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AUF School of Law Obligations and Contract

BOOK IV interest be specified in writing. (Art. 2134,


OBLIGATIONS and CONTRACTS CC)
TITLE I – OBLIGATIONS ---Donation of immovable property be made
in a public document and the acceptance
be made in the same document or separate
Art. 1156. Obligation is a juridical necessity to
public document (Art. 749, CC)
give, to do or not to do.
---contribution of immovable property or
Juridical necessity to comply with a prestation- real rights to common fund (partnership)
Sanchez Roman must be in a public instrument with
attached inventory signed by the parties.
Legal relation established between one person and (Art. 1771, 1773, CC)
another, whereby the latter is bound to the ---Chattel Mortgage, personal property
fulfillment of a prestation which the former may must be recorded in the Chattel Mortgage
demand from him. - Manresa Register (Art. 2140, CC)
---sale or transfer of large cattle, such
Civil obligation vs Natural transfer or sale must be registered. (Sec.
obligation 22, Act No. 1147, Art. 1581, CC)

Gives to the obligee effect Cannot be Classifications of obligation


or creditor the right enforced by court
Primary Secondary
of enforcing it action
against the obligor •pure and conditional •legal, conventional,
or debtor in a court •with a period penal
of justice. •alternative and •real and personal
(right of action) facultative •determinate and
Positive law source Equity and natural •joint and solidary generic
law. •divisible and indivisible •unilateral and bilateral
•with a penal clause •individual and
Requisites of Obligation collective
•juridical or legal tie •accessory and
-bilateral principal
-unilateral
•active subject
•passive subject classifications according to Manresa
•fact, prestation or service As to juridical quality -Natural
-civil
**As a general rule, the form of the obligation is not -mixed
an essential element/requisite. Except (the non- As to parties -Unilateral and bilateral
compliance of the following formalities would have -individual and
the effect of rendering the contract agreement void collective
or inexistent):
---donation of personal property whose As to object -Determinate and
value exceeds P5,000.00, contract in generic
writing. (Art. 748, CC) -simple and multiple
---sale of a piece of land or any interest -positive and negative
therein through an agent, authority of such -real and personal
agent be in writing. (Art. 1874, CC) -possible and
---Interests in a contract of simple loan or impossible
mutual, agreement with respect to such be -divisible and divisible
in writing. (Art. 1956, CC) -principal and accessory
---anticheresis, principal amount and

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AUF School of Law Obligations and Contract

As to perfection and -Pure faith. (1091a)


extinguishment -conditional
-with term or period Contract-meeting of minds between two persons
whereby one binds himself, with respect to the
other, to give something or to render some service.
•Consensual contracts- contracts perfected by
Art. 1157. Obligations arise from: mere consent, and from that moment the parties
law are bound not only to the fulfillment of what has
contracts been expressly stipulated but also to all of the
quasi contracts consequences which according to their nature may
acts or omissions punished by law; and be in keeping with good faith, usage and law.
quasi-delicts •Real Contracts- perfected upon the delivery of
the obligation.
**The addition of lege has been criticized as
theoretically erroneous. Obligation arises from the moment of
perfection of the contract.
**The enumeration is exclusive. •Reciprocal obligation- parties are mutually
obliged to do or to give something.
Art. 1158. Obligations derived from law are not •Unilateral obligation- only one party (obligor) is
presumed. Only those expressly determined obliged to do or to give something.
in this Code or in special laws are
demandable, and shall be regulated by the **Obligations arising from contract are governed
precepts of the law which establishes them; primarily by the agreement of the contracting
and as to what has not been foreseen, by the parties.
provisions of this Book. (1090)
**obligations derived from law cannot be Compliance in good faith- performance in
presumed. (unlike other obligations) accordance with the stipulations, clauses, terms
and conditions of the contract.
**requisites to determine whether an obligation
arises from law or from other sources. Unjust enrichment
•law that establishes or recognizes the obligation
•act or condition upon which the obligation is **In default of agreement, the provisions of the
based. Civil Code regulating such obligations are
applicable.
** when the law merely recognizes the existence of
an obligation generated by an act which may General Rule: The contract is the law between the
constitute a contract, quasi-contract, criminal contracting parties.
offense, or quasi-delict and its only purpose is to Ex: Macasaet vs COA
regulate such obligation, then the ACT itself is the
source of the obligation and NOT the law. exception to general rule: Agcaoili vs GSIS

Pelayo vs Llauron-obligation of support between Art. 1160. Obligations derived from quasi-
spouses. contracts shall be subject to the provisions of
Art. 2014 obligation of the winner in a gambling to Chapter 1, Title XVII, of this Book. (n)
return the money to the one who lost.

Quasi-contracts- juridical relations arising from


Art. 1159. Obligations arising from contracts lawful, voluntary, and unilateral acts, by virtue
have the force of law between the contracting which the parties become bound to each other,
parties and should be complied with in good based on the principle that no one shall be unjustly

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AUF School of Law Obligations and Contract

enriched or benefited at the expense of others.


Effect of Acquittal
Case: Traders Union vs NLRC Ground for effect Evidence
acquittal needed
Negotiorum gestio Solutio indebiti
Guilt not Civil action to Preponderance
Arises whenever a Arises whenever a proven beyond recover of evidence
person voluntarily takes person unduly delivers reasonable damages
charge of the agency or a thing through mistake doubt based on the
management of the to another who has no same act or
business or property of right to demand it. omission MAY
another without still be
authority from the latter instituted
The gestor or officious The person to whom the Non-existence Civil action to
manager shall be delivery has been of facts for the recover
obliged to continue such unduly made shall commission of damages is no
agency or management return the property the offense longer possible.
until the termination of delivered or the money
the affair and its paid. Effect of Independent Civil Action
incidents General rule: The civil action to recover from the
person criminally liable is not independent from the
Presumptive consent- consent given by law if criminal action.
there is no express consent given by the other Separate civil action- the right to file a civil action
party shall depend upon the result of the criminal action.
--gives rise to multiple juridical relations resulting in
obligations for delivery of the thing or rendering of Commencing the civil action prior the criminal
service. action- once the criminal action is instituted, the
action to recover damages shall be suspended.
Art. 1161. Civil obligations arising from
Examples of entirely separate and independent
criminal offenses shall be governed by the
civil action:
penal laws, subject to the provisions of article
• the civil action is based on an obligation
2177, and of the pertinent provisions of
not arising from the act complained of as
Chapter 2, Preliminary Title, on Human
offense or felony.
Relations, and of Title XVIII of this Book,
regulating damages. (1092a) ◦ Such action may proceed
independently of the criminal action
and regardless of the result of the
Art. 100, RPC latter.
except: treason, rebellion, illegal possession of ◦ Culpa contractual- Negligence in the
firearms and gambling. performance of a contract
◦ culpa aquiliana- Negligence as a
Enforcement of civil liability source of obligation (quasi-delict)
1. institution of criminal and civil actions- civil • Law grants to the injured party the right to
action impliedly instituted, except: institute a civil action separate and distinct
i. express waive of the civil action from the criminal action.
ii. reservation of right to institute it ◦ Interferences by public officers or
separately, or employees or by private individuals
iii. institution of the civil action prior to the with civil rights and liberties
criminal action.
◦ defamation
2. independent civil action
◦ fraud
3. other civil actions arising from offense

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AUF School of Law Obligations and Contract

