OBLICON Perez Civil Law Outlines

Civil Law Outlines

-OBLIGATIONS AND CONTRACTS

JOEMER C. PEREZ

I

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Philippine Copyright 2010

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by

Chapter

Joemer C. Perez A l l rights reserved.

No part of this b o o k may be

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ISBN 978-971-0ll-217-3 Published by

Central Book Supply, Inc. 927 Quezon Avenue, Quezon City Philippines 1 104

I: Introduction to Obligations

I

Chapter 2:

Nature and Effect of Obligations

10

Chapter 3:

Remedies

26

Chapter 4:

Kinds of Obligations

35

Chapter 5:

Extinguishment of Obligations

75

Chapter

review or in judicial or other official proceedings.

Serial No.

TABLE OF CONTENTS

6: Introduction to Contracts

131

Chapter 7:

Essential Requisites of Contract

150

Chapter 8:

Form of Contracts

1 89

Chapter 9:

Reformation of lnstruments

194

Chapter I 0:

Interpretation of Contracts

200

Chapter

1 1 : Defective Contracts

207

Chapter

12: Natural Obligations

247

Chapter 13: Estoppel

250

Chapter 14: Trusts

257

Preface Everything should be made as simple as possible, but not any simpler. - Einstein Civil law is an enonnous subject, which covers a wide range of A student of civil law is

topics from the simple to the more complex.

prone to be overwhelmed by the largeness of the subject, particularly as he prepares for the bar exams.

This work is an attempt to help the student navigate this vast field. It is a basic presentation of civil law in outline fonn. It provides a logical arrangement and synthesis of civil law rules and principles based chiefly on coda! provisions and relevant jurisprudence. Commentators are also cited whenever useful or appropriate. The arrangement of topics in the Civil Code has been followed as far as practicable. My aim is to give students a substantial understanding of the essential principles and rules of civil law, with as much nuance as possible, but without overwhelming them with the more abstruse theories and issues.

JCP 2010

\ Nani and Alfonso. To

To me you are perfect, just the way you are. ·.

Chapter

1

Introduction to Obligations I. IN GENERAL A.

DEFINITION:

An obligation is a juridical necessity to give, to

do or not to do.

(Art. 1156)

The definition in

Art. 1156

is incomplete as it considers

obligations only from the side of the obligor, omitting the creditor. Obligation may be defined more comprehensively as a juridical relation whereby a person (the creditor) may demand from another (the debtor) the observance of a determinate conduct and, in case of breach, may obtain satisfaction from the assets of the debtor. 1 Note that the obligation defined under Art. 1156 refers to civil ' obligations, i.e., obligations which are enforceable by courts under the law.

They are different from

natural obligations,

which are not enforceable by the courts under the law, but when performed, they are binding, under the prh1ciples of conscience or moral justice. A common example of a natural obligation is a prescribed debt which cannot be enforced in courts; however, when it is paid by the debtor, the payment becomes binding on the said debtor.

B. CONCEPTS: 2 concepts : 1.

Cre dit

The notion of a civil obligation imports three

- right of a person (creditor) to demand a

prestation or the observance of a particular conduct, which the law will enforce; 1 JBL Reyes, "Observations on the New Civil Code," Lawyers Journal, Vol. XVI, January 31, 1951, p. 47, citing Arias Ramos.

' Id.

pp. 47-50,

2. Debt -duty of another person (debtor) to render a prestation or observe a particular conduct; and

A. LAW I.

Not P resum ed . Obligations derived from law are not

presumed. Only those expressly detem1ined in the Civil Note that in

obligations,

the credit is a personal right,

in which is enforceable against a particular or definite

person (although it is not necessary that such person be

presently identified), as opposed to a realright, which

Code or in special laws are demandable. (Art. a.

is enforceable against the whole world (erga ornnes).'

b.

the exemptions provided by law. (Art. 2236)

C. ELEMENTS: An obligation is constituted upon the concurrence of the following essential elements:4

cause established by the various sources of obligations (law, contracts, quasi-contracts, delicts and quasi-delicts);

The

of the obligation, are the active (obligee) and the passive

2

be

regulated by the precepts of the law which establishes

1 158)

3. Examples of Obligations Created By Law: a.

Obligation between spouses or between parents and

b.

Obligation by emplcyer to provide certain benefits to

children to provide support under the Family Code;

employees under the Labor Code; c.

d.

SOURCES OF OBLIGATION

cam10t

them; and as to what has not been foreseen, by the

(obligor) subjects.

' See Sps. Adorable v. CA, G.R. No. 1 1 9466, November 25, 1999. •Ang Yu Asuncion v. CA, 238 SCRA 602 (1994).

obligation

2. Applicable Law. Obligations derived from law shall be

3. The subject-persons who, viewed from the demandabilify

Obligations arise from the foliowing sources: (Art

Such

presumed.6

object which is the prestation or conduct required to

be observed (to give, to do or not to do); and

II.

A father-in-law has no legal obligation to support his

provisions of Book IV of the Civil Code. (Art.

1 . The vinculum juris or juridical tie which is the efficient

2.

chargeable with a prestation or undertaking to give or

daughter-in-law.

The debtor is liable with all his property, present and future, for the fulfillment of his obligations, subject t�

A legal norm can reqiiire that a particular party be

to deliver or to do or to render some service. But it must be shown that such legal provision in fact exists.5

3. Responsibility-right of the creditor to obtain satisfaction from the debtor's patrimony in case of the debtor's breach.

1 1 58)

Obligation to reimburse necessary expenses under the law on property; Obligations of the owners of a servient estate to the

owners of the dominate estate under the law on

easements;

etc.

1 157) 5 Batchelder v. Central Bank, G.R. No. L-25071, July 29, 1972. ' Pelayo v. Lauron, 12 Phil. 453 (1909). 3

a. . Negotiorum Gestio - Whoever voluntarily takes charge of the agency or management of the business or property of another, without any power from the latter, is obliged to continue the same until the termination of .the affair and its incidents, or to require the person concerned to substitute him, if the owner is in a position to do so. (Art. 2144)

B. CONTRACTS 1. Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. (Art. 1159) 2. Definition. A contraci is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service. (Art. 1305)

. b. Solutio Indebiti - 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. (Art. 2152)

See discussion on Contracts in Chapters 5, et seq.

D. ACTS OR OMISSIONS PUNISHED BY LAW

C. QUASI-CONTRACTS l..

1. Applicable Law. Civil obligations arising from criminal offenses shall be governed by the penal laws, subject to the following provisions of the Civil Code:

Applicable Law. Obligations derived from quasi-contracts shall be subject to the provisions of Chapter l , Title XVII, of Book IV of the Civil Code. (Art. 1160)

a. Article 2177;

2. Definition. Quasi-contracts are obligations ari�ing from certain lawful, voluntary and unilateral acts, to the end that no one shall be unjustly enriched or benefited at the expense of another. (Art. 2142)

b. The pertinent provmons of Chapter 2, Preliminary Title, on Human Relations, and

·

a there is no consent in the sense of In quasi-contracts,� . meeting of minds between the parties; thus there is no contract. However, in view of the peculiar circumstances or factual environment, consent is presumed, to tho end that a recipient of benefiis or favors resulting from lawful, voluntary and unilateral acts of. another may not be unjustly enriched at the expens� of another.7 3. Examples:

1 Philippine National Bank v. CA. G.R. No. 97995, January 21, 1993. 4

c. The pertinent provisions of Title XVIII of Book IV, regulating damages. (Art. 1161) •

2. Civil Lia bil ity Arising From Crime. Under Art. 100 of the Revised Penal Code, every person criminally liable for a felony is also civilly liable. The Civil Code also provides that in crimes, the defendant shall be liable for all damages which are the natural and probable consequences of the act or omission complained of.' (Art. 2202) It is not necessary that such damages have been foreseen or could have reasonably been foreseen by the defendant. (Art. 2202) Civil liability arising from crime may be proved by preponderance of evidence. (Arts. 29, 30, 35) Thus, it 5

is possible that an accused wh6 is acquitted because of

includes homicide (whether attempted, frustrated or consUmmated). 1 1

reasonable doubt may nonetheless be held liable civilly based on preponderance of evidence. (Id.) d.

3. Deemed Instituted. When a criminal action is instituted, the civil action for the recovery of civil liability arising from t)ie offense charged shall be deemed instituted with the criminal action, unless the offended party -

Failure of a policeman or peace officer to render aid or protection to any person in case of danger to life or property. (Art. 34) The peace officer is primarily liable for damages, and the city or municipality is subsidiari\y liable.

a. Waives the civil action,

(Art. 34) 5. No Double Recovery. In no case (even in independent

b.

