are not transmissible by their nature, stipulation or law Art. 1311
4. Consensuality Article 1315
Rules on strangers: 1. Strangers may enforce the contract in their favour - When stipulated (pour autrui) - When the statute allows the creditor to sue on his debtor’s contract (accion directa), like: i. Lessors v. Sublessee ii. Laborers of a contractor suing the owner of the work – Art. 1729
Contracts are perfected by mere consent, and from that moment the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law. Exceptions to the General Rule above:
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OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
« Jocel Isidro S. Dilag || UP Law A-2016 »
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When the law requires some other certain formality in addition to consent to make it binding
Contracts || General Provisions || Parties «5. Freedom»
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E.g. Real contracts (deposit, pledge, commodatum) needs delivery to perfect them
Special Disqualifications
Article 1491
5. Freedom
The following persons cannot acquire by purchase, even at a public
Article 1306 The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy.
Parties Auto-Contracts -
Contracts that are entered into by the same person acting in different capacities or patrimonies These are generally valid - Existence of the contract is not dependent on how many persons there are but the number of parties.
Freedom to Contract -
See Art. 1306 above
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OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
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or judicial auction, either in person or through the mediation of another: (1) The guardian, the property of the person or persons who may be under his guardianship; (2) Agents, the property whose administration or sale may have been entrusted to them, unless the consent of the principal has 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 or 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; (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. (6) Any others specially disqualified by law.
Contracts || General Provisions || Parties «What they may not stipulate»
b. Pactum leonina
Article 1782 Persons who are prohibited from giving each other any donation or
Article 1799
advantage cannot enter into universal partnership.
A stipulation which excludes one or more partners from any share in the profits or losses is void.
Article 87 – Family Code Every donation or grant of gratuitous advantage, direct or indirect,
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between the spouses during the marriage shall be void, except moderate gifts which the spouses may give each other on the occasion of any family rejoicing. The prohibition shall also apply to persons living together as husband and wife without a valid marriage.
The husband and the wife cannot sell property to each other, except: (1) When a separation of property was agreed upon in the marriage settlements; or (2) When there has been a judicial separation or property under Article 191.
What they may not stipulate 1. Contrary to Law a. Pactum commissorium
Article 2088 The creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of them. Any stipulation to the contrary is null and void. -
Automatic foreclosure of a mortgage or pledge
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OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
c. Pactum de non alienado
Article 2130 A stipulation forbidding the owner from alienating the immovable mortgaged shall be void. -
Article 1490
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One party bearing a lion’s share of the profits/losses
Inability to alienate owned immovable
2. Contrary to morals - Universal or community notion of right and wrong 3. Contrary to good customs - Societal understanding of what they want or do not want 4. Contrary to public order - Consideration of the public weal, peace, safety and health of the community 5. Contrary to public policy - A contract is contrary to public policy if it has a tendency to injure the public, is against the public good, or contravenes some established interest of society, or tends clearly to undermine the security of tenure (G ABRIEL V . M ONTE DE P IEDAD )
Contracts || General Provisions || Classification «According to Subject Matter»
Classification
According to perfection 1. By mere consent 2. By the delivery of the object
According to Subject Matter 1. Things/Goods 2. Services
According to its relation to other contracts, degree of dependence
According to Name 1. Nominate - Contracts that have a particular name (Deed of Absolute Sale, etc.) 2. Innominate - Contracts not falling under any of the special provisions of law
1. Preparatory 2. Principal 3. Accessory
According to Form 1. Common / Informal 2. Special / Formal
Article 1307 Innominate contracts shall be regulated by the stipulations of the parties, by the provisions of Titles I and II of this Book, by the rules
According to purpose 1. Transfer of Ownership 2. Conveyance of Use 3. Rendition of Service
governing the most analogous nominate contracts, and by the customs of the place.
Do ut des
I give and you give
Do ut facias
I give and you do
Facio ut des
I do and you give
Facio ut facias
I do and you do
According to the nature of the vinculum, nature of the obligation produced 1. Unilateral 2. Bilateral 3. Reciprocal
According to Cause 1. Onerous 2. Gratuitous / Lucrative
According to Risk 1. Commutative 2. Aleatory `_______________________________________________________________
OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
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Contracts || General Provisions || Stages of Contracts «Stipulations in favor of third persons (stipulation pour autrui)»
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Stages of Contracts 1. Preparation - Negotiation period, ending at the time when the parties agree 2. Perfection - Starts when the parties agree or give their consent to the details / terms 3. Consummation - A contract is consummated when all the obligations therein are complied with, or when certain conditions give rise to its death
Stranger needs to communicate his acceptance to the obligor before its revocation - Must be conferred clearly and deliberately - A mere incidental benefit/interest is not sufficient - The stipulation in favour of the stranger must only be a part of the contract - No relation of agency exists between any of the parties and the stranger (Manresa) Requisites of a stipulation pour autrui
Differences between a contract, perfected promise and an imperfect promise (policitation) Contract
Perfect
Imperfect
Consent is given
An offer but lacking
A mere invitation to
by both parties
consent (terms are clear) offer (advertisement)
1. The stipulation is only party of the contract 2. The favorable stipulation is not conditioned or compensated by any kind of obligation 3. Neither contracting parties have legal representation nor authorization of the third person 4. Benefit was clearly and deliberately conferred 5. Third person communicated his acceptance before revocation 6. Possession of the object of the contract by third persons
Article 1312
With respect to third persons Stipulations in favor of third persons (stipulation pour autrui)
In contracts creating real rights, third persons who come into possession of the object of the contract are bound thereby, subject to the provisions of the Mortgage Law and the Land Registration Laws.
Article 1311 (2) If a contract should contain some stipulation in favor of a third person, he may demand its fulfillment provided he communicated his acceptance to the obligor before its revocation. A mere incidental benefit or interest of a person is not sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a third person.
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OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
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Contracts || Essential Requisites of Contracts || Interference by Third Persons «Creditors of the Contracting parties»
Creditors of the Contracting parties
Chapter 2:
Article 1313 Creditors are protected in cases of contracts intended to defraud
Essential Requisites of Contracts Article 1318
them. -
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Presumption of fraudulent alienation when the debtor alienates his properties, leaving less than his current indebtedness – Art. 1387 Creditor may ask for rescission of contracts through accion pauliana – Art. 1171 & 1381
There is no contract unless the following requisites concur: (1) Consent of the contracting parties; (2) Object certain which is the subject matter of the contract; (3) Cause of the obligation which is established.
Consent Requisites of Consent
Interference by Third Persons
1. Must be manifested by the concurrence of the offer and acceptance 2. Necessary legal capacities of the parties 3. The consent must be intelligent, free, spontaneous and real
Article 1314 Any third person who induces another to violate his contract shall be liable for damages to the other contracting party. -
But the liability of the third person must not be greater than that of the party to the contract (D AYWALT V . R ECOLETOS ) Malice is not essential to hold the third person liable.
1. Must be manifested by the concurrence of the offer and acceptance
OFFER
Requisites of Tortuous Interference 1. Existence of a valid contract 2. Knowledge by a third person of the existing contract 3. Interference by the third person is without legal justification
Article 1319 (1) Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes a counter-offer. -
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OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
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DEFINITE: The parties understand the terms being offered INTENTIONAL: Offer is given with the intent to enter into the contract (statements in jest not binding) COMPLETE: The cause and the object are both present in the offer, such that it would be binding upon acceptance
Contracts || Essential Requisites of Contracts || Consent «Requisites of Consent»
Article 1321
Article 1326
The person making the offer may fix the time, place, and manner
Advertisements for bidders are simply invitations to make
of acceptance, all of which must be complied with.
proposals, and the advertiser is not bound to accept the highest or lowest bidder, unless the contrary appears.
Article 1322 An offer made through an agent is accepted from the time acceptance is communicated to him. -
ACCEPTANCE Article 1319 (1)
Offers through agents are valid
Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract.
Article 1323
The offer must be certain and the acceptance absolute. A qualified
An offer becomes ineffective upon the death, civil interdiction,
acceptance constitutes a counter-offer.
insanity, or insolvency of either party before acceptance is conveyed.
Circumstances when offer becomes ineffective 1. Upon rejection by the offeree 2. Upon incapacity by either parties a. Death b. Civil interdiction c. Insanity d. Insolvency 3. Upon counter-offer (qualified / conditional acceptance) 4. Upon lapse of the time stated in the offer 5. Upon revocation of the offer before learning of the acceptance 6. Upon supervening illegality before acceptance
Requisites of Acceptance 1. Unqualified and Unconditional - Must conform with the terms of the offer 2. Communicated to the offeror and learned by him Kinds of Acceptance
Examples of Imperfect Promise (author’s perspective)
Article 1325 Unless it appears otherwise, business advertisements of things for sale are not definite offers, but mere invitations to make an offer. `_______________________________________________________________
OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
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1. Qualified - Counteroffer or Conditional Acceptance 2. Express 3. Implied - By executing an act that is required by the offer that would signify acceptance
Contracts || Essential Requisites of Contracts || Consent «Requisites of Consent»
Contract of Option
Article 1319 (2)
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Acceptance made by letter or telegram does not bind the offeror except from the time it came to his knowledge. The contract, in such a case, is presumed to have been entered into in the place where the offer was made.
