Jan 10 2014

Subrogatory and Recissory Action

Usurious Transactions
- Anti Usury Act (not the Civil Code)
- Civil Code should never be confused by Civil Law
- Civil Law governs property, family rights, succession and laws that are civil in character
- Civil laws of Spaniards not at all Spanish (Napoleon Code)
- Not all civil laws are found in the civil code (special civil laws e.g., family code, condominium
code, water code)
Usury law state regulates the interest that could be charged if an obligation is unsecured, the
maximum rate of interest that can be charged is 14% per annum
- If an obligation is secured, the maximum rate of interest that can be charged is 12% per annum
- Any rate of interest that is agreed upon, charged and imposed upon an obligation is usurious
Who has the power to regulate the rates of interest in the country?
- Vested in the monetary board (agency in the Central Bank)
- Dec. 1982 rates > the monetary board passed Resolution 2224 abolishing the ceiling on interest
rates (Jan 1983)
- CB issued Circular 905 after 2224 to disseminate the content of Resolution 2224
2224 increased the legal rate of interest
Abolished the ceiling
Did this give the parties freedom to agree in any interest? (Medera v Gonzales Enterprises)
- Medera applied an additional loan subject to the ff conditions:
New obligation under one promissory note
Consolidated 5.5% interest per month
- Lower court > 5.5% is excessive; 12% should be per annum
- Gonzales assailed the ruling of the lower court
There was no legal basis for the lower court to apply the 12% rate of interest
Legal rate of interest > shall only be applied if the parties only agreed to the terms of
payment, but did not agree upon the rate of interest
- SC > This is not a usurious transaction but the amount 5.5% per month is indeed excessive,
unconscionable (unenforceable, shocking to the morals of the world)
Pay principal + 12% interest per annum
- SC has never been consistent in the ruling in usurious transactions
Legal rate of interest
When is an interest be said as a legal rate?
- When parties to a contract have agreed that the interest should be there, but failed to stipulate
the interest rate
- Will apply only if they agreed upon the payment of interest
Civil code > 6% per annum legal rate of interest
Resol. 2224 > increased to 12% per annum
Did Resolution 2224 repeal the Civil Code? (Phil Rabbit Lines v Judge Leonardo de Castro)
- Mishandled a bus > 1 passenger was injured
- Lower court said award damages to injuries suffered with interest at legal rate
- Passenger filed a motion to execute judgment > computed an amount he believed which should
be awarded to him
- Phil Rabbit Lines said it will only pay P60,000
When an obligation arise from a loan, involves a loan, forebearance of money, goods,
chattels or judgments thereon, then the legal rate is 12% < under Monetary board
circular 2224
Based on a claim for damages so it should not be 12% but 6%
- Monetary board is not a legislation body so it could not repeal a law
(Eastern Shipping Lines case)
- ___ dues < dues paid in the pier 6%
- Although the obligation does not arise from a loan, forbearance of money, if after judgment of
the court has become final and executor and still the debtor fails/refuses to pay the obligation,
it automatically becomes a forbearance of loan > 12% should apply
- Subsequent to the monetary board resolution 2224
Another resolution was passed with respect only to the legal rate of interest
- Under the present Monetary Board resolution
Has been returned from 12% to 6% effective July 1, 2013
Effects:
1) returned 12% to 6% interest rates
Abandoned the ruling of eastern shipping with respect to forbearance
of money (no longer applicable)
Jan. 14, 2014
Demandability classes of obligations
1. Pure immediately demandable / not subject to a condition or period or term
2. Subject to condition
3. Subject to period or term
Condition futurity and uncertainty
Period upon which the demandablity of the obligation depends
- Future and certain
Distinguish an obligation from a period
Suspensive condition (birth) gives rise to an obligation; as long as the condition still exists, there will be
no obligation
Suspensive period (demandability) makes the obligation demandable; only effect; no retroactivity
1187 effects of conditional obligation rise to an obligation entire effects shall retroact to the day of the
constitution of the obligation
To give retroact
To do or not to do courts shall determine the retroactivity
Reciprocal obligation mutually compensate; need not deliver the fruits
Unilateral (debtor) keep interest, fruits, because he is not receiving anything

Rights of the creditor when the debtor does not comply
3 primary remedies
1. Specific performance only applies to give; creditor seeking to enforce the obligation
2. Recission not seeking of performance; unmaking of the contract
3. Damages return the parties to status quo ante; if the debtor return everything to the creditor
*1 & 2 can never be combined; others can be combined
Additional remedies (art 1177):
1. Levying after exhausting primary; running after assets; court determines if ok to levy; creditor
becomes a judgment creditor
2. Accion subrogatoria
3. Accion pauliana
Levying you can levy only in pursuance of a court order
follow the rules of court > execution of judgment
- Personal things first; no to real as long as there are still real properties
Acion pauliana only applies on valid contracts; if void > action for nullity of contract
- To impugn / assail acts and contracts entered into by the debtor for the purpose of defrauding
the creditor
Eg. Void contract: No other properties but one > but that only one was retained; gave to his
friend to defraud

