Oblicon David Reviewer

Cyrus A.
Meneses- David Ateneo Law School
Obligations and Contracts Reviewer 2011- 2012
Book IV: Obligations and Contracts Title I OBLIGATIONS Chapter 1: General Provisions Article 1156 An obligation is a juridical necessity to give, to do or not to do Requisites: 1. 2. 3. Juridical tie which is the efficient cause established by the various sources of obligations (Enumerated in Art. 1157) The object required (to give, to do or not to do) Subject-persons who are the active and the passive subjects. Persons Both Natural and Juridical Persons. Elements of object/ prestation: 1. Must be possible, physically and judicially; 2. Must be determinate; 3. Have a possible equivalent in money. Juridical necessity = Legal Bind No other sources of obligations other than those enumerated in this title. Contracts 2 or more parties having a meeting of minds, in good faith; the will of the parties is the force that creates the obligation.
Article 1157 Obligations arise from: 1. 2. 3. 4. 5. Law; Contracts; Quasi-contracts; Acts and omissions punished by law; and Quasi-delicts.
Civil obligations give a right of action to compel their performance. Natural obligations not being based on positive law but on equity and natural law, do not grant a right of action to enforce their performance, but after voluntary fulfillment by the obligor, they authorize the retention of what has been delivered or rendered by reason thereof. (Art. 1423 - 1430) Among the sources of obligations, the law is the most important. It is imposed by the State and is generally imbued with some public considerations. Existing law enters into and forms part of a valid contract without need for the parties expressly making reference thereto,
Article 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.
A contract is understood to incorporate therein the provision/s of law specifying the obligations of the parties under the contract.
Cyrus A. Meneses- David Ateneo Law School
Article 1159 Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith.
Contract a meeting of minds between two persons whereby on binds himself, with respect to the other, to give something or to render some service. -- Contracts may likewise involve more than two persons, whereby a right is acquired by at least one of them to an act or acts, or to forbearance, on the part of other or others. A contract may likewise involve mutual and reciprocal obligations and duties between and among the parties.
Contracts, having the force of law between parties, stresses the obligatory nature of a binding and valid agreement. In effect, non- fulfillment may involve sanctions. As long as they are not contrary to law, morals, good customs, public policy or public order, such contract is the law between the parties. From the moment the contract is perfected, the parties are bound not only to fulfill 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 the law. Negotiorum Gestio -(officious manager) when somebody takes charge of the agency or management of the business or property of another without any power form the latter. The owner shall reimburse the gestor for the necessary and useful expenses incurred by the latter, and for the damages suffered by him in the performance of his functions. Solutio Indebiti a juridical relation which takes place when somebody received something from another without any right to demand for it, and the thing was unduly delivered through mistake (compared to Art. 22 or unjust enrichment wherein there was no mistake). Obligation to return the thing arises on the part of the recipient.
Article 1160 Obligations derived from quasi-contracts shall be the subject to the provisions of Chapter 1, title XVII of this Book.
Arises from certain lawful, voluntary and unilateral acts give rise to the juridical relation of quasi-contract to the end that no one shall be unjustly enriched or benefited at the expense of the other.
Article 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
Civil liability attaches to any individual who is found to be criminally liable. A person who commits a crime may be penalized by incarceration or payment of a fine or both.
Reason: Crime causes not only moral evil but also material damage. (J. Mariano A. Albert) In contrast with penalty, civil liability may apply to those exempt from criminal liability.
2, Preliminary Title on Human Relations, and of Title XVII of this Book, regulating damages. Article 1162 Obligations derived from quasi-delicts shall be governed by the provisions of Chapter 2, Title XVII of this Book and by special laws. Whoever by act or omission causes dame to another, there being fault or negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is called a quasi-delict and is governed by the provisions of this chapter. Basis: Principle of Equity Requisites of Liability: 1. There exists a wrongful act or omission imputable to the defendant by reason of his fault or negligence; 2. There exists a damage or injury (proved by person claiming); 3. The must be a direct casual connection or a relation between the fault/ negligence to the damage/ injury.
Chapter 2: Nature and effect of Obligations Article 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 require another standard of care. A generic thing/ indeterminate thing one that is indicated by its kinds, without being designated and distinguished from the others of the same kind. Something which is not particularized or specified but has reference to a class or genus. Determinate thing something which is susceptible of particular designation or specification. It is one which is individualized and can be identified or distinguished form the others of its kind. Article 1164 The creditor has a right to the fruits of the thing from the time the obligation to deliver arises. However; he shall acquire no real right over it until the same has been delivered to him. The right to the fruits of the thing shall only be personal, and only upon the delivery of the thing, its fruits, accessory and accession shall the creditor acquire a real right over it. Real right direct and immediate juridical power over a thing (rights of ownership & possession) When does Obligation to deliver arise? a. Perfection of contract if no term/condition; b. From the moment the term/condition arrives if there is a term The creditor has a right to the fruits of the thing from the time to deliver it arises. The fruits referred involve only
Refers to an obligation to give Either determinate object/ thing or generic thing diligence of a good father, since a father will always do everything to take care of his concerns.
determinate things. Personal rights power to demand of another (passive subject) Article 1165 When what is to be delivered is a determinate thing, the creditor, in addition to the right granted him by Article 1170, may compel the debtor to make the delivery. If the thing is indeterminate or generic, he may ask that the obligation be compiled with at the expenses of the debtor. If the obligor delays, or has promised to deliver the same thing or 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. In non-delivery of a generic thing, the creditor may have it accomplished or delivered in any reasonable and legal way charging all expenses in connection with such fulfillment to the debtor. Non-delivery of a determinate thing, creditor may compel the debtor to make the delivery REMEDIES OF CREDITOR a.) Demand for specific performance - This action presupposes that it is based on a contractual relationship between the contending parties. Specific performance is available even if the thing to be delivered is indeterminate. b.) Rescission of the obligation, which is under Art. 1380. c.) Resolution of the contract under Art. 1191 if it is a reciprocal obligation. d.) Damages exclusively or in addition to either of the first actions. Accessories item/s that come with something Accessions something that is an addition to the thing. General Rule: Obligation to deliver a specific thing is extinguished by fortuitous event; Indeterminate thing is however not extinguished. Exceptions: 1. If obligor delays or in default; 2. Obligor is guilty of bad faith.
Article 1166 The obligation to give a determinate thing includes that of delivering all its accessories, even though they may not have been mentioned. Article 1167 If the person obliged to do something fails to do it, the same shall be executed at his cost.
Coverage: a. The obligor failed to fulfill a positive personal obligation, that is TO DO something; b. He fulfilled the obligation but in contravention of the
Note: if any of the above happens, the creditor is entitled to have the thing done in a proper manner, by himself or by a third person, at the expense of the debtor. The court has no discretion to merely award damages to the creditor when the act can be done in spite of the refusal
This same rule shall be observed if he does it in contravention of the tenor of the obligations. Furthermore, it may be decreed that what has been poorly done be undone. Article 1168 When the obligation consists in not doing and the obligor does what has been forbidden, it shall also be undone at his expense. Article 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 declares; (2) When from the nature and the circumstances of the obligation it appears that the designation of the time when the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the contract; or (3) When demand would be useless, as when the obligor has rendered it beyond his power to perform. In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation delay by the other begins.
agreement; c. There was fulfillment but the same was poor or inadequate.
or failure of the debtor to do so.
Reason for rule: prevent the debtor from taking his obligation lightly.
Demand is generally necessary. Except when demand by Creditor not necessary in order that delay may exist: a.) When there is an express stipulation between the parties to that effect; b.) Where the law so provides;
Kinds of delay: A. Mora Solvendi default on the part of the debtor which may either be ex re (real obligations; obligations to give) or ex persona (personal obligations; obligations to do) B. Mora Accipiendi default on the part of the creditor
c.) When time or period is the controlling motive or the principal inducement for the creation of the obligation; d.) When demand would useless;
C. Compesatio Morae default on the part of both parties in reciprocal obligations Commencement of a suit is a sufficient demand.
e.) When the obligor admits he is in delay. Only two cases where an extra-judicial demand should first be made prior to the filing of a civil suit: i.) Ejectment cases ii.) Consignment cases Requisites in order that the debtor may be in default: * in delay = in default 1. 2. 3. That the obligation be demandable and already liquidated; That the debtor delays performance; and That the creditor requires the performance Obligor is liable for damages for the delay not from the time the object of the prestation is to be delivered but from the time of extra-judicial or judicial demand. (This article is applicable only when the obligation is to do something other than the payment of money)
judicially and extra-judicially. (Default generally begins from the moment the creditor demands the performance of the obligation.) Article 1170 Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages. Grounds for Liability: 1. Fraud the voluntary execution of a wrongful act, or a willful omission, knowing and intending the effect of such (malice/ dishonesty); 2. Negligence; 3. Default; and 4. Violation of terms of obligations. Significantly, if any of the above co-exist with a fortuitous event or aggravates the loss caused by a fortuitous event, the obligor cannot be excused from being liable on his obligation. Article 1171 Responsibility arising from fraud is demandable in all obligations. Any waiver of an action for future fraud is void. Article 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. Article 1173 The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature The dolo or fraud involved in Art. 1171 is a valid agreement but, in the performance of the same, fraud is committed. Damages: MENTAL (Moral, Exemplary, Nominal, Temperate, Actual, Liquidated) Indemnity for damages consists of: a. That agreed upon; b. In absence of agreement, legal rate of interest.
Kinds: 1. Culpa Contractual breach of contract 2. Culpa Aquiliana civil negligence, tort or quasi-delict; 3. Culpa Criminal criminal negligence that which results in commission of crime or a delict. Negligence is the want of care required by the circumstances. -- It is the omission of that diligence which is required by
Prudential Bank vs. CA: Responsibility from negligence in the performance of every kind of obligation is demandable. While in the case at bar there was no bad faith, respondent still suffered anxiety, embarrassment and humiliation. Hence, entitle to recover (moral) damages Bad faith is a state of mind affirmatively operating with furtive design or with some motive of ill will. It is synonymous with fraud and involves a design to mislead or deceive another, and/ or a sinister motive.
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. Article 1174 Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be responsible for those events which could not be foreseen, or which, though foreseen, were inevitable.
the nature of the obligation and corresponds with the circumstances of the persons, of the time and of the place. General rule: Negligence must always be proven. W/o stipulation of degree of care required: Always be deemed to be diligence of a good father General rule: No one should be held to account for fortuitous cases. a.) The cause of the breach of the obligation must be independent of the will of the debtor; b.) The event must be either unforeseeable or unavoidable; c.) The event must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner; and d.) The debtor must be free from any participation in, or aggravation of the injury.
(Articles 1171 and 2
nd
paragraph of 2201 shall apply)
Negligence absence of due care required by the obligation.
Note: o An obligation consisting of 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. o The obligor is released from liability no only when the non-performance of the obligation is due to fortuitous events, but also when it is due to the act of the creditor himself, such as defective packing Yobido v. CA: Defendants must still prove that it was not negligent in causing the death or injury resulting from an accident. Petitioners should have shown that it undertook extraordinary diligence in the care of its carrier, such as conducting daily routinely check-ups of the vehicle's parts. Usurious transactions contracting for or receiving something in excess of the amount allowed by law for the loan. Monetary interest interest given for compensation or use of money Compensatory interest interest given by way of damages
Article 1175 Usurious transactions shall be governed by special laws.
A special law may either prohibit usurious interest, allow it, or merely put a ceiling as to what can be the highest interest that can be legally imposed.
Article 1176 The receipt of the principal by the creditor without reservation with respect to the interest, shall give rise to the presumption that said interest has been paid. The receipt of a later installment of a debt without reservation as to prior installments shall likewise raise the presumption that such installments have been paid. Article 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.
If an obligation consists in the payment of principal and interest, the payment of the principal without reservation is the fact that will give rise to the presumption that the interest on the principal has already been paid. (Interest is normally paid first) Burden of proof to the contrary lies to the creditor. Example, mode of payment by installments.
The creditor after exhausting all means to satisfy his claim, is given the opportunity to bring all actions which the obligor can institute against his own debtors to protect and satisfy his claims against the said obligor. Successive measures taken by a creditor before he may bring an action for rescission of an allegedly fraudulent sale: (1) Exhaust the properties of the debtor through levying by attachment and execution upon all the property of the debtor, except such as are exempt by law from execution; (2) Exercise all the rights and actions of the debtor, save those personal to him (accion subrogatoria); and (3) Seek rescission of the contracts executed by the debtor in fraud of their rights (accion pauliana)
Rights of Creditors: 1. Exact payment; 2. Exhaust debtors properties generally by attachment; 3. Subrogatory action exercise all rights and actions except inherent rights; 4. Impugn/rescind acts or contracts done by debtor to defraud them.
Article 1178 Subject to the laws, all rights acquired in virtue of an obligation are transmissible, if there has been no stipulation to the contrary.
The person who transmits the right cannot transfer greater rights than he himself has by virtue of the obligation. The person to whom the rights are transmitted can have no greater interest that that possessed by the transmitter at the time of transmission of the rights. The rights of the transferee do not rise higher than the transferor. No transmission can be made of a particular right if the personal qualifications or circumstances of the transferor is a material ingredient attendant in the obligation.
General Rule: All rights acquired in virtue of an obligation are transmissible. Exceptions: 1. If law provides otherwise; 2. If contract provides otherwise; 3. If obligation is purely personal Note: The exceptions refer to: a. Those not transmissible by their nature, i.e. purely personal rights; and b. Those not transmissible by law or by stipulation of the parties.
Chapter 3: Different Kinds of Obligations Section 1 Pure and Conditional Obligations Article 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. Pure obligation An unqualified obligation which is demandable immediately. It is an obligation whose performance whose performance does not depend upon a future or uncertain event, or past event unknown to the parties. Conditional obligation performance depends upon a future or uncertain event or upon a past event unknown to the parties. Classifications of Conditions: Suspensive upon happening of the future or condition, gives rise to the performance of the obligation. Resolutory upon happening of event/condition Condition an act or an event, other that a lapse of time, which, unless the condition is excused, must occur before a duty to perform a promise in the agreement arises or which discharges a duty of performance that has already arisen. When an Obligation is demandable at once: a. When it is pure; b. When it has resolutory condition. (Because the once the condition is established and acknowledged, the right immediately exists and therefore the obligation concomitant to the right can be demanded at once.
extinguishes the obligation. Article 1180 When the debtor binds himself to pay when his means permit him to do so, the obligation shall be deemed to one with a period, subject to the provisions of Article 1197 (Courts determination) Article 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. Should the creditor file an action it should be prior to the courts affixing of its demandability.
Time when payment is to be made depends upon the debtor The moment of payment is dependent upon the will of he debtor but not the payment.
This provision provides that a condition, whether suspensive or resolutory, can do to the existence or extinguishment of a right.
Suspensive (Condition precedent/ antecedent) An act or an event, other that a lapse of time, which must exist or occur before a duty to perform a promised performance, arises. Resolutory (Condition subsequent) An event, the existence of which, by agreement of the parties, operates to discharge a duty of performance that has arisen.
Article 1182 When the fulfillment of the condition depends upon the sole will of the debtor, the conditional obligation shall be void. If it depends upon a chance or upon the will of a third person, the obligation shall take effect in conformity with the provisions of this Code.
Is a potestative resolutory condition Void? No, because a resolutory condition is always potestative. Is a potestative suspensive condition Void? It is always void, no exception. Is the obligation Void? It depends. If the potestative condition refers to the birth of the obligation, then it is always Void. If the potestative condition refers to the performance of the obligation, obligation is valid because in this case, the obligation becomes simple. What then should the creditor do in case of a potestative suspensive condition which refers to the performance of the contract? He must go to court
Potestive conditions depends on the exclusive will of one of the parties
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to have the period fixed (Patente v. Omega) Article 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 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. 1. If condition is to do an impossible or illegal thing CONDITION & OBLIGATION ARE VOID. Ex: Ill sell you my land if you can make a dead man live again 2. If condition is negative (not to do) DISREGARD CONDITION BUT OBLIGATION REMAINS. Ex: Ill sell you my land if you cannot make a circle that is at the same time a square 3. If condition is negative (not to do an illegal thing) BOTH CONDITION & OBLIGATION ARE VALID. Ex: Ill sell you my land if you do not kill X. Article 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. Article 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. 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 This article deals with the existence of an obligation as soon as the condition happens at a particular time and it is extinguished should the condition not happen. Impossible Conditions physically not possible Ex: to make a dead man live Illegal Conditions Prohibited by good customs, public policy, and law Ex: killing a person
This article deals with the effectivity of an obligation in case the condition does not happen at a particular time. 2
nd
paragraph talk of a condition which has no time fixed
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obligation. Article 1186 The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment. Also known as, Constructive fulfillment, it is considered to constitute a breach of contract therefore are unwarranted and unlawful. There is constructive fulfillment only if the act of the debtor had in fact prevented compliance with the condition. Requisites: 1. Voluntarily made either malicious or not, the intent to prevent must be present 2. Actual Prevention Intention and prevention must come together otherwise, this article will not apply Article 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. Applies only to obligations subject to a suspensive condition. In conditional obligation, to give, once fulfilled, shall retroact to the day of the constitution of obligation. In reciprocal obligations the fruits and interests during the pendency of condition shall be deemed to have been mutually compensated In unilateral obligations the debtor shall appropriate the fruits and interests received UNLESS from the nature of the obligation it should be inferred that the intention of person was different. In Obligation to do or not to do the Court shall determine the retroactive effect of condition that has been complied with. General Rule: effects of a fulfilled conditional obligation shall retroact to the day the obligation was constituted. Exceptions: 1. No retroactivity for fruits and interests 2. Period of prescription (the period shall only be counted from the day the condition was fulfilled) Example on suspensive condition: A must give B a car when the latter shall pass the bar. On the day of the exams, A caused B to be poisoned and hospitalized. A (debtor) is still liable. Example on resolutory condition: A gave a car to B revocable when the latter shall fail the bar. On the day of the exams, A caused B to be poisoned and hospitalized. A(debtor) cannot revoke the donation
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Article 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.
Appropriate actions for the creditor to preserve his rights: 1. Action for prohibition restraining the alienation of the thing pending the happening of the condition 2. Petition for the annotation of the creditors right, if real property is involved; 3. Action to demand security in case the debtor becomes insolvent; 4. Action to set aside alienations made by the debtor in fraud of the creditors 2nd Par: a case of solutio indebiti (undue payment) if creditor is in bad faith, debtor is entitled to fruits and interests.
General Rule: Recovery is allowed of payment was made mistakenly Exception: 1. When the payment was made knowingly and the condition is already fulfilled, there is no recovery 2. When the payment was made knowingly but the condition is not yet fulfilled, there can be recovery because the creditor cannot be unjustly enriched
Article 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;
This article applies only if: i. ii. the suspensive condition is fulfilled; and the object is specific and not generic
Loss -
When the improvement is partly because of nature and debtor, the creditor shall enjoy the fruits by nature and the debtor will have rights of a usufrustuary over those benefits caused at his expense
When it perishes When it goes out of commerce of man (when the thing becomes illegal) When it disappears in such a way that its existence is unknown (missing in action) When it disappears in such a way that it cannot be recovered (when a ring got lost in the middle of the ocean)
Partial Loss - if substantial, would amount to complete loss - if not substantial, would only be considered as deterioration Remedies of the Creditor: 1. Rescission plus damages 2. Specific Performance plus damages Usufruct the right to the enjoyment of the use and the
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(4) If it deteriorates through the fault of the debtor, the creditor may choose between the rescission of the obligation and its fulfillment, with indemnity for damages in either case; (5) If the thing is improved by its nature, or by time, the improvement shall inure to the benefit of the creditor; (6) If it is improved at the expense of the debtor, he shall have no other right than that granted to the usufructuary. Article 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. 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. Article 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, Characteristics of the Right to Rescind: 1. 2. It exists only in reciprocal obligations It can be demanded only if the plaintiff is ready, willing and able to comply with his own obligation and the other is not. (he who comes to equity must come with clean hands) Trivial causes or slight breaches will not cause rescission Once a resolutory condition is fulfilled, the obligation is extinguished. There must be a restitution of what has been obtained. Effects when the resolutory condition is fulfilled: 1. The obligation is extinguished 2. Mutual Restitution of actual benefits 3. Mutual restitution of fruits and interests 4. Court shall determine the retroactivity of the fulfilment of the resolutory conditions 5. Article 1189 shall govern losses, deteriorations and improvements if any
fruits of a thing
In obligations to do and not to do, the court shall determine the effect of the extinguishment of the obligation.
Reciprocal obligations those which arise from the same cause and in which each party is both debtor and a creditor of the other, such that the obligation of one is dependent upon the obligation of the other. Rescission power to cancel a contract or reciprocal obligations predicated not on injury to economic interests but on breach of faith. Rescission Nullifies (as opposed to annul) the obligation and entails mutual
3.
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even after he has chosen fulfillment, if the latter should become impossible. The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period. This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with articles 1385 and 1388 and the Mortgage Law.
4. 5. 6. 7. 8.