Reserves the right to institute it separately or

c.

Institutes the civil action prior to the criminal action.8

4. Independent Civil Action.

In the following cases

provided by the Civil Code, the offended party may file an independent civil action, which shall proceed independently of the criminal action and shall require only a preponderance of evidence':

civil actions) may the offended 'party recover damages twice for the same act or omission charged in the criminal action. 1 2

E. QUASI·DELICTS

·

a.

Civil action based 0n an obligation not arising from the act or omission complained of as a felony. (Art. 3 1)

2. Definition. Whoever by act or omission causes damage to

deposit, independent of a criminal action for estafa. 1 0 Violation of civil or constitutional rights and liberties.

Negligence is defined as the. failure to exercise the

(Art. 32) c.

shall be governed by the provisions of Chapter 2, Title XVII of Book IV, and by special laws. (Art. 1 1 62)

another, there being fault or negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is called a quasi-delict. (Art. 2176)

Example: a civil action for breach of contract of

b.

1 . Applicable Law. Obligations derived from quasi-delicts

standard of care that a reasonably prudent person would have exercised in a similar situation.P

'

Defamation, fraud and physical injuries. (Art. 33)

"Physical irifuries" is used in the generic sense. It is not limited to the crime of physical injuries, but ' Rules of Court, Rule 1 1 1 , Section 1(a). ' See also Rules of Court, Rule 1 1 1 , Section 3. . 10 I Tolentino 1 27.

3. Distinguished from Other Sources of Obligation. Negligence as a source of obligation may be classified into three 1 4: " Carandang vs. Santiago, 97 Phil. 94; Madeja v. Caro, G.R. NO. L-51183, December 21, 1983. "See Rules of Court, Rule 1 1 1 , Section 3. "Janssen Pharmaceutica v. Silayro, G.R. No.. 172528, February 26, 2008.

6

7

·

a.

Culpa contractual

-

may also be criminally prosecuted for criminal negligence .

the parties have a pre-existing

(this is. culpa

which will also give rise to civil

liability. The acquittal of the accused in the criminal case

the performance of the contractual obligation, and

does not carry with it the extinction of the civil liability

serves to

based on quasi-delict,19 because they are based on different

increase the liability arising from the

contractual obligation.15 b.

criminal),

contractual relations; the negligence is an incident of

sources of obligation.

Culpa aquiliana (or extra-contractual or quasi-delict) -

the parties generally have no pre-existing contractual

relations; it is the negligence itself which creates the obligation (and therefore the juridical relation between

the parties).1 6

·

However, it has been held that quasi-delict may arise even if there is pre-existing contractual

relation, as the act which bre�ks the contract also be

c.

a

quasi-delict.17

niay

Culpa criminal negligence punished by law, as under Art. 3 65 of the Revised Penal Code on criminal -

negligence. The foregoing liabilities (and the corresponding liabilities) are independent of each other, provided that the offended party cannot recover more than once.18 Thus, e.g., a taxi passenger who became a victim of a vehicular accident may sue the taxi operator under their contract of carriage (this is

culpa contractual), an.d also sue

the driver of the other vehicle which collided with the taxi for quasi-delict, since they had no pre-existing contractual obligations (this is

culpa aquiliana).

The negligent drivers

14

See First Philippine International Bank v. CA, G.R. No. 1 1 5849, January 24, 1996. Sps. Batal v. Sps. Tomina9a, G.R. No. 164601, September 27, 2006. " Sps. Batal v. Sps. Tominaga, G.R. No. 164601, September 27, 2006. 11 Air France v. Carrascoso, 18 SCRA 155 (1966), Singson vs. Bank of the Philippine Islands, 23 SCRA 1 1 1 7 (1968), Coca-Cola Bottlers Philippines, Inc. v. CA, G.R. No. 1 1 0295, October 18, 1993. " See First Philippine International Bank v. CA, G.R. No. 1 15849, January 24, 1996. . 15

8

·

. " Manliclic v. Calaunan, G.R. No. 150157, January 25, 2007. Safeguard Security Agency v. Tangco, G.R; No. 165732, December 14, 2006. 9

ii. Thus, the vendor has the obligation to preserve the thing from the perfection of the contract until the thing is delivered to the vendee.2°

Chapter 2

Nature and Effect of Obligations I.

OBLIGATION TO GIVE A. OBLIGATION TO GIVE A DETERMINATE THING

b. To deliver the fruits of the thing from the time the obligation to deliver the thing arises. (Art. 1164)

I

However, the creditor shall acquire no real right over the thing until the same has been delivered to him. (Art. 1164)

1

(1) A personal right is the power of one person to demand of another, as a definite passive subject, the fulfillment of a prestation to give, to do, or not to do. On the other hand, a real right is the power belonging to a person over a specific thing, without a passive subject individually determined.'1

1. A determinate thing is one that has been specified or distinguished from others of the same kind. For example, the car with plate number JCP-888.

2. When what is to be delivered is a determinate thing, the creditor may compel the debtor to make the delivery (in addition to damages). (Art. 1165) a. This .means that the creditor can compel the debtor to deliver the thing actually specified in the obligation, and the debtor is not allowed to substitute another thing:

i

I

(2) Deliv�ry is required for a creditor to acquire a real right over the thing; before such delivery, the creditor only has a personal right to compel the debtor to deliver the thing to him.

b. If the obliger delays, or has promised to deliver the same thing to two or more persons who do not have the same interest, he shall be responsible for any fortuitous event until he has effected the delivery. (Art. 1165)

c. To deliver all of the accessions and accessories of the thing, even though they may not have been mentioned. (Art. 1166)

B. OBLIGATION TO GIVE AN INDETERMINATE THING 3. The obligation to give a determinate thing includes the following accessory obligations:

1. An indeterminate thing is one that is generic or indicated only by its kind, without being specified or distinguished from others.ofthe same kind. For example,."a car."

a. To take care of the thing with the proper diligence of a good father ofa family. (Art. 1163) 1.

Unless the law or the stipulation of the parties requires another standard of care. (Art. 1163) IO

20 21

Seven Brolhers Shipping Corp. v. CA, G.R. No. 109573, July 13, 1995. Sps. Adorable v. CA, G.R. No. 1 1 9466, November 25, 1999. 11

2. If the thing is indeterminate or generic, he may ask that the obligation be complied with at the expense of the debtor. (Art. a.

1 1 65)

The obligation is satisfied by giving to the creditor a generic thing, at the debtor's expense. This is in addition to damages.

b.

The_ obligation to give a generic thing does not carry

III. TRANSMISSIBILITY OF OBLIGATIONS A. GENERAL RULE: All rights acquired in virtue of an obligation

are transmissible, subject to laws or stipulations to the contrary. (Art.

1 178)

B. EXCEPTIONS: Rights

and

with it the accessory obligations to preserve the thing

transmissible -

because a generic thing is not individualized.

I. By nature; (Art. 1 3 1 1)

a!1d deliver its fruits, accessions and accessories,

obligations

which

are

not

2. By stipulation of the parties; (Art. 1 3 1 1 ) or II. OBLIGATION TO DO AND NOT TO DO .

3 . By provision oflaw.23 (Art. 1 3 1 1)

A. OBLIGATION TO Do: If a person obliged to do something fails to do it, the same shall be executed at his cost. (Art. 1 1 67) I. This same rule shall be observed if he does it contravention of the tenor of the obligation. (Art. 1 1 67)

300), parental authority (Article 327), usufruct (Article 603), contracts for a piece of work (Article 1726), partnership (Article 1830) and agency (Article 1 919).

Examples:

m

2. Furthermore, it may be decreed that what has been. poorly done be undone. (Art. 1 1 67)

legal

support

(Article

IV. PERFORMANCE OF OBLIGATIONS

the

A. IN GENERAL: The thing or service in which the obligation

B. OBLIGATION NOT TO Do: When the obligation consists in not

B. RECEIPT OF PRINCIPAL: The receipt of the principal by the

Note that the debtor cannot be compelled

to do

thing, since it would violate his personal liberty. He can only be held liable for damages.

doing, and the obligor does what has been forbidden him, it

shall also be undone at his expense. (Art.

1 168)

consists must be

completely delivered or rendered, as the case may be. (Art. 1233) See further discussion regarding Payment. creditor without reservation with respect to the interest, shall give rise to the presumption that said interest has been paid.

(Art.