◦ physical injuries been caused by the official upon whom


◦ refusal or neglect of a city or municipal properly devolved the duty of doing the act
police to render aid or protection in performed, in which case the provisions of
case of danger to life or property. the next preceding article shall be
applicable.
Reservation of right to file separate and distinct • Finally, teachers or directors of arts and
civil action- is a substantive right; trades are liable for any damages caused
-procedural requirement under Sec. 2 of by their pupils or apprentices while they are
Rule 111 of the New Rules of Court is not under their custody.
mandatory. The liability shall cease in case the persons
-this was amended by Sec. 3 of Revised Rules of mentioned therein prove that they exercised all the
criminal Procedure 2000. diligence of a good father of a family to prevent the
damage.
Art. 1162. Obligations derived from quasi- Requisites of liability
delicts shall be governed by the provisions of
• There exist a wrongful act or omission
Chapter 2, Title XVII of this Book, and by
imputable to the defendant by reason of his
special laws. (1093a)
fault or negligence.
• There exist a damage or injury which must
Quasi-delict- fault or negligence of a person who, be proved by the person claiming recovery.
by his acts or omission, connected or unconnected • There must be a direct causal connection
with, but independent from, any contractual between the fault or negligence and the
relation, causes damage to another person. damage or injury. (proximate cause)
-covers not only those that are not punished by law
but also those acts which are voluntary and Quasi-delict vs Crime
negligent
4 reasons: cited in Barredo vs Gracia Private right Nature of Public right
right
***A single act can give rise to various obligations violated
Persons liable- the person directly responsible for Compensation Form of Punishment
the damage incurred and: or redress (fine,
• The father, and, in case of his death or indemnification imprisonment, or
incapacity, the mother, are liable for any (reparation of both)
damages caused by the minor children injury suffered
who live with them. by the
• Guardians are liable for damages done by individual)
minors or incapacitated persons subject to
It exist in any Legal basis Exists when there
their authority and living with them.
act or omission of liability are penal laws
• Owners or directors of an establishment or
wherein fault or clearly penalizing
business are equally liable for any
negligence such crime
damages caused by their employees while
intervenes
engaged in the branch of the service in
which employed, or on occasion of the Civil liability liability Criminal and civil
performance of their duties. liability
• Employers with respect to damages Criminal intent Condition of Criminal intent
caused by their employees and household not necessary the mind necessary
helpers acting within the scope of their
assigned tasks, even though the former are Preponderance evidence Beyond
not engaged in any business or industry. of evidence reasonable doubt
• The State when it acts through a special Can be compromise Can never be
agent, but not if the damage shall have

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AUF School of Law Obligations and Contract

compromised compromised. contract is violated.


“Neglect or malfeasance of the
carrier's employees could give
Quasi-delict covers not only acts not punishable by
ground for an action for damages.
laws but it also includes acts which are criminal in
Damages here are proper because
character, whether intentional, voluntary or
the stress of respondent's action is
negligent. (Elcano vs Hill)
placed upon his wrongful
expulsion, which is a violation of a
Two distinct faults
public duty by petitioner- air carrier
(Padua vs Robles, Justice Barredo)
— a case of quasi-delict.” (Air
• culpa criminal- civil liability arising from
France vs Carrascoso, G.R. No. L-
crimes
21438. September 28, 1966.)
• culpa-aquiliana- liability arising from civil
negligence.
-recovery of damages twice for the same negligent Chapter 2
act is omission is precluded. NATURE AND EFFECTS OF OBLIGATION
-the extinction of the civil liability referred in Par (e) Art. 1163-1166 Obligation to Give
of Sec. 3, Rule 111 refers exclusively to liability
founded on Art. 100 of RPC, whereas the civil “diligence of a good father of a family”
liability for the same act considered as quasi delict - standard normal state of diligence
is not extinguished even by a declaration in the -ordinary diligence
criminal case that the criminal act charged has not -
happened or has not been committed by the obligations to give
accused.(Elcano vs Hill)
• determinate- the object is particularly
designated or physically segregated from
all others of the same class (Art. 1163
Diligence of employers:
applies particularly to determinate object)
Quasi-delict Crimes • generic- the object is merely designated
Art. 2180 of CC Art. 103 of RPC by its class or genus without any particular
designation or physical segregation from all
Primary liability Subsidiary liability others of the same class. (e.g. money)
Employer can avoid Liability is absolute and
liability after proving that cannot be avoided by ***Art. 1163 is a guaranty that the debtor will
he exercised due proof of diligence. comply with the obligation.
diligence
Nature of right of the creditor
Applies to all employers Applies only to
--The obligee/creditor has the right to the
whether they are employers engaged in
thing which is the object of the obligation as
engaged in enterprise some kind of business
well as the fruits thereof from the time the
or not. or industry.
obligation to deliver it arises. (Art. 1164)

ubi jus ibi remedium- unvindicated civil wrongs

--The death of the accused after arraignment and


Obligation When obligation to
during the pendency of the criminal action shall
deliver arises
extinguish the civil liability arising from the delict.
Those arising from The specific provisions
**Although the relation between the contracting • law of law determine when
parties is purely contractual a quasi-delict can still • quasi-delicts the delivery should be
be committed in view of the manner in which the • quasi-contracts made.

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AUF School of Law Obligations and Contract

• crimes contravention of the


tenor thereof.
• contracts Moment of perfection of
the contract. (Art. 1537) Generic obligations
• Subject to a From the moment the 1. to ask for 1. To deliver a thing
suspensive condition happens. performance of which is neither of
condition the obligations superior nor inferior
2. to ask that the quality.
• With suspensive Upon the expiration of obligation be 2. To be liable for
term or period the term or period complied with at damages in case of
the expense of breach of obligation
Personal right- a right pertaining to a person to the debtor.
demand from another the fulfillment of a prestation 3. To recover
to give, to do, or not to do. damages for the
– (jus ad rem) right enforceable only breach of
against a definite person or group obligation.
of persons
– before delivery in obligations to None exemption from liability because of caso
give fortuito:
delay
Real right- right pertaining to a person over a reason: There would have been no loss if the
specific thing, without passive subject individually debtor had complied with the obligation to deliver
determined against whom such right may be the object without delay.
personally forced. (ownership, possession,
easement) promise to two or more different persons
– (jus in re) right enforceable against the reason: It would be impossible to comply with both
whole world obligations therefore the debtor already made
– acquired once the thing and the fruits himself liable for damages.
are delivered.
Accessions- all of those things which are
Rights of Creditor Obligations of Debtor produced by the object of the obligation as well as
all of those which are naturally or artificially
determinate obligations attached thereto.
1. to compel specific 1. to perform the • Accession discreta- natural, industrial and
performance obligation civil fruits
2. to recover damages specifically • accession industrial – building, planting,
for breach of the 2. to take care of the and sowing
obligation. things with proper • accession natural- allusion, alvusion,
3. Entitlement to fruits diligence of a good abandoned river beds, and islands formed
and interests of the father of a family. in navigable rivers.
thing at the time 3. To deliver all • Accession with respect to movable
the obligation to accessions and property.
deliver it arises. accessories of the
things even though Accessories- all of the things which have for their
they may not have object the establishment, use or preservation of
been mentioned. another thing which is more important and to which
4. To be liable for they are not incorporated or attached.
damages in case of – embellishments
breach of obligation
by reason of delay, **The liability of debtor for damages in case of
fraud, negligence or breach of obligation, extends only to breach which

