Platon Notes - Obligations & Contracts (Gonzales)

OBLIGATIONS AND CONTRACTS Professor: Atty. Alden C. Gonzales Source: Tolentino, Arturo M. (1991). COMMENTARIES AND JURISPRUDENCE ON THE CIVIL CODE OF THE PHILIPPINES (Vol. 4). Quezon City: Central Lawbook Publishing Co., Inc. Contents Title I. - OBLIGATIONS ............................................................................ 1 Chapter 1. General Provisions........................................................... 1 Chapter 2. Nature and Effect of Obligations ..................................... 5 Chapter 3. Different Kinds of Obligation ......................................... 13 SECTION 1. - Pure and Conditional Obligations Obligations ......................... 14 SECTION 2. - Obligations Obligations with a Period...................................... 22 SECTION 3. - Alternative Alternative Obligations ......................................... 25 SECTION 4. - Joint and Solidary Obligations............................... 28 SECTION 5. - Divisible and Indivisible Indivisible Obligations Obligations...................... 32 SECTION 6. - Obligations Obligations with a Penal Clause ............................ 33 Chapter 4. Extinguishment of Obligations - General Provisions ...... 35 Section 1. - Payment or Performance........................................ 35 SUBSECTION 1. - Application Application of Payments................................. 41 SUBSECTION 2. - Payment by Cession ....................................... 42 SUBSECTION 3. - Tender of Payment and Consignation ............ 42 Section 2. - Loss of the Thing Due .............................................. 45 Section 3.  – Condonation or Remission of the Debt .................. 47 Section 4.  – Confusion or Merger of Rights ............................... 50 Section 5.  – Compensation Compensation ........................................................ 50  – Section 6.  Novation................................................................. 53 Title II. - CONTRACTS CONTRACTS ............................................................................ 58 Chapter 1. General Provisions......................................................... 58 Chapter 2. Essential Requisites of Contracts - General Provisions .. 64 Section 1. - Consent Consent ................................................................... 64 Section 2. - Object of Contracts ................................................. 77 Section 3. - Cause of Contracts .................................................. 79 Chapter 3. Form of Contracts.......................................................... 81 Chapter 4. Reformation of Instruments (n) ..................................... 82 Chapter 5. Interpretation Interpretation of Contracts ........................................... 84 Chapter 6. Rescissible Contracts ..................................................... 85 Chapter 7. Voidable Contracts ........................................................ 90 Chapter 8. Unenforceable Contracts (n) ......................................... 93 Chapter 9. Void and Inexistent Contracts ....................................... 95

BOOK IV— IV—OBLIGATIONS AND CONTRACTS

Title I. - OBLIGATIONS

Chapter 1. General Provisions Art. 1156. An obligation is a juridical necessity to give, to do or not to do  ________ Obligation, Defined  -It is a tie or bond recognized by law by virtue of which one is bound in favor of another to render something--and this may consist in giving a thing, doing a certain act, or not doing a 1 certain act Juridical necessity, Defined  -Obligation is a  juridical necessity   because in case of noncompliance, the courts of justice may be called upon by the aggrieved party to enforce its fulfillment or, in default thereof, the economic value that it represents Essential Requisites of an Obligation: 1. A passive A  passive subject  (called   (called debtor or obligor) – the person who is bound to the fulfillment of the obligation; he who has a duty 2. An active subject   (called creditor or obligee)  –  the person who is entitled to demand the fulfillment of the obligation; he who has a right 3. Object or prestation (subject prestation (subject matter of the obligation)  – the conduct required to be observed by the debtor; has an economic value or susceptible of pecuniary substitution in case of non-compliance 4. A juridical A juridical or legal tie (also tie (also called efficient cause) cause) – that which binds or connects the parties to the obligation. The tie in an obligation can easily be determined by knowing the source of the obligation Note: The Note: The prestation  prestation is  is not a thing but the particular conduct of the debtor. It may consist in giving, doing, or not doing something 1. Obligation to give give - consists in the delivery of a movable or immovable thing to the creditor 2. Obligation to do  do  - covers all kinds of works or services whether physical or mental 3. Obligation not to do do - consists in refraining from doing some acts 2

Form of Obligations 1. The law does not require any form of obligations arising from contracts for their validity or binding force 1  The term obligation  obligation  is derived from the Latin word obligatio  obligatio  which means tying or tying or binding 2 Refer to the manner in which an obligation is manifested or incurred. It may be oral, or in writing, or partly oral and partly in writing

2. Obligations arising from other sources do not have any form at all Obligation, right, and wrong, Distinguished  OBLIGATION RIGHT WRONG The act or The power which a (Cause of action or performance person has under the injury ), ), an act or which the law, to demand from omission of one party law will another any in violation of the legal  enforce prestation right or rights of another. Essential Elements of a legal wrong or injury: 1. A legal right in favor of a person (creditor/obligee/plaintiff) 2. A correlative legal obligation on the part of another (debtor/obligor/defendant); to respect or not to violate said right; and 3. An act or omission by the latter in violation of said right with resulting injury or damage to the former An obligation on the part of a person cannot exist without a corresponding right in favor of another, and vice versa. versa. A wrong or cause of action only arises at the moment a right has been transgressed or violated Nature of obligations (De (De Leon) Leon) CIVIL NATURAL Obligations which give to the Obligations, not being based creditor or obligee a right on positive law but on equity under the law to enforce their and natural law, do not grant performance in courts of a right of action to enforce  justice their performance although in case of voluntary fulfillment by the debtor, the latter may not recover what has been delivered or rendered by reason thereof CIVIL An obligation, which if not fulfilled when it becomes due and demandable, may be enforced in court through action

NATURAL A special kind of obligation which cannot be enforced in court but which authorizes the retention of the voluntary payment or performance made by the debtor  ________

MORAL An obligation which arises not from positive law but from moral law developed by the church and not enforceable in court. It deals with the spiritual obligation of a person in relation to his God or Church

Art. 1157. Obligations arise from: (1) Law; (2) Contracts; (3) Quasi-contracts; (4) Acts or omissions punished by law; and (5) Quasi-delicts  ________ Sources of Obligation 1. Ex-lege  Ex-lege  or Law  –  when they are imposed by law itself (i.e. Obligation to pay taxes)

2. Ex-contractu or Contracts  –  when they arise from the stipulation of the parties (i.e. payment of loan with interest as agreed upon) 3. Quasi-contractu or Quasi-contracts  –  when they arise from lawful, voluntary and unilateral acts which are enforceable to the end that no one shall be unjustly enriched or benefited at the expense of another. In a sense, these obligations may be considered as arising from law (i.e. solutio indebiti ) 4. Ex-maleficio or Ex-maleficio or Crimes (acts or omissions punished by law)  – when they arise from civil liability which is the consequence of a criminal offense (i.e. duty of the culprit to pay actual damages for causing the death of a person) 5. Quasi-maleficio or Quasi-maleficio or Quasi-delicts (tort) – when they arise from damage caused to another through an act or omission, there being fault or negligence, but no contractual relation exists between the parties (i.e. duty of the tortfeasor to pay damages for injuries or damages due to his fault, omission or negligence) Sources classified 1. Those emanating from law ; and 2. Those emanating from  private acts  acts  which may be further subdivided into: (a) those arising from licit acts, acts, in the case of contracts and quasi-contracts; and (b) those arising from illicit acts, acts, which may be either punishable in the case of delicts or crimes, or not punishable in the case of quasi-delicts or torts Actually, there are only two sources: LAW and CONTRACTS, because obligations arising from quasi-contracts, delicts, and 3 quasi-delicts are really imposed by law Note:  Note:  The enumeration of the sources of obligations is exclusive. No obligation exists if its source is not one of those 4 enumerated  ________ Art. 1158. Obligations derived from law are not presumed. Only those expressly determined in this Code or in special laws are demandable, and shall be regulated by the precepts of the law which establishes them; and as to what has not been foreseen, by the provisions of this Book  ________ Legal obligations or obligations arising from law are NOT presumed because they are considered a burden upon the obligor. To be demandable, they must be clearly set forth in the law In Dela Cruz v. Northern Theatrical Enterprises, Enterprises, 95 Phil. 739, it was held that an employer has no obligation to furnish free legal assistance to an employee (movie house security guard), who was forced to engage a lawyer to defend him in court for having shot and killed a gate crasher, because there is no law requiring it  Under Article 1158, special laws  laws  refer to all other laws not contained in the Civil Code (i.e. Corporation Code, Negotiable Instruments Law, Insurance Code, NIRC, RPC, Labor Code, etc)  ________ 3 see 4 see

Leung Ben v. O’Brien, O’Brien, 38 Phil. 182 Navales v. Rias, Rias, 8 Phil. 508

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2. Obligations arising from other sources do not have any form at all Obligation, right, and wrong, Distinguished  OBLIGATION RIGHT WRONG The act or The power which a (Cause of action or performance person has under the injury ), ), an act or which the law, to demand from omission of one party law will another any in violation of the legal  enforce prestation right or rights of another. Essential Elements of a legal wrong or injury: 1. A legal right in favor of a person (creditor/obligee/plaintiff) 2. A correlative legal obligation on the part of another (debtor/obligor/defendant); to respect or not to violate said right; and 3. An act or omission by the latter in violation of said right with resulting injury or damage to the former An obligation on the part of a person cannot exist without a corresponding right in favor of another, and vice versa. versa. A wrong or cause of action only arises at the moment a right has been transgressed or violated Nature of obligations (De (De Leon) Leon) CIVIL NATURAL Obligations which give to the Obligations, not being based creditor or obligee a right on positive law but on equity under the law to enforce their and natural law, do not grant performance in courts of a right of action to enforce  justice their performance although in case of voluntary fulfillment by the debtor, the latter may not recover what has been delivered or rendered by reason thereof CIVIL An obligation, which if not fulfilled when it becomes due and demandable, may be enforced in court through action

NATURAL A special kind of obligation which cannot be enforced in court but which authorizes the retention of the voluntary payment or performance made by the debtor  ________

MORAL An obligation which arises not from positive law but from moral law developed by the church and not enforceable in court. It deals with the spiritual obligation of a person in relation to his God or Church

Art. 1157. Obligations arise from: (1) Law; (2) Contracts; (3) Quasi-contracts; (4) Acts or omissions punished by law; and (5) Quasi-delicts  ________ Sources of Obligation 1. Ex-lege  Ex-lege  or Law  –  when they are imposed by law itself (i.e. Obligation to pay taxes)

2. Ex-contractu or Contracts  –  when they arise from the stipulation of the parties (i.e. payment of loan with interest as agreed upon) 3. Quasi-contractu or Quasi-contracts  –  when they arise from lawful, voluntary and unilateral acts which are enforceable to the end that no one shall be unjustly enriched or benefited at the expense of another. In a sense, these obligations may be considered as arising from law (i.e. solutio indebiti ) 4. Ex-maleficio or Ex-maleficio or Crimes (acts or omissions punished by law)  – when they arise from civil liability which is the consequence of a criminal offense (i.e. duty of the culprit to pay actual damages for causing the death of a person) 5. Quasi-maleficio or Quasi-maleficio or Quasi-delicts (tort) – when they arise from damage caused to another through an act or omission, there being fault or negligence, but no contractual relation exists between the parties (i.e. duty of the tortfeasor to pay damages for injuries or damages due to his fault, omission or negligence) Sources classified 1. Those emanating from law ; and 2. Those emanating from  private acts  acts  which may be further subdivided into: (a) those arising from licit acts, acts, in the case of contracts and quasi-contracts; and (b) those arising from illicit acts, acts, which may be either punishable in the case of delicts or crimes, or not punishable in the case of quasi-delicts or torts Actually, there are only two sources: LAW and CONTRACTS, because obligations arising from quasi-contracts, delicts, and 3 quasi-delicts are really imposed by law Note:  Note:  The enumeration of the sources of obligations is exclusive. No obligation exists if its source is not one of those 4 enumerated  ________ Art. 1158. Obligations derived from law are not presumed. Only those expressly determined in this Code or in special laws are demandable, and shall be regulated by the precepts of the law which establishes them; and as to what has not been foreseen, by the provisions of this Book  ________ Legal obligations or obligations arising from law are NOT presumed because they are considered a burden upon the obligor. To be demandable, they must be clearly set forth in the law In Dela Cruz v. Northern Theatrical Enterprises, Enterprises, 95 Phil. 739, it was held that an employer has no obligation to furnish free legal assistance to an employee (movie house security guard), who was forced to engage a lawyer to defend him in court for having shot and killed a gate crasher, because there is no law requiring it  Under Article 1158, special laws  laws  refer to all other laws not contained in the Civil Code (i.e. Corporation Code, Negotiable Instruments Law, Insurance Code, NIRC, RPC, Labor Code, etc)  ________ 3 see 4 see

Leung Ben v. O’Brien, O’Brien, 38 Phil. 182 Navales v. Rias, Rias, 8 Phil. 508

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Art. 1159. Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith  ________ This article expresses the principle of autonomy of will  Contractual obligations or obligations arising from contracts or voluntary agreements presupposes that the contracts entered into are VALID and ENFORCEABLE GR: Obligations arising from contracts are primarily governed by the stipulations, clauses, terms and conditions of their agreements. XPN: They may not be enforced totally if their prestations are unconscionable or unreasonable

Contract, Defined -A meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service 1. Binding force  –  obligations arising from contracts have the force of law between the contracting parties. This does not mean, however, that contract is superior to th e law. As a source of enforceable obligation, contract must be valid and it cannot be valid if it is against the law 2. Requirement of a valid contract – A contract is valid if it is not contrary to law, morals, good customs, public order, and public policy 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 keeping with good faith, usage and law The falsification of a contract by the unauthorized insertion of additional stipulations does not void the whole contract, which must still be enforced, disregarding only the additional stipulations Pre-contractual obligations: The offer must be CLEAR and DEFINITE, thus leading the offeree in good faith to incur expenses in the expectation of entering into the contract; and withdrawal of the offer must be without legitimate cause Compliance in good faith, Defined  -Compliance or performance in accordance with the stipulations or terms of the contract or agreement. Sincerity and honesty must be observed to prevent one party from taking unfair advantage over the other  ________ Art. 1160. Obligations derived from quasi-contracts shall be subject to the provisions of Chapter 1, Title XVII, of this Book  ________ Quasi-contract, Defined  -That juridical relation resulting from lawful, voluntary and unilateral acts by virtue of which the parties become bound to each other to the end that no one will be unjustly enriched or

benefited  at the expense of another . It is a kind of contract created without the consent of one party but whose missing consent is given by the law Obligations arising from quasi-contracts are IMPLIED in law CONTRACT There is a meeting of the minds or consent; the parties must have deliberately entered into a formal agreement

QUASI-CONTRACT There is no consent but the same is supplied by fiction of law; to prevent injustice

Characteristics distinguished from other sources of obligation QUASI-CONTRACT QUASI-CONTRACT Other sources The act or acts executed must In a delict or crime, the act or be lawful  acts are unlawful The act or acts executed must In quasi-delict, the act or acts be voluntary  involved constitute a fault, negligence or lack of foresight The act or acts executed must In an ordinary contract, there be unilateral is a meeting of the minds of the two parties Kinds of Quasi-contracts 1. Negotiorum gestio  –  the voluntary management of the property or affairs of another without the knowledge or consent of the latter  – the juridical relation which is created when 2. Solutio indebiti  – something is received when there is no such right to demand it and it was unduly delivered through mistake

Note:  Note:  Since a quasi-contract is unilateral contract created by the sole act or acts of the gestor, there is no express consent given by the other party. The consent needed in a contract is provided by law through presumption through presumption  ________ Art. 1161. Civil obligations arising from criminal offenses shall be governed by the penal laws, subject to the provisions of Article 2177, and of the pertinent provisions of Chapter 2, Preliminary Title, on Human Relations, and of Title XVIII of this Book, regulating damages  ________ Oftentimes the commission of a crime causes not only moral evil but also material damage. From this fact the rule has been established that: Every person criminally liable for a felony is 5 also civilly liable Civil liability includes: 1. Restitution; Restitution; 2. Reparation for the damage caused; and 6 3. Indemnification for Indemnification for consequential damages To hold employers subsidiarily liable for the crime of an employee, it must be committed in the performance of the functions or duties of the employee GR: After a criminal action has been commenced, no civil action arising from the same offense can be prosecuted

5 RPC, 6 RPC,

Art. 100 Art. 104

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XPN: 1. When an independent civil action is allowed by law

Note: Upon the filing of a criminal action, there is impliedly filed also a civil action, unless the offended party expressly reserves his right to institute a separate civil action 2. Cases such as: (a) obligations not arising from the act or 7 omission claimed to be criminal , (b) violations of constitutional 8 rights and liberties of individuals , (c) defamation, fraud or 9 physical injuries , (d) refusal or failure of members of a local 10 police force to render protection to life or property , and (e) 11 quasi-delicts The amount of proof or evidence that is required to recover on civil liability arising from a crime: 1. If the claim is made in the criminal case, then the proof of facts giving rise to the liability must be beyond reasonable doubt  2. If the claim for indemnity is made in a civil case, a mere  preponderance of evidence is necessary GR: Acquittal does not affect civil liability XPN: Where the judgment of acquittal contained a declaration that no negligence can be attributed to the accused and that the fact from which the civil action might arise did not exist, such acquittal in the criminal action carried with it extinction of civil responsibility arising therefrom  ________

Art. 1162. Obligations derived from quasi-delicts shall be governed by the provisions of Chapter 2, Title XVII of this Book, and by special laws  ________ Quasi-delict (culpa aquiliana), Defined  -An act or omission by a person (tortfeasor) which causes damage to another in his person, property, or rights giving rise to an obligation to pay for the damage done, there being fault or negligence but there is no pre-existing contractual relation between the parties Requisites: 1. There must be an act or omission; and fault or negligence; 2. There must be damage or injury caused; and a direct relation or connection of cause and effect between the act or omission and the damage; and 3. There is no pre-existing contractual relation between the parties Note:  The fault or negligence is the  proximate cause  of the damage or injury CRIME There is criminal or malicious

Code, Art. 31 Code, Art. 32 9 Civil Code, Art. 33 10 Civil Code, Art. 34 11 Civil Code, Art. 2176

QUASI-DELICT There is only negligence

intent  or criminal negligence The purpose is punishment  Affects public interest There are generally two liabilities: criminal  and civil  Criminal liability cannot be compromised or settled by the parties themselves The guilt of the accused must be proved beyond reasonable 12 doubt 

Indemnification  of offended party Concerns private citizens There is only civil   liability

the

Liability for quasi-delict can be compromised as any other civil liability The fault or negligence of the defendant need only be 13 proved by preponderance  of evidence

Liability for quasi-delict is founded upon an undisputable principle of equity; namely, that fault or negligence cannot prejudice anyone else besides its author, and in no case should its consequences be borne by him who, without will or cause on his part, becomes the victim of the results, or suffers the harm produced by such fault or negligence Man is responsible not only for his voluntary willful acts, executed consciously and intentionally, but also for those acts performed with lack of foresight, care and diligence, which cause material harm to society or to other individuals Negligence, Defined  -The failure to observe for the protection of the interests of another person, that degree of care, precaution and vigilance which the circumstances justly demand, whereby such other person suffers injury Test of negligence: 1. A duty   on the party of the defendant to protect the plaintiff from the injury of which the latter complains 2. A failure to perform that duty 3. An injury  to the plaintiff through such failure CULPA AQUILIANA Negligence as a source of obligation

CULPA CONTRACTUAL Negligence in the performance of a contract

Defense of “good father of a  family, t his is a complete and proper defense insofar as parents, guardians, employers are concerned There is no presumption of negligence. The injured party must prove the negligence of the defendant. Otherwise, the complaint of injured party will be dismissed

This is not a complete and proper defense in the selection and supervision of employees

DOLO Fraud or dolo  in an act involves willfulness or

CULPA Negligence or culpa  is mere want of care and diligence

There is presumption of negligence as long as it can be proved that there was a breach of the contract. The defendant must prove that there was no negligence in the carrying out of the terms of the contract

7 Civil 8 Civil

12 The

evidence must be very clear and convincing as will engender belief in an unprejudiced mind that the accused is really guilty 13 i.e. superior or greater weight

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deliberate intent to cause damage or injury to another

class is considered in itself a determinate object (e.g. one of my horses)

The test in determining whether a person is negligent in doing an act whereby injury or damage results to the person or property of another is this: Would a prudent man, in the position of the person to whom negligence is attributed, foresee harm to the person injured is a reasonable consequence of the course about to be pursued? If so, the law imposes a duty on the actor to refrain from that course or to take precaution against its mischievous results, and that failure to do so constitutes negligence

Specific thing, Defined  -One that is individualized and distinguished from others of its kind

Requisites of liability under quasi-delict: 1. That there exists a wrongful act or omission imputable to the defendant by reason of his fault or negligence 2. That there exists a damage or injury, which must be proved by the person claiming recovery 3. That there must be a direct causal connection or a relation of cause and effect between the fault or negligence and the damage or injury; or that the fault or negligence be the cause of the damage or injury Proximate cause, Defined  -The one which in natural sequence, undisturbed by any independent cause, produces the result complained of

can

be

identified

or

In an obligation to deliver a determinate thing, there are three incidental or accessory obligations: 1. The obligation to preserve the thing with due care, provided for in Article 1163 2. The obligation to deliver the fruits, provided for in Article 1164 3. The obligation to deliver the accessions and accessories, provided for in Article 1166  ________ Art. 1163. Every person obliged to give something is also obliged to take care of it with the proper diligence of a good father of a family, unless the law or the stipulation of the parties requires another standard of care  ________ A thing is said to be specific or determinate  particularly designated or physically segregated others of the same class (i.e. the watch I am wearing, my dog named “Terror,” the Toyota car with Plate No. AAV 316 (2008), or this cavan of rice)

When the plaintiff’s own negligence was the immediate and proximate cause of his own damage or injury, he cannot recover damages. If his negligence was only contributory, the plaintiff may recover, but the court shall mitigate the damages 14 to be awarded

A thing is generic or indeterminate when it refers only to a class or genus to which it pertains and cannot be pointed out with particularity (i.e. the sum of P1,000.00, a 1995 Toyota car, or a cavan of rice)

Obligations emerging from quasi-delicts are demandable not only for the tortfeasors’ own fault or negligence but also, in certain cases, for the fault or negligence as parents, guardians, teachers or employers. This kind of assumptive form of liability is provided in Article 2180 and known as doctrine of vicarious liability   ________

SPECIFIC Identified by its individuality. The debtor cannot substitute it with another although the latter is of the same kind and quality without the consent of the creditor

Chapter 2. Nature and Effect of Obligations Three kinds of prestations in obligations: 1. To give 2. To do 3. Not to do Obligation to give may refer either to: 1. Specific or determinate object or thing 2. Generic or indeterminate thing

GENERIC Identified only by its specie. The debtor can give anything of the same class as long as it is of the same kind

Duties of debtor in obligation to give a DETERMINATE thing: 1. Preserve the thing  – in obligations to give (real obligations), the obligor has the incidental duty to take care of the thing due with the diligence of a good father of a family pending delivery 15

(a) Diligence of a good father of a family (b) Another standard of care  – see Arts. 1163, 1306, 1755 (c) Factors to be considered  –  see Arts. 1173 and 1174 (d) Reason for the debtor’s obligation

Generic thing, Defined  -One that is indicated only by its kinds, without being designated and distinguished from others of the same kind (e.g. a horse, house) In the obligation to deliver a generic thing, the object due is determinable; the moment it is delivered, it becomes determinate. When the generic objects are, however, confined to a particular class, we have a limited   generic obligation. The 14 Art.

2179

16

2. Deliver the fruits of the thing – see Article 1164 3. Deliver the accessions and accessories – see Article 1166

15 The

phrase has been equated with ordinary care or that diligence which an average (a reasonably prudent) person exercises over his own property 16 The debtor must exercise diligence to insure that the thing to be delivered would subsist in the same condition as it was when the obligation was contracted

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4. Deliver the thing itself – see Articles 1163, 1233, 1244; as to kinds of delivery, see Articles 1497 to 1501 5. Answer for the damages in case of non-fulfillment or breach  – see Article 1170 Duties of debtor in obligation to deliver a GENERIC thing: 1. To deliver a thing which is of the quality intended by the parties taking into consideration the purpose of the obligation and other circumstances 2. To be liable for damages in case of fraud, negligence, or contravention of the tenor thereof Note: If the failure of the debtor to preserve the thing is due to no fault or negligence of his, but to fortuitous events or force majeure, he is exempted from responsibility  ________ Art. 1164. The creditor has a right to the fruits of the thing from the time the obligation to deliver it arises. However, he shall acquire no real right over it until the same has been delivered to him  ________

Ownership and other real rights over property are acquired and transmitted in consequence of certain contracts by tradition or delivery Non nudis pactis, sed traditione dominia rerum transferentur  (the ownership of things is transferred not by mere agreements but by delivery) The delivery or tradition of a thing constitutes a NECESSARY and INDISPENSABLE requisite for the purpose of acquiring the ownership of the same by virtue of a contract Meaning of personal right and real right PERSONAL RIGHT REAL RIGHT The right or power of a person The right or interest of a (creditor) to demand from person over a specific thing another (debtor), as a definite (i.e. ownership, possession, passive subject, the fulfillment mortgagae), without a of the latter’s obligation to definite subject against whom give, to do, or not to do the right may be personally enforced

Kinds of fruits: 1. Natural fruits – the spontaneous products of the soil, and the young and other products of animals (i.e. grass, trees and plants on lands produced without the intervention of human labor)

Personal right and real right, Distinguished  PERSONAL RIGHT REAL RIGHT There is a definite active There is only a definite active subject and a definite passive subject without any passive subject subject Binding and enforceable only Directed against the whole against a particular person world  ________

2. Industrial fruits  –  those produced by lands of any kind through cultivation or labor (i.e. vegetables, rice, and all products of lands brought about by reason of human labor)

Art. 1165. When what is to be delivered is a determinate thing, the creditor, in addition to the right granted him by Article 1170, may compel the debtor to make the delivery.

3. Civil fruits – those derived by virtue of a juridical relation (i.e. rents of building)

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

The creditor is entitled to the fruits of the thing to be delivered from the time the obligation to make delivery arises. The intention of the law is to protect the interest of the obligee should the obligor commit delay, purposely or otherwise, in the fulfillment of his obligation

If the obligor delays, or has promised to deliver the same thing to two or more persons who do not have the same interest, he shall be responsible for any fortuitous event until he has effected the delivery  ________

When obligation to deliver fruits arises: 1. Generally, the obligation to deliver the thing due and, consequently, the fruits thereof, if any, arises from the time of 17 the “perfection of the contract”

Remedies of the Creditor: 1. In obligations to give (Art. 1165) 2. In obligations to do (Art. 1167)

2. If the obligation is subject to a suspensive  condition or period, it arises upon the fulfillment of the condition or arrival of the term. However, the parties may make a stipulation to the contrary as regards the right of the creditor to the fruits of the thing 3. In a contract of sale, the obligation arises from the perfection of the contract even if the obligation is subject to a suspensive condition or a suspensive period where the price has been paid 4. In obligations to give arising from law, quasi-contracts, delicts, and quasi-delicts, the time of performance is determined by the specific provisions of the law applicable

Remedies of creditor in real obligation: 1. In a specific real obligation  (obligation to deliver a determinate thing), the creditor may exercise the following remedies or rights in case the debtor fails to comply with his obligation: (a) Demand specific performance   or fulfillment (if it is still possible) of the obligation with a right to recover damages; (b) Demand rescission  or cancellation (in certain cases) of the obligation also with a right to recover damages; or (c) Demand payment of damages  only, where it is the only feasible remedy

17 Perfection,

in this case, refers to the birth of the contract or to the meeting of the minds between the parties

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In an obligation to deliver a determinate thing, the very thing itself must be delivered. Consequently, only the debtor can comply with the obligation

2. The debtor performs an obligation to do but contrary to the terms thereof; or 3. The debtor performs an obligation to do but in poor manner

2. A generic real obligation  (obligation to deliver a generic thing), on the other hand, can be performed by a third person since the object is expressed only according to its family or genus. It is, thus, not necessary for the creditor to compel the debtor to make the delivery, although he may ask for performance of the obligation Paragraph 3 gives two instances when a fortuitous event does not exempt the debtor from responsibility. It likewise refers to a determinate thing. An indeterminate thing cannot be the object of destruction by a fortuitous event because genus nunquam perit  (genus never perishes)  ________ Art. 1166. The obligation to give a determinate thing includes that of delivering all its accessions and accessories, even though they may not have been mentioned  ________ Meaning of accessions and accessories ACCESSIONS ACCESSORIES The fruits of a thing or Things joined to or included additions to or improvements with the principal thing for upon a thing (the principal), the latter’s embellishment, naturally or artificially, i.e. better use, or completion, i.e. House or trees on a land, key of a house, frame of a rents of a building, air- picture, bracelet of a watch, conditioner in a car, etc. machinery in a factory, bow of a violin, etc This article refers to the accesion continua, including the 18 accesion natural , such as alluvion , and accesion industrial in its three froms of building, planting and sowing GR: All accessions and accessories are considered included in the obligation to deliver a determinate thing although they may 19 not have been mentioned XPN: Unless otherwise stipulated

Note: An obligation to deliver the accessions or accessories of a thing does not include the latter, i.e. a sale of the improvement (e.g. house) upon a land is not sufficient to convey title or any right to the land, unless otherwise stipulated  ________ Art. 1167. If a person obliged to do something fails to do it, the same shall be executed at his cost. This same rule shall be observed if he does it in contravention of the tenor of the obligation. Furthermore, it may be decreed that what has been poorly done be undone  ________ Situations contemplated in Article 1167 (an obligation to do): 1. The debtor fails to perform an obligation to do;

18 The

increasing of land area along a shore by deposited alluvium or by the recession of water 19  This rule is based on the principle of law that the accessory follows the principal

Remedies of creditor in POSITIVE personal obligation: 1. If the debtor fails to comply with his obligation to do, the creditor has the right: (a) To have the obligation performed by himself or by another, unless personal considerations are involved, at the debtor’s expense; and (b) To recover damages 2. In case the obligation is done in contravention of the terms of the same or is poorly done, it may be ordered (by the court) that it may be undone if it is still possible to undo what was done A personal obligation to do, like a real obligation to deliver a generic thing, can be performed by a third person. Where, however, the personal qualifications of the debtor are the determining motive for the obligation contracted (e.g. to sing in a night club), the performance of the same by another would be impossible or would result to be so different that the obligation could not be considered performed. Hence, the only feasible remedy of the creditor is indemnification for damages Note: The law does not authorize the imposition of personal force or coercion upon the debtor to comply with his obligation There is no imprisonment for debt. The ultimate sanction of civil obligations is indemnification of damages  ________ Art. 1168. When the obligation consists in not doing, and the obligor does what has been forbidden him, it shall also be undone at his expense.  ________ Remedies of creditor in NEGATIVE personal obligation: -The remedy of the obligee is the undoing of the forbidden thing plus damages. However, if it is not possible to undo what was done, either physically or legally, or because of the rights acquired by third persons who acted in good faith, or for some reason, his remedy is an action for damages caused by the debtor’s violation of his obligation  ________ Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extra-judicially 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. 7 | P

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20

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  ________ Meaning of Delay ORDINARY Merely the failure to perform an obligation on time

LEGAL (default or mora) The failure to perform an obligation on time which failure constitutes a breach of the obligation

Note: There can be delay only in positive obligations (to do and to give); but there can be no delay in negative obligations (not to do and not to give) Kinds of delay or default Mora solvendi Mora accipiendi The delay on the The delay on the part of the part of the debtor to fulfill creditor to accept his obligation ex the performance re (to give) or ex of the obligation  persona (to do)

Compensatio morae The delay of the obligors in reciprocal obligations, i.e. in sale; the delay of the obligor cancels the delay of the obligee, and vice versa

Mora Solvendi -Mora on the part of the debtor is the delay, contrary to law, in the fulfillment of the prestation by reason of a cause imputable to the former Note: It presupposes that the obligation is due or demandable Requisites: 1. The obligation be demandable and already liquidated 2. That the debtor delays performance 3. That the creditor requires the performance judicially (when complaint is filed in court) or extra-judicially (when made outside of court or orally or in writing) Note: A mere reminder cannot be considered a demand for performance, because it must appear that the tolerance or benevolence of the creditor must have ended

3. When time is of the essence   - i.e. delivery on a particular occasion, or the creditor was to pay on said date another obligation 4. When demand would be useless (a) When the impossibility is caused by some act or fault of the debtor, such as when he is absent or in hiding, or has already disposed of the thing which is to be delivered (b) When the impossibility is caused by fortuitous event, but the debtor has bound himself to be liable in cases of such events Note:  In Nos. 1 and 2, it is not sufficient that the law or the obligation fixes a date for performance; it must further state expressly that after the period lapses, default will commence In case of doubt, the doubt should be resolved in favor of the debtor, because dispensing with demand is an exception to a general rule; unless the exception is clearly proved, the general rule must apply Mora Accipiendi -Mora of the creditor is the delay in the performance based on the omission by the creditor of the necessary cooperation, especially acceptance on his part Requisites: 1. An offer of performance by the debtor who has the required capacity 2. The offer must be to comply with the prestation as it should be performed 3. The creditor refuses the performance wi thout just cause Compensatio Morae -The parties in a bilateral contract can regulate the order in which they shall comply with their reciprocal prestations One party cannot demand performance by the other without offering to comply with his own prestation Neither party incurs default if the other does not comply is not ready to comply in a proper manner with what is incumbent upon him GR: The fulfillment by the parties should be simultaneous

Default generally begins from the moment the creditor demands the performance of the obligation, even if a period has been fixed in the obligation

Delinquency commences when one of the contracting parties fulfills his obligation and becomes invested with power to determine the contract because of failure on the part of the other to carry out the agreement

The demand must refer to the prestation that is due and not to another

Effects of delay: Mora solvendi

Mora accipiendi

When demand is not necessary to put debtor in delay: 1. When obligation so provides - “without the need of any demand ” 2. When the law so provides - e.g. tax payments

He is liable to the creditor for interest (in case of obligations to pay

Where the obligation is to pay money, the debtor is not liable for interest from the time

Compensatio morae The delay of the obligor cancels the delay of the

20 In

Lorenzo Shipping Corp. v. BJ Marthel Int’l, 443 SCRA 163: In determining whether time is of the essence in a contract, the ultimate criterion is the actual or apparent intention of the parties and before time may be so regarded by a court, there must be a sufficient manifestation, either in the contract itself or the surrounding circumstances of that intention

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money) or damages He is liable even for a fortuitous event when the obligation is to deliver a determinate thing Damages

Specific performance Rescission

of creditor’s delay;

He bears the risk of loss of the thing due

He is liable for damages suffered, if any, by the debtor Debtor’s liability limited to gross negligence or fault

obligee, and vice versa. Legally speaking, there is no default or delay on the part of both parties Damages

Specific performance Rescission

The benefits arising from default or delay may cease upon (1) renunciation, expressly or impliedly (i.e. grant of extension), by the creditor, and (2) prescription Prescription of the action on the obligation may also extinguish the effects of default  ________ Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages  ________ Grounds for liability: 1. Fraud (deceit or dolo) - the voluntary execution of a wrongful act, or a willful omission, knowing and intending the effects which naturally and necessarily arise from such act or omission. [It is] the deliberate or intentional evasion of the normal 21 fulfillment of an obligation.   As a ground for damages, it implies some kind of malice or dishonesty and it cannot cover cases of mistake and errors of judgment made in good faith. It is synonymous to bad faith in that, it involves a design to mislead or deceive another. Article 1170 refers to incidental fraud  (dolo incidente) committed in the performance of an obligation already existing because of contract. It is to be differentiated from causal fraud  (dolo causante) or fraud employed in the execution of a contract under Article 1338, which vitiates consent Evasion of legitimate obligation for benefits admittedly received constitutes unjust enrichment 2. Negligence ( fault  or culpa) - any voluntary act or omission, there being no malice, which prevents the normal fulfillment of an obligation This fault or negligence is known as culpa contractual , the fault or negligence of the debtor as an incident in the fulfillment of an existing obligation 3. Delay (mora) 4. Contravention of the terms of the obligation - the violation of the terms and conditions stipulated in the obligation. It includes any illicit act which impairs the strict and faithful fulfillment of the obligation, or every kind of defective performance. The

21 8

contravention must not be due to a fortuitous event or force majeure It is enough that there be non-performance or delay to hold the debtor liable for damages; such non-performance or delay must be imputable to him The delay or contravention of the obligation must either be malicious or negligent to be actionable; if due to fortuitous events, such delay or contravention cannot ordinarily give rise to damages FRAUD There is deliberate intention to cause damage or injury Waiver of the liability for future fraud is void Must be clearly proved

NEGLIGENCE There is no such intention

Such waiver may be allowed, in a certain sense Presumed from the violation of a contractual obligation Liability cannot be mitigated May be reduced according to or reduced by the courts the circumstances Both are voluntary, that is, they are committed with volition Damages include any and all damages that a human being may suffer in any and all manifestations of his life: physical or material, moral or psychological, mental or spiritual, financial, economic, social, political and religious  ________ Art. 1171. Responsibility arising from fraud is demandable in all obligations. Any waiver of an action for future fraud is void  ________ Responsibility arising from fraud  can be demanded with respect to all kinds of obligation and unlike in the case of responsibility arising from negligence, the court is not given the power to mitigate or reduce the damages to be awarded. This is so because fraud is so serious and evil that its employment to avoid the fulfillment of one’s obligation should be discouraged A waiver of an action for future fraud is void (no effect, as if there is no waiver) as being against the law and public policy A past fraud can be the subject of a valid waiver because the waiver can be considered as an act of generosity and magnanimity on the part of the victim of the fraud. Here, what is renounced is the effect of the fraud, that is, the right to indemnity of the party entitled thereto  ________ Art. 1172. Responsibility arising from negligence in the performance of every kind of obligation is also demandable, but such liability may be regulated by the courts, according to the circumstances  ________ In the performance of every kind of obligation, the debtor is liable for damages resulting from his negligence An action for future negligence (not fraud) may be renounced except where the nature of the obligation requires the exercise of extraordinary diligence in the case of common carriers

Manresa 72

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Where negligence show bad faith, it is considered equivalent to fraud. Any waiver of an action for future negligence of this kind is, therefore, void

In determining the issue of negligence, the following factors must be considered: 1. Nature of obligation

Kinds of negligence according to source of obligation: 1. Contractual negligence (culpa contractual ) or negligence in contracts resulting in their breach is not a source of obligation but merely makes the debtor liable for damages in view of his negligence in the fulfillment of a pre-existing obligation

2. Circumstances of the person

2. Civil negligence (culpa aquiliana) or negligence which by itself is the source of an obligation between the parties not so related before by any pre-existing contract. It is also called tort or quasi-delict

Kinds of diligence required: 1. That agreed upon by the parties, orally o r in writing;

3. Criminal negligence (culpa criminal ) or negligence resulting in the commission of a crime In negligence cases, the aggrieved party may choose between a criminal action under Article 100 of the Revised Penal Code or a civil action for damages under Article 2176 o the Civil Code Note: What is prohibited under Article 2177 of the Civil Code is to recover twice for the same negligent act “The exercise of due diligence to prevent the damage” as a defense is available on culpa acquiliana  but not in culpa contractual

Effect of negligence on the part of the injured party -Article 2179 of the new Civil Code provides: “When the plaintiff’s own negligence was the immediate and  proximate cause of his injury, he cannot recover damages. But if his negligence was only contributory, the immediate and  proximate cause of the injury being the defendant’s lack of due care, the plaintiff may recover damages, but the courts shall mitigate the damages to be awarded ”  ________ Art. 1173. The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of the obligation and corresponds with the circumstances of the persons, of the time and of the place. When negligence shows bad faith, the provisions of Articles 1171 and 2201, paragraph 2, shall apply. If the law or contract does not state the diligence which is to be observed in the performance, that which is expected of a good father of a family shall be required  ________ According to the Supreme Court, “negligence is the failure to observe for the protection of the interests of another person, that degree of care, precaution and vigilance which the circumstances justly demand, whereby such other persons 22 suffer injury”

Negligence is simply the absence of due care required by the obligation Negligence is a question of fact, its existence being dependent upon the particular circumstances of each case

3. Circumstances of time 4. Circumstances of the place

2. In the absence of stipulation, that required by law in the particular case; and 3. If both the contract and law are silent, then the diligence expected of a good father of a family  ________ Art. 1174. Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be responsible for those events which could not be foreseen, or which, though foreseen, were inevitable  ________ Fortuitous event, Defined  -Any event which cannot be foreseen, or which, though foreseen, is inevitable. Stated otherwise, it is an event which is 23 either impossible to foresee or impossible to avoid.   E.g. unexpected fire, shipwreck, violence of robbers, etc Fortuitous event may be produced by two general causes: (1) By nature, and (2) by the act of man. In order that acts of man may constitute fortuitous event, it is necessary that the have the force of an imposition which the debtor could not have resisted FORTUITOUS EVENT Acts of man; strictly speaking, an event independent of the will of the obligor but not of other human wills, i.e. war, fire, robbery, murder, etc

FORCE MAJEURE Acts of God; those event which are totally independent of the will of every human being, i.e. earthquake, flood, rain, shipwreck, etc

In our law, both are identical in so far as they exempt the obligor from liability and are independent of the will of the obligor Fortuitous event includes unavoidable accidents, even if there has been an intervention of human element, provided fault or negligence cannot be imputed to the debtor Kinds of fortuitous event: 1. Ordinary fortuitous events  or those events which are common and which the contracting parties could reasonably foresee (e.g. rain); and 2. Extra-ordinary fortuitous events  or those events which are uncommon and which the contracting parties could not have reasonably foreseen (e.g. earthquake, fire, was, pestilence, unusual flood) 23 The

22 see United

States v. Barrias, 23 Phil. 434

essence of a fortuitous event consists of being a happening independent of the will of the debtor and which happening, makes the normal fulfillment of the obligation impossible

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Characteristics: 1. The cause of the unforeseen and unexpected occurrence, or the failure of the debtor to comply with his obligations, must be independent of the human will  2. It must be impossible to foresee the event which constitute the caso fortuito, or if it can be foreseen, it must be impossible to avoid 

When a person makes use of machinery, instruments, apparatus or substances which are dangerous in themselves, by reason of their speed, of their explosive or inflammable nature, of the electric power they carry, or of other analogous cases, he is bound to indemnify for the injuries they may cause, even if he does not act unlawfully, unless the injury is caused by the inexcusable fault or neglect of the victim

3. The occurrence must be of such as to render it impossible for the debtor to fulfill his obligation in a normal manner

It is manifestly unjust to hold the owner of the dangerous works or things for injuries which are imputable to the inexcusable negligence of the victim himself

4. The obligor must be free from any participation in the aggravation of the injury resulting to the creditor

4. Concurrent negligence or fault on the part of the obligor  ________

Note: The absence of any of the above requisites would prevent the obligor from being exempt from liability

Art. 1175. Usurious transactions shall be governed by special laws  ________

For the defense of force majeure to prosper, the accident must be due to natural causes, and absolutely without human intervention Mere pecuniary inability or poverty is not an excuse for the non-fulfillment of an obligation. Neither is mere difficulty  to foresee the happening of an event; it is different from the impossibility to foresee the same. As stated earlier, the event must be unforeseeable, or even if it could be foreseen, must be impossible to avoid In order that fortuitous event or force majeure  may exempt a person from liability, it is necessary that he be free from negligence GR: When a debtor is unable to fulfill his obligation because of fortuitous event or force majeure, he cannot be held liable for damages for non-performance XPN: 1. When expressly specified by law

(a) The debtor is guilty of fraud, negligence, or delay, or contravention of the tenor of the obligation (b) The debtor has promised to deliver the same (specific) thing to two or more persons who do not have the same interest

Simple loan or mutuum, Defined  -A contract whereby one of the parties delivers to another, money or other consumable thing, upon the condition that the same kind and quality shall be pai d. It may be gratuitous or with a stipulation to pay interest Interest, Defined  - The income produced by money in relation to its amount and 24 to the time that it cannot be utilized be its owner. Interest may either be moratory or compensatory The moratory  interests are those paid in contractual obligations to pay a sum of money, either as the price for the use of the money, or as the stipulated advanced determination of damages due to the delay in the fulfillment of the obligation. Interests on obligations which have an extra-contractual or delictual origin are compensatory  Usury, Defined  -Contracting for or receiving something in excess of the amount allowed by law for the loan or forbearance of money, goods, 25 chattels or credits than the law allows Requisites for recovery of interest: 1. The payment of interest must be expressly s tipulated; 2. The agreement must be in writing; and

(c) The obligation to deliver a specific thing arises from a crime 3. The interest must be lawful (d) The thing to be delivered is generic 2. When declared by express stipulation - The parties may expressly stipulate in their contract that the debtor shall be liable to the creditor, even if performance is rendered impossible by fortuitous event of force majeure 3. When the nature of the obligation requires the assumption of risk - The principle of assumption of risk is based on social  justice; it is based on an ethico-economic sensibility of modern society, which has noted the injustices which industrial civilization has created If he benefits from the means that have produced the loss, it is only equitable that he should bear the consequences of such loss

Note: A stipulation for the payment of usurious interest is void, that is, as if there is no stipulation as to interest In Eastern Shipping v. CA, 234 SCRA 78: No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be 24 For

loan, forebearance, money: 12%; for damages, etc.: 6% v. Gonzales, 50 Phil. 558

25 see Tolentino

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deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.  ________ Art. 1176. The receipt of the principal by the creditor without reservation with respect to the interest, shall give rise to the presumption that said interest has been paid. The receipt of a later installment of a debt without reservation as to prior installments, shall likewise raise the presumption that such installments have been paid  ________ Under Article 1253 of the Code, if a debt produces interest, payment of the principal shall not be deemed to have been made until the interests have been covered Presumption, Defined  -The inference of a fact not actually known arising from its usual connection with another which is known or proved

In case the debtor does not comply with his obligation, the creditor may avail himself of the following remedies to satisfy his claim: 1. Exact fulfillment (specific performance) with the right to damages; 2. To levy by attachment and execution upon all properties of the debtor, except such as are exempt by law from execution; 3.  After having pursued the property in possession of the debtor , exercise all the rights (i.e. the right to redeem) and bring all the actions of the debtor (i.e. the right to collect from the debtor of his debtor), except those inherent in or personal to the person of the latter (i.e. the right to vote, to receive legal support, etc); and 4. To ask for the rescission of the contracts made by the debtor in fraud of their rights Note:  The debtor is liable with all his property, present and future, for the fulfillment of his obligations, subject to the exemptions provided by law. This liability of the property is the legal guaranty in favor of creditors; hence, the debtor cannot maliciously reduce such guaranty Requisites: 1. The creditor has an interest in the right or action not only because of his credit but because of the insolvency of the debtor

Kinds of Presumption: 1. Conclusive presumption - one which cannot be contradicted, like the presumption that everyone is conclusively presumed to know the law; and

2. Malicious or negligent inaction of the debtor in the exercise if his right or action of such seriousness as to endanger the claim of the creditor

2. Disputable  (or rebuttable)  presumption  - one which can be contradicted or rebutted by presenting proof to the contrary

3. The creditor of the debtor against a third person is certain, demandable and liquidated

When presumptions in Article 1176 do not apply: 1. With reservation as the interest

4. The debtor’s right against the third person must be patrimonial, or susceptible of being transformed to patrimonial value for the benefit of the creditor

2. Receipt without indication of particular installment paid 3. Receipt for a part of the principal 4. Payment of taxes - because the tax for one year is independent of the taxes for other years. They do not constitute installments of the same obligation

The action which the creditor may exercise in the place of his negligent debtor in order to preserve or recover for the patrimony of the debtor the product of such action, and then obtain therefrom the satisfaction of his own credit, is known as the accion subrogatoria or subrogatory action In order to exercise the accion subrogatoria, a previous approval of the court is not necessary

5. Non-payment proven  ________ Art. 1177. The creditors, after having pursued the property in possession of the debtor to satisfy their claims, may exercise all the rights and bring all the actions of the latter for the same purpose, save those which are inherent in his person; they may also impugn the acts which the debtor may have done to defraud them  ________ Remedies contemplated in this article: 1. To levy by attachment and execution upon all properties of the debtor, except such as are exempt by law from execution 2. Accion subrogatoria 3. Accion pauliana

The following are rights of the debtor which cannot be exercised by the creditor: 1. The right to existence, thereby exempting from the reach of creditors whatever he may be receiving as support; 2. Rights or relations of a public character; 3. Rights of an honorary character; 4. Rights consisting of powers which have not been used, including: (a) The power to administer, such as when the debtor fails to have some property leased the creditor cannot give it in lease for him, 12 | P