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Theories when a contract is perfected 1. Manifestation Theory - The contract is perfected from the moment the acceptance is declared or made 2. Expedition Theory - The contract is perfected from the moment the offeree transmits the notification of acceptance to the offeror 3. Reception Theory - The contract is perfected from the moment that the notification of acceptance is in the hands of the offeror 4. Cognition Theory - The contract is perfected from the moment the acceptance comes to the knowledge of the offeror. (Philippines)
2. Necessary legal capacities of the parties Who cannot give consent?
Period of Acceptance When the offeror 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.
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Offer must be accepted within the period, or else, acceptance becomes a counter-offer If there is no period fixed by the offeror, acceptance should be made immediately within a reasonable tacit period
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OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
Article 1244 (1) The following cannot give consent to a contract: (1) Unemancipated minors; (2) Insane or demented persons, and deaf-mutes who do not know how to write.
Article 1329 The incapacity declared in Article 1327 is subject to the modifications determined by law, and is understood to be without prejudice to special disqualifications established in the laws. -
Article 1324
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A kind of preparatory contract, where the offeror grants the offeree the power to decide whether or not to accept the offer to enter into a principal contract, within a particular period and manner of acceptance. Consideration is important only insofar as the ability of the offeror to withdraw the offer
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Civil Interdiction only allows transactions inter vivos – Art. 34 RPC Undischarged Insolvents cannot make payments – Sec. 24 Insolvency Law Husband and Wife cannot donate or sell property to each other EXCEPT moderate gifts – Art. 87 FC Those prohibited by law to purchase: - Guardians WRT property of his ward - Agents WRT property of the principal - Executors and Administrators WRT property under administration
Contracts || Essential Requisites of Contracts || Consent «Requisites of Consent»
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Public Officers WRT property of the State under their administration - Justices, judges, prosecutors, clerks of courts, lawyers WRT property attached or in litigation Art. 1491 When offer and/or acceptance is made: - During a lucid interval VALID - In a state of drunkenness VOIDABLE - During a hypnotic spell VOIDABLE
Kinds of Vices of Consent 1. 2. 3. 4. 5.
Mistake or Error Violence and Intimidation Undue Influence Fraud or dolo Misrepresentation
Mistake or Error Article 1331 In order that mistake may invalidate consent, it should refer to the
Other instances where minor’s consent is Valid - Contracts for necessaries, enforceable against those who are duty bound to support the minor - When a minor is in estoppel to urge his minority, through his misrepresentation, provided the other party is not negligent.
substance of the thing which is the object of the contract, or to
3. The consent must be intelligent, free, spontaneous and real
vitiate consent only when such identity or qualifications have been
those conditions which have principally moved one or both parties to enter into the contract. Mistake as to the identity or qualifications of one of the parties will the principal cause of the contract.
Article 1330 A contract where consent is given through mistake, violence,
A simple mistake of account shall give rise to its correction.
intimidation, undue influence, or fraud is voidable.
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VICES OF CONSENT Vices of consent consist in circumstances affecting adversely the
Requisites of Mistake/Error to vitiate consent
determination of a party to enter into a contract, and rendering the contract subject to annulment.
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OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
The inadvertent and excusable disregard of a circumstance material to the contract
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1. Not intentional nor negligent 2. Excusable, without failure to take advantage of the opportunity to ascertain the truth 3. Mistake of Fact, not of Law 4. Past or Present, but non-realization of expectation is not error 5. Must refer to factors inducing consent (Material to the contract)
Contracts || Essential Requisites of Contracts || Consent «Requisites of Consent»
Kinds of Mistake/Error
EXCEPT:
1. Mistake of Fact a. Error in substantia As to substance of the object
Article 1334 Mutual error as to the legal effect of an agreement when the real purpose of the parties is frustrated, may vitiate consent.
I wanted a rooster, I consented to a hen
b. Error in corpore As to identity of the object I wanted horse A, I consented to horse B
c. Error in negotio As to nature of the transaction I wanted to lease, I consented to sell
d. Error in qualitate As to principal qualities of the object I wanted a black horse; I consented to a gray horse
e. Error in quantitate As to quantity, as distinguished from a simple mistake of account, which is correctable f.
Mutual Error of Law - This is different from failure to express correctly the common intention Requisites of Mutual Error of Law 1. Error must be as to the legal effect of an agreement 2. Must be mutual 3. Real purpose is frustrated
Article 1332
I wanted 30 ha, I consented to 10 ha vis-à-vis mistake in computations
When one of the parties is unable to read, or if the contract is in a
Error in persona As to identity or qualifications of one of the parties
the person enforcing the contract must show that the terms thereof
I wanted experienced painters, I consented to amateur painters
language not understood by him, and mistake or fraud is alleged, have been fully explained to the former. -
g. As to principal conditions of the contract -
2. Error of Law
Article 3 Ignorance of the law excuses no one from compliance therewith.
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OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
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Must allege first that there was mistake/fraud through the contracting party’s inability to read / understand the language of the contract Burden of proof = the person enforcing
Contracts || Essential Requisites of Contracts || Consent «Requisites of Consent»
Duress:
Article 1333
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There is no mistake if the party alleging it knew the doubt, contingency or risk affecting the object of the contract. -
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There is inexcusable mistake when the following are present: o The contracting party alleging the error knew of the mistake, or had doubts and did not exercise ordinary diligent examination of the facts o Knowledge of the contingency or risk affecting the object of the contract But the courts will also consider the subjective aspect of the case, e.g. intellectual capacity of the party who made the mistake
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The degree of constrain/danger INFLICTED (violence) or THREATENED & IMPENDING (intimidation) sufficient to overcome the mind and will of an ordinary person Seriousness is measured objectively (degree of harm) and subjectively (effect on a person’s mind and will depending on his personal circumstances and relation to the other party)
Violence: -
Violence or Intimidation
Physical Force Must be external and inflicted upon the person Requisites: o Serious or Irresistible force o Party has no other course but to submit o Such force is the determining cause in giving of the consent
Article 1335 There is violence when in order to wrest consent, serious or irresistible
Intimidation: -
force is employed. There is intimidation when one of the contracting parties is compelled by a reasonable and well-grounded fear of an imminent and grave evil upon his person or property, or upon the person or property of his spouse, descendants or ascendants, to give his consent. To determine the degree of intimidation, the age, sex and condition of the person shall be borne in mind. A threat to enforce one's claim through competent authority, if the claim is just or legal, does not vitiate consent.
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Moral force or compulsion Internal, operating within the mind and will of the party, forcing the party to choose between the injury and the contract Requisites: o Reasonable and well-grounded fear o Imminent and serious injury to the person/property of: The party His spouse His descendants/ascendants, legit/illegitimate o Threat must constitute an actionable wrong (unjust/unlawful) o Intimidation must be the determining cause of the contract * The author of the threat must have the capacity/ability/means to inflict the injury, and such injury must be a greater evil than the choosing of the contract
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OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
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Contracts || Essential Requisites of Contracts || Consent «Requisites of Consent»
Effect of Violence or Intimidation
Circumstances to be considered -
Article 1336 Violence or intimidation shall annul the obligation, although it may have been employed by a third person who did not take part in the contract.
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Undue Influence Article 1337
Undue Influence
There is undue influence when a person takes improper advantage
No unjust/unlawful act
of his power over the will of another, depriving the latter of a reasonable freedom of choice. The following circumstances shall be considered: the confidential, family, spiritual and other relations
Article 1338 There is fraud when, through insidious words or machinations of
ignorant or in financial distress.
one of the contracting parties, the other is induced to enter into a contract which, without them, he would not have agreed to.
Undue Influence Any improper means employed by a party because of his relationship to another, that deprived the latter of reasonable freedom of choice Interferes with the independence of the party, necessary for the determination of the advantages and disadvantages of the contract
Requisites of Fraud 1. Misrepresentation or concealment of a fact 2. Intention to defraud 3. A statement that is untrue 4. Knowledge of the falsehood 5. Reliance upon the false statement 6. Materiality of the statement to the consent 7. Commission by one party only
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OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
Act must be unlawful/unjust
Fraud or Dolo
unduly influenced was suffering from mental weakness, or was
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Intimidation Moral coercion
between the parties, or the fact that the person alleged to have been
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Confidential relations Family relations Spiritual relations Other relations Suffering from any infirmity (mental weakness, ignorance or financial distress) There is a degree of disparity in bargaining position (M ARTINES V . H ONGKONG B ANK )
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Contracts || Essential Requisites of Contracts || Consent «Requisites of Consent»
Kinds of Fraud
Mere expression of an opinion
1. Dolo causante o Party would have not consented, if not for the fraud 2. Dolo incidente o Party would have still agreed, but to different terms Failure to disclose facts; duty to reveal them
Article 1339 Failure to disclose facts, when there is a duty to reveal them, as when the parties are bound by confidential relations, constitutes fraud. -
+GENERALLY, concealment/silence does not constitute fraud There must either be: o A confidential relation (that leads to the duty to disclose) o A plain duty to disclose/reveal facts o According to good faith and usages of commerce the communication should have been made
Article 1341 A mere expression of an opinion does not signify fraud, unless made by an expert and the other party has relied on the former's special knowledge. GENERAL RULE: - Opinions do not constitute fraud UNLESS: - IF MADE BY AN EXPERT, and the other party relied on the expert opinion, then it constitutes fraud Effects of Fraud
Article 1344 In order that fraud may make a contract voidable, it should be serious and should not have been employed by both contracting parties.