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AUF School of Law Obligations and Contract

is voluntary in character and not to one which is ◦ effects of the act are definite in
involuntary (fortuitous event) character.
◦ physical and legal impossibility
**Only a determinate thing can be destroyed by a • to ask for damages (Art. 1170)
fortuitous event, generic things can never perish. ◦ mora is not applicable
(genus nunquam peruit)
**In obligation not to do, the obligation is either
Art. 1167. fulfilled or not fulfilled
Obligation to Do
(positive personal obligation)
Art. 1169.
**If the obligor fails to do what he has obligated Delay in the fulfillment of obligation
himself to do, the obligee can have the obligation
performed or executed at the expense of the latter
Voluntary Involuntary
and recover damages .
Default (mora), Inability to comply
**This type of obligation recognizes individual deceit/fraud (dolo), because of an
freedom, the obligor cannot be compelled to do negligence (culpa), or in unforeseen event, or
what he has obligated himself to do. manner that which though foreseen
Remedy for obligee/creditor: performance of the contravenes the tenor is inevitable.
obligation at the expense of the obligor thereof
Obligor is liable for Obligor has no liability
**If the object of the prestation is the personal and
damages for damages
special qualification (i.e. artist) of the obligor, the
remedy for the obligee is to recover damages
under Art. 1170 of the Civil Code. General Rule: Unless there is no demand there is
no delay.
Rights available to the obligee
(in case there has been a performance of the ***In reciprocal obligation, the moment the other
obligation but in contravention of the tenor thereof) party complied with his obligation failure to comply
• to have the obligation performed at the will cause the other party to be in delay
expense of the obligor
Default(mora)- signifies delay in the fulfillment of
• to ask that what has been poorly done be
an obligation with respect to time.
undone
• to recover damages for breach of
***The mere stipulation of a date when the
obligation
obligation is due does not by itself dispense with
Case:
the necessity of a demand, unless there is an
Chavez vs Gonzales
express stipulation (either by law or contract) that
Tanguilig vs Court of Appeals
the debtor will incur delay without need of a
demand.
Article 1168.
Kinds of mora
Obligation NOT to Do
• mora solvendi- default on the part of the
(negative personal obligation)
debtor
-fulfilled or realized so long the obligor does not do
kinds of mora solvendi
what is forbidden
◦ ex re-refers to obligation to give
Remedy for obligee in case of breach: ◦ ex persona- refers to obligation to do
• to have it undone at the expense of the • mora accipiendi- default on the part of the
obligor (Art. 1168) creditor to accept the delivery of the object
exception (cannot be undone): of the obligation

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AUF School of Law Obligations and Contract

• compensatio morae- default of both parties -present at the time of birth of an


in reciprocal obligations obligations

Requisites to declare in default kinds of fraud


◦ that the obligation be demandable and • criminal fraud
already liquidated • civil fraud
◦ that the debtor delays performance Fraud in the vs Fraud in the
◦ that the creditor requires the performance of constitution or
performance judicially or extra judicially an obligation establishment of
an obligation
**In positive obligation, default arises from the
During the When At the time of the
moment the creditor demands the performance of
performance of an present birth of an
the obligation.
existing obligation obligation.
• Judicially- through a complaint
• extra-judicially- oral or written demand Evading normal purpose Securing the
fulfillment of an consent of the
When demand not necessary obligation other party to
• when there is an express stipulation to that enter into the
effect contract
• where the law so provides Non-fulfillment or result Vitiation of the
• when the period is the controlling motive or breach of the consent of the
the principal inducement for the creation of obligation other party
the obligation (when time is of the essence)
Recover damages Remedy Causal fraud-
• where demand would be useless
from the for the Annulment of the
debtor/obligor innocent contract.
**Negative obligations are not subject to delay.
party Incidental fraud-
recover damages
Reciprocal obligation-created or established at
the same time, out of the same cause and which
results in the mutual relationship of creditor and ***Malice or dishonesty is implied as a ground for
debtor between the parties. damages.
-obligations which are conditioned upon
each other ***Fraud or dolo is synonymous with bad faith.
-conditional obligation
***Waiver or renunciation of liability made in
**In case of delay, the liability of the obligor subsist anticipation of the fraud is VOID. (Art. 1171)
even if the thing which constitutes the object of
obligation may have been destroyed or lost ***Waiver or renunciation of liability made after the
through fortuitous events. fraud has already been committed is VALID.

The moment the other party has complied with his ***What is renounced is the effect of fraud or the
obligation, delay on the other begins. right of the party to indemnity.
Exception: If there are different dates for the
performance of the obligation, apply the general Extent of recoverable damages:
rule in 1169 (demand is needed). • all damages which may be attributable to
the breach or non-fulfillment of the
(Art. 1170-1173) obligation, regardless of whether such
consequences are natural or unnatural,
Fraud (dolo)- consist in the conscious and probable or improbable, foreseeable or
intentional proposition to evade the normal unforeseeable.
fulfillment of an obligation • Moral and exemplary damages

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AUF School of Law Obligations and Contract

Art. 1173 (if the Governing rule Art. 1173, par.1


Negligence (culpa)- omission of that diligence negligence
which is required by the nature of the obligation shows bad faith)
and corresponds with the circumstances of the
person, the time, and of the place. Valid (unless the Waiver of Void
-absence of due care required by the nature of the action (future)
nature of the obligation waiver is against
public policy)
***Diligence of good father of a family (pater
familias) is the standard diligence required if the proximate cause- cause which is a natural and
contract does not state the diligence which is to be logical consequence uninterrupted by an
observed in the performance of the obligation. intervening cause, without which the damage will
not have happened.
Kinds of negligence
Culpa vs Culpa Negligence
contractual aquiliana Bad faith Good faith
Negligence in definition Negligence as a If present, the Liability will only be on
the performance source of provisions of Art. 1173 natural and probable
of a contract obligation. and Art 2201, par.2 will consequences of the
(quasi-delict) apply. breach of obligation
Incident of the characteristi Substantive and ***Damages resulting from negligence is reduced
performance of c independent or mitigated if there was contributory negligence of
an obligation the obligee.
Pre-existing Party There may or Other circumstances that can mitigate the
contractual relationship may not be a damages:
relation pre-existing • when the plaintiff himself contravenes the
contractual terms of the contract;
relationship • where the plaintiff has derived some benefit
as a result of the contract;
Breach of Source of Defendant's
• in cases where exemplary damages are to
contract obligation negligent act or
be awarded, where the defendant acted
omission
upon advice of counsel;
Existence of the What needs Negligence of • where the loss would have resulted in any
contract and its to be proven the defendant event;
breach • where upon filing of the action, the
Proof of Availability Prof of diligence defendant has done his best to lessen the
diligence is not of diligence is a valid plaintiff's loss or injury.
a defense defense ***If the negligent act of the obligee is the
proximate cause of the event which led to the
damage or injury complained of, he cannot
Negligence vs Fraud
recover.
Negligence vs Fraud
Culpa Dolo ***The phrase “in any manner that contravenes
the tenor” of the obligation includes not only any
Voluntary act or characteristic Conscious and illicit act which impairs the strict fulfillment of the
omission intentional obligation but also every kind of defective
proposition to performance.
evade the
fulfillment of an Test of negligence:
obligation Use the reasonable care and caution which an

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AUF School of Law Obligations and Contract

ordinary prudent person would have used in the


same situation. ***expiration of agreement:
(Art. 1174) The case of Bacolod-Murcia vs CA compared
Fortuitous event (caso fortuito)- event which and contrasted with PhilComSat vs Globe.
could have not been foreseen, or though foreseen,
were inevitable. ***Southeastern College vs CA- typhoon is a caso
Act of God Force majeure fortuito
Independent of human events that arise from ***Co vs CA- carnapping of a vehicle is not
intervention legitimate or illegitimate considered a caso fortuito.
acts of persons other
than the obligor. ***Tanguilig vs CA – windmill case
As to foreseeability
(Art. 1175)
Ordinary extraordinary Usury- contracting for or receiving something in
excess of the amount allowed by law for the loan
General rule: If the reason for the non-compliance or forbearance of money, goods or chattels.
in the obligation is a fortuitous event, the obligor is -taking of more interest for the use of money,
exempted from liability whatsoever. goods, or chattels or credits than the law allows.
EXCEPT:
1. where such liability is expressly specified Usury Law (Act No. 2655) and other laws
by law; amending it- special law referred to in Art. 1175.
2. where it is declared by stipulation of the
parties; Central Bank Circular No. 224 (Dec. 1, 1982)- no
3. where the nature of the obligation requires more ceiling in interest rates on loans.
the assumption of risk.
-(volenti non fit injuria) no wrong is ***Loan or forebearance of money-12% interest in
done to one who consents the default of interest stipulated by law or the
parties, 6% interest for obligation not involving
***Art. 1174 applies only to determinate obligations forbearance or loan.
and not to generic ones.