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Chapter 3. Different Kinds of Obligation (b) The power to carry out an agency of deposit, which are purely personal acts, and (c) The power to accept an offer for a contract; 5. Non-patrimonial rights, such as the action to establish the debtor’s status as a legitimate or an illegitimate child, the action for legal separation or annulment of marriage, and other rights arising from family relations; 6. Patrimonial rights not subject to execution, such as the right to government gratuity or pension; and 7. Patrimonial rights inherent in the person of the debtor, such as the right to revoke a donation by reason of ingratitude, and the right to demand exclusion of an unworthy heir As a last recourse, creditors have the right to set side or revoke the acts which the debtor may have done to defraud them; creditors may rescind fraudulent reductions of the properties of the debtor which constitute the guaranty of his debts The action to revoke or rescind such acts is known as the accion  pauliana All acts of the debtor which reduces patrimony in fraud of his creditors, whether by gratuitous or onerous title, can be revoked by this action But payments of pre-existing obligations already due, whether natural or civil, cannot be impugned by an accion pauliana New debts contracted by the insolvent debtor are not included although they may make the position of existing creditors worse, because only acts which impair the assets of the debtor are covered by the provision and those which merely increase his liabilities are not  ________ Art. 1178. Subject to the laws, all rights acquired in virtue of an obligation are transmissible, if there has been no stipulation to the contrary  ________ GR: All rights acquired in virtue of an obligation are transmissible XPN: 1. Prohibited by law -(a) By the contract of partnership, two or more persons bind themselves to contribute money, property or industry to a common fund, with the intention of dividing the profits among themselves

(b) By the contract of agency , a person binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter (c) By the contract of commodatum (or gratuitous), one of the parties delivers to another something not consumable (e.g. car) so that the latter may use the same for a certain time and return it. 2. Prohibited by stipulation of the parties

Classification of Obligations: A. By their juridical quality or efficaciousness: NATURAL CIVIL A special kind of obligation An obligation, which if not which cannot be enforced in fulfilled when it becomes court but which authorizes the due and demandable, may retention of the voluntary be enforced in court through payment or performance made action by the debtor B. By their subject UNILATERAL Only ONE of the parties is bound to fulfill a prestation

BILATERAL BOTH parties are bound to perform a part in the obligation, i.e. in sale

Note:  Reciprocal obligations are those which arise from the same cause, wherein each party is a debtor and a creditor of the other, such that performance of one is conditioned upon the simultaneous fulfillment of the other--from the moment one of the parties fulfills his obligation, delay by the other party 26 begins SIMPLE (Individual)

MULTIPLE (Collective)

JOINT Each debtor is liable only for a part of the whole liability and to each creditor shall belong only a part of the correlative rights

SOLIDARY A debtor is answerable for the whole of the obligation without prejudice to his right to collect from his co-debtors the latter’s shares in the obligation

C. By their object SIMPLE CONJUNCTIVE

COMPOUND (Multiple) DISTRIBUTIVE

SPECIFIC

GENERIC

ALTERNATIVE The obligor may choose to completely perform one out of several prestations

FACULTATIVE Only one prestation has been agreed upon, but the obligor may render one in substitution of the first one

POSITIVE When the debtor is obliged to give or do something in favor of the creditor

NEGATIVE When the debtor is obliged not to do something, that is, he must refrain from doing something

REAL Obligation to give, that in which the subject matter is a thing which the obligor must deliver to the obligee

PERSONAL Obligation to do or not to do, that in which the subject matter is an act to be done or not to be done

POSSIBLE Capable of accomplishment or

IMPOSSIBLE Not capable

26 see ASJ

of

Corporation v. Evangelista, 545 SCRA 300

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fulfillment in nature or in law

accomplishment of fulfillment in nature or in law

Code, and, consequently, in the absence of other restrictions, payment thereof is immediately demandable

DIVISIBLE Susceptible performance

INDIVISIBLE Not susceptible performance

When the period originally given has been cancelled by mutual agreement of the parties, or the non-fulfillment of a condition resolves the period stipulated, the obligation must be considered pure

of

PRINCIPAL Main obligation created by parties

partial

of

partial

ACCESSORY Secondary obligation created to guarantee the fulfillment of the principal obligation

FIDE JUSORIAS

HIPOTECARIAS

PINORATICIAS

EJECUTIVAS

WITH A PENAL CLAUSE Imposes a penalty for violation of the terms thereof

SIMPLE There is no penalty imposed for violation of the terms thereof

D. By their juridical perfection and extinguishment PURE CONDITIONAL WITH A TERM Not burdened Subject to a Subject to the happening 27 with any condition of an event which surely condition or will happen, although the term. It is date may not be known 28 immediately as of the moment demandable SUSPENSIVE The happening of which gives rise to an obligation

RESOLUTORY The happening of extinguishes  rights existing

which already

A conditional  obligation is one which is subject to a condition Condition, Defined  -Every future and uncertain event upon which an obligation or provision is made to depend; it is a future and uncertain event upon which the acquisition or resolution of rights is made to depend by those who execute the juridical act An event which is not uncertain but must necessarily happen cannot be a condition; the obligation will be considered as one with a term The code considers “a past event unknown to the parties” as a condition. The element of uncertainty, however, is wanting when the event is past or present; hence, it cannot properly be called a condition. It is more accurate to designate it as a basis of the contract. It cannot have the quality of suspending the effects of a juridical act

What can be a condition is the future knowledge or proof of a past event unknown to the parties, but not the event itself. Thus, the proof of an unknown past event may, by the will of the parties, be established as a condition Classification of conditions: SUSPENSIVE The happening of which gives rise to an obligation

SECTION 1. - Pure and Conditional Obligations Art. 1179. Every obligation whose performance does not depend upon a future or uncertain event, or upon a past event unknown to the parties, is demandable at once Every obligation which contains a resolutory condition shall also be demandable, without prejudice to the effects of the happening of the event  ________ When the obligation contains no term or condition whatever upon which depends the fulfillment of the obligation contracted by the debtor, the obligation is a pure obligation It is immediately demandable and there is nothing to exempt the debtor from compliance therewith A demand note is subject to neither a suspensive condition nor a suspensive period. The demand is not a condition precedent, since the effectivity and binding effect of the note does not depend upon the making of the demand: the note is binding even before the demand is made. Thus, a demand note is strictly a pure obligation as defined in this article of the Civil 27 The

condition may be suspensive, the happening of which shall give rise to the obligation; or the condition may be resolutory, the happening of which terminates the obligation 28  The term may be suspensive  (from a day certain) in which case, the obligation becomes demandable only after expiration of the term; or if the term is resolutory (to a day certain), the obligation terminates upon the expiration of the term

POTESTATIVE Depends upon the will of the party to the juridical relation

RESOLUTORY The happening of extinguishes  rights existing

CASUAL Depends upon chance

which already

MIXED Depends partly upon the will of the former and partly upon chance or the will of a third person

DIVISIBLE INDIVISIBLE Whether by its nature, by agreement or under t he law, it can be performed in parts CONJUCTIVE ALTERNATIVE When there are several, or all of them or only one must be performed POSITIVE NEGATIVE Whether it is an act or omission EXPRESS IMPLIED Whether they are stated or merely inferred POSSIBLE IMPOSSIBLE Whether they can be fulfilled or not, the impossibility in the latter case being either physical or legal

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The fulfillment of conditions is indivisible even when the object of the condition is a divisible thing; hence, partial fulfillment of the condition does not give rise to the existence of part of the obligation However, by the very nature of the condition, by stipulation, or by law, it may be divisible If several conditions are imposed for the same obligation, the necessity of complying with all or one only depends upon the intention of the parties. If the conditions are imposed in the alternative or disjunctively, the fulfillment of one  of them is sufficient. If they are imposed conjunctively, then all   of them must be complied with An obligation is demandable at once-1. When it is pure 2. When it is subject to a resolutory condition 3. When it is subject to a resolutory period  ________ Art. 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 t he provisions of Article 1197.  ________ In cases falling under the present article, the creditor should file an action to fix a period for the payment of the obligation. An immediate action to enforce the obligation, without a period having been previously fixed by the co urt, would be premature A period   is a future and certain event upon the arrival of which the demandability either arises or extinguished 1. 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. In this case, what depends upon the debtor’s  will is not whether he should pay or not for indeed he binds himself to pay. What is left only to his will is the duration of the period 2. Other cases--as when the debtor binds himself to pay: “little by little,” “as soon as possible,” “from time to time,” etc  ________ Art. 1181. In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event which constitutes the condition.  ________ If the suspensive condition (condition precedent  or antecedent ) happens, the obligation arises; in other words, if the condition does not happen, the obligation does not come into existence The resolutory condition (condition subsequent ) extinguishes rights and obligations already existing; in other words, the obligations and rights already exists, but under the threat of extinction upon the happening of the resolutory condition If the time comes when it becomes certain that the condition will not be fulfilled, and the condition is suspensive, the conditional creditor loses all hope of becoming a real creditor, and he likewise loses the power to exercise the actions granted

by Article 1188 for the preservation of his rights; and if the condition is resolutory, the creditor’s rights become absolute 1.  Acquisition of rights--In obligations subject to a suspensive condition, the acquisition of rights by the creditor depends upon the happening of the event which constitutes the condition. E.g. the surrender of the sweepstakes ticket is a condition precedent to the payment of the prize 2. Loss of rights already acquired --In obligation subject to a resolutory condition, the happening of the event which constitutes the condition produces the extinguishment or loss of rights already acquired. E.g. X binds himself to support Y until Y graduates from college In Parks v. Province of Tarlac, 49 Phil. 142: The characteristic of a condition precedent is that the acquisition of the right is not effected while said condition is not complied with or is not deemed complied with. Meanwhile nothing is acquired and there is only an expectancy of right. Consequently, when a condition is imposed, the compliance of which cannot be effected except when the right is deemed acquired, such condition cannot be a condition precedent.  ________ Art. 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.  ________ A condition suspensive in nature and which depends upon the sole will of one of the contracting parties is known as  potestative condition POTESTATIVE One which depends upon the will of one of the contracting parties

CASUAL One which depends exclusively upon chance or other factors, or a third party, and not upon the will of the contracting parties;

E.g. “I will pay you if I want,” “I will pay you after I recover what X owes”

E.g. “I will give you my land if war breaks out next month,” “S binds himself to sell his land to B if he wins a case which is pending before the Supreme Court

MIXED One which depends upon the will of one of the contracting parties and other circumstances E.g. “I will give you a house, if you marry Carolina”

In Trillana v. Quezon College, Inc.,  93 Phil. 383: A condition obviously dependent upon her sole will and, therefore, facultative in nature, render[s] the obligation void It is only when the potestative condition depends exclusively  upon the will of the debtor that the conditional obligation is void When the fulfillment of the condition depends on the exclusive will of the creditor , it is valid. E.g. “I will lend you P100 if you want it”

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To allow conditions whose fulfillment depends exclusively on the debtor’s will, is to sanction illusory obligations; this cannot happen when the fulfillment depends on the will of the creditor In Vda. De Mistica v. Naguiat , 418 SCRA 73: The Code prohibits purely potestative, suspensive, conditional obligations that depend on the whims of the debtor, because such obligations are usually not meant to be fulfilled. Indeed, to allow the fulfillment of conditions to depend exclusively on the debtor’s will would be to sanction illusory obligations. In cases falling under this article, it is not only the condition that is void; the whole obligation  is void. This provision, however, is applicable only when the condition is suspensive, and cannot apply to resolutory conditions the validity of which is recognized in Article 1179 of the Code In other words, a condition that is both potestative (or facultative) and resolutory may be valid, even though the condition is made to depend upon the will of the obligor. The obligation in such case arises immediately, but the party who has made the reservation may resolve i t when he wishes to When the condition depends, not only upon the will of the debtor, but also upon chance or the will of the others, the obligation is valid When the fulfillment of the condition does not depend upon the will of the obligor, but on that of a third person who can in no way be compelled to carry it out, and it is found by the court that the obligor has done all in his power to comply with the obligation, the other party may be ordered to comply with his part of the contract In Romero v. CA,  250 SCRA 223: Where the so-called "potestative condition" is imposed not on the birth of the obligation but on its fulfillment, only the obligation is avoided, leaving unaffected the obligation itself. In Santos v. CA, 337 SCRA 67: As we earlier pointed, in a contract to sell, title remains with the vendor and does not pass on to the vendee until the purchase price is paid in full, Thus, in contract to sell, the payment of the purchase price is a positive suspensive condition. Failure to pay the price agreed upon is not a mere breach, casual or serious, but a situation that prevents the obligation of the vendor to convey title from acquiring an obligatory force. This is entirely different from the situation in a contract of sale, where non-payment of the price is a negative resolutory condition. The effects in law are not identical. In a contract of sale, the vendor has lost ownership of the thing sold and cannot recover it, unless the contract of sale 21 is rescinded and set aside.  In a contract to sell, however, the vendor remains the owner for as long as the vendee has not complied fully with the condition of paying the purchase. If the vendor should eject the vendee for failure to meet the condition precedent, he is enforcing the contract and not rescinding it . When the petitioners in the instant case repossessed the disputed house and lot for failure of private respondents to pay the purchase price in full, they were merely enforcing the contract and not rescinding it.  ________ Art. 1183. Impossible conditions, those contrary to good customs or public policy and those prohibited by law shall annul the obligation which depends upon them. If the obligation is

divisible, that part thereof which is not affected by the impossible or unlawful condition shall be valid. The condition not to do an impossible thing shall be considered as not having been agreed upon.  ________ The impossibility of a condition may either be physical or  juridical: PHYSICAL JURIDICAL (Legal) When it is contrary to the When it is contrary to law, law of nature morals, good customs, public order and public policy E.g. “I will pay you P10,000 E.g. “X will give Y P1,000 if Y will if it will not rain for one kill Z; or will be the common-law year in the Philippines,” “I wife of X; or will slap his father; will pay you P10,000 if you or will publicly advocate the can carry twenty (20) overthrow of the government; cavans of palay on your or will not appear as a witness shoulder against X in a criminal case It is juridically impossible or illicit, not only when the act is prohibited by law, but also when it restricts certain essential rights which are necessary for the free development of human activity, such as political rights, family rights, and constitutional rights and liberties. E.g. the condition not to change domicile; to change or not to change religion; and that a person shall not contract marriage In order that a condition may be considered as illicit or  juridically impossible, it is necessary that it co nsist of an act or fact for one of the parties to the contract. The illicit character of the act is not determined by the act or fact in itself, but by its effects upon one of the parties. The intention of the party imposing the condition must be considered. In other words, the criterion is subjective Reason: One who promises something under a condition that is impossible or illicit knows that it cannot be fulfilled, and, manifests that he does not intend to be bound; hence, the effect is the nullity of the promise Scope: Impossible or illicit conditions annul the obligations dependent upon them only when the conditions are positive and suspensive. If the impossible or illicit condition is negative, it is simply considered as not written, and the obligation is converted into a pure and simple one Note: This principle of nullity of the obligation itself due to the impossibility or illicit character of the condition, applies only to contracts In order that an impossible condition may annul the obligation, the impossibility must exist at the time  of the creation of the obligation; a supervening impossibility does not affect the existence of the obligation On the same principle, if the condition was impossible when the obligation was constituted the obligation remains void even if such condition subsequently becomes possible, unless the parties later agree again The present article applies only to cases where the condition was already impossible or illicit at the time when the contract was made 16 | P

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Similar to the effect of an impossible condition is the logical impossibility in an obligation although the condition itself is not impossible. E.g. “I will deliver to you my house if it is totally destroyed” When the obligation is divisible, that part which is not affected by the impossible or unlawful condition shall be valid. E.g. X promises to pay to Y the sum of P1,000 if Y furnishes X with information as to the whereabouts of Z, and another sum of P2,000 if Y kills Z Although the second paragraph of this article provides that the condition not to do an impossible thing shall be considered as not having been agreed upon, this should be understood to include all negative impossible conditions. In this case, the condition is considered as not imposed, and the obligation must be regarded as a pure and simple one. E.g. “I will give you P500 if you do not fly to the moon within a period of f ive years” The negative impossible conditions are considered as not written A negative unintelligible condition is the same as a negative impossible condition; hence, it is considered as not imposed  ________ Art. 1184. The condition that some event happen at a determinate time shall extinguish the obligation as soon as the time expires or if it has become indubitable that the event will not take place.  ________ The above article refers to positive (suspensive) condition--the happening of an event at a determinate time. The obligation is extinguished: 1. As soon as the time expires without the event taking place; or 2. As soon as it has become indubitable that the event will not take place although the time specified has not expired  E.g. X obliges himself to give B P10,000 if B will marry C before B reaches the age of 23.

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.  ________ The above provision speaks of a negative condition--that an event will not happen at a determinate time. The obligation shall become effective and binding: 1. From the moment the time indicated has elapsed without the event taking place; or 2. From the moment it has become evident that the event cannot occur, although the time indicated has not yet elapsed  If no time is fixed, the circumstances shall be considered to arrive at the intention of the parties. This rule may also be applied to a positive condition E.g. an obligation to deliver a piece of land to X is subject to the condition that he shall not marry within two years. This obligation shall become effective and the land should be delivered to X if (a) two years expire without X having married, or (b) X enters priesthood before the two years expire  ________ Art. 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment.  ________ This article covers constructive fulfillment   of conditions, and refers to a condition which, although not exclusively within the will of the debtor, may in some way be prevented by the debtor from happening There will be constructive fulfillment when two requisites concur: 1. Intent of the obligor to prevent fulfillment of the condition, and 2. Actual prevention of compliance The principle underlying constructive fulfillment of condition is that a party to a contract may not be excused from performing his promise by the non-occurrence of an event which he himself prevented

a. X is liable if B marries C before he reaches the age of 23 b. X is not liable if B marries C at the age of 23 or after he reaches the age of 23 c. If B dies at the age of 22 without having married C. the obligation is extinguished because it has become indubitable that the condition will not take place Note:  The intention of the parties is controlling, and the time shall be that which the parties may have probably contemplated, taking into account the nature of the obligation  ________ Art. 1185. The condition that some event will not happen at a determinate time shall render the obligation effective from the moment the time indicated has elapsed, or if it has become evident that the event cannot occur.

Any act imputable to the debtor, whether done with or without fraud or malice will suffice; in both cases the debtor is responsible for his act Where the act of the debtor, however, although voluntary, did not have for its purpose the prevention of fulfillment of the condition, it will not fall within the scope of this article (i.e. criminal prosecution) If in preventing the fulfillment of the condition the debtor acts pursuant to a right, the condition will not be deemed as fulfilled There is constructive fulfillment of the condition only if the act of the debtor had in fact prevented compliance with the condition When the condition is resolutory but not dependent on the will of the debtor, and he unjustifiably provokes or produces the condition, which would not have happened without his doing 17 | P

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so, it will be considered as not having been fulfilled, and there will be no extinguishment of rights Following the basic principle underlying the present article, the debtor cannot be excused from compliance by the occurrence of an event which he himself brought about, unless such possibility is clearly permitted by the contract  ________ Art. 1187. The effects of a conditional obligation to give, once the condition has been fulfilled, shall retroact to the day of the constitution of the obligation. Nevertheless, when the obligation imposes reciprocal prestations upon the parties, the fruits and interests during the pendency of the condition shall be deemed to have been mutually compensated. If the obligation is unilateral, the debtor shall appropriate the fruits and interests received, unless from the nature and circumstances of the obligation it should be inferred that the intention of the person constituting the same was different. In obligations to do and not to do, the courts shall determine, in each case, the retroactive effect of the condition that has been complied with.  ________ This article refers to the effects of the happening of suspensive conditions. Between the moment of the creation of the conditional obligation and the fulfillment of the suspensive condition, the creditor cannot enforce the obligation; his right during that period is a mere expectancy . The moment the suspensive condition happens, however, the obligation becomes effective and enforceable. The debtor may legally be compelled to perform from that moment. The cause of action for the enforcement of the obligation accrues, and the period of prescription of the action has to be computed from that moment The effect of the obligation, however, retroact to the moment when such obligation was constituted or created Reason: The condition is only accidental, and not an essential element of the obligation. The obligation is constituted when the essential elements which give rise thereto concur Hence when the condition is fulfilled, resulting in the effectivity of the obligation, it is only logical that the effects of the obligation must be deemed to commence, not from the time the accidental element or condition was fulfilled, but from the time the obligation itself was constituted By the principle of retroactivity, a fiction is created whereby the binding tie of the conditional obligation is produced from the time of its perfection, and not from the happening of the condition If the conditional obligation has its object the delivery of a determinate thing, the debtor cannot, before the happening of the suspensive condition, make contracts disposing of or alienating or encumbering the thing, or otherwise creating a real right over the thing incompatible with the right of the creditor. If he does so, then all such contracts are abrogated and cease to have any effect upon the happening of the suspensive condition. Because of the retroactivity of the obligation, the creditor retains superior right

The application of the principle of retroactivity of conditional obligations is not absolute. It is subject to certain limitations dictated by justice and required by practicability or convenience. Thus, if a thing is lost by fortuitous event before the happening of the condition, the debtor suffers the loss because he is still the owner Acts of administration, performed by the debtor before the happening of the suspensive condition, are not affected by retroactivity of the effects of the obligation, and can be asserted against the creditor after the happening of the condition. Nevertheless, acts in abuse of right, committed by the debtor in the guise of administration, should not be allowed to defeat the rights of the creditor. The will of the parties, however, must also be taken into account For reasons of practicability or convenience, the law does not require the delivery or payment of the fruits or interests accruing before the happening of the suspensive condition. The right to the fruits of the thing, therefore, is not within the principle of retroactivity of conditional obligations These rules with respect to the retention of the fruits and interests by the parties, however, must yield to the contrary intent or agreement of the parties themselves E.g.: In obligations to give: On January 20, S agreed to sell his parcel of land to B for P50,000 should B lose a case involving the recovery of another parcel of land. On April 10, S sold his land to C. B lost the case on December 4. Before December 4, B had no right to demand the sale of the land by S. When the condition, however, was fulfilled on December 4, it is as if B was entitled to the land beginning January 20. Hence, as between B and C, B will have a better right over the land In obligations to do or not to do: C obliged himself to condone the debt of D, his lawyer, should the latter win C’s case in the Supreme Court. In this case, upon the fulfillment of the condition, shall not be entitled, unless the contrary has been stipulated, to the earned interests of the capital during the pendency of the condition as the intention of C is to extinguish the debt. Here the fulfillment of the condition has a retroactive effect In reciprocal obligations (no retroactivity): In the first example, when B lost the case in court on December 4, S must deliver the land and B must pay P50,000 S does not have to give the fruits received from the land before December 4 and B is not obliged to pay legal interests on the price since the fruits and interests received are deemed to have been mutually compensated In unilateral obligation  (usually no retroactivity): Suppose, in the same example, the promise of S was to donate the parcel of land to B Upon the fulfillment of the condition, S has to deliver the land but he has the right to keep himself all the fruits and interests he may have received during the pendency of the condition, 18 | P

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that is from January 20 to December 4, unless a contrary intention by S may be inferred, as when it is stipulated that once the condition is fulfilled, S shall render an accounting of fruits received during its pendency  ________ Art. 1188. The creditor may, before the fulfillment of the condition, bring the appropriate actions for the preservation of his right. The debtor may recover what during the same time he has paid by mistake in case of a suspensive condition.  ________ The actions for the preservation of the creditor’s rights  may have for their objects: 1. To prevent the loss or deterioration of the things which are objects of the obligation by enjoining or restraining acts of alienation or destruction by the debtor himself or by third persons; 2. To prevent concealment of the debtor’s properties which constitute the guaranty in case of non-performance of the obligation;

 ________ Art. 1189. When the conditions have been imposed with the intention of suspending the efficacy of an obligation to give, the following rules shall be observed in case of the improvement, loss or deterioration of the thing during the pendency of the condition: (1) If the thing is lost without the fault of the debtor, the obligation shall be extinguished; (2) If the thing is lost through the fault of the debtor, he shall be obliged to pay damages; it is understood that the thing is lost when it perishes, or goes out of commerce, or disappears in such a way that its existence is unknown or it cannot be recovered; (3) When the thing deteriorates without the fault of the debtor, the impairment is to be borne by the creditor; (4) If it deteriorates through the fault of the debtor, the creditor may choose between the rescission of the obligation and its fulfillment, with indemnity for damages in either case;

3. To demand security if the debtor becomes insolvent;

(5) If the thing is improved by its nature, or by time, the improvement shall inure to the benefit of the creditor;

4. To compel acknowledgment of the debtor’s signature on a private document or the execution of the proper public documents for registration so as to affect third persons;

(6) If it is improved at the expense of the debtor, he shall have no other right than that granted to the usufructuary.  ________

5. To register the deeds of sale or mortgages evidencing the contract;

Scope: the provisions of this article apply only to obligations to deliver a determinate or specific  thing. It can have no application to generic objects. Furthermore, these provisions apply only in case of the suspensive condition is fulfilled

6. To set aside fraudulent alienations made by the debtor; and 7. To interrupt the period of prescription, by actions against adverse possessors of the things which are the object of the obligation The article does not grant any preference of credit but only allows the bringing of the proper action for the preservation of the creditor’s rights

A thing is lost: 1. Physical loss or when it perishes. E.g. when an animal dies, a house is destroyed completely by fire, a crop is washed away by flood, or fruits rot 2. Legal loss or when it goes out of the commerce of man. E.g. a private land is converted into a public plaza, or a thing is declared by law as contraband

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Under Article 2159, “whoever in bad faith   accepts an undue payment, shall pay legal interest if a sum of money is involved, or shall be liable for the fruits received or which should have been received if the thing produces fruits” Under Article 2160, “h e who in good faith accepts an undue payment of a thing certain and determinate shall only be responsible for . . . its accessories and accessions insofar as he has thereby been benefited”

Rights of the debtor: He is entitled to recover what he has paid by mistake prior to the happening of the suspensive condition. The right is granted to the debtor because the creditor may or may not be able to fulfill the condition imposed and hence, it is not certain that the obligation will arise. This is a case of solutio indebiti  Note:  If the payment was made with knowledge of the condition, there is an implied waiver of the condition, and whatever has been paid cannot be recovered

3. Civil loss or when it disappears  in such a manner that its existence is unknown or cannot be recovered. E.g. ship sinks in the middle of the ocean, a thing is stolen by unknown persons or is dropped somewhere in the forest and cannot be found If the loss if due to the fault of the debtor, he becomes liable for damages to the creditor upon the fulfillment of the condition. But if the debtor is without fault, the obligation is extinguished, unless there is a stipulation to the contrary Deterioration  is any reduction or impairment in the substance or value of a thing which does no t amount to a loss If the deterioration is not imputable to the debtor, he is not liable for any damages for such deterioration, and the creditor must accept the thing in its impaired condition. But if the deterioration is due to the fault of the debtor, then the creditor may either demand the thing or ask rescission, with damages in either case

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the purposes of these provisions, would mean that the creditor knows that the debtor is paying before the suspensive condition has happened

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Anything added to, or incorporated in, or attached to the thing that is due, is an improvement  Rules during pendency of suspensive condition: (1) If the thing is lost without the fault of the debtor , E.g. X obliged himself to give Y his car worth P100,000 if Y will sell X’s property. The car was lost without the fault of X, the obligation shall be extinguished (2) If the thing is lost through the fault of the debtor , E.g. In the same example, if the loss occurred because of the negligence of X, Y will be entitled to demand damages (3) When the thing deteriorates without the fault of the debtor , E.g. If the car figured in an accident, as a result of which the windshield was broken and some of its paints were scratched away without the fault of X, thereby reducing its value to P90,000, Y will have to suffer the deterioration or impairment in the amount of P10,000 (4) If it deteriorates through the fault of the debtor , E.g. In this case, Y may choose between the rescission of the obligation or its fulfillment, with damages in either case (5) If the thing is improved by its nature or by time, the improvement shall inure to the benefit of Y. In as much as Y would suffer in case of deterioration of the car through a fortuitous event (6) If it is improved at the expense of the debtor , E.g. During the pendency of the condition, X had the car painted and its seat cover changed at his expense. In this case, X will have the right granted to a usufructuary with respect to improvements made on the thing held in usufruct Rules: 1. If caused by the nature of the thing or by time, the improvement shall inure to the benefit of the creditor 2. If the improvement was at the expense of the debtor, the 30 law says he shall have the same r ights as a usufructuary Usufruct is the right to enjoy the use and fruits of a thing 31 belonging to another  ________ Art. 1190. When the conditions have for their purpose the extinguishment of an obligation to give, the parties, upon the fulfillment of said conditions, shall return to each other what they have received. In case of the loss, deterioration or improvement of the thing, the provisions which, with respect to the debtor, are laid down in the preceding article shall be applied to the party who is bound to return.

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579. The usufructuary may make on the property held in usufruct such useful improvements or expenses for mere pleasure as he may deem proper, provided he does not alter its form or substance; but he shall have no right to be indemnified therefor. He may, however, remove such improvements, should it be possible to do so without damage to the property. Art. 580. The usufructuary may set off the improvements he may have made on the property against any damage to the same. 31 CIVIL CODE, Art. 562

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.  ________ This article gives the effects of the happening of a resolutory condition. In an obligation subject to such a condition, the rights of the creditor are immediately vested; but such rights are always in the danger of being extinguished by the happening of the resolutory condition If the condition does not happen, those rights are consolidated and they become absolute in character But if the condition happens, such rights are extinguished, and the obligation is treated as if it did not exist Hence, each party is bound to return to the other whatever he has received, so that they may be returned to their original condition before the creation of the obligation. Every vestige of the obligation is wiped out as much as possible through the process of mutual restitution Before the resolutory condition happens, the party who has a right, is practically in the same position as one who has an obligation subject to a suspensive condition; there is the possibility that he may have to return or deliver the thing to the other party, and that possibility becomes a positive duty when the resolutory condition is fulfilled. Therefore, in case of loss of the thing, or deteriorations suffered by it, or improvements made thereon, the provisions of Article 1189 shall be applicable, the party who has to make restitution being considered as the debtor The juridical principle that by the happening of the resolutory condition all vestiges of the obligation should be wiped out, indicates that the duty of mutual restitution applies not only to the object and the price, but also to the fruits and interests; this is the only way by which the parties can be restored to the status quo or their original condition before the obligation was constituted The party who would be entitled to restitution from the other, in the event the resolutory condition is fulfilled, stands in the same position as a creditor in an obligation with a suspensive condition, in that he has an expectancy of recovery of the thing E.g.: X allows Y to use the former’s car until X returns from the province. Upon the return of X from the province, Y must give back the car. The effect of the happening of the condition is to annul the obligation as if it had never been constituted at all. In this case, the parties intend the return of the car  ________

Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible. The court shall decree the rescission claimed, unless there be  just cause authorizing the fixing of a period. 20 | P

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This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage Law.  ________ Both relations must arise from the same cause, such that one obligation is correlative to the other Reciprocity arises from identity of cause, and necessarily the two obligations are created at the same time Reciprocal obligations are those which arise from the same cause, and which each party is a debtor and a creditor of the other, such that the obligation of one is dependent upon the obligation of the other. They are to be performed simultaneously, so that the performance of one is conditioned upon the simultaneous fulfillment of the other In reciprocal obligations, when one party has performed his part of the contract, the other party incurs in delay; hence, the party who has performed or is ready and willing to perform may rescind the obligation if the other does not perform or is not ready and willing to perform In  Areola v. CA,  236 SCRA 643: Under the law governing reciprocal obligations, particularly the second paragraph of Article 1191, the injured party is given a choice between fulfillment or rescission of the obligation in case one of the obligors fails to comply with what is incumbent upon him. However, said article entitles the injured party to payment of damages, regardless of whether he demands fulfillment or rescission of the obligation. The power to rescind is given to the injured party. Where the plaintiff is the party who did not perform the undertaking which he was bound by the terms of the agreement to perform, he is not entitled to insist upon the performance of the contract by the defendant or recover damages by reason of his own breach. An action for specific performance of a contract is an equitable proceeding, and he who seeks to enforce it must himself be fair and reasonable, and do equity In Gil v. CA, 411 SCRA 18: The right of rescission of a party to an obligation under Article 1191 of the New Civil Code is predicated on a breach of faith by the other party that violates the reciprocity between them. Where both parties have committed a breach of obligation and it cannot be determined who was the first infractor, the contract shall be deemed extinguished and each shall bear his/its own damages It has been held that the mere failure of one party to perform his undertaking does not ipso jure produce the resolution of the contract; the party entitled to resolve should apply to the court for a decree of rescission or resolution If the obligation has not yet been performed, extra-judicial declaration of resolution or rescission by the party who is ready and willing to perform would suffice; he can refuse to perform if the other party is not ready and willing to perform. But where the injured party has already performed such as when property has already been delivered by him to the other party, he cannot by his own declaration rescind the contract and reacquire title

to the property, if the other party opposes the rescission. In such case, court action must be taken, and the function of the court is to declare the rescission as properly made, or to give a period to the debtor in which to perform Hence, it has been held that the present provision regulates rescission as a  power   conferred upon the injured party, who may choose rescission or fulfillment, and this choice can be exercised either judicially or by declaration of the creditor, but shall be subject to judicial determination. But where the other party does not oppose or impugn the extra-judicial declaration of rescission, such declaration will produce legal effect In Dijamco v. CA,  440 SCRA 190: A judicial action for the rescission of a contract is not necessary where the contract provides that it may be revoked and cancelled for violation of any of its terms and conditions. In Buenaventura Angeles v. Ursula Torres Calasanz, 135 SCRA 323: [T]here is nothing in the law that prohibits the parties from entering into an agreement that violation of the terms of the contract would cause its cancellation even without court intervention If the other party denies that rescission is justified, it is free to resort to judicial action in its own behalf, and bring the matter to court. Then, should the court, after due hearing, decide that the resolution of the contract was not warranted, the responsible party will be sentenced to damages; in the contrary case, the resolution will be affirmed, and the consequent indemnity awarded to the party prejudiced. The right to resolve or rescind is not absolute, and will not be granted where there has been substantial compliance by partial payments Rescission will not be permitted for a slight or casual breach of the contract, but only for such breached as are so substantial and fundamental as to defeat the object of the parties in making the agreement In Visayan Sawmill v. CA,  219 SCRA 378: Consequently, in a contract of sale, after delivery of the object of the contract has been made, the seller loses ownership and cannot recover the same unless the contract is rescinded. But in the contract to sell, the seller retains ownership and the buyer's failure to pay cannot even be considered a breach, whether casual or substantial, but an event that prevented the seller's duty to transfer title to the object of the contract. The right of an injured party to rescind is subordinate to the rights of a third person to whom bad faith is not imputable The exercise of the power to rescind extinguishes the obligatory relation as if it had never been created, the extinction having retroactive effect. The rescission is equivalent to invalidating and unmaking the juridical tie, leaving things in their status before the celebration of the contract The party seeking rescission cannot have performance as to a part and rescission as to the remainder These two remedies are alternative; the injured party cannot have both

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However, where the performance has become impossible or there are insuperable and legal obstacles thereto, rescission with damages to the injured party is proper although the latter had sought specific performance. The prescriptive period for the action for rescission in such case is four (4) years from the final judgment on the action for specific performance which has become impossible to execute So long as there has been no judgment declaring rescission, however, the creditor who has asked for it may change his mind and demand specific performance instead, or vice-versa, unless he has previously renounced one of these remedies While the right to rescind reciprocal obligations is implied, that is, that such right need not be expressly provided in the contract, nevertheless the contracting parties may waive the same Acceptance by the creditor of delayed installment payment beyond the grace period amounts to a waiver of the right of rescission Considering practical needs and demands of equity and good faith, the disappearance of the basis of a contract gives rise to a right of resolution in favor of the party prejudiced Note these following cases on Notice of Cancellation: In  Jison v. CA, 164 SCRA 339: The indispensability of notice of cancellation to the buyer was to be later underscored in Republic Act No. 6552, entitled "An Act to Provide Protection to Buyers of Real Estate on Installment Payments." which took effect on September 14-15). when it specifically provided: Sec. 3 (b) ... the actual cataract, of the contract shall take place 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. In Pagtalunan v. De la Cruz Vda. de Manzano,  533 SCRA 242: R.A. No. 6552 , otherwise known as the "Realty Installment Buyer Protection Act," recognizes in conditional sales of all kinds of real estate (industrial, commercial, residential) the right of the seller to cancel the contract upon non-payment of an installment by the buyer, which cancellation may be done outside the court particularly when the buyer agrees to such cancellation provided that such cancellation by the seller must be in accordance with Sec. 3 (b) of R.A. No. 6552, which requires a notarial act of rescission  and the refund to the buyer of the full payment of the cash surrender value of the payments on the property. Actual cancellation of the contract takes place after 30 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 A demand letter is not the same as the notice of cancellation or demand for rescission by a notarial act required by R.A. No. 6552; An action for annulment of contract is a kindred concept of rescission by notarial act while a case of unlawful detainer is not In Fabrigas v. San Francisco Del Monte, 476 SCRA 247: The cancellation of the contract under Section 4 of R.A. No. 6552 is a two-step process--first, the seller should extend the buyer a

grace period of at least sixty (60) days  from the due date of the installment, and, second, at the end of the grace period, the seller shall furnish the buyer with a notice of cancellation or demand for rescission through a notarial act, effective thirty (30) days from the buyer's receipt thereof. It is worth mentioning, of course, that a mere notice or letter, short of a notarial act, would not suffice.  ________

Art. 1192. In case both parties have committed a breach of the obligation, the liability of the first infractor shall be equitably tempered by the courts. If it cannot be determined which of the parties first violated the contract, the same shall be deemed extinguished, and each shall bear his own damages.  ________ Where both parties are in default, their respective liability for damages shall be offset equitably  ________

SECTION 2. - Obligations with a Period Art. 1193. Obligations for whose fulfillment a day certain has been fixed, shall be demandable only when that day comes. Obligations with a resolutory period take effect at once, but terminate upon arrival of the day certain. A day certain is understood to be that which must necessarily come, although it may not be known when. If the uncertainty consists in whether the day will come or not, the obligation is conditional, and it shall be regulated by the rules of the preceding Section.  ________ A term or period   is a space of time which, exerting an influence on obligations as a consequence of a juridical act, suspends their demandability or determines their extinguishment Term or period may be distinguished from condition In the following ways: CONDITION PERIOD  As to fulfillment, an uncertain An event that must event necessarily come, whether on a date known before hand or at a time which cannot be predetermined  As to influence on the No effect upon the existence obligation, gives rise to an of obligations, but only their obligation or extinguishes one demandability or already existing performance  As to time, may refer to a past Always refers to the future event unknown to the parties  As to will of debtor , a A period left to the debtor’s condition which depends will merely empowers the exclusively on the will of the court to fix such period debtor annuls the obligation  As to retroactivity of effect , Unless there is an agreement the happening of a condition to the contrary, the arrival of has retroactive effect a period does not have any retroactive effect Requisites of Period: The period must be (1) future, (2) certain, and (3) possible 22 | P

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Kinds of Terms: SUSPENSIVE (ex die) From a day certain; one that must lapse before the performance of the obligation can be demanded. E.g. I will pay you 30 days from today, I will support you from the time your father dies, etc LEGAL A period fixed by law

RESOLUTORY (in diem) To a day certain; the period after which the performance must terminate. E.g. I will give you P500 a month until the end of the year, I will support you until you die

VOLUNTARY Stipulated by the parties

EXPRESS When specifically stated

JUDICIAL Allowed by court

Art. 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.  ________ Art. 1195. Anything paid or delivered before the arrival of the period, the obligor being unaware of the period or believing that the obligation has become due and demandable, may be recovered, with the fruits and interests.  ________ This article applies only to obligations to give. It has no application to obligations to do and not to do

the

TACIT When a person undertakes to do some work which can be done only during a particular season

ORIGINAL PERIOD OF GRACE An extension fixed by the parties themselves or by the court DEFINITE Refers to a fixed known date or time

INDEFINITE Refers to an event which will necessarily happen but the date of its happening is unknown The uncertainty of the date of occurrence in the indefinite or indeterminate period does not convert into a condition, so long as there is no uncertainty as whether it will happen or not. E.g. Death of a person, movable holidays, events of civil or political life Obligations with a term are demandable only when the day fixed for their performance arrives But once the date stipulated arrives, the obligation can be enforced, and the obligor who alleges that the term has been extended must show by satisfactory evidence that the extension of payment was for a definite time An action, however, may be brought immediately to enforce an obligation originally with a term, if the contract in which the terms is imposed has been cancelled by mutual agreement of the parties, or when the non-fulfillment of the terms of the contract resolves the period and authorizes the creditor to immediately demand performance. The obligation in such cases, is converted into a pure obligation A moratorium is a postponement of the fulfillment of an obligation; it is an extension of the period for performance of the obligation, decreed by statute The true test of the constitutionality of a moratorium statute lies in the determination of the period of suspension of the remedy. It is required that such suspension be definite and reasonable, otherwise it would be violative of the constitution  ________

The creditor cannot unjustly enriched himself by retaining the thing or money received before the arrival of the period This article allows the recovery of the thing or money itself, plus the fruits or interests, which must be understood as those accruing from the moment of payment to the date of recovery. If the action to recover, however, is not brought by the debtor before the date of maturity, then the right to recover the thing or money will cease; but, it is submitted, the reason for the law (ratione legis) will still justify the recovery of the fruits or interests from the time of payment to the date of maturity The right of the debtor to recover fruits and interests is not affected by the good or bad faith of the creditor who accepts the premature payment Notwithstanding premature payment, fruits or interests cannot be recovered in the following cases: 1. When the obligation is reciprocal, and there has been premature performance on both sides 2. When the obligation is a loan on which the debtor is bound to pay interest 3. When the period is exclusively for the benefit of the creditor, because the debtor by paying in advance loses nothing If the payment before the period was made voluntarily, with knowledge of the period, the payment cannot be recovered Article 1195 has no application to obligations to do or not to do because as to the former, it is physically impossible to recover the service rendered, and as to the latter, as the obligor performs by not doing, he cannot, of course, recover what he has not done  ________ Art. 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.  ________ If the term is for the benefit of both parties, as is the presumption of this article in case of doubt, the creditor cannot demand payment and the debtor cannot make an effective tender or consignation of payment, before the period stipulated. E.g. Contract of loan

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If it is for the benefit of the creditor only, he may demand performance at any time, but the debtor cannot compel him to accept payment before the period expires. E.g. D borrowed from C P1000 payable on December 31 2010 with the stipulation that D cannot make payment before the lapse of the period but C may demand fulfillment even before said date

for the payment of the salary of the employee. Article 1197 of the Code cannot be applied to such contracts

If the period is for the benefit of the debtor only, he may oppose premature demand for payment, but may validly pay at any time before the period expires. E.g. D borrowed from C P1000 to be paid “within one year without interest,” or “on or before December 31, 2010”

The only action that can be maintained on obligations falling under this article, is an action to ask the court to fix a term which the obligor must comply with his obligation. The fulfillment of the obligation itself cannot be demanded until after the court has fixed the period for the compliance therewith, and such period has arrived

A stipulation that the payment is to be made “within” the stipulated period, is obviously for the benefit of the debtor. Hence, although the creditor cannot enforce or demand payment before the period fixed, the debtor may waive the period and pay in advance  ________

Art. 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.  ________ The period mentioned in the above provision refers to a judicial  period   as distinguished from the period fixed by the parties in their contract which is known as contractual period GR: If the obligation does not state a period or no period is intended, the court is not authorized to fix a period. The courts have no right to make contracts for the parties XPN: (1) No period is fixed but a period was intended: E.g. D agreed to construct the house of C; B bought lumber from the store of S on credit (the period for payment in the invoice is left blank); S sold a parcel of land to B with a right to repurchase (no term is specified in the contract for the exercise of the right)

(2) Duration of the period depends upon the will of the debtor This article is part of all obligations contemplated therein. Hence, whenever a period is fixed pursuant to its provisions, the court does not amend or modify the obligation concerned, but merely enforces or carries out an implied stipulation in the contract The court may fix a period in the following cases: when the term of a lease has been left to the will of the lessee; or when the term of a donation imposing certain conditions do not fix the time for the performance of the conditions; etc The mere failure of the parties to fix a period, however, will not always justify the court in fixing one; thus, it is not incumbent upon courts to fix the period during which contracts of employment or services shall last. Their duration is to be implicitly fixed, in default of express stipulation, by the period

The court, however, to prevent unreasonable interpretations of the immediate demandability of pure obligations, may fix a reasonable time in which the debtor may pay

We believe that considering our rules of pleading and procedure, the fixing of the period and the ordering of payment cannot be made in the same action. This would imply two causes of action in the same complaint: first for the purpose of fixing a period, and the second for the purpose of specific performance to compel payment The period to be fixed by the court becomes part of the contract, and until it has expired no action to enforce payment can be maintained; hence the second cause of action in the case contemplated cannot prosper In fixing the period, the term probably contemplated by the parties should be ascertained Once the period has been fixed by the court it becomes part of the contract, and it cannot be subsequently changed or extended by the court without the consent of both of the parties The default of the debtor commences only after the expiration of the period fixed by the court. Any demand made before that would be futile, because legally the debt is not yet due In Araneta v. Phil. Sugar Estate Development, Inc., 20 SCRA 330: Article 1197 of the Civil Code involves a two-step process. The Court must first determine that the obligation does not fix a period (or that the period is made to depend upon the will of the debtor), and that from the nature and the circumstances it can be inferred that a period was intended. The second step is to ascertain the period probably contemplated by the parties. The Court cannot arbitrarily fix a period out of thin air.  ________ Art. 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. 24 | P

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 ________ In the cases provided in this article, the obligation becomes immediately due and demandable even if the period has not yet expired. The obligation is thus converted into a pure obligation GR:  The obligation is not demandable before the lapse of the period XPN: (1) When the debtor becomes insolvent: E.g. D owes C P1000 due and payable on December. If D becomes insolvent, say on September, C can demand immediate payment from D even before maturity unless gives sufficient guaranty or security

Note: The insolvency of the debtor that would deprive him of the benefit of the term need not be judicially declared in insolvency proceeding The degree of insolvency that would justify immediate enforcement of the obligation is a matter that should be left to the courts. Such insolvency must occur after the obligation was constituted (2) When debtor does not furnish guaranties or securities promised: E.g. In the same example, D promised to mortgage his house to secure the debt. If he fails to furnish said security as promised, he shall lose his right to the period (3) When guaranties or securities have been impaired or have disappeared: E.g. If the debt is secured by a mortgage on the house of D, but the house was burned through his fault, the obligation also becomes demandable unless D gives a new security equally satisfactory Note: The term “disappear” is not used here in its grammatical or ordinary meaning, but in the sense of “loss” as defined by the law (4) When debtor violates an undertaking: E.g. Now, suppose C agreed to the period in consideration of the promise of D to repair the piano of C. The violation of this undertaking by D gives C the right to demand immediate payment of the loan (5) When debtor attempts to abscond: E.g. Before the due date of the obligation, D changed his address without informing C and with the intention of escaping from his obligation. This act of D is a sign of bad faith which results in the loss of his right to the benefit of the period stipulated The present article does not apply to the extension of the period fixed by moratorium statutes. These laws are precisely enacted because of the financial difficulties of debtors. Hence, the insolvency of the debtor does not deprive him of the benefit of the moratorium

SECTION 3. - Alternative Obligations Art. 1199. A person alternatively bound by different prestations shall completely perform one of them. The creditor cannot be compelled to receive part of one and part of the other undertaking.  ________

Obligations with several objects: (1) conjunctive, (2) alternative; and (3) facultative A conjunctive obligation is one where the debtor has to perform several prestations; it is extinguished only by performance of all of them ALTERNATIVE Several objects being due, the fulfillment of one is sufficient, determined by the choice of the debtor who generally has the right of election ALTERNATIVE The loss of one of the things due affects the obligation The election may be granted to the creditor The loss of the things does not extinguish the obligation

FACULTATIVE Only one thing is due, but the debtor has reserved the right to substitute it with another

FACULTATIVE The loss of that which may be given substitute does not affect the obligation Never

The loss of that which is due as the object of the obligation, will extinguish such obligation  ________

Art. 1200. The right of choice belongs to the debtor, unless it has been expressly granted to the creditor. The debtor shall have no right to choose those prestations which are impossible, unlawful or which could not have been the object of the obligation.  ________ In alternative obligations, the debtor has the right to choose the method of meeting the obligation, unless the creditor has expressly reserved that right to himself The right to choose may be granted to the creditor. The grant must be expressed; it cannot be implied. The choice may also be expressly entrusted by the parties to a third person The right to choose is indivisible. The debtor cannot choose part of one prestations and part of another The debtor cannot choose unlawful or impossible undertakings. The presence of such undertakings does not annul the obligation, which subsists, even as an alternative one if there are other lawful and possible objects. Neither can the debtor select prestations which could not have been the object of the obligation. This refers to prestations which turn out to be different from what the parties supposed and which do not serve the purpose for which the obligation was contracted, such as when the things are future ones or when some accident happens to the object which gives it a new aspect When the debtor has the right to choose, the plaintiff’s action must be in alternative form, demanding “either object X or object Y, at the election of the debtor.” If the creditor demands only one of the objects, he asks more than what he is entitled to demand. The judgment must also be on alternative form  ________ Art. 1201. The choice shall produce no effect except from the time it has been communicated.  ________ 25 | P