Jan 24, 2014
1191 the power to rescind is implied in reciprocal obligations
- Tacit resolutory in reciprocal obligations
In ordinary obligations (not reciprocal) to be able to rescind, the power must be expressly provided in
the contract (general rule)
In reciprocal obligations recission is implied; need not be agreed upon; implied only in reciprocal
1191 > in order to apply, identify first if obligation is reciprocal
Reciprocal > the parties are debtors and creditor of each other but their respective obligations must
arise from the same cause
power to rescind is implied in case of breach in reciprocal obligations, the injured is given the power
to rescind
How may it be availed of/exercised?
- If it has been established that the obligation is reciprocal, the method shall depend upon the
terms of the contract
If the contract recognizes extrajudicial recission then extrajudicial
If it doesnt rescind judicially
1191 remedies in case of breach of contract
1. Specific performance
2. Recission despite the repeated use of the word recission, jurisprudence said the civil code
means resolution
Distinctions between recission and resolution
1. Resolution is a primary remedy injured party can avail immediately
a. Recission is subsidiary remedy only a remedy of last resort
i. Why subsidiary? Very harsh remedy; third parties can be affected by recission
2. in resolution available only to the party to the contract
a. in recission even third persons can invoke the recission if the contract has caused the
third person damages
3. in resolution should there be just and valid reasons, the court can deny the action to resolve
a. in recission under the law, once you have established the crown of recission, the court
has no power to deny the petition for recission
1191 recission? No! resolution!
- Why? Apply the 3 distinctions
- On what ground can be availed of (specific performance and recission)?
Only on the ground of breach
Will any kind of breach justify the availment of specific performance and recission?
According to jurisprudence (Phil amusement board v natividad)
- Involved a contract of lease of a jukebox
- PAB supplied the boxes; Natividad was the lessee
- After using, boxes started to work usatisfactorily
- PAB sent mechanics still malfunctioned
- After three times, Natividad wanted to rescind
- On the ground of breach
- Despite the breach > SC said no because recission is a harsh penalty
- If the breach is simple or merely casual, the remedy will not lie
- Only when the breach committed is substantial will the remedy of recission lie
it will only depend on the initially chosen remedy
Nature of the two remedies provided on 1191
- Alternative (not cumulative)
- You have to choose only one, but the choosing of one doesnt necessarily mean the waiver of
another
- If specific performance becomes impossible, can shift to recission
Cannot be reversed because recission can never be impossible
- If the chosen remedy is recission, what is the period of prescription to be able to choose that
remedy?
Go to the law on recission > 4 years
When to begin? From the date the contract sought to be rescinded
Exceptions according to 1191
Recission as initial remedy > shall prescribe from the date the contract
sought to be rescinded
Recission s a substitute remedy > will prescribe from the time the
initially chosen remedy becomes impossible
o WHY?? Because it is the time which the law allows the shifting
Cases: UP v Alumcor? Alonco?
- Forest concession offered for lease to the highest bidder
- Contract of lease awarded to alonco
Should the lessee fail to comply, UP shall be free to terminate the contract
- Failed to update payment of rentals despite repeated demands
- UP rebidded the same property
- Alonco said you cannot terminate; should be judicial
- SC: No, because contract expressly provided for extrajudicial recission
- When alonco failed to update rentals, under 1191 is UP of right to rescind?
What is the status of the recission?
Is the act of UP terminating the said contract final?
No. while the injured party becomes entitled, it is not final because the
determining entity to validate/invalidate the act is still the court
Case: involved a sale of piece of land (Conspicula/Adomos)
- Sale is done > title was cancelled and new title was transferred to the new buyer
Conspicula died > heirs questioned validity
- Court found the sale defective > not valid
Ordered to reconvey the property to the heirs
The buyer did not agree, appealed to CA
During the pendency, the buyer sold the subject land to another buyer
- Duringthe 2
nd
sale, buyer presented the undertakings to the 2
nd
buyer
2
nd
buyer went to the court to compel the seller to comply with the undertakings
Replaced the specific performance with the action to rescind
- Seller: under 1191, being alternative, the choice of one is a waiver of another
The replacement should not be allowed
Even assuming that the buyer went to the court for action to rescind, it has already
prescribed
- SC: 1. Wrong, while it is alternative, it is not a waiver. Shifting from specific performance to
recission is not proper because specific performance became impossible
- Yes, it is true that it had been more than four years but it is valid because the specific
performance became impossible, so the period of prescription will start on the time it became
impossible
- Even after the establishment of recission, the court may deny the action of recission to be able
to comply with specific performance
Case: Roque v Gapuz sale of land
- 120 equal monthly instalments first 3 months update
- In succeeding became in default > failed to update payment and arrears
- Seller brought an action seeking recission on account of breach
According to paragraph 3 there is just and valid reasons so he should be allowed for
extension of period (gave 45 days CA)
- SC: CA was wrong 3
rd
paragraph will apply only as long as the debtor had not incurred delay
1191 who has the power to bring an action?
Reyes v CA; Solomon case only the injured party