***res ipsa loquitur ***12% interest per annum from the time the
judgment has become final if t.
***The caso fortuito must me the SOLE and
proximate cause of the incident, to avail of it as a (Art. 1176)
defense. ***There is a presumption that the interests has
been paid if on the face of the receipt that the
***Co-mingling negligence on the part of the creditor issued to the obligor that the principal has
obligor forfeits the defense of caso fortuito. been paid without reservation with respect to the
interest. (in accordance with Art. 1253)
Essential conditions for Art. 1174 to apply:
1. that the event must be independent of the ***If the debtor is issued a receipt by the creditor
will of the obligor; acknowledging payment of a latter installment
2. that the event must be either foreseeable without reservation to prior installments, there is
or inevitable; also a presumption that such prior installments
3. that the event must be of such a character have already been paid.
as to render it impossible for the obligor to
fulfill his obligation in a normal manner; ***For the presumption to arise, the receipt should
4. that the obligor must be free from any clearly state that the payment is for the installment
participation in the aggravation of the injury for a latter installment or as payment for the
to the obligee.

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AUF School of Law Obligations and Contract

interest. (Manila Trading vs Medina) DIFFERENT KINDS OF OBLIGATIONS

(Art. 1177) Sec. 1. - Pure and Conditional Obligations


Remedies of creditor to protect credits:
1. to exhaust the property in possession of (Art. 1179)
the debtor;(Art. 2236, CC) Pure Obligation- one whose effectivity or
2. to be subrogated to all of the rights and extinguishment does not depend upon the
actions of the debtor to save those which fulfillment or non-fulfillment of a condition or upon
are inherent in hi person. (accion the expiration of a term or period;
subrogatoria) – characterized by the quality of
Conditions: immediate demandability, but there
– that the debtor is indebted to the must be a reasonable period of grace.
creditor;
– the creditor must be prejudiced by Condition- future and uncertain fact or event upon
the inaction of the debtor to which an obligation is subordinated or made to
proceed against the third person; depend.
– the creditor must have first pursued Term/period- a term will surely pass and may or
all of the properties of the debtor may not know when exactly; characterized by
which are not exempt from futurity and certainty
execution. condition- it may or may not happen
3. to impugn all of the acts which the debtor
may have done to defraud him. (accion Conditional obligations- one whose effectivity is
pauliana) subordinated to the fulfillment or non-fulfillment of a
future and uncertain act or event.
Accion subrogotoria- the right of the creditor to
exercise all of the rights of the debtor to bring all of Kinds of conditional obligation:
the actions against third persons. 1. Suspensive vs Resolutory
-the creditor merely acts in the name and for the (Art. 1181)
account of the debtor.
EXCEPTION: Rights which are purely personal in
the sense that they are inherent n the person of the Suspensive Resolutory
debtor. (i.e. family rights)
Condition precedent Condition subsequent
Accion pauliana- impugning or attacking fraud Results in the Results in the
directly by means of a rescissory action at the acquisition of rights extinguishment of rights
instance of the creditors who are prejudiced. arising out of the arising out of the
-subsidiary in character. obligations obligations
The happening of the The happening of the
(Art. 1178)
condition gives birth to condition extinguishes
General rule: Rights of obligations or those rights
the obligation. obligation
which are acquired by virtue of an obligation are
transmissible in character. If the condition is not If the condition is not
Exceptions: fulfilled, no juridical tie is fulfilled, juridical relation
1. where they are not transmissible in their created. is consolidated.
very nature (i. e. purely personal rights); What is acquired by the What is acquired by the
2. where there are stipulations by the parties obligee in the obligee in the
that they are not transmissible; constitution of the constitution of the
3. where they are not transmissible by obligation is only mere obligation are rights that
operation of law. hope and expectancy, are subject to threat or
protected by law. danger of extinction.
CHAPTER THREE

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2. Potestative, casual, and mixed (Art. 1183)


(cause upon which the fulfillment depends) Possible Impossible
(Art. 1182)
when the condition is when the condition is
Potestative casual mixed
capable of realization not capable of
fulfillment of fulfillment of the fulfillment of the according to nature, realization according to
the obligation condition obligation law, public policy, or nature, law, public
depends upon depends upon depends upon good customs. policy, or good customs.
the will of a chance/or upon the will of a (contrary to good
party to the the will of a party to the customs or public policy,
obligations third person obligation and illicit, illegal)
partly upon
Effects
chance and/or
will of a third The obligation and the Annulment of the
person. condition is valid and obligation that are
enforceable. dependent of such
Effects
impossible condition
dependent on The obligation The obligation **but is there is a pre-
the creditor- and the and the existing obligation,
condition and condition shall condition shall therefore not dependent
obligation, take effect. take effect. upon the fulfillment of
VALID (valid and (valid and the obligation for its
enforceable) enforceable) perfection, only the
dependent on CONDITION is void, not
the debtor- the obligation.
condition and
obligation, ***If the impossible condition is attached to an
VOID obligation, the obligation itself is Void.

***The precept in the first sentence of Art. 182 is ***If the impossible condition is attached to a
applicable only to a suspensive condition. Hence, simple donation or testamentary disposition, the
Resolutory + Potestative = VALID obligation and condition is not imposed, although the donation
condition (explanation at pp.114, Jurado) or testamentary disposition itself is valid.

***to avoid illusory obligation- Reason for the ***Total Absence of seriousness- reason why the
invalidity of potestative condition dependent on the law invalidate the impossible condition & the
debtor. dependent obligation.
EXCEPTION: gratuitous disposition/donation;
***Payment for previous indebtedness/pre-existing because the moving force here is the generosity of
obligation although the condition is purely the donor.
potestative, affects the validity of the condition but
keeps the validity of the obligation because the ***The impossibility of the condition should be
obligation is not dependent upon the condition. determined at the time the obligation is made or
constituted.
4. Positive vs Negative
Simple potestative - valid; presupposes not just (Art. 1185)
the manifestation of the will but also the realization Positive Negative
of an external act.
condition involves the condition involves the
pure potestative – void; envisioned by Art. 1182 performance of an act omission of an act.
The event will happen The event will NOT
3. Possible vs Impossible

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or take place. happen or take place. Obligation subject to Obligation subject to


suspensive condition period/term
Effects
There is no certainty if It is certain that the
The obligation is The obligation is
the obligation will be obligation will be fully
extinguished as soon rendered effective from
fulfilled demandable and
as the time expires or if the moment the time
enforceable.
it becomes indubitable indicated has elapsed,
that the event will not or if it has become Interests and fruits shall Interests and fruits shall
take place. evident that the event also be delivered when also be delivered when
cannot occur. the debtor the debtor
paid/delivered by paid/delivered by
***The intention of the parties, taking into mistake. mistake.
consideration the nature of the obligation, shall
govern if no time has been fixed for the fulfillment
of the condition. The same rule applies to Reason for retroactivity: The condition is only
POSITIVE CONDITION. accidental, not essential element of the obligation.