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The notice of selection or choice may be in any form provided it is sufficient to make the other party know that the election has been made. It is not subject to any form and may, therefore, be made: (1) orally, (2) in writing, (3) tacitly, or (4) by any other unequivocal means When the debtor, to whom the right to choose pertains, performs one of the prestations with the intent to discharge the obligation, he is released, because the selection made may be implied in the fact of performance GR: The law does not require the other party to consent to the choice made by the party entitled to choose. A mere declaration of the choice, communicated to the other party, is sufficient; it is a unilateral declaration of will. To require the creditor’s consent would destroy the very essence of the right to choose and the alternative character of the obligation itself XPN: When the debtor has chosen a prestation which could not have been the object of the obligation; the creditor’s consent would bring about a novation of the obligation When there are various debtors or creditors, and the obligation is  joint , the consent of all is necessary to make the selection effective, because none of them can extinguish the entire obligation

If the obligation is  solidary , and there is no stipulation to the contrary, the choice by one will be binding personally upon him, but not as to the others The selection made by one party cannot be subjected by him to a condition or a term unless the other party consents thereto The effect of the notice of choice is to limit the obligation to the object or prestations selected, with all the consequences which the law provides Once the selection has been communicated, it becomes irrevocable When the debtor performs one of the prestations, believing that he has a simple obligation (an ignorance of the alternatives and the right to choose), there is no declaration of the selection, nor a binding performance of the obligation. There is a payment of what is not due, and the debtor can recover the same, in accordance with the provision of the law on quasicontracts The right to choose is not lost by the mere fact that the party entitled to choose delays in making his selection So long as the judgment has not been satisfied, the debtor may still exercise his right to select by offering the prestations he chooses; but once the judgment has been satisfied by execution of any of the prestations, the debtor can no longer choose It is his duty to select at the time when performance should be effected; if he does not do so, the choice can be made for him by the creditor by applying the principle of Article 1167 on obligations to do  ________

Art. 1202. The debtor shall lose the right of choice when among the prestations whereby he is alternatively bound, only one is practicable.  ________ If all the prestations, except one, are impossible or unlawful, it follows that the debtor can choose and perform only that one. The obligation ceases to be alternative, and is converted into a simple obligation to perform the only feasible or practicable prestations The impossibility of the other prestations, however, must not be due to the creditor’s acts, for in such case Article 1203 shall apply This article applies only when the debtor has the right to choose. In cases where the creditor is granted the right to choose, Article 1205 will apply when only one prestations remains practicable, either due to fortuitous event or due to the fault of the debtor  ________ Art. 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.  ________ This article is base on principles of justice. Since one of the prestations had been rendered impossible by the act of the creditor, and the debtor precisely may have wanted to choose that particular prestations, the latter may elect to rescind the contract and recover damages. Of course, he may also elect to perform that which remains (if there be only one prestations possible) or to elect from those still remaining (if several are still possible), because the rescission does not take place automatically but at his option  ________ Art. 1204. The creditor shall have a right to indemnity for damages when, through the fault of the debtor, all the things which are alternatively the object of the obligation have been lost, or the compliance of the obligation has become impossible. The indemnity shall be fixed taking as a basis the value of the last thing which disappeared, or that of the service which last became impossible. Damages other than the value of the last thing or service may also be awarded.  ________ This article applies to cases which the debtor has the right to choose. If only some of the prestations are rendered impossible, the fault of the debtor does not make him liable for damages, because he can still comply with the obligation by performing any of the prestations remaining (if there are still several) or the one which remains (if only one is still possible). He will become liable for damages under the terms of this article only when all the prestations become impossible through his fault If all the prestations become impossible due to fortuitous event, the obligation is extinguished; the debtor is not liable for damages 26 | P

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If one or more of the prestations due become impossible by fortuitous event, leaving only one prestation, and then this last one becomes impossible by fault of the debtor, the provisions of the present article will apply; the debtor will be liable for damages, with the value of the last prestations as the basis The debtor should not be relieved from liability when his fault or negligence concurred with the fortuitous event in making performance impossible  ________ Art. 1205. When the choice has been expressly given to the creditor, the obligation shall cease to be alternative from the day when the selection has been communicated to the debtor. Until then the responsibility of the debtor shall be governed by the following rules: (1) If one of the things is lost through a fortuitous event, he shall perform the obligation by delivering that which the creditor should choose from among the remainder, or that which remains if only one subsists; (2) If the loss of one of the things occurs through the fault of the debtor, the creditor may claim any of those subsisting, or the price of that which, through the fault of the former, has disappeared, with a right to damages; (3) If all the things are lost through the fault of the debtor, the choice by the creditor shall fall upon the price of any one of them, also with indemnity for damages. The same rules shall be applied to obligations to do or not to do in case one, some or all of the prestations should become impossible.  ________ When the creditor has the right to choose, his selection takes effect from the moment it is communicated to the debtor. The selection of the creditor may be made expressly or tacitly. There is tacit selection when the creditor accepts a prestation offered by the debtor, or brings an action for the enforcement of one of the prestations When the creditor fails to make a selection in cases where he has the right to choose, the debtor will not incur in delay in the performance of the obligation, even if there is a definite period fixed for performance. There will be default or delay on the part of the debtor in the performance of the obligation only when the obligation has become a simple one by the exercise of the creditor of his right to choose. If the creditor does not make his selection before the period fixed, the debtor’s duty to perform does not arise because the particular prestation to be performed has not been determined. The creditor in such case must be considered by his own inaction to have waived the period Rules in case of loss before creditor has made choice: 1. When the thing is lost through a fortuitous event: E.g. S obliged himself to deliver to B item one, or item two, or item three, or item four. If item one is lost through a fortuitous event, B can chooses from among the remainder or that which remains if three of the items are lost

2. When a thing is lost through debtor’s fault: E.g. If the loss of item one occurs through the fault of S, B may claim item two or item three or item four with a right to damages or the price of item one also with a right to damages 3. When all the things are lost through debtor’s fault: E.g. If all the items are lost through the fault of S, the B can demand the payment of the price of any one of them with a right to indemnity for damages

4. When all the things are lost through a fortuitous event: E.g. The obligation of S shall be extinguished if all the items which are alternatively the object of the obligation are lost though a fortuitous event. In this case, Article 1174 shall apply  ________ Art. 1206. When only one prestation has been agreed upon, but the obligor may render another in substitution, the obligation is called facultative. The loss or deterioration of the thing intended as a substitute, through the negligence of the obligor, does not render him liable. But once the substitution has been made, the obligor is liable for the loss of the substitute on account of his delay, negligence or fraud.  ________ ALTERNATIVE  As to contents of the obligation, there are various prestations all of which constitute parts of the obligation Before the debtor has made his choice, the creditor must demand all the prestations in the alternative, leaving the debtor to choose  As to nullity , The nullity of one prestation does not invalidate the obligation, which is still in force with respect to those which have no vice

 As to choice, The right to choose maybe given to the creditor  As to effect of loss, only the impossibility of all the prestations due without fault of the debtor extinguishes the obligation

FACULTATIVE Only the principal prestation constitutes the obligation, the accessory being only a means to facilitate payment The creditor can demand only the principal prestation

The nullity of the principal prestation, such as when the object is unlawful or outside the commerce of man, invalidates the obligation, and the creditor cannot demand the substitute even when this is valid Only the debtor can choose the substitute prestation The impossibility of the principal prestation is sufficient to extinguish the obligation, even if the substitute is possible

Before the substitution is effected, the substitute is not the prestation that is due; only the principal prestation is due and enforceable by the creditor at that time. Therefore, if the substitute prestation becomes impossible due to the fault or negligence of the debtor, the obligation is not affected, and he cannot be held liable for damages The option to perform the substitute is exclusively dependent upon the will of the debtor; he cannot be compelled to perform it if the principal prestation becomes impossible 27 | P

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The substitution is a matter of absolute choice in the debtor’s part. Therefore, even if he acts with bad faith in rendering the substitute prestation impossible, he cannot be held liable for damages, because he could not have been compelled to perform it even if it were possible. To hold the debtor liable in this case would contravene the very essence of facultative obligations The substitution of the prestation becomes effective and binding upon the debtor from the time the he communicates to the creditor that he elects to perform the substitute prestation From this moment, the substitute prestation becomes the only prestation that is due. If the principal prestation thereafter becomes impossible, even by fortuitous event, the debtor would not be relieved but would still be obliged to perform the substitute prestation that he has chosen. His obligation has become a simple one to perform the substitute prestation, and he will be liable for damages for his delay, neglect or bad faith in its performance  ________

SECTION 4. - Joint and Solidary Obligations Art. 1207. The concurrence of two or more creditors or of two or more debtors in one and the same obligation does not imply that each one of the former has a right to demand, or that each one of the latter is bound to render, entire compliance with the prestation. There is a solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity. Art. 1208. If from the law, or the nature or the wording of the obligations to which the preceding article refers the contrary does not appear, the credit or debt shall be presumed to be divided into as many shares as there are creditors or debtors, the credits or debts being considered distinct from one another, subject to the Rules of Court governing the multiplicity of suits.  ________ Joint obligation, Defined  -One in which each of the debtor is liable only for a proportionate part of the debt, and each creditor is entitled only to a proportionate part of the credit

When two persons are liable under a contract or under a  judgment, and no words appear in the contract or the  judgment to make each liable for the entire obligation, the presumption is that their obligation is joint or mancomunada, and each debtor is liable for a proportionate part of the obligation Effect of joint liability: 1. The demand by one creditor upon one debtor, produces the effects of default only with respect to the creditor who demanded and the debtor on whom the demand was made, but not with respect to the others 2. The 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 creditor. On the same principle, a partial payment or acknowledgment made by one of several joint debtors does not stop the running of the statute of limitations as to the others 3. The vices of each obligation arising from the personal defect of a particular debtor or creditor does not affect the obligation or rights if the others 4. The insolvency of a debtor does not increase the responsibility of his co-debtors, nor does it authorize a creditor to demand anything from his co-creditors 5. In the joint divisible obligation, the defense of res judicata is not extended from one debtor to another Solidary exists: 1. When there is an express stipulation in the contract 2. When a charge or condition is imposed upon heirs or legatees, and the testament expressly makes the charge or condition in solidum 3. When the law expressly provides for solidarity of the obligation of several obligors, as in the case of the liability or co-participants in a crime 4. When a solidary responsibility is imposed by a final judgment upon several defendants 5. When the nature of the obligation requires solidarity

Solidary obligation, Defined  -One in which each debtor is liable for the entire obligation, and each creditor is entitled to demand the whole obligation JOINT Each creditor can recover only his share of the obligation, and each debtor can be made to pay only his part Variously termed mancomunada or mancomunada simple or a pro rata “We promise to pay”

SOLIDARY Each creditor may enforce the entire obligation, and each debtor may be obliged to pay it in full Mancomunada solidaria or  joint and several  or in solidum;  juntos o separadamente “I promise to pay,” “individually or collectively,” “individually liable” or “individually and jointly liable”

An obligation is presumed to be joint unless solidarity has been expressly agreed upon. It is not necessary, however, that the agreement should use precisely the word “solidary” for an obligation to be so; it is sufficient that the obligation states, for example, that each one of the debtors can be compelled to pay the totality of the debt, or that each of them is obligated for the entire value of the obligation If two or more persons acting jointly become liable under these 32 provisions , their liability should be solidary, because of the nature of the obligation Our law recognizes solidary responsibility for wrongful acts, whether they are crimes (Article 10. RPC) or quasi-delicts

32 Articles

19 to 22 of the Civil Code

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(Article 2194, CC); such solidarity is imposed even on joint payees of things delivered by mistake (Article 2157, CC) They have a common element--they are morally wrong. A moral wrong cannot be divided into parts; hence, the liability for it must be solidary When there are two creditors designated disjunctively, the application of the rules of alternative obligations would entitle the debtor to choose the creditor whom he would pay; on the other hand, the application of the rules on solidarity will entitle either one of the creditors to demand full payment, and the debtor cannot refuse to pay to the creditor who makes the demand by alleging that he chooses to pay to the other creditor The intention of the parties should prevail, in determining whether the rules on solidarity or those on alternative obligation should be applied. In case of doubt, solidarity should be favored, as it is more conducive to the fulfillment of the obligation, which is after all the ultimate purpose of the parties The co-creditors or co-debtors may regulate their rights or liabilities in their internal relations with each other. Thus, they may exclude a division and provide for sole responsibility, or they may provide for total reimbursement, or for a division into unequal parts The obligation may be joint on the side of the creditors, and solidary on the side of the debtors, or vice versa. In such cases, the rules applicable to each subject of the obligation should be applied, the character of the creditors or the debtors determining their respective rights and liabilities, thus, if the obligation is joint on the side of the creditors, and solidary on the side of the debtors, each creditor can demand only his share in the obligation; but each debtor may be compelled to pay the entire obligation to the creditors  ________ Art. 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.  ________ When there are several debtors or creditors, but the prestation is indivisible (such as the delivery of a house or other determinate thing), the obligation is joint, unless solidarity has been stipulated The joint indivisible obligation is in a sense midway between the joint and the solidary, although it preserves two characteristics of the joint obligation, in that no creditor can do an act prejudicial to the others, and no debtor can be made to answer for the others. The peculiarity of this obligation, however, is that its fulfillment requires the concurrence of all the debtors, although each for his part. On the side of the creditors, collective action is expressly required for acts which may be prejudicial If there are several creditors and only one debtor, the obligation can be performed only by delivering the object to all the creditors jointly. A debtor who delivers the thing to one creditor only, becomes liable for damages because of nonperformance to the other creditors, unless they have authorized the former to receive payment for all of them. If

only one or some of the creditors demand the prestation, the debtor may legally refuse to deliver the thing; he can insist that all the creditors together receive the thing, and if any of them refuses to join the others, the debtor may deposit the thing in court by way of consignation In case of non-performance by the debtor, however, the obligation to pay damages arises. With respect to the damages, the prestation becomes divisible, and each creditor can recover separately his proportionate share As long as the obligation is joint, the act of one creditor cannot have any effect as to another creditor, because the credit of each one is separate from the credits  of the others. The indivisibility requires collective action to be effective Where the plurality of subjects is among the debtors, the indivisible obligation can be performed by them only by acting together. Hence all must be sued. If any of the debtors is not willing to perform, the prestation is converted into an indemnification for damages. Once so converted, the creditor can sue the debtors separately for their respective shares in the indemnity The indivisibility of the obligation does not imply solidary liability; the liability is  joint , unless otherwise stipulated. The obligation not to do, when there are several debtors, is a joint indivisible obligation  ________ Art. 1210. The indivisibility of an obligation does not necessarily give rise to solidarity. Nor does solidarity of itself imply indivisibility.  ________ INDIVISIBLE JOINT OBLIGATION Each creditor cannot demand more than his share and each debtor is not liable for more than his share Refers to the prestation which is not capable of partial performance

SOLIDARY OBLIGATION Each may demand the full prestation and each debtor has likewise the duty to comply with the entire prestation Refers to the legal tie or vinculum defining the extent of liability

Where there are various creditors or various debtors, the obligation is joint even if performance is indivisible  ________ Art. 1211. Solidarity may exist although the creditors and the debtors may not be bound in the same manner and by the same periods and conditions.  ________ Kinds of solidarity: ACTIVE One that exists among the creditors

PASSIVE One that exists among the debtors

MIXED That on part of both creditors and debtors

The essence of active solidarity  consists in the authority of each creditor to claim and enforce the rights of all, with the resulting obligation of paying every one what belongs to him; there is no merger, much less a renunciation of rights, but only mutual representation. It is thus essentially a m utual agency. 29 | P

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In  passive solidarity , the essence is that each debtor can be made to answer for the others with the right on the part of the debtor-payor to recover from the others their respective shares

Under this article each solidary creditor may interrupt prescription, constitute the debtor in default, or bring suit so that the obligation may produce interest

Juridical effects: ACTIVE SOLIDARITY 1. Since it is a reciprocal agency, the death of a solidary creditor does not transmit the solidarity to each of his heirs but to all of them taken together

This article provides that a solidary creditor cannot do anything prejudicial to the others. Remission is particularly prejudicial to the co-creditors, and, under the present article, literally understood, one solidary creditor alone cannot make it; but under Article 1215 it is authorized. The same is true as to novation, compensation and merger or confusion. Article 1215 expressly authorizes the effectiveness of these acts of extinguishment by a solidary creditor

2. Each creditor represents the others in the act of receiving payment, and in all other acts which tend to secure the credit of make it more advantageous 3. One creditor, however, does not represent the others in such acts as novation (even if the credit is more advantageous), compensation and remission 4. The credit and its benefits are divided equally among the creditors, unless there is an agreement among them to divide differently 5. The debtor may pay to any solidary creditor, but if a  judicial demand is made on him, he must pay only to the plaintiff

PASSIVE SOLIDARITY 1. Each debtor can be required to pay the entire obligation; but after payment, he can recover from the co-debtors their respective shares 2. The debtor who is required to pay may set up by way of compensation his own claim against the creditor, in this case, the effect is the same as that of payment 3. The total remission of the debt in favor of a debtor releases all the debtors; when this remission affects only the share of one debtor, the other debtors are still liable for the balance of the obligation 4. All the debtors are liable for the loss of the thing due, even if such loss is caused by the fault of one of them, or by fortuitous event after one of the debtors has incurred delay 5. The interruption of prescription as to one debtor affects all the others; but the renunciation by one debtor of prescription already had does not prejudice the others

6. Each creditor may renounce his right even against the will of the 6. The interests due by reason debtor, and the later need of the delay of one of the not thereafter pay the debtors are borne by all of them obligation to the former The legal bonds in solidarity may be uniform, when the debtors are bound by the same conditions and clauses, or varied , where the obligors, although liable for the same prestation, are nevertheless not subject to the same terms and conditions. In the latter case, before the fulfillment of the condition or the arrival of the term which affects a particular debtor, an action may be brought against such debtor or any other solidary debtor for the recovery of the entire obligation, minus the portion corresponding to the debtor affected by the condition or term; but this latter portion cannot be demanded from anyone until the condition happens or the arrival of the term, however, the creditor may claim this remaining portion from any of the debtors  ________ Art. 1212. Each one of the solidary creditors may do whatever may be useful to the others, but not anything which may be prejudicial to the latter.  ________

The present provision can be understood to mean that the act of extinguishment, which is prejudicial to the co-creditors, will be valid so as to extinguish the claim against the debtors, but not with respect to the co-creditors whose rights subsist and can be enforced against the creditor who performed the act alone  ________ Art. 1213. A solidary creditor cannot assign his rights without the consent of the others.  ________ The solidary creditor is an agent of the others; hence, he cannot assign that agency to a third person without the consent of the other creditors. Mutual agency, which is the essence of active solidarity implies mutual confidence which may take into account the personal qualifications of each creditor, hence, it is only just to require consent of the others when one transfers is rights to another The law seems to imply that since such assignment cannot be made, it produces no effect whatsoever; the co-creditors and the debtor or debtors are not bound thereby, and the assignee cannot be regarded as a solidary creditor The assignment would produce its effects if made to a cocreditor. The consent of the other creditor would not be necessary, because the assignee is one as to whom the confidence of the others already exist  ________ Art. 1214. The debtor may pay any one of the solidary creditors; but if any demand, judicial or extrajudicial, has been made by one of them, payment should be made to him.  ________ The solidary creditors are tacitly mutual representatives of each other for demanding payment. The equality of the rights of the solidary creditors by virtue of this mutual representation, however, lasts only until one of them goes ahead of the others and sues the debtor. When one creditor makes a judicial demand for payment, the tacit representation by the other creditors is considered revoked, and during the pendency of the action, the creditors who did not sue lose their representation of the others. Up to the moment suit filed, the debtor could free himself from the debt by paying it to any creditor, but once action is filed against him by one creditor, the relation with the plaintiff as creditor is fixed definitely; he can pay only to the plaintiff, in whom the representation of the other creditors is thus concentrated, and he can no longer be c ued by the others

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The present article, modifying the provisions of the old Civil Code, has given to extra-judicial demand the same effect as  judicial demand in terminating the mutual representation among the solidary creditors and concentrating the agency in the creditor who made the demand If all or several solidary creditors demand payment separately, the debtor should pay to the one who first notified him. If they demand at the same time or collectively, as when they join together in a single action or written demand upon the debtor, the latter preserves his right to choose and may pay anyone of those demanding payment The solidary creditor who makes the demand for payment merely consolidates in himself the representation of all others, but does not deprive the other creditors of the character of principal as to their respective shares If a debtor has already paid the share of a creditor who made no demand upon him, his obligation to that extent should be considered reduced In mixed solidarity, when one creditor makes a demand upon one of the debtors, the latter cannot pay to any other creditor but the one who made the demand  ________ Art. 1215. Novation, compensation, confusion or remission of the debt, made by any of the solidary creditors or with any of the solidary debtors, shall extinguish the obligation, without prejudice to the provisions of Artic le 1219. The creditor who may have executed any of these acts, as well as he who collects the debt, shall be liable to the others for the share in the obligation corresponding to them.  ________ Each solidary debtor may release all the others by binding himself alone, in their place, in favor of the creditor. The debtor who effects the novation cannot, by himself, bind the others to a new debt without their consent GR:  The mere extension of time for payment given by the creditor to a solidary debtor, does not release the others from the obligation XPN:  In cases of suretyship, where the sureties are bound in solidum, a different rule applies. A material alteration of the principal contract, effected by the creditor and the principal debtor, without the consent of the sureties, completely discharges the sureties from all liability on the contract of suretyship

Dation in payment   is the delivery of a specific object as a substitute for the performance of the obligation. If the dation in payment is not immediately effected, but is in the form of a promise, it amounts to a novation. if it is made immediately, Article 1245 provides that it shall be governed by the law on sales. In so far as it concerns its effects upon the solidary relation, however, it should be treated as a payment, for it is essentially so Merger and compensation: PARTIAL TOTAL The rules on The obligation is extinguished and

application payments govern

of should

there is left only the resulting liability for reimbursement within each group  ________

Art. 1216. The creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. The demand made against one of them shall not be an obstacle to those which may subsequently be directed against the others, so long as the debt has not been fully collected.  ________ Each solidary creditor under Article 1212 may bring an action to enforce the obligation and payment can be made only to the plaintiff in such case by virtue of the provision of Article 1214. Under the present article, the solidary debtors may be sued simultaneously in one suit or successively in different actions. The provisions of this article, however, are not of public interest. The parties, therefore, may validly stipulate that the solidary debtors can only be sued simultaneously, or they may provide for the order in which the debtor may be sued individually If the judgment is favorable to the creditor, there seems to be no doubt that, under Article 1212, this inures to the benefit of the co-creditors. But if the judgment is adverse to the plaintiffs, is it a bar to an action by the other co-creditors? Yes. Exception: personal cause  ________ Art. 1217. Payment made by one of the solidary debtors extinguishes the obligation. If two or more solidary debtors offer to pay, the creditor may choose which offer to accept. He who made the payment may claim from his co-debtors only the share which corresponds to each, with the interest for the payment already made. If the payment is made before the debt is due, no interest for the intervening period may be demanded. When one of the solidary debtors cannot, because of his insolvency, reimburse his share to the debtor paying the obligation, such share shall be borne by all his co-debtors, in proportion to the debt of each.  ________ In Republic Glass Corp. v. Qua, 435 SCRA 480: If a solidary debtor pays the obligation in part, he can recover reimbursement from the co-debtors only in so far as his payment exceeded  his share in the obligation. In Diamond Builders v. Country Bankers, 540 SCRA 194: Article 1217 of the Civil Code recognizes the right of reimbursement from a co-debtor (the principal co-debtor, in case of suretyship) in favor of the one who paid (i.e., the surety). In contrast, Article 1218 of the Civil Code is definitive on when reimbursement is unavailing, such that only those payments made after the obligation has prescribed or became illegal shall not entitle a solidary debtor to reimbursement.  ________ Art. 1218. Payment by a solidary debtor shall not entitle him to reimbursement from his co-debtors if such payment is made after the obligation has prescribed or become illegal.  ________ 31 | P

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 ________ Art. 1219. The remission made by the creditor of the share which affects one of the solidary debtors does not release the latter from his responsibility towards the co-debtors, in case the debt had been totally paid by anyone of them before the remission was effected.  ________ In every passive solidarity, there is a dual relationship: (1) the relation between the creditor and the debtors, and (2) the relation among the debtors themselves. When a creditor remits the share of any debtor, he can affect only the first relation, because he is totally a stranger to the second relation. This relationship among the debtors is expressly governed by law in the last paragraph of Article 1217, which imposes on every other co-debtor the duty of contributing to the share of the insolvent debtor. This is a provision which does not affect the creditor, and no act of the creditor should affect the relation of the debtors under it. The creditor cannot, therefore, by his act exempt any debtor from the obligation imposed by it  ________ Art. 1220. The remission of the whole obligation, obtained by one of the solidary debtors, does not entitle him to reimbursement from his co-debtors.  ________ Art. 1221. If the thing has been lost or if the prestation has become impossible without the fault of the solidary debtors, the obligation shall be extinguished. If there was fault on the part of any one of them, all shall be responsible to the creditor, for the price and the payment of damages and interest, without prejudice to their action against the guilty or negligent debtor. If through a fortuitous event, the thing is lost or the performance has become impossible after one of the solidary debtors has incurred in delay through the judicial or extrajudicial demand upon him by the creditor, the provisions of the preceding paragraph shall apply.  ________ Art. 1222. A solidary debtor may, in actions filed by the creditor, avail himself of all defenses which are derived from the nature of the obligation and of those which are personal to him, or pertain to his own share. With respect to those which personally belong to the others, he may avail himself thereof only as regards that part of the debt for which the latter are responsible.  ________ Defenses of solidary debtor: 1. Defenses derived from the nature of the obligation 2. Defenses personal to debtor-defendant (i.e. either total or partial, minority, insanity, fraud, violence, or intimidation) 3. Defenses personal to the other solidary debtors (partial only)  ________

SECTION 5. - Divisible and Indivisible Obligations Art. 1223. The divisibility or indivisibility of the things that are the object of obligations in which there is only one debtor and only one creditor does not alter or modify the provisions of Chapter 2 of this Title.

INDIVISIBLE If divided into parts, its value is diminished disproportionately QUALITATIVE When the thing is not entirely homogenous, such as inheritance

DIVISIBLE When each one of the parts into which it is divided forms a homogenous and analogous object to the other parts as well as to the thing itself QUANTITATIVE When the thing divided is homogenous; the parts themselves may be separated, as in movables, or the limits of each part may be fixed, as in the case of immovables

The division may also be ideal , when the parts are not separated in a material way, but there are assigned to several persons the undivided portions pertaining to them, as in coownership DIVISIBLE OBLIGATION One which is susceptible of partial performance; that is, the debtor can legally perform the obligation by parts and the creditor cannot demand a single performance of the entire obligation

INDIVISIBLE OBLIGATION Whatever may be the nature of the thing which is the object thereof, when it cannot be validly performed in parts

Divisibility or indivisibility of the obligation refers to the performance of the prestation and not to the thing which is the object thereof Note: The thing may be divisible, yet the obligation may be indivisible  ________ Art. 1224. A joint indivisible obligation gives rise to indemnity for damages from the time anyone of the debtors does not comply with his undertaking. The debtors who may have been ready to fulfill their promises shall not contribute to the indemnity beyond the corresponding portion of the price of the thing or of the value of the service in which the obligation consists.  ________ To enforce a  joint  indivisible obligation, Article 1209 has established the necessity of collective fulfillment and the action must be against all the debtors. In case of non-performance by any of the debtors, the obligation is converted into a liability for losses and damages, which is divisible. In this case, if one of the debtors is insolvent or fails to pay his share, the others will not be liable for his share; the debtors who are ready to perform their part do not become liable for more than the portions respectively corresponding to them in the price of the subject matter of the obligation; the obligation is thus transformed, but not increased . If this transaction causes damages to them, they may recover such damages from the debtor who failed to perform. The entire liability for other damages, of course, such as those suffered by the creditor, is shouldered by the defaulting debtor SOLIDARITY Refers to the vinculum and

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therefore principally to the subjects of the obligation Such solidarity remains even when there has been nonperformance and the debtors become liable for damages

Requires plurality of subjects Death of the debtor terminates the solidarity, which is not transmitted to the heirs

object of the obligation When converted into one to pay damages, the reason for the indivisibility ceases to exist, and each debtor becomes liable for his part of the indemnity Does not require such Affects heirs of the debtor in that they remain bound to perform the same prestation

If the obligation is solidary and indivisible, every debtor is liable for losses and damages, although those ready to perform can later recover from the guilty one. The creditor may demand the entire indemnity, including the price of the thing or prestation and the damages, from any debtor, even if the latter was ready and willing to perform. But a debtor who has paid the entire indemnity may recover from the others their respective shares in the price, and from the guilty debtor the entire amount of damages  ________ Art. 1225. For the purposes of the preceding articles, obligations to give definite things and those which are not susceptible of partial performance shall be deemed to be indivisible. When the obligation has for its object the execution of a certain number of days of work, the accomplishment of work by metrical units, or analogous things which by their nature are susceptible of partial performance, it shall be divisible. However, even though the object or service may be physically divisible, an obligation is indivisible if so provided by law or intended by the parties. In obligations not to do, divisibility or indivisibility shall be determined by the character of the prestation in each particular case.  ________ Note:  The divisibility of the object does not necessarily determine the divisibility of the obligation; while, the indivisibility of the object carries with it the indivisibility of the obligation The obligation may be indivisible even when the object is divisible, by reason of the provision of law, of the express will of the parties, or of their presumed will, shown by the relation of the distinct parts of the object, each of which may be necessary complement of the others, or by the purpose of the obligation which requires the realization of all the parts

2. The objective or purpose of the stipulated prestation 3. The nature of the thing 4. Provisions of law affecting the prestation In obligations to give, those for the delivery of certain objects, such as an animal or a chair, are indivisible. In obligations to do, indivisibility is also presumed, and it is only when they are under the exceptional cases mentioned in paragraph 2 of this article that they are divisible The purpose of the parties is controlling; and this applies not only to obligations to give, but also to those of doing or not doing Where the contract is indivisible, in that it is not susceptible of partial performance, even if the compensation is fixed by unit of measure, the debtor who fails to duly perform the work agreed upon, but abandons the same after performing a part, cannot recover on quantum meruit   for the work already finished, because in indivisible obligations partial performance is equivalent to non-performance XPN: (See Articles 1234 & 1235) 1. Where the obligation has been substantially performed in good faith, the debtor may recover as if there had been complete performance, minus the damages suffered by the creditor

2. When the creditor accepts performance, knowing its incompleteness, and without protest, the obligation is deemed fully performed Divisible and indivisible obligations are not necessarily identical to severable and entire obligations are not necessarily identical to severable and entire contracts, respectively. Whether a contract is entire or severable depends in general upon the consideration to be paid, not upon its object. *If the consideration is single, the contract is entire, but if the consideration is expressly or by implication apportioned, the contract is severable *When the consideration is entire and single, the contract must be held to be entire, although the subject matter may be distinct and independent items. A contract may be entire in its origin and yet looking to the performance of different things at different times, as a contract of subscription to a publication to be delivered in parts each part to be paid upon delivery If the contract is severable, and one part is illegal, the part which is illegal is void and cannot be enforced, but that part which is legal is enforceable. If the contract is entire, and a part is illegal, the whole contract is unenforceable  ________

SECTION 6. - Obligations with a Penal Clause TEST: Whether or not it is susceptible of partial performance, not in the sense of whether the delivery of the things or the execution of the acts in parts is absolutely impossible or not, but in the sense of whether such separation into parts is contrary or not to the end which the obligation seeks to attain FACTORS which determine whether an obligation is divisible or indivisible: 1. The will or intention of the parties (expressed or presumed)

Art. 1226. In obligations with a penal clause, the penalty shall substitute the indemnity for damages and the payment of interests in case of noncompliance, if there is no stipulation to the contrary. Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is guilty of fraud in the fulfillment of the obligation.

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The penalty may be enforced only when it is demandable in accordance with the provisions of this Code.  ________ A penal clause is an accessory undertaking to assume greater liability in case of breach. It is attached to an obligation in order to insure performance. The penalty is generally a sum of money. But it can also be any other thing stipulated by the parties, including an act or abstention Double function: 1. To provide for liquidated damages 2. To strengthen the coercive force of the obligation by the threat of greater responsibility in the event of breach SUBSIDIARY/ ALTERNATIVE Upon non-performance, only the penalty can be asked

JOINT/ CUMMULATIVE Both the principal undertaking and the penalty may be demanded

Its purpose may be either reparation, in which case it substitutes the damages suffered by the creditor, or  punishment , in which case the right to damages, besides the penalty subsists REPARATION The matter of damages is generally resolved, and it represents the estimate of the damages that a party might suffer from non-performance of the obligation, thereby avoiding the difficulties of proving such damages

PUNISHMENT The question of indemnity for damages is not resolved, but remains subsisting

Whether the purpose of the penal clause is punishment or reparation, the mere non-performance of the principal obligation gives rise to the right to penalty. The penal clause constitutes an exception to the general rules on the recovery of losses and damages The creditor cannot recover more than the penalty stipulated, even of he proves that the damages suffered by him exceeded in amount such penalty When the penalty stipulated is not contrary to law, morals, or public order, it must be enforced against the party liable therefor Obligations imposing penalties and forfeitures must be strictly construed  Three cases when damages and interest may be recovered in addition to the penalty: 1. When there is an express provision to that effect 2. When the debtor refuses to pay the penalty 3. When the debtor is guilty of fraud in the non-fulfillment of the obligation The enforcement of the penalty can be demanded by the creditor only when the non-performance is due to the fault or fraud of the debtor. But the creditor does not have to prove that there was fault or fraud on the part of the debtor. The non-performance gives rise to the presumption of fault; and in order to avoid the payment of the penalty, the debtor has the burden of proving an excuse--either that the failure of the

performance was due to force majeure, or to the acts of the creditor himself When there are several debtors in an obligation with a penal clause, the divisibility of the principal obligation among the debtors does not necessarily carry with it the divisibility of the penalty among them CONDITIONAL OBLIGATION There is no obligation before the suspensive condition happens; it is the fulfillment of the condition that gives rise to the obligation The principal obligation itself is dependent upon an uncertain event

OBLIGATION WITH A PENAL CLAUSE There is already an existing obligation (the principal) from the very beginning

ALTERNATIVE OBLIGATION Two or more obligations are due, but fulfillment of one of them is sufficient

OBLIGATION WITH A PENAL CLAUSE There is only one prestation and it is only when this is not performed that the penal clause is enforceable The impossibility of the principal obligation extinguishes also the penalty

The impossibility of one of the obligations, without the fault of the debtor, still leaves the other subsisting The debtor can choose which prestation to fulfill

FACULTATIVE OBLIGATION The power of the debtor to make substitution is absolute The creditor can never demand both prestations

It is the accessory obligation (penalty) which is dependent upon non-performance of the principal obligation

He cannot choose to pay the penalty to relieve himself of the principal obligation, unless that right is expressly granted to him OBLIGATION WITH A PENAL CLAUSE The payment of the penalty in lieu of the principal obligation can be made only by express stipulation Such right may be granted to him

Guaranty is a contract by virtue of which a third person, called the guarantor, binds himself to fulfill the obligation of the principal debtor in case the latter should fail to do so. GUARANTY

OBLIGATION WITH A PENAL CLAUSE Both intended to insure performance of the principal obligation; both accessory and subsidiary obligation The object of the obligations The obligation to pay the of the principal debtor and penalty is different from the the guarantor is the same principal obligation The principal debtor cannot The principal obligation and be guarantor of the same the penalty can be assumed obligation by the same person The guaranty subsists even The penalty is extinguished by when the principal obligation the nullity of the principal is voidable or unenforceable obligation, except when the or is a natural one penal clause is assumed by a third person (in which case 34 | P

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the principle of a guarantor applies)  ________ Art. 1227. The debtor cannot exempt himself from the performance of the obligation by paying the penalty, save in the case where this right has been expressly reserved for him. Neither can the creditor demand the fulfillment of the obligation and the satisfaction of the penalty at the same time, unless this right has been clearly granted him. However, if after the creditor has decided to require the fulfillment of the obligation, the performance thereof should become impossible without his fault, the penalty may be enforced.  ________ GR:  The debtor cannot avoid performance of the principal obligation by offering to pay the penalty. Therefore, the penalty, the object of which is to secure compliance with the obligation, cannot as a general rule, serve as a defense for the purpose of leaving the principal obligation unfulfilled. XPN: This right to substitute the penalty for the principal obligation may be expressly granted to the debtor GR: The creditor cannot demand performance of the principal obligation and the penalty at the same time. XPN: (1) The creditor may enforce both the principal obligation and the penalty when this right is clearly granted to him; and (2) where the creditor demanded fulfillment of the principal obligation but it cannot be performed; in this case, he may demand the penalty

The law obviously means that performance becomes impossible through the fault of the debtor; it is in this case that the penalty may be enforced  ________ Art. 1228. Proof of actual damages suffered by the creditor is not necessary in order that the p enalty may be demanded.  ________ Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable.  ________ Partial performance refers to the extent or quantity or fulfillment; irregular, to the form. In any case where there has been partial or irregular compliance with the provisions of a contract with a penal clause, courts will rigidly apply the doctrine of strict construction against the enforcement in its entirety of the penalty The power of the judge to reduce the penalty refers only to penalties prescribed in contracts. It does not cover the collection of the surcharge on taxes that are due, which is mandatory on the collector The amount of the penalty is not determined by the injury suffered by the creditor, but by what has been agreed upon by the parties who are free to determine such amount. The limits of good customs, however, should not be infringed

The penalty is not enforceable when the principal obligation becomes impossible due to fortuitous event, or when the creditor prevents the debtor from performing the principal obligation  ________ Art. 1230. The nullity of the penal clause does not carry with it that of the principal obligation. The nullity of the principal obligation carries with it that of the penal clause.  ________ GR: The nullity of the principal obligation also nullifies the penal clause, which is only an accessory to the principal obligation XPN: The penal clause subsists even if the principal obligation cannot be enforced: 1. When the penalty is undertaken by a third person precisely for an obligation which is unenforceable, voidable, or natural, in which case it assumes the form of a guaranty which is valid under Article 2052 2. When the nullity of the principal obligation itself gives rise to liability of the debtor for damages

The penal clause may be void because it is contrary to law, moral, good customs, public order, or public policy. In such case, the principal obligation subsists, if valid  ________

Chapter 4. Extinguishment of Obligations - General Provisions Art. 1231. Obligations are extinguished: (1) By payment or performance: (2) By the loss of the thing due: (3) By the condonation or remission of the debt; (4) By the confusion or merger of the rights of creditor and debtor; (5) By compensation; (6) By novation. Other causes of extinguishment of obligations, such as annulment, rescission, fulfillment of a resolutory condition, and prescription, are governed elsewhere in this Code.  ________ As a general rule, death of either the creditor or the debtor does not extinguish the obligation; obligations actively and passively, are transmissible to the heirs, except when the law, the stipulations of the parties, or nature of the obligation prevents such transmission XPN: In obligations to do or which are personal, identified with the person himself; these are extinguished by death  ________

Section 1. - Payment or Performance Art. 1232. Payment means not only the delivery of money but also the performance, in any other manner, of an obligation.  ________

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Payment is the fulfillment of the prestation due, a fulfillment that extinguishes the obligation by the realization of the purposes for which it was constituted Requisites of payment: 1. The person who pays must be the debtor 2. The person to whom payment is made must be the creditor 3. The thing to be paid or to be delivered must be the precise thing or the thing required to be delivered by the creditor 4. The manner (if expressly agreed upon), time and place of payment, etc Kinds of payment: NORMAL ABNORMAL When the debtor When he is forced by means of a voluntarily performs  judicial proceeding, either to comply the prestation with the prestation or to pay stipulated indemnity  ________ Art. 1233. A debt shall not be understood to have been paid unless the thing or service in which the obligation consists has been completely delivered or rendered, as the cas e may be.  ________ Requisites for payment: 1. Identity of the prestation; that the very thing or service due must be delivered or released 2. Integrity; that the prestation must be fulfilled completely The payment or performance must be on the date stipulated. The failure to perform on the date stipulated is not excused by the fact that such date falls on a Sunday and the next day is a legal holiday, because payment may be made either on Sundays or on any holiday. Under some statutes, however, like the Negotiable Instruments Law, payment in such case may be on the next succeeding business day When the existence of a debt is fully established by the evidence, the burden of proving that it has been extinguished by payment devolves upon the debtor who offers such a defense to the claim of the plaintiff creditor  ________ Art. 1234. If the obligation has been substantially performed in good faith, the obligor may recover as though there had been a strict and complete fulfillment, less damages suffered by the obligee.  ________ In order that there may be substantial performance of an obligation, there must have been an attempt in good faith to perform, without any willful or intentional departure therefrom. The deviation from the obligation must be slight, and the omission or defect must be technical and unimportant, and must not pervade the whole or be so material that the object which the parties intended to accomplish in a particular manner is not attained. The non-performance of a material part of a contract will prevent the performance from amounting to a substantial compliance When one has received the benefits of substantial performance by the other without the price agreed upon, and he cannot or does not return these benefits, it is manifestly unjust to permit him to retain them without paying, or doing as he promised  ________

Art. 1235. When the obligee accepts the performance, knowing its incompleteness or irregularity, and without expressing any protest or objection, the obligation is deemed fully complied with.  ________ To constitute a waiver, there must be an intentional relinquishment of a known right. A waiver will not result from a mere failure to assert a claim for defective performance when the thing or work is received, or from mere payment in accordance with the terms of the contract. There must have been acceptance  of the defective performance with actual knowledge of the incompleteness or the defect, under circumstances that would indicate an intention to consider the performance as complete and renounce any claim arising from the defect The word accept   used in this Article, means to take as satisfactory or sufficient, or agree to an incomplete or irregular performance A creditor cannot object because of defects in performance resulting from his own acts or directions. And where a party makes particular objections to the sufficiency of performance, he is estopped to later set up other objections  ________ Art. 1236. The creditor is not bound to accept payment or performance by a third person who has no interest in the fulfillment of the obligation, unless there is a stipulation to the contrary. Whoever pays for another may demand from the debtor what he has paid, except that if he paid without the knowledge or against the will of the debtor, he can recover only insofar as the payment has been beneficial to the debtor.  ________ The creditor cannot be compelled to accept performance by a third person who is not bound under the obligation, because whenever a third person pays there is a modification of the prestation that is due. It is believed that the creditor should have a right to insist on the liability of the debtor. A creditor should not be compelled to accept payment from a third person whom he dislikes or distrust A person who pays a debt for the account of another may recover from the debtor the sum so paid out, at least to the extent in which the payment may have been beneficial to the debtor. Such a payment cannot be considered as a payment of what is not due under Article 2154, and cannot be recovered from the creditor by the person who paid; the right of the payor in such case is against the debtor whose obligation he has paid. The debtor who knows that another has paid his obligation for him, and who does not object thereto or repudiate the same at any time, must pay the amount advanced by the third person Generally, the third person who paid another’s debt is entitled to recover the full amount he had paid. The law, however, limits his recovery to the amount by which the debtor has been benefited, if the debtor has no knowledge of, or has expressed his opposition to such payment

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It is optional for the creditor to accept payment from a third person. If the debtor opposes the payment by a third person, the latter will be entitled to recover from the debtor only to the extent that the payment has benefited him. But as between the debtor and the creditor, the obligation is extinguished  ________ Art. 1237. Whoever pays on behalf of the debtor without the knowledge or against the will of the latter, cannot compel the creditor to subrogate him in his rights, such as those arising from a mortgage, guaranty, or penalty.  ________ The right to recover from the debtor is based in the mere fact of payment and on considerations of justice; but it gives to the third person who paid only simple personal action for reimbursement, without the securities, guaranties, and other rights recognized in the creditor, which are extinguished by the payment From the language of this article, it would seem that there may be subrogation if the creditor willingly and spontaneously permits the third person who has paid to be subrogated in his rights, even without the consent of the debtor. Such interpretation, however, is not proper. There is no provision giving such right to the creditor; the provisions of this article are for the benefit of the debtor, and cannot be renounced by the creditor; the third person is amply protected by his right to reimbursement. It is clear, however, that the creditor may assign his rights to a third person; but in such case, the resulting rights and obligations of the creditor and the third person would be different from those arising from payment  ________ Art. 1238. Payment made by a third person who does not intend to be reimbursed by the debtor is deemed to be a donation, which requires the debtor's consent. But the payment is in any case valid as to the creditor who has accepted it.  ________ Art. 1239. In obligations to give, payment made by one who does not have the free disposal of the thing due and capacity to alienate it shall not be valid, without prejudice to the provisions of Article 1427 under the Title on "Natural Obligations."  ________ Where the person paying has no capacity to make the payment, the creditor cannot be compelled to accept it; consignation will not be proper; in case he accepts it, the payment will not be valid, except in the case provided in Article 1427  ________ Art. 1240. Payment shall be made to the person in whose favor the obligation has been constituted, or his successor in interest, or any person authorized to receive it.  ________ The authority of a person to receive payment for the creditor may be legal or conventional  LEGAL When conferred by law, such as the authority of a guardian

CONVENTIONAL When the authority has been given by the creditor himself, as when an agent is appointed to collect from the

of an incapacitated creditor, or the administrator of the estate of a deceased creditor

debtor. The debtor may be authorized by the creditor to make the payment to another, whether the latter be his representative or not

The payment of a debt must be made to the person in whose favor the obligation is constituted, or to another authorized to receive the payment in his name Payment made by the debtor to a wrong party does not extinguish the obligation as to the creditor, if there is no fault or negligence which can be imputed to the latter. Even when the debtor acted in utmost good faith and by mistake as to the person of his creditor, or through error induced by the fraud of the third person, the payment to one who is not in fact his creditor, or authorized to receive such payment, is void, except as provided in Article 1241. Such wrong payment does not prejudice the creditor, and accrual of interest is not suspended by it The deposit of the amount of the obligation by the debtor in a bank, in the name and to the credit of the creditor, without the authorization of the latter, does not constitute payment; but when the creditor cannot be found in the place of payment, such deposit may be a valid excuse for not holding the debtor in default Generally, consignation in court of the thing or amount due, when properly made, will extinguish the obligation. But where the creditor institutes an action for the collection of the amount of the obligation, with the corresponding interest, and the debtor deposits the amount in court, but in a different case which is separate and distinct in nature from the case in which payment is demanded, such deposit does not amount to payment  ________ Art. 1241. Payment to a person who is incapacitated to administer his property shall be valid if he has kept the thing delivered, or insofar as the payment has been beneficial to him. Payment made to a third person shall also be valid insofar as it has redounded to the benefit of the creditor. Such benefit to the creditor need not be proved in the following cases: (1) If after the payment, the third person acquires the creditor's rights; (2) If the creditor ratifies the payment to the third person; (3) If by the creditor's conduct, the debtor has been led to believe that the third person had authority to receive the payment.  ________ When the creditor is incapacitated to receive payment, this must be made to his legal representative if there is one. If there be none, then the debtor may relieve himself of responsibility by delivering the thing to the court in consignation, by virtue of Article 1256 If the payment is made to the creditor who is incapacitated, it shall be valid only in so far as it accrued to his benefit. In the absence of this benefit, the debtor may be made to pay again

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by the incapacitated himself when he attains capacity, or his legal representative during such incapacity The payment shall be considered as having benefited the incapacitated person, if he made an intelligent and reasonable use thereof, for purposes necessary or useful to him, such as that which his legal representative would have or could have done under similar circumstances, even at the time of the complaint the effect of such use no longer exists. It is not necessary, however, that there be actual investment or use of the thing. The benefit is deemed to exist also when the thing paid is preserved or kept to be applied to rational purposes for the benefit of the incapacitated The debtor is not released from liability by a payment to one who is not the creditor nor one authorized to receive the payment, even if the debtor believed in good faith that he is the creditor, except to the extent that the payment inured to the benefit of the creditor In the following cases, in addition to those enumerated by this article, payment to a third person releases the debtor: (1) When, without notice of the assignment of the credit, he pays to the original creditor (Article 1626) (2)When in good faith he pays to one in possession of the credit (Article 1242) Even when the creditor receives no benefit from the payment to a third person, he cannot demand payment anew, if the mistake of the debtor was due to the fault of the creditor  ________ Art. 1242. Payment made in good faith to any person in possession of the credit shall release the debtor.  ________ This article constitutes an exception to the rule that payment must be made to the creditor or his authorized representative. The person in possession of the credit is neither the creditor nor one authorized by him to receive payment, but appears under the circumstances of the case, to be the creditor. He appears to be the owner of the creditor, although in reality he may not be the owner This article refers to possession of the credit, and not merely of the document representing the credit Payment to the possessor of the document or title does not necessarily extinguish the credit (i.e. payable to bearer/ order) The good faith of the debtor consists in the belief that the party who presents the title of the obligation is the true creditor, or that the person to whom the payment is made is the owner of the credit  ________

 judgment in his favor. The debtor can therefore be made to pay again to the party who secured the attachment or garnishment, but he can recover to the same extent what he has paid to his credit The debtor upon whom a garnishment order is served, can always deposit the money in court by way of consignation, and thus relieve himself of further liability If the debt is already due, he can even be compelled judicially by the attaching creditor to make the consignation in court, because he would have no more right to retain the debt If the action of the attaching or garnishing creditor fails, then the garnishment is of no effect, because it is only incidental or accessory to the main action. The payment which the garnishee has made to his creditor (defendant in the action) must be considered as valid and extinguishes the former’s liability to the latter  ________ Art. 1244. The debtor of a thing cannot compel the creditor to receive a different one, although the latter may be of the same value as, or more valuable than that which is due. In obligations to do or not to do, an act or forbearance cannot be substituted by another act or forbearance against the obligee's will.  ________ The debtor of a thing cannot compel the creditor to receive a different one although the latter may be of the same value than that which is due. Upon agreement or consent of the creditor, the debtor may deliver a different thing or perform a different prestation in lieu of that stipulated. In this case there may be dation in payment (Article 1245) or novation (Article 1291) The defects of the thing delivered may be waived by the creditor, if he expressly so declares, or if, with knowledge thereof, he accepts the thing without protest or disposes of it or consumes it  ________ Art. 1245. Dation in payment, whereby property is alienated to the creditor in satisfaction of a debt in money, shall be governed by the law of sales.  ________ The dation in payment extinguishes the obligation to the extent of the value of the thing delivered, either as agreed upon by the parties or as may be proved, unless the parties by agreement, express or implied, or by their silence, consider the thing as equivalent to the obligation, in which case the obligation is totally extinguished. (8 Manresa 324; 3 Valverde 174 fn.)