Usual exaggerations in trade; opportunity to know the facts
Incidental fraud only obliges the person employing it to pay
Article 1340
damages.
The usual exaggerations in trade, when the other party had an
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opportunity to know the facts, are not in themselves fraudulent.
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Tolerated Fraud / Lawful misrepresentation (dolus bonus) as long as there is no malice/bad faith Caveat emptor (Let the buyer beware) o Principle stating the importance of the buyer’s diligence If the facts were being prevented from examination, then there would be fraud
Burden of Proof - GENERALLY, to the one alleging the fraud Error v. Fraud - Fraud is error induced
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OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
Dolo causante o VOIDABLE Dolo incidente o INDEMNITY FOR DAMAGES
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Contracts || Essential Requisites of Contracts || Consent «Requisites of Consent»
Misrepresentation
Simulation of Contracts
By a Third Person
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Article 1342
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Misrepresentation by a third person does not vitiate consent, unless such misrepresentation has created substantial mistake and the same is mutual.
Requisites of Simulation 1. Declaration different from the true will 2. Agreement of the parties to create the appearance of a valid act 3. Purpose of deceiving third persons
GENERAL RULE: - Fraud by third person does not vitiate consent UNLESS: -
If 3rd person connives, he becomes an accomplice (Contract is VOIDABLE) If 3rd person leads them to commit mutual error (Contract is VOIDABLE)
Kinds of Simulated Contracts
Article 1345 Simulation of a contract may be absolute or relative. The former takes place when the parties do not intend to be bound at all; the
Made in good faith
latter, when the parties conceal their true agreement.
Article 1343 Misrepresentation made in good faith is not fraudulent but may
ABSOLUTE SIMULATION -
constitute error.
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Active/Passive -
Applicable to legal capacity especially age “Active Misrepresentation” = intent is manifested through actions or use of words “Passive Misrepresentation” = knew of the misrepresentation but concealed the fact from the other
No real transaction was intended o Thus no meeting of the minds because there is no consent Contract is VOID
RELATIVE SIMULATION
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Entering into a contractual relation, with the intent to deceive third persons of the validity of a juridical act. The parties usually conceal their true intent, thus producing either a void or correctable contract.
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The real intent of the contracting parties is hidden/distorted O There is a meeting of the minds, but the true intent is not shown on the contract (paper) Contract is VOID but the hidden contract is VALID if: O The essential requisites are present O It does not injure a third person O It is not contrary to law, morals, good customs, public order or public policy
Contracts || Essential Requisites of Contracts || Object of Contracts «Requisites»
All things not intransmissible
Article 1346
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An absolutely simulated or fictitious contract is void. A relative simulation, when it does not prejudice a third person and is not intended for any purpose contrary to law, morals, good customs, public order or public policy binds the parties to their real agreement.
Personal rights are intransmissible
All services not contrary to law, morals, good customs, public order and public policy
What may not be the objects of contracts -
Object of Contracts -
The thing or service which is the subject-matter of a contract
Requisites
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Article 1349 The object of every contract must be determinate as to its kind. The fact that the quantity is not determinate shall not be an obstacle to the existence of the contract, provided it is possible to determine
Cause of Contracts Article 1350
the same, without the need of a new contract between the parties.
In onerous contracts the cause is understood to be, for each
What may be the objects of contracts?
contracting party, the prestation or promise of a thing or service by the
The thing, right or service must be: 1. Lawful 2. Actual/Possible 3. Transmissible (within the commerce of men) 4. Determinate/Determinable
other; in remuneratory ones, the service or benefit which is remunerated; and in contracts of pure beneficence, the mere liberality of the benefactor. Cause
All things not outside the commerce of men - All those things that are not restricted by law or stipulation from alienation or free exchange - Future things can be the subject of contracts, as they may be made, raised or acquired by the obligor after the perfection of the contract. `_______________________________________________________________
OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
Future inheritance may be the subject of contracts only if they are provided by law – Art. 1347 o Partition inter vivos by the decedent - Art. 1030 o Marriage settlements Impossible things or services – Art. 1348 o Impossibility must be actual and contemporaneous Not temporary impossibility Before perfection of contract
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The ‘Why?’ of a contract The essential reason for entering into a contract
Article 1351 The particular motives of the parties in entering into a contract are different from the cause thereof.
Contracts || Essential Requisites of Contracts || Cause of Contracts «Defective Causes and their Effects»
Cause
Motive
Objective, intrinsic and juridical
Psychological, personal and
reason for the existence of the
individual purpose for entering a
contract
contract
Controlling motive / essential
Particular motive / reason
Defective Causes and their Effects
reason Necessarily known to both parties Not necessarily known to both
Article 1352 Contracts without cause, or with unlawful cause, produce no effect whatever. The cause is unlawful if it is contrary to law, morals, good customs, public order or public policy. -
parties GENERAL RULE: - Motive does not affect the validity of the contract. EXCEPTIONS: 1. When the motive of a debtor in alienating property is to defraud his creditors, alienation is rescissible 2. When the motive of a person in giving his consent is to avoid a threatened injury, in case of intimidation the contract is voidable. 3. When the motive of a person induced him to act on the basis of fraud or misrepresentation by the other party, the contract is likewise voidable.
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Existence of cause is only important at the perfection of the contract o UNLESS required to be present through the whole obligation by law Cause for principal contracts are also the cause in accessory contracts
Article 1353 The statement of a false cause in contracts shall render them void, if it should not be proved that they were founded upon another cause which is true and lawful. -
If there is a real cause behind the false cause, contract will be VALID
Requisites of Causa 1. Present 2. Lawful 3. True
Article 1355 Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a contract, unless there has been fraud, mistake or undue influence.
Article 1354 Although the cause is not stated in the contract, it is presumed that it exists and is lawful, unless the debtor proves the contrary.
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OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
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Contracts || Form of Contracts || General Rule: «Defective Causes and their Effects»
Effect of Illegality of Contract / Causa on the Parties
Form of Contracts
One Party is Innocent -
Chapter 3:
He cannot be compelled to perform He may recover what he has given Guilty party may not enforce or recover
General Rule: Article 1356 Contracts shall be obligatory, in whatever form they may have been
Both Parties are guilty -
entered into, provided all the essential requisites for their validity
If the act constitutes a crime, both parties shall have no action against each other (in pari delicto) Neither may demand performance or recover what they have given
Arts. 1411 and 1412
are present. -
Spiritual System of the Spanish Civil Code “Obligatory” = valid between the parties
Exception: Article 1356 However, when the law requires that a contract be in some form in order that it may be valid or enforceable, or that a contract be proved in a certain way, that requirement is absolute and indispensable. In such cases, the right of the parties stated in the following article cannot be exercised.
Kinds of Formalities required by Law Article 1357 If the law requires a document or other special form, as in the acts and contracts enumerated in the following article, the contracting parties may compel each other to observe that form, once the contract has been perfected. This right may be exercised simultaneously with the action upon the contract.
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OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
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Contracts || Form of Contracts || Kinds of Formalities required by Law «Defective Causes and their Effects»
For Validity (Ad esentia / Ad solemnitatem)
Article 1358 The following must appear in a public document: (1) Acts and contracts which have for their object the creation, transmission, modification or extinguishment of real rights over immovable property; sales of real property or of an interest therein a governed by Articles 1403, No. 2, and 1405; (2) The cession, repudiation or renunciation of hereditary rights or of those of the conjugal partnership of gains; (3) The power to administer property, or any other power which has for its object an act appearing or which should appear in a public document, or should prejudice a third person; (4) The cession of actions or rights proceeding from an act appearing in a public document. All other contracts where the amount involved exceeds five hundred pesos must appear in writing, even a private one. But sales of goods, chattels or things in action are governed by Articles, 1403, No. 2 and 1405.