Constructive Fulfillment of Suspensive *** The principle of retroactivity must be tempered


Condition- The condition shall be deemed fulfilled by principles of justice and practicability.
when the obligor voluntarily prevents [the obligee • In obligations to give
from] its fulfillment [of the condition].(Art. 1186) ◦ the principal obligation as well as the
-applicable only to Suspensive conditions fruits should be delivered
and not to Resolutory conditions. ◦ in unilateral obligations, the debtor
shall appropriate the fruits and interests
***The prevention must have been done for the received, unless there is a contrary
precise purpose of preventing the condition. intention on his part
• in obligations to do or not to do
Effects of Suspensive Condition (Art. 1188) ◦ Courts shall determine in each case the
Before Fulfillment After Fulfillment retroactive effect of the condition that
Demandability as well The obligation arises has been complied with.
as the acquisition or and becomes effective.
effectivity of rights ***In reciprocal obligations the fruits and interest
arising from the must be equally compensated between the parties.
obligation is suspended.
***In unilateral obligation, the debtor shall
The right of the creditor The right of the creditor appropriate the fruits and interests received unless
is mere hope & is perfected. (becomes the intention is different.
expectancy. effective & demandable)
Effects are retroactive ***In personal obligations, the courts will have to
(applicable only to determine in each case the retroactive effect of the
consensual contracts) condition that has been complied.

Effect of Loss, Deterioration, or Improvement


Art. 1188, par. 1- Protection for the creditor
(Art. 1189)
– file an injunction to stop the debtor
1. If the thing is lost without the fault of the
– does not necessarily always debtor, the obligation shall be
involves court action in spite the extinguished;
wordings of the law. 2. If the thing is lost through the fault of the
i.e. registration debtor, he shall be obliged to pay
damages; it is understood that the thing is
Art. 1188, par. 2- protection for the debtor lost when it perishes, or goes out of

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commerce, or disappears in such a way


that its existence is unknown or it cannot Effect of Resolutory Condition:
be recovered; Before Fulfillment After Fulfillment
3. When the thing deteriorates without the
fault of the debtor, the impairment is to be The obligation is subject The rights vested in the
borne by the creditor; to the threat of obligation is
4. If it deteriorates through the fault of the extinction. extinguished.
debtor, the creditor may choose between Placed in the same Whatever is paid or
the rescission of the obligation and its position with creditor in delivered to any of the
fulfillment, with indemnity for damages obligation with parties should be
in either case; suspensive condition. returned (return to
5. If the thing is improved by its nature, or by status quo)
time, the improvement shall inure to the
benefit of the creditor; ***There are no exceptions in the retroactive effect
6. If it is improved at the expense of the of resolutory condition; what was delivered need to
debtor, he shall have no other right than be returned.
that granted to the usufructuary.
***The fulfillment of a resolutory condition signifies
***Rule in Art. 1189 are natural consequences of the nonexistence of the obligation, what is
the principle of retroactivity. nonexistent must no give rise to any effect
whatsoever.
***Predicated on the fulfillment of the condition.
******There is no provision of mutual compensation
***Refer only to conditional obligations to give a of fruits and interests but in connection with the
determinate thing concept of justice, restitution in Art. 1190 carries
with it the consequence of reimbursement for all
usufruct- right or enjoyment of a thing, the the expenses incurred for the production,
property of which is vested in another and to draw gathering, and preservation of the fruits.
from the same all the profit, utilities, and advantage
it may produce without altering the form/substance ***Mutual restitution is absolute in resolutory
of the thing. conditions because the obligation is extinguished,
and it ceases to have effect thus does not carry
Loss with it fruits and interests.
a thing is considered lost when it:
1. perishes; ***In obligations to do or not to do, the retroactive
2. goes out of commerce – impossible to effects shall depend upon the discretion of the
legally transfer or re-acquire courts.
3. disappears in such a way that its existence
is unknown or it cannot be recovered ***Art. 1189 is also applicable with regard the
effects of loss, deterioration, and improvements of
Improvements things during the pendency of resolutory condition.
natural accessions: alluvion, avulsion,
abandoned river beds, island formed ***In Resolutory condition the “debtor” is the
person obliged to return while the “creditor” is the
***The debtor cannot ask for reimbursement for person to whom the thing must be returned.
expenses incurred for useful improvements or
improvements for pleasure. Reciprocal obligations
(Art. 1191)
***the debtor may have the right to remove such remedy for the injured party: rescission or
improvements provided it is possible to do so fulfillment
without damage to the thing or property.

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Reciprocal obligation-created or established at


the same time, out of the same cause and which ***Rescission will only be rendered when the
results in the mutual relationship of creditor and breach is substantial so as to defeat the object of
debtor between the parties. the parties in entering into the agreement.
-characterized by reciprocity; one obligation Case: Song Fo & Co. vs Hawaiian-Philippine
is correlative of the other. Co.
-bilateral in character.
-tacit resolutory condition. Alternative remedies to the injured party:
--fulfillment of the obligation with payment for
***General rule: If one of the parties fails to damages (Specific performance with damages)
comply with what is incumbent upon him,there is a --rescission of the obligation with payment for
right on the part of the other to rescind (or resolve) damages (resolution with damages)
the obligation. Case: Songcuan vs IAC

Right of rescission- belongs to the injured party ***The injured party can still seek the rescission or
alone. resolution of the obligation even if he has opted to
-must be invoked judicially by filing the choose the fulfillment of such obligation if
proper action of rescission. fulfillment should become impossible.
– not absolute; the court is given the Case: Ayson-Simon vs Adamos
discretionary power to fix a period
within which the obligor in default may ***In awarding damages...
be permitted to comply with what is In case or only those elements of
incumbent upon him. rescission damages can be admitted that
– implied in reciprocal obligations(Art. are compatible with the idea of
1191, par. 1) rescission.
In case of specific Only the elements of damages
***If the contract contains a resolutory provision by
performance can be admitted which are
virtue of which the obligation may be canceled or
compatible with the idea of
extinguished by the injured party in case of breach
specific performance.
of obligation, judicial permission to cancel or
rescind the contract is no longer necessary. But the
Court may confirm such extra judicial rescission. Effects of Rescission:
• it is the duty of the court to require the
***If there is no express provision of rescission in parties to surrender whatever they may
the contract, rescission should be invoked have received from the other (without
judicially. prejudice to the obligation of the party who
was not able to comply with what is
***The termination of a contract must not be incumbent upon him).
contrary to law, morals, good customs, public • Rescission can no longer be demanded
order, or public policy. when he who demands is no longer in the
position to return whatever he may be
***Notice is always important in rescission so the obliged to restore; neither can it be
alleged infractor can question the propriety of the demanded when the thing which is the
rescission. object of the contract is already in the
possession of a 3rd party who obtained it in
***Art. 1191 is not applicable to contracts of good faith.
partnership. There are special provisions that ◦ Remedy for the latter will be an action
govern the latter, thus the general provision will not for the transfer or conveyance for
prevail. The same applies to sales of real property damages.
(Recto Law) and sales of personal property by rd
• If 3 person obtained the property in bad
installment (Maceda Law). faith, the injured party can still go after the

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property. which is future or event which is