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

In Caltex (Phil.), Inc., v. IAC, 215 SCRA 580: It is clear that a dation in payment does not necessarily mean total extinguishment of the obligation. The obligation is totally extinguished only when the parties, by agreement, express or implied, or by their silence, consider the thing as equivalent to the obligation.

The payment to the creditor after the credit has been attached or garnished, is void as to the party who obtained the attachment or garnishment, to the extent of the amount of the

Dation in payment is an onerous contract of alienation because the object is given in exchange of the credit. The provisions on sales, regarding warranty against eviction and hidden defects of 38 | P

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the thing, are therefore applicable, the debtor being considered as the vendor  ________ Art. 1246. When the obligation consists in the delivery of an indeterminate or generic thing, whose quality and circumstances have not been stated, the creditor cannot demand a thing of superior quality. Neither can the debtor deliver a thing of inferior quality. The purpose of the obligation and other circumstances shall be taken into consideration.  ________ In cases falling under this article, if there is disagreement between the debtor and the creditor as to the quality of the thing delivered, the court should decide whether it complies with the obligation, taking into consideration the purpose and other circumstances of the obligation The creditor or debtor may waive the benefit of this article. Thus, the creditor may require a thing of inferior quality, and the debtor may deliver an object of superior quality, unless the price to be paid in the latter case is dependent upon the quality  ________ Art. 1247. Unless it is otherwise stipulated, the extrajudicial expenses required by the payment shall be for the account of the debtor. With regard to judicial costs, the Rules of Court shall govern.  ________ Extra-judicial expenses required by the payment is borne by the debtor, in the absence of stipulation, because the payment is his duty and it inures to his benefit in that he is discharged from the burden of the obligation  ________ Art. 1248. Unless there is an express stipulation to that effect, the creditor cannot be compelled partially to receive the prestations in which the obligation consists. Neither may the debtor be required to make partial payments. However, when the debt is in part liquidated and in part unliquidated, the creditor may demand and the debtor may effect the payment of the former without waiting for the liquidation of the latter.  ________ Art. 1249. The payment of debts in money shall be made in the currency stipulated, and if it is not possible to deliver such currency, then in the currency which is legal tender in the Philippines. The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents shall produce the effect of payment only when they have been cashed, or when through the fault of the creditor they have been impaired. In the meantime, the action derived from the original obligation shall be held in the abeyance.  ________ In Tibajia v. CA, 223 SCRA 163; A check, whether a manager's check or ordinary check, is not legal tender, and an offer of a check in payment of a debt is not a valid tender of payment and may be refused receipt by the obligee or creditor.

Section 63 of Republic Act No. 265, as amended (Central Bank Act) which provides: Sec. 63. Legal character — Checks representing deposit money do not have legal tender power and their acceptance in the payment of debts, both public and private, is at the option of the creditor: Provided, however, that a check which has been cleared and credited to the account of the creditor shall be equivalent to a delivery to the creditor of cash in an amount equal to the amount credited to his account. In Papa v. Valencia & Co., Inc., 284 SCRA 643: After more than ten (10) years from the payment in party by cash and in part by check, the presumption is that the check had been encashed. Granting that petitioner had never encashed the check, his failure to do so for more than ten (10) years undoubtedly resulted in the impairment of the check through his unreasonable and unexplained delay. While it is true that the delivery of a check produces the effect of payment only when it is cashed, pursuant to Art. 1249 of the Civil Code, the rule is otherwise if the debtor is prejudiced by the creditor's unreasonable delay in presentment. The acceptance of a check implies an undertaking of due diligence in presenting it for payment, and if he from whom it is received sustains loss by want of such diligence, it will be held to operate as actual payment of the debt or obligation for which it was given. It has, likewise, been held that if no presentment is made at all, the drawer cannot be held liable irrespective of loss or injury unless presentment is otherwise excused. This is in harmony with Article 1249 of the Civil Code under which payment by way of check or other negotiable instrument is conditioned on its being cashed, except when through the fault of the creditor, the instrument is impaired. The payee of a check would be a creditor under this provision and if its nopayment is caused by his negligence, payment will be deemed effected and the obligation for which the check was given as conditional payment will be discharged. In Hydro Resources v. NIA, 441 SCRA 614: As a contract funded by an international organization, particularly one recognized by the Philippines, the contract is exempt from the provisions of R.A. No. 529. R.A. No. 4100 amended the provisions of R.A. 529 thus: SECTION 1. Section one of Republic Act Numbered Five hundred and twenty-nine, entitled "An Act to Assure Uniform Value of Philippine Coin and Currency," is hereby amended to read as follows: Sec. 1. Every provision contained in, or made with respect to, any domestic obligation to wit, any obligation contracted in the Philippines which provisions purports to give the obligee the right to require payment in gold or in a particular kind of coin or currency other than Philippine currency or in an amount of money of the Philippines measured thereby, be as it is hereby declared against public policy, and null, void, and of no effect, and no such provision shall be contained in, or made with respect to, any obligation hereafter incurred. The above prohibition shall not apply to (a) transactions where the funds involved are the proceeds of loans or investments made directly or indirectly, through bona fide intermediaries or agents, by foreign governments, their agencies and instrumentalities, and international financial and banking 39 | P

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institutions so long as the funds are identifiable, as having emanated from the sources enumerated above; (b) transactions affecting high-priority economic projects for agricultural, industrial and power development as may be determined by the National Economic Council which are financed by or through foreign funds; (c) forward exchange transaction entered into between banks or between banks and individuals or juridical persons; (d) import-export and other international banking, financial investment and industrial transactions. With the exception of the cases enumerated in items (a), (b), (c) and (d) in the foregoing provisions, in which bases the terms of the parties' agreement shall apply, every other domestic obligation heretofore or hereafter incurred, whether or not any such provision as to payment is contained therein or made with respect thereto, shall be discharged upon payment in any coin or currency which at the time of payment is legal tender for public and private debts: Provided, That if the obligation was incurred prior to the enactment of this Act and required payment in a particular kind of coin or currency other than Philippine currency, it shall be discharged in Philippine currency measured at the prevailing rates of exchange at the time the obligation was incurred, except in case of a loan made in a foreign currency stipulated to be payable in the same currency in which case the rate of exchange prevailing at the time of the stipulated date of payment shall prevail. All coin and currency, including Central Bank notes, heretofore and hereafter issued and declared by the Government of the Philippines shall be legal tender for all debts, public and private. Section 1 of R.A. No. 529 states that only the stipulation requiring payment in foreign currency is void, but not the obligation to make payment.  ________ Art. 1250. In case an extraordinary inflation or deflation of the currency stipulated should supervene, the value of the currency at the time of the establishment of the obligation shall be the basis of payment, unless there is an agreem ent to the contrary.  ________ This article applies only where a contract or agreement is involved. It does not apply where the obligation to pay arises from law, independent of contracts, like the taking of private property by the Government in the exercise of its power of eminent domain This article applies to cases where extraordinary inflation or deflation of the stipulated currency takes place. The Code does not expressly define what is “extraordinary” inflation or deflation. Considering the intent of the law, however, extraordinary inflation or deflation may be said to be that which is unusual or beyond the common fluctuations in the value of the currency, which the parties could not have reasonably foreseen or which was manifestly beyond their contemplation at the time when the obligation was constituted In  Almeda v. Bathala Marketing, 542 SCRA 470: Inflation has been defined as the sharp increase of money or credit, or both, without a corresponding increase in business transaction. There is inflation when there is an increase in the volume of money and credit relative to available goods, resulting in a substantial and continuing rise in the general price level. In Filipino Pipe and Foundry Corp. v. NAWASA, 161 SCRA 339: Extraordinary inflation exists "when there is a decrease or

increase in the purchasing power of the Philippine currency which is unusual or beyond the common fluctuation in the value said currency, and such decrease or increase could not have reasonably foreseen or was manifestly beyond contemplation the the parties at the time of the establishment of the obligation. (Tolentino Commentaries and Jurisprudence on the Civil Code Vol. IV, p. 284.) To determine payment when there has been great fluctuation in the value of currency, we can resort, considering the circumstances of each particular case, to the principle of good faith expressed in Article 1315, under which parties to contracts “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” When the currency is devaluated in terms beyond what could have been reasonably foreseen by the parties, the doctrine of unforeseen risks can be applied, and the effects of the devaluation should not be borne by the creditor alone. The revaluation of the credit in such cases must be made, according to the principles of good faith and in vie of the circumstances of each particular case, recognizing the real value of the credit as in consonance with the intent of the parties  ________ Art. 1251. Payment shall be made in the place designated in the obligation. There being no express stipulation and if the undertaking is to deliver a determinate thing, the payment shall be made wherever the thing might be at the moment the obligation was constituted. In any other case the place of payment shall be the domicile of the debtor. If the debtor changes his domicile in bad faith or after he has incurred in delay, the additional expenses shall be borne by him. These provisions are without prejudice to venue under the Rules of Court.  ________ In the absence of stipulation in an obligation to deliver a determinate thing, performance must be made at the place where the thing was located at the time the obligation was constituted. This rule applies to obligations to do, where the service or act refers to some determinate thing, such as the painting or repair of a house or building Even when the thing is determinate but its existence at the place where it was when the obligation was constituted was temporary, the performance must be at the domicile of the debtor, unless otherwise provided Since the law fixes the place of payment at the domicile of the debtor, it is the duty of the creditor to go there to receive payment; he should bear the expenses in this case, because the debtor cannot be made to shoulder the expenses which the creditor incurs in performing a duty imposed by law and which is for his benefit  ________ 40 | P

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SUBSECTION 1. - Application of Payments Concept-Application of payment is the designation of the debt which is being paid by a debtor who has several obligations of the same kind in favor of the creditor to whom payment is made

The rules contained in Articles 1252 to 1254 apply to a person owing several debts of the same kind of a single creditor. They cannot be made applicable to a person whose obligation as a mere surety is both contingent and singular; his liability is confined to such obligation, and he is entitled to have all payments made applied exclusively to said obligation and to no other Art. 1252. He who has various debts of the same kind in favor of one and the same creditor, may declare at the time of making the payment, to which of them the same must be applied. Unless the parties so stipulate, or when the application of payment is made by the party for whose benefit the term has been constituted, application shall not be made as to debts which are not yet due. If the debtor accepts from the creditor a receipt in which an application of the payment is made, the former cannot complain of the same, unless there is a cause for invalidating the contract. (1172a)  ________ In order that the rules for application of payment may be applied, it is necessary that the obligations must all be due. It is only in case of mutual agreement of the parties, or upon the consent of the party in whose favor the term was established, that payments may be applied to obligations which have not yet matured It is also necessary that all the debts be for the same kind, generally of a monetary character. This includes obligations which were not originally of a monetary character, but, at the time of application of payment, had been converted into an obligation to pay damages by reason of breach or nonperformance The law grants to the debtor a preferential right to choose the debt to which this payment is to be applied, because under equal circumstances the law favors the debtor. But the right of the debtor is not absolute; he cannot impair the rights granted 33 by law to the creditor The right to select the obligation to which a payment is to be applied must be exercised at the time when the debt is paid, and after the debtor has exercised it by indicating the debt to which his payment should be applied, he cannot later claim that it should be understood as applied to another debt If the debtor makes a proper application of payment, but the creditor refuses to accept it because he wants to apply it to another debt, such creditor will incur delay

application and his decision is accepted by the debtor. This application of payment can be made by the creditor only in the receipt issued at the time of payment. Once the debtor has accepted the application made by the creditor, the former cannot contest such application, which is validated by his acquiescence. It can be changed only by mutual agreement. But an application made by the creditor, without the knowledge and consent of the debtor, is not binding upon the latter The real intent of the law is that the application made by the creditor can be contested by the debtor if the latter’s assent to such application was vitiated by such causes as mistake, violence, intimidation, fraud, etc., which can invalidate not only contracts but also other judicial acts When neither the debtor nor the creditor has made a valid application of payment, then the application shall take place by operation of law under articles 1253 and 1254. The same is true if the application made by the creditor is annulled by the debtor whose consent thereto is vitiated The debtor and the creditor, by agreement, can validly change the application of payment already made, without prejudice to the rights of third persons acquired before such agreement  ________ Art. 1253. If the debt produces interest, payment of the principal shall not be deemed to have been made until the interests have been covered. (1173)  ________ Once it is admitted that an obligation bears interest, partial payments are to be applied first on account of the interest and then to reduce the principal. This principle is not merely suppletory; it has an obligatory character, and cannot be dispensed with except by mutual agreement. The creditor may oppose an application of payment made by the debtor contrary to this rule  ________ Art. 1254. When the payment cannot be applied in accordance with the preceding rules, or if application can not be inferred from other circumstances, the debt which is most onerous to the debtor, among those due, shall be deemed to have been satisfied. If the debts due are of the same nature and burden, the payment shall be applied to all of them proportionately. (1174a)  ________ In making the application of payments, the law considers particularly the interest of the debtor, as if the debtor himself were making the application. It is assumed that of the debtor had chosen the debt to be paid, he would relieved himself first of the more burdensome debt. As to which of two debts is more onerous is fundamentally a question of fact, which courts must determine on the basis of the circumstances of each case. The condition of being more burdensome is relative, and 34 cannot be determined with precision by general rules

If at the time of payment, the debtor does not exercise the right to apply it to any of his debts, the application shall be understood as provided by law, unless the creditor makes the

Where the debts are of the same nature and burden, there must always be a  pro rata application of the payment, even if

33 See

34 See

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the sum paid is exactly the amount of one of the obligations. The mere equality of the amounts does not imply a tacit application of the payment to the debt to which it is equal in amount  ________

SUBSECTION 2. - Payment by Cession Art. 1255. The debtor may cede or assign his property to his creditors in payment of his debts. This cession, unless there is stipulation to the contrary, shall only release the debtor from responsibility for the net proceeds of the thing assigned. The agreements which, on the effect of the cession, are made between the debtor and his creditors shall be governed by special laws. (1175a)  ________ The assignment or cession contemplated by this article is the abandonment of the universality of the property of the debtor for the benefit of his creditors, in order that such property may be applied to the payment of the credits. The initiative comes from the debtor, but it must be accepted by the creditors in order to become effective; a voluntary assignment cannot be imposed upon a creditor who is not willing to accept it. If the offer of the debtor is not accepted by the creditors, the same end may be attained by a proceeding in insolvency instituted in accordance with the provisions of the Insolvency Law. Thus, the assignment by the debtor has two forms; the voluntary and the legal, the latter being the judicial in nature under the Insolvency Law The present article deals with the voluntary assignment. Such assignment does not have the effect of making the creditors the owners of the property of the debtor unless there is an agreement to that effect. The assignment gives to the creditors the right to proceed to the sale of the property, and to pay themselves in the amount which the proceeds of the sale permit and in the manner agreed upon In the absence of agreement as to the order of preference among the creditors, they shall be paid in the order established by law, and if the proceeds of the property should not cover all the obligations, the unpaid amount remains due and demandable In assignment of property to creditors, the debtor must serve the amount needed to support that he is required to reserve in case of donations. The assignment cannot include the family home, which is reserved for certain beneficiaries, but can include other properties exempt from execution, if the debtor waives the exemption 35

Distinguished from Dation in Payment  ________

circumstances which render direct payment to the creditor impossible or inadvisable The tender of payment, therefore, is a preparatory act which precedes consignation. The tender of payment by itself does not cause the extinguishment of the obligation, unless completed by consignation. It is the consignation which constitutes a form of payment, and must follow, supplement or complete to the tender of payment in order to discharge the obligation In instances where no debt is owing, consignation is not proper Art. 1256. If the creditor to whom tender of payment has been made refuses without just cause to accept it, the debtor shall be released from responsibility by the consignation of the thing or sum due. Consignation alone shall produce the same effect in the following cases: (1) When the creditor is absent or unknown, or does not appear at the place of payment; (2) When he is incapacitated to receive the payment at the time it is due; (3) When, without just cause, he refuses to give a receipt; (4) When two or more persons claim the same right to collect; (5) When the title of the obligatio n has been lost. (1176a)  ________ In Roman Catholic Archbishop of Malolos v. IAC, 191 SCRA 411: Tender of payment involves a positive and unconditional act by the obligor of offering legal tender currency as payment to the obligee for the former’s obligation and demanding that the latter accept the same. Thus, tender of payment cannot be presumed by a mere inference from surrounding circumstances. Tender of payment presupposes not only that the obligor is able, ready, and willing, but more so, in the act of performing his obligation. Ab posse ad actu non vale illatio. “A proof that an act could have been done is no proof that it was actually done.” Tender of payment before consignation is required by the present article only in case where the creditor refuses without  just cause to accept it. The tender is not required in the c ases enumerated in the five numbered paragraphs of this article, in which the debtor may make the consignation immediately without previous tender of payment. For reason of equity, a consignation may be held valid even where there was no prior tender of payment

SUBSECTION 3. - Tender of Payment and Consignation Concept-Tender of payment   is the manifestation made by the debtor to the creditor of his desire to comply with his obligation, with the offer of immediate performance. Consignation is the deposit of the object of the obligation in a competent court in accordance with rules prescribed by law, after the tender of payment has been refused or because of 35 See

When a tender of payment is made in such a form that the creditor could have immediately realized payment of he had accepted the tender, followed by a prompt attempt of the debtor to deposit the means of payment in court by was of consignation, the accrual of interest on the obligation will be suspended from the date of such tender. But when the tender of payment is not accompanied by the means of payment, and the debtor did not take any immediate step to make a

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consignation, then interest is not suspended from the time of such tender Requisites of an effective consignation: 1. That there was a debt due 2. That the consignation of the obligation was made because of some legal cause provided in the present article 3. That the previous notice of the consignation had been given to the person interested in the performance of the obligation 4. That the amount or thing due was placed at the disposal of the court 5. That after the consignation had been made the persons interested were notified thereof Since consignation is merely a form of payment of obligations, there must be a debt to be paid. The provisions on consignation are not applicable when there is no obligation to pay For a valid consignation, it is necessary that the creditor must have refused without just cause to accept payment, or that there be some other legal cause, such as those enumerated in this article. Mere consignation without one of these causes does not produce the effect of releasing the debtor If the reason for consignation is the unjust refusal of the creditor to accept payment, it must be shown: 1. That there was a previous tender of payment, without which the consignation is ineffective 2. That the tender of payment was of the very thing due, or in case of money obligations, that legal tender currency was offered 3. That the tender of payment was unconditional 4. That the creditor refused to accept payment without just cause At the time the deposit is made, it is not necessary for the debtor to show the want of cause for the refusal of the creditor; this fact may be established during the hearing of the case The absence or incapacity of the creditor, to justify consignation, need not be legally declared. But it is not enough that the creditor be absent or incapacitated; he must, furthermore, have no legal representative, or if he has one, the debtor, without his fault, does not know such legal representative As a cause for consignation, it is not enough that various persons capriciously claim the right to collect from the debtor. They must have the appearance of a right to collect such that the debtor would have a reasonable doubt not based in negligence, as to who is entitled to the payment The enumeration in this article of the cases in which consignation is proper, must not be interpreted in a restrictive sense, but in the light of the purpose of the institution of consignation, which is to avoid the performance of an obligation becoming more onerous to the debtor by reason of causes not imputable to him. This standard insures the correct interpretation of the causes enumerated, and allows the possibility of consignation in other cases not expressly mentioned Before consignation is made, it should be made known or announced to the creditor and to other persons interested in

the obligation (Article 1257). This would give a chance to the creditor to accept the payment. The lack of this notice does not invalidate the consignation, but simply makes the debtor liable for the expenses occasioned thereby Although technically the notice is subsequent to the tender of payment, the two can be made at the same time or in the same act with respect to the creditor, the tender of payment can be made with the warning that if it is not accepted, the thing due will be deposited in court. But in addition to this a separate notice must be given to other parties interested in the obligation, such as co-debtors, sureties, guarantors, and solidary co-creditors The thing or amount due must be placed at the disposal of the  judicial authority (Article 1258) The requirement that the thing be deposited at the disposal of  judicial authority does not convert the consignation into a real contract of deposit, but merely require that the thing be at the disposal of the court. Even immovable property can be placed at the disposal of the court; this happens in attachment, administration of estates of deceased persons, and insolvency proceedings After the consignation has been made, the interested parties must be notified thereof (Article 1258). This requirement may be complied with by the service of summons upon the defendant creditor together with a copy of the complaint After this notice, the creditor may: 1. Accept the thing or amount deposited, in which case the matter or payment is terminated 2. Refuse to accept the thing or amount, in which case a trial must be held to determine the validity of the consignation 3. The creditor may neither accept nor refuse, in which case the debtor may ask the court to cancel the obligation after showing that the requisites of consignation have been complied with (Article 1260)  ________ Art. 1257. In order that the consignation of the thing due may release the obligor, it must first be announced to the persons interested in the fulfillment of the obligation. The consignation shall be ineffectual if it is not made strictly in consonance with the provisions which regulate payment. (1177)  ________ The notice of consignation must be given to all persons interested in the fulfillment of the obligation, whether they be passive subjects, such as co-debtors, guarantors or sureties, or active subjects, such as solidary co-creditors, or possible litigants, such as all those who claim to be entitled to the payment The tender of payment and the notice of consignation sent to the creditor may be made in the same act. In case of absent or unknown creditors, the notice may be made by publication The lack of notice does not invalidate the consignation, but simply makes the debtor liable for the expenses  ________

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Art. 1258. Consignation shall be made by depositing the things due at the disposal of judicial authority, before whom the tender of payment shall be proved, in a proper case, and the announcement of the consignation in other cases.

The consignation, however, has a retroactive effect, and the payment is deemed to have been made at the time of the deposit of the thing in court or when it was placed at the disposal of the judicial authority

The consignation having been made, the interested parties shall also be notified thereof. (1178)  ________

Once consignation has been accepted by the creditor, or the court has declared that it has been validly made, the following effects arise as of the time when the thing was placed at the disposal of the court: 1. The debtor is released in the same manner as if he had performed the obligation at the time of the consignation, because this produces the same effect as a valid payment 2. The accrual of interest on the obligation is suspended from the moment of consignation 3. The deterioration or loss of the thing are transferred to the creditor, because the risks of the thing are transferred to the creditor from the moment of deposit 4. Any increment or increase in value of the thing after the consignation inures to the benefit of the creditor

The very thing due must be placed at the disposal of the judicial authority In the procedure now in force, judicial authority includes the sheriff in cases of consignation of the amount for the redemption of property sold in execution by said sheriff A seller who institutes an action to compel the buyer to accept the merchandise sold, thereby places such merchandise at the disposal of the court and admits that he is himself holding the property for his adversary. By renouncing his own right in the property, and asking the court to compel the adverse party to accept it, the plaintiff may be said to constitute himself, for the time being, the agent or receiver of the court. As a consequence, it would undoubtedly be competent and proper for the court upon the application of either party, to order that the property be taken into the custody o an officer of the court or of a receiver to be specially appointed by it This requirement is fulfilled by the service of the summons upon the defendant together with a copy of the complaint  ________ Art. 1259. The expenses of consignation, when properly made, shall be charged against the creditor. (1178)  ________ The consignation is properly made: 1. When after the thing has been deposited in court, the creditor accepts the consignation without objection and without any reservation of his right to contest it because of failure to comply with any of the requisites for consignation 2. When the creditor objects to the consignation but the court, after proper hearing, declares that the consignation has been validly made. In these cases, the creditor bears the expenses of the consignation The expenses incurred by a seller in the warehousing of the goods pending his action to compel the buyer to comply with the contract of purchase and sale are properly chargeable against the buyer  ________ Art. 1260. Once the consignation has been duly made, the debtor may ask the judge to order the cancellation of the obligation. Before the creditor has accepted the consignation, or before a  judicial declaration that the consignation has been properly made, the debtor may withdraw the thing or the sum deposited, allowing the obligation to remain in force. (1180)  ________ Consignation is completed at the time the creditor accepts the same without objections, or, if he objects, at the time the court declares that it has been validly made in accordance with law.

When the debtor is bound to perform simultaneously with the performance of a counter-prestation by the creditor, he can ask the court that the thing be delivered to the creditor only upon compliance by the latter with the counter-prestation. The debtor’s right to ask this is not barred by the fact that the tender of payment, which preceded the consignation, is unconditional The right of the debtor to withdraw the thing or amount deposited in court, depends upon whether or not the consignation has already been accepted or judicially declared proper. Before that time, the debtor is still the owner, and he may withdraw it; in this case, the obligation will remain in full force as before the deposit Before the consignation has been judicially declared proper, the creditor may prevent the withdrawal by the debtor, by accepting the consignation, even with reservations The consignation in itself does not create a lien over the thing in favor of the creditor. Before the consignation has been accepted by the creditor or judicially declared to have been properly made, the debtor is still the owner thereof; therefore, during that time, other creditors of the debtor may still attach the thing consigned as property belonging to the debtor When money is deposited in court under the provisions of the law on consignation, it is in custodia legis, and, therefore, exempt from attachment and execution If the case in which the consignation is made, is dismissed, the consignation will become ineffectual  ________ Art. 1261. If, the consignation having been made, the creditor should authorize the debtor to withdraw the same, he shall lose every preference which he may have over the thing. The codebtors, guarantors and sureties shall be released. (1181a)  ________ There is a revival of the obligation, but third persons, solidary co-debtors, guarantors and sureties who were benefited by the consignation, are not prejudiced by such revival

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Guarantors and sureties, whose obligation is only subsidiary, are completely released from the obligation upon the consignation But the liability of such co-debtor for his corresponding share of the obligation subsists, so that if later on the debtor who withdrew the consignation cannot discharge the entire obligation, such co-debtor can be made to pay his share of the debt to the creditor; and if the debt is paid in full by the debtor who withdrew the consignation, he can in turn recover from the co-debtor the latter’s share. The withdrawal of the consignation releases the solidary co-debtor only from his solidary liability for the share of others, but not from his liability for his own share  ________

Section 2. - Loss of the Thing Due Concept-Loss of the thing in this part of the Code means, not the strict legal meaning of “loss” and is not limited to obligations to give, but extends to those which are personal, embracing therefore all causes which may render impossible the performance of the prestation. In some codes, this is designated as impossibility of performance

The impossibility of performance must be subsequent to the execution of the contract in order to extinguish the obligation; if the impossibility already existed when the contract was made, the result is not extinguishment, but inefficacy of the obligation under Article 1348 and 1493 Art. 1262. An obligation which consists in the delivery of a determinate thing shall be extinguished if it should be lost or destroyed without the fault of the debtor, and before he has incurred in delay. When by law or stipulation, the obligor is liable even for fortuitous events, the loss of the thing does not extinguish the obligation, and he shall be responsible for damages. The same rule applies when the nature of the obligation requires the assumption of risk. (1182a)  ________ 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 can not be recovered. Thus, aside from the destruction of the thing due, loss would mean its disappearance by loss, theft or robbery; that is to say, its nonexistence in the hands of the obligor when, through any cause, the fulfillment of the obligation becomes impossible In an obligation to deliver a determinate object, where there is no physical or legal loss, but the thing belongs to another, the performance by the debtor of the obligation undoubtedly becomes impossible. This would not have happened if the thing had belonged to the debtor at the time the obligation was constituted. Therefore, this is a case of an original subjective impossibility on the part of the debtor, and the failure of performance is imputable to himself. The debtor, in cases like this, must indemnify the creditor for damages suffered. If the creditor acquired the thing by gratuitous title, such as by inheritance or donation, he is entitled to the value thereof. But if he acquired it by onerous title, he is entitled to the price he paid for it

The happening of a fortuitous event in itself does not necessarily extinguish an obligation to deliver a determinate thing. An obligation consisting in the delivery of a specified thing, shall be extinguished when the said thing shall be lost or destroyed without the fault of the obligor and before he is in default. In the absence of law or stipulation to the contrary, impossibility of performance, without the negligence of the parties, prevents the enforcement of an obligation If the thing has been lost through robbery with violence, the debtor must show that he could not resist the violence. If the loss is through theft, the debtor is considered negligent in having placed the thing within reach of thieves and not in a secure or safe place; hence, the debtor will be liable for damages The extinguishment of the obligation due to loss of the thing or impossibility of performance affects both debtor and creditor; the entire juridical relation is extinguished, so that if the creditor has himself an obligation, this is likewise extinguished. The debtor must return to the creditor whatever the latter may have already delivered by reason of the obligation. This is a logical consequence of the principle of res perit domino recognized in the code Under the Argentine Code (Article 895), the extinguishment of the obligation because of impossibility of performance applies not only to the debtor but also to the creditor The following cases constitute exceptions to the rule that loss of the determinate object by fortuitous event extinguishes the obligation; hence, in these cases, the debtor who is unable to perform becomes liable for damages: 1. When the law expressly provides that the debtor shall be liable even if the loss is due to fortuitous events (Art. 1174) See articles 1942, 1979, 2147 & 2159 2. When by express stipulation, the obligor is made liable even if loss occurs through fortuitous events (Art. 1174) 3. When the nature of the obligation requires the assumption of risk (Art. 1174) 4. When the fault or negligence of the debtors concurs with the fortuitous event in causing the loss 5. When the loss occurs after the debtor has incurred in delay (Art. 1165) 6. When the debtor has promised to deliver the same thing to two or more different parties (Art. 1165) 7. When the obligation to deliver a determinate object arises from a criminal act (Art. 1268)  ________ Art. 1263. In an obligation to deliver a generic thing, the loss or destruction of anything of the same kind does not extinguish the obligation. (n)  ________ A determinate thing is a concrete particularized object, indicated by its own individuality, while a generic thing is one 45 | P

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whose determination is confined to that of its nature, to the genus (genero) to which it pertains, such as a horse or a chair. The loss of the determinate object without fault of the debtor extinguishes the obligation to give; but the obligation is not extinguished if the object is indeterminate or generic Genus nunquam perit  (the   (the genus never perishes); But when all the things of the kind stipulated disappear or perishes, the obligation to deliver a generic object is extinguished. Thus, when the manufacture of a particular kind of merchandise is discontinued, there may be impossibility of performance This rule has an exception in what is known in German law as delimited generic obligations. Under this exception, when there is a limitation of the generic object to a particular existing mass or a particular group of things, the obligation is extinguished by the loss of the particular mass or group or limited quantity from which the prestation has to be taken, or by the impossibility of getting from it the things for the prestation  ________ Art. 1264. The courts shall determine whether, under the circumstances, the partial loss of the object of the obligation is so important as to extinguish the obligation. (n)  ________ The rule given in this article is based in the assumption that the partial loss is not imputable to the fault or negligence of the debtor, but to fortuitous events or circumstances beyond his control. Ordinarily, such partial loss does not extinguish the obligation; the thing should be delivered to the creditor in its impaired condition, without any liability for damages on the part of the debtor. But if the portion that is lost is of such an extent or nature that the obligation would not have been constituted without it, then the obligation is extinguished The intention of the parties is the controlling factor in the solution of each case of partial loss  ________ Art. 1265. Whenever the thing is lost in the possession of the debtor, it shall be presumed that the loss was due to his fault, unless there is proof to the contrary, and without prejudice to the provisions of article 1165. This presumption does not apply in case of earthquake, flood, storm, or other natural calamity. (1183a)  ________ Under this article, the burden of explaining the loss of a thing in the possession of the debtor rests upon the latter  ________ Art. 1266. The debtor in obligations to do shall also be released when the prestation becomes legally or physically impossible without the fault of the obligor. (1184a)  ________ There us a distinction between impossibility existing at the time the obligation is constituted (Art. 1348), which brings about the nullity of the contract, and impossibility which supervenes at the time of performance (Art. 1266), which brings about a modification or extinguishment of the obligation, depending on whether or not it is imputable to the debtor. This article refers to an impossibility which arises after the obligation has been constituted

LEGAL When the act, by reason of a subsequent law, is prohibited

PHYSICAL When the act by reason of its nature cannot be accomplished

In both cases, the obligation is extinguished The objective impossibility and subjective impossibility produce the same effect. Thus, when the debtor dies, or when by some accident or act of a third person he is disabled and incapacitated for the work to be done, the obligation should be extinguished, as long as there was no fault or negligence on his part contributing to his death or disability OBJECTIVE When the act or service in itself, without considering the person of the obligor, becomes impossible; i.e. when the prestation is subsequently prohibited by law so that nobody can do it

SUBJECTIVE When the act or service cannot be done by the debtor himself, but it can be accomplished by others; i.e. when the debtor becomes so seriously ill that he cannot perform the stipulated act or service, although it can be done by anybody else

The impossibility of performance releases the debtor from his obligation. Because the obligation is legitimate in its origin, the supervening impossibility of the prestation, independent of the will of the obligor, cannot render the latter liable beyond the restitution of what he may have received in advance from the creditor; it cannot make him liable for damages Where it is not the prestation that has become impossible, but an act to be performed after the fulfillment of the prestation, the obligation is not extinguished The effects of partial impossibility cannot be subjected to inflexible rules, but attention must be directed to the importance and consequence of the partial impossibility and the purpose of the obligation in each case. These circumstances may indicate that the partial impossibility be considered equivalent to total impossibility. The rule in Article 1264 may be applied If at the time performance becomes impossible the debtor has already fulfilled part of the obligation, the creditor must pay part done so long as he benefits from such partial compliance. On the other hand, if the debtor has already received something from the creditor, he must return anything in excess of what corresponds to the part already performed when the impossibility supervened Temporary obstacles to the performance of the prestation, which may be expected to disappear in the near future, do not extinguish the obligation but merely delay its fulfillment, unless by its nature or by the will of the parties it has to be performed at a determinate time. But if the obstacles are of an unknown and unforeseen duration, the obligations may be considered  juridically impossible of performance; i t is extinguished, a nd is not revived by the fact that it becomes possible later when circumstances change In reciprocal obligations, the release of the debtor due to impossibility of performance, also releases the creditor from 46 | P

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the counter-prestation, because each obligation depends upon the other  ________ Art. 1267. When the service has become so difficult as to be manifestly beyond the contemplation of the parties, the obligor may also be released therefrom, in whole or in part. (n)  ________ The general rule is that impossibility of performance releases the obligor. However, when the service has become so difficult as to be manifestly beyond the contemplation of the parties, the court should be authorized to release the obligor in whole or in part. The intention of the parties should govern, and if it appears that the service turns out to be so difficult as to have been beyond their contemplation, it would be doing violence to that intention to hold the obligor still responsible Difficulty of service authorizes the release of the obligor but does not authorize the courts to remake, modify or revise the contract stipulated with the force of law, so as to substitute its own terms for those covenanted by the parties themselves This article states in our law the doctrine of unforeseen events. This is said to be based on the discredited theory of rebus sic stantibus  stantibus  in public international law; under this theory, the parties stipulate in the light of certain prevailing conditions, and once these conditions cease to exist the contract also ceases to exist. Considering practical needs and the demands of equity and good faith, the disappearance of the basis of a contract gives rise to a right to relief in favor of the party prejudiced The parties to the contract must be presumed to have assumed the risk of unfavorable developments. It is therefore only in absolutely exceptional changes of circumstances that equity demands assistance for the debtor Equity demands a certain economic equilibrium between the prestation and the counter-prestation, and does not permit the unlimited impoverishment of one party for the benefit of the other by the excessive rigidity of the principle of the obligatory force of contracts. This is mainly a question of fact left to the discretion of the court This rule does not apply to obligations for the payment of a sum of money when there is a change in the value of the stipulated currency. In such case Article 1250 will apply Requisites for the application of this article: 1. The event or change in circumstances could not have been foreseen at the time of the execution of the contract 2. It makes the performance of the contract extremely difficult but not impossible 3. The event must not be due to the act of any of the parties 4. The contract is for a future prestation If the contract is of immediate fulfillment, the gross inequality of the reciprocal prestations may involve lesion or want of cause. Excluded from the scope of this article, however, are the aleatory contracts and those which are purely speculative

It is necessary that the change in the circumstances should be greatly beyond what could have been reasonably foreseen by diligent persons at the time of the celebration of the contract. The contract must be respected as long as the injustice is not intolerable With respect to the difficulty of performance, this should be such as to mean a manifest disequilibrium in the prestations, such that one party would be placed at a disadvantage by the unforeseen event. The case would not come within the purview of this article if the debtor merely suffers those small losses which constitute the normal risks of the contract The disappearance of the creditor’s interest which is sought to be protected by the obligation, will extinguish the obligation. If an obligation is based upon an interest of the creditor worthy of protection, the juridical protection cannot extend beyond that interest  ________

Art. 1268. When the debt of a thing certain and determinate proceeds from a criminal offense, the debtor shall not be exempted from the payment of its price, whatever may be the cause for the loss, unless the thing having been offered by him to the person who should receive it, the latter refused without  justification to accept it. (1185)  ________ When the debtor tenders or offers payment, and the creditor refuses to receive it without reason, there are two alternatives open to the debtor; either (1) to consign the thing and thereby relieve himself from any further responsibility for such thing, or (2) to just keep the thing in his possession, with the obligation to use due diligence, subject to the general rules of obligations, but no longer to the special liability imposed by this article  ________ Art. 1269. The obligation having been extinguished by the loss of the thing, the creditor shall have all the rights of action which the debtor may have against third persons by reason of the loss. (1186)  ________ This article refers, not only to the rights and actions which the debtor may have against third persons, but also to any indemnity which the debtor may have already received  ________

Section 3.  – Condonation or Remission of the Debt Art. 1270. Condonation or remission is essentially gratuitous, and requires the acceptance by the obligor. It may be made expressly or impliedly. One and the other kind shall be subject to the rules which govern inofficious donations. Express condonation shall, furthermore, comply with the forms of donation. (1187)  ________ Remission is an act of liberality, by virtue of which, without receiving any equivalent, the creditor renounces the enforcement of the obligation, which is extinguished in its entirety or in that part or aspect of the same to which remission refers. It is an essential characteristic of remission that it be gratuitous, that there is no equivalent received for 47 | P

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the benefit given; once such equivalent exists, the nature of the act changes. It may become dation in payment when the creditor receives a thing different from that stipulated; or novation, when the object or principal conditions of the obligation should be changed; or compromise, when the matter renounced is in litigation or dispute and in exchange of some concession which the creditor receives

The acceptance may be made in the same deed of donation or in a separate public document, but it shall not take effect unless it is done during the lifetime of the donor.

Kinds of remission:

On its amount:

TOTAL

Art. 750. The donations may comprehend all the present property of the donor, or part thereof, provided he reserves, in full ownership or in usufruct, sufficient means for the support of himself, and of all relatives who, at the time of the acceptance of the donation, are by law entitled to be supported by the donor. Without such reservation, the donation shall be reduced in petition of any person aff ected. (634a)

PARTIAL May refer to the amount of the indebtedness, or to an accessory obligation only (such as pledge or interest), or to some other aspect of the obligation (such as solidary)

INTER VIVOS Effective during the lifetime of the creditor

MORTIS CAUSA Effective upon the death of the creditor; contained in a will or testament

EXPRESS When it is made formally, and it should be in accordance with the forms of ordinary donations (see (see rules below )

IMPLIED When it can be inferred from the acts of the parties

Condonation or remission is essentially a donation of the credit to the debtor. It is a bilateral act, which requires acceptance by the debtor. It is, therefore, subject to the rule on donations with respect to acceptance, amount, and revocation. In relation to remission, the rules on donation should be read so that “donor” refers to the creditor, “donee” to the debtor, and “donation” to the remission or Condonation Express Remission On its acceptance: Art. 745. The donee must accept the donation personally, or through an authorized person with a special power for the purpose, or with a general and sufficient power; otherwise, the donation shall be void. (630) Art. 746. Acceptance must be made during the lifetime of the donor and of the donee. (n) On its forms: Art. 748. The donation of a movable may be made orally or in writing. An oral donation requires the simultaneous delivery of the thing or of the document representing the right donated. If the value of the personal property donated exceeds five thousand pesos, the donation and the acceptance shall be made in writing, otherwise, the donation shall be voi d. (632a) Art. 749. In order that the donation of an immovable may be valid, it must be made in a public document, specifying therein the property donated and the value of the charges which the donee must satisfy.