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OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
« Jocel Isidro S. Dilag || UP Law A-2016 »
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Action to compel observance of form will not lie Without the document evidencing the contract, the following contracts or obligations will not be valid and binding between the parties Art. 748 Art. 749 Art. 1874 Art. 2134 Art. 1744 Art. 1771
Donation of movable Donation of immovable Sale of piece of land through an agent Contract of antichresis Limiting liability of carriers Partnership: contribution of immovable property & real rights Art. 1773 Partnership: Inventory of immovable property Art. 1956 Interest for using someone else’s money Art. 2140 Chattel mortgage 1. To affect third persons - The following must be in public instruments: o Acts and contracts who have for their object the creation, transmission, modification or extinguishment of real rights over immovable property o Sales of real property or of an interest therein o The cession, repudiation and renunciation of hereditary rights or those of the CPG o Power to administer property o Cession of actions or rights proceeding from an act appearing in a public document o Those contracts where the amount involved exceeds 500 pesos, private writing is enough
Contracts || Reformation of Instruments || Requisites «Defective Causes and their Effects»
2. To prove existence (Ad probationem) - Those required for the purpose of proving the existence of the contract, such as those under the Statute of Frauds in Art 1403
Chapter 4: Reformation of Instruments
Comparative Table Formal
-
Real Contracts Unenforceable
Contracts
All Others
Contracts
Not binding
Not binding
Binding on parties
Binding even if
until formality is
until delivered
even if oral
oral
Not enforceable
Not enforceable
Not enforceable
Can be
by action if
if there is no
without memorandum
enforced
formality is not
delivery
in writing UNLESS no
between
timely objection was
parties
-
observed
observed
-
Requisites
made Cannot sue to
Unnecessary to
Cannot sue to compel
Can sue to
compel
sue to compel
observance of form if
compel
observance of
observance of
objection was properly
observance of
form
form if delivered
made
form
Concept: Reformation is the remedy in equity, where a written instrument is made to conform/express the real intention of the parties when there was some error or mistake in creating the instrument Rationale: It would be unjust and inequitable to allow the enforcement of a written instrument which does not reflect the real meeting of the minds of the parties What is reformed is not the contract but the written instrument
Article 1359 When, there having been a meeting of the minds of the parties to a contract, their true intention is not expressed in the instrument purporting to embody the agreement, by reason of mistake, fraud, inequitable conduct or accident, one of the parties may ask for the reformation of the instrument to the end that such true intention may be expressed. If mistake, fraud, inequitable conduct, or accident has prevented a meeting of the minds of the parties, the proper remedy is not reformation of the instrument but annulment of the contract. 1. Meeting of the minds upon the contract 2. True intention not expressed in the instrument 3. Failure to express is due to mistake, fraud, inequitable conduct or accident
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OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
« Jocel Isidro S. Dilag || UP Law A-2016 »
Contracts || Reformation of Instruments || Cases where No Reformation is Allowed «Defective Causes and their Effects»
Mistake
Relative Simulation
Article 1361
Article 1365
When a mutual mistake of the parties causes the failure of the
If two parties agree upon the mortgage or pledge of real or
instrument to disclose their real agreement, said instrument may be
personal property, but the instrument states that the property is
reformed.
sold absolutely or with a right of repurchase, reformation of the
-
Fraud and Inequitable Conduct
Article 1362 If one party was mistaken and the other acted fraudulently or inequitably in such a way that the instrument does not show their true intention, the former may ask for the reformation of the instrument. -
Active Fraud
Article 1363 When one party was mistaken and the other knew or believed that the instrument did not state their real agreement, but concealed that fact from the former, the instrument may be reformed. -
instrument is proper.
Mutual mistake Unilateral mistake is also accepted, if the other acted with fraud
Recap of Causes of Reformation 1. Mutual Mistake o Mutual o Mistake of fact o Clear and convincing proof o Failure to express true intention 2. Unilateral Mistake o One party is mistaken o Other party defrauded actively/passively 3. Mistake by 3rd persons o Only through ignorance, lack of skill, negligence or bad faith of drafter, typist or clerk 4. Others specified by law
Cases where No Reformation is Allowed Article 1366
Passive Fraud
There shall be no reformation in the following cases:
Accident
Article 1364 When through the ignorance, lack of skill, negligence or bad faith on the part of the person drafting the instrument or of the clerk or typist, the instrument does not express the true intention of the parties, the courts may order that the instrument be reformed. `_______________________________________________________________
OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
« Jocel Isidro S. Dilag || UP Law A-2016 »
(1) Simple donations inter vivos wherein no condition is imposed; (2) Wills; (3) When the real agreement is void.
Contracts || Interpretation of Contracts || Implied Ratification «Defective Causes and their Effects»
Simple donations Wills -
RATIONALE: Acts of liberality cannot be compelled
RATIONALE: A free and personal act, which is revocable by testator, which cannot be compelled. Moreso if the testator already died Real Agreement is void - RATIONALE: No contract to reform Oral Contracts - RATIONALE: No written instrument to reform
Chapter 5: Interpretation of Contracts (Compare with Rules on Statutory Construction)
Primacy of Intention
Article 1367 When one of the parties has brought an action to enforce the instrument, he cannot subsequently ask for its reformation.
parties, the latter shall prevail over the former.
understood to comprehend things that are distinct and cases that are different from those upon which the parties intended to
Reformation may be ordered at the instance of either party or his successors in interest, if the mistake was mutual; otherwise, upon petition of the injured party, or his heirs and assigns. If mistake is mutual: o Either party or successors-in-interest Else, innocent party
Procedure of Reformation Article 1369 The procedure for the reformation of instrument shall be governed by rules of court to be promulgated by the Supreme Court. `_______________________________________________________________
OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
If the words appear to be contrary to the evident intention of the
However general the terms of a contract may be, they shall not be
Article 1368
-
intention of the contracting parties, the literal meaning of its
Article 1372
Principle of estoppel
Who may Ask for Reformation
-
If the terms of a contract are clear and leave no doubt upon the stipulations shall control.
Implied Ratification
-
Article 1370
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agree. -
Intent of the parties must always come first o This intent must be literally derived from the word of the contract, if they may be clear and leaves no doubt o Absence of averment or proof of mistake is needed
Contracts || Interpretation of Contracts || How to Determine Intention «Doubtful Clauses»
When it contains ambiguities and omission of stipulations
How to Determine Intention Article 1371
Article 1376
In order to judge the intention of the contracting parties, their
The usage or custom of the place shall be borne in mind in the
contemporaneous and subsequent acts shall be principally
interpretation of the ambiguities of a contract, and shall fill the
considered.
omission of stipulations which are ordinarily established.
-
With respect to the party who caused the obscurity
Take note the usage and customs of the place
Article 1377
How to Interpret a Contract
The interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity.
Doubtful Clauses When it contains stipulations that admit several meanings
Article 1373
When it is absolutely impossible to settle doubts by the rules above
If some stipulation of any contract should admit of several meanings,
Article 1378
it shall be understood as bearing that import which is most
When it is absolutely impossible to settle doubts by the rules
adequate to render it effectual.
established in the preceding articles, and the doubts refer to incidental circumstances of a gratuitous contract, the least transmission of rights and interests shall prevail. If the contract is
When it contains various stipulations, some of which are doubtful
onerous, the doubt shall be settled in favor of the greatest
Article 1374
reciprocity of interests.
The various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense which may result from all
If the doubts are cast upon the principal object of the contract in
of them taken jointly.
such a way that it cannot be known what may have been the intention or will of the parties, the contract shall be null and void.
When it contains words that have different significations
Article 1375 Words which may have different significations shall be understood in that which is most in keeping with the nature and object of the contract.
Incidental circumstances - Gratuitous Contracts o Least transmission of rights and interests - Onerous Contracts o Greatest reciprocity of interests
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OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
« Jocel Isidro S. Dilag || UP Law A-2016 »
Contracts || Interpretation of Contracts || How to Interpret a Contract «Doubtful Clauses»
When the doubts are cast upon the principal object so that the
Section 14. Peculiar signification of terms. — The terms of a writing are
intention cannot be known - Contract shall be null and void
presumed to have been used in their primary and general acceptation, but evidence is admissible to show that they have a local, technical, or otherwise peculiar signification, and were so used and understood in the
Article 1379 The principles of interpretation stated in Rule 123 of the Rules of Court shall likewise be observed in the construction of contracts.