If there be just cause for fixing the period within which the debtor can comply, the court will not decree a rescission If the property is now in the hands of an innocent third party who has lawful possession of the same, rescission will not prosper The right to rescind needs judicial approval when there is already delivery of the object. Otherwise, there is no need for judicial approval The right to rescind is implied to exist and therefore need not expressly stipulated on. The right to rescind may be waived, expressly or impliedly
restitution of benefits. For rescission to prosper, the breach should be Substantial Padilla v. Paredes: The right of rescission of a party to an obligation under Article 1191 of the Civil Code is predicated on a breach of faith by the other party who violates the reciprocity between them. The breach contemplated in the said provision is the obligors failure to comply with an existing obligation. When the obligor cannot comply with what is incumbent upon it, the obligee may seek rescission and, in the absence of any just cause for the court to determine the period of compliance, the court shall decree the rescission. Note: 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 own damages. Remedies of the Creditor: 1. Rescission plus damages OR 2. Specific Performances plus damages 3. Rescission plus damages when Specific Performance fails or becomes impossible *Damages must be sought in the same action for specific performance, otherwise, it is deemed waived.
Breaches in Lease Contracts: 1. 2. If the creditor selects specific performance, he can collect the accrued rent (arrears) plus the future rent of the unexpired term If the creditor selects rescission, he gets only the arrears and the ejectment of the debtor plus damages but not the future rents of the unexpired term.
Article 1192 In case both parties have committed a breach of the obligation, the liability of the first infractor shall be equitably tempered by the courts. If it cannot be determined which of the parties first violated the contract, the same shall be deemed extinguished, and each shall bear his own damages.
Also known as: Pari delicto
Offset equitably where both parties are in default, their respective liability for damages shall be offset equitably.
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Section 2 Obligations with a Period Article 1193 Obligations for whose fulfilment 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 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. Period A certain length of time, which determines the effectivity or the extinguishments of obligations. It consists in a space of time which has an influence on obligations as a result of a judicial act, and either suspends their demandableness, or produces their extinguishment. Period v. Condition: A. As to their fulfillment 1. A condition is an uncertain event; 2. A period is an event which must happen sooner or later at a date known beforehand or a time which cannot be determined. B. With reference to time 1. Period refers to future; 2. Condition may under the law refer to past. C. As to Influence on the obligation 1. Condition causes an obligation to arise or to cease; 2. Period merely fixes the time or the efficaciousness of an obligation. Kinds of Period: A. 1. Definite the exact time or date is known and given 2. Indefinite something that will surely happen, but the date of happening is not known B. 1. LEGAL period granted under the provisions of the law 2. CONVENTIONAL/VOLUNTARY period agreed upon or stipulated by the parties A day certain understood to be that which must necessarily come, although it may not be known when. Requisites of a Valid Period or Term: 1. 2. 3. It must refer to the future It must be certain (sure to come) but can be extended It must be physically and legally possible, otherwise the obligation is void
When does Prescription begin? - The period of prescription begins from the time the term in the obligation arrives, for it is only from that date that it is due and demandable. When can extensions of period be appreciated? - Evidences of extension of period, if any be given, must be shown by the debtor
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3. JUDICIAL the period or term fixed by the courts for the performance of an obligation or for its termination C. 1. EX DIE a period with a suspensive effect (Ex: I will support you starting January 1) 2. IN DIEM a period with a resolutory effect (Ex: I will support you until Janurary 1) Article 1194 In case of loss, deterioration or improvement of the thing before the arrival of the day certain, the rules in article 1189 shall be observed. Applicable in case there is loss, deterioration or improvement of the thing which is the object of the prestation during the pendency if the condition suspending the efficacy of an obligation to give. Thing Is Lost When: 1. It perishes. 2. It goes out of commerce. 3. It disappears in such a way that its existence is unknown. 4. It disappears in such a way that it cannot be recovered. Note: Genus nunquam perit in an obligation to deliver generic thing the loss or destruction of anything of the same kind does not extinguish the obligation. If the thing is lost through the fault of the debtor, he shall be obliged to pay damages. If the thing deteriorates through the fault of the debtor, the creditor may choose between (1) rescission of the agreement or obligation plus damages, or (2) fulfillment of the obligation plus damages. If the thing is improved by nature, or by time, the creditor gets the benefit. If the thing has improved through the expense of the debtor, he shall have the rights granted to a usufructuary for improvements on a thing held in usufruct. Example: A was supposed to pay B P1million on Dec. 31, 2005. But believing that the obligation was due and demandable on Dec. 31, 2004, A paid B the P1million on said date. How much may A recover from b, say on Jun. 30, 2005? A may recover from B on jun. 30, 2005 the amount of P1million which has been prematurely paid plus interest (legal rate of 6%= P30,000 the interest for only half a year). So A may recover a total of P1million from B. Of course, when Dec. 31, 2005 finally arrives, a is supposed to give B the P1million. Here A is allowed to recover what has been prematurely paid, plus interest of
Article 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 obligation TO GIVE. It is similar to Article 1188, par. 2, which allows the recovery of what has been paid by mistake before the fulfillment of a suspensive condition. The creditor cannot unjustly enrich himself by retaining the thing or money received before the arrival date of the period. (De Leon) This article 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
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cannot, of course recover what he has not done. (Manresa) Debtor has the burden of proving that he was unaware of the period. The debtor may not recover the thing or money once the period has arrived but he can recover the fruits or the interests thereof from the date of premature performance to the date of maturity of the obligation. (De Leon) (RECOVERY MUST BE MADE BEFORE THE DEBT MATURES)
course. Q: Suppose in the preceding problem, A had paid prematurely knowing fully well of the existence of the term, how much can A recover? A: A can recover nothing. The reason is the law does not give him such right. To be able to recover, A: 1. Must have been unaware of the period; or 2. Must have believed that the obligation has become due and demandable.
Article 1196 Whenever in an obligation a period is designated, it is presumed to have been established for the benefit of both the creditor and the debtor, unless from the tenor of the same or other circumstances it should appear that the period has been established in favor of one or of the other.
General Rule: term is for the benefit of either the debtor or the creditor. (The debtor cannot pay prematurely and the creditor cannot demand prematurely) Exception: (if there be such intent, express stipulation of the parties) Term is for the benefit of the debtor alone he cannot be compelled to pay prematurely, but he can, if he desires to do so. Term is for the benefit of the creditor alone he may demand fulfillment even before the arrival of the term but the debtor cannot require him to accept payment before the expiration of the stipulated period. When the Court may not fix the term: 1. When no term was specified because no term was ever intended; 2. When the obligation or not is payable on demand; 3. When specific periods are provided for in the law; 4. When what appears to be a term is really a condition;
Article 1197 If the obligation does not fix a period, but from its nature and the circumstances it can be inferred that a period was intended, the courts may fix the duration thereof.
General Rule: The courts cannot fix a period. Exception: when the courts may fix a period. 1. If it depends upon the will of the debtor. Example: when my means permit me to do so; Ill pay you little by little 2. Although the obligation does not fix a period, it can be inferred that a period was intended.
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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. Article 1198 The debtor shall lose every right to make use of the period: 1. 2. 3. When after the obligation has been contracted, he becomes insolvent, unless he gives a guaranty or security for the debt; When he does not furnish to the creditor the guaranty or securities which he has promised; When by his own acts he has impaired said guaranty or securities after their establishment, and when through a fortuitous event they disappear, unless he immediately gives new ones equally satisfactory. When the debtor violates any undertaking, in consideration of which the creditor agreed to the period; When the debtor attempts to abscond.
Example: A contract to construct a house where the period was not stated.
5. When the period w/in which to ask the court to have the period fixed has itself already prescribed.
When obligation can be demanded before the lapse of the period General Rule: Obligation is not demandable before the lapse of the period. However, in any cases mentioned in Article 1198, the debtor shall lose every right to make use of the period, that is, the period is disregarded and the obligation becomes pure and, therefore demandable at once. The exceptions are based on the fact that the debtor might not be able to comply with his obligation. (INIVA) 1. When debtor becomes insolvent. 2. When debtor does not furnish guaranties or securities promised. 3. When guaranties or securities given have been impaired or have disappeared. 4. When debtor violates an undertaking. 5. When debtor attempts to abscond.
Note: the insolvency referred to does not have to be judicially declared; it is sufficient for him to find a hard time paying off his obligations because of financial reverses that have made his assets less than his liabilities.
4. 5.
Section 3 Alternative Obligations Article 1199 A person alternatively bound by different prestations shall completely perform one of them. The creditor cannot be compelled to receive part of one Alternative(Facultative) Obligation one where out of the two or more prestations which may be given, only one is due. Example: A will give B this car or this ring or this pen. A is not obliged to give all three things. The giving of one object shall satisfy the obligation.
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and part of the other undertaking.
*A cannot compel B to accept half the car and half the pen (thus, establishing a co-ownership) Who has the right of Choice? General Rule: Right belongs to the Debtor Exception: It may belong to the creditor when such right has expressly been granted to him. Limitation on the debtors choice - the debtor shall have no right to choose those prestations which are: 1. Impossible 2. Unlawful 3. Which could not have been the object of the obligation
Article 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. Article 1201 The choice shall produce no effect except from the time it has been communicated.
Means of notification or communication to other party of choice: 1. Orally or in writing; 2. Expressly or impliedly Effect of notice that choice has been made: Once notice has been made that a choice has been done, the obligation becomes a simple obligation to do or deliver the object selected.
Requisites for making a choice: 1. Made properly so that creditor or agent will know; 2. Made with full knowledge that a selection is indeed being made (if there is error choice can be annulled) 3. Made voluntarily and freely (no force, coercion etc. ) 4. Made in due time and that is before or upon maturity; 5. Made to all the proper persons; 6. Made w/o conditions unless agreed to by the creditor; 7. May be waived, expressly/impliedly. Example: Objects A, B, & C. A&B are destroyed; C can only be delivered- if C is destroyed (fortuitous event) obligation is extinguished.
Article 1202 The debtor shall lose the right of choice when among the prestations whereby he is alternatively bound, only one is practicable. Article 1203 If through the creditors acts the debtor cannot make a choice according to the terms of the obligation, the latter may rescind the contract with damages.
Example: For P200k D promised to teach C math for the year 2005 or to buy him a state-of-the-art computer notebook. If in 2005, C goes to Germany, D obviously cannot teach him and since D is deprived of the right to choose because of Cs own act, D may either:
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Buy the state-of-the-art laptop; Or rescind the contract with the right to recover whatever damages he has suffered. *Contract not automatically rescinded. Article 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. Article 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 Effect if Creditor delays in making the choice: He cannot hold the debtor in default for the debtor does not know what to deliver; If debtor wants to relieve himself from the obligation, he may petition the court to compel Creditor to accept in the alternative, at the petitioners option with damages. Alternative Rights of Creditor When Loss or Impossibility Occurs Before the Debtors Choice This article applies when: 1. The right to choose belonged to the debtor; 2. And the loss or impossibility happened before selection was made.
1. 2.
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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. Article 1206 When only one prestation has been agreed upon, but the obligor may render another in substitution, the obligation is called facultative. The loss or deterioration of the thing intended as a substitute, 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. Facultative Obligation it is one where only one prestation has been agreed upon but the obligor may render another in substitution. Example: D promised to give C his diamond ring but it was stipulated that D could give his BMW as a substitute
ALTERNATIVE 1. Various things are due, but giving of one is enough 2. If one prestation is illegal, others may be valid and the obligation remains 3. If it is impossible to give all except one, the one left must still be given 4. The right to choose may be given either to debtor/creditor
FACULTATIVE 1. Only one thing is principally due but may be substituted 2. If principal obligation is void, giving of the substitute is no longer necessary. (Nullity of Principal Carries with it the nullity of substitute) 3. If it is impossible to give the principal, the substitute does not have to be given; if vice versa, the principal must be given 4. The right to choose is given only to the debtor
Section 4 Joint and Solidary Obligations Article 1207 Joint obligation one in which each of the debtors is liable only for a proportionate part of the debt, and each A solidary obligation exists only when the obligation expressly so states, or when the law or the nature of the
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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.
creditor is entitled only to a proportionate part of the credit. Solidary obligation each debtor is liable for the entire obligation, and each creditor is entitled to demand the while obligation.
obligation requires solidarity. (Sesbreno v. CA) When solidary exists: a. Stipulation of parties b. Nature of the obligation (Art 19- 22 Civil code) c. Law (Art. 94 and 121 of the Family Code) Some instances where the law imposes solidary liability: 1. Obligations arising from tort. 2. Obligations arising from quasi-contracts. 3. Legal provisions regarding the obligations of devisees and legatees. 4. Liability of principals, accomplices, and accessories of a felony. 5. Bailees in commadatum.
Article 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.
Unless there is no specification as to their proportionate share in the credit or in the debt, the creditors and debtors in a joint obligation shall be entitled or shall make payment in equal proportions.
Some consequences of Joint Liability 1. 2. 3. 4. 5. Vitiated consent on the part of 1 debtor does not affect the others. Insolvency of 1 debtor does not make others responsible for his share. Demand by the creditor on 1 joint debtor puts him in default, but not the others since the debts are distinct. When the creditor interrupts the running of the prescription period by demanding judicially from one, the others are not affected. Defenses of 1 debtor are not necessarily available to the others.
Article 1209 If the division is impossible, the right of the creditors may be prejudiced only by their collective acts, and the debt can be enforced only by proceeding against all the
Joint indivisible obligations when there are several debtors or creditors, but the prestation is indivisible, the obligation is joint unless otherwise stipulated. Plurality of creditors: The obligation can be performed
Note: Obligation is joint but since it is indivisible, creditor must proceed against all the joint debtors. Demand must be to all joint debtors; In case of insolvency of one debtor; others are not
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debtors. If one of the latter should be insolvent, the others shall not be liable for his share.
only by delivering the object to all the creditors jointly (failure to do so may be liable for damages unless allowed by the other creditors) Plurality of debtors: They (debtors) can perform the obligation only by acting together. All must be sued. If any debtor is not willing to perform, the creditor can sue him for damages on their respective shares. Indivisibility
liable for his share; If there are joint creditors, delivery must be made to all unless authorized by others; Each joint creditor may renounce his share
Solidarity Refers to the juridical or legal tie that binds parties Solidary obligations all of the debtors are liable for the breach of the obligation committed by a debtor. There must be at least 2 debtors and 2 creditors Solidary obligations the other debtors are proportionately liable Different kinds of Solidarity First Classification: According to the parties bound 1. Active Solidarity on the part of the creditors or obligees (where any one of them can demand the fulfillment of the entire obligation) 2. Passive Solidarity on the part of debtors or obligors (where any one of them can be made liable for the fulfillment of the entire obligation) 3. Mixed Solidarity on the part of the creditors and debtors (where each one of the debtors is liable to render, and each one of the creditors has a right to demand, entire compliance with the obligation) Second Classification: According to source 1. Conventional Solidarity When agreed upon by the parties. If nothing is mentioned in the contract relating to solidarity, the obligation is only joint.
Article 1210 The indivisibility of an obligation does not necessarily give rise to solidarity. Nor does solidarity of itself imply indivisibility.
1. Refers to the prestation 2. Indivisible obligations - Only the debtor is guilty of breach of obligation and is liable for damages 3. Can exist although there is only 1 debtor and 1 creditor 4. Indivisible obligations the others are not liable in case of insolvency of 1 debtor Kinds of solidary obligation according to legal tie: 1. Uniform when the parties are bound by the same stipulations; or 2. Non-uniform or varied when the parties are not subject to the same stipulations
Article 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.
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2. Article 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. Beneficial Act: interrupt running of prescription by making judicial demand. Prejudicial Act: Remission or condonation which would result in extinguishment of obligation, the creditor responsible shall be responsible to others for damages. Reason for Article: Mutual agency (mutual trust) implies mutual confidence. Each creditor represents the others and the assignee may not have the confidence of the original solidary creditors considering that the assignee, after receiving payment may not give the shares of the others.
Legal Solidarity that imposed by the law.
Note: If their own co-creditor prejudiced them by means or remission to the debtor/s, it will not invalidate the extinguishment of the obligation. Their remedy is to collect their share of the debt from the latter. They may also ask for damages.
Article 1213 A solidary creditor cannot assign his rights without the consent of the others.
Note: If the assignment is made to a co-creditor, the consent of the other creditors is not necessary (De Leon).
Article 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.
To whom the debtor must pay: (1) Any of the solidary creditors (2) Exception payment must be to the solidary creditor who made a judicial or extrajudicial demand.
Reason: To avoid confusion and prejudice to the more diligent creditor. Otherwise, the obligation will not be extinguished except insofar as the creditor-payees share is concerned in case the latter does not give to the other creditors their shares in the payments (De Leon). Basis: The mutual representation of the creditors with respect to each other. If payment was given to the creditor not included who made the demand, the payment shall not be considered as valid. If partial payment was given as an effect to the demand, any of the creditors may then receive the remaining balance. (Sta. Maria)
Article 1215
Novation the change of creditors, debtors, or the principal condition of the contract.
Dation in payment the delivery of a specific object as a substitute for the performance of the obligation.
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Novation, compensation, confusion or remission of the debt, made by any of the solidary creditors or with any of the solidary debtors, shall extinguish the obligation, without prejudice to the provisions of article 1219. The creditor who may have executed any of these acts, as well as he who collects the debt, shall be liable to the others for the share in the obligation corresponding to them.
Modification of an obligation by: 1. Changing its object or principal conditions 2. Substituting the person of the debtor 3. Subrogating a third person in the rights of the creditor Compensation when two persons, in their own right, are creditors and debtors of each other. Confusion when the characters of creditor and debtor are merged in the same person (as when my check in the course of negotiation is eventually endorsed to me). Remission that act of liberality whereby a creditor condones the obligation of the debtor, to forget about the whole thing.
Novation, compensation, confusion and remission are modes of extinguishing an obligation.
Article 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.
Passive Solidarity and Suretyship: (Similarities) 1. Both the solidary debtor and the surety guarantee for another person. 2. Both can demand reimbursement
(Differences) 1. Solidary debtor is liable not only for his co-debtors obligation but also of his own; hence he is both a principal debtor and a surety; Surety is indebted only for the share of the principal debtor 2. A solidary debtors responsibility for his co-debtor is primary, not subsidiary. 3. An extension of time given by the creditor to a debtor would not release a solidary co-debtor but would release a solidary guarantor or surety.
Article 1217 Payment made by one of the solidary debtors
Payment by one of the solidary debtors and his subsequent release from liability results in release from liability of the other debtors to the creditor.
In case of partial payment: He can recover reimbursment from the co-debtors only in so far as his payment exceeded his share of the obligation.
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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 codebtors 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 codebtors, in proportion to the debt of each. Article 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. Article 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.
Effect when the co-debtor pays the obligation gives birth to a right to be reimbursed based on the payment made by him in proportion to the co-debtors liability.
Note: In cases of Reimbursement, the resulting obligation of the co-debtors to reimburse him becomes joint.
Two kinds of Prescription (1106): a. Acquisition of a right b. Loss of a right
Note: If one of the debtors actually pays such an obligation, he does not thereby revive the obligation as to the co-debtors.
Applies where a co-debtor has already paid the obligation in full when the remission of the part affecting another co-debtor is made.
Reason: to prevent fraud and to give justice to the paying debtor. Since payment extinguishes the obligation, there is nothing more to remit. *Note: Principle followed in cases of insolvency still applies. So in the event of insolvency, the debtor whose share has been remitted still has to bear part of the burden of his co-debtors insolvency. Note: If the creditor or one of the creditors declares a remission of one of the debtors obligation, such remission extinguishes the whole obligation and benefits all the debtors.
Article 1220 The remission of the whole obligation, obtained by one of the solidary debtors, does not entitle him to reimbursement from his co-debtors.
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Article 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. Article 1222 A solidary debtor may, in actions filed by the creditor, avail himself of all defenses which are derived from the nature of the 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.
Effect of Loss or Impossibility 1. If without fault of the solidary debtors obligation extinguished. 2. If there was fault on the part of any one of then, all shall be responsible to the creditor for the price and damages and interest (but those without fault may bring an action to recover from those at fault). 3. If lost through a fortuitous event after default by one of the debtors, all will still be liable (but action may be brought against the guilty debtor by the others).
Defenses of Solidary debtor: 1. Defenses derived from the nature of the obligation. (Extinguishment, defects, nonarrival of period, etc. 2. Defenses personal to the debtor defendant. (minority, insanity, violence, etc.) 3. Defenses personal to the other solidary debtors.
Section 5 Divisible and Indivisible Obligations Solidarity Article 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 Divisible Obligation capable of partial performance Indivisible Obligation not capable of partial performance (ex. to delivers a specific car) 1. Refers to the tie between parties; 2. Needs at least 2 debtors or creditors; Indivisibility Refers to nature of obligation; May exist even if there is one debtor and one creditor;
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provisions of Chapter 2 of this Title.
Kinds of Indivisibility: 1. Conventional by common agreement 2. Natural/Absolute by nature of the object or undertaking 3. Legal if so provided for by the law Kinds of Division: 1. Quantitative depends on quantity (ex. 10 chairs equally divided) 2. Qualitative depends on quantity, irrespective of quantity (ex. if one child inherits land, and another inherits cash) 3. Intellectual/moral one that exists mentally rather than physically (ex. my brother and I own in common a car)
3. Fault of one is fault of others
Fault of one not fault of others