Feb. 11, 2014
Alternative obligations
Alternative several things due but performance of one extinguishes
Conjunctive several things due but all should be completed to extinguish
Facultative

Conjunctive presence of the conjunctive and
Alternative presence of the disjunctive or

Plural objects > if one is unlawful, would the entire obligations be invalid? > distinguish:
Conjunctive > invalidate > why? > all should be delivered
Alternative > still okay > deliver only one as long as he doesnt choose the unlawful object
Facultative

Right of choice
Alternative > debtor + creditor + 3
rd
parties (consent is required-WHY? The choice should be accepted by
both)
Conjunctive > no right of choice
Facultative > debtor only; cannot be transferred
Only one obligation need to be performed

Solidarity can exist on one side and joint on the other side
- Any term as long as the term connotes solidarity

Tests of solidarity: determining the nature of the obligation
1. Parties stipulated solidarity
2. Law requires solidarity
3. Nature of the obligation requires solidarity

Solidary obligations
1. Passive debtors side
2. Active creditors side
3. Mixed debtors and creditors
PNB case can the creditor sure one of the debtors or all of the debtors in passive solidary obligations?
although they are necessary parties, they are not indispensable
You can leave one, you can go against others
Case: Imperial insurance v Stella David
Bonds > secure answer to the judgment that the court shall render
Indemnity agreement > should the bonds be demandable? > the spouses shall indemnify the bonds
Husband died > stella was sued by Imperial insurance > instead of answering, she filed a motion to
dismiss > on the ground that Imperial had no cause of action against her bec. Of solidarity > should
proceed against the estate under the rules of court within 6 months
Supreme court said WRONG, you bound yourself solidarily, they are indispensable parties but not
necessary parties, you can file as many actions as you want

Any one of the solidary creditors may seek from any of the solidary debtors > basis mutual agency (one
creditor acts not only on his behalf)
Start? From the moment of the perfection of the obligation
If did not comply > it is joint > the law does not
presume
End? The moment one of the solidary creditors demands from any of the solidary debtors > the debtor
can only pay to the demanding creditor (the mutual agency bet. The demanding and paying is
extinguished)
If the debtor paid not to the demanding creditor > the payment is void because it is considered as
payment to a 3
rd
person > the demanding creditor can compel the repeat of payment
With respect to the other debtors who were not given demand they may pay to all the solidary creditors
including the one who made the demand beforehand (mutual agency still exists between the other
debtors)
The demanding creditor cannot refuse payment even though he received the demand beforehand >
principles of mutual agency and guaranty apply

Feb. 14, 2014
In how many ways may solidarity exist?
1. Stipulation of the parties
2. By law
3. By reason of the nature of the obligation

There is nothing on the face of the obligations > that is why it is presumed
Why is it presumed (not just joint?)
- Nothing on the face of the obligation that characterizes / says if its joint or solidary
- On the part of the creditors, it imposes greater power on the debtor because anyone of them
can demand for compliance of the obligation from any one of the solidary debtors; and anyone
of the debtors can be compelled to perform the obligation in favor of any of the debtors
- Basis? Mutual agency (creditor) > one creditor acts on behalf of all the creditor
Mutual guaranty (debtor) > any one of the debtors guarantee any one of the creditors of
the performance of the obligation
The moment the demand is made by any of the solidary creditors, the principle of mutual agency ceases
to exist because the rights of the other creditors are consolidated into the person of the demanding
creditor.
Should X pay the entire obligation, it is extinguished. However, X acquires the right to be reimbursed
with respect to the extent of their respective shares. The obligation now becomes joint because the
right of B and C does not go beyond their respective shares
Tests of solidarity
Does the payment of X makes him subrogated into the right of the creditors? No. Because he only
acquires the right to seek reimbursement. If X if subrogated into the creditors, he shall have the right to
collect the entire payment, that would be unfair
Agreement to exclude of the debtors shall be valid inter se, but not on the part of the debtors
1212. creditor cannot do anything prejudicial to the other creditors (basis: mutual agency). But in
relation to Article 1215, the creditor shall deliver to others the share in the obligation (novation)
In case the creditor who novated or condoned becomes insolvent, the other creditors doesnt have any
remedy (lapse of the law) > assuming that insolvency is total insolvency
Condonation and remission are allowed in solidary obligations
- Effect of remission? Depends on the object of remission
-
Obligations with a penal clause (obligations which contain a penalty)
- Purpose of a penal clause
To strengthen the coercive force or tie of the obligaton
Gives more teeth to the obligation
The debtor breaches an obligation without a penal clause, what is the right of the creditor? > becomes
entitled to claim damages however he must first prove that he incurred damages
With a penal clause? He must first prove breach/damages before claiming payment of the penalty
What is the purpose of penalty? Serves as substitute for the indemnification of damages
The creditor cannot claim damages and penalties simultaneously. EXCEPTIONS
1. Partial performance
2. Irregularity
3. Unconscionable