If the acceptance is made in a separate instrument, the donor shall be notified thereof in an authentic form, and this step shall be noted in both instruments. (633)

Art. 752. The provisions of Article 750 notwithstanding, no person may give or receive, by way of donation, more than he may give or receive by will. The donation shall be inofficious in all that it may exceed this limitation. (636) On its revocation: Art. 760. Every donation inter vivos, made by a person having no children or descendants, legitimate or legitimated by subsequent marriage, or illegitimate, may be revoked or reduced as provided in the next article, by the happening of any of these events: (1) If the donor, after the donation, should have legitimate or legitimated or illegitimate children, even though they be posthumous; (2) If the child of the donor, whom the latter believed to be dead when he made the donation, should turn out to be living; (3) If the donor subsequently adopt a minor child. (644a) Art. 761. In the cases referred to in the preceding article, the donation shall be revoked or reduced insofar as it exceeds the portion that may be freely disposed of by will, taking into account the whole estate of the donor at the time of the birth, appearance or adoption of a child. (n) Art. 764. The donation shall be revoked at the instance of the donor, when the donee fails to comply with any of the conditions which the former imposed upon the latter. In this case, the property donated shall be returned to the donor, the alienations made by the donee and the mortgages imposed thereon by him being void, with the limitations established, with regard to third persons, by the Mortgage Law and the Land Registration Laws. This action shall prescribe after four years from the noncompliance with the condition, may be transmitted to the heirs of the donor, and may be exercised against the donee's heirs. (647a) Art. 765. The donation may also be revoked at the instance of the donor, by reason of ingratitude in the following cases: 48 | P

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(1) If the donee should commit some offense against the person, the honor or the property of the donor, or of his wife or children under his parental authority; (2) If the donee imputes to the donor any criminal offense, or any act involving moral turpitude, even though he should prove it, unless the crime or the act has been committed against the donee himself, his wife or children under his authority; (3) If he unduly refuses him support when the donee is legally or morally bound to give support to the donor. (648a) Requisites of Remission or Condonation: 1. The debt must be existing and demandable at the time the remission is made 2. The renunciation of the debt must be gratuitous, or without any equivalent or consideration 3. The debtor must accept the remission To condone is an act of liberality by virtue of which the creditor renounces the right to enforce the obligation contracted in his favor. To condone is to forgive or remit a debt Remission, being an act of liberality, should be proved by clearer and mere convincing evidence than what is required to establish payment Remission requires acceptance by the obligor. But there is nothing that can prevent a creditor from making a unilateral renunciation of his right, abandoning his credit, and thereby extinguishing it. Such a unilateral declaration of renunciation by the creditor is expressly allowed by article 6 of the Code  ________ Art. 1271. The delivery of a private document evidencing a credit, made voluntarily by the creditor to the debtor, implies the renunciation of the action which the former had against the latter. If in order to nullify this waiver it should be claimed to be inofficious, the debtor and his heirs may uphold it by proving that the delivery of the document was made in virtue of payment of the debt. (1188)  ________ Implied Remission This article refers to a case of implied or tacit remission. There may also be tacit remission when the creditor voluntarily destroys or cancels the evidence of the credit, with the intent to renounce his right. The want of such intent, however, may be proved, the burden of proof being upon the creditor who alleges it. Thus, it may be shown that the destruction was due to the mistake or want of care. When the destruction or cancellation is shown to have been made without the intent to remit, then the obligation subsists The Code presupposes that when the creditor delivers a private document evidencing a debt to his debtor, he surrenders the weapon for the enforcement of his right. This is not true in the case of a public document, because there is always a copy in the archives which can be used to prove the credit. Therefore the voluntary deliver to the debtor of the first original copy of a public document does not imply remission

The second paragraph of this article implies that the voluntary return of the title of the credit is presumed to be by reason of remission, and not by reason of the payment of the debt (which is somewhat anomalous), unless the contrary is proved. As De Diego says, however, this provision is absurd and immoral in that it authorizes the debtor and his heirs to prove that they paid the debt, when the provision itself assumes that there has been a remission, which is gratuitous  ________ Art. 1272. Whenever the private document in which the debt appears is found in the possession of the debtor, it shall be presumed that the creditor delivered it voluntarily, unless the contrary is proved. (1189)  ________ Voluntary Remission While the existence in the hands of the creditor of an instrument of credit, is evidence that the debt is still unpaid, until the contrary is proved, the possession of the same instrument by the debtor, if it is a private document, gives rise to the presumption that the creditor delivered it voluntarily to the debtor, implying a remission of the debt evidenced by such private document. This presumption, however, is only prima facie, and may be overcome by contrary evidence to show that notwithstanding the possession by the debtor of the private document of credit, it has not yet been paid When the obligation is joint, and the private document evidencing a debt is found in the possession of one of the debtors, the presumption of remission can refer only to the portion of the debtor who is in possession of the instrument; and if the delivery was made by only one joint creditor, only the share pertaining to him shall be deemed remitted. But if the obligation is solidary, the remission must be considered as total. In both cases, the presumption yields to contrary evidence  ________ Art. 1273. The renunciation of the principal debt shall extinguish the accessory obligations; but the waiver of the latter shall leave the former in force. (1190)  ________ Art. 1274. It is presumed that the accessory obligation of pledge has been remitted when the thing pledged, after its delivery to the creditor, is found in the possession of the debtor, or of a third person who owns the thing. (1191a)  ________ The presumption in this article is based on the assumption that the creditor voluntarily returned the thing pledged to the debtor. It may, however, be shown that the debtor recovered the thing pledged without the consent of the creditor, who may have lost it, or from whom it may have been stolen, or that the return to the debtor is for a limited time and a special purpose, such as to make repairs thereon or to allow the owner to make some particular use thereof. This is also provided by article 2110. If the presumption of return is  prima facie, the presumption of remission must likewise be prima facie

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The remission of the pledge extinguishes only the security; it does not affect the principal obligation, which remains subsisting  ________

Art. 1277. Confusion does not extinguish a joint obligation except as regards the share corresponding to the creditor or debtor in whom the two characters concur. (1194)  ________

Section 4.  – Confusion or Merger of Rights

Section 5.  – Compensation

Art. 1275. The obligation is extinguished from the time the characters of creditor and debtor are merged in the same person. (1192a)  ________

Art. 1278. Compensation shall take place when two persons, in their own right, are creditors and debtors of each other. (1195)  ________

Merger or confusion is the meeting in one person of the qualities of creditor and debtor with respect to the same obligation. It erases the plurality of subjects of the obligation, and extinguishes the obligation because it is absurd that a person should enforce an obligation against himself. Furthermore, the purpose for which the obligation may have been created are considered as fully realized by the merger of the qualities of debtor and creditor in the same person Requisites: 1. It must take place between the creditor and the principal debtor (Art. 1276) 2. The very same obligation must be involved, for if the debtor acquires rights from the creditor, but not the particular obligation in question there will be no merger 3. The confusion must be total or as regards the entire obligation Merger or confusion arises from any act which brings about a succession to the credit, whether it be universal or particular, inter vivos or mortis causa. The most frequent, however, is by way of testate or intestate succession in which the debtor inherits the credit from the creditor When the act which occasions the merger is susceptible of termination or revocation, the merger that has taken place is also terminated or revoked, and the obligation is recreated in the same condition that it had when the merger took place The effect of merger is to extinguish the obligation  ________ Art. 1276. Merger which takes place in the person of the principal debtor or creditor benefits the guarantors. Confusion which takes place in the person of any of the latter does not extinguish the obligation. (1193)  ________ The extinguishment of the principal obligation through confusion releases the guarantors, because the obligation of the latter is merely accessory When the merger takes place in the person of a guarantor, the obligation is not extinguished. Thus, if the guarantor acquires the credit, his obligation as a guarantor is extinguished, but the principal obligation subsists and can be enforced by him against the debtor and other co-guarantors The same rule applies in cases of surety  ________

It is a mode of extinguishment to the concurrent amount, the obligation of those persons who in their own right are reciprocally debtors and creditors of each other. It is the offsetting of two obligations which are reciprocally extinguished if they are of equal value, or extinguished to the concurrent amount if of different values. As its name indicates, compensation is a sort of balancing between two obligations; it involves a figurative operation of weighing two obligations simultaneously in order to extinguish them to the extent in which the amount of one is covered by the other. By this means, payment is simplified and assured between persons who are indebted to each other PAYMENT Capacity to dispose of the thing paid and capacity to receive payment are required for debtor and creditor, respectively The performance must be complete

COMPENSATION Such capacity is not necessary, because the compensation operates by law and not by the act of the parties There may be partial extinguishment of an obligation

Compensation has two advantages over payment. In the first place, it is simple, taking effect without action by either party to extinguish their respective obligations. In the second place, there is more guaranty in making the credit effective, because there is less risk of loss by the creditor due to insolvency or fraud of the debtor

MERGER Involves only one obligation There is only one person in whom the characters of creditor and debtor meet, with respect to the same obligation COUNTERCLAIM Must be pleaded to be effectual

COMPENSATION There must always be two There are two persons who are mutually debtors and creditors of each other in two separate obligations, each arising from a different cause

COMPENSATION Takes place by operation of law, and extinguishes reciprocally the two debts as soon as they existed simultaneously, to the amount of their concurrent sums

Kinds of Compensation: TOTAL When the two obligations are o the same amount

PARTIAL When the amounts are not equal

LEGAL When it

FACULTATIVE (unilateral ) When it can be claimed by

takes

place

by

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operation of law because all the requisites are present. True compensation

one of the parties who, however, has the right to object to it, such as when one of the obligations has a period for the benefit of one party alone and who renounces that period so as to makes the obligation due

CONVENTIONAL (bilateral ) JUDICIAL When the parties agree to When decreed by the court in compensate their mutual a case where there is a obligations even if some counterclaim, such as that requisite is lacking, such as provided in article 1283 that provided in article 1282  ________ Art. 1279. In order that compensation may be proper, it is necessary: (1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other; (2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated; (3) That the two debts be due; (4) That they be liquidated and demandable; (5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor. (1196)  ________ (1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other For compensation to take place, the parties must be mutually debtors and creditors (1) in their own right, and (2) as principals. When there is no relationship of mutual creditors and debtors , there can be no compensation In Francia v. IAC, 162 SCRA 753: [T]here can be no off-setting of taxes against the claims that the taxpayer may have against the government. A person cannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater than the tax being collected. The collection of a tax cannot await the results of a lawsuit against the government. This rule was reiterated in the case of Corders v. Gonda (18 SCRA 331) where we stated that: "... internal revenue taxes can not be the subject of compensation: Reason: government and taxpayer are not mutually creditors and debtors of each other'…and a "claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off." (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 Under article 418, consumable things are those which cannot be used in a manner appropriate to their nature without their being consumed

The things due in both obligations must be fungible, or things which can be substituted for each other. Whether prestations refer to fungibles will depend largely on the will of the parties (3) That the two debts be due Both debts must be due to permit compensation. The fact that there is an existing debt not yet matured will not prevent the enforcement by action of that which is already due. However, if before payment of that which matured first, the second debt also matures, there will be compensation (4) That they be liquidated and demandable This means that the debts are enforceable in court, there being no apparent defenses inherent in them. The obligations must be civil obligations, excluding those that are purely natural. Obligations which are subject to suspensive conditions cannot be set up by way of compensation before the fulfillment of the condition, although once fulfilled, the provisions of article1187 should be observed as to the retroactive effect of the happening of the condition A debt is liquidated when its existence and amount are determined (5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor  When one of the obligations sought to be compensated is subject to a suit between a third party and the party interested in the compensation, each claiming to be the creditor in said obligation, there is a provisional suspension of the possible compensation. If the party is adjudged the creditor, there will be no compensation; otherwise, compensation will take place There can be no legal compensation if either of the obligations is alternative or facultative. But the mere fact that one obligation has a penal clause, while the other has none, will not prevent legal compensation, because the penal clause is a mere guaranty of fulfillment and does not affect the object of the obligation  ________ Art. 1280. Notwithstanding the provisions of the preceding article, the guarantor may set up compensation as regards what the creditor may owe the principal debtor. (1197)  ________ The liability of the guarantor is only subsidiary; it is accessory to the principal obligation of the debtor. If the principal debtor has a credit against the creditor, which can be compensated, it would mean the extinguishment of the guaranteed debt, either totally or partially. This extinguishment benefits the guarantor, for he can be held liable only to the same extent as the debtor  ________ Art. 1281. Compensation may be total or partial. When the two debts are of the same amount, there is a total compensation. (n)  ________ Art. 1282. The parties may agree upon the compensation of debts which are not yet due. (n)  ________ 51 | P

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Conventional or voluntary compensation  is not limited to obligations which are not yet due. The parties may compensate by agreement any obligations, in which the objective requisites provided for legal compensation are not present. It is necessary, however, that the parties should have the capacity to dispose of the credits which they compensate, because the extinguishment of the obligations in this case arises from their wills and not from law  ________ Art. 1283. If one of the parties to a suit over an obligation has a claim for damages against the other, the former may set it off by proving his right to said damages and the amount thereof. (n)  ________ Art. 1284. When one or both debts are rescissible or voidable, they may be compensated against each other before they are  judicially rescinded or avoided. (n)  ________ Although a rescissible or voidable debt can be compensated before it is rescinded or annulled, the moment it is rescinded or annulled, the decree of rescission or annulment is retroactive, and the compensation must be considered as cancelled. Rescission or annulment requires mutual restitution; the party whose obligation is annulled or rescinded can thus recover to the extent that his credit was extinguished by the compensation, because to that extent he is deemed to have made a payment  ________ Art. 1285. The debtor who has consented to the assignment of rights made by a creditor in favor of a third person, cannot set up against the assignee the compensation which would pertain to him against the assignor, unless the assignor was notified by the debtor at the time he gave his consent, that he reserved his right to the compensation. If the creditor communicated the cession to him but the debtor did not consent thereto, the latter may set up the compensation of debts previous to the cession, but not of subsequent ones. If the assignment is made without the knowledge of the debtor, he may set up the compensation of all credits prior to the same and also later ones until he had knowledge of the assignment. (1198a)  ________ Art. 1286. Compensation takes place by operation of law, even though the debts may be payable at different places, but there shall be an indemnity for expenses of exchange or transportation to the place of payment. (1199a)  ________ This article applies to legal compensation, but does not apply to voluntary compensation  ________ Art. 1287. Compensation shall not be proper when one of the debts arises from a depositum or from the obligations of a depositary or of a bailee in commodatum.

Neither can compensation be set up against a creditor who has a claim for support due by gratuitous title, without prejudice to the provisions of paragraph 2 of Article 301. (1200a)  ________ The prohibition of compensation when one of the debts arises 36 37 from a depositum   or commodatum   is based on justice. A deposit is made or a commodatum is given on the basis of confidence in the depositary or the borrower. It is, therefore, a matter of morality, that the depositary or the borrower should in fact perform his obligation; otherwise, the trust or confidence of the depositor or lender would be violated With respect to future support, to allow its extinguishment by compensation would defeat its exemption from attachment and execution (article 205, Family Code), and may expose the recipient to misery and starvation. Common humanity and public policy forbid this consequence. Support in arrears, however, can be compensated (article 301, paragraph 2) Note: Only the depositary and the borrower (in commodatum) cannot set up compensation. The depositor can set up his deposit against the depositary, and the lender can set up his loan against a credit of the borrower. This is in reality a case of facultative compensation  ________ Art. 1288. Neither shall there be compensation if one of the debts consists in civil liability arising from a penal offense. (n)  ________ It is believed that if one of the debts consists in civil liability arising from a penal offense, compensation would be improper and inadvisable because the satisfaction of such obligation is imperative Although no qualification is made in this article, the person who has the civil liability arising from crime is the only party who cannot set up the compensation; but the offended party entitled to indemnity can set up his claim in compensation of his debt. This is another case of facultative compensation  ________ Art. 1289. If a person should have against him several debts which are susceptible of compensation, the rules on the application of payments shall apply to the order of the compensation. (1201)  ________ Art. 1290. When all the requisites mentioned in Article 1279 are present, compensation takes effect by operation of law, and extinguishes both debts to the concurrent amount, even though the creditors and debtors are not aware of the compensation. (1202a)  ________ Legal compensation takes effect from the moment that the requisites of articles 1278 and 1279 co-exist, since this 36 A

depositum is a contract by virtue of which a person (depositary) receives personal property belonging to another (depositor), with the obligation of safely keeping it and returning the same. The deposit of money in a bank, whether in a savings or in a current account, is not a depositum, but really a loan, in which the bank is the borrower and the depositor is the lender 37 A commodatum is a gratuitous contract by virtue of which one of the parties delivers to the other a non-consumable personal property so that the latter may use it for a certain time and return it

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compensation takes place ipso jure, its effects arises on the very day on which all its requisites concur, so that when it is used as a defense or when a judgment declares it to exist, it retroacts to the date when its requisites are fulfilled Voluntary or conventional compensation takes place upon the agreement of the parties Facultative compensation takes place when the creditor declares his option to set it up Judicial compensation takes place upon final judgment Effects of compensation: 1. Both debts are extinguished to the concurrent amount 2. Interests stop accruing on the extinguished obligation or the part extinguished 3. The period of prescription stops with respect to the obligation or part extinguished 4. All accessory obligations of the principal obligation which has been extinguished are also extinguished Although compensation takes place by operation of law, it must be alleged and proved by the debtor who claims its benefits. Once proved, however, its effects retroact to the moment when the requisites provided by law concurred Compensation can be renounced, either at the time an obligation is contracted or afterwards. Compensation rests upon a potestative right, and a unilateral declaration of the debtor would be sufficient renunciation Compensation can be renounced expressly or impliedly Even when all the requisites for a compensation concur, the compensation may not take place in the following cases: 1. When there is renunciation of the effects of compensation by a party 2. When the law prohibits its compensation, such as in the cases provided in articles 1287 and 1288  ________

Section 6.  – Novation Art. 1291. Obligations may be modified by: (1) Changing their object or principal conditions; (2) Substituting the person of the debtor; (3) Subrogating a third person in the rights of the creditor. (1203)  ________ Novation is the extinguishment of an obligation by the substitution or change of the obligation by a subsequent one which extinguishes or modifies the first, either by changing the object or principal conditions, or by substituting the person of the debtor, or by subrogating a third person in the rights of the creditor Classification of Novation: As to its nature: SUBJECTIVE (Personal) The modification of the obligation by the change of subject; it is passive  if there is a

OBJECTIVE (Real) The change of the obligation by substituting the object with

MIXED When there is a combination of the subjective and

substitution of the debtor, and it is active when a third person is subrogated in the rights of the creditor

another changing principal conditions

As to its form: EXPRESS When the parties declare that the old obligation is extinguished and substituted by the new obligation

As to effect: PARTIAL When there is only a modification or change in some principal conditions of the obligation

or the

objective novation

IMPLIED When there is such an incompatibility between the old and the new obligations that they cannot stand together

TOTAL When the old obligation is completely extinguished

In Iloilo Traders v. Heirs of Soriano, 404 SCRA 133, the Court said: “Novation may either be extinctive or modificatory, much being dependent on the nature of the change and the intention of the parties. Extinctive novation is never presumed; there must be an express intention to novate; in cases where it is implied, the acts of the parties must clearly demonstrate their intent to dissolve the old obligation as the moving consideration for the emergence of the new one. Implied novation necessitates that the incompatibility between the old and new obligation be total on every point such that the old obligation is completely superseded by the new one. The test of incompatibility is whether they can stand together, each one having an independent existence; if they cannot and are irreconcilable, the subsequent obligation would also extinguish the first “An extinctive novation would thus have the twin effects of, first , extinguishing an existing obligation and, second , creating a new one in its stead. “Novation is merely modificatory where the change brought about by any subsequent agreement is merely incidental to the main obligation (e.g., a change in interest rates or an extension of time to pay); in this instance, the new agreement will not have the effect of extinguishing the first but would merely supplement it or supplant some but not all of its provisions.”

In California Bus Lines v. State Investment House, 418 SCRA 297, the Court said: “Novation has been defined as the extinguishment of an obligation by the substitution or change of the obligation by a subsequent one which terminates the first, either by changing the object or principal conditions, or by substituting the person of the debtor, or subrogating a third person in the rights of the creditor. “Novation, in its broad concept, may either be extinctive or modificatory. It is extinctive when an old obligation is terminated by the creation of a new obligation that takes the place of the former; it is merely modificatory when the old obligation subsists to the extent it remains compatible with the amendatory agreement. An extinctive novation results either 53 | P

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by changing the object or principal conditions (objective or real), or by substituting the person of the debtor or subrogating a third person in the rights of the creditor (subjective or personal). Novation has two functions: one to extinguish an existing obligation, the other to substitute a new one in its place. For novation to take place, four essential requisites have to be met, namely, (1) a previous valid obligation; (2) an agreement of all parties concerned to a new contract; (3) the extinguishment of the old obligation; and (4) the birth of a valid new obligation. “Novation is never presumed, and the animus novandi, whether totally or partially, must appear by express agreement of the parties, or by their acts that are too clear and unequivocal to be mistaken. “The extinguishment of the old obligation by the new one is a necessary element of novation which may be effected either expressly or impliedly. The term "expressly" means that the contracting parties incontrovertibly disclose that their object in executing the new contract is to extinguish the old one. Upon the other hand, no specific form is required for an implied novation, and all that is prescribed by law would be an incompatibility between the two contracts. While there is really no hard and fast rule to determine what might constitute to be a sufficient change that can bring about novation, the touchstone for contrariety, however, would be an irreconcilable incompatibility between the old and the new obligations. “There are two ways which could indicate, in fine, the presence of novation and thereby produce the effect of extinguishing an obligation by another which substitutes the same. The first is when novation has been explicitly stated and declared in unequivocal terms. The second is when the old and the new obligations are incompatible on every point. The test of incompatibility is whether the two obligations can stand together, each one having its independent existence. If they cannot, they are incompatible and the latter obligation novates the first. Corollarily, changes that breed incompatibility must be essential in nature and not merely accidental. The incompatibility must take place in any of the essential elements of the obligation, such as its object, cause or principal conditions thereof; otherwise, the change would be merely modificatory in nature and insufficient to extinguish the original obligation. “The necessity to prove the foregoing by clear and convincing evidence is accentuated where the obligation of the debtor invoking the defense of novation has already matured. “With respect to obligations to pay a sum of money, this Court has consistently applied the well-settled rule that the obligation is not novated by an instrument that expressly recognizes the old, changes only the terms of payment, and adds other obligations not incompatible with the old ones, or where the new contract merely supplements the old one.”

In Kabankalan Sugar Co. v. Pacheco, 55 Phil. 154, the Court said: “[W]hen an easement of right way is one of the principal conditions of a contract, and the duration of said easement is specified, the reduction of said period in a subsequent contract, wherein the same obligation is one of the principal conditions,

constitutes a novation and to that extent extinguishes the former contractual obligation.” In Ajax Marketing & Development Corp. v. Court of Appeals, 248 SCRA 222, the Court said: “Novation will not be allowed unless it is clearly shown by express agreement, or by acts of equal import. Thus, to effect an objective novation it is imperative that the new obligation expressly declare that the old obligation is thereby extinguished, or that the new obligation be on every point incompatible with the new one. In the same vein, to effect a subjective novation by a change in the person of the debtor it is necessary that the old debtor be released expressly from the obligation, and the third person or new debtor assumes his place in the relation. There is no novation without such release as the third person who has assumed the debtor's obligation becomes merely a co-debtor or surety. “Novation arising from a purported change in the person of the debtor must be clear and express because, to repeat, it is never presumed.”

Requisites: 1. A previous existing  valid obligation - There must be an original existing obligation at the time of novation. This means that the obligation must not only be valid, but also that it has not been extinguished by any cause 2. The agreement of all the parties to the new obligation Novation requires the creation of a new contractual obligation, as well as the extinguishment of the old. There must be consent of all the parties to the substitution, resulting in the extinction of the old obligation and the creation of a valid one 3. The extinguishment of the old contract - This extinguishment may take place by express stipulation in the new agreement, or by implication from the incompatibility between the old and the new contracts 4. The validity of the new one  ________ Art. 1292. In order that an obligation may be extinguished by another which substitute the same, it is imperative that it be so declared in unequivocal terms, or that the old and the new obligations be on every point incompatible with each other. (1204)  ________ Novation is never presumed. There is no novation in the absence of a new contract executed by the parties. It must be established that the old and new contracts are incompatible in all points, or that the will to novate appear by express agreement of the parties or in acts of equivalent import. The novation must be clearly proved since its existence is not presumed Novation takes place only when the contracting parties expressly disclose that their object in making the new contract is to extinguish the old contract, otherwise the old contract remains in force and the new contract is added to it, and each gives rise to an obligation still in force

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No specific form is required for an implied novation. All that is required is incompatibility between the original and the subsequent contracts The test of incompatibility between two obligations or contracts is whether they can stand together, each one having an independent existence. If they cannot, they are incompatible, and the subsequent obligation novates the first. Upon such novation, the former obligation loses all its force and effect, and only the new obligation can be the basis of an action In order that there may be an implied novation arising from incompatibility of the old and the new obligations, the change must refer to the object, the cause, or the principal conditions of the obligation. In other words, it must be an essential change Accidental modifications in an existing obligation do not extinguish it by novation. Mere modifications of the debt, agreed upon between the parties, do not constitute novation. When the changes refer to the secondary agreements, and not to the object or principal conditions of the contract, there is no novation; such changes will produce modifications of incidental facts, but will not extinguish the original obligation It is not proper to consider an obligation novated by unimportant modifications which do not alter its essence Ultimately, the determination of whether the changes in any given contract or obligation are sufficient to bring about novation, must depend upon the facts and circumstances of each case. The distinction between a principal and an accidental condition in the contract or obligation is relative. The legal effect of any change made by the parties will depend upon a sound appreciation of their importance. The court should consider, in each particular case, not only the nature of the clause that is modified, but also the intention of the parties and the economic significance of the modification  ________ Art. 1293. Novation which consists in substituting a new debtor in the place of the original one, may be made even without the knowledge or against the will of the latter, but not without the consent of the creditor. Payment by the new debtor gives him the rights mentioned in Articles 1236 and 1237. (1205a)  ________

Expromision The initiative for the change does not emanate from the debtor and may be made even without his knowledge, since it consists in a third person assuming the obligation. It logically requires the consent of this third person and the creditor

Delegacion The debtor offers and the creditor accepts a third person who consents to the substitution, so that the consent of these three is necessary; they are respectively known as delegante, delegatario  and delegado

In this kind of novation, it is not enough to extend the juridical relation to a third person; it is necessary that the old debtor be released from the obligation, and the third person or new debtor take his place in the relation. Without such release, there is no novation; the third person who has assumed the obligation of the debtor merely becomes a co-debtor or a

surety. If there is no agreement as to solidarity, the first and the new debtors are considered obligated jointly The consent of the creditor to the change of debtors, whether in expromision or delegacion, is an indispensable requirement. The reason for the requirement of the creditor’s consent to such substitution is obvious. Substitution of one debtor for another may delay or prevent the fulfillment of the obligation by reason of the inability or insolvency of the new debtor, hence, the creditor should agree to accept the substitution in order that it may be binding on him The consent of the creditor to the substitution may be express or implied. It need not be given simultaneously with that of the debtor and of the third party; nor is it required to be in any specific or particular form, but it must be given by the creditor in one way or another. The creditor’s ratification of the substitution may be tacit, and may be given at any time, as long as the agreement between the old and new debtors still subsists. Once given, in whatever form it may be, the novation takes place Upon a creditor’s acceptance of the promise of another person to pay a part of a debt, which payment is secured by a real estate mortgage, there is effected a substitution of debtors or a partial novation of the contract When the original contract authorizes the debtor to transfer his obligation to a third person, the novation by substitution of debtor is effected when the creditor is notified that such transfer has been made The consent of the creditor, however, cannot be presumed from his acceptance of payments by a third party for the benefit of the debtor, without further acts; there can be no novation from such acceptance of payments, because there is no consent to the transfer of the debt itself Consent of debtors: Expromision The consent of the old debtor is not necessary, and the substitution may be made even without his knowledge

Delegacion The old debtor always consents to the substitution, because the initiative comes from him

In both cases, the consent of the new debtor is necessary, because he is to assume the obligation. This consent of the new debtor is as essential as that of the creditor for the novation to become effective The novation has the effect of releasing the original debtor from the obligation, and of making the new debtor liable therefor The second sentence of the present article provides that “Payment by the new debtor gives him the rights mentioned in Articles 1236 and 1237.” This would mean that if the novation is by delegacion, and the new debtor pays the obligation, he could demand from the old debtor what he has paid. But if the novation is by expromision, and the new debtor pays the debt without the knowledge of the old debtor, the former can recover only in so far as the payment has been beneficial to the old debtor. In this latter case, there can be no subrogation because of the express provisions of Article 1237. But if the novation is by delegacion, such subrogation may take place by 55 | P

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virtue of the provisions of Article 1302, par. (2), because the present article actually gives to the payment by the new debtor the same legal effect as payment by a third person, as far as his rights against the old debtor are concerned  ________ Art. 1294. If the substitution is without the knowledge or against the will of the debtor, the new debtor’s insolvency or non-fulfillment of the obligations shall not give rise to any liability on the part of the original debtor. (n)  ________ If the novation was by expromision, no liability for the new debtor’s insolvency can be enforced against the old debtor, because the latter did not have the initiative in making the change, which might have been made even without his knowledge This article, however, seems to imply that of the old debtor had knowledge of the substitution, or had consented thereto, the exemption from liability provided in this article does not apply The obvious intent of the Code is to generally release the old debtor from any further liability in passive subjective novation, except in exceptional cases contemplated in Article 1295 which are limited to delegacion The literal wording of the law should yield to its obvious intention, which is to exempt the old debtor from future liability when he did not propose the new debtor  ________ Art. 1295. The insolvency of the new debtor, who has been proposed by the original debtor and accepted by the creditor, shall not revive the action of the latter against the original obligor, except when said insolvency was already existing and of public knowledge, or known to the debtor, when the delegated his debt. (1206a)  ________ The terms of this article show that it is applicable only to substitution by delegacion. In case of insolvency of the new debtor, this article permits the creditor to sue the old debtor only when insolvency was prior to the delegation and publicly known, or when the old debtor knew of such insolvency at the time he delegated the obligation The knowledge of the creditor that the new debtor was insolvent at the time of delegation, will bar him from recovering from the old debtor. He must bear the consequence of his acts knowingly done Some believe that aside from the two exceptions mentioned in this article, there are other cases in which the old debtor will be liable: (1) If the new debtor is only secondarily liable; (2) If the third person is only an agent of the debtor; and (3) Where the new debtor is bound solidarily with the old debtor. It is obvious that the old debtor is liable in these cases, because there is no novation; the debtor has not been released from the obligation in any of these cases  ________ Art. 1296. When the principal obligation is extinguished in consequence of a novation, accessory obligations may subsist

only insofar as they may benefit third persons who did not give their consent. (1207)  ________ The extinguishment of the principal obligation by novation extinguishes the obligation to pay interests, unless otherwise stipulated. It releases pledges and mortgages as well as guarantors and sureties, unless the latter is bound under the new obligation. The reason for this is clear: the mortgage, pledge, or guaranty was given to answer for a particular obligation, or for the solvency of a particular debtor; any change in either of this destroys the basis of the consent of the mortgagors, pledgor, surety, or guarantor. The rule in this article is, thus, specially applicable to novation by substitution of debtors The exception provided has reference to a stipulation in favor of a third person (Art. 1311, par. 2), which is subordinate to the principal obligation. Although technically it is an accessory obligation, it is in reality a distinct obligation in favor of a third person, and cannot be extinguished by novation without the consent of the latter  ________ Art. 1297. If the new obligation is void, the original one shall subsist, unless the parties intended that the former relation should be extinguished in any event. (n)  ________ In order that a contract may be considered as novated, it is indispensable that the new contract which purports to annul the previous one, be valid and effective Where a new contract was to become effective only after the signature of other parties thereto had been secured, a novation does not take place when such other signatures are not obtained, because then it is no more than a mere executory agreement subject to a condition If the new obligation is not entirely void, but only voidable, the novation becomes effective. But if the action to annul is brought, and the obligation is set aside, it will be deemed as if there had been no novation, and the original obligation subsists, unless the parties intended to definitely extinguish it at all events The original obligation may be pure, and the new obligation subject to suspensive condition. If the intention is merely to attach the condition to the original obligation, there is no novation. But if the new conditional obligation is intended to substitute the original pure obligation, the novation itself, and the consequent extinguishment of the original obligation, is subject to the condition. Therefore, pending the happening of the condition, the old obligation cannot be considered as extinguished, nor can its performance be enforced; it is as much in a state of suspense as the new one. If the condition is not fulfilled before one of the parties withdraws from the proposed conditional contract, there is no novation at all After novation has taken place, by the change of the object of the obligation, the old obligation can no longer be enforced. Hence, if the new obligation is extinguished by the loss of its object, the creditor cannot demand the object of the original obligation  ________ 56 | P

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Art. 1298. The novation is void if the original obligation was void, except when annulment may be claimed only by the debtor or when ratification validates acts which are voidable. (1208a)  ________ When the original obligation is void, that is, wanting in some essential requisite or otherwise inexistent, there can be no novation, because one of the requisites for novation would be lacking The rule in this article applies to a voidable contract which has already been set aside or annulled by decree of a competent court. And an obligation which has already been extinguished is also inexistent. Hence, it cannot be novated When the original obligation has been ratified before novation, the novation is effective. And even if there has been no previous ratification at the time of novation, if the nullity can be claimed only by the debtor, the consent of the debtor to the novation will render the novation effective, because such consent is impliedly a waiver of the action for nullity To have a valid novation when the original obligation is voidable at the instance of the debtor, it is necessary that such obligation should have the essential requisites for its existence, and that the debtor consent to the novation with knowledge of the cause for nullity and after it has ceased The defect, however, is not completely cured if the novation takes place by expromission, where the old debtor has not intervened or consented. In such case, the old debtor may avail himself of the defense of the nullity of the original obligation, in the event that an action for reimbursement is brought against him by the new debtor. On the other hand, in his relation to the creditor, the new debtor cannot set up the nullity as a defense or as a ground for recovery, if he knew of the cause of nullity When a debt is already barred by prescription, it cannot be enforced by the creditor. But a new contract, recognizing and assuming the prescribed debt, would be valid and enforceable. The prescription, being available only to the debtor, can be waived by him; and he does so by voluntarily promising to pay the prescribed debt. The novation of a prescribed debt is thus valid  ________ Art. 1299. If the original obligation was subject to a suspensive or resolutory condition, the new obligation shall be under the same condition, unless it is otherwise stipulated. (n)  ________ The original obligation may be conditional, and the new obligation pure. If the intention is merely to suppress the condition, there would be no novation; but if it is to extinguish the original obligation itself by the creation of a new obligation, the latter does not arise except from the fulfillment of the condition of the original obligation. The reason is, if the suspensive condition of the original obligation is not performed, that obligation does not come into existence, and the cause for the new obligation would then be wanting. On the other hand, if the condition of the old obligation is resolutory, its happening would resolve the old obligation and place it in the same category as a void obligation or one which

has been extinguished. In either case, therefore, one requisite of every novation--a pre-existing valid obligation--would be lacking. Therefore, where the original obligation is conditional, the novation itself must be held conditional also, and its efficacy depends upon whether the condition which affects the former is complied with or not But the parties may by their express will substitute a pure obligation for a conditional one It may happen that the old obligation and the new obligation are both conditional. If the conditions in the two obligations are not incompatible with each other, and they can stand together, they must all be fulfilled in order that the novation may become effective and the new obligation be enforceable. If only the conditions affecting the obligation are fulfilled, and those affecting the new obligation are not, then there is no novation, and the old obligation subsists, because the requisite of a new valid obligation would be lacking. Likewise, if only the conditions affecting the new obligation are fulfilled, but the conditions of the old obligation are not, there will be no novation, since the requisite of a previous existing obligation would be wanting If the conditions of the old and the new obligations are incompatible with each other, there is an obvious intention to substitute the new conditional obligation for the old obligation, leaving only the new obligation, subject to its conditions. Only the conditions of the new obligation, therefore, have to be fulfilled, in order that such obligation may become enforceable  ________ Art. 1300. Subrogation of a third person in the rights of the creditor is either legal or conventional. The former is not presumed, except in cases expressly mentioned in this Code; the latter must be clearly established in order that it may take effect. (1209a)  ________ Subrogation is the transfer of all the rights of the creditor to a third person, who substitutes him in all his rights. It may either be legal or conventional LEGAL That which takes place without agreement but by operation of law because of certain acts; this is the subrogation referred to in article 1302

CONVENTIONAL That which takes place by agreement of the parties; this kind of subrogation requires the intervention and consent of three persons: the original creditor, the new creditor, and the debtor  ________

Art. 1301. Conventional subrogation of a third person requires the consent of the original parties and of the third person. (n)  ________ In conventional subrogation, the consent of all the parties is essential. The consent of the original creditor is necessary, because his right is extinguished; that of the new creditor is needed, because he becomes a party to a new relation; and the consent of the debtor is necessary, because the old obligation is extinguished, and he becomes liable under a new obligati on

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Under our Code, conventional subrogation is not identical to assignment of credit . In the former, the debtor’s consent is necessary; in the latter, it is not required. Subrogation extinguishes an obligation and gives rise to a new one; assignment refers to the same right which passes from one person to another. The nullity of an old obligation may be cured by subrogation, such that the new obligation will be perfectly valid; but the nullity of an obligation is not remedied by the assignment of the creditor’s right to another  ________

the co-debtors becomes joint, each being liable to the payor for his respective share. This conclusion is made clearer by the express provisions of article 1217  ________ Art. 1303. Subrogation transfers to the persons subrogated the credit with all the rights thereto appertaining, either against the debtor or against third person, be they guarantors or possessors of mortgages, subject to stipulation in a conventional subrogation. (1212a)  ________

Art. 1302. It is presumed that there is legal subrogation: (1) When a creditor pays another creditor who is preferred, even without the debtor’s knowledge; (2) When a third person, not interested in the obligation, pays with the express or tacit approval of the debtor; (3) When, even without the knowledge of the debtor, a person interested in the fulfillment of the obligation pays, without prejudice to the effects of confusion as to the latter’s share. (1210a)  ________

Subrogation transfers to the third person or new creditor the entire credit, with all the corresponding rights, either against the debtor or against third persons. If a suspensive condition is attached to the credit so transferred, that condition must be fulfilled in order that the new creditor may exercise his right; but prestations which could not have been required of the original creditor cannot be demanded of the new one Upon payment of the loss, the insurer is entitled to be subrogated pro tanto  to any right of action which the insured may have against the third person whose negligence or wrongful act caused the loss  ________

Illustration: Juan has two obligations: a mortgage debt of P10,000 in favor of Pedro, and a simple unsecured obligation for P5,000 in favor of Jose. If Jose pays the mortgage obligation of P10,000 to Pedro, even without the knowledge of Juan, then Jose will be subrogated in the rights of Pedro; in other words, Jose will become a mortgage creditor for P10,000, and an ordinary creditor for P5,000. It is not material what amount Jose actually pays to Pedro; so long as Pedro accepts such amount as full payment of the mortgage credit, there will be subrogation. However, the debtor in cases like this can still set up against the new creditor the defenses which he could have used against the original creditor, such as compensation, payments already made, or vice or defect of the original obligation If a third person pays the creditor without the consent of the debtor, he is only entitled to reimbursement from the debtor for the amount paid by him. If the amount he paid is less than the credit, even if the creditor has accepted it as full payment, the third person is entitled to reimbursement only for what he actually paid. He cannot proceed against sureties, guarantors, or mortgages and pledges. But if the debtor had consented, expressly or tacitly, to such payment by the third person, there will be subrogation, and the payor can exercise all the rights of the creditor rising from the very obligation itself, whether against the debtor or against third person The person who have an interest in the fulfillment of the obligation are those who would be benefited by the extinguishment of the obligation. Examples: co-debtors, sureties, guarantors, and owners of property mortgaged or pledged to secure the obligation When a solidary debtor pays the obligation, he is subrogated in the rights of the creditor. The scope of this subrogation, however, should not be misunderstood. The payor cannot take advantage of the solidarity and recover the amount in excess of his share of the obligation form any of his co-debtors; the solidarity terminates by his payment, and the obligation among

Art. 1304. A creditor, to whom partial payment has been made, may exercise his right for the remainder, and he shall be preferred to the person who has been subrogated in his place in virtue of the partial payment of the same credit. (1213)  ________

Title II. - CONTRACTS

Chapter 1. General Provisions Art. 1305. A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service. (1254a)  ________ Concept; A contract, broadly speaking, is an agreement on the declaration of a common will. It has been defined in other codes as “a bilateral legal transaction to create, modify or terminate a legal tie between the parties” Out Code, however…seems to limit the definition to cases, where one party binds himself to perform a prestation in favor of another, excluding cases of reciprocal prestations

A better definition is given by Sanchez Roman, who defines it as “a juridical convention manifested in legal form, by virtue of which one or more persons bind themselves in favor of another or others, or reciprocally, to the fulfillment of a prestation to give, to do or not to do” As a consensual relation, a contract must be shown to exist as a fact, clearly and convincingly Other conventions; Although a contract is a convention, or agreement of wills, not every convention is a contract; a contract is limited to agreements which produce patrimonial liabilities. Contracts, therefore, are distinguished from other acts based on the consent of two or more persons such as 58 | P

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marriage, donation, adoption, and succession, in the following ways 1. A contract creates obligations which are more particular, concrete and transitory, because it establishes a relation which is more limited by reason of persons, effects, and importance 2. In contract, the freedom to stipulate predominates over necessity of the act; in other words, the intentions of the parties is the determining factor in contracts, while the meeting of the minds is merely secondary in the other acts 3. The law is the principal source of rights and obligations in the other acts mentioned but in contracts the law has a suppletory effect Other terms; CONTRACT

Perfect Promise

The latter establishes and determines the obligations arising therefrom

Tends only to assure and pave the way for the celebration of a contract in the future; until the contract is actually made, the rights and obligations are not yet determined

Pact A special part of the contract, sometimes merely incidental and separable from the principal agreement

Imperfect Promise Also designated as  policitacion, constitutes a mere unaccepted offer

Stipulation Similar to a pact. When the contract is in an instrument, stipulation refers to the essential and dispositive part, as distinguished from the exposition of the facts and antecedents upon which it is based

Number of parties; The Code requires “two persons” for the existence of a contract; obviously, what is meant by the law is “two parties.” For a contract to exist, therefore, there must be two parties to it

Auto-contracts; The existence of a contract is not determined by the number of  parties  thereto; not by the number of individual wills, but by the number of declarations of will . A contract requires, not two persons, but two parties; not two wills, but two declarations of will. The effective element is not the formation of the will but in its declaration. In the autocontract, there are two declarations, although made by the same person Contracts of adhesion; There are cases in which one party has already a prepared form of a contract, containing the stipulations he desires, and he simply asks the other party to agree to them if he wants to enter into the contract Characteristics of Contracts: 1. Obligatory force  - it constitutes the law as between the parties 2. Mutuality - its validity and performance cannot be left to the will of only one of the parties

Elements of Contracts: 1. The essential elements or those without which there can be no contract; these are consent, subject matter, and cause 2. The natural elements  or those which exist as part of the contract even if the parties do not provide for them, because the law, as suppletory to the contract, creates them; the warranty against eviction in contract of purchase and sale is an example 3. The accidental elements or those which are agreed upon by the parties and which cannot exist without being stipulated Stages of Contract: 1. Preparation, conception, or generation, which is the period of negotiation and bargaining, ending at the moment of agreement of the parties 2. Perfection  or birth of the contract, which is the moment when the parties come to agree on the terms of the contract 3. Consummation  or death, which is the fulfillment or performance of the terms agreed upon in the contract Classification of Contracts: 1. According to the degree of dependence, into: preparatory, such as agency; principal, such as lease or sale; and accessory, such as pledge, mortgage, or suretyship 2. According to  perfection, into: consensual, such as purchase and sale; and real such as commodatum 3. According to solemnity  or  form, into: common form , such as a loan; and special form, such as donations and mortgages of immovable property 4. According to  purpose, into: transfer of ownership, such as sale or barter; conveyance of use , such as commodatum; and rendition of service , such as agency 5. According to subject-matter , into: things, such as sale, pledge, mortgage; and services such as deposit, agency, and lease of services 6. According to nature of obligation produced , into: bilateral, or sinalagmatico, such as purchase and sale; and unilateral, such as commodatum or gratuitous deposit 7. According to cause, into: onerous, such as purchase and sale; and gratuitous or lucrative, such as commodatum 8. According to risk , into: commutative, such as lease; and aleatory, such as insurance 9. According to name, into: nominate, or those with particular names, such as purchase and sale, lease, agency, etc; and innominate, or those without any particular name. In the Roman Law, the innominate contracts were classified into four groups: do ut des (I give and you give), do ut facias (I give and you do), facio ut facias (I do and you do), and facio ut des (I do and you give)  ________

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Art. 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy. (1255a)  ________

in private law, that which is permanent and essential in institutions, that which, even if favoring an individual to whom the right pertains, cannot be left to his own will. It is a notion which is manifested with clearness and force in cases of waiver of right

Freedom to contract; The right to enter into lawful contracts constitutes one of the liberties of the people of the state. If that right be struck down or arbitrarily interfered with, there is a substantial impairment of the liberty of the people under the constitution

It may be said, in general, that a contract which is neither prohibited by law not condemned by judicial decision, nor contrary to public legislation or constitutional prohibition, is not against public policy. In order to declare a contract void as against public policy, a court must find that the contract as to the consideration or the thing to be done, contravenes some established interest of society, or is inconsistent with sound policy and good morals, or tends clearly to undermine the security of individual rights  ________

Validity of stipulations; The contract is the law between the contracting parties. And where there is nothing in the contract which is contrary to law, morals, good customs, public policy, or public order, the validity of the contract must be sustained Compromises; The whole essence of a compromise is that by making reciprocal concessions, the parties avoid litigation or put an end to one already commenced. Such agreements must not be contrary to law, good morals, public policy or public interest. The court may not impose upon the parties a  judgment different from their compromise agreement. Once approved by the court, the parties are enjoined to comply strictly and in good faith with the agreement

Art. 1307. Innominate contracts shall be regulated by the stipulations of the parties, by the provisions of Titles I and II of this Book, by the rules governing the most analogous nominate contracts, and by the customs of the place. (n)  ________

Qualification of Contract; The law, not the parties, determines the juridical situation created by the parties through their contract and the rights and obligations arising therefrom. A contract is to be judged by its character, and courts will look to the substance and not to the mere form of the transaction

Do ut des (I give and you give) is an agreement in which A will give one thing to B, so that B will give another thing to A

Limitations on stipulation; An act or a contract that is illegal per se is one that by universally recognized standards is inherently or by its very nature, bad, improper, immoral or contrary to good conscience

Facio ut des (I do and you give) is an agreement in which A binds himself to do something for B, so that B will give something to A

Public order, which is found in the (old) Code, is not as broad as public policy, as the latter may refer not only to public safety but also to considerations which are moved by the common good Contrary to law; Freedom to contract is restr icted by law for the good of the public Statutes generally have no retroactive effect and only the laws existing at the time of the execution of the contract are applicable to the transaction Contrary to morals; Morals may be considered as meaning good customs; or those generally accepted principles of morality which have received some kind of social and practical confirmation. Any contract which has an immoral purpose is contrary to good customs Contrary to public order; Pacts, clauses and conditions of a contract which are contrary to public order are null and void. Public order signifies the public weal--public policy. “Public policy” is the English equivalent of “order public” in this article. There is no difference in principle between “public policy” in the United States and in the Philippines as determined by the constitution, the laws, and judicial decisions Public order, which does not here signify the material keeping of public order, represents the public, social and legal interests

Innominate contracts; These are contracts which do not have specific name. They can be grouped into four classes:

Do ut facias (I give and you do) is a contract under which A will give something to B, in order that B may do something for A

Facio ut facias (I do and you do) is a convention whereby A is to do something for B, so that B will render some other service for A Analogous contracts; Innominate contracts are, in the absence of stipulations and specific provisions of law on the matter, to be governed by the rules applicable to the most analogous contracts  ________ Art. 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them. (1256a)  ________ Mutuality of contract; The binding effect of the contract on both parties is based on the principles (1) that obligations arising from contracts have the force of law between the contracting parties; and (2) that there must be mutuality between the parties based on their essential equality, to which is repugnant to have one party bound by the contract leaving the other free therefrom. The ultimate purpose is to render void contract containing a condition which makes its fulfillment dependent exclusively upon the uncontrolled will of one of the contracting parties Unilateral cancellation; Just as anybody can be forced to enter a contract, in the same manner once a contract is entered into, no party can renounce it unilaterally or without the consent of 60 | P

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the other. It is a general principle of law that no one may be permitted to change his mind or disavow and go back upon his own acts, or to proceed contrary thereto, to the prejudice of the other party The unilateral act of one party in terminating the contract without legal justification makes it liable for damages When stipulated; An agreement of the parties that either one of them may terminate the contract upon a reasonable period of notice, is valid. Judicial action for the rescission of a contract is not necessary where the contract provides that it may be revoked and cancelled for the violation of any of its terms and conditions. The right of rescission may be waived Express agreement; Under this article, it is perfectly licit to leave the fulfillment of the contract to the will of either of the parties in the negative form of rescission, a case which is frequent in certain contracts, for in such case, neither is the article violated, nor is there any lack of equality between the persons contracting, since they remain with the same faculties in respect to fulfillment. Thus, this article creates no impediment to the insertion in a contract for personal services permitting the cancellation of the contract by one of the parties  ________ Art. 1309. The determination of the performance may be left to a third person, whose decision shall not be binding until it has been made known to both contracting parties. (n)  ________ Art. 1310. The determination shall not be obligatory if it is evidently inequitable. In such case, the courts shall decide what is equitable under the circumstances. (n)  ________ Art. 1311. Contracts take effect only between the parties, their assigns and heirs, except in case where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by provision of law. The heir is not liable beyond the value of the property he received from the decedent. If a contract should contain some stipulation in favor of a third person, he may demand its fulfillment provided he communicated his acceptance to the obligor before its revocation. A mere incidental benefit or interest of a person is not sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a third person. (1257a)  ________ Parties bound by contract; Contracts produce effect as between the parties who execute them Third persons not bound; The rights of a party cannot be prejudiced by the act, declaration, or omission of another, and proceedings against one cannot affect another, except as expressly provided by law or the Rules of Court. A contract cannot be binding upon and cannot be enforced against one who is not party to it, even if he is aware of such contract and has acted with knowledge thereof Third persons affected; Although contracts do not bind third persons, juridical situations may be created affecting them. Examples: (1) A contract creating a real right affects third

persons who may have some right over the thing (Article 1312). (2) A contract may reduce the properties of a debtor thus diminish the available security for the claims of creditors (Article 1313). (3) In some cases, as in composition in insolvency and in suspension of payments, certain agreements are made binding by law on creditors who may not have agreed thereto. Thus, one who is not a party to a contract cannot sue or be sued for the performance or cancellation thereof, unless he has a real interest affected thereby Enforcement of contract; Only a party to the contract can maintain an action to enforce the obligations arising under said contract Annulment of contract; Since a contract is binding only upon the parties thereto, a third person cannot ask for its annulment, although, of course, he may ask for its rescission if it is in fraud of his rights. One who is not a party to a contract has no rights under such contract, and even if the contract may be voidable, its nullity can be asserted only by one who is a party thereto; a third person would have absolutely no personality to ask for the annulment It was, however, held that a person who is not a party obliged principally or subsidiarily in a contract may exercise an action for nullity of the contract if he is prejudiced in his rights with respect to one of the contracting parties, and can show the detriment which would positively result to him from the contract in which he had no intervention Contracts bind heirs; As a general rule, rights and obligations under a contract are transmitted to the heirs of the parties. The heirs cannot be considered as third parties, because there is privity of interest between them and their predecessors Intransmissible contracts; Among contracts which are intransmissible are those which are purely personal, either by the provision of law, such as in cases of partnership and agency, or by the very nature of the obligation arising therefrom, such as those requiring special personal qualifications of the obligor. It may also be stated that contracts for the payment of money debts are not transmitted to the heirs of a party, but constitute a charge against his estate Stipulation for third parties; The second paragraph of this article creates an apparent exception to the first. Under the first paragraph, the cardinal rule of contract is laid down that only parties thereto and their privies acquire rights and assume obligations thereunder; while the second paragraph permits a third person to avail himself of a benefit extended to him by its terms So stipulations in favor of third p ersons may be divided into two classes: those where the stipulation is intended for the sole benefit of such third person, and those where an obligation is due from the promise to the third person and the former seeks to discharge it by means of such stipulation Requisites of article; The following are necessary for the application of the second paragraph of this article: 1. There must be a stipulation in f avor of a third person 2. That the stipulation in favor of a third person should be a part, not the whole, of the contract

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3. That the contracting parties must have clearly and deliberately conferred a favor upon a third person, not a mere incidental benefit or interest 4. That the favorable stipulation should not be conditioned or compensated by any kind of obligation whatever 5. That the third person must have communicated his acceptance to the obligor before its revocation 6. Neither of the contracting parties bears the legal representation or authorization of the third party.

otherwise, there is no meeting of the minds, and one of the essential elements of a valid contract would be wanting Rights of parties; Before acceptance by the third person, the contracting parties, by mutual agreement, may modify the contract or revoke it After acceptance of the stipulation by the third person, and there is failure of performance, he can sue either for specific performance or resolution, with indemnity for damages, as authorized by article 1191

Beneficiaries; A stipulation may validly be made in favor of indeterminate persons, provided that they can be determined in some manner at the time when the prestation from the stipulation has to be performed

Dependence on contract; Since the right of the third person is based directly on the contract, it is also subject to all the defenses available against the contract, such as those affecting the validity of the contract. Thus, the right of the third person does not exist if the contract is void; it disappears if the contract is annulled or dissolved, either by the happening of a resolutory condition or by the exercise of the right of rescission granted by article 1191

Test of beneficial stipulation; A mere incidental interest of a third person is not within the doctrine of stipulations  pour autrui . The third person acquires a right to the prestation only when this is in accordance with the intention of the contracting parties, such as a contract between a foreign bank and a local bank asking the latter to pay an amount to a beneficiary

Who may revoke; The right to revoke does not pertain simply to the promisor. As a general rule, it pertains to the other contracting party, or promise, who may exercise it without the consent of the promisor. But it may be agreed that the revocation should be implied when the latter has an interest, even if moral, in the fulfillment of the promise

It is not every promise made by one to another, from the performance of which a benefit may ensue to a third person, which gives a right of action to such third persons, he being neither privy to the contract nor to the consideration. The contract must be made for his benefit as an object, and he must be the party intended to be benefited