1 176)

Thus, constructions which are made despite the prohibition

or restrictions in the Deed of Restrictions may be

demolished.'2 22 C.ajardo Jr. v. Freedom to

Build, Inc., G.R. No. 134692, August 1 , 2000. 12

" Estate of Hemady v. Luzon Surety Co., 100 Phil. 388 (1956). 13

If the debt produces interest, payment of the principal shall not be deemed to have been made until the interests have

A. DELAYORMORA

been covered. (Art. 1253) 1 . Requisites. c.

RECEIPT OF LATER INSTALLMENT: installment

of

a

debt

without

The receipt of a later

reservation

as

to

They are governed by special

905 of the Central Bank, adopted on 22, l 982, has expressly removed the interest

ceilings prescribed by the Usury Law.

(mora

That

the

obligation

be

demandable

and

already

liquidated;

Circular No. December

· a.

(Art. 1 176)

D. USURIOUS TRANSACTIONS: laws. (Art. 1 175)

In order for the debtor to be in default '9 the following requisites must be present :

prior

installments, shall likewise raise the presumption that such installments have been paid.

solvendi),

Thus, the Usury 24 Law is now "legally inexistent" or "in�ffective." ·

b.

That the debtor delays performance; and

c.

That the creditor requires the performance judicially or extrajudicially (demand). It is important to determine when the debtor is in default because the debtor becomes liable from that 30 time for damages (usually in the form of interest).

However, courts may modify interest rates when found

(Art. 2209) The debtor also assumes

to

(even for a fortuitous event) from the time of default.

be

iniquitous

or

unconscionable

under the 2' circumstances (such as 66% per annum , 72% per 26 27 annum, or 1 08-120% per annum ).

the risk for a thing

(Art. 1 1 65) 2 . General rule o n demand requirement.

Those obliged to

deliver or to do something incur in delay from the time the

V. NON-PERFORMANCE OF OBLIGATION (BREACH OR DEFAULT) Those who in the performance of their obligations are guilty of

fraud, uegligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages. (Art. 1 170)

obligee judicially or extrajudicially demands from them the . fulfillment of their obligation.

Filing of case in court is a judicial demand.

3. Exceptions to demand requirement. creditor shall not

In general, every debtor who fails in the performance of his ·

(Art. 1 1 69) 31

The demand by the

be necessary in order that delay may exist

in any of the following instances:

(Art. 1 1 69)

obligations is bound to indemnify for the losses and damages 28 caused thereby.

" Medel v. CA, G.R. No. 131622, November 27, 1996. 2s Medel v. CA, G.R. No. 131622, NoVember27, 1998. 26 Carpo v. Chua, G.R. Nos. 150773 & 153599, September 30, 2005. " Dino v. Jardines, G.R. No. 145671, January 31, 2006. " Arrieta vs. National Rice & Corn Corp., 10 SCRA 79 (1964), citing De la Cruz v. Seminary of Manila, 18 Phil. 330; Municipality of Moncada v. Cajulgan, 21 Phil. 184; De la Cavada v. Diaz, 37

Phil. 962; Maluenda & Co. v. Enriquez, 46 Phil. 916; Pasumil v. Chong, 49 Phil. 1003; Pando v. Gimenez, 54 Phil. 459; Acme Films v. Theaters Supply, 63 Phil. 657. " Social Security System v. Moonwalk Developmenl and Housing Corp., G.R. No. 73345, April 7, 1993; Santos Ventura Hocorma Foundation, Inc. v. Santos, G.R. No. 153004, November 4, 2004. " Malayan Insurance Co., Inc. v. CA, G.R. No. L·59919, November26, 1 966. " United Coconut Planters Bank v. Sps. Beluso, G.R. No. 159912, August 17, 2007.

14

15

a.

By express provrswn or stipulation. When the

the performance without valid reason. A creditor in default

obligation or the law expressly so declare; or

bears the risk of accidental loss due to fortuitous events.34

The fact that the contract fixes the schedule of

Such creditor's default is not negated by the debtor's

failure io consign the thing to be delivered.35

payment does not dispense with the demand requirement32 ; the contract must specifically state that demand is not necessary or that the debtor is

5. In reciprocal obligations, neither party incurs in delay if

waiving the requirement of demand.

the other does not comply or is not ready to comply in a

proper manner with what is incumbent upon him. (Art.

b. · Time is of the essence. When from the nature and the

1169)

circumstances of the obligation it appears t_hat the

designation of the. time when the thing is to be

From the moment one of the paf\ies fulfills his

delivered or the service is to be rendered was a

controlling

contract; .?r

motive for the

obligation, delay by the other begins. (Art. 1169)

establishment of the

In reciprocal obligations, the performance of one is

i.

For example, delivery of wedding cake at a

ii.

When a common carrier undertakes to convey

conditioned on the other obligation.36

specified date of the wedding.

B. FRAUD

goods, they should be delivered at destination ·

1. Definition, "Fraud" under Art. 1170 refers to bad faith or

. malice in the performance of an obligation which is already

agreement as to the time of delivery.33

existing. It is a conscious and intentional design to evade

the normal fulfillment of existing obligations.37 The

Demand is useless. When demand would be useless, as

consequence of this "fraud" is liability for damages and '

when the obliger has rendered it beyond his power to

rescission of the obligation.

perform.

For example,

when the

It should be differentiated from "fraud" under Art.

obliger had already

1338 (contracts) and Art. 839(5) (wills), which refers

disposed of the thing to be delivered.

4. Creditor's Default. The creditor may also incur default .

(mora creditoris or accipiendi) when h�

fulfillment of the

·

within a reasonable time, in the absence of any

c.

simultaneous

to

deceit (dolo) as a vice of consent in the execution of

contract or wills. The consequence of this "fraud" is

·

refuses to accept

See Social Security System v. Moonwalk Development and Housing Corp., G.R. No. 73345, April 7, .1993. "Maersk Line v. CA, G.R. No. 94761, May 17, 1993.

"'Vda. De Villaruel v. Manila Motor Co., Inc., 104 Phil. 926 (1958). " Vda. De Villaruel v. Manila Motor Co., Inc., 104 Phil. 926 (1958). " Abaya vs. Standard Vacuum Oil Co., 101 Phil. 1262 (1957). Boysaw v. lnterphil Promotions, Inc., 148 SCRA 643 (1987). "Luzon Brokerage Co., Inc. vs. Maritime Building Co., Inc. and Myers Building Co., G.R. No. L25885, January 31, 1972, 43 SCRA 93

16

17

32

b.

the voidability of the contract and invalidity of the

demandable in all obligations. (Art.

extra-contractual or quasi-delict)

obligation (and therefore the juridical relation between

the parties).41

117 1)

i.

Any waiver of an action for future fraud is void. (Art.

However, it has been held that quasi-delict may arise even if there is pre-existing contractual

1 17 1) b.

(or

relations; it is the negligence itself which creates the

2. Always Dem a ndable. Responsibility arising from fraud is

a.

Culpa aquiliana

- the parties generally have no pre-existing contractual

will.38

relations, as the act which breaks the contract may

Thus, it

was held

that

also be a quasi-delict.42

a stipulation completely

exempting a party from any liability in case of loss ' notwithstanding its bad faith, fault or negligence is

ii. Note that in

·

culpa aquiliana,

the employer may

avoid liability for the negligence of his employee

void.39

by invoking the defense of due diligence of a good father of

In culpa the family. (Art. 2180) contractual, this defense is not available.43

C. NEGLIGENCE · I. Liability for Negligence. Responsibility ansmg from negligence in the performance of every kind of obligation

c.

is also demandable, but such liability may be regulated by the courts, according to the circumstances. (Art.

obligation

and

corresponds

with

1 173)

As previously discussed, negligence or

may be of three kinds:

the

attributable to the non-performance), shall apply.

a.

culpa

Wanton negligence in effecting the plans, designs, specifications,

Culpa contractual.

-

negligence punished by law, as under

.

circumstances of the persons, of the time and of the place.

(Art.

-

of the Revised Penal Code on criminal

3. Negligence with Bad Faith. When negligence shows bad faith, the provisions of Articles 1 171 (on fraud) and 2201, paragraph 2 (liability for all damages reasonably

in the omission of that diligence which is required by the of the

365

negligence.