Modes of extinguishment of the obligation
1. 6 primary causes
2. Additional causes annulment, recission, fulfillment of the resolutory condition, prescription,
death
When will death extinguish the obligation?
- Not absolute, only a qualified cause
- Only if the obligation is personal (to do)
When will prescription extinguish the obligation?
- Case: DBP v Judge Adil?
- Prescription does not extinguish the obligation
- What is extinguished is the right to enforce the obligation
- Obligation is still valid after 80 years (prescribed in 50 years) because the creditor did not make
a demand, the debtor himself voluntarily paid the obligation
- The civil character of the obligation is the one extinguished
- Civil vs natural obligations the difference lies in the sanctions
- Civil actions in court
- Natural justice, equity, conscience; voluntary performance extinguishes the obligation

PAYMENT
- Not only delivery but also performance
- Not only applies to give, but also to do or not to do
- There shall be payment in ALL kinds of obligations
- What if a 3
rd
person pays? What is the status?
If it is a donation, it is valid
Consignation? > Special form of payment
- Not all consignation requires tender of payment
- How do you make a consignation?
Judicial always made in pursuant of the Civil code
Extrajudicial made in pursuant of BP 25 (only if obligation allows extrajudicial / judicial
consignation) / ONLY in rentals and arrears
- When is consignation not proper? Quirino case
Right of redemption (no debt) or right of option (no debt)
How do you make consignation (PAYMENT)?
- Judicial: prior tender of payment as a rule (upon the unjust refusal of the offer of payment,
consignation becomes unjustified)
There is unjust refusal of offer of payment
First notice to the debtor
Still refuses the notice; creditor may file an action before the court
Case: Lopez v CA > 2
nd
notice rule > it is indispensable
Tender of payment (judicial deposit is not always required)
What is required is judicial placement at courts disposal so that the debtor can
still use the thing due
- Extrajudicial: consignation under BP 25
Law always require deposit (in the proper place of playment)
Must always comply with the requisites of a valid payment
Case: Lim v Chuangcai ?

Feb. 18, 2014
Requisites of payment matters essential to the validity of payment; absence of one may affect the
validity
Characteristics of payment manners of how payment should be made
1. Integrity substantial performance partial performance (with damages) estoppel (waiver on
the part of the creditor)
Accept performance knowingly that it is defective; you are not entitled to damages
2. Identity to deliver the very thing due
EXCEPTION: Dation in payment
o Involves the sale of all properties for the satisfaction of a debt in money
o Dation in payment is not limited to money, it also even include goods / if there
is a change in the object
o The purpose is to extinguish the obligation
Novation an old obligation is replaced with a new one
o Consent is needed because he will be receiving a new thing (extinguishment is
either partial / total
o Dation in payment: extinguished obligation
Value of payment should be commensurate?
Not necessarily (extinguishment partial / total)
*payment by cession what is ceded is not property but only the authority to sell
Why? > the debtor continues to be the owner of the properties
How? > requires the consent of all the creditors
- If one of the creditors does not permit > can resolve into insolvency proceedings
- Insolvency proceedings initiated by creditor
How? Courts shall determine if the debtor is indeed insolvent
Does not extinguish debtors insolvency or obligation
Courts shall issue a discharge after
Payment by cession depends on how much is realized on the sale of the debtors property (reason for
not absolute extinguishment)
*Novation not an absolute mode of extinguishment; the old obligation is replaced with a new one
CONTRACTS definition not complete because the law does not require plurality
1. Essential consent, object, consideration
2. Natural matters __ not because parties stipulated it, but because the law made it (e.g.
warranty, contract of sales, law on sales)
3. Accidental stipulated by parties (manner of payment; manners agreed upon by parties)
Characteristics of a contract
1. Autonomy of the will freedom to contract, to enter into agreements of their choice which
includes freedom to stipulate
EXCEPTION: There can never be freedom outside the law Art. 1306
2. Obligatory force parties to a contract are bound not only by what they expressly provided,
they are also bound by the consequences
3. Mutuality the terms must be on a common ground between the parties
Case: PNB v Padilla
- Former Sen. Padilla obtained a loan from PNB
- With promissory note > rate of interest 18% > PNB shall have the right to
increase the rate of interest whenever it becomes necessary > interest became
48%
- In law, you cannot increase rate of interest more than once per year
Effectivity, validity of the terms of the contract must not be left to one of the parties
4. Relativity answers the question of who are bound by the contract
Transmissible rights successors, assigns, heirs
Intransmissible rights only the parties are bound
How does it become transmissible / intransmissible
- By law
- By stipulation
- By nature of the right
- EXCEPTION: stipulation pour autrubi
Stipulation in a contract whereby both parties deliberately confers
rights to a third person
Why? A person complete stranger can enforce the contract
Can be withdrawn if the third person has not yet accepted; both parties
should withdraw
Art. 1311. An heir cannot be held liable beyond what he is entitled
- Meaning: an heir is entitled to only the residual value of the estate (what remains after the
payment of all the debts
- Heirs already paid indirectly (subtracted from the total estate)
- Can an heir be liable to the debts of the deceased? An heir can never be held liable
When a person dies, the debts should be paid before the computation of the estate <
determination of the heirs