Article 1224 A joint indivisible obligation gives rise to indemnity for damages from the time anyone of the debtors does not comply with his undertaking. The debtors who may have been ready to fulfill their 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.
(Indivisible Joint Obligation) Applies when one of the debtor/s fail or refuses to fulfill the obligation. If it gives rise to damages and fees, only such debtor is liable. 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. Test of divisibility: Whether or not it is susceptible of partial performance. Indivisible Obligations: 1. To give definite things 2. Not susceptible of partial performance 3. If so provided by law 4. Such was the intention of the parties
In case of non-performance by any of the debtors, the obligation is converted into a liability for losses and damages, which is divisible. As effect of non-compliance the obligation is converted into a monetary one for indemnity.
Article 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
In obligations not to do, divisibility or indivisibility shall be determined by the character of the prestation. They are generally indivisible (De Leon). In case of a divisible contract, if the illegal terms can be separated from the legal ones, the latter shall be enforced. General Rule: a contract to do several things at
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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.
concerned Divisible Obligations: 1. Execution of a certain number of days of work 2. Accomplishment of work by metrical units 3. Purpose of obligation is to pay a certain amount in installments 4. Susceptible of partial performance Even though the object or service may be physically divisible, an obligation is indivisible if so provided by law or intended by the parties. Section 6 Obligations with a Penal Clause
several times is divisible, and a judgment for a single breach of a continuing contract is not a bar to a suit for the subsequent breach. A claim for damages for a breach is an indivisible demand, and where a former final judgment was rendered, it is a bar to any damages which the plaintiff may thereafter sustain.
Article 1226 In obligations with a penal clause, the penalty shall substitute the indemnity for damages and the payment of interests in case of noncompliance, if there is no stipulation to the contrary. Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is guilty of fraud in the fulfillment of the obligation. The penalty may be enforced only when it is demandable in accordance with the provisions of this Code.
Penal Clause accessory undertaking to assume greater liability in case of breach. It is attached to an obligation to insure its performance. It is a coercive means to obtain compliance. It may be governed by the stipulation of the parties. Kinds of Penal Clause: First classification: 1. Legal imposed by law 2. Conventional agreed upon by the parties Second Classification: 1. Subsidiary only the penalty may be asked 2. Joint both the principal contract and the penal clause can be enforced. The penalty may be claimed only when there is demand, whether judicial or extra-judicial, unless the law, the stipulation of the parties or the nature of the contract (time is of the essence) otherwise demands.
Penal Clause An obligation, though accessory Demandable in default of the unperformed obligation
Condition Not an obligation Never demandable
A stipulation in the contract providing for the compounding of interest in case of nonperformance partakes of the nature of a penalty clause. If iniquitous or unconscionable, the interest may be reduced.
Instances when Additional Damages may be recovered (exception to the GR that penalty takes the place of indemnity for damages): 1. 2. Express stipulation to the effect that damages or interest may still be recovered, despite the presence of the penalty clause When the debtor refuses to pay the penalty
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3.
imposed in the obligation When the debtor is guilty of fraud or dolo in the fulfillment of the obligation. (Reason: no waiver of future action for fraud)
Article 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.
The payment of the penalty is merely an accessory obligation. It is not the principal obligation. General Rule: Upon breach of the obligation, the creditor has to choose whether to demand the principal or the penalty. Exception: The principal obligation and the penalty can be demanded when the penal clause is joint or cumulative. This occurs when the creditor has been clearly granted such right, either expressly or impliedly.
Note: The implied right must be one ascertainable from the nature of the obligation. Example: In the construction industry where the contractor must pay the penalty if the work is completed after the stipulated time frame but mist also finish the agreed construction.
Article 1228 Proof of actual damages suffered by the creditor is not necessary in order that the penalty may be demanded.
The person is mandated to pay the amount or perform the penalty specified in the agreement of the parties for as long as there is irregular or no compliance with the principal obligation regardless of whether or not the person seeking it suffers the damages.
Basis: Contracts are enforced as they are read, and parties who are competent to contract may make such agreements within the limitations of the law and public policy as they desire, and the courts will enforce them according to their terms. Instances when a penalty clause cannot be enforced: 1. 2. 3. Breach is the fault of the creditor A fortuitous event intervened (unless debtor expressly agreed on his liability in case of these events) Debtor is not yet in default
Article 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. Article 1230
Even if the penalty is iniquitous or unconscionable, it is not void but subject merely to equitable reduction. A fortuitous event militates against the enforcement of a penalty clause against the lessor and against the lessee. Construed against the one enforcing it
General Rule: The nullity of the principal obligation also nullifies the penal clause, which is only an accessory to
Exception:
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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.
the principal obligation. (The penal clause may be void because it is contrary to law, morals, good customs, public order, public policy)
1. 2.
When the penalty is under taken by a third person precisely for an obligation, which is unenforceable, voidable, or natural. (Guaranty) The nullity of the principal obligation itself gives rise to liability of the debtor for damages.
Chapter 4: Extinguishment of Obligations General Provisions Article 1231 Obligations are extinguished: (1) By payment or performance; (2) By the loss of the thing due; (3) By the condonation or remission of the debt; (4) By the confusion or merger of the rights of creditor and debtor; (5) By compensation; (6) By novation. Other causes of extinguishment of obligations, such as annulment, rescission, fulfillment of a resolutory condition, and prescription, are governed elsewhere in this Code. Classification of Cause of Extinguishment A. Voluntary 1. Performance i. Payment ii. Consignation 2. Substitution of Performance i. Compensation ii. Novation iii. Dacion en pago 3. Agreement to Obligation a. Subsequent to Obligation i. Unilateral waiver ii. Natural waiver iii. Remission iv. Mutual dissent v. Compromise b. Simultaneous with Creation of Obligation i. Resolutory term or extinctive period ii. Resolutory condition or condition subsequent Question: Does death of a party extinguish an obligation? Answer: No, unless the obligation is personal in nature or in transmissible. B. Involuntary 1. By failure to bring an action (prescription) 2. Resolutory/ condition subsequent (merger/confusion; in personal obligation- death; change of civil status) 3. By reason of object impossibility of performance; loss of thing due
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Section 1 Payment or Performance Article 1232 Payment means not only the delivery of money but also the performance, in any other manner, of an obligation. Payment not only the delivery of money but also the performance, in any other manner, of an obligation. Payment is the satisfaction or fulfillment of a prestation that is due, resulting in the extinguishment of the obligation of the debtor. (Pineda) Requisites of Payment 1. Capacity of the person paying; 2. Capacity of the person receiving the payment; 3. Delivery of the full amount or the full performance of the prestation; 4. Propriety of time, place and manner of payment; 5. Acceptance of the payment by the creditor. Article 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 case may be. Requisites of Valid Payment: 1. The very thing/ service contemplated must be paid; 2. Fulfillment must be complete. How Payment or Performance is made: 1. If monetary obligation by delivery of money in full payment unless otherwise stipulated in contract 2. If debt is delivery of thing/s by delivery of such thing/s 3. If debt is doing of a personal undertaking by performance of said undertaking 4. If debt is not doing of something by refraining from doing such. Article 1234 Note: 1. In 1234 there has been substantial performance Note: A debtor cannot compel the creditor to accept partial payment. But, he can accept partial payment. If he voluntarily accepts such payments then he is deemed to have waived the requirements in Art. 1233 that the performance of the obligation is not considered complete unless there is complete delivery or complete performance. While it may be true that there is no payment if there is no complete delivery or performance of the service, there are two exceptions to the general rule. And those are Art. 1234 and 1235. Kinds of Payment: A. B. Normal when the debtor voluntarily performs the prestation stipulated. Abnormal when he is force by means of judicial proceeding, either to comply with the prestation or to pay indemnity.
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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.
by the obligor in good faith. So, if there has been substantial performance in good faith by the obligor, then the obligor can recover as though there had been strict and complete fulfillment, less of course the damages suffered by the creditor. 2. The omission or defect must be slight and unimportant, that is, it must not be so material as to frustrate the accomplishment of the intended work. 3. There must be no willful or intentional deviation from the contract or prestation by the debtor, and the omission or defect must not be material, otherwise, the performance will not amount to substantial compliance. The substantial compliance contemplated in Article 1235 connotes the waiver of the obligee of damages arising from the breach of contract, which resulted in the incompleteness, or irregularity of the obligation. Obligee is in estoppel barred from further action or claims The creditor can refuse payment by a 3rd person, Except: 1. When stipulated; 2. If said 3rd person has an interest in the fulfillment of the obligation. (Ex. Guarantor, surety or codebtor) Reason: The creditor cannot be compelled to accept performance by a third person who isnt bound under the obligation, because whenever a third person pays there is a modification of the prestation that is due (Tolentino) Applies when: The creditor accepts the performance despite knowledge of the incompleteness or irregularity and without protest or objection accepts the performance. In effect, he is deemed to have waived the irregularity because the law requires that he must know the incompleteness or irregularity of the performance and accept it without protest or objection. The law limits his recovery to the amount by which the debtor has been benefited, if the debtor has no know ledge of, or has expressed his opposition to such payment. Instance when Recovery can be had from Creditor and not from Debtor: 1. Prescription; 2. Remission; 3. Paid/performed debt; 4. When legal compensation had already taken place
Article 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.
Article 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.
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Article 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.
In cases where subrogation takes place by virtue of the payment of the credit, the payor actually steps into the shoes of the creditor and becomes entitled, not only to recover what he has paid, but also to exercise all the rights which the creditor could have exercised. There is a change in the active subject and no extinguishment of obligation.
Subrogation act of putting somebody into the shoes of the Creditor, hence, enabling the former to exercise all the rights and actions that could be exercised by the creditor. Rights w/c may be exercised by Person subrogated in the Place of Creditor: 1. Arising from mortgage; 2. Guaranty; 3. Penalty Note: If the payment made by the third person who does not intend to be reimbursed exceeds P5,000 the requirement of the law is that the payment must be in writing.(to be considered as a valid donation) But the payment is still valid since the consent of the debtor is immaterial as the extinguishment of the obligation is concerned. Except: Art. 1427: The minors who entered into a contract, without the consent of the parents or the guardian, but voluntarily pays a sum of money or delivers a fungible thing for the fulfillment of the obligation, the minor cannot recover the same from the creditor who accepted it or consumed it in good faith. (Applies persons 17 years of age and below) Payment made to a third person even if though error and in good faith: - Obligation is not extinguished - Loss resulting from such shall be borne by the deceived debtor, unless there is a stipulation for the wrongful payment.
Article 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. Article 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." Article 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.
If the creditor accepts payment even if it is against the will of the debtor, the payment is still valid, only that we will apply 1236, with respect to reimbursement.
(Payment by an Incapacitated Person) General Rule: If payment is made by a person incapacitated to give: 1. Payment is not valid if accepted; 2. Creditor cannot be compelled to accept; 3. Remedy of consignation is not proper. Payment shall be made to: 1.) The creditor or the obligee 2.) His successors in interest 3.) Any person authorized to receive it (including a person authorized by law)
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Article 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. Article 1242 Payment made in good faith to any person in possession of the credit shall release the debtor. Article 1243 Payment made to the creditor by the debtor after the latter has been judicially ordered to retain the debt shall not be valid.
Payment to an incapacitated person is valid when: 1. He has kept the thing delivered; 2. In so far as the payment is beneficial to him. If the minor receives payment from a debtor arising from a contract, payment should be made to his guardians. If the payments are made directly to the minor, such payment shall be voidable. Generally, the capacitated person cannot ask for the annulment of the contract on the basis of the incapacity of the other party.
The benefit to the creditor for payment made by the debtor to a third person must always be proven except: a. b. c. If after the payment, the third person acquires the creditors rights The creditor ratifies the payment to the originally unauthorized third person By the creditors conduct, the debtor has been led to believe that the third person has authority to receive the payment.
Requisites: 1. Payment must be in good faith 2. Payee must be in possession of the credit itself
Judicial order, one the is prompted by an order of attachment, injunction, or garnishment
Garnishment takes place when the debtor of a debtor is ordered not to pay the latter so that preference would be given to the latters creditor. Interpleader action in which a certain person in possession of certain property wants claimants to litigate among themselves for the same. Injunction a judicial process by virtue of which a person is generally ordered to refrain from doing something.
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Article 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. Article 1245 Dation in payment, whereby property is alienated to the creditor in satisfaction of a debt in money, shall be governed by the law on sales.
Exceptions: 1. In case of Facultative Obligation 2. In case there is another agreement resulting in: -Dation in payment -Novation 3. In case of waiver by the creditor
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.
Dation in payment (Dacion en Pago) the delivery and transmission of ownership of a thing by the debtor to creditor as an accepted equivalent of the performance of an obligation. Requisites of a valid dation in payment: (PDA) 1. There must be the performance of the prestation in lieu of payment. 2. There must be some difference between the prestation due and that which is given in substitution. 3. There must be an agreement between the creditor and debtor that the obligation is extinguished by reason of the performance of a prestation different from that due.
Article 1246 When the obligation consists in the delivery of an indeterminate or generic thing, whose quality and circumstances have not been stated, the creditor cannot demand a thing of superior quality. Neither can the debtor deliver a thing of inferior quality. The purpose of the obligation and other circumstances shall be taken into consideration.
Exception: when there is a waiver of such
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Article 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. Article 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.
Reason: Extrajudicial 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. (Tolentino)
Partial payment can be made if there is an express stipulation by the parties allowing the same or if the debt is partially liquidated and partially unliquidated. Except, if creditor accepts such partial payments and benefits from it.
General Rule: Payment shall be complete Except: 1. When it is stipulated otherwise; 2. When different prestations are subject to different conditions or terms; 3. When debt is part liquidated and part unliquidated; 4. When a joint debtor pays his share or the creditor demands the same; 5. When a solidary debtor pays only the part demandable; 6. In case of compensation, when one debt is bigger than the other; 7. When work is to be done by parts. A check whether a managers check or an ordinary check, is not legal tender, and an offer of the check in payment if a debt is not a valid tender of payment. (Unless allowed by the creditor)
Article 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.
Legal tender currency which in a given jurisdiction can be used for the payment of debts, public and private, and which cannot be refused by the creditor. In an obligation by payment of money, only payment in cash will extinguish the obligation. Promissory notes, bills of exchange or checks will extinguish the said obligation only if such documents are encashed.
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Article 1250 In case an extraordinary inflation or deflation of the currency stipulated should supervene, the value of the currency at the time of the establishment of the obligation shall be the basis of payment, unless there is an agreement to the contrary. Article 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.
Applies where a contract or agreement is involved. Does not apply where the obligation arises from law, independent of contracts. Debts of value debts in money, in case of inflation or devaluation of currency.
Extraordinary inflation or deflation unusual or beyond the common fluctuations in value of the currency which the parties could not have reasonably foreseen or which was manifestly beyond their contemplation at the time the obligation was constituted.
Creditors Expenses: 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 (Tolentino, p.307) If the debtor changes his domicile in bad faith or after he has incurred in delay, then the additional expenses shall be borne by him (It is only the additional expenses that are charged against him) Risk of transmission: When the debtor has been required to remit money to the creditor, the latter bears the risks and expenses of the transmission Subsection 1 Application of Payments
Where payment must be made: 1. If there is a stipulation in designated place. 2. If there is no stipulation: i. If its determinate, at the place where the thing might be at the time the obligation was constituted. ii. If its generic/personal, at the domicile of the Debtor. Note: the creditor shall bear the expenses, unless the debtor changes his domicile in bad faith.
Article 1252 He who has various debts of the same kind in favor of
Applies to: A person owing several debts of the same kind to a single creditor.
Note: application of payment cannot be made on debts which are not yet due, unless the parties agree otherwise and when application of payment is made by the party for
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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.
Debtor must make a declaration as to which debt should the payment be applied. However, the creditor can validly refuse such declaration or application if the payment is to be applied to a debt which will only partially pay the particular indebtness. (Art. 1233 payment, in general, must be completely delivered or rendered. Art. 1248 creditor cannot be compelled partially to receive the prestation) Must apply to an indebtness which, through such application shall be completely extinguished. Requisites for application of payment: 1. There must be 2 or more debts (severalty of debts); 2. Debts must be of the same kind; 3. Debts are owed by the same debtor in favor of the same creditor; 4. All debts must be due unless contrary is provided eg. Stipulated by parties. 5. Payment is not enough to extinguish all the debts.
whose benefit the term has been constituted.
Article 1253 If the debt produces interest, payment of the principal shall not be deemed to have been made until the interests have been covered.
This provision is merely directory and NOT mandatory. The receipt of the principal by the creditor without reservation with respect to the interest, shall give rise to the presumption that the interest has been paid. However, such presumption is rebuttable. General Rule: If theres no indication as to which debt the payment is to be applied, it shall be applied to the most onerous debt provided that it is due. most onerous debt the indebtness which exacts the heavier burden from among many.
It is the duty of the creditor to inform the debtor of the amount of interest that falls due and that he is applying the installment payments to cover said interest (Rapanut v. Court of Appeals)
Article 1254 When the payment cannot be applied in accordance with the preceding rules, or if application cannot be inferred from other circumstances, the debt which is most onerous to the debtor, among those due, shall be deemed to have been satisfied.
Note:
A debt secured by a mortgage is more onerous than one which is not. If the debts due are of the same nature and burden, the payment shall be applied to all of them proportionately.
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If the debts due are of the same nature and burden, the payment shall be applied to all of them proportionately. Subsection 2 Payment by Cession Article 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. Another mode of extinguishing a debt and also a from of payment. Applies to a situation where the debtor owes two or more creditors. Debtor may cede or assign his property, it refers not only to the cession of one or a number of properties of the debtor but to all of the properties of the debtor which are susceptible of and not exempted by law from being alienated. Subsection 3 Tender of Payment and Consignation Article 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; Requisites of a valid tender of payment: a. Must be in legal tender (lawful currency) not a check but if there is consent valid; b. It must include whatever interest is due; c. It must be unconditional; but if made with conditions and no protest on creditors part, he cannot later on prescribe the terms for the validity of the acceptance w/c he had already made complete payment; d. The obligation must be due. Tender of Payment the act of offering the creditor what is due him together with a demand that the creditor accept the same. Consignation the act of depositing the thing due with court or judicial authorities whenever the creditor cannot accept or refuse to accept payment. Requisites wherein the creditor is deemed to have unjustly refused the tender of payment: i. That there was previous tender of payment ii. That the tender of payment was of the very thing due, or in case of money obligations, that the legal tender currency was offered; iii. That the tender of payment was unconditional; The creditors must agree to the cession. The must likewise agree as to which debt will be paid first or as to the proportioning of the payment of the money obtained through cession. If there is no agreement, the applicable law on preference on credit will apply. Note: the obligation of the debtor shall only be extinguished up to the extent that the proceeds are able to satisfy the claims of the creditors.
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(4) When two or more persons claim the same right to collect; (5) When the title of the obligation has been lost. Article 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. Requisites of Consignation: a) Existence of a valid debt; b) Valid prior tender of payment, unless tender is excused; c) Prior notice of consignation (before deposit); d) Actual consignation (deposit); e) Subsequent notice of consignation f) Hearing; g) Judgment
iv.
and, That the creditor refused to accept payment without just cause.
Requisites for a valid consignation: i. There must be a debt due; there must be a debt owing. ii. That the consignation was made because of some legal cause provided in the present article. (the unjust refusal of the creditor) iii. Previous notice of the consignation has been given to the persons interested in the performance of the obligation. iv. That the amount or thing due was placed at the disposal of the court (actual consigning or depositing the thing due with the clerk of court); and v. That after the consignation had been made; the persons interested were notified thereof. Consignation may take place in the following cases: 1. When the creditor is absent or unknown; 2. When the creditor is incapacitated to receive the payment at the time it is due; 3. When without just cause, the creditor refuses to give a receipt; 4. When two or more persons claim the same right to collect; and 5. When the title of the obligation has been lost.
Article 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 having been made, the interested parties shall also be notified thereof. Article 1259 The expenses of consignation, when properly made, shall be charged against the creditor.
How is Consignation made? 1. The things due must be deposited with the proper judicial authorities; 2. There must be proof that: a. Tender was previously made; b. Or that the creditor had previously notified the debtor that consignation will be made (in case tender is not required)
Reason: It was his failure to accept payment that led to the consignation.
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Article 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. Article 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 co-debtors, guarantors and sureties shall be released.
Consignation has a retroactive effect. The payment is deemed to have been made at the time of the deposit of the money in court or when it was placed at the disposal of the judicial authority.
Riesenbeck v. Court of Appeals: In a consignation case, the creditors acceptance of the consigned amount but with an express reservation that he is not admitting the correctness of the obligation and therefore he is also reserving his right to claim the balance in accordance with what is prayed for in his answer and counterclaims is valid.