1 172)

2. Definition. The fault or negligence of the obliger consists nature

Culpa criminal

Art.

and construction of

a

building

is

equivalent to bad faith. 44

the parties have a pre-existing

contractual relations; the negligence is an incident of the perfonnance ·of the contractual obligation, and

serves to

increase the liability arising from . the

contractual obiigation.40

41

Sps. Batai v. Sps. Torninaga, G.R. No. 164601, September 27, 2006. Carrascoso, 18 SCRA 155 (1966), Singson vs. Bank of !he Philippine Islands, 23 SCRA 1 1 17 (1968), Coca-Coia Bottlers Philippines, Inc. v. CA, G.R. No.110295, October 18, . 1993. 43 el Pardo v. Manila Eler.lrtc Co., 52 Phil. 900, 904 (1929); De Gula v. Manila Electric Railroad and Light Co., 40 Phil. 706, 710 (1920); Manila Railroad Co. v. Compania Transatlanlica, 38 Phil. 875, 889-890 (1918); Herbosa v. CA, G.R. No. 1 19086·7, January 25, 2002. 44 Nakpil & Sons v. CA, G.R. No. L-47851, Oclober3, 1986. "Air France v.

38 See J.B.L. Reyes, Lawyers' Journal, Jan. 31,

1951, p. 47. Philippine Commercial international Bank v. CA, G.R. No. 97785, March 29, 1996. )' Sps. Batai v. Sps. Tominaga, G.R. No. 164601, September 27, 2006. 39

18

19

5. Extraordinary

4. Or dinary Diligence. If the law or contract does not state

Diligence.

Certain

businesses

or

the diligence which is to be observed in the performance,

professions required the "highest degree of care" because

that which is expected of a goodfather of a family shall be

of their nature. Examples:

required. a.

(Art 1173)

a.

This connotes reasonable care which an ordinarily ' prudent person would have observed when confronted

b.

with a similar situation.45

b.

Examples: i.

Placing

Common Carriers

-

for the protection of life and

property. 50 because of ·the fiduciary nature of their relationship with their depositors.5 1

Banks

-

c. · Pharmacies

-

because of their potential harm to human

life.52

a cellphone in a bag and holding on to that

bag is ordinarily sufficient care of a cellphone

D. OTHER VIOLATIONS OF THE OBLIGATION

while travelling on board the LRT.46 ii.

A shipping company exercised due diligence �hen

I.

its vessel sailed only after the main engine,

and every kind of defective performance.53 Examples:

and found to be in good running condition; when vessel

was

manned

by

competent

and

a.

experienced officers; and when the master ordered

Supplier failed to deliver the cinema films subject of a booking contract.5"

an inspection upon the occurrence ofvibrations.47 b.

iii. A store supervisor who did nothing even if it had

Shipping company failed to deliver the cargo within a reasonable time (delay of two months from the

been informed that a counter was unstable and

estimated date of arrival).55

posed a danger to C)lStomers, is negligent.48 iv.

contravene the tenor" of the

obligation includes any illicit act or omission which impairs the strict and faithful fulfillment of the obligation

machineries, and other auxiliaries were checked the

The phrase "in any manner

c.

A towing service which failed to ensure that its

Bank failed to keep a safety deposit box from being flooded and failed to inform the depositor of the flood,

tugboat was free of mechanical problems is negligent, particularly considering that the barge to be towed was wholly dependent on the tugboat for propulsion.49

50

45

Crisostomo v. CA, G.R. No. 138334, August 25, 2003. "Cruz v. Gangan, G.R. No. 143403, January 22, 2003. 47 Wildvailey Shipping Co. v. CA, G.R. No. 1 19602, October 6, 2000. "Jarco Marketing Corp. V. CA, G.R. No. 129792, December 21, 1 999. " Cargolitt Shipping, Inc. vs. L. Acuario Marketing Corp., G.R. No. 146426, June 27, 2006. .

20

Tiu v. Arriesgado, G.R. No. 138060, September 1, 2004; Calaias v. Court of Appeals, 332 SCRA 356 (2000); Kapalaran Bus Line v. Coronado, 176 SCRA 792 (1 989); 51 Bank of the Philippine islands v. CA, G.R. No. 102383, November 26, 1992, 216 SCRA 51; Far East Bank and Trust Company v. Quirimil, G.R. No. 148582, January 16, 2002. 5 2 Mercury Drug Corp. v. De Leon, G.R. No. 165622, October 17, 2008. 53 Arrieta vs. National Rice & Corn Corp., 10 SCRA 79 (1964); Magat vs. Medialdea, 121 SCRA 418 (1983). 54 Acme Films, Inc. vs. Theaters Supply Corporation, 63 Phn. 657 (1936) 55 Maersk Line v. CA, G.R. No. 94761, May 17, 1 993. 21

which led to the destruction of the stamp collection stored therein.56 d.

Supplier

FORTUITOUS EVENT

stopped

terminating

an

deliveries,

existing

thereby

unilaterally

distributorship agreement

without legal justification.'' e.

A. DEFINITION: A fortuitous event (also known as force majeure) is one which could not be foreseen, or which, though foreseen, was inevitable. (Art.

Repairman failed to repair a typewriter and even returned it "in shambles.'"'

f.

VI. EXCUSE FOR NON-PERFORMANCE:

Constructio\l company deviated ·from the plans and specification, and architect provided defective plans

1. "Act of God" if caused by nature, such as earthquakes, epidemics or pestilence,62 floods or storms,63 fire, etc., or

2. "Act of man"

When an obligation, regardless of its source (i.e.,, law, contracts,

breached,

quasi-contracts,

damages.60 a.

the

contravenor

If the obligor acted in

delicts or quasi-delicts), can

be

held

liable

goodfaith, he shall be

is

for

liable for

B. GENERAL RULE

-

No LIABILITY: No person shall be

responsible for fortuitous events.

(Art. 1174)

To exempt the

obligor from liability for a breach of an obligation due to a fortuitous event, the following requisites must concur:65

1. The cause of the breach of the obligation must be' independent of the will of the debtor;

those damages that are the natural and probable

consequences of the breach of the obligation and which

2.

foreseen at the time the obligation was constituted.

3. The event must be such as to render it impossible for the

the parties have foreseen or could have reasonably

(Art. 2200) b.

if caused by humans (other than the

obligor), such as war,64 robbery, rebellion, etc.

and specifications."

2.

1174). It may either be -

In case

debtor to fulfill his obligation in a normal mauner; and

of.fraud, badfaith, malice, or wanton attitude,

the guilty party is liable for all damages which may be reasonably attributed to the non-performance of the obligation.61

The event must be either unforseeable o r unavoidable;

(Art. 2201)

4. The debtor must be free from any participation aggravation of the injury to the creditor.

C. EXCEPTIONS:

111,

or

The obligor is liable for breach even due to

fortuitous events in the following cases:

so

Sia v. CA, G.R. No. 102970, May 13, 1993. " Pacmac, Inc. v. CA, G.R. No. 72405, May 29, 1987. " Chaves v. Gonzales, G.R. No. L-27454, April 30, 1 970. " Nakpil & Sons v. CA, G.R. No. L-47851, October 3, 1986. "Eastern Shipping Lines v. CA, G.R. No. 97412, July 12, 1994. " Magat vs, Medialdea, 121 SCRA 418 ( 1983). 22

" Crame Sy Panco v. Gonzaga, 10 Phil. 646 (1908). "Government v. Bingham, 13 Phil. 558 (1909). "Castro v. Longa, 89 Phil. 581 (1951). " Nakpil & Sons v. CA, G.R, No. L-47851, October 3, 1986, citing Vasquez v. Court of Appeals, 138 SCRA 553; Estrada v. Consolacion, 71 SCRA 423; Austna v. Court of Appeals, 39 SCRA 527: Republic of the Phil. v. Luzon Stevedonng Corp., 21 SCRA 279; Lasam v. Smith, 45 Phil. 657. 23

1. In cases expressly specified by the law. (Art. 1174)

iii. The collapse of a building due to an earthquake would not absolve the architect and the constructor upon showing that there were defects in the design

2. When it is declared by stipulation. (Art. 1174)

and construction of the said building. 70

3.

When the nature o f the obligation requires the assumption of risk.

iv. Malfunction or loss of brake is not a fortuitous

(Art. l 174)

event, because the owner/driver of a vehicle is supposed to know about the conditions of his

4. If the obligor delays, or has promised to deliver the same

vehicle and keep it off the street if mechanically

thing to two or more persons who do not have the same

interest. (Art.

defective. 71

l 165) v.

5. When. the obligor is guilty of contributory fault or n egligence.66

Tire blow-out is also not a fortuitous event if caused by factors which could have been easily

(Art. 1 170)

discovered with a thorough check-up of the 2 vehicle.7

If upon the happening of a fortuitous event, \here concurs a corresponding fraud, negligence, delay or violation or contravention in any manner of the tenor

vi.