particular instance, in which case the agreement must be construed accordingly. (12) Section 15. Written words control printed. — When an instrument
Rule 130 (Old Rule 123)
consists partly of written words and partly of a printed form, and the two
4. Interpretation of Documents Section 10. Interpretation of a writing according to its legal meaning. — The language of a writing is to be interpreted according to the legal meaning it bears in the place of its execution, unless the parties intended otherwise. (8)
are inconsistent, the former controls the latter. (13) Section 16. Experts and interpreters to be used in explaining certain writings. — When the characters in which an instrument is written are difficult to be deciphered, or the language is not understood by the
Section 11. Instrument construed so as to give effect to all provisions. — In the construction of an instrument, where there are several provisions or particulars, such a construction is, if possible, to be adopted as will
court, the evidence of persons skilled in deciphering the characters, or who understand the language, is admissible to declare the characters or the meaning of the language. (14)
give effect to all. (9)
Section 17. Of Two constructions, which preferred. — When the terms of
Section 12. Interpretation according to intention; general and particular
an agreement have been intended in a different sense by the different
provisions. — In the construction of an instrument, the intention of the parties is to be pursued; and when a general and a particular provision are inconsistent, the latter is paramount to the former. So a particular
parties to it, that sense is to prevail against either party in which he supposed the other understood it, and when different constructions of a provision are otherwise equally proper, that is to be taken which is the
intent will control a general one that is inconsistent with it. (10)
most favorable to the party in whose favor the provision was made. (15)
Section 13. Interpretation according to circumstances. — For the proper
Section 18. Construction in favor of natural right. — When an instrument
construction of an instrument, the circumstances under which it was made, including the situation of the subject thereof and of the parties to it, may be shown, so that the judge may be placed in the position of those who language he is to interpret. (11)
is equally susceptible of two interpretations, one in favor of natural right and the other against it, the former is to be adopted. (16) Section 19. Interpretation according to usage. — An instrument may be construed according to usage, in order to determine its true character. (17)
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OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
« Jocel Isidro S. Dilag || UP Law A-2016 »
Contracts || Rescissible Contracts || Kinds of Rescissible Contracts «Doubtful Clauses»
1. Lesion Proper (pecuniary injury) o Includes 1381 (1) and (2) o The injury occurs from the disparity between the purchase price and the actual value of the subject property The difference must be more than ¼ of the actual value
Defective Contracts -
Rescissible Contracts Voidable / Annullable Contracts Unenforceable Contracts Void / Inexistent Contracts
Chapter 6: Rescissible Contracts -
These are contracts that are valid, but may be rescinded as they have injured or caused damage to a party or to a third person The rescissible contract remains valid until the action of rescission is exercised
Kinds of Rescissible Contracts Article 1381 The following contracts are rescissible: (1) Those which are entered into by guardians whenever the wards whom they represent suffer lesion by more than onefourth of the value of the things which are the object thereof; (2) Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the preceding number; (3) Those undertaken in fraud of creditors when the latter cannot in any other manner collect the claims due them; (4) Those which refer to things under litigation if they have been entered into by the defendant without the knowledge and approval of the litigants or of competent judicial authority; (5) All other contracts specially declared by law to be subject to rescission. `_______________________________________________________________
OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
« Jocel Isidro S. Dilag || UP Law A-2016 »
2. Accion Pauliana (In fraud of creditors) o Happens when a debtor fraudulently alienates property to another in order to prevent his creditor from claiming any properties from him Requisites of Accion Pauliana 1. Debtor has a credit prior to the alienation 2. Debtor made a subsequent contract to transfer property to a 3rd person 3. Creditor has no other remedy left but to rescind the debtor’s contract with the 3rd person 4. Act being impugned is fraudulent 5. Both the debtor and the 3rd person acted with bad faith GENERAL RULE: o Credit is prior to the alienation EXCEPTION: O Credit is after alienation but entitled to accion pauliana because of some prior right like: There were already claims after the alienation that were acknowledged by the debtor to have existed before alienation Rights that were subrogated to another after alienation, which had claims prior to alienation
Contracts || Rescissible Contracts || Characteristics of Rescissible Contracts «Differences of Arts. 1191 & 1380»
Characteristics of Rescissible Contracts
Differences of Arts. 1191 & 1380 Resolution (1191)
1. Their defect consists in injury or damage either to one of the contracting parties or to third persons. 2. They are valid before rescission 3. They can only be attacked directly NOT collaterally 4. They can only be attacked by either of the contracting parties or by an injured/defrauded third person 5. They can be convalidated only by prescription, NOT by ratification
Only by a contracting party Non-performance of obligation Court determines sufficiency of
Only needs to satisfy the
reason (Slight or Casual Breach)
requisites. No need to measure sufficiency of reason
Contracts validly agreed upon may be rescinded in the cases established by law.
-
Various reasons of equity, mainly economic injury
Article 1380
-
Party suffering from lesion / third party prejudiced
Rescission
-
Rescission (1380)
Only to reciprocal obligations
Unilateral or reciprocal obligations
Principal Remedy
Subsidiary Remedy
Requisites of Rescission
Remedy granted by law to contracting parties and injured third persons This is to secure reparation of damages caused by fraudulent acts Goal is to return the parties to their original condition before entering the contract Concept of equity is enforced by setting aside fraudulent acts/contracts
1. Contract is Rescissible 2. Party asking for rescission has No other legal means to obtain reparation 3. He is Able to return whatever he may be obliged to restore if rescission is granted 4. The object of the contract has not passed legally to the possession of a 3rd person in Good faith 5. The action for rescission is brought within the Prescriptive period of 4 years [ RNA GP ] 1. Contract is Rescissible
Article 1382 Payments made in a state of insolvency for obligations to whose fulfillment the debtor could not be compelled at the time they were effected, are also rescissible. `_______________________________________________________________
OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
« Jocel Isidro S. Dilag || UP Law A-2016 »
Should fall under Arts. 1381 and 1382
Contracts || Rescissible Contracts || Rescission «Effect of Rescission»
2. Party asking for rescission has no other legal means to obtain
4. The object of the contract has not passed legally to the
reparation
possession of a 3rd person in good faith
Article 1383
Article 1385 (2)
The action for rescission is subsidiary; it cannot be instituted except
Neither shall rescission take place when the things which are the
when the party suffering damage has no other legal means to
object of the contract are legally in the possession of third persons who
obtain reparation for the same.
did not act in bad faith.
Who may sue for rescission (plaintiff) - Party injured (creditor in cases of accion pauliana) - Representatives and heirs or successors-in-interest of party injured - Creditors of the injured party in subrogation of the latter – Art. 1177
5. The action for rescission is brought within the prescriptive period of 4 years
Article 1389 The action to claim rescission must be commenced within four years. For persons under guardianship and for absentees, the period of four years shall not begin until the termination of the former's
Against whom (defendant) -
incapacity, or until the domicile of the latter is known.
Author of the injury and his successors-in-interest Against acquirers in bad faith, but must implead the author of the injury
3. He is able to return whatever he may be obliged to restore if
-
Period is counted from the celebration of the contract
Effect of Rescission
rescission is granted
Article 1385 (3)
Article 1385 (1)
In this case, indemnity for damages may be demanded from the
Rescission creates the obligation to return the things which were
person causing the loss.
the object of the contract, together with their fruits, and the price with its interest; consequently, it can be carried out only when he who demands rescission can return whatever he may be obliged to restore.
GENERAL RULE: Return to status quo (to how things were before the contract) o Includes the fruits and the price with interest EXCEPTION: -
-
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OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
« Jocel Isidro S. Dilag || UP Law A-2016 »
If return is impossible, indemnity for damages
Contracts || Rescissible Contracts || Rescission «Extent of Rescission»
Extent of Rescission Presumptions based on facts (Badges of Fraud)
Article 1384 Rescission shall be only to the extent necessary to cover the
Fraud is shown by: (O RIA V . M AC M ICKING ) 1. 2. 3. 4. 5.
Fictitious or inadequate consideration Transfer after suit is filed and while it is pending Sale upon credit by an insolvent debtor Proof of large indebtedness or complete insolvency Transfer of all or nearly all of the property, especially where the debtor is financially embarrassed 6. Transfer between father and son, where other circumstances above are also present 7. Failure of the vendee to take exclusive possession of the property 8. Gross disparity between the price and the real value
damages caused.
Presumptions of Fraud Article 1387 All contracts by virtue of which the debtor alienates property by gratuitous title are presumed to have been entered into in fraud of creditors, when the donor did not reserve sufficient property to pay all debts contracted before the donation. Alienations by onerous title are also presumed fraudulent when made by persons against whom some judgment has been issued. The
Liability for acquiring in bad faith the things alienated in fraud of creditors
decision or attachment need not refer to the property alienated,
Article 1388
and need not have been obtained by the party seeking the rescission.
Whoever acquires in bad faith the things alienated in fraud of
In addition to these presumptions, the design to defraud creditors
on account of the alienation, whenever, due to any cause, it should
may be proved in any other manner recognized by the law of evidence.
be impossible for him to return them. If there are two or more alienations, the first acquirer shall be liable
Presumptions set by law - Gratuitous Transfers o When the donor does not leave sufficient property to satisfy debts - Onerous Transfers o When a conveyance is made after an issuance of a writ of attachment / judgement (regardless of finality) `_______________________________________________________________
OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
creditors, shall indemnify the latter for damages suffered by them
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first, and so on successively.
Contracts || Voidable or Annullable Contracts || Kinds of Voidable/Annullable Contracts «Annulment v. Rescission»
Annulment
Chapter 7:
Annulment v. Rescission
Voidable or Annullable Contracts
Voidable Contracts
Kinds of Voidable/Annullable Contracts Article 1390
Due to violation of a public policy
Due to vice of consent
Void from the start
Valid until annulled
on law
another no
ratification
to
be
complete equity
Demanded by only the parties May be demanded by a third to a contract
person affected
Public interest predominates
Private interest predominates
Grounds for Annulment
Characteristics of Voidable/Annullable Contracts 1. Their defect consists in the vitiation of consent of one of the contracting parties 2. They are binding until they are annulled by a competent court 3. They are susceptible of convalidation by ratification or by prescription
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OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
an produced pecuniary damage to
Annulment is a sanction based Rescission is a remedy based on
Voidable
Can be cured
itself
invalidates it
Annulment v. Nullity
Cannot be cured
in
Based on a vice of consent w/c The elements of a contract are
action in court. They are susceptible of ratification.
whose consent was vitiated
has
the Extrinsic Defect, where the contract
effective
(1) Those where one of the parties is incapable of giving consent to a contract; (2) Those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud. These contracts are binding, unless they are annulled by a proper
interested
contract
where
Requires ratification to be cured Needs
may have been no damage to the contracting parties:
May be invoked by any person May only be invoked by the party
Defect,
inefficiency
The following contracts are voidable or annullable, even though there
Void ab initio
Intrinsic
Rescissible Contracts
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1. Incapacity 2. Vice of Consent a. Violence b. Intimidation c. Undue Influence d. Mistake e. Fraud [ VIU MF ]
Contracts || Voidable or Annullable Contracts || Annulment «Who may or may not institute action for annulment»
Who may or may not institute action for annulment
Effect of Annulment
Article 1397
Article 1398
The action for the annulment of contracts may be instituted by all
An obligation having been annulled, the contracting parties shall
who are thereby obliged principally or subsidiarily. However,
restore to each other the things which have been the subject matter
persons who are capable cannot allege the incapacity of those with
of the contract, with their fruits, and the price with its interest,
whom they contracted; nor can those who exerted intimidation,
except in cases provided by law.
violence, or undue influence, or employed fraud, or caused mistake In obligations to render service, the value thereof shall be the basis
base their action upon these flaws of the contract.
for damages.