Effects of Withdrawal: a) Obligation remains; b) Creditor loses any preference over the thing; c) Co-debtors, guarantors and sureties are released (unless they consented)
Section 2 Loss of the Thing Due Article 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. Two Kinds of Obligation to give: 1. To give a generic thing; 2. To give a specific thing Effect of Loss General Rule: Obligation is extinguished Exceptions: 1. If debtor is at fault; 2. When debtor is made liable for fortuitous event because of: i. Provision of law; ii. Contractual stipulation; iii. Nature of obligation requires the assumption of risk (debtor) When is a thing considered lost 1. When it perishes; 2. When it goes out of commerce; 3. When it disappears in such a way that: Its existence is unknown; or It cannot be recovered. Note: The term loss does not refer strictly to actual or physical loss but contemplates also impossibility of performance. What impossibility of performance includes: a) Physical impossibility;
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Instances when Law requires Liability even in case of Fortuitous Event Debtor is in default; When debtor has promised to deliver the same thing to 2 or more persons who do not have the same interest; Obligation arises from a crime; When borrower has lent the thing to another who is not a member of his own HH; When thing loaned has been delivered with appraisal of value unless stipulated exempting borrower from responsibility; When payee in solutio indebiti is in bad faith. Article 1263 In an obligation to deliver a generic thing, the loss or destruction of anything of the same kind does not extinguish the obligation. Reason: A generic thing cannot really be lost or destroyed unless the whole class of said thing is destroyed.
b) Legal impossibility; Directly prohibited by law; Indirectly e.g when debtor is required to enter a military draft. c) Moral impossibility
General Rule: Genus never perishes Exceptions: 1. If the generic thing is delimited; 2. If generic thing has been segregated or set aside it becomes specific now. If it is considered a complete loss, then the rules under Articles 1262 and 1263 must apply.
Article 1264 The courts shall determine whether, under the circumstances, the partial loss of the object of the obligation is so important as to extinguish the obligation. Article 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.
If the loss is partial and the circumstances so warrant, the court may consider it as a complete loss which extinguishes the obligation. (This can only happened if the partial loss is so important so as to totally affect the whole object of the obligation) General Rule: It is presumed that the loss of the thing is due to the fault of the debtor who possesses it. (Such presumption arises from the fact that it was lost while it is in the possession of the debtor) If the presumption applies, it is incumbent upon the debtor to prove that the loss is not through his fault or it has been caused by a fortuitous event
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Article 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. Article 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.
Application: Only to obligations to do and not to obligations to give Note: Impossibility must arise after the constitution of the obligation. However, difficulty alone does not excuse the debtor from fulfilling his prestation. Requisites: 1. Even or change of circumstances could not have been foreseen at the time of the execution of the contract; 2. Performance is extremely difficult but not impossible; 3. The impossibility was not due to acts of any of the parties; 4. The prestation refers to a future one, not an immediate fulfillment. Effect of Loss in Criminal Offenses: Does NOT extinguish obligation, even if fortuitous event intervenes (example: theft). This is one of the exceptions to the rule that if a determinate thing is lost through fortuitous events, the obligation is extinguished. Exception to the exception is when Creditor is in Mora Accipiendi (default); otherwise stated, if the thing was offered to the person who should receive it and the latter refused without just cause. This provision applies to the money obtained from the insurance of the thing lost or destroyed.
Refers to moral impossibility or impracticability due to change of certain conditions; Refers to personal obligation (or obligations to do) and not real (to give) Does not cover highly speculative contracts or agreements such as stocks and aleatory contracts such as insurance contracts Based on the doctrine of unforeseen events or rebus sic stantibus Within the penumbra of the rule on impossibility or performance although the obligation may not technically and necessarily be impossible.
Article 1268 When the debt of a thing certain and determinate proceeds from a criminal offense, the debtor shall not be exempted from the payment of its price, whatever may be the cause for the loss, unless the thing having been offered by him to the person who should receive it, the latter refused without justification to accept it.
Article 1269
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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. Section 3 Condonation or Remission of the Debt Article 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. Requisites for remission: 1. There must be an agreement; 2. Parties must be capacitated and must consent; 3. There must be subject matter (object/prestation); 4. The cause or consideration must be liberality essentially gratuitous; 5. Obligation remitted must be demandable at the time of remission; 6. The remission must not be inofficious not excessive; 7. Formalities of a donation are required in case of an express remission; 8. Waivers/remissions are not to be presumed generally it must be expressed or implied; 9. The debtor must accept the remission. This article refers to a case of implied or tacit remission. If there was a mistake by the creditor on the waiver of such right, the obligation is still enforceable. Note: Presumption of remission prevails over presumption of payment. Condonation an act of liberality. It connotes that there is a previous demandable obligation but the obligee or the creditor decides not to enforce the debtors prestation anymore. It requires however the implied or express consent of the obligor. In effect, condonation or remission of a debt is a donation of the obligees credit in favor of the debtor. Requisites (Tolentino): 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; and 3. The debtor must accept the remission.
Article 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.
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Article 1272 Whenever the private document in which the debt appears is found in the possession of the debtor, it shall be presumed that the creditor delivered it voluntarily, unless the contrary is proved. Article 1273 The renunciation of the principal debt shall extinguish the accessory obligations; but the waiver of the latter shall leave the former in force. Article 1274 It is presumed that the accessory obligation of pledge has been remitted when the thing pledged, after its delivery to the creditor, is found in the possession of the debtor, or of a third person who owns the thing.
Presumption in Joint/ Solidary obligation:
In Solidary, whole obligation is remitted; In Joint, only the share of the Debtor to whom creditor has granted remission.
In a nutshell: If the principal obligation is extinguished, it carries with it the extinguishment of the accessory obligation but NOT vice-versa.
A pledge is an accessory contract. There is a presumption that the accessory obligation has been condoned or remitted, however, this is a refutable presumption.
A pledge involves a movable property constituted by the owner of such property who has free disposal of it, to secure the fulfillment of a principal obligation and such contract is perfected only upon the delivery of the thing pledged to the creditor.
Section 4 Confusion or Merger of Rights Article 1275 The obligation is extinguished from the time the characters of creditor and debtor are merged in the same person. Reason: a creditor cannot collect a debt from himself and a debtor cannot pay a debt to himself. Requisites: 1.) It must take place between the creditor and the principal debtor; 2.) The very same obligation must be involved; and 3.) The confusion must be total or as regards the entire obligation. The extinguishment of the principal obligation through Merger or confusion the meeting in one person of the qualities of creditor and debtor with respect to the same obligation. (2): if the debtor acquires rights from the creditor, but not the particular obligation in question there will be no merger
Article 1276
Note: The extinguishment of the principal obligation
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Merger which takes place in the person of the principal debtor or creditor benefits the guarantors. Confusion which takes place in the person of any of the latter does not extinguish the obligation. Article 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.
confusion releases the guarantors because the obligation of the latter is merely accessory. However, when the merger takes place in the person of a guarantor, the obligation is not extinguished.
through confusion releases the guarantors, because the obligation of the latter is merely accessory.
Section 5 Compensation Compensation Article 1278 Compensation shall take place when two persons, in their own right, are creditors and debtors of each other. Compensation a mode of extinguishment to the concurrent amount, the obligations 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. Kinds or Classes of Compensation: I. As to its extent: a) Total obligation are completely extinguished because they are of the same amount. b) Partial when a balance remains. II- As to its origin/ cause: a) Legal takes place by operation of law. b) Voluntary/ conventional agreed to by parties; Requisites: Compensation Two person who are mutually creditor and debtor to each other Two obligations Compensation Takes place by operation of law and extinguishes reciprocally the 2 debts as Merger One person in whom is merged the qualities of creditor and debtor One obligation Counterclaim or set-off Must be pleaded to be effectual Works as a sort of judicial Partial extinguishment is always allowed. True or legal compensation takes place by operation of Law No such capacity is necessary Payment Payment must be complete and indivisible; Involves action/delivery Capacity to dispose of the thing paid and capacity to receive payment are required
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(1) Each of the parties can dispose of the credit he seeks to compensate; (2) They agree to the mutual extinguishment of their credits. c) Judicial (Set-off) must be pleaded; effective upon order of the Court. (Two debts arising from final and executory judgment) d) Facultative one party has the choice of claiming the compensation. This is compensation which can be set up only at the option of a creditor when legal compensation cannot take place because of want of some legal requisites for the benefit of the creditor. Article 1279 In order that compensation may be proper, it is necessary: (1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other; (2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated; (3) That the two debts be due; (4) That they be liquidated and demandable; (5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor. 1 requisite: each one of the obligors be bound principally and that each of them be at the same time a principal creditor of the other. 2 requisite: 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 requisite: the debts need not be contracted or incurred at the same time. A debt cannot be demanded if it is not yet due. However, the parties can agree that compensation can be made even as to the debts which are not yet due. 4 requisite: the debt must be determined and certain. Compensation cannot take place where one of the debts is not liquidated as when there is a running interest still to be paid thereon. 5 requisite: due time the period before legal compensation was supposed to take place
th th rd nd st
soon as they exist simultaneously to the amount of respective sums
compensation, provided that requirements of ROC are observed.
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Article 1280 Notwithstanding the provisions of the preceding article, the guarantor may set up compensation as regards what the creditor may owe the principal debtor. Article 1281 Compensation may be total or partial. When the two debts are of the same amount, there is a total compensation. Article 1282 The parties may agree upon the compensation of debts which are not yet due.
Reason: It is beneficial to him, he will be released from the debt. The liability of the guarantor is only subsidiary; it is accessory to the principal obligation of the debtor.
General rule: Compensation can only occur when the debts are due and demandable. Exception: Contractual compensation/ Voluntary compensation. Also known as, Judicial set-off The amount of damages or the claim sought to be compensated must be duly proven.
It is necessary that the parties should have the capacity to dispose of the credits which they compensate.
Article 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. Article 1284 When one or both debts are rescissible or voidable, they may be compensated against each other before they are judicially rescinded or avoided. Article 1285
If all the requisites for a valid compensation are present before a contract is rescinded or annulled, the compensation can occur by operation of law.
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.
Three cases when one of the creditors assigns his credit to a third person:
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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. Article 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.
I.
Assignment with consent of debtor Compensation cannot be set-up; it serves as a waiver except if the right to compensation is reserved. Assignment with knowledge but without consent of debtor Compensation can be set-up re: debts before the cession, but not after the assignment. Assignment made without consent of debtor Debtor can set-up compensation as a defense for all debts maturing prior to his knowledge of assignment.
II.
III.
Applies to: Legal compensation If all requisites under Article 1279 are present, compensation takes place by operation of law. (No need for notification)
Indemnity for expenses of exchange or transportation to the place of payment can arise only if there is partial compensation. If there is complete compensation, the parties need not do anything as the obligations are completely extinguished. The extrajudicial expenses required for payment shall be for the account of the debtor, unless it is otherwise stipulated.
Article 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
Depositum a contract by virtue of which a person (depositary) receives personal property belonging to another (depositor), with the obligation of safely keeping it an returning the same.
Commodatum 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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who has a claim for support due by gratuitous title, without prejudice to the provisions of paragraph 2 of article 301 Article 1288 Neither shall there be compensation if one of the debts consists in civil liability arising from a penal offense. When legal Compensation cannot take place: 1. When one debt arises from a depositum; 2. When one debt arises from the obligation of a depositary; 3. When one debt arises from the obligation of a bailee in commodatum; 4. When one debt arises because of a claim for support due to gratuitous title. 5. When the debt arises from a criminal liability. But the offended party may claim compensation (this is an example of a facultative obligation) Obligations of a Depositary: i. The Depositary is obliged to keep the thing safely and to return it when required to the depositor, or to his heirs and successors or to person who may have been designated in the contract. ii. Unless stipulated to contrary, the depositary cannot deposit the thing to 3rd persons. iii. If deposit to 3rd person is allowed, the depositary is liable for the loss if the person is careless or unfit. iv. Depositary is responsible for the negligence of his employees. v. Depositary cannot make use of the thing deposited w/out express permission of depositor otherwise he shall be liable for damages except preservation of thing requires its use.
Article 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. Article 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.
Article 1252 1254 - Multiple debts - Choice of which debt - Preference of the most onerous debt is applied
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
Compensation must be alleged and proved by the debtor who claims its benefits. Its effects retroact to the moment when the requisites provided by law concurred. No compensation when: (1) There is a renunciation of the effects of
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obligation which has been extinguished are also extinguished.
compensation by a party; and (2) The law prohibits its compensation, such as the cases provided in articles 1287 and 1288.
Section 6 Novation Article 1291 Obligations may be modified by: (1) Changing their object or principal conditions; (2) Substituting the person of the debtor; (3) Subrogating a third person in the rights of the creditor. Kinds of Novation: A. According to its object or purpose 1. Real/ objective changing the object/ principal conditions of the obligation 2. Personal/ subjective change of persons i. Substituting the person of debtor rd ii. Subrogating a 3 person in the rights of the creditor (by agreement of by law) 3. Mixed combination of the subjective and objective novation (change of object and parties) B. According to form of its constitution 1. Express parties declare that the old obligation is extinguished and substituted by the new obligation 2. Implied there is such an incompatibility between the old and the obligations that they cannot stand together C. According to its extent/ effect 1. Total or extinctive old obligation is totally extinguished) 2. Partial or modificatory change in some principal conditions of the obligation (Novation arising from a purported change in the person of the debtor must be clear and express because it is never presumed) Novation substitution or change of an obligation by another which extinguishes/modifies the 1st either by changing its object or principal condition or substituting another in place of debtor, or subrogating a 3rd person in the rights of creditor. Two fold purpose: 1. Extinguishes an obligation; and 2. Creates a new one in lieu of the old Requisites of Novation: a) A previous valid obligation; b) Agreement/ consent of all the parties to the substitution/ the new contract (resulting in the extinction of the old obligation and the creation of a valid one) c) Extinguishment of the old obligation by the new one d) Valid new obligation
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Article 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.
Novation is never presumed - No novation in the absences of a new contract executed by the parties - 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 - Must be clearly proved. Express 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. Implied Novation it is required that there is incompatibility between the original and subsequent contracts. Test of Compatibility: Whether or not the two obligations can stand together, each one having its independent existence.
Essential changes - Change must refer to the object, the cause, or the principal conditions of the obligation - There must be an essential change Accidental changes - In an existing obligation dont extinguish it by novation - When changes refer to 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 - Unimportant modifications which dont alter its essence cannot be considered novation - Extension or shortening of period for the performance of the obligation is generally considered merely incidental and doesnt bring about a Novation
Article 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.
Two Kinds of Personal/Subjective Novation 1. Passive change of Debtor 2. Active change of Creditor Forms of Passive Novation I. Expromision initiative comes from 3rd person to assume the obligation II. Delegacion debtor offers and the creditor rd accepts a 3 person who consents to the substitution 3 Parties: i. Delegante original debtor
Requisites of Expromision: 1. Substitution is upon the initiative or proposal of a rd 3 person who will step in to the shoes of the old debtor 2. The creditor gave his consent to the proposal of the third person 3. The old debtor is released from the obligation with the consent of the creditor Requisites of Delegacion: 1. The substitution is upon the initiative or proposal of the old debtor by proposing to the creditor the entry of another person as the new debtor who
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ii. Delegatario creditor iii. Delegado new debtor General rule: The creditor is estopped from going after the old debtor because the obligation of the latter to the creditor had already been extinguished by Novation. Exceptions: - When the insolvency of the new debtor was already existing and of public knowledge - If the old debtor knew that the new debtor is insolvent when he delegated his debt Article 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. Article 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. Applies during expromision Legislative intent: to exempt the old debtor from future liability when he did not propose the new debtor.
2. 3.
will replace him in the payment of the obligation The creditor accepts and the new debtor agrees to the proposal of the old debtor The old debtor is released from the obligation with consent of the creditor
Applies during delegacion General rule: The creditor is estopped from going after the old debtor because the obligation of the latter to the creditor had already been extinguished by Novation. Exceptions: - When the insolvency of the new debtor was already existing and of public knowledge - If the old debtor knew that the new debtor is insolvent when he delegated his debt The accessory always follow the principal. All accessory obligations such as those arising from a contract of mortgage, guarantee, and pledge are likewise extinguished.
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 (3) The new debtor is bound solidarily with the old debtor.
Article 1296 When the principal obligation is extinguished in consequence of a novation, accessory obligations may
The law states that: the accessory obligation may subsist only insofar as they may benefit third persons who do not give their consent.
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subsist only insofar as they may benefit third persons who did not give their consent. Article 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. Article 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. Voidable new obligation: the novation becomes effective but if action to annul was brought the old obligation shall be revived unless it was otherwise agreed by the parties
Applies to: Novation by substitution of debtors
(If in coming up with the new but void obligation, the parties agree that it shall in any event extinguish the old, obligation, then such old obligation will not be revived)
Original obligation void: - When the original obligation is void, wanting some essential requisites or otherwise inexistent, there could be no Novation, because one of the requisites for Novation would be lacking - Applies to a voidable contract which has already been set aside or annulled by decree of a competent court
Old obligation voidable: - When the original obligation has been ratified before Novation, the Novation is effective - 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 - If annulled, Novation is also void In order not to subject the obligation to the previous suspensive condition, there must be an express statement to that effect in the new obligation as novated.
Article 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. Article 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.
General Rule: The conditions attached to the old obligation are also attached to the new obligation. Exception: If there is a contrary stipulation.
Legal subrogation takes effect by mandate of law and does not proceed from an agreement of the parties. Conventional subrogation must be clearly established by the unequivocal terms of the substituting obligation or by the evident incompatibility of the new and old obligations on every point.
Subrogation transfer to a 3rd person all the rights appertaining to creditor right to proceed against guarantors, possessors of mortgages etc.
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Article 1301 Conventional subrogation of a third person requires the consent of the original parties and of the third person.
Parties that must agree for conventional subrogation to take place: - The debtor - The old creditor - The new creditor
If the debtor does not agree he shall be liable onl to the extent it has been beneficial to him. A legal subrogation may be changed into conventional subrogation -- Autonomy of will.
Article 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. Article 1303 Subrogation transfers to the persons subrogated the credit with all the rights thereto appertaining, either against the debtor or against third person, be they guarantors or possessors of mortgages, subject to stipulation in a conventional subrogation. Article 1304 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. Applies where: A debt has been partially paid by a third person, with the consent of the debtor. In the event that the creditor and the 3 party demands from the debtor at the same time the payment of what is due them, the creditor will be preferred. He will be paid first as the law states that he is preferred.
rd
General effect of subrogation: the 3 person, steps into the shoes of the creditor and becomes the new creditor
rd
In conventional subrogation, the parties may stipulate the nature, limits, extent and scope of the subrogation provided these are not contrary to law, morals, good customs, public order or public policy.
In the event partial payment is made by a third person, creditor can still demand from the debtor the balance of the obligation
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Book IV: Obligations and Contracts Title II Contracts Chapter 1: General Provisions Article 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. Essential Elements: 1.) Consent 2.) Subject matter 3.) Cause/consideration Natural Elements those found in certain contracts and presumed to exist, because the law, as supplementary to the contract, creates them unless the contrary has been stipulated. Accidental Elements various particular stipulations that may be agreed upon by the contracting parties in a contract and which cannot exist without being stipulated Stages of a Contract: 1.) Preparation (conception/ generation) the period of negotiation and bargaining, ending at the moment of agreement of the parties 2.) Perfection (birth of contract) the moment when the parties come to agree on the terms of the contract 3.) Consummation or death the fulfillment or performance of the terms agreed upon in the contract Article 1306 The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem Autonomy of contract an autonomy of will; it is the obligatory force between the parties. Contract 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. Characteristics of a Contract: 1.) Obligatory force contracts constitute the law between the parties 2.) Mutuality validity and performance cannot be left to the will of only one of the parties 3.) Relativity of contracts it is binding only upon the parties and its successors Contracts of Adhesion cases in which one party has already prepared a form of a contract, constituting the stipulations he desires, and simply asks the other party to agree to them if wants to enter into the contract.
Validity of Stipulations The contract is the law between the contracting parties Where there is nothing in the contract which is