Collective contracts; There are cases where the law authorizes the will of the majority to bind a minority to an agreement notwithstanding the opposition of the latter, when all have a common interest in the juridical act; these are commonly known as collective contracts. The application of the principle of collective contracts is limited to specific cases provided by law, such as in suspension of payments, or in composition in insolvency proceedings, or in collective bargaining by labor organizations. The basis of the rule on collective contracts is that a co-ownership is legally presumed among the persons having a common interest; hence, the rule of the required majority is imposed on the minority  ________

Note: If the third party is represented, then the principles of agency apply

Hence, to constitute a valid stipulation pour autrui , it must be for the purpose and intent of the stipulating parties to benefit the third person, and it is not sufficient that the third person may be incidentally benefitted by the stipulation. So, the fairest test, to determine whether the interest of third person in a contract is a stipulation  pour autrui   or merely an incidental interest, is to rely upon the intention of the parties as disclosed by their contract. In applying this test, it matters not whether the stipulation is in the nature of a gift or whether there is an obligation owing from the promise to the third person. That no such obligation exists may in some degree assist in determining whether the parties intended to benefit a third person Acceptance by third party; A stipulation in favor of a third person has no binding effect in itself before its acceptance by the party favored. Before such acceptance, there is legally no “obligor.” Neither party to the contract can sue the other for non-performance unless there has been an acceptance The acceptance is optional to the third person; he cannot be obliged to accept a right against his will. Such acceptance, however, does not necessarily determine the moment when rights are acquired by the third person; this moment depends upon the terms of the stipulation, and the acceptance retroacts to the moment intended by the parties to the contract The ordinary rules of offer and acceptance are applicable, and it is a cardinal rule of the law of contracts that in order to create a binding agreement, the acceptance must be absolute, unconditional, and identical with the terms of the offer;

Art. 1312. In contracts creating real rights, third persons who come into possession of the object of the contract are bound thereby, subject to the provisions of the Mortgage Law and the Land Registration Laws. (n)  ________ Real rights in property; A real right directly affects property subject to it; hence, whoever comes into possession of such property must respect the real right. For example: A mortgages his land to B, and then sells it to C. The mortgage contract creates a real right over the property, and if duly registered, is binding upon C, although the latter is not party to such mortgage contract; C has to respect the mortgage in favor of B  ________ Art. 1313. Creditors are protected in cases of contracts intended to defraud them. (n)  ________ When a debtor enters into a contract in fraud of his creditors, such as when he alienates property gratuitously without leaving

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38

enough for his creditors , the latter, although not parties to 39 such contract of alienation, may ask for its rescission  ________ Art. 1314. Any third person who induces another to violate his contract shall be liable for damages to the other contracting party. (n)  ________ Interference by third persons; Under this article, a third person may be held liable for damages because he has induced a party to the contract to violate the terms thereof. An injured party may recover damages for unlawful interference with the contract by a third party Malice in some form is generally supposed to be an essential ingredient in cases of interference with contract relations. But upon the authorities it is enough if the wrongdoer, having knowledge of the existence of the contract relation, in bad faith sets about to break it up. Whether his motive is to benefit himself or gratify his spite by working mischief to the other party to the contract, is immaterial. Malice in the sense of illwill or spite is not essential The requisites of the action under this article are: 1. The existence of a valid contract 2. Knowledge of the third person of the existence of the contract 3. Interference by the third person in the contractual relation without legal justification Extent of liability; Whatever may be the character of the liability which a stranger to a contract may incur by advising or assisting one of the parties to evade performance, such stranger cannot become more extensively liable in damages for non-performance of the contract than the party in whose behalf he intermeddles. To hold the stranger liable for the damages in excess of those that could be recovered against the immediate party to the contract would lead to results at once grotesque and unjust Their liability should be solidary, because in so far as the third person is concerned, he commits a tortuous act or a quasidelict, for which solidary responsibility arises  ________ Art. 1315. Contracts are perfected by mere consent, and from that moment the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law. (1258)  ________ Perfection of consensual contracts; The perfection of a contract is the moment from which it exists; the juridical tie between the parties arises from that time. Consensual contracts, to which the present article refers, are perfected by mere consent which is the meeting of the minds of the parties upon the terms of the contract. The consent need not be made expressly

38 Art.

1387, Civil Code 1177 & 1381, Civil Code

Formal contracts, traditionally understood to mean those in which compliance with special external formalities is necessary for the validity of the contract, are no longer recognized under our law, as distinct from the consensual contracts Binding effect of contracts; The binding force of a contract is not limited to what is expressly stipulated, but extends to all consequences which are the natural effect of the contract, considering its true purpose, the stipulations it contains, and the object involved. This extension is not determined by the name which the contracting parties may have given to the contract, for the exact qualification of a contract is one of the limitations which are imposed on the liberty of the parties. Contracts are not what the parties choose to call them, but what they really are as determined by the principles of laws. The validity of the stipulations is one thing, and the juridical qualification of the contract resulting therefrom is very distinctly another  ________ Art. 1316. Real contracts, such as deposit, pledge and Commodatum, are not perfected until the delivery of the object of the obligation. (n)  ________ Perfection of real contract; A real contract   is not perfected by mere consent; delivery of the thing is also required. The requirement of the delivery of the object, in addition to the consent, is neither arbitrary not formalistic, but is demanded by the very nature of real contracts and their purpose. It is the delivery of the object which forms the basic obligations under the contract  ________ Art. 1317. No one may contract in the name of another without being authorized by the latter, or unless he has by law a right to represent him. A contract entered into in the name of another by one who has no authority or legal representation, or who has acted beyond his powers, shall be unenforceable, unless it is ratified, expressly or impliedly, by the person on whose behalf it has been executed, before it is revoked by the other contracting party. (1259a)  ________ Ratification necessary; Where a contract is entered into in behalf of another who has not authorized it, such contract is not valid and binding as against him, unless he ratifies the transaction and is estopped to question its legality. The nullity of such contract is of a permanent nature and it will exist as long as it is not duly ratified. The mere lapse of time cannot give efficacy to such contract. The defect is sich that it cannot be cured except by the subsequent ratification of the person in whose name the contract was executed Express or implied; The ratification of an unauthorized contract may be either express of implied Effect retroactive; The ratification of a contract by the person in whose name it has been entered into without authority, validates the act from the moment of its celebration, and not merely from the time of its ratification, for the ratification operates upon or applies to the act already performed

39 Arts.

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Before ratification; The unauthorized contract produces a state of suspense; its effectivity depends upon its ratification. But before such ratification by the person in whose name it was entered into, the other party, as in cases of suspensive conditions, may not do anything which would frustrate the rights of the former which may arise in the event of ratification. However, he may resolve the contract before the ratification, by means of revocation communicated to the principal or to the agent Liability of representative; If the contract is not ratified by the person represented, the representative becomes liable in damages to the other party, if he did not give notice of the absence or deficiency of his power. This liability is based on the fact that having represented himself as having authority to act for another, he is responsible for the truth of such affirmation. The third party, however, is not entitled to damages, if he knew or should have known that the authority does not exist Under article 1897, an agent who exceeds the limits of his authority without giving the other party sufficient notice of his powers, becomes personally liable to the latter. This is applicable also to cases of total want of authority, because the ratio legis is the same  ________

Chapter 2. Essential Requisites of Contracts - General Provisions Art. 1318. There is no contract unless the following requisites concur: (1) Consent of the contracting parties; (2) Object certain which is the subject matter of the contract; (3) Cause of the obligation which is established. (1261)  ________ Parties to contract; There must be at least two parties to every contract, and their capacity and consent are essential to its existence. The number of parties, however, should not be confused with the number of persons. A single person can represent two parties, and one party can be composed of two or more persons Capacity of parties; The legal capacity of the parties is an essential element for the existence of the contract. More accurately, it is an indispensable condition for the existence of consent, because there is no effective consent in law without the capacity to give such consent. Because of this connection of cause and effect between capacity and consent, the law does not expressly enumerate the former as a separate requisite for the validity of contracts; legal consent presupposes capacity Want of consent; Consent is essential for the existence of a contract, and where it is wanting, the contract is non-existent.  ________

Section 1. - Consent Art. 1319. Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes a counter-offer.

Acceptance made by letter or telegram does not bind the offerer except from the time it came to his knowledge. The contract, in such a case, is presumed to have been entered into in the place where the offer was made. (1262a)  ________ Concept of Consent; The essence of consent is the conformity of the parties on the terms of the contract, the acceptance by one of the offer made by the other; it is the concurrence of the minds of the parties on the object and the cause which shall constitute the contract. The area of agreement must extend to all points that the parties deem material or there is no consent. Where there is merely an offer by one party without an acceptance by the other, there is no consent Elements; Consent presupposes the following requisites: (1) plurality of subjects, (2) capacity, (3) intelligent and free will, (4) express or tacit manifestation of the will, and (5) conformity of the internal will and its manifestation Forms of Consent; The consent may either be express or implied. Not only is there an express and an implied or tacit consent which produce true contracts, but there is also a presumptive consent which is the basis of quasi-contracts, thus giving rise to the multiple juridical relations which results in obligations for the delivery of a thing or the rendition of a service Manifestation of Consent; Consent is manifested by the concurrence of offer and acceptance with respect to the object and the cause of the contract Offer by One Party; An offer is a unilateral proposition which one party makes to the other for the celebration of a contract. It exists only if the contract can come into existence by the mere acceptance by the offeree, without any further act on the part of the offeror. It must, therefore, be definite, (2) complete, and (3) intentional Definite; The offer must be definite, so that upon acceptance an agreement can be reached on the whole contract. The offer must be distinguished from mere communications indicating that a party is disposed to enter into a certain contract, or inviting the other to make an offer Complete; The offer must be complete, indicating with sufficient clearness the kind of contract intended and definitely stating the essential conditions of the proposed contract, as well as the non-essential ones desired by the offeror. Thus, in a contract of sale, the offer must specify the object and the price Intentional; An offer without seriousness, made in such a manner that the other party would not fail to notice such lack of seriousness, is absolutely without juridical effects and cannot give rise to a contract But if by reason of the form or the circumstances surrounding it, or because of the fault of the offeror, the offeree is induced to take it seriously, it becomes necessary to determine whether the real intention or the manifested intention should prevail. In other legislations, like the German (article 118), such declaration of will is considered void. In our Code, there is no provision on the matter; but applying general principles, the rule is acceptable in our law, and the act must be held void, although the other party who has been led to believe it to be 64 | P

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serious and intentional should be indemnified for the damages he may suffer thereby Mental Reservations; There is mental reservation when a party makes a declaration but secretly does not desire the effects of such declaration. It exists when the manifestation of the will is made by one party for the purpose of inducing the other to believe that the former intends to be bound, when in fact he does not The mental reservation of the offeror, unknown to the other, cannot affect the validity of the offer Acceptance by Offeree; An offer that is not accepted does not give rise to consent, and the contract does not come into existence. Thus, where it appears that the offeree not only did not accept, but rejected the offer, no contract was created To produce a contract, the acceptance must not qualify the terms of the offer It is necessary that the acceptance be unequivocal and unconditional, and the acceptance and the proposition shall be without any variation whatsoever; and any modification or variation from the terms of the offer annuls the latter and frees the offeror Amplified Acceptance; Under certain circumstances, a mere amplification on the offer must not be understood as an acceptance of the original offer, plus a new offer which is contained in the amplification The intent of the offeree, however, controls Complex Offers; In cases where a single offer involves two or more contracts, the perfection where there is only partial acceptance will depend upon the relation of the contracts between themselves, whether due to their nature, or due to the intent of the offeror Simultaneous Offers; As a rule, the offer and the acceptance must be successive in order that a contact may arise. One of the parties to the future contract should take the initiative in 40 making an offer. Although there is opinion to the contrary, when there are crossed offers, no contract is formed unless one of the parties accepts the offer received by him. The acceptance may, however, be inferred from the failure of either party to immediately reject the offer of the other. Before acceptance, either party may still revoke his own offer Successive Agreements; A contract may be so complicated that the parties come to agreement on certain points at different successive stages It should be noted that the present article of the Code requires the concurrence of offer and acceptance only as to “the thing and the cause which are to constitute the contract,” and not as to all matters. We believe that the intention of the parties should control If the intention of one or both parties is that there be concurrence on all points, the contract is not perfected if there is a point of disagreement, even if there is already agreement

40 Each

on the essential elements of the contract. Thus, in a contract of sale, the parties may have already agreed on the thing and the price, but not on who should bear the expenses of transportation of the thing upon delivery; if either or both parties have declared that there must be agreement on this point, the contract is not yet perfected If there is no declaration that agreement on an accessory or subordinate matter is necessary, the contract will be perfected as soon as there is concurrence on the object and the cause. The regulation of the accessory points will then be determined by future agreement, and, if there is no agreement thereon, by the general rules established by law for the particular case in the absence of agreement, such as the place of performance, expenses for the delivery of the thing etc Knowledge of Offeror; Even if there has been an unconditional acceptance of the offer by the offeree, no contract will arise unless that acceptance is made known to the offeror. Unless the offeror knows of the acceptance, there is no meeting of the minds of the parties, no real concurrence of offer and acceptance. This rule is expressly recognized in the second paragraph of this article with respect to acceptance by letter. The same rule should apply in case of acceptance by telegram, cable or even by telephone, although in the last case, the contract may generally be considered as between persons present Through Intermediaries; An intermediary who has no authority to contract, but is limited to the transmittal of the offer, the acceptance, or both, may be treated in the same light as the mail service. If he carries the offer and the acceptance in written form, the rule applicable to acceptance by letter will apply. If he carries the offer verbally, and the acceptance is also verbal, the perfection of the contract will be at the moment he makes the acceptance known to the offeror By Correspondence; When the offer to buy was written or prepared in Tokyo, Japan, and the acceptance thereof in Manila was sent by the offeree by airmail to and received by the offeror in Tokyo, the contract is presumed to have been entered into in Tokyo. Where the offeror delays in bad faith taking cognizance of the acceptance, by not reading or opening the letter of acceptance although he can do so, the contract must be considered perfected. It cannot have been the intention of the law to leave the perfection of the contract to the caprice of the offeror; the perfection must take place as soon as the will of the parties concur By Telephone; A contract entered into by telephone is deemed to have been made between persons present. It is considered as entered into at the place where the offer was made Effect of Silence; Whether or not silence can be considered as an expression of the will, depends upon the circumstances Modern jurists require the following in order that silence produce the effect of tacit acceptance: (1) that there is a duty or the possibility to express oneself; (2) That the manifestation of the will cannot be interpreted in any other way; (3) that there is a clear identity in the effect of the silence and the undisclosed will

offer can be considered as an acceptance of the other

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Our Code does not have an express provision on the juridical effect of silence; hence, its effect depends upon what has been stipulated, or on specific legal provision, or on mercantile usage In the Code, however, we can find express provisions on consent deduced from silence. Thus, under article 1670 a contract of lease may be renewed by the acquiescence of the lessor to the continuation of the enjoyment of the thing leased for fifteen days after the expiration of the original period of lease. Under articles 1870 to 1873, acceptance of an agency may be implied from the silence of the agent under certain circumstances Applicable Doctrines; The following principles have been developed in French jurisprudence, and, with slight variations by writers, have been recognized as acceptable doctrines: 1.  As between persons present : If the silence is entirely unconnected with any fact, there can be no contract 2. As between persons absent : If there has been no antecedent relation between the parties, silence will not give rise to a contract Withdrawal of Offer; Both the offer and the acceptance can be revoked before the contract is perfected. Since the contract is perfected only from the time the acceptance is known to the offeror, it is clear that said offeror may withdraw his offer at any time before he learns of the acceptance, even if such acceptance has already been made, but not made known to him. At that time there is as yet no contract, and the withdrawal of the offer cannot legally give rise to any injury or damage which he would be bound to repair

criminal, the return of a lost object, the winning of a contest, or the giving of information about a missing person There are two theories as to the juridical nature of such promise: (1) that of an obligatory unilateral promise sufficient to create a valid legal tie, and (2) that of an offer which gives rise to a contract upon acceptance. Under the first theory, the reward can be recovered by one who performs the desired act, even when he did not do it in consideration of the promise; while under the second theory, a binding obligation arises only when the act is done with the intention of accepting the promise In principle, there is no objection to giving obligatory force to such a unilateral declaration of the will with intent to be bound. The basis of the obligation is exclusively and directly the declaration of the promissor Our Code, however, gives only the five sources of obligations enumerated in article 1157. A unilateral promise is not recognized by our Code as having obligatory force. In order that such promise can be enforced, there must be an acceptance that will convert it into a contract. The performance of the act for which a reward or prize is promised can be considered as an acceptance. This is the rule in this jurisdiction, except as to things for sale A revocation must be made with the same publicity as the offer itself, and expenses after such revocation are not recoverable against the offeror. But when the act has already been accomplished, a subsequent revocation is ineffective, because the contract would already have been formed In Serra v. Court of Appeals, 229 SCRA 60, the Court said:

If the revocation is made in abuse of right, the other party may recover damages he may have suffered, in the belief that the contract would be perfected Lapse of Time; An offer without a period must be considered as becoming ineffective after the lapse of more than the time necessary for its acceptance, taking into account the circumstances and social conditions Revocation of Acceptance; The acceptance may be revoked before it comes to the knowledge of the offeror. Thus, where the offeree has sent his acceptance, but then sends a rejection or a revocation of the acceptance, which reaches the offeror before the acceptance, there is no meeting of the minds, because the revocation has cancelled or nullified the acceptance which thereby ceased to have any legal effect New Contract before Acceptance; Pending the acceptance of an offer, the offeror can perfect a new contract over the same thing with another person. If the first offer is not revoked by him before it is accepted, then he becomes liable for damages to the first offeree for culpable impossibility of performance. As between the two offerees, however, the one whose acceptance perfected a contract first is given priority; the other party has only an action for damages Public Offers; A promise may be made publicly by advertising a reward, compensation or prize for any person who performs or executes a particular act or obtains a particular result, such as the making of a scientific discovery, the perfection of an invention, the discovery of a crime, the apprehension of a

“Article 1324 of the Civil Code provides that when an offeror has allowed the offeree a certain period to accept, the offer maybe withdrawn at anytime before acceptance by communicating such withdrawal, except when the option is founded upon consideration, as something paid or promised. On the other hand, Article 1479 of the Code provides that an accepted unilateral promise to buy and sell a determinate thing  for a price certain is binding upon the promisor if the promise is supported by a consideration distinct from the price. “In a unilateral promise to sell, where the debtor fails to withdraw the promise before the acceptance by the creditor, the transaction becomes a bilateral contract to sell and to buy, because upon acceptance by the creditor of the offer to sell by the debtor, there is already a meeting of the minds of the parties as to the thing which is determinate and the price which is certain. In which case, the parties may then reciprocally demand performance. “Jurisprudence has taught us that an optional contract is a privilege existing only in one party — the buyer. For a separate consideration paid, he is given the right to decide to purchase or not, a certain merchandise or property, at any time within the agreed period, at a fixed price. This being his prerogative, he may not be compelled to exercise the option to buy before the time expires.”

In  Ang Yu Asuncion v. Court of Appeals, 238 SCRA 602, the Court said:

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“Until the contract is perfected, it cannot, as an independent source of obligation, serve as a binding juridical relation. In sales, particularly, to which the topic for discussion about the case at bench belongs, the contract is perfected when a person, called the seller, obligates himself, for a price certain, to deliver and to transfer ownership of a thing or right to another, called the buyer, over which the latter agrees. “When the sale is not absolute but conditional , such as in a "Contract to Sell" where invariably the ownership of the thing sold is retained until the fulfillment of a positive suspensive condition (normally, the full payment of the purchase price), the breach of the condition will prevent the obligation to convey title from acquiring an obligatory force. In Dignos vs. Court of Appeals (158 SCRA 375), we have said that, although denominated a "Deed of Conditional Sale," a sale is still absolute where the contract is devoid of any proviso that title is reserved or the right to unilaterally rescind is stipulated, e.g., until or unless the price is paid. Ownership will then be transferred to the buyer upon actual or constructive delivery (e.g., by the execution of a public document) of the property sold. Where the condition is imposed upon the perfection of the contract itself, the failure of the condition would prevent such perfection. If the condition is imposed on the obligation of a party which is not fulfilled, the other party may either waive the condition or refuse to proceed with the sale (Art. 1545, Civil Code). “An accepted unilateral promise which specif ies the thing to be sold and the price to be paid, when coupled with a valuable consideration distinct and separate from the price, is what may properly be termed a perfected contract of option. “Where a period is given to the offeree within which to accept the offer, the following rules generally govern: “(1) If the period is not itself founded upon or supported by a consideration, the offeror is still free and has the right to withdraw the offer before its acceptance, or, if an acceptance has been made, before the offeror's coming to know of such fact, by communicating that withdrawal to the offeree. The right to withdraw, however, must not be exercised whimsically or arbitrarily; otherwise, it could give rise to a damage claim under Article 19 of the Civil Code; “(2) If the period has a separate consideration, a contract of "option" is deemed perfected , and it would be a breach of that contract to withdraw the offer during the agreed period. The option, however, is an independent contract by itself, and it is to be distinguished from the projected main agreement (subject matter of the option) which is obviously yet to be concluded. If, in fact, the optioner-offeror withdraws the offer before its acceptance(exercise of the option) by the optioneeofferee, the latter may not sue for specific performance on the proposed contract ("object" of the option) since it has failed to reach its own stage of perfection. The optioner-offeror, however, renders himself liable for damages for breach of the option. In these cases, care should be taken of the real nature of the consideration given, for if, in fact, it has been intended to be part of the consideration for the main contract with a right of withdrawal on the part of the optionee, the main contract could be deemed perfected; a similar instance would be an "earnest money" in a contract of sale that can evidence its perfection ( Art. 1482, Civil Code).

“Even on the premise that such right of first refusal has been decreed under a final judgment, like here, its breach cannot  justify correspondingly an issuance of a writ of execution under a judgment that merely recognizes its existence, nor would it sanction an action for specific performance without thereby negating the indispensable element of consensuality in the perfection of contracts. It is not to say, however, that the right of first refusal would be inconsequential for, such as already intimated above, an unjustified disregard thereof, given, for instance, the circumstances expressed in Article 19 of the Civil Code, can warrant a recovery for damages. “The final judgment in Civil Case No. 87 -41058, it must be stressed, has merely accorded a "right of first refusal" in favor of petitioners. The consequence of such a declaration entails no more than what has heretofore been said. In fine, if, as it is here so conveyed to us, petitioners are aggrieved by the failure of private respondents to honor the right of first refusal, the remedy is not a writ of execution on the judgment, since there is none to execute, but an action for damages in a proper forum for the purpose.”  ________

Art. 1320. An acceptance may be express or implied. (n)  ________ Implied Acceptance; Implied acceptance may arise from acts or facts which reveal the intent to accept, such as the consumption of the things sent to the offeree, or the facts of immediately carrying out the contract offered. If the offeror asks for immediate performance of the contract and does not ask for a previous answer of acceptance (the necessity of which may sometimes be excluded by general commercial usage), the contract is perfected as soon as the other party begins to carry it out Waiver of Acceptance; The German code (article 151) permits the offeror to waive the declaration of acceptance, and in such case, as well as when according to usage of commerce such declaration need not be expected, the contract is perfected from the moment the intention to accept can be inferred from the conduct of the offeree and according to the usages of commerce. This rule can be accepted under our Code Effect of Silence; As a rule, silence is not equivalent to consent, but there are specific legal provisions which make silence, under certain circumstances, amount to consent. Silence of a party may constitute a manifestation of the will. There is a Spanish saying “quien calla otorga.” But this cannot be accepted without qualification in law. Silence, because of its ambiguity, lends itself to error, but there may be circumstances where silence may be as eloquent as the express manifestation of the will  ________ Art. 1321. The person making the offer may fix the time, place, and manner of acceptance, all of which must be complied with. (n)  ________ Right of Offeror; The owner of property offered for sale at auction has the right to prescribe the manner, conditions and terms of sale, and where these are reasonable and are made known to the buyer, they are binding upon him, and he cannot

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acquire a title in opposition to them and against the consent of the owner Period of Acceptance; The offer with a period lapses upon the termination of the period; hence, the acceptance, to become effective, must be known to the offeror before the period lapses. An acceptance made beyond the time fixed in the offer is not legally an acceptance, but constitutes a new offer, and may be accepted or rejected by the original offeror Manner of Acceptance; The offeror may require that the acceptance be communicated to him personally or to a representative of his; or that a certain condition be first fulfilled before the offeree can accept; or where two offers are made simultaneously, that only one must be accepted (as the offer of a thing for sale or for lease), or that not must be accepted. An acceptance which is not made in the manner prescribed by the offeror is not effective, but constitutes a counter-offer which the offeror may accept  ________

circumstances, how long will it take the letter of the offeror to reach the offeree? (2) How long will a person of ordinary prudence take to answer such an offer? (3) How long will the answer normally reach the offeror? This period will, of couse, vary according to the circumstance Withdrawal of Offer; The law permits the offeror to withdraw the offer at any time before acceptance, even before the period for acceptance has expired. The fact, however, that the offeror has the right to withdraw his offer before it is accepted, does not mean that he can exercise this right absolutely without regard to the rights of others. He cannot abuse this right without incurring liability An offer implies an obligation on the part of the offeror to maintain it for such a length of time as to permit the offeree to decide whether to accept or not. If the offeror disregards this right of the offeree and arbitrarily revokes the offer, he must be held liable for the damages which the offeree may suffer

Art. 1322. An offer made through an agent is accepted from the time acceptance is communicated to him. (n)  ________

This conclusion is strengthened in this jurisdiction by article 19 of the present Code, which provides: “Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observed honesty and good faith”

Contract through Intermediary; An intermediary who has no power to bind either the offeror or the offeree is not an agent; his situation is similar to that of a letter carrier. The communication of the acceptance to him does not perfect the contract; this occurs only when he in turn communicates such acceptance to the offeror  ________

Although the offeror may be held liable for damages because of abuse of right, however, the withdrawal of the offer will cause it to cease in law. Hence, notwithstanding a subsequent acceptance, there will be no contract, because there can be no concurrence of wills

Art. 1323. An offer becomes ineffective upon the death, civil interdiction, insanity, or insolvency of either party before acceptance is conveyed. (n)  ________ Reason for Article; It is fundamental in our law that the contract is not perfected except by the concurrence of two wills which exist and continue until the moment that they concur. The contract is not yet perfected at any time before acceptance is conveyed; hence, the disappearance of either party or his loss of capacity before perfection prevents the contractual tie from being formed  ________ Art. 1324. When the offerer has allowed the offeree a certain period to accept, the offer may be withdrawn at any time before acceptance by communicating such withdrawal, except when the option is founded upon a consideration, as something paid or promised. (n)  ________ Period of Acceptance; When the offeror has stated a fixed period for acceptance, the offeree may accept any time until such period expires. When the offeror has not fixed a period, and the offer is made to a person present, the acceptance must be made immediately. But when the offer is made to a person absent, the acceptance may be made within such time that, under normal circumstance, an answer can be received from him. There is deemed to be a reasonable tacit period, which is the time normally necessary to enable the offeree to know of the proposal and to make known his reaction. To determine this period, three points must be considered: (1) Under normal

Crossing Revocation and Acceptance; The general rule is that the expression of the will of a person, addressed to another, does not become effective except from the time it is received by the latter. The following distinction, however, may be made: 1. If the intention of the parties is not to demand an express acceptance, the tacit acceptance perfects the contract, and the subsequent receipt of a letter of revocation is ineffective 2. If the parties intended that there should be an express acceptance, the contract will be perfected if the acceptance is the first to reach the offeror; and it will not be perfected, if the revocation is the first and the acceptance cross, that which arrives first as its destination is effective Effect of Delay; It is not the moment of sending but the time of receipt of the revocation or acceptance which is controlling Contract of Option; This is a preparatory contract in which one party grants to the other, for a fixed period and under specified conditions, the power to decide whether or not to enter into a principal contract. It must be supported by an independent consideration, and the grant must be exclusive. It binds the party who has given the option not to enter into the principal contract with any other person designated, and, within that period, to enter into such contract with the one to whom the option was granted if the latter should decide to use the option If the “option” is not supported by an independent consideration, the offeror can withdraw the privilege at any time by communicating the withdrawal to the other party, even if the “option” had already been accepted. This is particularly so in a promise to buy or to sell, for under article 1279. “an 68 | P

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accepted unilateral promise  to buy or to sell a determinate thing for a price is binding upon the promissor if the promise is supported by a consideration distinct from the price.” This means that the option can still be withdrawn, even if accepted, if the same is not supported by any consideration  ________ Art. 1325. Unless it appears otherwise, business advertisements of things for sale are not definite offers, but mere invitations to make an offer. (n)  ________ A business advertisement of things for sale may or may not constitute a definite offer. It is not a definite offer when the object is not determinate When the advertisement does not have the necessary specification of essential elements of the future contract, it cannot constitute an offer. Thus, an advertisement of things for sale, specifying prices but without stating the quantity of things to be sold, is not an offer but a mere invitation to make an offer. The advertiser is free to reject any offer that may be made Definite Offers to Public; Generally, an offer must be made to the person with whom a contract is desired. It is not necessary, however, that the offeror should know the person who receives his offer. A valid offer to the public can be made. One who installs a slot machine makes an offer to the public, and the offer becomes a contract with any person who puts in the necessary coin. A merchant who places articles for sale in his store, with a price tag on each, makes an offer to the public, and anyone can accept the offer by paying the priced fixed  ________ Art. 1326. Advertisements for bidders are simply invitations to make proposals, and the advertiser is not bound to accept the highest or lowest bidder, unless the contrary appears. (n)  ________ Effect of Bidding; When in the advertisement it can be inferred with certainty that the best bid (highest or lowest, as the case may be) will be considered as giving rise to a binding contract, each bid will imply the perfection of a contract, although subject to the condition that no better bid is made. If this is not especially provided in the advertisement, then each bid is merely an offer, which the advertiser is free to reject Thus, where the notice calling for bids a public auction indicated that the party offering the property at an auction expressly reserved the right to reject any and all bids, it was held that any party taking part in the auction and offering a bid, must be considered as having submitted to the terms of the auction, and, if his bid is rejected, he cannot compel the party who called for bids to accept his bid or execute a deed of sale in his favor Judicial Sales; This provision is not applicable to bids in judicial sales, where the highest bid must necessarily be accepted  ________ Art. 1327. The following cannot give consent to a contract: (1) Unemancipated minors;

(2) Insane or demented persons, and deaf-mutes who do not know how to write. (1263a)  ________ Effect of Incapacity; Article 1318 requires consent of the contracting parties as an essential element for the validity of a contract, and the present article says that the persons indicated “cannot give consent to a contract.” The logical consequence is that a contract entered into by one of these persons would be wanting in consent, and hence inexistent or void. This logical consequence, however, is not the legal effect. Legally, if both parties are incapable of giving consent, the contract is unenforceable, and if only one is incapable, it is annullable or voidable By way of exception, however, it is provided by the Code that where necessaries are sold and delivered to a minor or other person without capacity to act, he must pay a reasonable price therefor. Necessaries include everything that is indispensable for sustenance, dwelling, clothing and medical attendance Unemancipated Minors; Unemancipated minors cannot enter into valid contracts, and contracts entered into by them are not binding upon them, unless upon reaching majority they ratify the same, or the contract has been entered into through a guardian and approved by the guardianship court. But the mere fact that one of the parties to the contract was a minor does not necessarily render it void ab initio, but merely voidable Estoppel; The courts have laid down the rule that the sale of real estate, effected by minors who have already passed the age of puberty and adolescence and are near the adult age, when they pretend to have already reached their majority, while in fact they have not, is valid, and they cannot be permitted afterwards to excuse themselves from compliance with obligations assumed by them or seek their annulment. This is in consonance with the rules of estoppel, and does not violate the rules regarding the sale of property of minors However, there is strong authority, with sound juridical resoning, to the effect that the misrepresentation of an incapacitated person does not estop him from denying that he was of age, or from asserting that he was under age, at the time he entered into the contract, for the breach of which an action is brought. In Young v. Tecson, 39 O.G. 953, it was held: “Under the principle of estoppel, the liability resulting from misrepresentation has its juridical source in the capacity of the person making the misrepresentation to bind himself. If the person making the misrepresentation cannot bind himself by contract, he cannot also be bound by any misrepresentation he may have made in connection therewith. A person entering into a contract must see to it that the other party has sufficient capacity to bind himself."

In his concurring and dissenting opinion inSia Suan and Chiao v.  Alcantara, Mr. Justice Padilla lucidly points out: The contract of sale involved in the case of Mercado vs. Espiritu, supra, was executed by the minors on 17 May 1910. The Law in force on this last-mentioned date was not Las Siete Partidas, which was the in force at the time the cases decided by the Supreme Court of Spain referred to, but the Civil Code which took effect in the Philippines on 8 December 1889. As already stated, the Civil Code requires the consent of both 69 | P

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parties for the valid execution of a contract (art. 1261, Civil Code). As a minor cannot give his consent, the contract made or executed by him has no validity and legal effect. There is no provision in the Civil Code similar to that of Law 6, Title 19, of the 6th Partida which is equivalent to the common law principle of estoppel. If there be an express provision in the Civil Code similar law 6, Title 19, of the 6th Partida, I would agree to the reasoning of the majority. The absence of such provision in the Civil Code is fatal to the validity of the contract executed by a minor. It would be illogical to uphold the validity of a contract on the ground of estoppel, because if the contract executed by a minor is null and void for lack of consent and produces no legal effect, how could such a minor be bound by misrepresentation about his age? If he could not be bound by a direct act, such as the execution of a deed of sale, how could he be bound by an indirect act, such as misrepresentation as to his age? The rule laid down in Young vs. Tecson, 39 O. G. 953, in my opinion, is the correct one. Insane Persons; It is not necessary that there be a previous  judicial declaration of mental incapacity in or der that a contract entered into by a mentally defective person may be annulled; it is enough that the insanity existed at the time the contract was made. In case of lunatics, it is possible that there are lucid intervals, and a contract executed during such interval will be valid Deaf-Mutes; Being a deaf-mute is not by itself alone a disqualification for giving consent. The law refers to the deafmute who does not know how to write. The old doctrine that a deaf-mute was presumed to be an idiot no longer prevails, and such persons are now held capable of entering into contracts if shown to have sufficient mental capacity  ________ Art. 1328. Contracts entered into during a lucid interval are valid. Contracts agreed to in a state of drunkenness or during a hypnotic spell are voidable. (n)  ________ Lucid Intervals; Even in the execution of contracts, in the absence of a statute to the contrary, the presumption of insanity and mental incapacity in a person under guardianship for mental derangement is only prima facie   and may be rebutted by evidence Liquor and Drugs; The use of intoxicants does not necessarily mean a complete loss of understanding. The same may be said regarding drugs It is, therefore, the result of the use of alcohol or drugs upon the condition of the mind which determines whether the user has capacity to contract at a given moment; the mere use in itself does not incapacitate him. It has been held that drunkenness, if in such degree that obscures completely the faculties and almost extinguishes the consciousness of acts, may be a ground for annulment of a contract Hypnotism and Somnambulism; Although the law mentions only hypnotism as avoiding a contract, the same is true of somnambulism. The utter want of understanding is a common element of both  ________

Art. 1329. The incapacity declared in Article 1327 is subject to the modifications determined by law, and is understood to be without prejudice to special disqualifications established in the laws. (1264)  ________ Special disqualification; Aside from lack of contractual capacity, certain disqualifications may be specially provided by law to invalidate contracts. Examples of these are: the incapacity of a person declared insolvent or bankrupt,  prohibition of aliens  from acquiring real property , and the incapacity of the husband and the wife to sell property to each other There is a distinction between the incapacity to give consent to contracts, and the special disqualification to enter into contracts. The incapacity is a restriction upon the very right itself. The incapacity renders the contract merely voidable, while the disqualification makes it void  ________ Art. 1330. A contract where consent is given through mistake, violence, intimidation, undue influence, or fraud is voidable. (1265a)  ________ Requisites of Consent: 1. It should be intelligent, or with exact notion of the mater to which it refers 2. It should be free 3. It should be spontaneous Intelligence in consent is vitiated by error; freedom by violence, intimidation, or undue influence; and spontaneous by fraud Vitiated consent does not make a contract unenforceable but merely voidable Defects of the Will; The circumstances mentioned in this article are generally known as defects of the will Discretion of Courts; In determining whether consent is vitiated by any of the circumstances mentioned in this article, courts are given a wide latitude in weighing the facts or circumstances in a given case and in deciding in favor of what they believe to have actually occurred, considering the age, physical infirmity, intelligence, relationship, and the conduct of the parties at the time of making the contract and subsequent thereto, irrespective of whether the contract is in a public or private writing Proof Necessary; Defect or lack of valid consent, in order to make the contract voidable, must be established by full, clear, and convincing evidence, and not merely by a preponderance thereof  ________ Art. 1331. In order that mistake may invalidate consent, it should refer to the substance of the thing which is the object of the contract, or to those conditions which have principally moved one or both parties to enter into the contract.

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Mistake as to the identity or qualifications of one of the parties will vitiate consent only when such identity or qualifications have been the principal cause of the contract. A simple mistake of account shall give rise to its correction. (1266a)  ________ Concept of Error; Ignorance and error are two different states of mind. Ignorance means the complete absence of any notion about a particular matter, while error or mistake means a wrong or false notion about such matter, a belief in the existence of some circumstance, fact, or event, which in reality does not exist. Juridically, however, ignorance and mistake produce the same effect In the concept of error under this article must be included both ignorance, which is the absence of knowledge with respect to a thing, and mistake properly speaking, there is a lack of full and correct knowledge about the thing. But error should not be considered as established, when alleged error is incomprehensible, absurd, and inexplainable in a person with capacity to contract Mistake of Fact or Law; It is generally believed that the error to which this article refers, which vitiates consent in contracts, is an error of fact , and not of law. The latter kind of error is not a ground for annulment of contracts. An error of law is a mistake as to the existence of a legal provision or as to its interpretation or application. Under article 3 of the Code, “ig norance of the law excuses no one from compliance therewith” Our Supreme Court has accepted the doctrine that excusable ignorance of law  can be the basis of good faith in possession. There is essentially to difference between good faith arising from ignorance of law and consent based on mistake of law. In both cases, the mind rests or relies upon an erroneous concept of the state of the law #1

As to Object; Annulment of contract on the ground of error is limited to cases in which it may reasonably be said that without such error the consent would not have been given. Hence, the error must refer to the substance of the thing, by which is meant not only the material of which it is made up, but also in general its nature which distinguishes it, generically or specifically, from others Nature of Contract; The error may refer to the very nature of the contract, in which case it is an essential mistake, because it is one which has a determining influence upon the will of the party Where the error refers, not to the nature of the contract or the object thereof, but to the rights of the parties thereto, the contract is not invalidated #2

Principal Conditions; The principal condition of the thing is its essential or substantial character, without which the thing ceases to be what it is. The substance of the thing refers to those qualities which determine its particular kind, distinguishing it, according to common concept, from other things However, where the real intention of the parties is the sale of a piece of land but there is a mistake in designating the particular

lot to be sold in the document, the mistake does not vitiate the consent of the parties, or affect the validity and binding effect of the contract. The reason is that when one sells or buys real property, he sells or buys the property as he sees it, in its actual setting and by its physical metes and bounds, and not by the mere lot number assigned to it in the certificate of title. The remedy for such mistake in designating the object of the sale is reformation of the instrument. This remedy is available when, there being a meeting of the minds of the parties to a contract Accidental, Accessory Conditions; In contrast to the essential or principal conditions, are the accidental conditions or qualities, which may exist in varying proportions, without the thing ceasing to be what it is Thus, the following mistakes do not in any manner affect the validity of the contract: (1) error with respect to accidental qualities of the object of the contract, such as the quality of paper of a book…(2) error in the value of the thing…(3) error which refers, not to the conditions of the thing, but to accessory matters on the contract foreign to the determination of the object Effect of Intent; The effect of error must be determined largely by its influence upon the party. If the party would have entered into the contract even if he had knowledge of the true fact, then the error does not vitiate consent. The importance and effect of the error, therefore, depends to a great extent upon the purposes to be attained by the contract. The law must be interpreted broadly, bearing in mind that the intent of the parties is what constitutes contractual obligations. Thus, there are cases where the substance or condition of the thing would be essential to the contract, and others where t hey are not #3

Error As to Person; There may be error as to the name of the person, or as to the qualifications of the person. An error in the name, without error as to person, will not invalidate the consent. An error as to person will invalidate consent when the consideration of the person has been the principal cause of the same. This is generally the case in obligations to do which rest on confidence or demand special qualifications Mistake as to qualifications, even when there is no error as to person, is a cause vitiating consent, if such qualifications have been principal cause of the contract. The proof of such mistake is difficult, but if established it also produces effect An error as to the person will generally invalidate consent in gratuitous contracts, because affection, relationship, friendship and gratitude are determining causes of the act of liberality. It will also invalidate consent in onerous contracts where the artistic or intellectual qualifications, moral character or integrity, and other personal qualities of a party are the determining cause f the consent of the other But where the identity of the other party is not material to the contract, an error as to person will not vitiate consent No absolute rule, however, can be laid down, because the effect of the error will always depend upon the extent to which it has influenced the consent, considering the nature of the contract in question Solvency of the Party; An error as to the solvency of the other party is not a cause of nullity 71 | P

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Motive of Party; A mistake as to the motive of a party does not affect the contract; to give it such effect, would destroy the stability of contractual relations #4

Error As to Accounts; An error of account is purely a mistake in computation; it is a mathematical error. It does not vitiate consent, but the intention of the parties is to accept the amount or quantities involved as they should be and not as what they were erroneously computed to be Account and Quantity; There is a difference between mi stake as to account and mistake as to quantity Correction of Accounts; Once there has been a liquidation of accounts between two parties, and the accounts have been approved by those affected thereby, no revision or correction of said accounts may be made at the instance of only one party, unless it is proved that there was fraud or error in the approval of said accounts. The burden of proving such deceit or error lies upon the party seeking the revision. But once the error has been proved, the accounts cannot be enforced as approved, but as it should have been without the mistake Error As to Basis of Contract; A mistake as to the existence of some circumstances or the occurrence of some event, which exerted a determining influence in the creation of the contract, so that the contract would not have been entered without it, constitutes an error in the basis of the contract. This is an error not expressly provided for by law. This mistake refers to circumstances which must be considered as the basis of the contract, circumstances which the parties take for granted as existing, and which for both have an equal importance, affecting some essential element of the contract. It would be contrary to good faith for one party to enforce such a contract against the other As to Estimates; Mistakes in estimating the results of a contract cannot vitiate consent, unless they were induced by fraud or deceit. Error incurred by one party in estimating the benefits from the contract, such as overestimating the income and underestimating the expenses, is not a cause of nullity, because it does not refer to any element of the contract itself Error in Unilateral Decision; When the error of a party is not in relation to the contract, but in the decision unilaterally adopted, he cannot demand responsibility from the persons who may have acted according to his decision. He who adopts a decision by himself suffers the corresponding risks Liability for Error; There is no provision in our Code making the party in error liable for damages which the other party may have suffered by relying on his declaration. However, such liability can be base on the theory of fault or negligence  ________ Art. 1332. When one of the parties is unable to read, or if the contract is in a language not understood by him, and mistake or fraud is alleged, the person enforcing the contract must show that the terms thereof have been fully explained to the former. (n)  ________ Fraud or Mistake Alleged; The rule that a party is presumed to know the import of a document to which he affixes his

signature and is bound thereby, has been altered by the present article Under this article it has been held that the obligation to show that the terms of the contract had been fully explained to the party who is unable to read or understand the language of the contract, when fraud or mistake is alleged, devolves on the party seeking to enforce it  ________ Art. 1333. There is no mistake if the party alleging it knew the doubt, contingency or risk affecting the object of the contract. (n)  ________ Inexcusable Error; To invalidate consent, the error must be excusable. It must be real error, and not one that could have been avoided by the party alleging it. The error must arise from facts unknown to him. He cannot allege an error which refers to a fact known to him, or which he should have known by ordinary diligent examination of the facts. An error so patent and obvious that nobody could have made it, or one which could have been avoided by ordinary prudence, cannot be invoked by the one who made it in order to annul his contract. A mistake that is caused by manifest negligence cannot invalidate a juridical act. In determining the effect of an alleged error, therefore, the courts must consider, not only the objective aspect of the case, but also the subjective, which is the intellectual capacity of the person who committed the mistake  ________ Art. 1334. Mutual error as to the legal effect of an agreement when the real purpose of the parties is frustrated, may vitiate consent. (n)  ________ Error of Law; Mistake of law is traditionally considered as having a different effect from mistake of fact in relation to consent in contracts. The modern tendency, is to give to mistakes of law the same effects as mistakes of facts. It is believed that in spite of the provisions of article 3 of the Code…it is permissible to excuse errors of law, and an excusable mistake of law may be invoked as vitiating consent Legal Effects of Contract; The present article does not deal generally with ignorance or mistake of law. The original draft of this article as proposed by the Code Commission was: “Mistake on a doubtful question of law, or on the construction or application thereof, may vitiate consent.” That original provision referred clearly to every excusable mistake of law. But the Congress, when it enacted the Code, changed that provision to the present one, which is limited to error on the legal effect of an agreement There are three requisites under this article: 1. The error must be as to the legal effect of an agreement 2. It must be mutual 3. The real purpose of the parties are frustrated An error on the legal effects of an agreement necessarily involves a mistake of law. The “legal effects” include the rights and obligations of the parties, not as stipulated in the contract, 72 | P

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but as provided by the law. The mistake as to these effects, therefore, means an error as to what the law provides should spring as consequences from the contract in question. This article is thus a recognition that, to the extent mentioned, a mistake of law may vitiate consent

4. That it produces a reasonable and well-grounded fear from the fact that the person from whom it comes has the necessary means or ability to inflict the threatened injury

Error As to Nature of Contract; An error as to the nature or character of a contract is always essential, and makes the act  juridically inexistent  ________

Enforcement of Claim; One who makes use of his right even if this be unpleasant to another, juridically does not prejudice the latter, and the law cannot consider as unjust the very thing it protects. If in the exercise of a legal right or because of his legal situation, a person obtains pecuniary benefit from another, he cannot be said to have employed intimidation

Art. 1335. There is violence when in order to wrest consent, serious or irresistible force is employed. There is intimidation when one of the contracting parties is compelled by a reasonable and well-grounded fear of an imminent and grave evil upon his person or property, or upon the person or property of his spouse, descendants or ascendants, to give his consent. To determine the degree of intimidation, the age, sex and condition of the person shall be borne in mind. A threat to enforce one's claim through competent authority, if the claim is just or legal, does not vitiate consent. (1267a)  ________ VIOLENCE Refers to physical force or compulsion; the degree of constraint or danger actually inflicted External; generally serves to prevent an act from being done

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INTIMIDATION Refers to moral force or compulsion; the degree of constraint or danger threatened or impending, sufficient to overcome the mind and will of a person of ordinary firmness

Internal; operating upon the will, and induces the performance of an act

Influences the mind to choose between two evils, between the contract & the imminent injury; it influences the expression of the will, inhibiting the true intent and making it manifest something apparently as that of the person who consent

Requisites of Violence: 1. That the physical force employed must be irresistible, or of such a degree that the victim has no other course, under the circumstances, but to submit

A threat to enf orce one’s right cannot annul a contract made by the debtor in relation to the claim sought to be enforced When Improper; One who uses illegal means to attain a legal objective, by infusing fear, is guilty of intimidation. It is not always easy to determine when intimidation exists, where a legal right is sought to be enforced; but, generally, it can be said that there is intimidation when a party goes beyond legal channels, or takes the law into his own hands, or by abuse of his right obtains a greater advantage that is due him. Thus, the treat to exercise a right would be wrongful, and will cause the annulment of a contract, if it is employed to exact an obligation which is excessive, disproportionate to or beyond the normal reparation due in favor of the creditor The threat to enforce a right, should not be aimed at a result which is contrary to law or morals, or which is unjust and contrary to good faith. Although it is lawful to exercise rights, it is not always lawful to use them for purposes different from those for which they were created Serious Evil or Wrong; The seriousness of the evil threatened is also determined by the victim’s idea of the injury to be suffered, and this idea may result, not only from threats, but also from actual physical force. A purely subjective criterion, however, is dangerous. The objective limitation contained in the Brazilian Code (article 98) can with advantage be adopted: the injury or evil threatened must at least equal to that which would follow from the obligation incurred or the contract entered into, such that there would be no intimidation if the threatened evil is less than the injury arising from the act demanded Imminence of Evil; To be imminent, it is not necessary that the evil should follow immediately upon the refusal to do the act demanded. It is enough that there be a real danger, although the realization of the threat may be suspended for a certain time due to the very nature of the danger threatened