March 7, 2014
Contracts have 3 essential elements (different from elements)
1. Consent
2. Object
3. Cause / consideration
There is no definition of consent in Civil code only how consent is manifested
- Making of an offer
- Acceptance of the object and cause (meeting of the minds for both)
Effect? Results in the perfection of contract
Parties become bound
After perfection, next is implementation
2 elements of consent
1. Offer
2. Acceptance
Offer can come in any form
- If the offeror in his offer provide should provide a specific way, it must be complied < if oral
acceptance? No effect
Place of perfection in the place where the offer was made
If made through someone? If the offeror dies before the receipt of the acceptance?
- It depends on the capacity of the sender of offer
If sender is an agent, knowledge of him is considered as knowledge of the offeror (law
on agency)
If sender is merely a messenger, no effect
Consensual contracts
- When does consent take place? Meeting of offer and acceptance
- When does perfection take place? It takes place during acceptance
Case: Arias v Laudico? (notice of withdrawal > sent)
Perfection of contract?
1. Consent (consensual contracts)
2. Delivery of object (real contracts)
a. What perfects the contract is delivery
b. Is not consent necessary here? It is still necessary. The mere consent does not perfect
the contract.
Who cannot give consent?
1. Unemancipated minors (18 below)
2. Insane / demented
3. Deaf mutes who does not know how to read and write
Unemancipated minors (they are things on the past subject to RA 6809)
- Reduction of the age of majority from 21 to 18
Art. 14 A minor 18 to 21 can contract marriage provided with parental consent
- Already modified by RA 6809
- Minor is a person below 18
- Also modified on law on emancipation in the Civil code (3 ways)
Law (reaching age of majority)
Marriage
Voluntary concession of parents and child to be emancipated according to the Civil Code
- Family code
Law
Marriage
Agreement between parent and child
- RA 6809 > only one mode of emancipation by law
Obligation and contracts should only read minors (not unemancipated)
- In contraction with other laws
- Rule law on sales > minors can contract by themselves provided if it is a necessity (food, clothing
etc. exclusive)
Insane and demented
- They are not the same but common (mental ailment)
- Insanity is greater than dementia
- Dementia think like children
- Deaf mute who does not know how to write
Should be total deafness
Mutism / shortness of tongue
Lack of knowledge of writing
1327. Not disqualified
Others who cannot give consent > other provisions
incapacity v. disqualification
- incapacity provided that he can be represented by someone, can still contract
- disqualification he cannot be represented, cannot contract
alienage is a special disqualification for certain contracts
not an absolute rule on disqualification
- Case: Chisman (alien, relaxed rule)
- Case: a Chinaman (acquired land before naturalization)
- Law on sale: if brought by a foreigner
Real property null and void
Personal property allowed by law
Art. 1332 When a person does not know how to read, or if the language of the contract is written on the
language not known to him, and if there is fraud or mistake, the other party must prove to the court
that he has explained the contract
When will this obligation arise?
- Case: Bunyi v. Reyes
- Will arise only after when the party claiming the fraud or mistake does not really know how to
read, this should be first determined
Vices of consent defect in the consent
Read Braganza v Villa-Abrille (cited Mercado case)
Can the minor invoke as a defense his minority?
- If passive misrepresentation: yes (Villa Abrille: contract was silent, never claimed age)
- If active misrepresentation: no (Mercado: expressly represented)
Cannot bring an action to annul
Bound by estoppel (stopped from denying the truth as to what you had misrepresented)
If minor had allowed the contract to prescribe without seeking annulment?
- In passive misrepresentation the prescription is 4 years
- You lose the right to annul if prescribed
- He loses the right, however he cannot have any positive relief
Vices of consent defect in the consent that is given to a contract
1. Mistake
2. Violence
3. Intimidation
4. Undue influene
5. Fraud
Mistake? What kind of mistake?
- Must be a mistake of fact (excused for noncompliance)
- Not a mistake of law (not an excuse)
- Must be unilateral / only one party should commit it
- If mutual mistake refer to legal / confuses the parties
- Must be a substantial mistake > refers to the object or purpose or conditions
- If merely accidental, shall not vitiate
Violence? Intimidation?
- Refers to external force, irresistible < Violence
- Involves internal force / threats < intimidation
- Purpose of both is to get the consent of a person
- If consent is given as a result? Will it become voidable?
NO. Case: Ruiz v Atienza
Not all threats will vitiate consent; only those which shall produce a wrongful act. (e.g.
fear/danger to life or property)
- are in-laws included among those persons be intimidated? YES. Under ascendants