A fire which occurred in a vessel is not a fortuitous

of the obligation, which results in loss or damage, the

event where it was shown to have originated from

obligor caimot escape liability.67

a crack in the fuel oil tank which should have been discovered upon inspection of the vessel.73

i.

Street robbery resulting in the loss of jewelry entrusted to the victim may be considered a

vii.

fortuitous event, but the victim must be free of

ii.

A

common carrier which proceeds with the sailing

of its vessel despite knowledge of an incoming

g

contributory fault or negligence (she must have

typhoon is guilty of ne ligence and cannot invoke

taken the necessary precautions).68

fortuitous event.74

Carnapping per se is not a fortuitous event. Thus, a

mere police report of the carnapping is not

. sufficient to exonerate the obligor who lost a car due to the camapping: It must be established that the event was an act of God or was done solely by third parties, and that the obligor had no fault or participation therein.69 10

Nakpil & Sons v. CA, G.R. No. L·47851, October 3, 1986. Thermochem, Inc. v. Naval, G.R. No. 131541, October 20, 2000. 12 La Mallorca v. De Jesus, G.R. No. L-21486, May 14, 19136. " Edgar Cokaliong Shipping Lines, Inc. V. UCPB General Insurance Company, Inc., G.R. No. 146018, June 25, 2003. "Asia Lighterage and Shipping, Inc. v. CA, G.R. No. 147246, August 19, 2003. 11

•

"Austria v. CA, G.R. No. L-29640, June 10, 1971. "Nakpil & Sons v. CA, G.R. No. L-47851 , October 3, 1986. "Ausfna v. CA. G.R. No. L-29640, June 10, 1971. 69 Jimmy Co v. CA, G.R. No. 124922, June 22, 1998. 24

25

may ask that it be undone at the expense of the debtor. (Art. 1168)

Chapter 3

If the obligation is reciprocal, breach by one party will entitle the other party to demand rescission (as an alternative to performance). (Art. 1191) See further discussion below.

Remedies

Note:

I. IN GENERAL

2. Damages. The creditor may also ask for damages in case ofbreach or non-performance by the debtor. (Art. 1170)

Civil obligations necessarily entail the availability of remedies by which they can be enforced by the creditor. A. PRINCIPAL REMEDIES: In general, to enforce an obligation, the creditor may demand performance and/or indemnity for da ma ges.

I. Performance. a. In obligation to give a determinate thing, the creditor may demand specific performance, or to compel delivery of the thing due. (Art. 1165) b. In obligation to give a generic thing, the creditor may demand substituted peiformance, i.e., that the obligation be complied with at the expense of the debtor. c. In obligation to do, the creditor may demand substituted performance, i.e., that the obligation be executed at the cost of the cost of the debtor. The · creditor may also demand that what has been poorly done be undone. (Art. 1167) d. In obligation not to do, the creditor may demand desistance (or "negative performance," as it were) by the debtor from doing the forbidden thing. The creditor may ask for an injunction for this purpose. If the forbidden thing has already been done, the creditor

B.

SATISFACTION OF CLAIMS: When a creditor avails himself of the remedies allowed by law (supra), and he succeeds in obtaining a favorable judgment, he will naturally be interested in getting satisfaction of the award in his favor. He may do so by taking the following successive measures against his debtor:75 (see Art. 1177) I.

Exhaust the properties of the debtor through levying by attachment and execution upon all the property of the debtor, except such as are exempt by law from execution;

2. Exercise all the rights and actions of the debtor, save those personal to him (accion subrogatoria); and

3. Seek rescission o f the contracts executed b y the debtor in fraud of their rights (accion pau/iana). a. The foregoing remedies are successive. Thus, a creditor can resort to accion subrogatoria only after he has exhausted the properties of the debtor. And he can only resort to accion pau/iana after he has resorted the first two remedies. 76

"Adorable v. CA, G.R. No. 1 1 9466, November 25, 1999. Novembe r 25, 1999.

76 Adorable v. CA, G.R. No. 1 1 9466, 26

27

b.

Thus,

accion subrogatoria

and

accion pauliana

are

obligation of the other.79 Example: In a contract of sale, the buyer's

considered "subsidiary remedies m

obligation to pay the purchase price and the seller's obligation to

.•

c.

deliver the thing sold are reciprocal.so

Another measure which the creditor may take is to file an action to declare the nullity of absolutely simulated transfers by the debtor. This is often confused with

In case of breach of obligation, the injured party may choose beiween the fulfillment of the obligation (specific performance)

rescission, but the two remedies are different'8 i.

and the rescission ofthe obligation, with the payment of

In rescission, the transfer by the debtor is real or

A. RESCISSION (OR RESOLUTION)

merely apparent.·

I.

In rescission, there must be intent to defraud (actual or prest1mptive); in simulation, no such

what is incumbent upon him. (Art. a.

iii. In rescission, the creditor must have first exhausted

unjust that a party be held bound to fulfill his promises when the other violates hi.s.82

1v. In rescission, the transfer is set aside insofar only . as necessary to satisfy the creditor's claim; in

Examples: (1)

simulation, the entire transfer is set aside.

boat fails to arrive in time for loading83;

years; in

obligations are defined as those that arise from the

same cause, and in which each party is a debtor and a creditor of the other, such that the obligation of one is dependent upon the

JBL Reyes & Ricardo Puna, Outline·of Philippine Civil Law, Vol. IV (1958 ed.) (hereafter "IV Reyes .& Puna"), pp. 34-35. 78 IV Reyes & Puna 38 (citing Puig Pena and Manresa). 28

(2)

a

lessor may cancel· the lease contract if the lessee fajls to pay rent84;

(3)

a seller may rescind if the

buyer fails to pay the purchase price. 85 b. Rescission or resolution

· n. REMEDIES IN BREACH OF RECIPROCAL OBLIGATIONS

11

a party may cancel its charter

contract with a shipping company if the latter's

simulati.on, the action to set aside the transfer does not prescribe.

Reciprocal

This is predicated on the breach of faith by the the parties. 81 It is retaliatory in character, it being

required.

4

1191)

defendant which is violative of the reciprocity between

the assets of the debtor; in simulation, this is not

In rescission, the action prescribes in

The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with

intent is required.

v.

damages

in either case. (Art. 1191)

actual; in simulation, the transfer is fictitious and

n.

·

under Art. 1191

is for breach

of stipulations, and should not be confused with

"Presbitero, Jr. v. CA, G.R. No. 102432, January 21, 1993. Leonardo v. Maravilla, G.R. No. 143369, November 27, 2002. " Pryce Corporation v. Philippine Amusement and Gaming Corporation, G.R. No. 157480, 6 May 2005; Spouses Francisco v. DEAC Construction, Inc., G.R. No. 171312, February 4, 2008. " Universal Food Corporation v. CA, G.R. No. L-29155, May 13, 1970, 33 SCRA 1 (JBL Reyes, concurring). "ADR Shipping Services, Inc. v. Gallardo, G.R. No. 134873, September 17, 2002. 84 Cruz v. IAC, G.R. No. 72313, December 29, 1989. " Almira v. CA, G.R. No. 1 15966, March 20, 2003. so

29

rescission under Art. 1381, et seq., which is the setting aside of contracts due to

suffered by the

lesion

plaintift'6 (e.g., a creditor seeks the

rescission of a fraudulent disposition of property made by his insolvent debtor in favor of third persons). Rescission under

Art. 1 191. is a principal action, Art. 1381, et seq. is

while rescission under

c.

an extended period because Art. court such discretion. 89

oi economic damage

4. Generally, the power to rescind must be invoked judicially;

it cannot be exercised solely on a party's own judgment

that the other has committed a breach of the obligation.'° a.

as rescinded and act accordingly, even without prior.

that he has no other recourse to repair the damage

court action or before any judicial. pronouncement of

he suffered).

breach. But his unilateral determination is provisional, since the other party may challenge it by suing him in

Rescission presupposes that the obligation or contract

court. It is then the court which will finally determine

exists.

if the rescission should be set aside or affirmed.9t

Thus, one cannot ask for the declaration of b.

prestation.