◦ If it can't really be recovered, the and certain future and
remedy is for the injured party to uncertain
proceed against 3rd person who acted
in bad faith for damages. Interval of time fulfillment A future and
that must uncertain fact or
***There can be partial rescission or fulfillment necessarily event that may
under Art. 1191. come, although it or may not
Case: Central Bank vs CA may not be happen.
known when
***Rescission calls for mutual restitution. (Laperal Merely exerts an Influence Exerts an
vs Solid Homes) influence upon on influence upon
the time of the obligation the very
***If there is arbitration in the contract, arbitration demandability or existence of the
should be resorted to before asking for rescission extinguishment of obligation itself.
(Korean Technology vs Lerma) an obligation.
No retroactive Retroactive Has retroactive
effects unless effects effects
there is an
Effect of breach by both parties
agreement to the
(Art. 1192)
contrary.
Rules:
1. the liability of the first infractor shall be When a term or a Effect of When a
equitably tempered by the courts. period is left will of the condition is left
-fair to both parties because the exclusively to the debtor on the exclusive
second infractor also derived, or will of the debtor, will of the debtor,
thought he would derive, some the existence of the existence of
advantage for his own act or the obligation is the obligation is
neglect not affected affected (Void)
2. If it cannot be determined which of the (potestative term (potestative
parties first violated the contract, the same or period) condition)
shall be deemed extinguished, and each
shall bear his own damages Classification of term or period
-it is presumed that both at about 1. suspensive or resolutory
the same time tried to reap some a) suspensive (ex die) - demandable only
benefit upon the arrival of a day certain.
b) resolutory (in diem) – demandable at
Sec. 2. - Obligations with a Period once, although it is terminated upon the
arrival of a day certain
Term or Period- interval of time, which exerting an ***day certain- which must necessarily
influence on an obligation as a consequence of a come, although it may not be known when.
juridical act, either suspends its demandability or 2. legal, conventional, or judicial
produces its extinguishment. a) legal- term or period granted by law
b) conventional- stipulated by the parties
Obligations with a period- obligations whose c) judicial- fixed by the courts
demandability or extinguishment is subject to the 3. definite or indefinite
expiration of a term or a period. a) definite- the date or time is known
beforehand
Term/Period Condition b) indefinite- can only be determined by
an even which must necessarily come
Interval of time requisites Refers to a fact
to pass, although it may not be known

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when Judicial term or period


(Art. 1197)
effects of term or period:
suspensive the demandability of the obligation Judicial term or period- when fixed by a
term or period is extinguished, not the acquisition competent court, the period can no longer be
of right or the effectivity of the judicially changed (Art. 1197, par. 3).
obligation. -becomes a law governing the contract
between the party
Resulotory The fulfillment or performance of
term or period the obligation is demandable at Cases when court can fix term:
once, but it is extinguished or • if the obligation does not fox a period, but it
terminated upon the arrival of the can be inferred that a period was intended
day certain or the expiration of the by the parties
term.
◦ cannot be applied to contract for
Case: PNB vs Lopez Vito services in which no period was fixed
by the parties. In such contracts the
***Acceleration clause is a clause where upon period of employment is understood to
default of the debtor with one or more payment will be implicitly fixed, in default of express
make the whole obligation demandable. This is a stipulation, by the period of the
valid provision in contracts. payment of the salary of the employee,
in accordance with the custom
Effect of fortuitous event- relieve the contracting universally observed throughout the
parties from the fulfillment of their respective world.
obligations during the term or period. ◦ cannot be applied to pure obligations
Case: Victoria's Planters vs Victorias Milling • if the duration of the period depends upon
Co. the will of the debtor
◦ just and logical, because otherwise,
effect of advance payment or delivery- obligor
there would always be the possibility
can recover what he has paid or delivered with
that the obligation will never be fulfilled
fruits or interests. (Art. 1195)
or performed.
-applicable only to obligations to give
• if the debtor binds himself to pay when his
means permit him to do so.
***There can be no right of recovery if the obligor
Case: Gonzales vs Jose
delivers the thing voluntarily or with knowledge of
the period or term or the fact that the obligation has
***No other action can prosper unless the court
not yet become due and demandable.
has fixed the duration of the term or period.

***In potestative term or period, in order to prevent


(Art. 1196)
the obligation contracted from becoming ineffective
by non fulfillment, the courts must fix the duration
General rule: a period designated for the
of the term or period.
performance or fulfillment of an obligation is
presumed to have been established for the benefit
***So long as such period has not been fixed by
of both the creditor and the debtor.
the court, legally there can be no possibility of any
Case: de Leon vs Syjuco
breach of contract or of failure to perform the
obligation. Such cannot be raised for the first time
***If the tenor of the obligation or from other
on appeal.
circumstances that the term or period has been
established in favor of the creditor or of the debtor,
***Art. 1197 applies to a lease agreement, where a
the general rule will not apply.
contract of lease clearly exists.

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***It is not necessary that the creditor will expressly immediately gives new ones equally
ask in the complaint for the court to fix the period, satisfactory;
such may be granted although the complaint does (a) there is a difference between effects of
not ask for such relief. impairment and effects of
disappearance
***Two ultimate facts that need to be alleged in the 1. if the guaranty or security is
complaint to describe an obligation with an impaired through the fault of the
indefinite period. debtor, he shall lose his right to the
1. Facts showing that the contract was benefit of the period;
entered imposing on one of the parties an 2. if it is impaired without his fault, he
obligation in favor of the other shall retain his right;
2. facts showing that the performance of the 3. if the guaranty or security
obligation was left to the will of the obligor, disappears through any cause,
or clearly showing, or from which an even without the fault of the debtor,
inference can be reasonably drawn that a he shall lose his right to the benefit
period was intended. of the period
4. in either case of impairment or
***The action recognized by Art. 1197 may also disappearance, the debtor will not
prescribe like any ordinary civil action. (Gonzales lose his right to period if he gives a
vs Jose) new guaranty or security which is
equally satisfactory.

Extinguishment of Debtor's right to Period (4) When the debtor violates any undertaking,
(Art. 1198) in consideration of which the creditor
agreed to the period;
(1) When after the obligation has been
contracted, he becomes insolvent, unless (5) When the debtor attempts to abscond.
he gives a guaranty or security for the debt; (a) Mere attempt of the debtor disappear
(a) insolvency needs no judicial declaration or run away from his obligation.
(b) includes any case in which it would be
impossible financially for the debtor to Sec. 3. - Alternative and Facultative Obligations
comply with his obligations
(c) such insolvency must not be pre- 5. Conjunctive vs Alternative
existing; arose after the constitution of Conjunctive Alternative
the obligation
(d) if there is a guaranty or security for the there are several there are several
debt, the debtor, in spite of insolvency, conditions, all of which conditions but only one
does not lose his right to the period. must be realized must be realized.

(2) When he does not furnish to the creditor


the guaranties or securities which he has Conjunctive obligation- all of the objects of the
promised; obligation are demandable at the same time
(a) such failure renders the original
obligation pure and without any distributive obligation- when only one object of
condition, and consequently, the loan the obligation is demandable.
become due and demandable. • Alternative- comprehends several objects
or prestation which are due, but it may be
(3) When by his own acts he has impaired said complied with by the delivery or
guaranties or securities after their performance of only one of them.
establishment, and when through a ◦ Performance of one of the obligation is
fortuitous event they disappear, unless he sufficient

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• Facultative- comprehends only one object


or prestation which is due, but it may be ***Communication is needed to make the choice
complied with by the delivery of another effective.
object or the performance of another
prestation in substitution. ***No special form for the communication or
notification of choice, although it is always better to
Alternative Obligations make the notification either in a notarized
(Art. 1200) document or in any other authentic writing.