2. That such force is the determining cause in giving the consent to the contract

Object of Evil; Our Code provides that the threatened evil must fall upon the party himself, or upon his spouse, ascendants or descendants

Requisites of Intimidation: 1. That the intimidation must be the determining cause of the contract, or must have cause the consent to be given

The same moral coercion can be produced in the mind of a party if the evil is directed to a brother, or to a lover or sweetheart, or to a very close friend

2. That the threatened act must be unjust or unlawful

Nature of Injury; Our Code refers to injury to person or property. The Argentine code expressly includes, injury to liberty and honor. It must be accepted that a threatened evil upon liberty or honor can have the same moral effects as that upon person or property. Hence, the term “person” in this article should not be limited to life and physical integrity, but

3. That the threat be real and serious, there being an evident disproportion between the evil and the resistance which all men can offer, leading to the choice of the contract as the lesser evil

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should include liberty and honor, thereby covering all injuries which are not patrimonial in nature Reasonable Fear; The fear occasioned by the threat must be reasonable and well-grounded; it must be commensurate with the threat. This is a question of fact which must be determined from the circumstances of the case. The law requires that the age, sex and condition of the persons should be taken into account However, there is no intimidation from the mere knowledge of such severe penalties, which was common to all, in the absence of any direct acts showing the imminence or seriousness of the infliction of such sanctions Respect and Obedience; The old Civil Code provided that “fear of displeasing persons to whom obedience and respect are due shall not annul a contract.” This provision was suppressed in the present Code If the fear of a party is legitimate, and the other has not employed any unjust act, there is no intimidation. There is nothing wrongful against which the sanction of nullity may be used. Reverence and respect in themselves may involve moral influence, but as long as this is not wrongful, intimidation does not exist. It must be assumed that the moral influence of parents over their children, or of employers over their employees, is free from wrong. Reverence and respect in themselves, therefore, cannot be a ground for annulment of a contract The moment, however, that the persons to whom respect and reverence are due, should wrongfully exert pressure upon their dependents or subordinates, in order to exact from them their consent to a contract or act, there is intimidation, even if the gravity of the threat would not be sufficient to annul the contract if it had been imposed on another person Cause of Consent; It must be proved that the consent was obtained through the intimidation; the fear must be the direct and determining cause which compelled the consent to be given. If such force or intimidation is not the cause of such consent, the contract cannot be annulled The intimidation must have been the determining factor in giving the consent. If the party would have consented, even without the intimidation, the mere presence of the intimidation does not annul the contract If the intimidation was only incidental, the contract is not annullable Moral Coercion; When a person is in grave danger, and he is made to promise to pay a certain amount if he is saved by the person to whom the promise is made, the contract is not avoided, because there is no intimidation which causes consent to be given, but modern law does not favor strict enforcement of the agreement. If found excessive, the amount promised may be reduced by the courts to a reasonable amount  ________ Art. 1336. Violence or intimidation shall annul the obligation, although it may have been employed by a third person who did not take part in the contract. (1268)  ________

Duress by Third Person; Even if the intimidation or threat had been employed by a third person who was not a party to the contract, the agreement is still null and void  ________ Art. 1337. There is undue influence when a person takes improper advantage of his power over the will of another, depriving the latter of a reasonable freedom of choice. The following circumstances shall be considered: the confidential, family, spiritual and other relations between the parties, or the fact that the person alleged to have been unduly influenced was suffering from mental weakness, or was ignorant or in financial distress. (n)  ________ UNDUE INFLUENCE There need not be an unjust or unlawful act

INTIMIDATION There must be an unlawful or unjust act which is threatened and which causes consent to be given In both cases, there is moral coercion The wish of the party subjected to undue influence is subdued and displaced by some influence which he does not have the power to resist, although it has not convinced his judgment. The moral coercion may be effected through threats, expressed or implied, or through harassing tactics Undue Influence, therefore, is any means employed upon a party which, under the circumstances, he could not well resist, and which controlled his volition and induced him to give his consent to the contract, which otherwise he would not have entered into. It must be in some measure destroy the free agency of a party and interfere with the exercise of that independent discretion which is necessary for determining the advantage or disadvantages of a proposed contract Circumstances to Consider; The circumstances mentioned by this article, which may be taken into account in determining whether there is undue influence, are not the only ones that may be considered In connection with undue influence, it is proper to consider the provisions of article 24: “In all contractual, property or other relations, when one of the parties is at a disadvantage on account of his moral dependence, ignorance, indigence, mental weakness, tender age or other handicap, the courts must be vigilant for his protection Employed by Third Person; Undue influence, although not identical, is similar to intimidation. By analogy to article 1336, undue influence employed by a third person may annul the contract 41

Contracts of Adhesion

 ________ Art. 1338. There is fraud when, through insidious words or machinations of one of the contracting parties , the other is induced to enter into a contract which, without them, he would not have agreed to. (1269)  ________

41 See

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Concept of Fraud; Fraud is every kind of deception, whether in the form of insidious machinations, manipulations, concealments or misrepresentations, for the purpose of leading another party into error and thus execute a particular act. It must have a determining influence on the consent of the victim. Error of one party is produced by the bad faith of the other contracting party; it presupposes an illicit act. Fraud produces qualified error; it induces in the other party an inexact notion of the facts. The will of another is maliciously misled by means of a false appearance of reality. He who, in order to profit, proceeds maliciously in order to make another fall into error or remain in error, commits fraud Insidious Words and Machinations; “Insidious words or machinations” constituting deceit, includes false promises, exaggeration of hopes or benefits, abuse of confidence, fictitious names, qualifications or authority; in short, all the thousand and one forms of deception which may influence the consent of a contracting party, without necessarily constituting estafa or some offense under the penal laws. The misrepresentation need not be by means of words. It exists where the party who obtains the consent does so by means of concealing or omitting to state material facts, with intent to deceive, by reason of which omission or concealment the other party was induced to give a consent which he would not otherwise have given

Kinds of Fraud: Dolo causante That which determines or is the essential cause of the consent

Can be a ground for annulment of the contract

Dolo incidente That which does not have such a decisive influence and by itself cannot cause the giving of consent, but refers only to some particular or accident of the obligation Cannot be a cause for annulment

FRAUD UNDER 1171 The fraud occurs in connection with the fulfillment of the obligation

FRAUD UNDER 1338 The fraud is prior or simultaneous to the consent or the creation of the obligation

Compared with Error; The result of fraud is error on the part of the victim. These two causes of nullity of consent, however, should not be confused. Error will vitiate consent only when it refers to the matters mentioned in article 1331; while a mistake induced by fraud will always vitiate consent, when the fraud had a decisive influence on such consent Requisites of Fraud: 1. It must have been employed by one contracting party upon the other (articles 1342 and 1344) 2. It must have induced the other party to enter into the contract (article 1338) 3. It must have been serious (article 1344) 4. It must have resulted in damage or injury to the party seeking annulment Effects of Fraud; The effects of dolo causante are (1) nullity of the contract, and (2) indemnification of damages. The party who employs fraud commits an illicit act which invalidates the

 juridical act obtained through it . The contract obtained through fraud, however, is not void ab initio but merely voidable Proof of Fraud; The misrepresentation constituting the dolo causante  must be alleged and proved, otherwise the contract cannot be annulled on this ground. The fraud must be established by full, clear, and convincing evidence, and not merely by a preponderance thereof The mere fact that the bargain was a hard one and that the price is inadequate is not a sufficient ground for the annulment of the contract, especially when the parties are dealing on speculative transactions  ________ Art. 1339. Failure to disclose facts, when there is a duty to reveal them, as when the parties are bound by confidential relations, constitutes fraud. (n)  ________ Concealment as Fraud; The deceit which avoids the contract need not be by means of misrepresentation in words. It exists where the party who obtains the consent does so by means of (deliberately ) concealing or omitting to state material facts, with intent to deceive, by reason of which omission or concealment the other party was induced to give a consent which he would not otherwise have given Silence or concealment, by itself, however, does not constitute fraud, unless there is a special duty to disclose certain facts, or unless according to good faith and the usages of commerce the communication should be made  ________ Art. 1340. The usual exaggerations in trade, when the other party had an opportunity to know the facts, are not in themselves fraudulent. (n)  ________ Tolerated Fraud; This is lawful misrepresentation, known as dolus bonus. This is lawful astuteness. Practice has come to tolerate such false affirmations. They are tolerated, and do not affect the validity of the contract, so long as they do not go to the extent of malice or bad faith, such as changing the appearance of the thing by false devices, and of preventing all verification or discovery of the truth by the other party Opportunity to Know; Where the means of knowledge are at hand and equally available to both parties one will not be heard to say that he has been deceived  ________ Art. 1341. A mere expression of an opinion does not signify fraud, unless made by an expert and the other party has relied on the former's special knowledge. (n)  ________ Expression of Opinion; The refusal of a seller to warrant his estimate should admonish the purchaser that that estimate was put forth as a mere opinion; and the courts will not hold the seller to a liability equal to that which would have been created by a warranty, if one had been given Made by Expert; An opinion of an expert is like a statement of a fact, and if false, may be considered a fraud giving rise to 75 | P

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annulment. When the expert, however, was employed by the party who was misled, he cannot ask for annulment, because he is chargeable with the acts and declaration of his employee  ________

Plurality of Subjects; If the fraud has caused substantial error, the injured party can ask for annulment under the rules on error

Art. 1342. Misrepresentation by a third person does not vitiate consent, unless such misrepresentation has created substantial mistake and the same is mutual. (n)  ________

Dolo Incidente; When the fraud is not the determining cause of the contract, it only gives rise to an action for damages, but not for annulment of the contract  ________

Fraud by Third Person; As a general rule, the fraud employed by a third person upon one of the parties does not vitiate consent and cause the nullity of a contract; it merely gives rise to an action for damages by the party injured against such third person. There is no reason for making one of the parties suffer for the consequences of the act of a third person in whom the other contracting party may have reposed an imprudent confidence

Art. 1345. Simulation of a contract may be absolute or relative. The former takes place when the parties do not intend to be bound at all; the latter, when the parties conceal their true agreement. (n)  ________

Mutual Error; Deceit by a third person, even without connivance or complicity with one of the contracting parties, may lead to error on the part of the parties to the contract; in this case, consent is vitiated, and the co ntract may be annulled

Definition of Simulation; It is a declaration of a fictitious will, deliberately made by agreement of the parties, in order to produce, for the purposes of deception, the appearance of a  juridical act which does not exist or i s different from that which was really executed. Simulation of contract involves a defect in declaration. The absolutely simulated contracts are known as simulados; while those relatively simulated are disimulados

Two reasons advanced to justify the difference between fraud and intimidation when employed by a third person, are: (1) that the party has nothing to do with fraud by a third person and cannot be blamed for it; (2) intimidation can be more easily resisted than fraud  ________

ABSOLUTE There is color of a contract, without any substance thereof, the parties not having any intention to be bound

Art. 1343. Misrepresentation made in good faith is not fraudulent but may constitute error. (n)  ________

There are two juridical acts involved in relative simulation: 1. The ostensible act , also called apparent or fictitious, which is the contract that the parties pretend to have executed

Art. 1344. In order that fraud may make a contract voidable, it should be serious and should not have been employed by both contracting parties.

2. The hidden act , also called real, which is the true agreement between the parties

Incidental fraud only obliges the person employing it to pay damages. (1270)  ________

If the concealed or [h]idden act is lawful, it is enforceable if the essential requisites are present, such as when the true consideration was not stated  ________

Magnitude of Fraud; The deceit must be serious. The fraud is serious when it is sufficient to impress, or to lead an ordinarily prudent person into error; that which cannot deceive a prudent person cannot be a ground for nullity Determining Cause; Besides being serious, the fraud must be the determining cause of the contract. It is this causal connection between the fraud and the contract which vitiates the consent of the victim. In other words, the fraud must be dolo causante Fraud by One Party to Another; In order to be a ground for annulment of a contract, the fraud must be exercised by one party upon the other. When two persons constitute one party of the contract with respect to another, the deceit exercised by one of them upon his co-party, is not a cause for annulment of the contract Mutual Fraud; When both parties use fraud reciprocally, neither one has an action against the other; the fraud of one compensates that of the other, and neither party can ask for the annulment of the contract

RELATIVE The parties have an agreement which they conceal under the guise of another contract

Art. 1346. An absolutely simulated or fictitious contract is void. A relative simulation, when it does not prejudice a third person and is not intended for any purpose contrary to law, morals, good customs, public order or public policy binds the parties to their real agreement. (n)  ________ Absolute Simulation; The nullity of the absolutely simulated contract is based on the want of true consent; there is no intent to be bound. The contract does not legally exist; it is illusory, a mere phantom. It is generally fraudulent and for the purpose of injuring third persons Recovery Under Contract; If the absolute simulation does not have an illicit purpose, the parties to the contract may prove the simulation in order to recover whatever may have been given under such simulated act. But if the simulated contract has an illegal object, the provision of articles 1411 and 1412 will apply ABSOLUTE SIMULATION Implies that there is

no

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existing contract, no real act executed Can be attacked by any creditor, including one subsequent to the contract The insolvency of the debtor making the simulated transfer is not a prerequisite to the nullity of the contract The action to declare a contract absolutely simulated does not prescribe (article 1409 and 1410)

transfer or contract

1. The object must be within the commerce of man (Art. 1347)

Can be assailed only by the creditors before the alienation The action to rescind, or accion pauliana, requires that the creditor cannot recover in any other manner what is due him The accion pauliana to rescind a fraudulent alienation prescribes in four years (article 1389)

2. It must be licit, or not contrary to law, morals, good customs, public policy, or public order (Art. 1347) 3. It must be possible (Art. 1348) 4. It must be determinate as to its kind (Art. 1349) OBJECT Thing, service, or right one party expects to deliver or perform

CAUSE That which the party expects to receive or enjoy

Illustration: Simulation Presumed; There are cases where relative simulation is presumed by law. Article 1602, for instance, presumes as equitable mortgage a contract of sale with right to repurchase under the circumstances mentioned in said article Relative Simulation; The relatively simulated contract is valid, except when it prejudices third persons or has an illicit purpose. Its validity is based on the freedom to contract. The intention of the parties is upheld, whatever form or terminology they may use in their contract If the concealed contract is lawful, it is absolutely enforceable. However, such concealed contract must have all the essential requisites, such as consent, object, and cause. Its validity and effects will be governed by the rules applicable to it, and not by those applicable to the apparent contract When the purpose of the simulation is illicit, or to prejudice a third person, the true contract of the parties cannot be enforced. It would be void and inexistent, under the provisions of article 1409; and neither party can have an action against the other because of the provisions of articles 1411 and 1412 Effect as to Third Persons; A third person may avail himself of the conduct of the parties to the simulated contract which is most favorable to himself. The simulated contract will therefore be binding if it is favorable to him to consider it so…But a third person, if he is prejudiced, may invoke the nullity of a simulated contract Acquisitions of Title; The declaration that a contract is simulated destroys the title of a third person who has acquired rights in bad faith to the property conveyed in the apparent contract If the third person, however, has acted in good faith, he is given the protection of the law  ________

Section 2. - Object of Contracts Concept of Object   - The object of a contract is its subjectmatter. It is the thing, right, or service which is the subjectmatter of the obligation arising from the contract. Hence, it is said that under the Code, the object of the contract and the object of the obligation created thereby are identical

Requisites of Object; In order that a thing, right , or service may be an object of contracts, it is necessary that the following requisites concur:

VENDOR O: CAR C: P1,000,000

SITUATION: CAR for P1,000,000

VENDEE O: P1,000,000 C: CAR

Note: What the object/ cause of the contract depends on the 42 perspective of the party Art. 1347. All things which are not outside the commerce of men, including future things, may be the object of a contract. All rights which are not intransmissible may also be the object of contracts. No contract may be entered into upon future inheritance except in cases expressly authorized by law. All services which are not contrary to law, morals, good customs, public order or public policy may likewise be the object of a contract. (1271a)  ________ Within Commerce of Man; The object of contracts must be within the commerce of man. Modern writers include in the category of things “outside the commerce of man” all kinds of things and interests whose alienation or free exchange is restricted by law or stipulation, which parties cannot modify at will. It is believed, however, that it would be more accurate to understand this phrase in the Roman law concept; that is, including only those things which are not susceptible of appropriation or of private ownership, and which are not transmissible Existence of Object; It is essential that the object must be in existence at the time of the perfection of the contract, or that it has the possibility or potentiality of coming into existence at some future tome. Thus, even future things can be object of contracts By “future things” are understood those which do not belong to the obligor at the time the contract is made; they may be made, raised, or acquired by the obligor after the perfection of the contract The term “future things” includes not only material objects but also future rights

When the contract involves future things, it may either be (1) conditional, or subject to the coming into existence of the 42 Class

discussion with Atty. A.F.C.G.

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thing, or (2) aleatory, or one of the parties bears the risk of the thing never coming into existence Future Inheritance; By way of exception to “future things” as objects of contracts, the law generally does not allow contracts on future inheritance

subsequently prohibited by law so that nobody can do it When nobody can perform it Nullifies the contract

In order that a contract may fall within the prohibition of this article, the following requisites are necessary: (1) that the succession has not yet been opened, (2) that the object of the contract forms part of the inheritance, and (3) that the promissor has, with respect to the object, an expectancy of a right is purely hereditary in nature An agreement for the partition of the estate of a living person, made between those who, in case of death, would be in a position to inherit from him, is void. And a contract renouncing the right to inherit from one who is still alive, is also void After the death of a person, however, the properties and rights left by him by way of inheritance can be the subject-matter of a contract among or by his heirs, even before a partition thereof has been made, because the rights of the heirs are transmitted to them from the moment of death of the predecessor Not Part of Inheritance; When the object of the contract is not a part of the inheritance, the prohibition does not apply, even if the delivery of such object is dependent upon the death of one of the contracting parties. Thus, life insurance contracts, and stipulations providing for reversion of property donated in marriage settlements in the event of the death of the done, are valid Contrary to Law or Morals; The contract is void if at the time it is entered into, the object is contrary to law or morals. The law violated need not be penal in nature; it is enough that it be mandatory or prohibitive Prestation of Third Party; The prestation promised in a contract must be personal to the party. A person can obligate only himself; he cannot obligate a third person. Third  does not mean that a contract in which the prestation of a third person is promised, is void; it is valid. The third person, however, is not bound; only the promissor is bound by the contract to use all means so that the third person may perform the prestation  ________ Art. 1348. Impossible things or services cannot be the object of contracts. (1272)  ________ Things are impossible when they are not susceptible of existing, or they are outside the commerce of man. Personal services or acts are impossible when they are beyond the ordinary strength or power of man. The impossibility must be actual and contemporaneous with the making of the contract, and not subsequent thereto ABSOLUTE/ OBJECTIVE When the act or service in itself, without considering the person of the obligor, becomes impossible; i.e. when the prestation is

RELATIVE/ SUBJECTIVE When the act or service cannot be done by the debtor himself, but it can be accomplished by others; i.e. when the debtor becomes so seriously ill that he cannot perform the stipulated act or service,

although it can anybody else

be

done

by

When due to the special conditions or qualifications of the debtor it cannot be performed If temporary, does not nullify the contract, such as when a partner agrees to contribute to the partnership an amount more than is permissible by his means; if permanent, it nullifies the contract, such as blindness in contracts which required the use of eyesight

The impossibility, therefore, must be absolute, not relative, and must be determined objectively, and not in relation to the debtor personally, with rare exceptions Liability for Damages; When the object is impossible, the contract is void and inexistent; hence, it cannot give rise to any  juridical relation If [the obligor] knew of the impossibility, or could have known of it, his bad faith or negligence makes him liable for damages. The amount of damages, however, will be limited in this case to the losses the creditor may have suffered by having relied on the contract; he cannot recover all the damages arising from non-performance of the contract But if the debtor is also ignorant of the impossibility, and his ignorance thereof is justifiable, or unavoidable, the reason for his responsibility ceases, and he cannot be held liable for the damages suffered by the creditor There is no liability for damages if both parties have knowledge of the impossibility Partly Impossible; If the thing is partly possible and partly impossible, the effect will depend upon the divisibility of the thing. If it is indivisible, by its nature or by the intention of the parties, there is no contract; the consent would be wanting, because it was either for the whole obligation or for none at all. But if the thing is divisible, then the contract is valid to the extent that it is possible Difficulty of Performance; Impossibility of performance should not be confused with mere difficulty. It is elemental that the law requires parties to do what they agreed to do. If a party charges himself with an obligation difficult of performance, he must abide by it. A showing of m ere inconvenience, unexpected impediments, or increased expenses is not enough to relieve him of the obligation. Equity cannot relieve from bad bargains simply because they are such. The debtor who does not perform in such cases must be held liable for damages But if the obstacles to the performance of the prestation are so great that they can only be overcome with sacrifices which are absolutely disproportionate, the prestation must be considered impossible, taking into account the rational, ethical, and economic considerations in the light of the presumed intention of the parties and of good faith

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Thus, one may not obligate himself to do something which, when accomplished, will prove to be dangerous to life and property. It is contrary to law and public policy to force the performance of a contract that is undesirable and harmful  ________ Art. 1349. The object of every contract must be determinate as to its kind. The fact that the quantity is not determinate shall not be an obstacle to the existence of the contract, provided it is possible to determine the same, without the need of a new contract between the parties. (1273)  ________ Determination of Kind; The object of the contract need not be individualized; but it must be determinate as to its kind or species But if the object is merely “something” or “an animal,” the species is not determined, and the contract would be void

The concept of consideration is narrower than that of cause Unlike the principle of consideration, the principle of cause never rejects any cause as insufficient. Whatever inducement is sufficient to satisfy the parties, is sufficient to satisfy the law, even though it is nothing more than the causa liberalitatis of a voluntary gift. In other words, while consideration  requires a legal detriment to the promisee which must be more than a moral duty , cause need not be material at all, and may consist in a moral satisfaction for the promissor Distinguished from Motive ; The cause of a contract is the essential reason for the contract, while motive is the particular reason for a contracting party, which does not affect the other, and which does not impede the existence of a true distinct 43 cause. Motive predetermines the contract 

The thing must have definite limits, not uncertain or arbitrary

Requisite of Cause; The cause of a contract must have the following requisites: (1) it must exist, (2) it must be true, and (3) it must be licit

Determination of Quantity; the quantity of the object may be indeterminate, so long as the right of the creditor is not rendered illusory. Its future determination must, however, depend upon circumstances already provided in the contract itself  ________

Art. 1350. In onerous contracts the cause is understood to be, for each contracting party, the prestation or promise of a thing or service by the other; in remuneratory ones, the service or benefit which is remunerated; and in contracts of pure beneficence, the mere liberality of the benefactor. (1274)  ________

Section 3. - Cause of Contracts

Onerous Contracts; In onerous contracts, the cause need not be adequate or an exact equivalent in point of actual value, especially in dealing with objects which have a rapidly fluctuating price. Thus, a consideration of one peso is just as effectual and valuable consideration, if stipulated in good faith, and in the absence of fraud, as a larger sum

Concept of Cause ; The cause of a contract is the “why of the contract,” the immediate and most proximate purpose of the contract, the essential reason which impels the contracting parties to enter into it and which explains and justifies the creation of the obligation through such contract

Cause is the essential reason which moves the parties to enter into the contract. It is the immediate, direct and proximate reason which justifies the creation of an obligation through the will of the contracting parties Distinguished from Object ; There can be no confusion between the object and the cause in remuneratory and gratuitous contracts. But a confusion between the object and the cause may arise in onerous contracts, or contracts giving rise to reciprocal or bilateral obligations

The subject-matter or object in onerous contracts is the thing, service or act, which forms the basis of the entire contract, the starting point of agreement, without which the negotiations or bargaining between the parties would never even have begun. Thus, while the object of the onerous contract is the same as to both parties and determined irrespective of them, the cause is different with respect for it is the impelling or essential reason for his entering into the contract Distinguished from Consideration ; Applied to contracts, cause represents, as it signified in Rome, the why of contracts, the essential reason which impels the contracting parties to celebrate the contract. A consideration in its widest sense is the reason, motive, or inducement, by which a man is moved to bind himself by an agreement. It is not for nothing that he consents to impose an obligation upon himself, or to abandon or transfer a right

Where the cause is a natural obligation, or one of conscience, there is a sufficient cause to sustain an onerous contract; and the cause will not be one of mere liberality But a moral obligation arising wholly from ethical considerations not constituting a natural obligation, is not a sufficient cause for onerous contracts Mutual Promises; A promise made by one party, if made in accordance with the forms required by law, may be a good cause or consideration for a promise made by the other party. In other words, the consideration or cause need not pass from one to the other at the time the contract is entered into Accessory Contracts; A person may secure the performance of another’s contract, either by acting as surety on a bond or by giving his property by way of mortgage to secure such person’s contract. It has been held that, as a mortgage is an accessory contract, its cause or consideration is the very cause or consideration of the principal contract, from which it receives its life, and without which it cannot exist as an independent contract, although it may secure an obligation incurred by another. In the contract of bond, the cause or consideration, generally, is no other, as in all contracts of pure beneficence, than the liberality of the benefactor. In exceptional  cases, a bond may be given for some other consideration, according to 43 Class

discussion with Atty. A.F.C.G. Illustration: In purchasing a gun, the cause may be the “acquisition,” while the motive may be “to kill someone w ith such gun”

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the agreement and free stipulation of the parties, which may be, as in onerous contracts, something remunerative stipulated as an equivalent given by the beneficiary of the bond of to the bondsman or surety Accommodation Parties; Where one of the signers of a joint and several promissory note affixes his signature thereto for the accommodation of a co-maker and a third person advances the face value of the note to the accommodated party at the time of the creation of the note, the consideration for the note, as regards both makers, if the money so advanced to the accommodated party; and it cannot be said that the note is lacking in consideration as to the accommodating party because he himself received none of the money. It is enough that value was given for the note at the time of its creation Remuneratory Contracts; A remuneratory contract is one where a party gives something to another because of some service or benefit given or rendered by the latter to the former, where such service or benefit was not due as a legal obligation Gratuitous Contracts; Gratuitous contracts are essentially agreements to give donations. The generosity or liberality of the benefactor is the cause in such contracts. For this reason, a voluntary conveyance, without any valuable consideration whatever, is good as between the parties and cannot be set aside, unless made in fraud of existing creditors  ________ Art. 1351. The particular motives of the parties in entering into a contract are different from the cause thereof. (n)  ________ Cause and Motive; The fundamental distinction between cause and motive is that cause is the objective, intrinsic and juridical reason for the existence of the contract itself, while motive is the psychological, individual or personal purpose of a party to the contract. The cause is the objective of a party in entering into the contract, while the motive is a person’s reason for wanting to get such objective. The cause in each kind of contract is always the same; the motive differs with each person Effect of Motive; As a general principle, the motives of a party do not affect the validity or existence of a contract. The motives of a contracting party cannot be the basis for the annulment of the contract, unless the realization of such motives has been made a condition upon which the contract is to depend. On the other hand, the mere presence of motives cannot cure the absence of consideration There are exceptional cases, however, where the motives of a party may affect the juridical act, such as: (1) When the motive of a debtor in alienating property is to defraud his creditors, the alienation is rescissible. (2) When the motive of a person in giving his consent is to avoid a threatened injury, as 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. While the general rule is that the cause of a contract should not be confused with the motives of the parties, the motive may be regarded as cause when it predetermines the purpose of the contract  ________

Art. 1352. Contracts without cause, or with unlawful cause, produce no effect whatever. The cause is unlawful if it is contrary to law, morals, good customs, public order or public policy. (1275a)  ________ Art. 1353. The statement of a false cause in contracts shall render them void, if it should not be proved that they were founded upon another cause which is true and lawful. (1276)  ________ Statement of False Cause; Where the cause stated in the contract is false, the latter may nevertheless be sustained by proof of another licit cause Where a contract is a simulated or fictitious contract of sale with a false consideration, it is not null and void per se; it is not a contrato inexistente, but merely a contrato nulo, or an annullable contract, under the provisions of the present article  ________ Art. 1354. Although the cause is not stated in the contract, it is presumed that it exists and is lawful, unless the debtor proves the contrary. (1277)  ________ Presumption of Lawful Cause; Unless the contrary is proved, a contract is presumed to have a good and sufficient consideration. Even when the contract falls under the Statute of Frauds, it is not necessary that the consideration for the agreement be stated in writing, because it is presumed. And when it is alleged that the consideration or cause of a promissory note is a debt incurred in a prohibited game or a game of chance, and there is no proof of the nature of the game, it cannot be assumed that such game was a prohibited game, because the law presumes that the cause or consideration is licit This presumption applies when no cause is stated in the contract. But if a cause is stated in the contract, and it is shown to be false, the burden of proving the legality of the cause is upon the party enforcing the contract. Hence, if the cause is partly legal and partly unlawful, and there is no proof as to what part is supported by the lawful cause, there can be no recovery on the contract Ex: Checks  ________ Art. 1355. Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a contract, unless there has been fraud, mistake or undue influence. (n)  ________ Inadequacy of Cause; In case of lesion or inadequacy of cause, the general rule is that the contract is not subject to annulment; in cases provided by law, however, such as those mentioned in article 1381, the lesion is a ground for rescission of the contract Gross inadequacy naturally suggests fraud and is evidence thereof, so that it may be sufficient to show it when taken in connection with other circumstances. But the fact that the bargain was a hard one, coupled with mere inadequacy of price, when both parties are in a portion to form an 80 | P

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independent judgment concerning the transaction, is not sufficient ground for the cancellation of a contract. Where also, a compromise of doubtful rights is voluntary and there is no fraud or imposition, it will be upheld, however, disadvantageous  ________

Chapter 3. Form of Contracts Art. 1356. Contracts shall be obligatory, in whatever form they may have been entered into, provided all the essential requisites for their validity are present. However, when the law requires that a contract be in some form in order that it may be valid or enforceable, or that a contract be proved in a certain way, that requirement is absolute and indispensable. In such cases, the right of the parties stated in the following article cannot be exercised. (1278a)  ________ Intent over Form; Modern law recognizes the autonomy of the will over strict formalism in the execution of contracts The present article, however, provides for two cases where form is absolute and indispensable. The first is when the form is essential to the validity of the contract; and the second is when the contract is unenforceable unless it is in a certain form, such as those under the Statute of Frauds as formulated in Art. 1403 Contracts Valid in any Form; Our law upholds the spirit over the form of contracts. Hence, it is a general principle that a contract, having the essential requisites provided for in article 1318, will be valid as between the parties whatever the form it may have been entered into Formalities Required by Law; These formalities may be classified into three groups: (1) those which are required for the validity of the contract ad essential , ad solemnitatem, (2) those required to make the contract effective as against third parties, such as those mentioned in articles 1357 and 1358, and (3) those required for the purpose of proving the existence of the contract, or formalities ad probationem, such as those provided in the Statutes of Frauds in articl e 1403 For Validity of Contract; There are some contracts which require certain formalities for their validity, i.e.  Negotiable Instruments Law; Donations of personal property in excess of 44 P5,000 made and accepted in writing ; Interests in loans 45 expressly stipulated ; the principal and interests in antichresis 46 specified in writing ; sale or transfer of large cattle registered and certified by the Cattle Registration Act; Registration is also 47 essential to a chattel mortgage ; etc Execution of Instrument; Where the validity of a contract is made to depend upon a particular formality, an action under 1357 cannot be brought to compel the other party to execute such formality. Article 1357 presupposes the existence of a valid contract and cannot possibly refer to the form required to make it valid, but rather to that required simply to make it effective

44 Arts.

748 and 749, Civil Code 45 Art. 1956, Civil Code 46 Art. 2134, Civil Code 47 Art. 2140, Civil Code

In Dauden-Hernaez v. De los Angeles, 27 SCRA 1276, the Court said: “The contract sued upon by petitioner herein (compensation for services) does not come under either exceptions in Article 1356 of the Civil Code. It is true that it appears included in Article 1358, last clause, providing that "all other contracts where the amount involved exceeds five hundred pesos must appear in writing, even a private one." But Article 1358 nowhere provides that the absence of written form in this case will make the agreement invalid or unenforceable. On the contrary, Article 1357 clearly indicates that contracts covered by Article 1358 are binding and enforceable by action or suit despite the absence of writing.”  ________

Art. 1357. If the law requires a document or other special form, as in the acts and contracts enumerated in the following article, the contracting parties may compel each other to observe that form, once the contract has been perfected. This right may be exercised simultaneously with the action upon the contract. (1279a)  ________ Compliance with Formality; This article grants to each contracting party the power to compel the other to execute the formalities required by the law, as soon as the requisites for the validity of the contract are present. Far from making the enforceability of the contract depend upon any special extrinsic form, this article recognizes its enforceability by the mere fact of granting to the contracting parties an adequate remedy whereby to compel the execution of a public writing, or any other special form, whenever such form is necessary in order that the contract may produce the effect which is desired, according to whatever may be its object. This, in substance, is equivalent to establishing as an implied condition of every contract, that these formal requisites shall be complied with, notwithstanding the absence of any express agreement by the contracting parties to that effect, but does not subordinate the principal action to the secondary action concerning the form. Such subordination would be unnecessary, as the cause of action would be the same in both cases, i.e., the existence of a valid contract Cause of Action; This article does not impose an obligation, but confers a privilege upon both parties, and the fact that the plaintiff has not made use of the same does not bar his action on the contract. Neither this article, the preceding one, nor the following one, requires that the exercise of the action to compel the execution of the deed must precede the bringing of the action derived from the contract Although the provision of this article, in connection with article 1358, do not operate against the validity of the contracts nor the validity of the acts voluntarily performed by the parties for the fulfillment thereof, even before the execution of the corresponding public instrument, yet from the moment when any of the contracting parties invokes said provisions it is evident that under them the question involving the execution of the public instrument must precede the determination of the other obligations derived from the contract Survival of Action; When a party to a contract dies and is survived by his heirs, the latter may be compelled to execute the proper documents. They are not third parties, and they 81 | P

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succeed to whatever interest their predecessor may have in the property covered by the contract. All of the heirs, however, must be made parties to such an action  ________ Art. 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 as governed by Articles 1403, No. 2, and 1405; (2) The cession, repudiation or renunciation of hereditary rights or of those of the conjugal partnership of gains; (3) The power to administer property, or any other power which has for its object an act appearing or which should appear in a public document, or should prejudice a third person; (4) The cession of actions or rights proceeding from an act appearing in a public document. All other contracts where the amount involved exceeds five hundred pesos must appear in writing, even a private one. But sales of goods, chattels or things in action are governed by Articles, 1403, No. 2 and 1405. (1280a)  ________

Art. 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.  ________ Basis of Reformation; Once the minds of the contracting parties meet, a valid contract exists, whether the agreement is reduced to writing or not. There are instances, however, where in reducing their agreements to writing, the true intentions of the contracting parties are not correctly expressed in the document, either by reason of mistake, fraud, inequitable conduct or accident. It is in such cases that reformation of instruments is proper. The action for such relief rests on the theory that the parties came to an understanding, but in reducing it to writing, through mutual mistake, fraud or some other reason, some provision was omitted or mistakenly inserted, and the action is to change the instrument so as to make it conform to the contract agreed upon

Writing Not for Validity; This article enumerates the certain contracts that must appear in public or private documents. this provision does not require such form in order to validate the act or contract but to insure its efficacy. It is limited to an enumeration of the acts and contracts which should be reduced to writing in a public or private instrument. The reduction to writing in a public or private document, required by this article, is not an essential requisite for an existence of the contract, but is simply a coercive power granted to the contracting parties by which they can reciprocally compel the observance of these formal requisites. Contracts enumerated by this article are, therefore, valid as between the contracting parties, even when they have not been reduced to public or private writings. Except in certain cases where public instruments and registration are required for the validity of the contract itself, the legalization of a contract by means of a public writing and its entry in the register are not essential solemnities or requisites for the validity of the contract as between the contracting parties, but are required for the purpose of making it effective as against third persons  ________

Requisites of Reformation: 1. There must have been a meeting of the minds upon the contract

Chapter 4. Reformation of Instruments (n)

Operation and Effect; Upon the reformation of an instrument, the general rule is that it relates back to, and takes effect from the time of its original execution, especially as between the parties

Reason for Reformation ; Equity dictates the reformation of an instrument in order that the true intention of the contracting parties may be expressed. The courts by the reformation do not attempt to make a new contract for the parties, but to make the instrument express their real agreement. The rationale of the doctrine is that it would be unjust and inequitable to allow the enforcement of a written instrument which does not reflect or disclose the real meeting of the minds of the parties. The rigor of the legalistic rule that a written instrument should be the final and inflexible criterion and measure of the rights and obligation of the contracting parties is thus tempered, to forestall the effects of mistake, fraud, inequitable conduct, or accident

2. The instrument or document evidencing the contract does not express the true agreement between the parties 3. The failure of the instrument to express the agreement must be due to mistake, fraud, inequitable conduct, or accident REFORMATION Presupposes that there is a valid existing contract between the parties, and only the document or instrument which was drawn up and signed by them does not correctly express the terms of their agreement Gives life to it upon certain corrections

ANNULMENT If the minds of the parties did not meet, or if the consent of either one was vitiated by violence or intimidation or mistake or fraud, so that no real and valid contract was made Involves a complete nullification of the contract

Effect on Statute of Frauds; According to the weight of authority, the statute of frauds is no impediment to the reformation of an instrument, whether by way of correcting a description which by mistake includes property other than that intended, or omits property from the description, or conveys too much  ________

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Art. 1360. The principles of the general law on the reformation of instruments are hereby adopted insofar as they are not in conflict with the provisions of this Code.  ________ Observation on Article; Commenting on the adoption of “the general law on the reformation of instruments” in this article, Mr. Justice J.B.L. Reyes says: “This is another of those vague references that abound in the Code. Such indefiniteness amounts to a delegation of power to the Court to determine what the law is, since no standards are set to enable one to determine which law is meant”  ________ Art. 1361. When a mutual mistake of the parties causes the failure of the instrument to disclose their real agreement, said instrument may be reformed.  ________ Requisites of Mistake: 1. That the mistake is one of fact 2. That it was common to both parties 3. The proof of mutual mistake must be clear and convincing The amount of evidence necessary to sustain a prayer for relief where it is sought to impugn a fact in a document is always more than a mere preponderance of evidence Mistake of Fact; There is a mistake of fact when the written evidence of the agreement includes something which should be there, or so expresses their agreement that it set forth something different from what was intended A mere mistake of law, without any other circumstance, constitutes no ground for the reformation of an instrument (annulment ) Must be Mutual; Where mistake alone is relied on as a ground for reformation, the mistake must be a mutual mistake. It must appear that by reason of the mistake something is to be done which neither party intended; that is, the contract must be written in terms which violate the understanding of both parties, and the mistake must be in reference to the same matter. The parties must have come to an oral agreement before they attempted to reduce it to writing, which attempt failed by reason of mistake, and reformation enforces the original agreement. The rule that mistake in expression must be mutual means, therefore, that to obtain reformation the parties must show that there was a valid contract between them, which contract is not correctly set forth in the writing to be reformed But where the contract is clear and unmistakable and the terms employed therein have not been shown to belie or otherwise fail to express the true intention of the parties, and the deed has not been assailed on the ground of mutual mistake which would require its reformation, the same should be given its full force and effect. When a party sues on a written contract and no attempt is made to show any vice therein, he cannot be allowed to lay claim for more than what its clear stipulations accord. His omission cannot be arbitrarily supplied by the courts by what their own notions of justice or equity may dictate

Effect of Negligence; Where the evidence of a mutual mistake is clear and decisive, the refusal to rectify on the sole ground of the negligence of the complaining party may well work the gravest injustice and defeat the intention of both parties in entering into the agreement. Where there has been a mutual mistake, and one party has been as negligent as the other, refusal to reform a contract made under such circumstances would have the effect of penalizing one party for negligent conduct, and at the same time permitting the other party not merely to escape the consequences of his negligence, but in most cases to profit thereby  ________ Art. 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.  ________ Mistake by One Party; A written instrument may be reformed where there is a mistake on one side and fraud or inequitable conduct on the other, as where one party to an instrument has made a mistake and the other knows it and conceals the truth from him. In this case, where the mistake is only on one side, in order to be a ground for reformation the fraud or inequitable conduct of the other party must be clearly shown, and must be at the time of the execution of the instrument; it may be actual or constructive. Inequitable conduct, to warrant relief by way of reformation, has been held to consist in doing acts, or omitting to do acts, which the court finds to be unconscionable; as in taking advantage of one party’s illiteracy, in drafting or having drafted an instrument contrary to the previous understanding of the parties and making such party believe the instrument to be other than what it actually is The mistake of one party, under this article, must refer to the contents of the instrument , and not the subject matter or principal conditions of the agreement; in the latter case an action for annulment of the contract is the proper remedy  ________ Art. 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.  ________ Art. 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.  ________ Mistake of Draftsman; Whenever an instrument is drawn with the intention of carrying an agreement previously made, but which, due to mistake or inadvertence of the draftsman or clerk, does not carry out the intention of the parties, but violates it, there is ground to correct the mistake by reforming the instrument The clerk, in reducing to writing the agreements of the contracting parties, acts upon the direction of the parties and, as such, he stands as an agent of the parties to that extent; 83 | P

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satisfactory proof of the agent’s mistake is proof of the mutual mistake of the contracting parties. Furthermore, since the written contract fails to express the agreement on which the minds of the parties met, it is not theirs, and the true intention has not been executed; hence, the necessity of reformation  ________

Art. 1365. If two parties agree upon the mortgage or pledge of real or personal property, but the instrument states that the property is sold absolutely or with a right of repurchase, reformation of the instrument is proper.  ________ Deed Held to be Mortgage; When the intention of the contracting parties was to enter into a contract of mortgage, said intention shall prevail although the deed executed may seem to be one of sale with the right to repurchase. The intention of the parties may be inferred from their simultaneous or subsequent acts, as well as from the stipulations themselves in the contract  ________ Art. 1366. There shall be no reformation in the f ollowing cases: (1) Simple donations inter vivos wherein no condition is imposed; (2) Wills; (3) When the real agreement is void.  ________ Donations and Wills; Both donations and wills are gratuitous dispositions of property. It is said that one reason why courts will not interfere to reform these instruments is that an action to reform a written instrument is in the nature of an action for specific performance and requires valuable consideration--an element lacking as between donor and donee, and between testator and beneficiary In providing that there shall be no reformation in cases of will, this article seems to be inconsistent with article 789 which provides: “When there is an imperfect description, or when no person or property exactly answers the description, mistakes and omissions must be corrected , if the error appears from the context of the will or from extrinsic evidence, excluding the oral declarations of the testator as to his intention; x x x”

The two articles, however, can be reconciled by considering the present article as stating the general rule, and article 789 as an exception thereto. Not every mistake in a will can be corrected. Only imperfect or erroneous descriptions of persons or property can be corrected; but the manner in which the testator disposes of his property cannot be changed by a reformation of the instrument Void Agreements; The power of a court to reform a written instrument is not accomplishing a vain thing. Therefore, an instrument which when corrected will be void or inoperative, will not be reformed  ________ Art. 1367. When one of the parties has brought an action to enforce the instrument, he cannot subsequently ask for its reformation.  ________

Reason for Article; Courts deny relief of reformation when the party seeking reformation has brought an action to enforce the instrument, because there has been an election as between inconsistent remedies, one in affirmance of the written contract and the other in disaffirmance. The party suing under the written contract may be said to have ratified the same  ________ Art. 1368. Reformation may be ordered at the instance of either party or his successors in interest, if the mistake was mutual; otherwise, upon petition of the injured party, or his heirs and assigns.  ________ Art. 1369. The procedure for the reformation of instrument shall be governed by rules of court to be promulgated by the Supreme Court.  ________

Chapter 5. Interpretation of Contracts Art. 1370. If the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control. If the words appear to be contrary to the evident intention of the parties, the latter shall prevail over the former. (1281)  ________ Art. 1371. In order to judge the intention of the contracting parties, their contemporaneous and subsequent acts shall be principally considered. (1282)  ________ Art. 1372. However general the terms of a contract may be, they shall not be understood to comprehend things that are distinct and cases that are different from those upon which the parties intended to agree. (1283)  ________ Art. 1373. If some stipulation of any contract should admit of several meanings, it shall be understood as bearing that import which is most adequate to render it effectual. (1284)  ________ Art. 1374. The various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense which may result from all of them taken jointly. (1285)  ________ Art. 1375. Words which may have different significations shall be understood in that which is most in keeping with the nature and object of the contract. (1286)  ________ Art. 1376. The usage or custom of the place shall be borne in mind in the interpretation of the ambiguities of a contract, and shall fill the omission of stipulations which are ordinarily established. (1287)  ________ Art. 1377. The interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity. (1288) 84 | P

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 ________ Art. 1378. When it is absolutely impossible to settle doubts by the rules established in the preceding articles, and the doubts refer to incidental circumstances of a gratuitous contract, the least transmission of rights and interests shall prevail. If the contract is onerous, the doubt shall be settled in favor of the greatest reciprocity of interests. If the doubts are cast upon the principal object of the contract in such a way that it cannot be known what may have been the intention or will of the parties, the contract shall be null and void. (1289)  ________ Art. 1379. The principles of interpretation stated in Rule 123 of the Rules of Court shall likewise be observed in the construction of contracts. (n)  ________

Chapter 6. Rescissible Contracts

Concept of Rescission; Rescission is a remedy granted by law to the contracting parties and even to third persons, to secure the reparation of damages caused to them by a contract, even if this should be valid, by means of the restoration of things to their condition at the moment prior to the celebration of said contract. It is a relief for the protection of one of the contracting parties and third persons from all injury and damage the contract may cause, or to protect some incompatible and preferent right created by the contract. It implies a contract which, even if initially valid, produces a lesion or pecuniary damage to someone. It sets aside the act or contract for justifiable reasons of equity Nature of Contract; The present article means that even if the contract is valid, it can be rescinded, but does not limit rescission to valid contracts. Rescission is perfectly compatible with the validity of the contract, but it does not require such validity as an essential condition. Hence, a voidable contract may also [be] rescinded Rescission in Reciprocal Obligations;

Defective Contracts; In designating defective contracts, the present Code has departed from the terminology of the old Code

ART. 1911 May be demanded only by a party to the contract

Under the present Code, there are four defective contracts: 1. The rescissible contract, which is a contract that has caused a particular damage to one of the parties or to a third person, and which for equitable reasons may be set aside even if it is valid

May be denied by the court when there is sufficient reason to justify extension of time to the defendant in which to perform Non-performance is the only ground for the right

2. The voidable or annullable contract, which is a contract in which the consent of one party is defective, either because of want of capacity or because it is vitiated, but which contract is valid until set aside by a competent court 3. The unenforceable contract, which is a contract that for some reason cannot be enforced, unless it is ratified in the manner provided by law 4. The void or inexistent   contract, which is an absolute nullity and produces no effect, as if it had never been executed or entered into Relative Ineffectiveness; These are contracts which are ineffective only with respect to certain parties, but are effective as to other persons

A relatively ineffective contract is distinguished from the voidable contract in that its ineffectiveness, with respect to the party concerned, is produced ipso jure, while voidable contract does not become inoperative unless an action to annul it is instituted and allowed. It differs from the void or inexistent contract, in that the ineffectiveness of the latter is absolute, because it cannot be ratified, while the relatively ineffective contract can be made completely effective by the consent of the person as to whom it is ineffective, or by the cessation of the impediment which prevents its complete ineffectiveness Art. 1380. Contracts validly agreed upon may be rescinded in the cases established by law. (1290)  ________

ART. 1380 May be demanded by a third party prejudiced by the contract Such reason does not affect the right to ask rescission

There are various reasons of equity provided as grounds for rescission Applies only to reciprocal Applies whether the contract obligations where one party produces unilateral or has not performed reciprocal obligations and even when the contract has been fully fulfilled Both presuppose contracts validly entered into and existing Both require mutual restitution when declared proper Rescission and Mutual Dissent; Rescission should also be clearly distinguished from an agreement of the parties to cancel their contract and mutually return the object and the cause thereof. Courts have sometimes loosely called this act of the parties as rescission, although it is not properly so Requisites of Rescission; In order that an action for rescission of a contract may prosper, the following requisites must concur: 1. The contract must be a rescissible contract, such as those mentioned in articles 1381 and 1382 2. The party asking for rescission must have no other legal means  to obtain reparation for the damages suffered by him (article 1383) 3. The person demanding rescission must be able to return whatever he may be obliged to restore if rescission is granted (article 1385) 4. The things which are the object of the contract must not have passed legally to the possession of a third person  acting in good faith (article 1385) 85 | P