1 191)

perform his

own

simply withhold

if the injured party has already performed, such as a would have to seek judicial rescission so the court can

compel the infractor to make him whole (e.g., for the buyer to recover the price he has already paid).92

for a slight or casual breach, but only for such breaches

within the stipulated period, the court cannot grant him

to

a buyer can

buyer who has already paid the purchase price, he

The right to rescind is not absolute. It is not permitted

In lease, however, if the lessee fails to pay the rent '

Thus,

payment if the seller is not ready to deliver. However,

3. The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period. (Art. 1 191)

as are so substantial and fundamental as to defeat the object of the parties in entering into the agreement. 88

extrajudicial rescission is feasible

rescind and simply refuse

has chosen specific performance, if the latter should become impossible. (Art.

Practically speaking,

if the injured party has -not yet performed; he can

2. The injured party may also seek rescission, even after he

b.

However, the injured party m�y consider the contract

subsidiary (in the latter, the plaintiff must show

nullity of a contract, and at the same seek its rescission : under Art. 1 1 9 1 . 87

a.

1659 does not give the

c.

Also, in the sale of immovables,

a demand for

rescission must be made either judicially or by notarial

act,

even if it is stipulated that rescission shall take

place upon failure to pay on time. (Art.

1 592)

"Universal Food Corporation v. CA, G.R. No. L·29155, May 13, 1970, 33 SCRA 1 (JBL Reyes, concurring); Ong v. CA, G.R. No. 97347, July 6, 1999. " Pan Pacific Industrial Sales Co., Inc. v. CA, G.R. No. 125283, February 10, 2006. "Universal Food Corporation v. Court of Appeals, 33 SCRA 1, May 13, 1 970; Roque v. Lapuz, 96 SCRA 741, March 31, 1 980; Multinational Village Homeowners Association, Inc. vs. ARA Security & Surveillance Agency, Inc., G.R. No. 154852, October 21, 2004.

" IV Tolentino 180, citing Mina v. Rodriguez, (CA) O.G. Supp., August 30, 1941, p. 65. '° Tan v. CA, G.R. No. 80479, 28 July 1989, 175 SCRA 656, 661-662. Ong v. Bognalbal, G.R. No. 149140, September 12, 2006. " UP v. Delos Angeles, 35 SCRA 102 (1970); Cruz v. IAC, G.R. No. 72313, December 29, 1989. " IV Tolentino 177-178.

30

31

5. Rescission may be availed of by the injuredparty. A party may not seek rescission if he was the one who prevented the .other party from fulfillment of the obligation.93

cannot demand specific performance (or even rescission under Art. a.

in a

contract to sell

a parcel of land, the

payment of the contract price. Until then, ownership remains in the seller. If the · price is not paid, the

rescission may be ordered as to the portion which remains

obligation to convey title does not arise, and the buyer

unfinished. 94

cannot compel performance.99

7. The right to rescind may be waived, expressly or impliedly. unqualified acceptance of late payments is an

implied waiver of the right to rescind on the basis of such late payments. 95

8. In case of rescission, mutual restituiion is required., This

' means bringing the parties back to their original status prior to the inception of the contract.96 They must return to each other. what they respectively reserved (less damages, if proper).

b.

Also, in a contract to sell scrap iron upon the buyer's opening of a letter of credit, the seller cannot be compelled to sell if the buyer failed to open a letter of credit.100

3. Where the plaintiff is t11e party who did not perform his undertaking under the contract, he is not entitled to insist upon the performance of the contract by the defendant, or recover damages by reason of his own breach.101

4. The right to demand specific performance is without

B. SPECIFIC PERFORMANCE

prejudice to the rights of third persons who have acquired

1 . Specific performance is a remedy which is alternative to rescission. The injured party caunot have both. Thus, e.g., , the lessor cannot rescind the contract and recover possession of the leased property, and at the same time demand future rents. 97

2.

e.g.,

obligation to covey title is conditioned upon full

6. In exceptional cases, partial rescission may be ordered. Example: when a construction is already 75% complete,

Example:

Thus,

191 1).98

the thing, in accordance with Articles the Mortgage Law. (Art.

1385 and 1388 and

1 191)

Thus, the obligee may no longer demand specific performance if the thing to be given has already been sold by the obligor to a ihird party in good

The breach contemplated in Art.

1 9 1 1 is the obligor's

faith.

failure to comply with an obligation already extant. If the obligation is subject to a suspensive condition which has not been fulfilled, the obligation did not even arise or exist, and could not have been breached. Thus, the other party

" Penalosa v. Santos, G.R. No. 133749, August 23, 2001. " Spouses Francisco v. DEAC Construction, Inc., G.R. No. 171312, February 4, 2008. 95 Development Bank of the Phlllppines v. CA, G.R. No. 137557, October 30, 2000. 96 Laperal v. Solid Homes, Inc., G.R. No. 130913, June 21, 2005, 460 SCRA 375; Unlad Resources Dev't Corp. v. Dragon, G.R. No. 149338, July 28, 2008. " Rios v. Jacinto, 49 Phil. 7 (1926).'

" Ong v. CA, 310 SCRA 1 (1999). 99 Ong v. CA, 310 SCRA 1 (1999). 100 Visayan Sawmill, Inc. v. CA, G.R. No. 83851, March 3, 1993. 101 Seva vs. Alfredo Beiwin, 48 Phil. 581; Boysaw v. lnterphil Promotions, Inc., G.R. No. L22590, March 20, 1987.

32

33

C. DAMAGES I.

Damages shall be awarded

in

either

Chapter 4

case of specific

Kinds of Obligations

performance or rescission of the obligation.

In case of rescission, the damages must be those

consistent with the abrogation of the contract, and not

.those

which

performance.

effectively

amount

to

specific

Thus, in case a lease is rescinded, the

lessor may demand rental arrears and damages done to 0 the leased property, but not future rents. 1 2

2.

Interest may, in the discretion of the court, be allowed upon damages awarded for breach of contract. (Art.

221 0)

3. In case both parties have committed a breach 1of the obligation -

a.

J.

PURE AND CONDITIONAL OBLIGATIONS A. DISTINCTION BETWEEN PURE AND CONDITIONAL 1. Pure a

a.

This is subject to the discretion of the court on what is equitable under the circumstances. 104

b.

The

necessity

considered

a

time. b.

nothing

not

can

payable upon demand.

2 . Cond itio nal - In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, depends upon the happening of a

A condition is a future and uncertain event, or a past

event unknown'to the parties. (Art. i.

"Future and uncertain event"

102

34

because

is

a loan which provides no condition or period for repayment, 1 06 a "demand note" which is

a.

Rios v. Jacinto, 49 Phil. 7 (1926). '" Ong v. Bognalbal, G.R. No. 149140, September 12, 2006. "' Ong v. Bognalbal, G.R. No. 149140, September 12, 2006. See also art. 2215.

demand

Examples:

extinguished, and each shall bear his own damages.

1 192)

condition,

actual

!OS

condition. (Art. 1 1 81)

(Art.

of an

1 1 79)

prevent a creditor from making a demand any

If it cannot be determined which of the parties first

violated the contract, the same shall be deemed

1 1 79, 1 1 81, 1 193)

A pure obligation is demandable at once. (Art.

The second infractor is not liable for damages at liable are compensated by the mitigation of the 103 first infractor' s liability.

(i.e., a future and uncertain event, or a past

which must necessarily come). (Arts.

1 1 92)

all; the damages for which he would have been

obligation whose performance does not depend on

event unknown to the parties) or a period (i.e., a :future day

The liability of the first infractor shall be equitably tempered by the courts. (Art.

-

condition

105 IV Tolentino 143. '°' Floriano v. Delgado, 1 1 Phil. 154 (1908).

35

1 1 79)

Despite the language of Art.

to "future

or

uncertain event," a condition

must be both future

and

uncertain.

1 . Suspensive and Resolutory

If the

element of uncertainty is lacking, it becomes a

period,

B. KINDS OF CONDITIONS

1 179 which refers

which is a "day certain" or that which

.

a.

must necessarily come, although it may not be

known when. (Art.

Suspensive condition (also known as condition precedent) - if the acquisition of rights is dependent on the condition.

1 193)

Thus, a

condition is uncertain to hapjJen, while a period is certain to come. Passing the bar is

b.

Resolutory subsequent)

condition -

(also

known

as

condition

if the extinguishment of rights already '

acquired is dependent on the condition.

a condition; while death of a particular person is period. ii.

2. Potestative, Casual or Mixed a.

"Past event unknown to the parties"

Potestative

Condition - if the fulfillment of the

condition depends on the will of one of the parties.

A

past . . event, having happened already, is

always

certain.

It

knowledge

of that

uncertain.

Example:

is

only

the

parties'

event which may

be

after bar exam results

were released but before they were published,

i.