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convenient, provided they are not contrary to law, morals, good customs, public order, or public policy.
contrary to law, morals, good customs, public policy, or public order, the validity of the contract must be sustained Innominate Contracts those which are not specifically governed by any provision in the Civil Code or special law but which likewise involve the fulfillment or accomplishment of some prestations Do et des I give and you give Do ut facias I give and you do Facio ut es I do and you give Facio ut facias I do and you do Rules Governing Innominate i. Stipulations of the parties; ii. Provisions in the law of obligations and Contracts under Title I and II of the Civil Code; iii. Rules governing most analogous nominate contract; iv. Customs of the place.
Article 1307 Innominate contracts shall be regulated by the stipulations of the parties, by the provisions of Titles I and II of this Book, by the rules governing the most analogous nominate contracts, and by the customs of the place.
Article 1308 The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them.
Mutuality of Contract obligations arising from contracts have the force of law between the contracting parties Consequences of Mutuality: 1. A party cannot revoke or renounce a contract without the consent of the other, nor can have it set aside on the ground that he had made a bad bargain. 2. When the fulfillment of condition depends upon the sole will of debtor, the conditional obligation is void if the condition is suspensive; if it is resolutory it is valid.
When stipulated: i. An agreement of the parties that either one of them may terminate the contract upon reasonable period of notice is valid ii. Judicial action not necessary where the contract provides that it may be revoked and cancelled for the violation of any of its terms and conditions
Article 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. Article 1310 Reason: prejudicial acts tend to destroy the basic equality of the contracting parties.
Example: in a contract of sale, the fixing of price and delivery date can be left to a 3rd person; the decision binds the party only after it is made known to both.
Court intervention is necessary in order that the intent of the parties will not be rendered nugatory by the
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The determination shall not be obligatory if it is evidently inequitable. In such case, the courts shall decide what is equitable under the circumstances. Article 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. Principle of Relativity General Rule: Contracts are only effective between the parties, their assigns and their heirs. Exceptions: i. Where obligations arising from the contract are not transmissible by their nature, by stipulation in favor of a 3rd party. ii. Where there is stipulation Pour Autri (a stipulation in favor of 3rd person) iii. Where a third person induces another to violate his contract iv. Where in some cases, 3rd persons may be adversely affected by a contract where they did not participate. v. Where law authorizes the creditor to sue on a contract entered into by his debtor.
inequitable terms and conditions of a third party.
Requisites of a Stipulation Pour Autrui: 1.) There must be a stipulation in favor of a third person; 2.) The stipulation must be a part, not the whole of the contract 3.) The contracting parties must have clearly and deliberately conferred a favor upon a third person, not a mere incidental benefit or interest; 4.) Neither of the contracting parties bears the legal representation or authorization of the third party; 5.) The favored party must have communicated his acceptance of the stipulation to the obligor before its revocation. Note: There must be no relation of agency between either of the parties and 3rd person. (Neither the contracting parties bears the representation or authorization of the 3rd party.) That the favorable condition should not be conditioned or compensated by any kind of obligation or whatsoever;
Article 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. Article 1313
Real rights in property: A real right directly affects property subject to it Whoever comes into possession of such property must respect that real right
Even if the creditor is not a party to the contract intended to defraud him, he is given legal personality by
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Creditors are protected in cases of contracts intended to defraud them. Article 1314 Any third person who induces another to violate his contract shall be liable for damages to the other contracting party.
law to terminate the contract.
Requisites: 1.) Existence of a valid contract; rd 2.) Knowledge by the 3 person of the existence of the contract; rd 3.) Interference of the 3 person in the contractual relation without legal justification.
Note: Interference of third persons A third person may be held liable for damages because he has induced a party to the contract to violate the terms thereof Malice in some form is generally supposed to be an essential ingredient in cases of interference with contract relations Third person may not be made more extensively liable in damages for the non-performance of the contract than the party in whose behalf he intermeddles
Article 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.
Perfection of Consensual Contract The perfection of a contract is the moment from which it exists; the juridical tie between the parties arises from that time Consensual contracts are perfected by mere consent which is the meeting of the minds of the parties upon the terms of the contract Formal contractswith compliance with special external formalities is necessary for the validity of the contract are no longer recognized under our law, as distinct from consensual contracts Real Contract A real contract is not perfected by mere consent Delivery of the thing is also required Demanded by the nature of the real contracts and their purpose Requisites for a Person to Contract in the Name of Another: Ratification Necessary: Where a contract is entered into in behalf of
Article 1316 Real contracts, such as deposit, pledge and Commodatum, are not perfected until the delivery of the object of the obligation.
Article 1317
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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.
1.) He must be duly authorized (express/impliedly); 2.) He must have by law a right to represent him (guardian/administrator); 3.) Contract must be subsequently ratified (express/implied, by word or deed).
another who hasnt authorized it, such contract isnt valid and binding against him, unless he ratifies the same and is estopped to question its legality Nullity of the contract is of a permanent nature and it will exist as long as it is not duly ratified Defect is such that it cannot be cured except by the subsequent ratification of the person in whose name the contract was executed
Chapter 2: Essential Requisites of Contracts General Provisions Article 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. Section 1 Consent Article 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 Consent the concurrence of the wills of the offerer and the acceptor as to the thing and the cause which constitute a contract. Requisites in order that silence produces tacit acceptance (Tolentino): i. There is a duty or the possibility to express oneself; ii. The manifestation of the will cannot be interpreted in any other way; iii. There is a clear identity in the effect of the silence and the undisclosed will. All 3 requisites must be present. The absence of one requisite negates the existence of a contract. Note: (a) Consent presupposes legal capacity, otherwise, contract is voidable (b) Object certain means at the very least determinable
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knowledge. The contract, in such a case, is presumed to have been entered into in the place where the offer was made.
Article 1320 An acceptance may be express or implied
Implied acceptance may arise from the acts or facts which reveal the intent to accept as the consumption of the things sent to the offeree, or the fact of immediately carrying out the contract offered.
Article 1321 The person making the offer may fix the time, place, and manner of acceptance, all of which must be complied with. Article 1322 An offer made through an agent is accepted from the time acceptance is communicated to him.
The offerer will not be bound by an acceptance made by the acceptor in any other manner than that specified by the offerer unless the latter acquiesces in the change.
Period of acceptance the offer with a period lapses upon the termination of the period
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 (In an obligation where the agent has exceeded his power, the principal is not bound except when he ratifies it expressly or tacitly.)
Contract through Intermediary An intermediary who has no power to bind either the offeror or offeree is not an agent His situation is similar to that of a letter carrier Communication of acceptance to him doesnt perfect the contract, this occurs only when in turn he communicates such acceptance to the offeror Other instances when Offer becomes Ineffective:
a) When the offeree expressly or impliedly rejects the offer; b) When the offer is accepted with a qualification or condition; c) When before acceptance is communicated, the subject matter has become illegal or impossible; d) When the period of time given to the offeree w/in which he must signify his acceptance has already lapsed. e) When the offer is revoked in due time (before the offeror has learned of its acceptance by the offeree)
Article 1323 An offer becomes ineffective upon the death, civil interdiction, insanity, or insolvency of either party before acceptance is conveyed.
Reason: the disappearance of either party or his loss of capacity before perfection prevents the contractual tie from being formed.
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Article 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.
Option a contract granting a privilege to buy or sell at a determined price within an agreed time. Contract of Option: Preparatory contract 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 the principal contract 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 during the period designated and within the period, to enter such contract with the one to whom the option was granted if the latter should decide to use the option Compared with earnest money, option money is not considered in the computation of the balance while earnest money forms part of the purchase price
Period of Acceptance: When the offeror has stated a fixed period for acceptance, the offeree may accept at any time until the fixed period expires When the offeror has not fixed a period, and the offer is made to the person present, the accept must be made immediately When the offer is made to a person absent, the acceptance must be made within such time that, under normal circumstances, an answer can be received from himthere is deemed to be a reasonable tacit period 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 He cannot exercise this right absolutely without regard to the rights of others He must allow the offeree a sufficient opportunity, depending upon the circumstances and the nature of the proposed contract, to decide upon his course of action and communicate his reaction 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
Article 1325 Unless it appears otherwise, business advertisements of things for sale are not definite offers, but mere invitations to make an offer. Article 1326
Sales advertisements 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.)
Effect of Bidding:
Exception of applicability: Judicial sales the highest bid
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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.
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 for in the advertisement, then each bid is merely an offer, which the advertiser is free to reject Where the notice calling for bids at 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 the bids to accept his bid or execute a deed of sale in favor General Rule: Contracts which they enter into are voidable or annulable, UNLESS: a.) b.) c.) Upon reaching the age of majority, they ratify the same; They were entered into through a guardian and the court having jurisdiction had approved it; Contracts of life insurance in favor of their parents, spouse, children, brothers and sisters and provided furthermore that the minor is 18 years and above. In the form of savings account, provided that minor was at least 7 years old. They were contracts for necessities such as food, but here the people who are legally bound to give them support should pay therefore They were contracts where the minor misrepresented his age and pretended to be one of major age and is thus in
must necessarily be accepted
Article 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.
Insane or demented persons no proper declaration of insanity by the court is required, as long as it is shown that at the time of contracting, the person was really insane. Deaf-mutes not itself alone a disqualification for giving consent, what the law refers to is the deaf-mute who doesnt know how to read and write.
d.) e.)
f.)
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Estoppel. Article 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. Voidable Contracts: 1.) Entered into by insane/demented persons (unless they acted during a lucid interval) 2.) Those in state of drunkenness 3.) Under hypnotic spell Important element: Such persons Understanding Lucid interval that period of time when an insane person acts with reasonable understanding, comprehension and discernment with respect to what he is doing. Drugs or Liquor mere use in itself doesnt incapacitate him, it must be in such degree that obscures the faculties completely and almost extinguishes the consciousness of act (may be a ground for annulment of contract) -- Void if; drunkenness was brought about by the opposite party and fraudulent advantage was taken of it. Article 1329 The incapacity declared in article 1327 is subject to the modifications determined by law, and is understood to be without prejudice to special disqualifications established in the laws. Incompetents under Rules of Court: a) Under Civil interdiction b) Hospitalized lepers c) Prodigals d) Deaf and dumb; unable to read and write e) Unsound mind even though they have lucid intervals f) Those who by reason of age, disease, weak mind, and other similar causes, cannot w/o aid, take care of themselves and manage their property Requisites of Consent: 1.) It should be intelligent, or with an exact notion of the matter to which it refers; 2.) It should be free; and 3.) It should be spontaneous Causes of Vitiated Consent (Defects of the Will) Note: 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 and circumstances in a given case and in deciding in favor of what they believe to have actually occurred 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 the preponderance thereof
Article 1330 A contract where consent is given through mistake, violence, intimidation, undue influence, or fraud is voidable.
Mistake (error) Fraud (deceit) Violence Intimidation
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Article 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. 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.
Undue influence Errors which do not affect the validity of the contract: - Accidental qualifies of the object of the contract; - Value of the thing; - Accessory matters in the contract foreign to the determination of the object; - Name of the person, but without error as to the person (error as to the person will invalidate consent when the consideration of the person has been the principal cause of the contract); - Solvency of the party; and - Motive of a party. Ignorance the complete absence of any notion about a matter. Error or mistake a wrong notion about a matter (Both are covered in this provision)
Requisite for mistake to Vitiate Consent: 1.) The error must be substantial regarding: - Object of contract - The conditions which principally moved/ induced one the parties - Identity of qualifications but only if such was the principal cause of the contract 2.) The error must be excusable (not caused by negligence) 3.) The error must be a mistake a mistake of fact and not of law (mistake of Law is not a ground for annulment of contracts)
Article 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.
General Presumption: parties have understood the terms of the contract they voluntarily signed. (Even if the mind of the party signing was confused at the time of signing as long as he knew what he was doing.)
When Presumption Cannot Apply: i.) When one of the parties is unable to read; or ii.) If contract is in a language not understood by one of the parties Note: In both cases, the person enforcing the contract must show that the terms thereof have been fully explained to the former. Inexcusable Error: - To invalidate consent, the error must be excusable - It must be a real error, and not one that could have been avoided by the party alleging it - He cannot allege an error which refers to a fact
Article 1333 There is no mistake if the party alleging it knew the doubt, contingency or risk affecting the object of the contract.
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known to him, or which he should have known by ordinary diligent examination of the facts Article 1334 Mutual error as to the legal effect of an agreement when the real purpose of the parties is frustrated, may vitiate consent. Requisites for Mutual error to Vitiate Consent: 1.) The mistake as to the legal effect of the agreement must be mutual; and 2.) Such mutual mistake frustrates the real purpose of the parties. Note: Remedy is either annulment or Reformation Article 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. Requisites of Violence to vitiate consent: 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 2.) That such force is the efficient cause in giving the consent to the contract Requisites of Intimidation to vitiate consent: 1. That the intimidation must be the determining cause of the contract, or must have caused the consent to be given; 2. That the threatened act be unjust or unlawful; 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; 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. Article 1336 Violence or intimidation shall annul the obligation, Duress by Third Person even if the intimidation has been employed by a third person who wasnt a party to the contract, the agreement is still null and void. Note: - 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 than is due him. - As to the nature of injury, the person should not be limited to life and physical being but should include liberty and honor, thereby covering injuries not patrimonial in nature (Tolentino, p.497) - A threat of a law suit or legal action, when there is legal basis would not vitiate consent
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although it may have been employed by a third person who did not take part in the contract. Article 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: i.) ii.) iii.) iv.) 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. Undue influence: - There need not be an unlawful or unjust act - There is moral coercion - The wish of the party subjected to undue influence is subdued and displaced by some influence which he doesnt have the power to resist, although it has not convinced his judgment - Any means employed upon a party which, under circumstances, he couldnt well resist, and which controlled his volition and induced him to give his consent to the contract, which otherwise he wouldnt have entered into Contracts of Adhesion: - One of the parties imposes a ready-made form of contract, which the other party may accept or reject, but which the latter cannot modify - Usually contains stipulations which tend to increase the obligations of the adherent, and to reduce the responsibilities of the offeror - A contract of adhesion is construed strictly against the one who drew the same
Article 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.
Kinds of Fraud: a. Dolo Causante were it not for the fraud, the other party would not have consented--the contract is voidable b. Dolo Incidente even w/o the fraud, the parties would have still agreed, fraud is incidental-Contract is valid but damages may be recovered. Requisites of Dolo Causante: 1. Fraud must be material and serious; induced the other to consent; 2. Fraud must have been employed by only one of the contracting parties, because if both committed fraud, the contract would remain valid 3. There must be a deliberate intent to deceive or to induce therefore misrepresentation in good faith is not fraud
Fraud a false representation of a material fact made by word or conduct with knowledge of its falsehood or in reckless disregard of its truth in order to induce and actually inducing another to act thereon to his injury. Requisites of Fraud: 1. It must have been employed by one contracting party upon the other 2. It must have induced the other party to enter into the contract 3. It must have been seriousit must pertain to one of the elements of the contract (cause or object) 4. It must have resulted in damage or injury to the party seeking annulment Effects of Fraud: a. Nullity of the contract; and b. Indemnification for damages.
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4. The other party must have relied on the untrue statement and must himself not be guilty of negligence in ascertaining the truth Article 1339 Failure to disclose facts, when there is a duty to reveal them, as when the parties are bound by confidential relations, constitutes fraud. Concealment as Fraud 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. Tolerated Fraud - Valid provided they do not go to the extent of malice or bad faith - Does not give rise to an action for damages, either because of their insignificance or because the stupidity of the victim is the real cause of his loss. - Caveat Emptor Made by Expert: - An opinion by an expert is like a statement of fact and if false, may be considered fraud giving rise to annulment - When the expert was however employed by the party misled, he cannot ask for annulment Fraud by Third Person: - General rule: the fraud employed by a third person upon one of the contracting parties doesnt vitiate consent and cause the nullity of the contract; it merely gives rise for an action for damages by the party injured against such third person - If one of the parties is in collusion with the third 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.
Article 1340 The usual exaggerations in trade, when the other party had an opportunity to know the facts, are not in themselves fraudulent.
Article 1341 A mere expression of an opinion does not signify fraud, unless made by an expert and the other party has relied on the former's special knowledge.
Article 1342 Misrepresentation by a third person does not vitiate consent, unless such misrepresentation has created substantial mistake and the same is mutual.
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person or knows of the fraud by the third person, and he is benefited thereby, he may be considered as an accomplice to the fraud and the contract becomes voidable Article 1343 Misrepresentation made in good faith is not fraudulent but may constitute error. Article 1344 In order that fraud may make a contract voidable, it should be serious and should not have been employed by both contracting parties. Incidental fraud only obliges the person employing it to pay damages. Article 1345 Simulation of a contract may be absolute or relative. The former takes place when the parties do not intend to be bound at all; the latter, when the parties conceal their true agreement. Article 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. Requisites of Simulation: 1.) Outward declaration of will different from the will of the parties; 2.) False appearance must have been intended by mutual agreement; 3.) The purpose is to deceive 3rd persons. Simulation of Contract process of intentionally deceiving others by producing the appearance of a contract that really does not exist (absolute) or which is different from the true agreement (relative).
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Section 2 Object of Contracts Article 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 object of a contract. Requisites of Object: 1.) The object must be within the commerce of man (it may not be physically or legally impossible) 2.) Must be transmissible 3.) Must not be contrary to law, morals, good customs, public policy, or public order 4.) Must not be impossible 5.) Must be determinate as to its kind Generally, 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. When the contract involves future things, it may either be: a.) Conditional subject to the coming into existence of the thing b.) Aleatory one of the parties bears the risk of the thing never coming into existence Article 1348 Impossible things or services cannot be the object of contracts. Impossible things or services - When they are not susceptible of existing, or they are outside the commerce of man - Must be actual and contemporaneous with the making of the contract and not subsequent thereto - Absolute/ objective impossibility nullifies the contract: Relative impossibility, if temporary, does not nullify the contract Partly impossible - If partly impossible and partly possible, the effect will depend upon the divisibility or the thing. The contract is valid to the extent that it Future Inheritances General Rule: Not allowed Requisites to fall within the prohibition: 1.) The succession has not yet been opened 2.) The object of the contract forms part of the inheritance 3.) The promissory has, with respect to the object, an expectancy of a right which is purely hereditary in nature Exceptions: (1) Marriage settlements. Spouses are allowed to donate to each other future properties provided that they comply with the forms of will; (2) Partition of the property during the lifetime of the testator; (3) When ones right over the property is not as an heir but as a creditor.
Liability for damages - If the obligor knew of the impossibility, or could have known of it, his bad faith or negligence makes him liable for liabilities - However, if he was ignorant of the impossibility and his ignorance is justifiable then he cannot be liable Note: A showing of mere inconvenience, unexpected impediments, or increased expenses is not enough to relieve him of his obligation.
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is possible. If it is indivisible, by its nature or by intention of the parties, there is no contract. Determination of Quantity - The quantity of the object may be indeterminate so long as the right of the creditor is not rendered illusory
Article 1349 The object of every contract must be determinate as to its kind. The fact that the quantity is not determinate shall not be an obstacle to the existence of the contract, provided it is possible to determine the same, without the need of a new contract between the parties.
Determination of Kind - Must be determinate as to its kind or species - Thing must have a definite limit, not uncertain or arbitrary
Section 3 Cause of Contracts Article 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 whichis remunerated; and in contracts of pure beneficence, the mere liberality of the benefactor. Requisites of Cause: 1.) It must exist; 2.) It must be true; 3.) It must be licit. Cause - - the why of the contract Immediate, direct, and proximate reason which justifies the creation of an obligation through the will of the contracting parties Classification of Contracts As to Cause: 1.) Onerous the cause is for each contracting party, the prestation or promise of thing/ service 2.) Remuneratory the past service or benefit which by itself is a recoverable debt 3.) Gratuitous or contracts of pure beneficence the cause is the mere liberality of the benefactor
Article 1351 The particular motives of the parties in entering into a contract are different from the cause thereof.
Effect of Motive: As a general principle, the motives of the party dont affect the validity or existence of a contract Mere presence of motives cannot cure the absence of consideration Motive Affects the Juridical Act: 1. When the motive of a debtor in alienating