Who May institute an action - Party (principal or subsidiary) whose consent was vitiated Who May Not institute an action - The party who caused the defect - Capable parties cannot allege the incapacity of those with whom they contracted - Third person who is a stranger to the contract. UNLESS he can prove that the contract prejudiced his rights with respect to one of the contracting parties, he may ask for annulment e.g. guarantors and sureties (S INGSONG V . I SABELA S AWMILL )
Prescription Article 1391 The action for annulment shall be brought within four years. This period shall begin: -
In cases of intimidation, violence or undue influence, from the time the defect of the consent ceases. - In case of mistake or fraud, from the time of the discovery of the same. And when the action refers to contracts entered into by minors or
Article 1402 As long as one of the contracting parties does not restore what in virtue of the decree of annulment he is bound to return, the other cannot be compelled to comply with what is incumbent upon him.
Mutual Restitution GENERAL RULES If the contract has not yet been performed, the parties are released from their obligations - Restore to each other the thing with its fruits and the price with interest EXCEPTIONS - Principle of unjust enrichment o Compensation for services rendered and enjoyed during the validity of the contract
other incapacitated persons, from the time the guardianship ceases. `_______________________________________________________________
OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
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-
Contracts || Voidable or Annullable Contracts || Ratification of Voidable/Annullable Contracts «Extinguishment of the Action»
Article 1399
Ratification of Voidable/Annullable Contracts
When the defect of the contract consists in the incapacity of one of
Requisites of Ratification of Voidable/Annullable Contracts
the parties, the incapacitated person is not obliged to make any
1. The contract is voidable 2. Ratification is made with knowledge of the cause for nullity 3. At the time of ratification, the cause of nullity has already ceased to exist
restitution except insofar as he has been benefited by the thing or price received by him.
Forms of Ratification of Voidable/Annullable Contracts
Article 1400 Whenever the person obliged by the decree of annulment to return
Express or Tacit
the thing cannot do so because it has been lost through his fault,
Article 1393
he shall return the fruits received and the value of the thing at the
Ratification may be effected expressly or tacitly. It is understood
time of the loss, with interest from the same date. -
that there is a tacit ratification if, with knowledge of the reason which renders the contract voidable and such reason having ceased,
If lost through a fortuitous event, only the fruits received need be restored (Manresa)
the person who has a right to invoke it should execute an act which necessarily implies an intention to waive his right.
Extinguishment of the Action
-
Article 1392 Ratification extinguishes the action to annul a voidable contract.
Article 1401 The action for annulment of contracts shall be extinguished when the thing which is the object thereof is lost through the fraud or fault
By the parties themselves or by the guardian in behalf of an incapacitated party
of the person who has a right to institute the proceedings. - Ratification cures the defect theincapacity contract of any one of the If the right of action is based uponinthe - Prescription bars the action for annulment contracting parties, the loss of the thing shall not be an obstacle to - Loss of the thing received by the plaintiff due to his fault = the success of thetoaction, unless took place through tantamount waiving of hissaid rightloss to annul the contract as the he is fraud incapable or fault of of thereturning plaintiff. the item anymore o If it is lost through a fortuitous event, action still prospers, and he is liable to return only the fruits received (Manresa) `_______________________________________________________________
OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
Tacit ratification: o Silence or acquiescence o Acts showing approval/adoption of contract o Acceptance of benefits flowing from the contract
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Article 1394 Ratification may be effected by the guardian of the incapacitated person.
Article 1395 Ratification does not require the conformity of the contracting party who has no right to bring the action for annulment.
Contracts || Unenforceable Contracts || Characteristics of Unenforceable Contracts «Effects of Ratification of Voidable/Annullable Contracts»
Effects of Ratification of Voidable/Annullable Contracts
Chapter 8:
Action to annul is extinguished
Unenforceable Contracts -
Article 1392 Ratification extinguishes the action to annul a voidable contract. Contract is cleansed retroactively from all its defects
Contracts that are valid but because of statutory defects do not confer any action to enforce the same until and unless they are ratified in the manner prescribed by law
Characteristics of Unenforceable Contracts 1. 2. 3. 4.
Article 1396 Ratification cleanses the contract from all its defects from the moment it was constituted.
They cannot be enforced by a proper action in court They are susceptible of ratification They cannot be assailed by third persons Defect is not curable by prescription (no prescription)
Unenforceable Contracts Valid but cannot be enforced
Rescissible and Voidable Contracts Valid until annulled
through court action Ratifiable
Kinds of Unenforceable Contracts Article 1403 The following contracts are unenforceable, unless they are ratified: (1) Those entered into in the name of another person by one who has been given no authority or legal representation, or who has acted beyond his powers; (2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases an agreement hereafter made shall be unenforceable by action, unless the same, or some note or memorandum, thereof, be in writing, and subscribed by the party charged, or by his agent; evidence, therefore, of the agreement cannot be received without the writing, or a secondary evidence of its contents: (3) Those where both parties are incapable of giving consent to a contract. `_______________________________________________________________
OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
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Contracts || Unenforceable Contracts || Kinds of Unenforceable Contracts «Unauthorized contracts»
Unauthorized contracts Article 1404 Unauthorized contracts are governed by Article 1317 and the principles of agency in Title X of this Book. -
The said contract shall not bind the principal – Art. 1317 The agent shall be liable if the principal does not ratify the contract - Art. 1897 and 1898 (Agency)
Contracts covered by the Statute of Frauds -
The Statute of Frauds came from Rule 123, Sec. 21 of the old Rules of Court
Purpose of the Statute - The Statute of Frauds aims to prevent certain types of contracts to be proved by parol evidence because of their sensitivity. - To prevent fraud and perjury through intentional misrepresentations or injustice because of faulty unassisted memory of witnesses
Article 1403 (2) In the following cases an agreement hereafter made shall be unenforceable by action, unless the same, or some note or memorandum, thereof, be in writing, and subscribed by the party charged, or by his agent; evidence, therefore, of the agreement cannot be received without the writing, or a secondary evidence of its contents: (a) An agreement that by its terms is not to be performed within a year from the making thereof; (b) A special promise to answer for the debt, default, or miscarriage of another; (c) An agreement made in consideration of marriage, other than a mutual promise to marry; `_______________________________________________________________
OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
« Jocel Isidro S. Dilag || UP Law A-2016 »
(d) An agreement for the sale of goods, chattels or things in action, at a price not less than five hundred pesos, unless the buyer accept and receive part of such goods and chattels, or the evidences, or some of them, of such things in action or pay at the time some part of the purchase money; but when a sale is made by auction and entry is made by the auctioneer in his sales book, at the time of the sale, of the amount and kind of property sold, terms of sale, price, names of the purchasers and person on whose account the sale is made, it is a sufficient memorandum; (e) An agreement of the leasing for a longer period than one year, or for the sale of real property or of an interest therein; (f) A representation as to the credit of a third person. a) Agreements that are covered by (a) should be wholly executory (all parts are still subject to execution; no partial performance yet) o If there is partial performance, they are then outside the ambit of the Statute b) Test: Is there a principal debtor (other than the defendant) liable? o If there is, the statute applies o If the credit is given exclusively because of the defendant’s promise, the statute cannot be invoked (R EISS V . M EMIJE ) c) Includes marriage settlements and donation propter nuptias d) Things in action = movables but not susceptible of possession (credits, interest in property, etc.) e) Sale of land through an agent is void – Art. 1874
Contracts || Void or Inexistent Contracts || Characteristics of Void/Inexistent Contracts «Contracts executed by parties who are both incapable of giving consent to a contract» How to ratify unenforceable contracts under the statute of frauds?
Article 1405 Contracts infringing the Statute of Frauds, referred to in No. 2 of Article 1403, are ratified by the failure to object to the presentation
Chapter 9: Void or Inexistent Contracts Characteristics of Void/Inexistent Contracts 1. Void from the beginning 2. Produce no effect whatsoever 3. Cannot be ratified
of oral evidence to prove the same, or by the acceptance of benefit under them. -
Express (in writing) Implied o Failure to object to the presentation of oral evidence o Acceptance of benefit therein
Kinds of Void/Inexistent Contracts
Right of parties to a contract is enforceable but requires a public document
Article 1406 When a contract is enforceable under the Statute of Frauds, and a public document is necessary for its registration in the Registry of Deeds, the parties may avail themselves of the right under Article 1357.