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5. The action for rescission must be brought within the prescriptive period of four years  (article 1389) Direct proceedings to Rescind; Rescindible contracts are not void, and until set aside in a rescissory action they are legally effective, convey title, and cannot be attacked collaterally upon the grounds for rescission in a land registration proceeding. In  justice to th e party who would be entit led to ask for rescission, however, the court may expressly reserve such right of rescission so that such reservation may be noted upon the certificate of title  ________ Art. 1381. The following contracts are rescissible: (1) Those which are entered into by guardians  whenever the wards whom they represent suffer lesion by more than onefourth of the value of the things which are the object thereof; (2) Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the preceding number; (3) Those undertaken in fraud  of creditors when the latter cannot in any other manner collect the claims due them; (4) Those which refer to things under litigation   if they have been entered into by the defendant without the knowledge and approval of the litigants or of competent judicial authority; (5) All other contracts specially declared by law  to be subject to rescission. (1291a)  ________ Rescission on Legal Grounds; A valid contract can be rescinded only for legal cause Contracts with Lesion; Under paragraphs 1 and 2 of this article, contracts entered into by guardians for their wards, or by trustees or administrators for the absentees represented by them, are rescissible if the party represented suffers lesion by more than one-fourth of the value of the things which are the objects of the contracts “Lesion” is the injury which one of the parties suffers by virtue of a contract which is disadvantageous for him. To give rise to rescission, the lesion must be known or could have been known at the time of making the contract, and not due to circumstances subsequent thereto or unknown to the parties. In view of the basis of lesion, great difficulties arise in its actual determination and appreciation because of its eminently subjective character. The idea is to establish parity between the value of the thing and its price, so that if the price is less than the true value of the thing at the time of perfection of the contract, there is a lesion. Modern legislation is hostile to the principle of lesion, and our Code admits it only in special cases, such as those provided in the present article, in article 1098 on position of inheritance, and in articles 1539 and 1542 on sales

Contract of Guardians; As a rule, when a guardian enters into a contract, involving the disposition of the ward’s property, he must secure the approval of the guardianship court. A guardian is authorized only to manage the estate of his ward; hence, he has no power to dispose of any portion thereof without approval of the court. He cannot without judicial approval, enter into any contract which would be more than a mere act of administration. In case of sale, mortgage, or other

encumbrance of real estate, the requisites, procedure, and court approval, provided by the Rules of Court, are indispensable Contracts for Absentees; The powers and duties of a legal representative of an absentee, appointed by the court, are the same as those of guardians (article 382). Therefore, the principles we have discussed in relation to contracts by guardians apply also to contracts by representatives or trustees for the estate of absentees Contract in Fraud of Creditors; These are contracts executed with the intention to prejudice the rights of creditors, and should not be confused with those entered into without such intention, even if, as a consequence thereof, some particular damage may be caused to a creditor; the existence of the intention to prejudice creditors should be determined, either by the presumption established by article 1387 or by the proofs presented in the trial of the case. And since the patrimony of the debtor includes not only things but also rights, the remission of credits should be considered as included within the provision of the law Accion Pauliana and Simulation; The rescissory action to set aside contracts in fraud of creditors is known as accion  pauliana. It differs from an action to declare a contract absolutely simulated or fictitious on the following points: 1. In the case of rescission, there is a real alienation, but it is fraudulent; in the case of simulation, there is in fact no alienation but a mere pretense that one has been made 2. The former can be alleged only by the creditors prior to the act; the latter by all the creditors, before or after the simulation 3. Impossibility of satisfying the plaintiff’s claim is required in the first; it is not required in the latter

4. The accion pauliana is an action to set aside a valid contract; while an action to declare simulation does not seek to set aside the simulated contract, but merely declare its inexistence Requisites for Rescission; The following requisites are necessary in order that a contract may be rescinded as one made in fraud of creditors: (1) That the plaintiff asking for rescission has a credit prior to the alienation , although demandable later; (2) that the debtor has made a subsequent contract   conveying a patrimonial benefit to a third person; (3) that the creditor has no other legal remedy to satisfy his claim, but would benefit by the rescission of the conveyance to the third person; (4) that the act  being impugned is fraudulent; and (5) that the third person who received the property conveyed, if it is by onerous title, has been an accomplice in the fraud Existence of Credit; Only creditors can ask for the rescission of the contract, and the mere fact that a person filed a suit against the debtor and secured an attachment is not sufficient evidence that the latter owes him anything. But where an estate, in the course of administration, appears to be insolvent, any creditor who believes that a conveyance of property executed by the decedent in his lifetime was made in fraud of creditors may, upon leave of the court, bring an action in the name of the executor or administrator to recover property thus fraudulently conveyed away

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Priority of Credit; Rescission requires the existence of creditors at the time of the fraudulent alienation, and this must be proved as one of the basis of the judicial pronouncement setting aside the contract; without prior existing debts, there can be neither injury nor fraud. The credit must be existing at the time of the fraudulent alienation, even if it is not yet due. But at the time the accion pauliana is brought, the credit must already be due. Therefore, credits with suspensive term or condition are excluded, because the accion pauliana presupposes a judgment and unsatisfied execution, which cannot exist when the debt is not yet demandable at the time the rescissory action is brought. Rescission is a subsidiary action, which presupposes that the creditor has exhausted the property of the debtor, which is impossible in credits which cannot be enforced because of the term or condition While it is necessary that the credit of the plaintiff in the accion  pauliana must be prior to the fraudulent alienation, the date of the judgment enforcing it is immaterial. Even if the judgment be subsequent to the alienation, it is merely declaratory, with retroactive effect to the date when the credit was constituted. In cases of quasi-delict, the act or omission giving rise to the liability to indemnify must be prior to the alienation, even if the  judgment declaring it be rendered afterwards Exception; Writers generally recognize the availability of the accion pauliana, even when the alienation is prior to the credit, when the debtor purposely and in bad faith deprives himself of the ability to meet the consequences of obligations he intends to incur in the future. The alienation can be rescinded if it is made precisely in view of such future obligation and for the purpose of depriving in advance the creditor of the guaranty on which he could have relied Furthermore, there are parties who may appear to have become creditors after the alienation, but who may be considered as having a prior right and entitled to the accion  pauliana They are: 1. Those whose claims were acknowledged by the debtor after the alienation, but the origin of which antedated the alienation; the recognition does not give rise to the credit, but merely confirms its existence. For instance, the claim for damages arising before the alienation, but acknowledged by the debtor only after the alienation 2. Those who become subrogated, after the alienation, in the rights of creditors whose credits were prior to the alienation Creditors Included; The remedy of rescission is available to all creditors who were already such at the time of the fraudulent alienation, when they cannot collect what is due them Even secured creditors or lienholders are entitled to the accion  pauliana Under the French code, which makes no distinction in the quality of creditors, the traditional rule is that even secured creditors can bring this action, so long as their credit existed before the fraudulent alienation and they are prejudiced thereby. It would be unjust to consider the secured creditor, who has taken precautions to protect his interests by stipulation a security, as having less rights than the unsecured creditor who did nothing to guaranty himself against the

insolvency of the debtor. The French rule is applicable under our Code which makes no distinction among creditors Fraudulent Conveyance; It must be shown that the conveyance was fraudulent or with intent to prejudice creditors of the party making the conveyance. The fraud may be established by presumption, under article 1387, or from the whole evidence, independently of such presumption. If the case is not one for which the law establishes a presumption of fraud, the creditor seeking the rescission of the contract must prove by competent evidence the existence of fraud. Even if there are circumstances giving rise to the presumption of fraud, if such presumption is overcome by sufficient evidence, the creditor must prove facts showing actual fraudulent intent on the part of the debtor Without such proof of fraudulent intent, the contract cannot be rescinded Test of Fraud; In determining whether or not a certain conveyance is fraudulent, the question in every case is whether the conveyance was a bona fide  transaction or a trick and contrivance to defeat creditors, or whether it conserves to the debtor a special right. It is not sufficient that it is founded on good consideration or is made with bona fide  intent; it must have both elements. If defective in either of these particulars, although good between the parties, it may be set aside as to creditors. The rule is universal both at law and in equity that whatever fraud creates justice will destroy. The test as to whether or not a conveyance is fraudulent is, does it prejudice the rights of creditors? Others sustain that such intention is not necessary, that it is enough that the debtor knows he would c ause injury, that is, he can foresee injury to creditors because he knows of his own insolvency which would result from the alienation The fraud that justifies the accion pauliana is not characterized by the intention to injure the creditor, but by the knowledge that damage would be inflicted. This knowledge exists when the debtor knows that his property cannot be alienated without producing the evident injury to his creditors with existing claims, whether they be due or not yet due It is sometimes held that in gratuitous alienation, the simple knowledge by the debtor that his act would cause injury to his creditors is enough; while in onerous alienations, it is necessary that he must be motivated by an intention to prejudice them. However, there is really no distinction, because the knowledge of the injury which the act will cause, implies the acceptance of the effect, and, therefore, the willfulness of such injury. The knowledge of harm implies the intention to cause it Signs of Fraud; In the consideration of whether or not certain transfers were fraudulent, courts have laid down certain rules by which the fraudulent character of the transaction may be 48 determined As to transferee; As to the transferee, a distinction is made between those who acquire by onerous title and those by gratuitous title. When the alienation is gratuitous, the good faith of the transferee does not protect him, because he gave nothing and so he is not prejudiced by the rescission. But if the alienation is by onerous title, the transferee must be a party to

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the fraud; if he acts in good faith, there can be no rescission, because having given something, his position would be similar to that of the creditor, and being already in possession his acquisition will be respected No other Remedy; In order that rescission of a contract made in fraud of creditors can be decreed, it is necessary that the complaining creditors must prove that they cannot recover in any other manner what is due them. The action for rescission is essentially subsidiary. The alienation must have been prejudicial to the creditor, it must have had the effect of making the debtor insolvent, having diminished his property to such an extent that he cannot pay the debt Creditors Benefitted; As a rule, the rescission should benefit only the creditor who obtained the rescission, because the rescission is to repair the injury caused to him by the fraudulent alienation. This is justified by the provisions of article 1384. But there may be other creditors who could also bring the accion  pauliana; they should be given the benefit of rescission, instead of requiring them to bring the claim of the creditor who brought the action. However, creditors who became such only after the fraudulent alienation, and who themselves could not have asked for rescission, cannot benefit from the rescission; they cannot get indirectly what they cannot obtain directly Contracts on Things in Litigation; The fourth paragraph of this article refers to a contract executed by the defendant in a suit involving the ownership or possession of a thing when such contract is made without the knowledge and approval of the plaintiff or of the court As in the case of a contract in fraud of creditors, the remedy of rescission in this case is given to a third person who is not a party to the contract. Essentially, the purpose is the same in both cases; it is to prevent injury to the plaintiff. But while in the rescission of a contract in fraud of creditors a personal right is protected by giving it the guaranty of the debtor’s property, in the rescission of a contract in things in litigation a real right is rendered effective with respect to particular property Right of Transferee; Where the claim of the plaintiff in the pending litigation has not been registered, and there is nothing in the land registry or records showing any legal obstacles to the transfer, the transferee of a property in litigation, who acquires the same in good faith and for valuable consideration, without knowledge or notice of the litigation or claim of the plaintiff, cannot be deprived of such property by a rescissory action. The good faith of the transferee protects him, and rescission will not lie. But where the transferee knew of the claim of the plaintiff, either actually or constructively through the registry, he acts in bad faith, and the transfer can be rescinded If the transfer is gratuitous, the transferee loses nothing by the rescission, and the contract may be rescinded even if he acted in good faith. The right of the plaintiff being prior to his, the former should prevail as it causes no injury to the transferee  ________ Art. 1382. Payments made in a state of insolvency for obligations to whose fulfillment the debtor could not be compelled at the time they were effected, are also rescissible. (1292)  ________

Payment When Insolvent; The insolvency referred to in this article is insolvency in fact, not requiring any judicial proceeding on insolvency. It is a matter of evidence, and can be established by proving that the debtor did not have properties with which to satisfy his creditor except that which was given in payment. A creditor need not have a judgment or execution in order to rescind the payment made during insolvency of what was not then due  ________ Art. 1383. The action for rescission is subsidiary; it cannot be instituted except when the party suffering damage has no other legal means to obtain reparation for the same. (1294)  ________ No Other Remedy; The plaintiff asking for rescission must prove that he has no other legal means to obtain reparation. Where he does not show that he has no other legal course to obtain satisfaction of his claim, he is not entitled to the rescission asked. The action for rescission is but a subsidiary remedy, available only when the aggrieved party has no other legal means to obtain reparation for damages suffered. But where it is shown that the property transferred by the debtor to another was his only property, it is obvious that the creditor can have no other recourse to satisfy his claim except by rescission  ________ Art. 1384. Rescission shall be only to the extent necessary to cover the damages caused. (n)  ________ Extent of Rescission; The rescission is only in favor of the plaintiff creditor, not of all the creditors. This is the almost unanimous view of writers and jurisprudence. The extent of the revocation is only to the amount of the prejudice suffered by the creditor. As to the excess, the alienation is maintained If the claim of the creditor is less than the value of the thing fraudulently alienated, the excess remains with the transferee even if he had acted in bad faith, because the alienation is valid. Those who are strangers to the accion pauliana cannot benefit from its effects Who May Bring Action; The action for rescission may be instituted by (1) the person who is injured by the rescissible contract, such as the ward or absentee in the case of lesion, the creditors prejudiced by a fraudulent alienation, and the plaintiff in a case where a thing in litigation is alienated by the defendant; (2) the heirs of these persons; and (3) their creditors by virtue of the right granted by article 1177  ________ Art. 1385. Rescission creates the obligation to return the things which were the object of the contract, together with their fruits, and the price with its interest; consequently, it can be carried out only when he who demands rescission can return whatever he may be obliged to restore. Neither shall rescission take place when the things which are the object of the contract are legally in the possession of third persons who did not act in bad fa ith. In this case, indemnity for damages may be demanded from the person causing the loss. (1295) 88 | P

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 ________ Mutual Restitution; The only possible application of the rule that the party seeking rescission must offer to restore that which he has received from the other, is in contracts executed by guardians or administrators under Nos. 1 and 2, article 1381. Our Supreme Court, however, has applied the rule to cases of mutual dissent and of rescission of reciprocal obligations under article 1191 Transfer of Third Person; The “third person” under the present article includes not only one who is not a party to the party to the rescissible contract, but also one who is a party thereto The acquisition by a third person is an obstacle to the efficaciousness of the action for rescission, where the following two circumstances are present: (1) that such third person is in lawful possession  of the realty, that is to say, [that] he is protected by the law against said action by the registration of the transfer to him in the registry; and (2) that he did not act in bad faith Right of Transferee; The right of the transferee to retain the property fraudulently alienated by a debtor, depends upon the nature of the transfer upon the complicity of the former in the fraud. If the transfer is gratuitous, the creditor will have a better right than the transferee who has given nothing and who would unjustly be enriched at the expense of the creditor if the transfer were upheld. The rescission will, therefore, be allowed, irrespective of the good or bad faith of the transferee. But if the transfer was by onerous title, the transferee in good faith is protected. As far as prejudice is concerned, the creditor and the transferee would be in the same position; hence, the transferee, who acquired ownership by tradition, must be maintained in his rights. To deprive the transferee of the thing in such case would cause him injury to the extent of the consideration he has paid, because he cannot recover this from the insolvent debtor. Besides, as between two persons who both stand to suffer loss, the possessor of the property should be preferred in that possession, the ownership having been transferred by delivery. To permit rescission when the alienation is by onerous title, the transferee must be a party to the fraud; that is, he must have knowledge that the transfer to him would prejudice existing creditors of the transferor Transferee in Good Faith; The transferee in good faith to whom the thing has been alienated gratuitously, is obliged to restore the thing, because nobody is allowed to enrich himself at the expense of another. But being a possessor in good faith, he is not obliged to pay the fruits received by him; on the other hand, he is entitled to reimbursement for the necessary and useful expenses incurred on the thing. He returns the thing in the condition that it may be found; he is not liable for losses or deteriorations, except in cases which it is proved that he has acted with fraudulent intent or negligence after judicial summons

Transferee in Bad Faith; The transferee in bad faith is not entitled to indemnity for damages from the debtor, in the event that rescission is decreed If the price exists in the patrimony of the debtor, as contemplated by the Roman rule, then the acion pauliana would not lie, because then there would still be available property in the possession of the debtor. But on the assumption that the debtor is already insolvent, which is a prerequisite for the action, it is clear that there can be no reimbursement; on this point, the two opinions coincide. We may conclude, therefore, that the transferee in bad faith is not entitled to reimbursement. This conclusion is also strengthened by the provision of article 1412, under which the parties to an unlawful contract cannot recover from each other when they are both guilty Right to Damages; When the contract cannot be rescinded, because the thing has been acquired in good faith by a third person, the party who caused the loss shall be liable for damages. This would include the guardian of minors, the representative or administrator of absentees, the transferee in bad faith of things fraudulently alienated by a debtor, or the defendant who has transferred the thing in litigation, in the proper cases  ________ Art. 1386. Rescission referred to in Nos. 1 and 2 of Article 1381 shall not take place with respect to contracts approved by the courts. (1296a)  ________ Art. 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 decision or attachment need not refer to the property alienated, and need not have been obtained by the party seeking the rescission. In addition to these presumptions, the design to defraud creditors may be proved in any other manner recognized by the law of evidence. (1297a)  ________ Fraud Presumed; This article presumes the existence of fraud made by a debtor. Thus, in the absence of satisfactory evidence to the contrary, the alienation was held fraudulent because it was made after a judgment had been rendered against the debtor making the alienation. This presumption, however, does not apply where the alienation of property was made before the judgment against the transferor was rendered To raise the presumption of fraud in case of attachment, it is enough that it be issued . Any alienation after such issuance of an attachment, even if made before service or execution of such attachment, will be presumed fraudulent Rebuttable Presumption; The presumption of fraud established by this article is not conclusive, and may be rebutted by satisfactory and convincing evidence 89 | P

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In order to overcome the presumption of fraud established by this article, it is necessary to establish affirmatively that the conveyance was made in good faith and for a sufficient and valuable consideration. Proof of these two circumstances is sufficient to negative the existence of fraud, and the presumption created by this article will be considered as overthrown When the presumption of fraud has been satisfactorily overthrown, it is incumbent upon the party asking for rescission to prove by sufficient evidence that there was actual mala fides in the alienation; otherwise, the contract will not be rescinded Proof of fraud; In the consideration of whether or not certain transfers were fraudulent, courts have laid down certain rules by which the fraudulent character of the transaction may be determined Effect of Fraud; The existence of fraud, whether presumed or proved, does not necessarily make the alienation rescissible. Fraud is only one of the requisites for the accion pauliana. And even if the debtor who made the alienation acted fraudulently, if the transferee acquired the thing in good faith and for valuable consideration, rescission will not be allowed  ________ Art. 1388. Whoever acquires in bad faith the things alienated in fraud of creditors, shall indemnify the latter for damages suffered by them on account of the alienation, whenever, due to any cause, it should be impossible for him to return them. If there are two or more alienations, the first acquirer shall be liable first, and so on successively. (1298a)  ________

of the sale, and other circumstances, should awaken suspicion on the part of the vendee, but he does not make an inquiry to verify the fraud, then he will be charged with knowledge thereof  ________ Art. 1389. The action to claim rescission must be commenced within four years. For persons under guardianship and for absentees, the period of four years shall not begin until the termination of the former's incapacity, or until the domicile of the latter is known. (1299)  ________ Minority of Party; A minor is a party to a contract of sale must bring the action for rescission within four years after attaining the age of majority, because under the present article the claim for rescission prescribes in four years from removal of one’s incapacity  ________

Chapter 7. Voidable Contracts Art. 1390. The following contracts are voidable or annullable, even though there may have been no damage to the contracting parties: (1) Those where one of the parties is incapable of giving consent to a contract; (2) Those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud. These contracts are binding, unless they are annulled by a proper action in court . They are susceptible of ratification. (n)  ________

Subsequent Transfers; The creditor can have an action against subsequent transferees only when an action lies against the first transferee. If the first transferee acquired the thing in good faith, he is not liable; in such case, the thing is considered to have definitely left the patrimony of the debtor and beyond the reach of the creditor, under the second paragraph of article 1385

Concept of Voidable Contracts; Voidable or annullable contracts are existent, valid, and binding, although they can be annulled because of want of capacity or vitiated consent of one of the parties; but before annulment, they are effective and obligatory between the parties

If the first transferee, however, acted in bad faith, and then he alienates the property to another, the rescissible character of the second alienation depends upon how the subsequent transferee acquired the thing. If the second transferee acted in good faith, the transfer to him cannot be rescinded, and since the property cannot be returned, the first transferee will have to indemnify for damages. But if the subsequent transferee also acts in bad faith, he can be required to return the property; the first transferee cannot be held liable for damages where such return is possible. But if the property cannot be returned, the transferees shall be successively liable for damages, although acting in good faith, received the property gratuitously

NULLITY Declares the inefficacy which the contract already carries in itself To be cured, requires an act of ratification The direct influence of the public interest is noted Based of a vice of the contract which invalidates it A sanction; by law Can be demanded only by parties to the contract

Bad Faith of Transferee; In order that there be bad faith on the part of the transferee, it is not necessary that he should have connived with the transferor to defraud the latter’s creditors. It is enough that the transferee knows of the intention of the transferor to defraud creditors. To determine this, the court should consider the relations between the parties, the conditions of the sale, and other circumstances from which knowledge of the transferee may be inferred. If the conditions

RESCISSION Merely produces that inefficacy, which did not exist essentially in the contract To be ineffective, needs no ratification Private interest alone governs Compatible with the perfect validity of the contract A remedy; on equity May be demanded even by third parties affected by it

Grounds for Annulment; The different grounds for the annulment of contracts, mentioned in this article, are discussed under the corresponding provisions elsewhere in this work Repentance is not a ground for nullification of a contract Incapacity to Consent; The capacity of a party is not a requisite sine qua non  of a contract; its want is only a ground for 90 | P

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annulment. The failure to incorporate the idea in our Code is a serious defect How Annulment Obtained: 1. Directly by an action for that purpose 2. Indirectly by way of defense to an action to enforce the same In this respect, the voidable contract differs from the void contract VOID The court merely declares the contract as void and inexistent, which is its condition from the very beginning, and therefore the attack against its validity can be made collaterally or indirectly

VOIDABLE The court has first to set aside and render ineffective by its judgment the contract which theretofore is valid and producing legal effect, before the defendant can be exempt from compliance therewith; hence, the attack against its validity must be directly made in an action or in a counterclaim for that purpose, with the consequences flowing from the declaration of nullity  ________

Art. 1391. The action for annulment shall be brought within four years. This period shall begin: In cases of intimidation, violence or undue influence, from the time the defect of the consent ceases. In case of mistake or fraud, from the time of the discovery of the same. And when the action refers to contracts entered into by minors or other incapacitated persons, from the time the guardianship ceases. (1301a)  ________ The action for annulment shall be brought within four years: for purposes of prescription only In cases of intimidation, violence or undue influence, from the time the defect of the consent ceases: may be annulled even before intimidation, violence or undue influence ceases In case of mistake or fraud, from the time of the discovery of the same, And when the action refers to contracts entered into by minors or other incapacitated persons, from the time the guardianship ceases: Must be brought within four years by the minor (upon reaching the age of majority), insane (upon regaining sanity), or other incapacitated person (when incapacity ceases) Q: Will the prescriptive period start to commence during the lucid interval of insane persons? A: No.

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 ________ Ratification can be exercised by the party whose consent was 50 defective or vitiated Requisites of Ratification: 1. That the contract is a voidable or annullable contract, or one in which the consent of one party is defective, either because of lack of capacity to contract or because of error, fraud, violence, intimidation or undue influence 2. That the ratification is made with knowledge of the cause for nullity 3. That at the time the ratification is made, the cause of nullity has already ceased to exist Transmission of Right; The right to ratify is transmitted to the heirs of the party entitled to such right  ________ Art. 1393. Ratification may be effected expressly or tacitly. It is understood that there is a tacit ratification if, with knowledge of the reason which renders the contract voidable and such reason having ceased, the person who has a right to invoke it should execute an act which necessarily implies an intention to waive his right. (1311a)  ________ Express Ratification; This article does not define the nature and requisites of express ratification. As to the nature, it seems clear that any oral or written manifestation of the person entitled to ask for annulment that he agrees to be bound by the contract or that he will not seek its annulment, would be express ratification. As to the requisites, they are the same as those for implied ratification; it is only in the form that these two kinds of ratification differ Implied Ratification; The ratification of an annullable contract may be implied from the conduct or acts of the party entitled to ask for annulment. Any act evincing an intent to abide by the contract is evidence of the affirmance of the contract and a waiver of the right to ask for annulment. It may take diverse forms, such as by silence or acquiescence; by acts showing approval or adoption of the contract; or by acceptance and retention of benefits flowing therefrom  ________ Art. 1394. Ratification may be effected by the guardian of the incapacitated person. (n)  ________ Ratification may be exercised by (1) the guardian of the incapacitated person, (2) his heirs, or (3) his successors-in51 interest, i.e., assignees  ________ Art. 1395. Ratification does not require the conformity of the contracting party who has no right to bring the action for annulment. (1312)  ________

Art. 1392. Ratification extinguishes the action to annul a voidable contract. (1309a) 50 Class 49 Class

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Right to ratify is  solely   given to the person who can bring the 52 action for annulment  ________

extent of the benefit derived by him from such service rendered by the other party  ________

Art. 1396. Ratification cleanses the contract from all its defects from the moment it was constituted. (1313)  ________

Art. 1399. When the defect of the contract consists in the incapacity of one of the parties, the incapacitated person is not obliged to make any restitution except insofar as he has been benefited by the thing or price received by him. (1304)  ________

Effect of Ratification; After a contract has been validly ratified, no action to annul the same can be maintained based upon defects relating to its original validity Retroactivity of Ratification; Its effect retroact to the moment when the contract was entered into  ________ Art. 1397. The action for the annulment of contracts may be instituted by all who are thereby obliged principally or subsidiarily. However, persons who are capable cannot allege the incapacity of those with whom they contracted; nor can those who exerted intimidation, violence, or undue influence, or employed fraud, or caused mistake base their action upon these flaws of the contract. (1302a)  ________ Personal Requisites; The two different requisites are necessary to confer the capacity for the exercise of the action for annulment of contracts. The first is that the plaintiff must have an interest in the contract . The second is that the victim  and not the party responsible for the defect is the person who must assert the same  ________ Art. 1398. An obligation having been annulled, the contracting parties shall restore to each other the things which have been the subject matter of the contract, with their fruits, and the price with its interest, except in c ases provided by law. In obligations to render service, the value thereof shall be the basis for damages. (1303a)  ________ Mutual Restitution; The effect of annulment of the contract is wipe it out of existence, and to restore the parties, in so far as legally and equitably possible, to their original situation before the contract was entered into. If there has been no performance by either party, the contract simply ceases to have any force and effect. But if one or both of the parties have already performed, each party must return to the other whatever he may have received by reason of the contract, unless there are fundamental reasons recognized by the law which will prevent such restitution Contracts Not Covered; The principle of mutual restitution, contained in this article, cannot be applied to all contracts . The principle against unjust enrichment must be taken into account This principle of unjust enrichment is the basis of the second paragraph of the present article. In contracts of services, where the service has already been rendered, the party benefited by the service must pay for its value in spite of the annulment of the contract; otherwise, he would unjustly enriched to the

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Incapacitated Party; The provisions of this article refer exclusively to nullity arising from incapacity of one of the contracting parties; hence, if the nullity arises from some other cause, the provisions of article 1398 shall apply, if an incapacitated person is interested in the contract whose nullity is declared for some other cause A person entering into a contract must see to it that the other party has sufficient capacity to bind himself. For while as a general rule, if the contract is declared null, the parties are bound to restore or return reciprocally the thing with its fruits and the price with interest, if nullity is on account of incapacity of one of the contracting parties, the party suffering from such incapacity is only bound to return what he has profited by the thing sold or by the price received Profit by Incapacitated; The profit or benefit received by the incapacitated person, which obliges him to make restitution, is not necessarily a material and permanent increase in fortune, but any prudent and beneficial use by the incapacitated of the thing he received, for his necessities, social position, or discharge of duties to others; thus, there is benefit or profit, even without increase of fortune, if the thing received is used for food, clothing, dwelling, health requirements, etc However, where the thing received by the incapacitated party is still existing in his patrimony at the time incapacity ceases, he will be deemed to have benefited thereby. If he asks for annulment, he must return it to the other party. If, instead of asking annulment, he alienates or squanders it, he will be deemed to have ratified the contract  ________ 53

Art. 1400. Whenever the person   obliged by the decree of annulment to return the thing can not do so because it has been lost through his fault, he shall return the fruits received and the value of the thing at the time of the loss, with interest from the same date. (1307a)  ________ Art. 1401. The action for annulment of contracts shall be extinguished when the thing which is the object thereof is lost through the fraud or fault of the person who has a right to institute the proceedings. If the right of action is based upon the incapacity of any one of the contracting parties, the loss of the thing shall not be an obstacle to the success of the action, unless said loss took place through the fraud or fault of the plaintiff. (1314a)  ________ Art. 1402. As long as one of the contracting parties does not restore what in virtue of the decree of annulment he is bound

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party whose consent was not vitiated

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to return, the other cannot be compelled to comply with what is incumbent upon him. (1308)  ________ Loss of Thing by Plaintiff; The person who is entitled to bring the action for nullity may not be in a position to return the thing which is the object of the contract, because of its loss, either by his fault or fraud, or by fortuitous event and without his fault

therefore, pay the value of the thing, but not the interest thereon because the loss was not due to his fault Loss of Fruits and Accessions; This rule in article 1400 is applicable also to the fruits and accession of the thing. The party obliged to restore them must pay for their value if they cannot be returned  ________

Chapter 8. Unenforceable Contracts (n) If the loss of the object is due to his fault or fraud, he cannot ask for annulment, because under article 1401, the action for annulment is extinguished in such case. The provisions of article 1400 cannot be applied. The action is extinguished, even if at the time of the loss the plaintiff was still a minor or was insane Evidently, the action for annulment is not extinguished, because article 1401 limits the extinguishment of the action to the case where the loss is due to the fault or fraud of the plaintiff. But the defendant cannot be obliged to make restitution to the plaintiff. Until the annulment of the contract, it is valid and produces legal effect; hence, the plaintiff, who was in possession of the object at the time of its loss, must still be considered the owner thereof and he must bear the loss by fortuitous event; res perit domino. He would not really be bearing such loss if he were to be given back the consideration that he had paid to the defendant; this would constitute unjust enrichment. In this case, article 1402 must apply; since the plaintiff cannot be compelled to make restitution But if the plaintiff in such case offers to pay the value of the thing at the time of its loss, as a substitute for the thing itself, the defendant should be obliged to make restitution, by applying the rule contained in article 1400, except that the plaintiff need not pay interest on the value of the thing at the time of its loss by fortuitous event, in order to compel the defendant to make restitution, then we will reach the absurd result that the action for annulment would in effect be extinguished by loss of the thing even by fortuitous event; this certainly cannot be correct, because article 1401 limits such extinguishment to loss by fault or fraud of the plaintiff. Besides, it would be illogical to allow a party to replace by its value the thing lost by his fault, and deny this right to one who was without fault Loss of Thing by Defendant; If it is the defendant who loses the thing which is the object of the contract, by his fault, article 1400 applies; he will return the fruits received, the value of the thing at the time of its loss, with interest from the same date If the loss is without fault on the part of the defendant, but by fortuitous event, can there be annulment of the contract? This must be answered in the affirmative, because under article 1401 the action for annulment is extinguished by loss of the thing only when such loss is due to the fault or fraud of the plaintiff (person entitled to ask for annulment) The action for annulment cannot be extinguished or defeated by any event not imputable to the fault or fraud of the plaintiff The most logical and equitable solution is to apply the principle contained in article 1400, by requiring the defendant to pay the value of the thing at the time of its loss by fortuitous event, but without interest thereon. The defendant must suffer the loss, because he is still the owner at the time of loss; he should,

Concept and Distinctions ; An unenforceable contract is one which cannot be enforced unless it is first ratified in the manner provided by law. It is distinguished from the rescissible and the annullable contracts in that the latter two contracts produce legal effects unless they are set aside by a competent court, while the unenforceable contract does not produce any effect unless it is ratified

As regards the degree of defectiveness, voidable or annullable contracts are farther away from absolute nullity than unenforceable contracts. In other words, an unenforceable contract occupies an intermediate ground between the voidable and the void contract Art. 1403. The following contracts are unenforceable, unless they are ratified: (1) Those entered into in the name of another person by one who has been given no authority or legal representation, or who has acted beyond his powers; (2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases an agreement hereafter made shall be unenforceable by action, unless the same, or some note or memorandum, thereof, be in writing, and subscribed by the party charged, or by his agent; evidence, therefore, of the agreement cannot be received without the writing, or a secondary evidence of its contents: (a) An agreement that by its terms is not to be performed within a year from the making thereof; (b) A special promise to answer for the debt, default, or miscarriage of another; (c) An agreement made in consideration of marriage, other than a mutual promise to marry; (d) An agreement for the sale of goods, chattels or things in action, at a price not less than five hundred pesos, unless the buyer accept and receive part   of such goods and chattels, or the evidences, or some of them, of such things in action or pay at the time some part of the purchase money; but when a sale is made by auction  and entry is made by the auctioneer in his sales book, at the time of the sale, of the amount and kind of property sold, terms of sale, price, names of the purchasers and person on whose account the sale is made, it is a sufficient memorandum; (e) An agreement 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.

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(3) Those where both parties are incapable of giving consent to a contract.  ________

contracts involving leases for longer than one year, or for the sale of real property or of an interest therein. “ In Vda. De Espina v. Abaya, Abaya, 196 SCRA 312, the Court said:

Unauthorized Contracts; When a person enters into a contract for and in the name of another, without authority to do so, the contract does not bind the latter, unless he ratifies the same. The agent who has entered into the contract in the name of the purported principal, but without authority from him, is liable to third persons upon the contract; it must have been the intention of the parties to bind someone, and, as the principal was not bound, the agent should be Statute of Frauds; The term “statute of frauds” is descriptive of statutes which require certain classes of contracts to be in writing. This statute does not deprive the parties of the right to contract but merely regulates the formalities of the contract necessary to render it enforceable

The statute does not apply to actions which are neither for specific performance of the contract nor for the violation thereof Purpose of Statute; The purpose of the statute of frauds is to prevent fraud and perjury in the enforcement of obligations depending for their evidence upon the unassisted memory of witnesses by requiring certain enumerated contracts and transactions to be evidenced by a writing signed by the party to be charged Action to Enforce; The statute of frauds has been uniformly interpreted to be applicable to executory and not to completed or executed contracts. Performance of the contract takes it out of the operation of the statute The statute of frauds is not applicable to contracts which are either totally or partially performed, on the theory that there is a wide field for the commission of frauds in executory contracts which can only be prevented by requiring them to be in writing, a fact which is reduced to a minimum in executed contracts because the intention of the parties becomes apparent by their execution, and execution concludes, in most cases, the rights of parties Performance Within One Year; Contracts that by their terms are not to be performed within one year from the making thereof, must be in writing. The “making” of an agreement, for the purpose of determining whether or not the period for performance brings the agreement within the statute of frauds, means the day on which the agreement is made, and the time begins to run from the day the contract is entered into, and not from the time that performance of it is entered upon The broad view is that the statute of frauds applies only to agreements not to be performed on either side within a year from the making thereof. Agreements to be fully performed on one side within the year are taken out of the operation of the statute In Hernandez v. Court of Appeals, Appeals, 160 SCRA 821, the Court said: “The Statute of Frauds finds no application to this case. Not every agreement ‘affecting land’ must be put in writing to attain enforceability. Under the Statute of Frauds, Article 1403(2) (e) of the Civil Code, such formality is only required of

“Anent the issue of oral partition, We sustain the validity of said partition. "An agreement of partition may be made orally or in writing. An oral agreement for the partition of the property owned in common is valid and enforceable upon the parties. The Statute of Frauds has no operation in this kind of agreements, for partition is not a conveyance of property but simply a segregation and designation of the part of the property which belong to the co-owners." (Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines, Philippines, Vol. II, 1983 Edition, 182-183 citing Hernandez v. Andal, et. al., G.R. No. L275, March 29, 1957)”

Partial performance, however, removes the contract from the operation of the statute Guaranty of Another’s Debt; A promise to answer for the debt, default, or miscarriage of another has been defined as an undertaking by a person, not before liable, for the purpose of securing or performing the same duty for which the original debtor continues to be liable

To bring a promise within the operation of the statute, there must be a debt or obligation of one other than the promisor for whose default the latter undertakes to be responsible The test as to whether a promise is within the statute has been said to lie in the answer to the question whether the promise is an original or a collateral one. If the promise is an original or an independent one, that is, if the promisor becomes thereby primarily liable for the payment of the debt, the promise is not within the statute. But on the other hand, if the promise is collateral to the agreement of another and the promisor becomes thereby merely a surety, the promise must be in writing In Consideration of Marriage; It is well-settled that any verbal executory promise or agreement other than mutual promise to marry, made in consideration of marriage, is embraced within the provisions of the statute of frauds requiring that agreements made upon consideration of marriage should be in writing, and signed by the party to be charged therewith Representation as to Credit; A representation made by a stranger to the contract with the intent that the person for whom it is made should obtain credit thereby, must be in writing in order to be a basis of an action for damages against the party who made the representation, if this turns out to be false or incorrect Parties Incapacitated; Where both the contracting parties do not have the capacity to consent, the contract is unenforceable. Neither party or his representative can enforce the contract unless it has been previously ratified. The ratification by one party, however, converts the contract into a voidable contract—voidable at the option of the party who has not ratified; the latter, therefore, can enforce the contract against the party who has already ratified. Or, instead of enforcing the contract, the party who has not ratified it may ask for annulment in the ground of his incapacity  ________ 94 | P

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Art. 1404. Unauthorized contracts are governed by Article 1317 and the principles of agency in Title X of this Book.  ________ Ratification Validates Contract; The sale of property made by a person without authority of the owner is null and void in the beginning, but afterwards it becomes perfectly valid and is cured of the defects of nullity which it bore at its execution by the ratification solemnly made by the said owner upon his stating under oath in court that he himself consented to the former’s making the said sale  ________ Art. 1405. Contracts infringing the Statute of Frauds, referred to in No. 2 of Article 1403, are ratified by the failure to object to the presentation of oral evidence to prove the same, or by the acceptance of benefit under them.  ________ Failure of Object; If the parties to the action, during the trial, make no objection to the admissibility of oral evidence to support a contract covered by the statute of frauds, and thereby permit such contract to be proved orally, it will be just as binding upon the parties as if it had been reduced to writing Acceptance of Benefits; The statute of frauds cannot be invoked when the contract has already been partly executed; it applies only to executory contracts  ________ Art. 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.  ________ Art. 1407. In a contract where both parties are incapable of giving consent, express or implied ratification by the parent, or guardian, as the case may be, of one of the contracting parties shall give the contract the same effect as if only one of them were incapacitated. If ratification is made by the parents or guardians, as the case may be, of both contracting parties, the contract shall be validated from the inception.  ________ Art. 1408. Unenforceable contracts cannot be assailed by third persons.  ________ Defense is Personal; The defense of the statute of frauds is personal to the party to the agreement. It is like minority, fraud, mistake, and other similar defenses which may be asserted or waived by the party aff ected. Hence, it can be relied upon only by the parties to the contract or their representatives, and cannot be set up by strangers to the agreement  ________

Chapter 9. Void and Inexistent Contracts Art. 1409. The following contracts are inexistent and void from the beginning:

(1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy; (2) Those which are absolutely simulated or fictitious; (3) Those whose cause or object did not exist at the time of the transaction; (4) Those whose object is outside the commerce of men; (5) Those which contemplate an impossible service; (6) Those where the intention of the parties relative to the principal object of the contract cannot be ascertained; (7) Those expressly prohibited or declared void by law. These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived.  ________ Void or Inexistent Contracts; A void or inexistent contract is one which has no force and effect from the very beginning, as if it had never been entered into, and which cannot be validated either by time or by ratification. This definition includes not only those contracts in which one of the essential requisites is totally wanting, but also those which are declared void by positive provision of law or statute. A void or inexistent contract is equivalent to nothing; it is absolutely wanting in civil effects VOID The defect is inherent in the contract itself The nullity of the inexistent contract is a matter of law and public interest There are no legal effects even if no action is taken to set it aside The action to declare the nullity of void contracts never prescribes

RESCISSIBLE The defect is in their effects, either to one of the parties or to a third party Based on equity and is more a matter of private interest If no action is taken to set aside, it remains valid and produces all its effects The action to rescind prescribes

VOID UNENFORCEABLE They cannot be the basis of actions to enforce compliance Can never be ratified and Can be ratified and thereafter become enforceable enforced There is no contract at all There is a contract, which, however, cannot be enforced unless properly ratified VOID One in which one of those essential requisites is wanting, either in fact or in law, or is declared void by statute Implies that there is no contract but only the appearance of one, and it produces no effect even if not set aside by a direct action Can be set up against anyone who asserts a right arising from it; not only against the first, but against all his

VOIDABLE Those in which the essential requisites for validity are present, but consent is vitiated by want of capacity, or by error, violence, intimidation, undue influence, or deceit Valid until it is set aside and its validity may be assailed only in an action for that purpose by a party to the contract, and never by a third person Can be set up only against a party thereto

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successors who are not protected by law Not susceptible of ratification The action to declare the nullity of a void contract does not prescribe

May be rendered perfectly valid by ratification The action for annulment of a voidable contract prescribes

Characteristics of Void Contracts: 1. The contract produces no effect whatsoever  either against or in favor of anyone; hence, it does not create, modify, or extinguish the juridical relation to which it refers 2. No action for annulment is necessary, because the nullity exists ipso jure; jure; a judgment of nullity would be merely declaratory 3. It cannot be  confirmed or ratified 4. If it has been performed, the restoration of what has been given is in order Parties Affected; Any person may invoke the inexistence of the contract whenever juridical effects founded thereon are asserted against him Action on Contract; Even when the contract is void or inexistent, an action is necessary to declare its inexistence, when it has already been fulfilled. Nobody can take the law into his own hands; hence, the intervention of the competent court is necessary to declare the absolute nullity of the contract and to decree the restitution of what has been given under it. The  judgment, however, will retroact to the very day when the contract was entered into If the void contract is still fully executory, no party need bring an action to declare its nullity; but if any party should bring an action to enforce it, the other party can simply set up the nullity as a defense Ratification; The nullity of these contracts is definite and cannot be cured by ratification. The nullity is permanent, even if the cause thereof has ceased to exist, or even when the parties have complied with the contract spontaneously. The ratification, however, may take the form of a new contract, in which case its validity shall be determined only by the circumstances at the time of execution of such contract. The causes of nullity which have ceased to exist cannot impair the validity of the new contract  ________

However, an action to declare the non-existence of the contract can be maintained; and in the same action, the plaintiff may recover what he has given by virtue of the contract. The power to ask for the declaration of non-existence of the contract cannot be assigned  ________ Art. 1411. When the nullity proceeds from the illegality of the cause or object of the contract, and the act constitutes a criminal offense, both parties being in  pari delicto, delicto, they shall have no action against each other, and both shall be prosecuted. Moreover, the provisions of the Penal Code relative to the disposal of effects or instruments of a 54 crime   shall be applicable to the things or the price of the contract. This rule shall be applicable when only one of the parties is guilty; but the innocent one may claim what he has given, and shall not be bound to comply with his promise. (1305)  ________ Art. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the following rules shall be observed: (1) When the fault is on the part of both contracting parties, neither may recover what he has given by virtue of the contract, or demand the performance of the other's undertaking; (2) When only one of the contracting parties is at fault, he cannot recover what he has given by reason of the contract, or ask for the fulfillment of what has been promised him. The other, who is not at fault, may demand the return of what he has given without any obligation to comply his promise. (1306)  ________ Application of Articles; Articles 1411 and 1412 are not applicable to fictitious or simulated contracts, because they refer to contracts with an illegal cause or subject-matter, whether it constitutes an offense, or whether the cause is only rendered illegal, or to contracts which are null and void ab initio. initio. These articles, therefore, presupposes, the existence of a cause, although such cause may be vitiated and may render the contract void. Hence, they cannot refer to fictitious or simulated contracts which are in reality non-existent. As between the annullable and inexistent contracts, however, those contemplated by these articles must be considered before the law as inexistent Mere knowledge of the illegality of the object/ cause makes the 55  party guilty 

Art. 1410. The action or defense for the declaration of the inexistence of a contract does not prescribe.  ________

Illegality Common to Parties; Each must bear the consequences of his own acts.

Defect Incurable; The defect of inexistence of a contract is permanent and incurable; hence, it cannot be cured either by ratification or by prescription

The doctrine of in pari delicto  delicto  is not applicable where the contract is merely prohibited by law, not illegal per illegal per se, se , and the prohibition is designed for the protection of the rights of the party seeking to recover

As between the parties to a contract, validity cannot be given to it by estoppel if it is prohibited by law or is against public policy

Only One Party Guilty; Where the parties to an illegal contract are not equally guilty, and where public policy is considered as

Nature of Action; There is no need of an action to set aside void or inexistent contract; in fact, such action cannot logically exist.

54 Confiscated 55 Class

in favor of the State discussion with Atty. A.F.C.G.

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advanced by allowing the more excusable of the two to sue for relief against the transaction, relief is given to him Cases of Usury; The Usury Law contains all the provisions necessary for its application. With regard to the capital loaned, the law did not intent to close the courts to the creditor for relief in the recovery of his principal. Articles 1411 and 1412, therefore, are not applicable to a usurious contract and will not  justify the recovery by the debtor of the amounts he has already paid on account of the principal borrowed by him; the Usury Law limits his right to a recovery of usurious interest paid during the two years preceding the making of the claim. But where the only consideration for a deed of sale is accumulated usurious interest, the entire consideration is illicit, the contract is null and void, and the borrower may recover the property conveyed, together with its fruits  ________ Art. 1413. Interest paid in excess of the interest allowed by the usury laws may be recovered by the debtor, with interest thereon from the date of the payment.  ________ Recovery of Usurious Interest; Section 6 of Act No. 2655, known as the Usury Law, provides that in such case the person who paid usurious interest “may recover the whole interest, commissions, premiums, penalties and surcharges paid or delivered ” if the action to recover is   brought within two years after such payment or delivery; in other words, the whole usurious interest paid within the last two years preceding the action can be recovered under the Usury Law  ________ Art. 1414. When money is paid or property delivered for an illegal purpose, the contract may be repudiated by one of the parties before the purpose has been accomplished, or before any damage has been caused to a third person. In such case, the courts may, if the public interest will thus be subserved, allow the party repudiating the contract to recover the money or property.  ________ Repudiation of Illegal Contract; Where the parties to an illegal contract are not equally guilty, and where public policy is considered as advanced by allowing the more excusable of the two to sue for relief against the transaction, relief is given to him The provisions of this article may modify some rulings or decision rendered under Articles 1305 and 1306 (now 1411 and 1412), of the old Civil Code  ________ Art. 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.  ________ Art. 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.  ________

Illegal Per Se; An act or contract that is illegal per se is one that by universally recognized standards inherently or by its very nature bad, improper, immoral or contrary to good conscience  ________ Art. 1417. When the price of any article or commodity is determined by statute, or by authority of law, any person paying any amount in excess of the maximum price allowed may recover such excess.  ________ Art. 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.  ________ Art. 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.  ________ Art. 1420. In case of a divisible contract, if the illegal terms can be separated from the legal ones, the latter may be enforced.  ________ Divisible or Separable Contracts; As a general rule, the provisions of this article must be applied if there are several stipulations in the contract, some of which are valid and some void. If the stipulations can be separated from each other, then those which are void will not have any effect, but those which are valid will be enforced. In case of doubt, the contract must be considered as divisible or separable The rule of divisibility given in this article, however, has two exceptions: (1) when the nature of the contract requires indivisibility, and (2) when the intention of the parties is that the contract be entire Nature of Contract; The very nature of the contract in some cases requires that the nullity be total. For instance, in the case of the contract of compromise Intention of Parties; The rule of divisibility and partial enforceability stated in this article must yield to the contrary intention of the parties. In spite of the divisibility or separability, the entire contract will be void if it is clear that the parties would not have entered into it without the void part. If the illegality, for instance, affects an essential part of the contract, without which the parties would not have entered into the contract, the entire contract is void. Thus, if there are principal and accessory clauses, the nullity of the former carries that of the latter If the illegality does not affect the principal part, or that which the parties must have contemplated as the desired minimum in relation to the whole contract, as projected, then only the illegal parts are void. Generally, therefore, the divisibility will be followed when the nullity affects only the secondary or accessory obligations  ________

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