March 11, 2014
Vices of consent for the purpose of getting the consent of a person/s to a contract
1. Mistake Art. 1332 If one of the contracting parties does not know how to read contract , the
enforcing party must prove that he explained the contents of the contract.
When? Must first show to the courts that he is an illiterate, cannot understand the
language of the contract > if not established > need not be shown to the court
2. /3. Violence and Intimidation vitiate consent (know the distinctions)
Violence physical, external
Intimidation internal, emotional force, fear
- Ruiz v Atienza Not all threats will vitiate consent, only threats to commit an
unlawful act
- In the case of violence and intimidation, even though employed by 3
rd
persons,
will also vitiate consent
Why? It is not necessary that there be connivance > violence and
intimidation immediately produce effect
- If fraud, it will not affect / invalidate the contract; EXCEPTION 3
rd
persons
connived with one of the parties
4. Undue Influence
No physical, no moral force
Imposition of ones will over another
Should not be confused with referential fear (does not vitiate consent; fear of displacing
another to whom respect is due; it is a unilateral act)
5. Fraud (must be serious) and machinations intended to induce the other to enter into a contract
without which he did not enter
One who tries to exaggerate (sales talk) will not vitiate as long as the other party was
given chances
Opinion persona; if given by an expert shall not vitiate consent
Should not be made by both parties or else the fraud of one another will compensate
each other
Simulation
- You do two things: pretend that there is (a contract) and pretend that it is (what appears)
Kinds of simulation
1. Absolute no contract at all, although the parties do not intent to be bound by what appears
2. Relative the parties intended to be bound, but not in the manner that it is intended to appear
Act of simulating is like fraud
Declaration of nullity of a contract
In absolute simulation contract is void
Conceal their true agreement < relative simulation
Status of absolute void; relative valid unless it was INTENDED to cause prejudice
VALIDITY is the general rule, NULLITY is the exception

3 essential elements of a contract
1. Consent
2. Object
3. Cause / consideration
Object things within the commerce of men e.g. rights, services
within the commerce of man
- Things which are susceptible of private ownership
- Present or future things
- Art. 1409 paragraph 3 present at the time of transaction
Future things does not exist at the time of perfection > as long as it exists at the time of performance
(Law on sales, not necessarily at time of perfection)
- When the object of the contract on the Law on sales is a future thing, it must have potential
existence
- potential existence susceptible of coming from an existing thing
Coconut seller even without coconut fruits > valid, because the person have coconut
trees
- Sales m__ resparati? > law on sales
- Other laws > future things are valid if they have potential existence
- With respect to future things, the law requires it only to be present at the time of the
performance
As long as he is the owner of the thing in the time of the delivery
Rights it must be lawful and transmissible (intransmissible rights only binds the parties)
- If the contract involves transmissible rights > parties, heirs, assigns, successors in interest
- If the contract involves intransmissible rights > only the parties
Services lawful and possible
Last element: cause / consideration
- Reason of the existence of the contract
- Why of the contract
- Is this the same with juridical tie? YES
- Is there a difference between cause and consideration? Phil. Laws-NO / U.S. Laws-YES
- Is there a difference between cause and motive?
Motive personal reason
Cause is known to both parties, motive-no
If the cause is valid, does it mean that the contract is valid? YES
If the motive is unlawful will it affect validity? YES, provided except if illegality will affect validity
- Example: motive becomes integral part of the existence of the contract
Is it necessary that the cause to be adequate? NO, what the law requires is sufficient
Cause may be sufficient, valid, insufficient / inadequate, void > void unless you will make it appear that it
is founded on another valid contract
Presumptions of cause
1. Existence
2. Validity
If the law on the contract of sale is inadequate, it does not invalidate the contract, it just does not have
an effect, only a defect on part of the parties
Forms of contract