Contracts executed by parties who are both incapable of giving consent to a contract
The following contracts are inexistent and void from the beginning: (1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy; (2) Those which are absolutely simulated or fictitious; (3) Those whose cause or object did not exist at the time of the transaction; (4) Those whose object is outside the commerce of men; (5) Those which contemplate an impossible service; (6) Those where the intention of the parties relative to the principal object of the contract cannot be ascertained; (7) Those expressly prohibited or declared void by law. These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived.
Article 1407 In a contract where both parties are incapable of giving consent, express or implied ratification by the parent, or guardian, as the case may be, of one of the contracting parties shall give the contract the same effect as if only one of them were incapacitated.
Article 1408is made by the parents or guardians, as the case may If ratification be, of both contracting Unenforceable contractsparties, cannot the be assailed contractby shall third bepersons. validated from the inception.
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OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
Article 1409
« Jocel Isidro S. Dilag || UP Law A-2016 »
-
Contracts defective for want of consent Contracts defective for want of object or causa Contracts that are illegal o Prohibited to protect public interest Contracts expressly prohibited o Prohibited to protect private interest Contracts declared void by law
Contracts || Void or Inexistent Contracts || Kinds of Void/Inexistent Contracts «In pari delicto rules»
In pari delicto rules
Comparison of Rules Both Parties guilty
Article 1411
Criminal
When the nullity proceeds from the illegality of the cause or
Offense
object of the contract, and the act constitutes a criminal offense, both parties being in pari delicto, they shall have no action against
Non-Criminal
each other, and both shall be prosecuted. Moreover, the provisions of
Offense
the Penal Code relative to the disposal of effects or instruments of a
- No action against each other - Both to be prosecuted - Neither may recover - Neither may ask for performance
One Party is guilty - Innocent party to claim what he has given - Innocent party not bound to comply
crime shall be applicable to the things or the price of the contract. This rule shall be applicable when only one of the parties is guilty;
Purpose is illegal Article 1414
but the innocent one may claim what he has given, and shall not be bound to comply with his promise.
When money is paid or property delivered for an illegal purpose,
Article 1412
purpose has been accomplished, or before any damage has been
the contract may be repudiated by one of the parties before the caused to a third person. In such case, the courts may, if the public
If the act in which the unlawful or forbidden cause consists does not
interest will thus be subserved, allow the party repudiating the
constitute a criminal offense, the following rules shall be observed: (1) When the fault is on the part of both contracting parties, neither may recover what he has given by virtue of the contract, or demand the performance of the other's undertaking; (2) When only one of the contracting parties is at fault, he cannot recover what he has given by reason of the contract, or ask for the fulfillment of what has been promised him. The other, who is not at fault, may demand the return of what he has given without any obligation to comply his promise.
contract to recover the money or property.
Article 1415 Where one of the parties to an illegal contract is incapable of giving consent, the courts may, if the interest of justice so demands allow recovery of money or property delivered by the incapacitated person.
Not illegal per se but prohibited Article 1416 When the agreement is not illegal per se but is merely prohibited, and the prohibition by the law is designated for the protection of the plaintiff, he may, if public policy is thereby enhanced, recover what he has paid or delivered. `_______________________________________________________________
OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
« Jocel Isidro S. Dilag || UP Law A-2016 »
Contracts || Void or Inexistent Contracts || Right to set up defense «Amount paid exceeds the maximum allowed by law»
Amount paid exceeds the maximum allowed by law
Right to set up defense
Article 1417
Article 1409 (2)
When the price of any article or commodity is determined by
These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived.
statute, or by authority of law, any person paying any amount in excess of the maximum price allowed may recover such excess.
When a laborer undertakes to work longer
Action/Defense for the declaration of the inexistence of the contract
Article 1418 When the law fixes, or authorizes the fixing of the maximum number of hours of labor, and a contract is entered into whereby a laborer undertakes to work longer than the maximum thus fixed, he may demand additional compensation for service rendered beyond the time limit.
The action or defense for the declaration of the inexistence of a contract does not prescribe.
Article 1421
When a laborer accepts lower wages than set by law Article 1419 When the law sets, or authorizes the setting of a minimum wage for laborers, and a contract is agreed upon by which a laborer accepts a lower wage, he shall be entitled to recover the deficiency.
When the contract is divisible Article 1420 In case of a divisible contract, if the illegal terms can be separated from the legal ones, the latter may be enforced.
When the contract is a result of a previous illegal contract Article 1421 A contract which is the direct result of a previous illegal contract, is also void and inexistent. `_______________________________________________________________
OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
Article 1410
« Jocel Isidro S. Dilag || UP Law A-2016 »
The defense of illegality of contract is not available to third persons whose interests are not directly affected.
Natural Obligations || General Provisions || Definition «When the contract is a result of a previous illegal contract»
Natural Obligations
Natural Obligation
Moral Obligation
There is a juridical tie
No juridical tie
Performance of debtor is a
Act is pure liberality
legal fulfillment of obligation There are positive laws that
Morals govern the obligation
still govern them
General Provisions
Examples
Definition
Article 1424 When a right to sue upon a civil obligation has lapsed by
Article 1423 Obligations are civil or natural. Civil obligations give a right of action to compel their performance. Natural obligations, not being based on positive law but on equity and natural law, do not grant a
extinctive prescription, the obligor who voluntarily performs the contract cannot recover what he has delivered or the value of the service he has rendered.
right of action to enforce their performance, but after voluntary fulfillment by the obligor, they authorize the retention of what has
Article 1425
been delivered or rendered by reason thereof. Some natural
When without the knowledge or against the will of the debtor, a
obligations are set forth in the following articles.
third person pays a debt which the obligor is not legally bound to pay because the action thereon has prescribed, but the debtor later
Requisites of a Natural Obligation
voluntarily reimburses the third person, the obligor cannot recover
1. Juridical tie between two people 2. The tie is created by equity and natural justice
what he has paid.
Comparison Tables Natural Obligation Enforceability Enforceable only by good Source
Civil Obligation Enforceable before the
conscience of debtor
courts
Equity and Natural Justice
Positive Law
Article 1426 When a minor between eighteen and twenty-one years of age who has entered into a contract without the consent of the parent or guardian, after the annulment of the contract voluntarily returns the whole thing or price received, notwithstanding the fact the he has not been benefited thereby, there is no right to demand the thing or price thus returned.
`_______________________________________________________________
OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
« Jocel Isidro S. Dilag || UP Law A-2016 »
Natural Obligations || General Provisions || Conversion to Civil Obligation «When the contract is a result of a previous illegal contract»
Conversion to Civil Obligation
Article 1427 When a minor between eighteen and twenty-one years of age, who has entered into a contract without the consent of the parent or guardian, voluntarily pays a sum of money or delivers a fungible thing in fulfillment of the obligation, there shall be no right to recover the same from the obligee who has spent or consumed it in good faith.
GENERAL RULE: - Partial fulfillment of a natural obligation does not make it a civil obligation - Voluntary acts of a debtor are not recoverable EXCEPTIONS: -
Article 1428 When, after an action to enforce a civil obligation has failed the defendant voluntarily performs the obligation, he cannot demand the return of what he has delivered or the payment of the value of the service he has rendered.
Article 1429 When a testate or intestate heir voluntarily pays a debt of the decedent exceeding the value of the property which he received by will or by the law of intestacy from the estate of the deceased, the payment is valid and cannot be rescinded by the payer.
Article 1430 When a will is declared void because it has not been executed in accordance with the formalities required by law, but one of the +intestate heirs, after the settlement of the debts of the deceased, pays a legacy in compliance with a clause in the defective will, the payment is effective and irrevocable.
`_______________________________________________________________
OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
« Jocel Isidro S. Dilag || UP Law A-2016 »
If the parties novated the natural obligation to make it civil If the other party returns the thing given or pays for the value of the service rendered (Ratification)
Estoppel || General Provisions || Definition «When the contract is a result of a previous illegal contract»
Estoppel v. Fraud
Estoppel
-
General Provisions Definition Article 1431 Through estoppel an admission or representation is rendered conclusive upon the person making it, and cannot be denied or disproved as against the person relying thereon. -
-
Estoppel is a bar that prevents a person from denying or asserting anything to the contrary, based on law, of what has been established as the truth either by acts of the person or by law/judgement It aims to prevent the possible damage/injury that the admission/representation can cause by imposing silence Based on equity, moral justice and natural rights
Estoppel by Record - Preclusion to deny the truth of matters set forth in a record, whether judicial or legislative, and also to deny the facts adjudicated by a court of competent jurisdiction Estoppel by Deed - Bar which precludes on party to a deed (instrument) and his privies from asserting as against the other party and his privies any right or title in derogation of the deed, or from denying the truth of any material facts asserted in it Estoppel in pais -
Kinds of Estoppel Article 1433 Estoppel may be in pais or by deed.