Motive The particular reason for the contracting party Psychological Differs for each person Cause Essential reason for the contract Objective, intrinsic, and juridical Always the same
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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 Article 1352 Contracts without cause, or with unlawful cause, produce no effect whatever. The cause is unlawful if it is contrary to law, morals, good customs, public order or public policy. Article 1353 The statement of a false cause in contracts shall render them void, if it should not be proved that they were founded upon another cause which is true and lawful. Want of Cause a simulated contract of sale is without any cause or consideration, and is therefore null and void; in such case, no independent action to rescind or annul the contract is necessary and it may be treated as non-existent for all purposes Illegality of Cause an agreement by the injured party to stifle the prosecution of a person who has committed a crime for a pecuniary or other valuable consideration is contrary to public policy and the due administration of justice
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 contract of sale, it is null and void per se, it is not a contracto inexistente but merely a contracto nulo, or annullable contract, under the provisions of the present article Applies where: there is no cause stated in the contract General Rule: Presumption of a Valid Contract having a good and sufficient consideration Exception: When fraud is employed, or there is mistake or there is undue influence. General Rule: Lesion or inadequacy of price does not invalidate a contract.
Note: False cause does not necessarily mean that contract is void; the parties are given a chance to show that a cause really exists and is lawful and true.
Article 1354 Although the cause is not stated in the contract, it is presumed that it exists and is lawful, unless the debtor proves the contrary. Article 1355 Except in cases specified by law, lesion or inadequacy
Note: burden of proving legality of the cause is upon the party enforcing the contract
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of cause shall not invalidate a contract, unless there has been fraud, mistake or undue influence.
Exceptions: a.) When together with lesion there has been i.) Fraud; ii.) Mistake; or iii.) Undue Influence. b.) In cases expressly provided by law. Chapter 3: Form of Contracts
Article 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
General Rule: No form is required in Consensual Contracts Formal Contracts requires form (eg. Donation) Real Contracts requires delivery
Where the Form is Absolute and Indispensible 1. When the form is essential to the validity of the contract 2. When the contract is unenforceable unless it is in a certain form, such as those under the Statute of Frauds as formulated under Article 1403 For validity of Contract: There are some contracts which require certain formalities for their validity Negotiable instruments must be made strictly in the form provided for in Negotiable Instruments Law Donations of personal property valuing over P5000 Interests in loans must be expressly stated in writing
Article 1357 If the law requires a document or other special form, as in the acts and contracts enumerated in the following article, the contracting parties may compel each other to observe that form, once the contract has been perfected. This right may be exercised simultaneously
Compliance with Formality: The contracting parties have the power to compel the other to execute the formalities required by law, as soon as the requisites for the validity of the contract are present The article recognizes the enforceability by the
Causes of Action: It confers a privilege upon both parties and the fact that the plaintiff hasnt made use of the same doesnt bar action on the contract This provision doesnt operate against the validity of the contract nor the validity of the acts
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with the action upon the contract.
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 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 doesnt subordinate the principal action to the secondary action concerning the form Writing not for Validity: 1. To ensure efficacy of the contract 2. The reduction to writing in a public or private document, required by this article, is not an essential requisite for the existence of the contract, but it is simply a coercive power granted to the contracting parties by which they can reciprocally compel the observance of these formal requisites
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
Article 1358 The following must appear in a public document: (1) Acts and contracts which have for their object the creation, transmission, modification or extinguishment of real rights over immovable property; sales of real property or of an interest therein a governed by articles 1403, No. 2, and 1405; (2) The cession, repudiation or renunciation of hereditary rights or of those of the conjugal partnership of gains; (3) The power to administer property, or any other power which has for its object an act appearing or which should appear in a public document, or should prejudice a third person; (4) The cession of actions or rights proceeding from an act appearing in a public document. All other contracts where the amount involved exceeds five hundred pesos must appear in writing, even a private one. But sales of goods, chattels or things in
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action are governed by articles, 1403, No. 2 and 1405. Chapter 4: Reformation of Instruments Article 1359 When, there having been a meeting of the minds of the parties to a contract, their true intention is not expressed in the instrument purporting to embody the agreement, by reason of mistake, fraud, inequitable conduct or accident, one of the parties may ask for the reformation of the instrument to the end that such true intention may be expressed. Reason for Reformation: Equity dictates the reformation of an instrument in order that the true intention of the contracting parties may be expressed Requisites for Action for Reformation: 1.) There must be meeting of the minds 2.) True intention is not expressed in the instrument 3.) There must be clear and convincing proof thereof 4.) It must be brought within the proper prescriptive period 5.) Document must not refer to a simple unconditional donation inter vivos or to wills or to a contract where real agreement is void Requisites for Reformation (Tolentino): 1. There must have been a meeting of the minds upon the contract 2. The instrument or document evidencing the contract doesnt 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 Article 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.
Distinguished from Annulment: Action for reformation of instruments presupposes that there is valid existing contract between the parties, and only the document that was drawn up and signed by them doesnt correctly express the terms and conditions of their agreement If the minds of the parties didnt meet, or if the consent of either one was vitiated by violence, intimidation or mistake or fraud, so that no real and valid contract was made, the action is for annulment rather than reformation Annulment involves complete nullification of the contract Reformation gives life to it upon certain corrections Operation and Effect: It relates back to, and takes effect from the time of its original execution, especially between the parties
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Article 1361 When a mutual mistake of the parties causes the failure of the instrument to disclose their real agreement, said instrument may be reformed.
Requisite 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 Mistake of Fact Includes something which shouldnt be there, or omits from such instrument something which should be there, or so expresses their agreement that it sets forth something different from what was intended
Must be Mutual: The mistake must be 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 Where the contract is clear and unmistakeable and the terms employed therein havent been shown to belie or otherwise fail to express the real agreement of the parties, and the deed hasnt been assailed on the ground of mutual mistake that would require its reformation, the same should be given its full force and effect Note: The error is thru mistake but all the essential requisites are present
Article 1362 If one party was mistaken and the other acted fraudulently or inequitably in such a way that the instrument does not show their true intention, the former may ask for the reformation of the instrument. Article 1363 When one party was mistaken and the other knew or believed that the instrument did not state their real agreement, but concealed that fact from the former, the instrument may be reformed.
Requisites: 1. Mistake must be mutual 2. Mistake may be unilateral under the conditions set forth in Art. 1362 and 1363.3. Mistake must be of fact.
Mistake by one party: A written instrument may be reformed when there is mistake on one side and fraud or inequitable conduct on the other Fraud or inequitable conduct of the other party must be clearly shown and must be at the time of the execution of the instrument, may it be actual or constructive The mistake must refer to the contents of the instrument
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Article 1364 When through the ignorance, lack of skill, negligence or bad faith on the part of the person drafting the instrument or of the clerk or typist, the instrument does not express the true intention of the parties, the courts may order that the instrument be reformed. Article 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.
Mistake of Draftsman Ground to correct the mistake by reforming the instrument
Deed held to be Mortgage: When the intention of the contracting parties was to enter into a mortgage contract, such intention shall prevail although the deed executed may be one of sale with the right to repurchase The intention of the parties may be inferred from subsequent acts, as well as from the stipulations themselves in the contract
Article 1366 There shall be no reformation in the following cases: (1) Simple donations inter vivos wherein no condition is imposed; (2) Wills; (3) When the real agreement is void. Article 1367 When one of the parties has brought an action to enforce the instrument, he cannot subsequently ask for its reformation. Article 1368
Donation and Wills Action to reform a written instrument is in the nature of an action for specific performance and requires a valuable considerationan element lacking as between the donor and donee, and between testator and beneficiary
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Reformation may be ordered at the instance of either party or his successors in interest, if the mistake was mutual; otherwise, upon petition of the injured party, or his heirs and assigns. Article 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 Article 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. Article 1371 In order to judge the intention of the contracting parties, their contemporaneous and subsequent acts shall be principally considered. Article 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
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which the parties intended to agree. Article 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. Article 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. Article 1375 Words which may have different significations shall be understood in that which is most in keeping with the nature and object of the contract. Article 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. Article 1377 The interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity.
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Article 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. Article 1379 The principles of interpretation stated in Rule 123 of the Rules of Court shall likewise be observed in the construction of contracts. Chapter 6: Rescissible Contracts Article 1380 Contracts validly agreed upon may be rescinded in the cases established by Law. Rescissible Contracts: Valid contracts but by reason of economic injury caused either to one of the parties, or to a third person, the contract has to be rescinded. Of the four of defective kinds of contracts, rescissible contracts occupy the highest lesion. Unlike 1191, there is no breach of faith in the performance but rather the ground of rescission is more on the economic injury suffered by the parties or a third person. Requisites for Rescission: 1.) There must be at the beginning either a valid or a voidable contract 4 types of Defective Contracts: (1) Rescissible contract which is valid until rescinded; extrinsic defect consists of economic lesion or damage. (2) Voidable valid until annulled except if ratified intrinsic defect as in vitiated consent. (3) Unenforceable cannot be sued upon or enforced unless ratified; no effect now but it may be upon ratification. (4) Void (inexistent or illegal) no effect at all nor can it be ratified or validated.
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2.) There is an economic or financial prejudice to someone (a party or a third person) 3.) Requires mutual restitution Article 1381 The following contracts are rescissible: (1) Those which are entered into be guardians whenever the wards whom they represent suffer lesion by more than one-fourth of the value of the things which are the object thereof; (2) Those agreed upon in representation of absentees, if the latter suffer 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 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. Effect of Contracts Entered In Behalf of Ward: (1) If an act ownership: Court approval is required otherwise it is unenforceable whether there is lesion or not. (2) If act of administration: i. With Court approval valid regardless of lesion ii. Without Court approval rescissible, if lesion is more than (Contract may be rescinded on the ground of lesion is a partition of inheritance) (3) Accion Pauliana action to rescind made in fraud of creditors. Requisites: 1.) There must be a creditor who became such prior to the contract sought to be rescinded (a person asking for a rescission is a judgment creditor immaterial) 2.) There must be an alienation made subsequent to such credit. 3.) The party alienating must be in bad faith (he knew that damages would be caused) 4.) There must be no other remedy for the prejudiced creditor inability to collect to the claims due them. Action to rescind may be brought even if debtor has not been judicially declared insolvent and even if the creditor has not yet brought an action to collect. Lesion - -
An economic damage, it is a disparity between price and the value. Mere inadequacy of price, unless shocking to the conscience is not a sufficient ground for setting aside a sale, if there is no showing that, in the event of a resale, a better price can be obtained.
Note: #1 and 2: The guardian with respect to the ward, and the representative with respect to the absentee are only given the powers of administration. The powers mentioned in 1381 are powers of administration and the representative or the guardian entered into a contract and the object of the contract resulted to the economic injury of either the ward or the absentee. By more than of value of the object thereof. If the guardian or representative would exercise acts of ownership beyond what is authorize, the act will not be rescissible but rather unenforceable. That is acted without or in excess of the authority granted to him. But if the representative is the spouse, the act is void. The exception in #1 and 2 is judicial authorization, no rescission if with court approval, even if the wife or the absentee suffers lesion by more than one fourth. (5) Examples: Article 78 with respect to partition of the estate of the deceased when one of the heirs suffer lesion by more than of the value
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(4) Things in Litigation (eg. A sues B for recovery of ring pendente ite, B sells ring to C sale to C is rescissible) - Property is in litigation after defendant received service of summons. Article 1382 Payment made in a state of insolvency for obligations to whose fulfillment the debtor could not be compelled at the time they were effected, are also rescissible. Article 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. Article 1384 Rescission shall be only to the extent necessary to cover the damages caused. Article 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 faith. Concept: Mutual Restitution Requisites before Rescission can be Brought 1.) Generally, plaintiff must be able to return what has been received by virtue of rescissible contract. Except when it is prejudicial to creditors. 2.) The thing-object of the contract is not in the legal possession of 3rd persons in good faith. 3.) There must be no other legal remedy. 4.) The action must be brought w/in proper Requisites: 1.) The Debtor-payer must have been insolvent (no judicial declaration needed) 2.) Debt was not yet due and demandable
which he is supposed to receive and the Law on Sales, 1524, 1526, and 1529
Note: Partial rescission is possible it benefits only the creditor who has asked for rescission.
What must be returned? The object of the contract, the fruits, the price and the interest. If you cannot return this then you cannot ask for rescission. It can be carried out only when he who demands rescission can return whatever he will be obliged to return.
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prescriptive period. In this case, indemnity for damages may be demanded from the person causing the loss. Article 1386 Rescission referred to in Nos. 1 and 2 of article 1381 shall not take place with respect to contracts approved by the courts. Article 1387 All contracts by virtue of which the debtor alienates property by gratuitous title are presumed to have been entered into in fraud of creditors, when the donor did not reserve sufficient property to pay all debts contracted before the donation. Alienations by onerous title are also presumed fraudulent when made by persons against whom some judgment has been issued. The 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. Gratuitous Alienations - presumed fraudulent: when debtor did not reserve sufficient property to pay all debts contracted before the donation. Onerous Alienations - Presumed fraudulent when made by persons: 1. Against whom some judgment has been rendered in any instances (even if not final); or 2. Against whom some writ of attachment has been issued. Badges of Fraud: a.) The fact that consideration of the conveyance is fictitious or inadequate; b.) A transfer made by a debtor after suit has been began and while it is pending against him; c.) A sale upon credit by an insolvent debtor; d.) The transfer of all or nearly all of his property by a debtor, especially when he is insolvent or greatly embarrassed financially; e.) Evidence of large indebtedness or complete insolvency; f.) The fact that the transfer is made between father and son; g.) The failure of vendee to take exclusive possession of all the property. Note: Presumptions Par. 1: It is absolutely necessary when you prepare a deed of donation for the donor to state that he has reserved sufficient property for himself to answer for his support as well as the obligations that he has incurred prior to this donation. Otherwise, if that is not found then the presumption is that you intend to defraud your creditors. Par. 2: If it is by onerous title: 1. There is already an on going case filed against you for collection of money, or 2. There is a writ of attachment (issued during the pendency of the case asked by the complainant upon the court that the defendant is about to dispose nearly all his property and which if judgment shall be rendered by the court in favor of the complainant, the writ of execution issued by the court by reason of that favorable judgment will be returned unsatisfied by the sheriff)
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A gratuitous conveyance or donation, validly executed is presumed valid unless it can be shown that at the time of execution of conveyance, a creditor/s is/are adversely affected by said transaction. Fraud is not sufficient to rescind; for after all transferee may have been in good faith and is now in legal possession of the property. Article 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. Article 1389 The action to claim rescission must be commenced within four years. For persons under guardianship and for absentees, the period of four years shall not begin until the termination of the former's incapacity, or until the domicile of the latter is known. In a nutshell: Note:
If transferee is in good faith: good/ bad faith of next transferee is immaterial If transferee is in bad faith: the next transferee is only liable if he is in bad faith
- -
Due to any cause includes fortuitous event. Rescission is merely a secondary remedy -- only if debtor cannot pay.
Who can bring Action: 1. The injured party or defrauded creditor 2. His heir or successor-in-interest 3. Creditors of (1) and (2) by virtue of Article 1177 If not under numbers 1 and 2: The prescriptive period begins to run after the aggrieved party has unsuccessfully exhausted all possible remedies to enforce the obligation or to recover what has been lost
When period begins to prescribe in instituting an action for rescission: a. For persons under guardianship from the time the incapacity terminate (18) b. For absentees from the time he learns of the contract c. For contracts entered into in fraud of creditors from the time of the discovery of the fraud d. For contracts entered into with respect to things under litigation without the knowledge and approval of the litigant or of competent judicial authority from the time of knowledge of the transaction Common element: has unsuccessfully exhausted all other legal remedies to be able to enforce his or her rights or recover what has been lost
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Chapter 7: Voidable Contracts Article 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. Voidable Contracts: - Same as annullable contracts - Valid until Annulled, they are not invalid from the beginning unlike a void contract - Any defect or infirmity can be cured by the party aggrieved or injured (ratification) - Lim Tay v. CA: effects of an annulment operate prospectively and do not retroact to the time the contract was made - Damage need not exist Effect or Ratification: It cleanses the contract of its defects, and it shall retroact to the day of the inception of the contract. It has retroactive effect, and it cleanses the contract of whatever defects it creates. So it becomes a valid contract. Prescription for Nullity: Extinctive prescription applies, not only to the action for annulment, but also to the defense of nullity If the period for prescription has already expired, the nullity of the contract can no longer be set up as a defense to an action to enforce the same Action prescribes in 4 years
Rescission Basis: Lesion Defect: external/extrinsic Action: Subsidiary A Remedy Private interest governs Equity predominates rd Plaintiff may be a 3 party There is damage If plaintiff has indemnities, rescission will not prosper
Annulment Basis: Vitiated and incapacity to consent Defect: internal/intrinsic Action: Principal A sanction Public interest governs Law predominates Plaintiff must be a party to the contract Damage is immaterial Indemnity is not a bar to action
Article 1391 The action for annulment shall be brought within four years. This period shall begin: In cases of intimidation, violence or undue influence, from the time the defect of the consent ceases. In case of mistake or fraud, from the time of the discovery of the same. And when the action refers to contracts entered into by minors or other incapacitated persons, from the time the guardianship ceases.
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Article 1392 Ratification extinguishes the action to annul a voidable contract.
Requisites of Ratification 1. Contract is voidable 2. Person ratifying must know the reason for the contract being voidable (cause is known) 3. Cause must not exist/continue to exist anymore at time of ratification 4. Ratification is made expressly or by an act implying a waiver of action to annul 5. Person ratifying must be the injured party
Requsites for Ratification (Tolentino) 1. That the contract is 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 Tacit tantamount to implied. Where in the actions or the conduct of one party validates a questioned contract
Article 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. Article 1394 Ratification may be effected by the guardian of the incapacitated person. Article 1395 Ratification does not require the conformity of the contracting party who has no right to bring the action for annulment. Article 1396 Ratification cleanses the contract from all its defects from the moment it was constituted. Retroactive Effect of Ratification: - Once ratified, annulment based on original defect cannot prosper - Rights of innocent 3rd persons must not be
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prejudiced. Article 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. Article 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 cases provided by law. In obligations to render service, the value thereof shall be the basis for damages. Article 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. Article 1400 Whenever the person obliged by the decree of The defendant in an annullable contract would either be the capacitated or the person who employed the vices of the consent. Who may ask for annulment: General Rule: The victim (principal or subsidiary party) Exception: If person not obliged principally/ subsidiarily in a contract may exercise an action for nullity if he is prejudiced in his rights w/ respect to one of the contracting parties. Creditors of victim cannot ask for annulment except when it prejudices them and the debtor has no other property. Effects of Annulment: 1. If contract is not complied with parties are excused from the obligation 2. If contract has already been performed Mutual Restitution of: a. The thing with fruits; b. The price with interest Note: - Cannot be availed of by strangers to contract and innocent third parties cannot be obliged to restore - Husband cannot barter away his wifes paraphernal properties except when she consents
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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. Article 1401 The action for annulment of contracts shall be extinguished when the thing which is the object thereof is lost through the fraud or fault of the person who has a right to institute the proceedings. If the right of action is based upon the incapacity of any one of the contracting parties, the loss of the thing shall not be an obstacle to the success of the action, unless said loss took place through the fraud or fault of the plaintiff. Article 1402 As long as one of the contracting parties does not restore what in virtue of the decree of annulment he is bound to return, the other cannot be compelled to comply with what is incumbent upon him. 2nd paragraph speaks of the action instituted by the incapacitated. Loss shall not be an obstacle to the success of the action. If it were the incapacitated who lost or squandered the object he is not under obligation to return it. The law only obliges him to return it if it has redounded to his benefit or he has kept the thing. So here, under the 2nd par of 1401, it shall not be an obstacle to the action, unless the loss is through the fault or fraud of the incapacitated. If the defendant loss the object of the contract through a fortuitous event and a petition for annulment is filed by the party who has the right to institute the action? Is he still obliged to pay the value, interest and fruits? No. Because he is in good faith, and the loss is not due to his fault, then he is only obliged to pay the value no longer the interest.
Basis: Mutual Restitution If the thing is lost, and the party who lost it has the right to institute the action, and it is lost through fortuitous event, he can still compel if he offers to pay the value of the object of what he is bound to return. Loss of thing by Plaintiff: If loss due to his fault or fraud, he cannot ask for annulment, the action for such is extinguished in such case If the loss is not due to his fault or fraud, but to fortuitous event, the action for annulment is not extinguished. 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. (Tolentino, p. 613)
If the thing is lost through the fault or negligence of the defendant or the capacitated or the person who exercised the fraud, then he is obliged to pay the value, plus interest, plus damages because there was negligence Loss of thing by Defendant: If it is with his fault or fraud, he will return the fruits received, the value of the thing at the time of the loss, with interest from the same date If loss without his fault on his part, but by fortuitous event, there could still be annulment of contract
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Chapter 8: Unenforceable Contracts Article 1403 The following contracts are unenforceable, unless they are ratified: (1) Those entered into in the name of another person by one who has been given no authority or legal representation, or who has acted beyond his powers; (2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases an agreement hereafter made shall be unenforceable by action, unless the same, or some note or memorandum, thereof, be in writing, and subscribed by the party charged, or by his agent; evidence, therefore, of the agreement cannot be received without the writing, or a secondary evidence of its contents:
(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
Kinds of Unenforceable Contracts a) Unauthorized contracts b) Those that fail to comply with the Statute of Frauds c) Those where both parties are incapable of giving consent to a contract. Concept: One that cannot be enforced unless it is first ratified in the manner provided by law. It doesnt produce any effect unless it is ratified. (a) Unauthorized Contracts when a person enters into a contract for and in the name of another, without authority to do so, the contract doesnt bind the latter, unless he ratifies the same. This assumes that the party isnt aware of the authority of the agent. (b) Not in compliance to Statute of Frauds To Prevent fraud and perjury Must be Written (it may not be formal). Any writing may suffice as long as that written instrument is complete. All the elements are in the instrument. The object has specific description, the cause and the consent of the parties. Exchange of emails and notes may be considered as evidence of written instrumentdocuments the agreement If the contract has been partially been executed, it is not within the operation of the Statute of Frauds (Diwa v. Donato)
Statute of Frauds - Descriptive of statutes which require certain classes of contracts to be in writing - Doesnt deprive the parties of the right to contract with respect to the matters therein involved, but merely regulates the formalities of the contract necessary to render it enforceable Validity A contract falling under the statute of frauds cannot be proved without the writing or a memorandum thereof. Statute of frauds simply provides for the manner in which contracts under it shall be proved It doesnt attempt to make such contracts invalid if not executed in writing but only makes ineffective the action for specific performance The contract exists and is valid though it may not be clothed with the necessary form, and the effect of non-compliance with the statute is simply that no action can be proved unless the requirement is complied with Performance within one year: In order for provision of statute to be applicable, it must appear that the parties intended when they made the contract and that it shouldnt be performed within one year Where no time is fixed by the parties for the performance of their agreement, and there is nothing in the agreement itself to allow that it cannot be performed within a year according to the terms and understanding of the parties, the
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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.
(c) Those where both parties are incapable of giving consent to a contract Example: two minors entering into a contract unenforceable contract, but when the guardian receives the consideration, it is converted into a voidable contract Incapacitated Parties: Where both contracting parties dont have the capacity to consent, the contract is unenforceable Neither party nor their representative can enforce the contract unless it is ratified Once it is ratified by one of the parties, it converts the contract to a voidable one