General rule: The right of choice belongs or ***Debatable: Can the creditor to whom the
pertains to the debtor. selection has been duly communicated impugn
such selection?
***Once the debtor has made the choice, and such
choice is duly communicated to the creditor, the
obligation becomes simple. ***Once the choice is made by the debtor (or
creditor, or 3rd person) and such selection has been
communicated, the obligation ceases to be
Exceptions: alternative. The loss of the object of prestation
• when the right of choice belongs or chosen and communicated extinguishes the
pertains to the creditor liability.
• when it has been expressly granted to a
third person. (Art. 1202)

Limitation to the right of choice: ***When only one prestation is practicable, the
• debtor cannot choose those prestations or debtor loses his right of choice altogether. The
undertakings that are impossible, unlawful, obligation becomes simple.
or which could not have been the object of
the obligation. Art. 1202 Art. 1200, par. 2
Only one prestation There are still two or
“Prestations which could not have been the object which can be performed more prestations that
of prestation” can be performed.
• undertakings that are not included among
others those from which the obligor may Obligation is converted The obligation is still
select, or to a simple one alternative because the
• those which are not yet due and because the debtor debtor can still exercise
demandable at the time the selection is loses his right of his right of election.
made, or election
• those by reason of accident or some other
cause, have acquired a new character
distinct or different from that contemplated ***When the debtor's right of choice is rendered
by the parties when the obligation was ineffective through the creditor's fault, the only
constituted. possible remedy for the debtor is to bring an action
for the rescission of the contract with damages.
***Par. 2 of Art. 1200 contemplates a case in which (Art. 1203)
the right to choose or select is NOT lost or
extinguished altogether. Art. 1204 Art. 1205
Right of choice of Right of choice of
debtor Creditor
(Art. 1201)
***Applicable to cases in which the choice is General rule exception
dependent on the debtor, creditor, or third person.

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Factors to consider in knowing the effect of loss of take effect.


the object of prestation
• to whom the right of choice belong? ***Communication is needed to make the
• What is the cause of the loss of the object substitution effective.
of prestation? (fortuitous event or fault of
the debtor) ***Whatever may be the cause of the loss or
deterioration of the thing intended as a substitute,
(for Summary of Effects of Loss of Obligation, see such loss shall not render the debtor liable. - Dean
Annex “A” ) Capistrano

Facultative Obligations ***Once the substitution has been made, the


(Art. 1206) debtor shall be liable for the loss or deterioration of
the substitute on account of his delay, negligence,
Facultative obligation- obligation wherein only or fraud.
one object or prestation has been agreed upon by
the parties to the obligation, but which may be ***Once the substitution is made, the obligation is
complied with by the delivery of another object or converted into a simple one.
the performance of another prestation in
substitution.
Sec. 4. - Joint and Solidary Obligations
Facultative vs Alternative
Joint obligation - obligation where there is a
Only one object Object due Several objects concurrence of several creditors, or of several
By the delivery compliance By the delivery of debtors, or of several creditors and debtors, by
of another object one of the virtue of which each of the creditors has a right to
or by the objects or by the demand, and each of the debtors is bound to
performance of performance of render, compliance with his proportionate part of
another one of the the prestation which constitutes the obligation
prestation in prestations which – obligacion mancomunada
substitution are alternatively
due. Solidary obligation – obligation where there is a
concurrence of several creditors, or of several
Pertains only to choice May pertain to debtors, or of several creditors and debtors, by
the debtor the debtor, or virtue of which each of the creditors has a right to
creditor, or third demand, and each of the debtors is bound to
person render, entire compliance with the prestation which
Loss or Effect of Loss of all the constitutes the obligation
impossibility of fortuitous objects of – obligacion solidaria
the object loss prestation is
extinguishes the necessary to Collective Obligations
obligation extinguish the (Art. 1207)
obligation
General rule: If there is a concurrence of several
Does not give Effect of May give rise to
creditors, or of several debtors, or of several
rise to liability on culpable a liability on the
creditors and debtors,the presumption is that the
the part of the loss part of the debtor
obligation is JOINT and not solidary.
debtor
Exceptions:
1. when the obligation expressly states that
there is solidarity;
***Art. 1201 is applicable by analogy with respect ➢ “jointly and severally”
to the time or moment when the substitution will ➢ “individually and collectively”

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2. when the law requires solidarity; and, the debtors


➢ Art. 927, 1824, 1911, 1915, 2146,
2157, and 2194 NCC ***If one of the joint debtors fails to comply with his
➢ Art. 110, RPC undertaking, the obligation can no longer be
3. when the nature of the obligation requires fulfilled or performed.
solidarity.
➢ Obligations arising from criminal ***The debtors who are ready to fulfill what was
offenses or torts incumbent upon them shall not contribute to the
indemnity beyond the corresponding portion of the
Joint Divisible Obligations price of the thing or of the value of the service in
(Art. 1208) which the obligation consists. (Art. 1224)
***Each creditor can demand only for the payment
of his proportionate share of the credit, while the ***If one of the joint debtors be insolvent, the
debtors can be held liable only for the payment of others shall not be liable for his share.
his proportionate share of the debt.
***Debatable: If there are two or more creditors or
***Joint creditor cannot act in representation of the debtors, will the claim of a creditor addressed to a
others; neither can debtor be compelled to answer single debtor or the acknowledgment made by one
for the liability of the others. of the debtors in favor of one or more creditors be
sufficient to interrupt the period of prescription?
***The payment or acknowledgement by one of the
joint debtors will not stop the running of the period
of prescription as to the others. ***Indivisibility and solidarity are NOT identical.
Indivisibility vs Solidarity
Joint Indivisible Obligations
(Art. 1209) Prestation nature Legal tie or
which vinculum, and
-midway between joint and solidary obligations constitute the consequently to
characteristics: object of the the parties of
• no creditor can act in representation of the obligation. the obligation.
other Plurality of requisites Plurality of
• no debtor can be compelled to answer for subjects not subjects is
the liability of the others. required indispensable.

– joint with respect of the parties Terminated Effect of Remains even


when the breach though there is
– indivisible with respect the fulfillment of the
obligation is a liability on the
obligation
converted into part of the
one of debtors
2 or more debtors 2 or more creditors indemnity for because of
The fulfillment of or The concurrence or damages breach.
compliance with the collective act of all the
obligation requires the creditors, although Kinds of solidarity
concurrence of all the each for his own share, • active – among creditors
debtors, although each is necessary for the ◦ tie or vinculum existing among several
for his own share enforcement of the creditors of one and the same
obligation. obligations by virtue of which each of
The obligation can be Not susceptible of them, in relation to his co-creditors,
enforced only by partial fulfillment. possesses the character of a creditor
proceeding against all only with respect to his share of the
obligation but in relation to other debtor