Estoppel by acceptance of benefit – Art. 1438
Persons Bound Article 1439 Estoppel is effective only as between the parties thereto or their
Promissory estoppel - Am. Jur concept that states that an estoppel may arise from making of a promise, even though without consideration, if it was intended that the promise should be relied upon and in fact it was relied upon, and if a refusal to enforce it would be virtually to sanction the perpetuation of fraud or would result in other injustice.
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OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
Because of something which he has done or omitted to do, a party is denied the right to plead or prove an otherwise important act
Estoppel by misrepresentation – Art. 1437
1. Technical Estoppel a. By record (Res judicata) b. By deed 2. Equitable estoppel / Estoppel in pais
successors in interest.
Estoppel prevents an injury from happening by barring a person from asserting a misrepresentation Fraud is in itself an injury, as one has acted upon a misrepresentation of another
« Jocel Isidro S. Dilag || UP Law A-2016 »
Estoppel || General Provisions || Cases where Estoppel Applies «When the contract is a result of a previous illegal contract»
Estoppel by laches -
A person knowingly takes no step to enforce his rights to enforce them, for an unreasonable and unexplained length of time
Estoppel by silence - Silence or inaction with some element of turpitude or negligence when there is a duty to say or do something prevent that person from saying or doing that act.
Cases where Estoppel Applies Article 1434 When a person who is not the owner of a thing sells or alienates and delivers it, and later the seller or grantor acquires title thereto, such title passes by operation of law to the buyer or grantee.
Article 1437 When in a contract between third persons concerning immovable property, one of them is misled by a person with respect to the ownership or real right over the real estate, the latter is precluded from asserting his legal title or interest therein, provided all these requisites are present: (1) There must be fraudulent representation or wrongful concealment of facts known to the party estopped; (2) The party precluded must intend that the other should act upon the facts as misrepresented; (3) The party misled must have been unaware of the true facts; and (4) The party defrauded must have acted in accordance with the misrepresentation.
Article 1435 If a person in representation of another sells or alienates a thing,
Article 1438
the former cannot subsequently set up his own title as against the
One who has allowed another to assume apparent ownership of
buyer or grantee.
personal property for the purpose of making any transfer of it, cannot, if he received the sum for which a pledge has been
Article 1436
constituted, set up his own title to defeat the pledge of the property,
A lessee or a bailee is estopped from asserting title to the thing
made by the other to a pledgee who received the same in good faith
leased or received, as against the lessor or bailor.
and for value.
`_______________________________________________________________
OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
« Jocel Isidro S. Dilag || UP Law A-2016 »
Trusts || General Provisions || Definition of Trusts «Express Trusts»
Kinds of Trusts
Trusts
Article 1441 Trusts are either express or implied. Express trusts are created by
Chapter 1:
the intention of the trustor or of the parties. Implied trusts come into being by operation of law.
General Provisions
1. Express Trusts 2. Implied Trusts a. Resulting Trusts Carrying out an actual or presumed intent of the parties, where the express trust fails b. Constructive Trusts Regardless of intention, a trust is created in order to prevent fraud, oppression or unjust enrichment of another (e.g. mistake in delivery)
Definition of Trusts -
-
A fiduciary relationship between the trustor and trustee where the latter holds a property with the obligation of dealing with the property to benefit another person. In trusts, there exist a beneficial title and a legal title
Governing Rules Article 1442 The principles of the general law of trusts, insofar as they are not in conflict with this Code, the Code of Commerce, the Rules of Court and special laws are hereby adopted.
Express Trusts Proof Required
Parties to a Trust
Article 1443
Article 1440
No express trusts concerning an immovable or any interest
A person who establishes a trust is called the trustor; one in whom
therein may be proved by parol evidence.
confidence is reposed as regards property for the benefit of another person is known as the trustee; and the person for whose
Form of Express Trusts
benefit the trust has been created is referred to as the beneficiary.
Article 1444 No particular words are required for the creation of an express trust, it being sufficient that a trust is clearly intended.
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OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
« Jocel Isidro S. Dilag || UP Law A-2016 »
Trusts || General Provisions || Kinds of Trusts «Implied Trusts»
Want of Trustee
Examples
Article 1445
Article 1448
No trust shall fail because the trustee appointed declines the
There is an implied trust when property is sold, and the legal estate
designation, unless the contrary should appear in the instrument
is granted to one party but the price is paid by another for the
constituting the trust.
purpose of having the beneficial interest of the property. The former is the trustee, while the latter is the beneficiary. However, if the
Acceptance by the Beneficiary
person to whom the title is conveyed is a child, legitimate or
Article 1446
illegitimate, of the one paying the price of the sale, no trust is
Acceptance by the beneficiary is necessary. Nevertheless, if the
implied by law, it being disputably presumed that there is a gift in favor
trust imposes no onerous condition upon the beneficiary, his
of the child.
acceptance shall be presumed, if there is no proof to the contrary.
Article 1449
Implied Trusts
There is also an implied trust when a donation is made to a person but it appears that although the legal estate is transmitted to the
How established
donee, he nevertheless is either to have no beneficial interest or only
Article 1441 Implied trusts come into being by operation of law.
a part thereof.
Article 1450
How Proved
If the price of a sale of property is loaned or paid by one person
Article 1457
for the benefit of another and the conveyance is made to the
An implied trust may be proved by oral evidence.
lender or payor to secure the payment of the debt, a trust arises by operation of law in favor of the person to whom the money is loaned or for whom its is paid. The latter may redeem the property and compel a conveyance thereof to him.
Article 1451 When land passes by succession to any person and he causes the legal title to be put in the name of another, a trust is established by implication of law for the benefit of the true owner. `_______________________________________________________________
OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
« Jocel Isidro S. Dilag || UP Law A-2016 »
Trusts || General Provisions || Kinds of Trusts «Implied Trusts»
Article 1452
Article 1454
If two or more persons agree to purchase property and by
If an absolute conveyance of property is made in order to secure
common consent the legal title is taken in the name of one of
the performance of an obligation of the grantor toward the
them for the benefit of all, a trust is created by force of law in favor of
grantee, a trust by virtue of law is established. If the fulfillment of
the others in proportion to the interest of each.
the obligation is offered by the grantor when it becomes due, he may demand the reconveyance of the property to him.
Article 1453 When property is conveyed to a person in reliance upon his
Article 1455
declared intention to hold it for, or transfer it to another or the
When any trustee, guardian or other person holding a fiduciary
grantor, there is an implied trust in favor of the person whose benefit
relationship uses trust funds for the purchase of property and
is contemplated.
causes the conveyance to be made to him or to a third person, a trust is established by operation of law in favor of the person to whom the funds belong.
Article 1456 If property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a trustee of an implied trust for the benefit of the person from whom the property comes.
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OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
« Jocel Isidro S. Dilag || UP Law A-2016 »
Defective Contracts Tables || || «»
Defective Contracts Tables Rescissible Effect on
Voidable/Annullable
Unenforceable
Void/Inexistent
Valid until Rescinded
Valid until Annulled
Valid but unenforceable
Void ab initio
Judicial or Extrajudicial action
Direct and collateral attack
By using its status as a
A direct action to declare its
for rescission
on its validity
defense
nullity
Injured party, their heirs,
Those who are obliged
Party using the status as a
Injured party or an interested
assigns and interested third
principally and is injured
defense
third person
Within 4 years (gaining
Within 4 years (gaining
Anytime a party attempts to
Imprescriptible
majority, knowledge of
majorty, cessation of vice of
enforce the contract
domicile, knowledge of
consent)
Contract How to assail? Who can assail?
persons When to assail?
fraud) How to cure?
By ratification or prescription
By ratification or prescription
By ratification or prescription Also by acceptance
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OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
« Jocel Isidro S. Dilag || UP Law A-2016 »
None
Special Thanks || Bibliography || «»
Special Thanks
Memory guide for quizzes
Bibliography
2134, 748-749
quiz 10 coverage art 1347-1359, 1366-1369, 1403, 1771, 1773, 1874, quiz 11 coverage art 1191, 1370-1378, 1380, 1381, 1383-1389
Digests of A2016
quiz 12 coverage art 1390-1394, 1396-1407
Civil Code of the Philippines, 1949 Reyes, Jose B. L., and Ricardo C. Puno. 1958. An Outline of Philippine Civil Law. Quezon City: Central Book Supply, Inc.
quiz 13 coverage art 1345-1346, 1409-1412, 1414-1430 quiz 14 coverage art 1431, 1433-1445, 1448-1457
Santos, Karichi E. 2009. "Karichi Notes." Quezon City. Tolentino, Arturo M. 1990. Commentaries and Jurisprudence on the Civil Code of the Philippines. Manila: Central Book Supply, Inc.
Special Mentions -
Cristobal, Enad, Española, Macariola, Marin, Nuñez, Sevilla and Tiangco as copyreaders, additional information and moral support :)
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OBLIGATIONS and CONTRACTS Reviewer || Prof. J.J. Disini
« Jocel Isidro S. Dilag || UP Law A-2016 »
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