agreement is not within the statute of frauds. Partial performance removes a contract from the application of the statute Guaranty of anothers debt A promise to answer for the debt, default or miscarriage of another has been defined to be 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. (Need not state the consideration) Test of Guaranty: Whether the promise is an original or a collateral one If original not within the statute If collateral to the agreement of another it becomes a surety, the promise must be in writing In Consideration of Marriage Any verbal executory promise or agreement other than mutual promises to marry, made in consideration of marriage requiring that agreements made upon consideration of marriage should be in writing, and signed by the party to be charged therewith. When the marriage is merely an incident, and the end to be attained by the agreement is not in consideration of marriage, but in addition thereto there is some other consideration sufficient to support the oral agreement, this may be proved without the writing required by the statute (Applies also to promises to third persons) Sale of Personality The requirement of a written instrument or memorandum for sales of personal property for a price not less than P500, covers both tangible and intangible personal property.
(3) Those where both parties are incapable of giving consent to a contract.
Note: Doesnt necessarily pertain to the essential requisitesit pertains to want of authority, form of the contract, or incapacity of both contracting parties If there is no objection, it would be deemed as a waiver Emails wont be included in the Statute of Frauds. The enumeration in the statute of frauds is exclusive.
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Lease or Sale of Realty: Law refers only to executory and not executed contracts Article 1404 Unauthorized contracts are governed by article 1317 and the principles of agency in Title X of this Book. Article 1405 Contracts infringing the Statute of Frauds, referred to in No. 2 of article 1403, are ratified by the failure to object to the presentation of oral evidence to prove the same, or by the acceptance of benefit under them. Article 1406 When a contract is enforceable under the Statute of Frauds, and a public document is necessary for its registration in the Registry of Deeds, the parties may avail themselves of the right under Article 1357. Scenario: Both Contracting Parties are incapacitated Article 1407 In a contract where both parties are incapable of giving consent, express or implied ratification by the parent, or guardian, as the case may be, of one of the contracting parties shall give the contract the same effect as if only one of them were incapacitated. 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. If one ratifies the contract It shall be transformed to a voidable or annullable contract If ratification is made by the parents or guardians of both parties The contract shall be completely valid as if it has not been visited by any defect or infirmity at all Contracts infringing the Statute of Frauds may be ratified by: 1.) Failure to object to the presentation of oral evidence to prove such; and 2.) Acceptance of benefit Note: The statute of Frauds may only be invoked in a case for violation of specific performance
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Article 1408 Unenforceable contracts cannot be assailed by third persons. Chapter 9: Void or Inexistent Contracts Article 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; -- (the object could not come into existence because the object may legally be a future thing) (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 Contracts: 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 Not only those contracts wherein the essential elements are wanting but also those by positive provision of law or statute are declared as void Nullity is permanent. Nullity of these contracts are definite and cannot be cured by ratification Note: there are actually two kinds of void contracts: 1.) Those where the essential elements are wanting, or 2.) A contract which has all the essential requisites but it is contrary to law Characteristics: No effect whatsoever as to the parties and to third persons No action for annulment is necessary, because the nullity exists ipso jure, a judgment of nullity is merely declaratory It cannot be confirmed or ratified If it has been performed, the restoration of what has been given is in order Any person may invoke the inexistence of the contract whenever juridical effects founded thereon are asserted against him There is no prescription with regard to declaration of contracts as void
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Article 1410 The action or defense for the declaration of the inexistence of a contract does not prescribe. Article 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, 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 crime shall be applicable to the things or the price of the contract. This rule shall be applicable when only one of the parties is guilty; but the innocent one may claim what he has given, and shall not be bound to comply with his promise. Article 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
(It can be filed anytime)
The Law will not aid either party to an illegal agreement; it leaves the parties where it finds them The in pari delicto doctrine only applies to contracts with illegal consideration or subject matter, whether the attendant facts constitute an offense or misdemeanors, or whether the consideration involved is merely rendered illegal.
Illegality Common to Both Parties: - Neither one can recover damages from the other arising from the illegal act, or plead the same as a cause of action or as a defense - Doctrine of in pari delicto is not applicable where the contract is merely prohibited by law, not illegal per se, and the prohibition is designed for the protection of the rights of the party seeking to recover
Only One Party Guilty: 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.
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what he has given without any obligation to comply his promise. Article 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. Note: Stipulation on void usurious interest are treated wholly void, so that the loan becomes one without stipulation as to payment of interest. It should not be interpreted to mean forfeiture even of the principal, for this would unjustly enrich the borrower at the expense of the lender. Article 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. Article 1415 Where one of the parties to an illegal contract is incapable of giving consent, the courts may, if the interest of justice so demands allow recovery of money or property delivered by the incapacitated person. Article 1416 When the agreement is not illegal per se but is merely prohibited, and the prohibition by the law is designated for the protection of the plaintiff, he may, if public policy Another Exception to the pari delicto rule Example: Child buys drugs from A, court may allow the minor to recover the money he paid A. Repudiation of Illegal Contract: Where the parties to an illegal contract arent equally guilty, and where the 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
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is thereby enhanced, recover what he has paid or delivered. Article 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. Article 1418 When the law fixes, or authorizes the fixing of the maximum number of hours of labor, and a contract is entered into whereby a laborer undertakes to work longer than the maximum thus fixed, he may demand additional compensation for service rendered beyond the time limit. Article 1419 When the law sets, or authorizes the setting of a minimum wage for laborers, and a contract is agreed upon by which a laborer accepts a lower wage, he shall be entitled to recover the deficiency. Article 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: 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 Example: Pactum Commissorium Note: the very nature of the contract in some cases require the nullity be total In a nutshell: It is illegal to charge an amount higher than the statutory ceiling. Such an excess from the limit shall be recoverable.
To prevent exploitation of Employees
If an employer requests an employee to work beyond an agreed time, the former should paid for the extra time.
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Rule of divisibility has two exceptions When the nature of the contract requires indivisibility When the intention of the parties is that the contract be entire
Article 1421 The defense of illegality of contract is not available to third persons whose interests are not directly affected. Article 1422 A contract which is the direct result of a previous illegal contract, is also void and inexistent.
If a third person is greatly prejudiced as his interest is directly affected, he may file a case for the nullification of a contract or set the same as defense, even if such prejudiced person is not a party to the void contract. A void contract is inexistent. If a subsequent contract proceeds from such inexistent contract, the former contract is likewise void.
Book IV: Obligations and Contracts Title III Natural Obligations Article 1423 Obligations are civil or natural. Civil obligations give a right of action to compel their performance. Natural obligations, not being based on positive law but on equity and natural law, do not grant a right of action to enforce their performance, but after voluntary fulfillment by the obligor, they authorize the retenby reason thereof. Some natural obligations are set forth in the following articles. Natural Obligations Juridical tie Performance by the debtor is a legal fulfillment of the obligation Domain of Law Produces civil effects Moral Obligations There is none Pure liberality Four types of Obligations: 1. Moral obligations duties of conscience completely outside the field of law 2. Natural obligations which are not sanctioned by any action but have a relative juridical effect 3. Civil obligations juridical obligations which apparently are in conformity with positive law but are contrary to juridical principles and susceptible of being annulled 4. Mixed obligations full juridical effect Voluntary Fulfillment debtor complies with the same even if he knows that he could not have been legally forced to do so. It is spontaneous, free from fraud and coercion, or it may be understood as meaning with
Domain of Morals
Natural Obligations: Midway between civil and purely moral obligations Civil obligations are enforceable by action while moral obligations rest entirely upon conscience
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It is distinguished from the moral in that if it produces some juridical effects, and from the civil in that it doesnt give rise to an action to compel its performance There must exist a juridical tie which is not prohibited by law and which in itself could give a cause of action, but because of some special circumstances is actually without such legal sanction or means of enforcing compliance by invoking the intervention of the court Two conditions necessary: There be a juridical tie between two persons That this tie is not given effect by law Binding tie is the conscience of the man, for under the law they dont have the necessary efficacy to give rise to an action Conflict between equity and law Article 1424 When a right to sue upon a civil obligation has lapsed by extinctive prescription, the obligor who voluntarily performs the contract cannot recover what he has delivered or the value of the service he has rendered. Article 1425 When without the knowledge or against the will of the debtor, a third person pays a debt which the obligor is not legally bound to pay because the action thereon has prescribed, but the debtor later voluntarily reimburses the third person, the obligor cannot recover what he has paid. Article 1426 When the action has already prescribed, but the debtor later voluntarily reimburses the third person, the obligor cannot recover what he has paid. Debtor can no longer demand for the return of what he delivered to a debt that prescribed
knowledge, free from error. Example of Natural Obligations: a. Obligation to pay interest for use of money, even if not agreed upon in writing b. Duty to support natural or spurious children c. Giving of material and financial assistance to children upon their marriage
Basis: He is not under obligation under the law to reimburse the third person because the payment did not redound to his benefit.
Applies to: 15 years old to 17
Restitution by a minor: After a decree of annulment, the parties are
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When a minor between eighteen and twenty-one years of age who has entered into a contract without the consent of the parent or guardian, after the annulment of the contract voluntarily returns the whole thing or price received, notwithstanding the fact the he has not been benefited thereby, there is no right to demand the thing or price thus returned.
Remember Article 1241: the minor is not obliged to restore. He is only obliged to restore if he has kept the thing or if it has redounded to his benefit.
generally bound to make mutual restitution When the ground for annulment however is the incapacity of the plaintiff, he isnt bound to make restitution except to the extent that he has benefited If he voluntarily makes restitution, he cannot recover what he has delivered, if he is a minor under 18 years of age The minor cannot recover what he has voluntarily surrendered, whether it is consumable or not, and whether the other party still has it in his possession Payment by a minor: Voluntary payment of a minor over eighteen years of age under an annullable contract The obligation here is a civil obligation, which exists and is enforceable unless it is set aside or annulled by a competent court in an action for that purpose
Article 1427 When a minor between eighteen and twenty-one years of age, who has entered into a contract without the consent of the parent or guardian, voluntarily pays a sum of money or delivers a fungible thing in fulfillment of the obligation, there shall be no right to recover the same from the obligee who has spent or consumed it in good faith. Article 1428 When, after an action to enforce a civil obligation has failed the defendant voluntarily performs the obligation, he cannot demand the return of what he has delivered or the payment of the value of the service he has rendered.
Applies to: Below 18 years old In relation to Article 1239: delivers a sum of money a sum of money or a fungible thing in fulfillment of an obligation there shall be no right to recover the same from the obligee who has spent or consumed it in good faith.
Applies when: After a civil action favoring the defendant Plaintiff can no longer recover anything However, if the defendant chooses to honor the same and delivers voluntarily he could no longer asks for the return of what he has delivered or payment for the service he has rendered. In relation to Article 1311, the heirs is not liable beyond the value of what he has received, so he is not liable for the debts of the decedent which exceeds the amount he received from the decedent.
Article 1429 When a testate or intestate heir voluntarily pays a debt of the decedent exceeding the value of the property
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which he received by will or by the law of intestacy from the estate of the deceased, the payment is valid and cannot be rescinded by the payer. Article 1430 When a will is declared void because it has not been executed in accordance with the formalities required by law, but one of the intestate heirs, after the settlement of the debts of the deceased, pays a legacy in compliance with a clause in the defective will, the payment is effective and irrevocable. Book IV: Obligations and Contracts Title IV Estoppel Article 1431 Through estoppel an admission or representation is rendered conclusive upon the person making it, and cannot be denied or disproved as against the person relying thereon. Elements of Laches 1. Conduct on the part of defendant, or of one under whom he claims, giving rise to the situation of w/c the complaint is made and for w/c the complaint seeks a remedy. 2. Delay in asserting the complainants rights, the complainant having had knowledge or notice of defendants conduct and having been afforded an opportunity to institute a suit. 3. Lack of knowledge or notice on the part of the defendant that complainant would assert the right on w/c he bases his suit. 4. Injury/ prejudice to defendant in the event relief is accorded to complainant, or the suit is not held to be barred. Principle of Estoppel: The principle of estoppel has its origin in equity and being based on moral and natural justice, finds applicability whatever and whenever the special circumstances of a case so demand Bar which precludes a person from denying or asserting anything of the contrary of that which has, in contemplation of law, been established as the truth, either by the acts of juridical or legislative officers or by his own deed or representation, either express or implied Whenever a party has, by his own declaration, act or omission, intentionally or deliberately led another to believe a particular thing to be true, and to act upon such belief, he cannot, in any litigation arising out of such declaration, act or omission, be permitted to falsify it It cannot be predicated on an illegal act May arise under certain circumstances from silence or inaction referred to as estoppel by Note: If the will is void, the legacy is also void and the deceased is considered to have died without a will. Note: Natural obligations will only produce a binding effect if the performance is coupled with voluntariness. If there is no voluntarines on the performance, then the person who performed it can demand for the return of whatever he has delivered or payment for the service he has rendered. Otherwise, in the absence of voluntariness, it ceases to be a natural obligation.
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standing by or laches Article 1432 The principles of estoppel are hereby adopted insofar as they are not in conflict with the provisions of this Code, the Code of Commerce, the Rules of Court and special laws. Article 1433 Estoppel may be in pais or by deed. Estoppel in Pais (Equitable estoppel) a. By conduct or by acceptance of benefits; b. By representation or concealment; c. By silence; d. By omission; e. By laches (unreasonable delay in suing) Estoppel by Deed (Technical estoppel) A. Proper (written instrument may also be in the form of a bond/mortgage) B. Estoppel by judgment as a Court record when court is in res judicata. (Prevents the parties from raising questions that could have been put in issue and decided in previous case.) Elements of Estoppel in Pais: 1. Conduct amounting to false representation or concealment of material facts, or at least calculated to convey the impression that the facts are otherwise than, and inconsistent with, those which the party subsequently attempts to assert 2. Intent, or at least expectation that this conduct shall be acted upon by, or at least influence, the other party 3. Knowledge, actual or constructive, of the real facts Kinds of Estoppel: 1. By record preclusion to deny the truth of matters set forth in record, whether judicial or legislative, and also to deny the facts adjudicated by a court of competent jurisdiction 2. By deed bar which precludes one party to a deed and his privies from asserting as against another party and his privies any right or title in derogation of a deed, or from denying the truth of material facts asserted in it 3. By manner in pais because of something which he has done or omitted to do, a party is denied the right to plead or prove an otherwise important fact Estoppel in Pais Arises when one, by his acts, representations or admissions or by his silence when he ought to speak out, intentionally or thru culpable negligence, induces another to believe certain facts to exist, and such the other rightfully relies and acts on such belief, so that he will be prejudiced if the former is permitted to deny the existence of such facts. The principle behind that is one who is silent when he ought to speak cannot be heard later on to speak when he ought to be silent
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Note: In pais is by action while by deed means by an instrument Laches is another form of estoppelsleeping on ones rights If a period is set, laches may not be invoked but this is applicable to labor cases You can probably set up alternative defenses like prescription and laches Article 1434 When a person who is not the owner of a thing sells or alienates and delivers it, and later the seller or grantor acquires title thereto, such title passes by operation of law to the buyer or grantee. Article 1435 If a person in representation of another sells or alienates a thing, the former cannot subsequently set up his own title as against the buyer or grantee. Article 1436 A lessee or a bailee is estopped from asserting title to the thing leased or received, as against the lessor or bailor. Article 1437 When in a contract between third persons concerning immovable property, one of them is misled by a person Applies to an immovable property and a third person is misled by a person with respect to the ownership or real right over the immovable. The latter is precluded from asserting his legal title or interest provided all the Note: Presumption does not apply if alleged tenant does not admit expressly or impliedly the existence of lease contract (such as when landlord did not, attach or plead in his complaint the contract of lease.) Note: Prejudice is not essential Note: Prejudice is not essential
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with respect to the ownership or real right over the real estate, the latter is precluded from asserting his legal title or interest therein, provided all these requisites are present: (1) There must be fraudulent representation or wrongful concealment of facts known to the party estopped; (2) The party precluded must intend that the other should act upon the facts as misrepresented; (3) The party misled must have been unaware of the true facts; and (4) The party defrauded must have acted in accordance with the misrepresentation. Article 1438 One who has allowed another to assume apparent ownership of personal property for the purpose of making any transfer of it, cannot, if he received the sum for which a pledge has been constituted, set up his own title to defeat the pledge of the property, made by the other to a pledgee who received the same in good faith and for value. Article 1439 Estoppel is effective only as between the parties thereto or their successors in interest.
requisites are present: 1. There must be fraudulent representation or wrongful concealment of facts known to the party estopped; 2. The part precluded must intend that the other should act upon the facts as misrepresented; 3. The party misled must have been unaware of the true facts; 4. The party defrauded must have acted in accordance with the misrepresentation. 5. This applies to an immovable. If it were a movable, you apply 1435 and 1436.
Estoppel resulting from acceptance of benefits (knowledge of true facts)
Note: Not to third persons. Third persons can invoke the principle of estoppel. Now estoppel does not lie against the state. Neither does prescription lie against the state.
Book IV: Obligations and Contracts Title V Trusts Chapter 1: General Provisions
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Article 1440 A person who establishes a trust is called the trustor; one in whom confidence is reposed as regards property for the benefit of another person is known as the trustee; and the person for whose benefit the trust has been created is referred to as the beneficiary.
Characteristics of Trusts: 1. It is a relationship of fiduciary character 2. Relationship with respect to property, not one involving merely personal duties 3. It involves the existence of equitable duties imposed upon the holder of the title to the property to deal with it for the benefit of another 4. It arises as a result of a manifestation of intention to create the relationship
Trust Legal relationship between one person having an equitable ownership in property and another person owning a legal title to such property, the equitable ownership of the former entitling him to the performance of certain duties and the exercise of certain powers by the latter. Nature of trustees Liability Personal liability The action, which is in the nature of a general demand for damages, can be maintained by cestui que trust or persons claiming under him or by the creator of the trust only against the trustee Resulting and Constructive Trust: Resulting trust where a person makes or causes to be made a disposition of property under circumstances which raise an inference that he doesnt intend that the person taking or holding the property should have the beneficial interest in the property Constructive trust where a person convey it to another on the ground that he would be unjustly enriched if he were permitted to retain it
Article 1441 Trusts are either express or implied. Express trusts are created by the intention of the trustor or of the parties. Implied trusts come into being by operation of law.
Classification of Trust: 1. Expressed trusts can come into existence only by the manifestation of an intention to create it by the one having legal and equitable dominion over the property made subject to it; such intention may be manifested by words or by conduct 2. Implied trust can come into existence either through implication of an intention to create a trust as a matter of law or through the imposition of the trust irrespective of, and even contrary to any, such intention
Article 1442 The principles of the general law of trusts, insofar as they are not in conflict with this Code, the Code of Commerce, the Rules of Court and special laws are hereby adopted.
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Chapter 2: Express Trust Article 1443 No express trusts concerning an immovable or any interest therein may be proved by parol evidence. Requisites of Express Trust: 1. There must be a competent trustor and trustee, and ascertainable trust res, and sufficiently certain beneficiaries 2. Express trust is created by the direct and positive acts of the parties, by some writing or deed or will or by words evidencing an intention to create a trust Note: For as long as the intention to establish a trust is very clear, an express trust is created. Proof of Express Trust: When the express trust concerns an immovable or an interest therein, a writing is necessary to prove it Required only for the purposes of proof
Article 1444 No particular words are required for the creation of an express trust, it being sufficient that a trust is clearly intended. Article 1445 No trust shall fail because the trustee appointed declines the designation, unless the contrary should appear in the instrument constituting the trust. Article 1446 Acceptance by the beneficiary is necessary. Nevertheless, if the trust imposes no onerous condition upon the beneficiary, his acceptance shall be presumed, if there is no proof to the contrary.
Note: An express trust clearly indicates that a trustor is delivering his property to a trustee for the benefit of the beneficiary. This clear intention must be implemented even if the trustee appointed declines the designation.
Chapter 3: Implied Trust
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Article 1447 The enumeration of the following cases of implied trust does not exclude others established by the general law of trust, but the limitation laid down in Article 1442 shall be applicable. Article 1448 There is an implied trust when property is sold, and the legal estate is granted to one party but the price is paid by another for the purpose of having the beneficial interest of the property. The former is the trustee, while the latter is the beneficiary. However, if the person to whom the title is conveyed is a child, legitimate or illegitimate, of the one paying the price of the sale, no trust is implied by law, it being disputably presumed that there is a gift in favor of the child. Article 1449 There is also an implied trust when a donation is made to a person but it appears that although the legal estate is transmitted to the donee, he nevertheless is either to have no beneficial interest or only a part thereof. Article 1450 If the price of a sale of property is loaned or paid by one person for the benefit of another and the conveyance is made to the lender or payor to secure the payment of the debt, a trust arises by operation of law in favor of the person to whom the money is loaned or for whom its is paid. The latter may redeem the property and compel a conveyance thereof to him. Trust from payment A resulting trust arises in favor of one who pays the purchase money of an estate and places the title in the name of another, because of the presumption that he who pays the thing intends a beneficial interest therein for himself Exception to the Rule Last part of the paragraph itself (When an actual contrary intention is proved)
Example: Donation made by A to B. Despite donation, A still get the rentals of the apartment (An implied trust where the trustee is the donee and the beneficiary is the donor)
Example: A buys property from B. The money A used was a loan from C, the property was under the latters name. Upon payment of A, he may then ask for the secured property from C.
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Article 1451 When land passes by succession to any person and he causes the legal title to be put in the name of another, a trust is established by implication of law for the benefit of the true owner. Article 1452 If two or more persons agree to purchase property and by common consent the legal title is taken in the name of one of them for the benefit of all, a trust is created by force of law in favor of the others in proportion to the interest of each. Article 1453 When property is conveyed to a person in reliance upon his declared intention to hold it for, or transfer it to another or the grantor, there is an implied trust in favor of the person whose benefit is contemplated. Article 1454 If an absolute conveyance of property is made in order to secure the performance of an obligation of the grantor toward the grantee, a trust by virtue of law is established. If the fulfillment of the obligation is offered by the grantor when it becomes due, he may demand the reconveyance of the property to him. Article 1455 Investment of Trust Funds: Note: Trustee shouldnt profit out of the handling of the trust estate Example: 3 buyers to a property, the name of only one of the buyers placed in the title. In such case, the latter is the trustee of the other two buyers.
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When any trustee, guardian or other person holding a fiduciary relationship uses trust funds for the purchase of property and causes the conveyance to be made to him or to a third person, a trust is established by operation of law in favor of the person to whom the funds belong. Article 1456 If property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a trustee of an implied trust for the benefit of the person from whom the property comes.
General rule where trust money cannot be applied either immediately or within a short time to the purpose of the trust it is the duty of the trustee to make the fund productive to the cestui que trust by investment of it in some proper security
Mutual Mistake: Where under a mutual mistake, the grantor conveys a piece of land which wasnt intended by the parties to be conveyed, the title to the land passes to the grantee in spite of the mistake, and it is within the power of the grantee to pass title to a purchaser in value and without notice of the mistake If the land hasnt been conveyed to a bona fide purchaser, the grantee can be compelled to reconvey it to the grantor, since he would be unjustly enriched if he were permitted to retain it
Unilateral Mistake: Where the grantor makes a mistake of which the grantee knows, the grantor can set aside the transaction even though the value was given for the transfer Even without annulling the title of the grantee, the grantor can compel the former to reconvey the property to him A contract of transfer of property that is fictitious and void ab initio doesnt create an implied trust
Article 1457 An implied trust may be proved by oral evidence.
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Cyrus A.