March 18, 2014
Restitution only on damages
Restitution not available on fraud
2 grounds for recission
1. damages
2. fraud
in contracts involving fraud, when will recission lie:
1. if gratuitous without leaving / reserving enough property to answer for his obligations
2. if onerous sell the property after the issuance of writ of attachment / judgment
what must be returned after recission > no exception: principle of quasi-contract
1. the thing received altogether
2. fruits
3. the price plus interest
incapacity only applies to voidable contracts! Not applicable to recissible! Incapacity not a ground for
recission!
In voidable contracts there is ratification
If the ground for annulment is incapacity to give consent, who may ratify? > parents and guardians
From date of recording > fraud (registered)
From date of discovery > (not registered)
Can there be annulment without restitutiom?
- Yes. If the ground for annulment is incapacity but he was required to restore what he has
benefitted
Statute of Frauds
No right of choice
1. One of those enumerated under the 2
nd
paragraph
2. Must be totally executor on both sides
3. In writing
4. Applies only on specific performance or damages
Effect if not complied with: you cannot prove the oral agreement by an oral evidence
What does in writing mean?
- Requirement that in writing does not mean the entire agreement must be in writing
- Only the essentials must appear, not the entire agreement
Purpose of State of Frauds to prevent fraud / perjury through reliance of ones memory
1. The nonperformance by agreement of the parties (not external)
2. Only applies to personal guaranty (no collateral)
Real guaranty (always with a security / collateral)
3. Under the Civil Code in settlement and donations propter nuptias must be covered by the
Statute of Frauds (oral is valid)
Under the Family code > marriage settlement must be in writing
i. in donation propter nuptias present donations
ii. in testamentary and formality of wills future it must be in a will; not enough
in writing
what can be donated? > all present property EXCEPTION donation propter nuptias
allows future
4. not absolute, auction sale
2
nd
paragraph there is no sales agreement yet
Does not allow the use of ?? price
5. Must be a real property
Hernandez case statute sale itself agency authority of the agent
Mindanao case grant of the right of way
Espina v Abaya partition agreement
Who may avail (recission)?
- Either one of the parties who suffered lesion
- Defrauded party
- Third person
Who may avail in voidable?
- Those who are bond primarily and subsidiarily
- EXCEPTION: third persons who suffered injury
Who may avail in unenforceable?
Not all property included; must be within
specific performance (leasing/sale)
- Either of the parties
Void contracts
- Pari delicto / in delicto
- Torres v Ventura (when will pari delicto not apply)
violation of the homestead law
Navarra v Navarra (in cases of Family Code)

March 25, 2014
Unenforceable Contracts
Statute of Frauds
1. Writing
2. 6 enumeration
3. Executor on both sides
4. For specific performance / damages
Effect: you cannot produce an oral contract by oral evidence
Hernandez case (2 enumeration, only in real properties)
1. Leasing for more than one year
2. Sale
The law on agency 1874 whenever the sale of an immovable is made through an agent, if the authority
of the agent is not in writing, it is void
Statute of frauds sale itself must be in writing
An oral sale of an immovable property is valid, but not registrable
Void Contracts Art. 1409
- A non-existing contract
- Confers no right
- Imposes no obligation
- Imprescriptible > can be brought at any time by anyone
- What does not exist cannot produce any effect
Ninal case (rulings, 2 parts)
- Distinction between an action for annulment and declaration of nullity
- Interpretation of article 34 of Family code; art. 47 applies to voidable, not void marriages
Pari delicto they cannot bring an action against each other
- Not allowed to sue each other (basis:)
- He who goes to court for purposes for seeking redress must come with clean hands
In delicto not equally at fault
Can there be a void contract outside of Article 1409? law on sales
1306 is the only limitation on the right to contract and right to stipulate (connect)
Law on sales (Art 1544 Double sale) > Laureta case > same seller, same object, different buyers not only
on double sale but also on double donation
1. Who registers 1
st
in good faith
2. Possession 1
st
in good faith
3. Gets the title 1
st
in good faith
Natural obligation valid obligation not enforceable by court action
- Have sanctions but not similar to civil
- Justice, equity and conscience
Payment made by an incapacitated can recover what he has paid subject to Art. 1427
1311 heir is not liable beyond the value of the inheritance that he has received
- What he is entitled to is what is left after the debt has been paid
1430 you cannot be compelled to perform
- Not an actionable obligation
- Supreme Court: prescription does not extinguish an obligation
What is extinguished is the sealing character
Converting to it a natural obligation
If the payment is made voluntarily cannot be recovered