The conditional obligation (not just the condition) is

void

when the fulfillment of the condition

depends upon the

sole will of the debtor. (Art.

1 1 82)

a father says to his son, "I will give you a car if you passed the bar exams." b.

If the condition is

suspensive,

(1)

E.g., when the obligor says "I will pay you when I like it (or when I consider it properJi'

In this case, the obligation is illusory or not

the obligation is not

meant to be fulfilled.1°'

demandable until the performance of the condition. When the consent of a party to a contract is given

An offer to pay the value of the stock

subject to .the fulfillment of a suspensive condition,

subscription after the offerer had harvested

the contract is not perfected unless that condition is

fish is a condition dependent upon her sole

first complied with.107

will and, therefore, potestative in nature and renders the obligation void.109

c.

If the

condition is

resolutory,

the obligation

is

demandable at once, but without prejudice to the effects of the happening of the event. (Art.

1 179)

(2)

However, when the debtor binds himself to pay when his means permit him to do so, the obligation shall be deemed to be one

'°' Ruperto v. Kosea, 26 Phil 227, December 4, 1913; Gonzales v. Heirs of Cruz, G.R. No, 131784, September 16, 1999. 36

'°' Vda. De Mistica v. Spouses Nagial, G.R. No. 137909, December 1 1 , 2003. '°'Trillana v. Quezon College, Inc., 93 Phil. 383 (1953). 37

with a

period. (Art. 1 1 80) provision of

.l

It is subject to the

Art. 1 1 97,

11.

i.e., the creditor's

i.e., the debtor had already decided to sell h!s property, which sale is dependent on external

remedy is to file an action to fix a period.

factors like the availability of a buyer.112

(3) This rule applies only when the condition is

suspensive. 110

When the potestative condition

resolutory, the obligation is valid.111 , Example: "I will allow you to use my house until I want to get it back." is

ii.

if

the

fulfillment of the condition depends on the

sole

The

conditional

obligation

is

valid

"I will give you this ring ifyou marry my son."

3. Impossible and Unlawful Conditions a. .

ii.

Conditions which

impossible,

impossible

are

unlawful

give birth; or

juridically

because contrary to good customs or

public policy or prohibited by law. (Art.

b. Casual Condition - if the fulfillment of the conditi�n

depends upon chan�e or the will of third persons (not

-

the will of any of the contracting parties).

1 1 83)

Example: payment of money conditioned upon

killing someone or seducing a third person's

i.

The conditional obligation is valid. (Art.

ii.

Example: "I will give you my umbrella if it rains after our dinner," or "I will give you my car ifyour son learns how to drive."

wife.

1 1 82) b.

The impossible or unlawful conditions shall annul the

obligation which

depends upon them. (Art.

1 183)

Note that this rule applies only to contracts or

Mixed Condition - if the fulfillment of the condition

onerous obligations.

and other circumstances, including the will of third

provisions) with impossible or unlawful condition,

i.

only the (Arts.

The conditional obligation is valid. (Art.

Vda. De Mistica v. Spouses Nagiat, G.R. No. 137909, December 1 1 , 2003. Taylor vs. Uy Tieng Piao, 43 Phil. 873 (1922). 38

In gratuitous obligations

(simple/remuneratory donations and testamentary

depends upon the will of one of the contracting parties

persons.

111

Conditions which are physically

Example: condition that a man

Example: "I will give you P500 ifyou wart it" or "I will give you my house if you enter the priesthood."

110

These conditions refer to: i.

will of the creditor.

c.

Examples: "I will pay you as soon as I receive the proceeds from the sale of my property in Spain",

condition

is void or deemed not imposed.

727, 873) This is because in the latter, the

true consideration is the liberality of the donor or

1 1 82)

testator.

11'

Hermosa v. Longora, 93 Phil. 977 (1953). 39

2. The condition that some event will not happen at a determinate time shall render the obligation effective from the moment the time indicated has elapsed, or if it has · become evident that the event cannot occur. (Art. 1 1 85)

c. If the obligation is divisible, that part thereof which is not affected by the impossible or unlawful condition shall be valid. (Art. 1183)

Example: "I will pay you Pl,000 ifyou give me your book, and an additional P500 ifyou can make it dance. " The first obligation is valid, but the

Example: payment of money to X and Y on the

condition that they will not marry each other. until they are both 25 years old - the obligation becomes effective if they both reach their 25th birthday without marrying each other, or if Y dies before her 25th birthday.

second is not. d. The condition not to do an impossible thing shall be considered as not having been agreed upon. (Art. 1 183) The obligation remains valid and becomes a pure one.

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. (Art. 1 1 85) .

Example: "I will pay you Pl, 000 if you do not make this car swim." e. Art. 1 1 83 refers to the impossibility of condition existing at the time of the creation of the obligation; in such a case, the obligation is rendered void ab initio. It should not be confused with exfinguishment of the obligation due to impossibility of performance (Art. 1266), or because it has become certain that the condition will not be fulfilled (Art. 1 1 84). 113

3 . The condition shall be deemed fulfilled when the obliger voluntarily prevents its fulfillment. (Art. 1 1 86) a. Example: .the manager under a management contract - who is unjustly prevented by the other party to perform his management duties is still entitled to his management fees.114

C. CONSTRUCTIVE FULFILLMENT

b. The obliger's prevention must be unjustifiable for it to constitute constructive fulfillment. If there is legal or contractual basis for · the prevention, there is no constructive fulfillment.115

1. The condition that some event happen at a determinate time shall extinguish the obligation as soon as the time expires or if it has become indubitable that the event will not take place. (Art. 1 1 84)

Examples: if the owner of the house stops work on Example: payment of money on the condition that X must pass the bar exams by 2015 the obligation is extinguished if 2015 expires without X passing the bar, or ifX dies before then.

his house because the contractor violated certain city ordinances, or if the obliger cancels a contract upon a an stipulation that he has a right to do so.116

-

1 14

Nielson & Company, Inc. v. Lepanto Consolidated Mining, G.R. No. L-21601, Decembe r 17, 1966. m 1v Tolentino 162. 11' Taylo r v. Uy Tieng Piao, 43 Phil. 873 (1922).

"' IV Tolentino 156·156. 40

4t

c.

(a) when it

(b) when it goes

obligor voluntarily causes its fulfillment, the condition

{c) when it

Fulfillment of

Suspensive Condition.

Before the

iii. When the thing deteriorates

govern:

creditor; (Art.

The creditor may bring the appropriate actions for the

preservation of his right. (Art. 1 1 88)

iv. Ifit deteriorates the

creditor may also cause the registration of deeds of

sale or mortgage.

v.

If the debtor has paid by mistake, he may recover the

1 1 88)

to give (a determinate thing), the following rules shall be observed in case of the improvement, loss or deterioration of the thing during the pende11cy of the condition:

(2)

(1) the rescission of

its

fulfillment,

with

(Art. 1 1 89)

If the thing is

improved by its nature, or by time,

creditor; (Art.

1 1 89)

improved at the expense of the debtor,

he

shall have no other right than that granted to the

usufructuary.

�

(Art. 1 189)

In this case, the debtor may remove the

improvements, but only if it will not cause damage to the thing. (Art. 579)

lost through the fault of the debtor, 1 1 89)

The debtor

may also set off the improvement� against the

he shall be obliged to pay damages; (Art.

42

and

the improvement shall inure to the benefit of the

vi. If it is

lost without the fault of the debt r, the obligation shall be extinguished; (Art. 1 1 89)

The thing is lost-

obligation

Appreciation in value of land is generally a consequence of nature and time. 1 1 7

In case of obligation

If the thing is

through the fault of the debtor, the

indemnity for damages in either case;

(iii) to compel execution of public instrument; (iv)

ii.

-

creditor may choose between

to enjoin debtor from concealing his property or

If the thing is

1 1 89)

thing in its deteriorated condition.

deterioration of the object of the obligation, or (ii)

same. (Art.

without thefault of the

This means that the creditor must accept the

from doing things that would cause the loss or

1.

in such a way that its

debtor, the impairment is to be borne by the

Examples: (i) creditor may sue to enjoin the qebtor

c.

disappears

recovered (e.g., jewelry is stolen).

suspensive condition is fulfilled, the following rules

b.

out ofcommerce (e.g., land is

existence is unknown or it cannot be

D. EFFECTS

a.

(e.g., house is burned

expropriated by the government), or

is not considered fulfilled.