Meneses- David Ateneo Law School

Obligations and Contracts Reviewer 2011- 2012

Cyrus A. Meneses- David Ateneo Law School

Obligations and Contracts Reviewer 2011- 2012

Cyrus A. Meneses- David Ateneo Law School

Obligations and Contracts Reviewer 2011- 2012

Cyrus A. Meneses- David Ateneo Law School

Obligations and Contracts Reviewer 2011- 2012

Cyrus A. Meneses- David Ateneo Law School

Obligations and Contracts Reviewer 2011- 2012

or failure of the debtor to do so.

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Obligations and Contracts Reviewer 2011- 2012

Cyrus A. Meneses- David Ateneo Law School

Obligations and Contracts Reviewer 2011- 2012

(Articles 1171 and 2

paragraph of 2201 shall apply)

Negligence absence of due care required by the obligation.

Article 1175 Usurious transactions shall be governed by special laws.

Cyrus A. Meneses- David Ateneo Law School

Obligations and Contracts Reviewer 2011- 2012

Cyrus A. Meneses- David Ateneo Law School

Obligations and Contracts Reviewer 2011- 2012

Cyrus A. Meneses- David Ateneo Law School

Obligations and Contracts Reviewer 2011- 2012

Potestive conditions depends on the exclusive will of one of the parties

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Obligations and Contracts Reviewer 2011- 2012

paragraph talk of a condition which has no time fixed

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Obligations and Contracts Reviewer 2011- 2012

Cyrus A. Meneses- David Ateneo Law School

Obligations and Contracts Reviewer 2011- 2012

Cyrus A. Meneses- David Ateneo Law School

Obligations and Contracts Reviewer 2011- 2012

Cyrus A. Meneses- David Ateneo Law School

Obligations and Contracts Reviewer 2011- 2012

Also known as: Pari delicto

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Obligations and Contracts Reviewer 2011- 2012

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Obligations and Contracts Reviewer 2011- 2012

Cyrus A. Meneses- David Ateneo Law School

Obligations and Contracts Reviewer 2011- 2012

and part of the other undertaking.

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Obligations and Contracts Reviewer 2011- 2012

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Obligations and Contracts Reviewer 2011- 2012

Cyrus A. Meneses- David Ateneo Law School

Obligations and Contracts Reviewer 2011- 2012

Cyrus A. Meneses- David Ateneo Law School

Obligations and Contracts Reviewer 2011- 2012

Cyrus A. Meneses- David Ateneo Law School

Obligations and Contracts Reviewer 2011- 2012

Legal Solidarity that imposed by the law.

Cyrus A. Meneses- David Ateneo Law School

Obligations and Contracts Reviewer 2011- 2012

Novation, compensation, confusion and remission are modes of extinguishing an obligation.