March 28, 2014
Void contracts (Laureta case)
Under the doctrine of pari delicto > essential that both parties are equally at fault
Effects of pari delicto
1. Neither one can sue each other (basis: clean hands)
2. Neither one can recover what he has given to another
Rules in pari delicto, not absolute EXCEPTIONS:
1. Ventura case pari delicto does not apply to violations of the Homestead Law
- Why? The moment the grant under it has been violated > it is converted into a public
character but not automatically
i. Ligao v CA > no automatic cancellation or reversion of the Homestead grant
ii. Should bring an action for reversion
Only the solicitor general is authorized to bring an action, the State is
not precluded to bring an action
- Homestead law not allows performance of the any within 5 years:
i. Cannot encumber
ii. Cannot alienate
iii. Cannot dispose
Cannot be done by the patentee or the grantee; if committed any of the
3 acts, it amounts to a violation
2. Velasco case does not apply to actions under Art. 36 for nullity on the basis of psychological
incapacity
- Nothing can prevent the court to declare both parties / spouses as psychologically
incapacitated
3. Actions for disbarment (Mortel v. Aspiras?)
- Case about an atty who promised to marry a girl but let his son marry her instead
- Disbarments are exceptions to pari delicto
- Relief is not granted to the complainant
- Purpose of disbarment is to remove misfits and persons who does not deserve to be
legal practitioners
Natural obligations
- Not based on law / not human law
- Based on equity and natural law
Distinctions between law and equity
Law Equity
Law is a rule of conduct which must be just and
obligatory and formulated by a competent
legislative power for common good / common
benefit (Manresa)
Law is an ordinance of reason promulgated by
competent authority and must be for the common
good (St. Augustine)
Equity is justice outside legality.
Cannot and does not supplant the law but it may
supplement the law (Aguila v CFI)
Law is always promulgated by competent
authority-congress
Equity is not enacted by law-making bodies, it
emanates from natural law
When there is conflict between law and equity,
law always prevails
Equity is grounded on the precepts of conscience
rather than sanctions based on positive law
When there is an applicable law, equity does not
apply
Applies only in the absence of law > not a
replacement
Dural in nature (sanctions of positive law) Ethical in nature (morals)

The sanction of natural obligation justice, equity, conscience
- Cannot be enforced through a civil action
- No recovery on what has been paid (rule applies on voluntary payments only!)
- If voluntary, can be recovered
In relation to RA 6809 (reduced the age of minority to 18)
Recovery in cases of pari delicto > may be allowed EXCEPTIONS:
1. Violations of price control law
2. Violations of labor law
3. Violations of minimum wage law

REVIEW REVIEW REVIEW
Obligations
Delay the mere fact that the debtor has not performed on the due date on the moment of demand
does not put him in delay. IT MUST BE CULPABLE DELAY.
If the cause is not imputable NOT IN DELAY
Last paragraph of Art. 1169 < demand is not necessary (demand is replaced by the offer)
- Not in delay (4)
- When will there be delay in reciprocal obligations?
- If there is an offer or performance of the other, and the other party does not perform,
there is delay
USURIOUS no more usurious transactions according to Resolution 2224 (removed the ceiling on
interest rates)
Case: Medel v CA (never asked in the bar because of the flip flopping rulings regarding the amount of
interest)
Legal rate of interest increased from 6 > 12%
- Case: Eastern Shipping Lines no longer holds hand since July 1, 2013 > 6% again
In other cases, it is the courts discretion.
In these cases, it is a matter of right
- Will apply only if the parties have agreed on the payment of interest but failed to stipulate on
the rate
Kinds of Interests
1. Moratory use of somebody elses money
2. Compensatory interest in form of punishment
3. Interest to become due
a. Moratory must appear in writing
b. Compensatory interest imposed by the court, need not in writing
Compounding of interest > payment of interest of the interest is not paid
- Not illegal but not favored by the law
- More /heavier burden on the part of the debtor
- Requirements (there must be agreement in writing / oral not allowed)
- EXCEPTION: Judicial _____
Classification of obligations in so far as demandability is concerned
1. Know the distinction between condition and period
2. What obligations are immediately demandable
3. What are the effects of an illegal / impossible condition
a. Does not automatically nullify
i. If the illegal / impossible condition can be separated from valid conditions; valid
ii. If cannot separate > find out how the illegal / impossible condition was
attached:
1. Attached negatively valid
2. Attached positively void
Alternative obligations (as per plurality of obligations)
1. Conjunctive obligations characterized by and; several obligations, everything should be
complied with
a. No right of choice
2. Alternative obligations several things due, compliance of one is enough
3. Facultative one thing due, debtor has the right for substitution of the principal
Cause or consideration
- If contract has no cause?
- If it may be proven: valid
- If it appears not to have any cause: not necessarily void (establish another valid cause)
PROBLEMS 10 ONLY FOR FINALS
READ THE PROBLEM CAREFULLY
DO NOT FORGET TO QUALIFY ANSWERS