I. Before

perishes

down), or

By analogy, if the condition is resolutory and the

1 11

Mactan Cebu International Airport Authority v. Tudtud, G.R. No. 174012, November 14, 2008. Heirs of Tito Moreno v. Mactan Cebu International Airport Authority, G.R. No. 156273, October 15, 2003. 43

-- '

damage or deterioration he may have caused. (Art. 580)

3. Upon Fulfillment of Resolntory Condition a.

2. Upon Fulfillment of Suspensive Condition a. The effects of a conditional obligation to give, once the condition has been fulfilled, shall retroact to the day of t'1e constitution of the obligation. (Art. 1 1 87) i.

Thus, the creditor's right will generally prevail over acts or dispositions made by the debtor during the pendency of the condition.

ii. However, the debtor is generally not obliged to give the fruits or interests received during the 1 pendency of the condition. (!) If the obligation is reciprocal, the fruits and interests during the pendency of the condition shall be deemed to have been mutually compensated. (Art. 1 1 87) (2) If the obligation is unilateral, the debtor shall appropriate the fruits and interests received. (Art. 1 1 87) Exception, if there is a contrary intention, whether express or implied from the nature and circumstances of the obligation. (Art. 1 1 87) b. In obligations to do and not to do, the courts shall deten,nine, in each case, the retroactive effect of the condition that has been complied with. (Art. 1 1 87)

44

In obligations to give upon the fulfillment of resolutory condition, the obligation is extinguished and the parties shall return to each other what they have received. (Art. 1 190) -

In case of loss, deterioration or improvement of the thing, the provisions of Art. 1 1 89 (supra) shall be applied to the party who is bound to return. b. In obligations to do and not to do upon the fulfillment of the resolutory condition, the courts shall determine, in each case, the effect of the extinguishment of the obligation. (Art. 1 1 90, in rel. to Art. 1 1 87) -

II. OBLIGATIONS WITH A PERIOD A. IN GENERAL 1. Period or Term. Obligations with a period or term are those which become demandable or which terminate upon the arrival of a "day certain". A day certain is that which must necessarily come, although it may not be known when. (Art. 1 1 93) a. Examples: January 1, 2025 is a day certain because it must necessarily come. The death of a certain person, X, is also a day certain, because it must necessarily come, although it is not known when. b. 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 Art. 1 1 93. Examples: the sale

45

by the debtor of his other properties118 or the obtaining

arrival of the period, he may recover the thing paid or

of a loan from a bank.1 19

delivered, with the fruits and interests. (Art.

Otherwise put, a event, as

period is a fature and certain opposed to a condition which is a future

3. Retroactivity.

1 195)

Unlike a condition, a period has no effect

on the existence of the obligation, but only on their demandability or performance.

and uncertain event.120

Thus, the arrival of a

period does not have a retroactive effeci.121

2. Period may be Susp ensive or Resolutory. a.

· Obligations with Suspensive Period (ex die)

- they

are obligations for ";hose fulfillment a day certain has

been fixed, and shall be demandable only when that day comes. (Art.

Examples: January

C. BENEFIT OF THE PERIOD I.

In General.

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. (Art.

1 193) A promissory note payable ,on

1

a.

1 196)

Thus, in such a case, the debtor may not be compelled to perform the obligation before the arrival of the

2025; a service which must be performed

period, and the creditor may not be compelled to

one year from the execution of the contract.

accept performance before the arrival of the period. b.

Obligations with Resolutory Period (in diem)-

they

take effect at once, but terminate upon arrival of the day certain. (Art.

Example:

b.

Also, because the term is generally for the benefit of both creditor and debtor, a contract whose term has

1 1 93)

A usufruct that will end on

1

already expired may only be renewed if both parties consent. 122

January

2025. 2. Exception.

The period may be established in favor of

either the creditor or the debtor, if it should so appear from

B. EFFECTS

the tenor of the obligation or other circumstances. (Art.

1. Loss, Deterioration or Improvement.

In case of loss,

1 1 96)

deterioration or improvement of the thing before the arrival of the day certain, the rules in Article obligations shall be observed. (Art.

1 1 89 on conditional 1 1 94)

a.

If the period is for the benefit of the debtor, he may not

be compelled to perform the obligation before the arrival of the period, but he

2. Advance Payment by Mistake. If the

obligor is unaware

may

validly do so (pre­

payment) if he so wishes.

of the period or believes that the obligation has become due and demandable, and thus pays or delivers before the 1 18

Dandoy v. CA, G.R. No. 150089, August 28, 2007. 110 Berg v. Magdalena Estate, Inc., 92 Phil. 110. 120 Dandoy v. CA, G.R. No. 1 50089, August 28, 2007. 46

121 IV Tolentino 186-187. 122 Fernandez v. CA, 166 SCRA 577 (1988); LL and Co. v. Huang Chao Chun, G.R. No. 142378, March 7, 2002; Josefa v. San Buenaventura, G.R. No. 163429, March 3, 2006. 47

Example:

If the obligation provides that payment d.

may be made "within" the stipulated period, or "on

When

the

debtor

violates

any

undertaking,

in

or b�fore" the stipulated date, the period is for the

consideration of which the creditor agreed to the

benefit of the debtor.

period; or

The debtor then has the

right, but not the duty, to pay before the deadline. e. b.

If the period is for the benefit of the creditor, he may .not be compelled to accept performance before the arrival of the period, but he

may

When the debtor attempts to a.bscond.

D. FIXINGOF PERIOD

validly demand

I. When Applicable. The courts may fix the duration of the

performance if he so wishes.

period in the following cases: The creditor may decline pre-payment for various

a._ If the obligation does not fix a period, but from its

reasons - he may want the interest on his money,

nature and the circumstances it can be inferred that a

he may want to avoid the risk of holding his

period was intended. (Art. 1 197)

money, or the risk of near-term deprecia\ion in currency, etc.

'

1.

Examples: When the debtor undertakes to pay "as

ii.

Example: When a donation imposes conditions but

3. Loss of the Benefit of the Period. The debtor. shall lose

the right to make use of the period (i.e., the creditor may

demand perfom1ance by the debtor even before the arrival of the period) in any of the following cases: a.

(Art. 1 198)

does not fix the period within which to comply 2 with them, the court must fix the perio.d. 1 7

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

b.

12 soon as possible,"1 24 or as soon as he has money, 5 126 or when his means permit or "little by little", . him to do so. (Art. 1 1 80)

1 In one case, 28 the Supreme Court held that

When he does not furnish to the creditor the guaranties

compliance with condition to build a school

or securities which he has promised;

had already been delayed for more than

50

years, it was no longer necessary to fix a c.

When by his own acts he has impaired said guaranties

period.

The correctness of this ruling is

or securities after their establishment, and ·when through a fortuitous event they disappear, unless he' immediately gives new ones equally satisfactory; Debtor's failure to renew or extend the 12 surety bond he furnished. 3

Example:

123

Gaile v. Fonacier, G.R. No. L-11827, July 31, 1961. 48

1"

Gonzales v. Jose, 66 Phil. 369 (1938). See Patente v. Omega, 93 Phil. 218 (1953). The Supreme Court should have applied Article 1197 (Art. 1 1 28, old CC), instead of Art. 1182 (Art. 1 1 1 5, old CC). The clause "as soon as possible or as soon as I have monej' indicates that a period was intended. Besides1 application of Art. 1182 would have resulted in a pure obligation, instead of one where the court may fix the period. 120 Seoane v. Franco, 24 Phil. 309 (1913). m Barretto v. City of Manila, 7 Phil. 416 (1907). 1 28 Central Philippine University v. CA, 246 SCRA 51 1 (1995). 12s

49

doubtful. First, there is no such exoeption in

1 1 97 requiring the fixing of a period. Second, it is necessary to fix a period if only to

Art.

Ill. ALTERNATIVE AND FACULTATIVE OBLIGATIONS

A. ALTERNATIVE OBLIGATIONS, IN GENERAL

fix the time from which the 4-year prescriptive

period for revocation should be reckoned.129

I. Alternative Obligation.

In an alternative obligation, there

is more than one object, and the fulfillment of one is

b.

If the period depends

upon the will of the debtor.

(Art.

1 1 97) But if the performance of the obligation depends

upon

the

sole

will

of. the

debtor

In case of

breach of reciprocal obligation,

a.

1 1 91)

(i) obligation to deliver a TV

or

a

either a TV or a refrigerator, not both; (ii) obligation of

1 1 82)

a fire insurance company to rebuild the insured house destroyed by fire or to pay its value.133

the court

may fix a period '(instead of ordering rescissi