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AUF School of Law Obligations and Contract

or debtors, represents all other obligation, he has a entire obligation, he


creditors. right to demand acquires a right to
◦ Mutual representation reimbursement from his reimbursement from the
• passive – among debtors co-debtor of their share principal debtor of the
◦ tie or vinculum existing among several in the obligation. entire amount he has
debtors of one and the same paid.
obligations by virtue of which each of
An extension of time An extension of time
them, in relation to his co-debtors,
granted by the creditor granted by the creditor
possesses the character of a debtor
to one of the solidary to the principal debtor
only with respect to his share of the
debtors without the would release the
obligation, but in relation to other
knowledge of the other surety from the
creditor or creditors, represents all
solidary debtors would obligation.
other debtors.
not have the effect of
◦ each solidarity debtors, as far as the releasing the latter from
creditors are concerned, is the debtor their obligation.
to the entire amount
• mixed – among creditors and debtors
***Uniform bond or tie- when the creditors and
debtors are bound in the same manner and by the
fundamental effect of active solidarity- creation
same conditions or periods.
of a relationship of mutual agency among
solidary creditors by virtue of which the creditor is
***Varied bond or tie- when the creditors and
empowered against the debtor or debtors not only
debtors are not bound in the same manner and by
the rights which corresponds to him, but also all
the same conditions or periods.
the rights which correspond to the other creditors,
with the consequent obligation to render an
***In Art. 1211, the right of the creditor is limited to
accounting of his acts to such creditors.
the recovery of the share owed by the debtor
(equal mutual representation)
whose obligation has become mature leaving in
suspense his right to recover the shares
***relationship of mutual agency, basis of the
corresponding to the debtors whose obligations
difference of the rules in Art. 1212 and 1215.
have not yet matured.
Case: Inchausti & Co. vs Yulo
fundamental effect of passive solidarity- liability
of each debtor for the payment of the entire
(Art. 1212)
obligation, with the consequent right to demand
reimbursement from the others for their
Effects of Prejudicial acts of a creditor to...
corresponding shares, once payment has been
made. • debtor/debtors – valid and binding because
of the principle of mutual representation
which exists among the creditors
Passive solidary Surety
• solidary creditors – the creditor who
debtor
performed the act shall incur the obligation
Both are solidarily liable to the creditor for the of indemnifying the others for damages.
payment of the entire obligations
***Art. 1212 refers to effect of prejudicial acts upon
Liable for the payment Liable for the debt of
the relationship of the creditor among themselves.
of the debt of another another.
but also for the payment
***Art. 1215 refers to the effect of prejudicial acts
of a debt which is
upon the entirely different relationship of the
properly his own.
creditors with the debtor or debtors. Shall result in
If he pays the entire If the surety pays the the extinguishment of the obligation

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AUF School of Law Obligations and Contract

Novation – change or substitution of an obligation


***Prejudicial acts: by another, resulting in its extinguishment or
• novation modification, either by...
• compensation • changing its object or principal condition, or
• confusion ◦ if prejudicial – the creditor who effected
• remission the novation shall reimburse the others
for damages incurred by them
***The act of extinguishment, which is prejudicial to ◦ if beneficial – the creditor who effected
the co-creditors, will be valid so as to extinguish the novation is able to secure
the claim against the debtors, but not with respect performance of the new obligation,
to the co-creditors whose right subsists and can be such creditor shall be liable to the
enforced against the creditor who performed the others for the share which corresponds
act alone. to them, not only in the obligation, but
also in the benefits.
• substituting another in place of the debtor,
or creditor shall be liable to the acts of the
Assignment of right new debtor in case there is a deficiency in
(Art. 1213) performance or in case damage is incurred
by the other solidary creditors
***Consent of other creditors in the assignment of • subrogating a third person in the rights of
rights by another solidary creditor is needed. the creditor.
◦ The obligation of the debtor and
***mutual agency creditor is not in reality extinguished.
Effects if assigned without the consent: ◦ If effected by subrogating a third
1. if assigned to another co-creditor, there is person in the rights of all the solidary
no violation of the precept stated in Art. creditors, the creditor liable for such
1213; Valid assignment novation is liable to the creditors for the
2. if the assignment is made to a third person, share which corresponds to them in the
there is a violation of the precept in Art. obligation.
1213; Invalid assignment
– extinguishes the obligation but it creates a
new one in lieu of the old.
(Art. 1214) – The co-creditor who does not participate in
***Any creditor may demand (judicial or extra the novation of the obligation can have a
judicial) the payment or performance of the share in the benefits of the modification but
obligation from one, some, or all of the debtors. not in possible losses.
***Payment to be made on the creditor who made General rule: Extension of time for the payment of
the demand and to no other. If there is no demand, the obligation does not constitute novation.
payment may be made by the debtor to anyone of
the solidary creditors. ***needed in order that an obligation may be
extinguished by another which substitutes it.
***In mixed solidarity, judicial or extra judicial
• Express declaration of novation
demand prohibits the debtor upon whom the
• incompatibility of the old and new
demand is made from making payment to any
obligation.
creditor other than to the one who made the
demand; does not extend to other debtors upon
***In suretyship, extension of time given to the
whom no demand has been made.
principal debtor by the creditor without the consent
of the surety extinguishes the latter's liability,
except when the surety is liable for different
(Art. 1215)
payments or upon series of installments.

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AUF School of Law Obligations and Contract

***Such rules cannot be applied if the debt had


Compensation – weighing two obligations already been totally paid by anyone of the solidary
simultaneously in order to extinguish them to the debtors before the remission is effected.
extent that the amount of one is covered by the
amount of the other. ***If one of the solidary creditor was able to collect
the entire amount from one or some, or all of the
Confusion – refers to the merger of the qualities of solidary debtors, the obligation is totally
creditor and debtor in one and the same person extinguished and that creditor must render an
with respect to one and the same obligation. account to his co-creditors.

Partial compensation or confusion:


• there may be some doubt as to the part of
the obligation to which the confusion or
compensation shall be applied.
• Apply the rules on Application of payment
(Art. 1216)
Total compensation or confusion:
• obligation is extinguished altogether and ***Creditor may proceed against any one, or some,
what is left is the ensuing liability for or all of the solidary debtors simultaneously.
reimbursement within each group
***Bringing of an action against the principal debtor
Remission – act of pure liberality by virtue of to enforce the payment of the obligation is not
which the creditor, without having received any inconsistent with, and does not preclude the
compensation or equivalent, renounces his right to bringing of another to compel the surety to fulfill hid
enforce the obligation, thereby extinguishing the obligation under the surety agreement.
same either in its entirety or in the part or aspect
thereof to which the remission refers. ***A creditor's right to proceed against the surety
exist independently of his right to proceed against
Effects: the principal.
• covers entire obligation:
◦ total extinguishment of the obligation. ***if the obligation is joint and several, the surety
has the right to proceed even against the surety
◦ the entire juridical relation is terminated
alone.
• for the benefit of one of the debtors and
covers his entire share of the obligation.
***obligation of the surety is the same as that of a
◦ Totally releases the debtor from the principal.
creditors.
◦ But the debtor is still bound to his co- ***The surety is not entitled, as a matter of right, to
debtors be given notice of the principal's default.
• for the benefit of one of the debtors and Commencement of the suit is a sufficient demand.
covers only a part of his share of the
obligation. (Art. 1217)
◦ His character as a solidary debtor is not
affected ***Where payment is made by one of the solidary
• covers the entire share of a solidary debtor debtors, the effect is either the total of partial
in the obligation or only part thereof. extinguishment depending upon whether the entire
◦ Partial remission is a valid defense if amount of the debt is paid or only part thereof.
the creditors proceed against any one
of the solidary debtors for the payment ***Once payment is made by one of the solidary
of the entire obligation. debtors of the entire obligation,, there arises
immediately a consequent right of such debtor to

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AUF School of Law Obligations and Contract

claim from his co-debtors the share which the creditor or creditors:
corresponds to them, with interest for the payment
already made. Defenses available to a solidary debtor
• defenses derived from the very nature of
***the right is not available to a debtor who makes the obligation
the payment after the obligation has prescribed or ◦ payment or performance; res judicata;
has become illegal. prescription; those which invalidate the
contract such as mistake, violence,
***The interest shall be computed not from the time undue influence, fraud, etc...
payment was made, but from the time the debt • defenses personal to him or pertaining to
became due. his own share
◦ minority; insanity, etc..
If one of the solidary debtors become insolvent, his • defenses personal to the others, but only
share shall be borne by all his co-debtors, in as regards that part of the debt for which
proportion to the debt of each. (par. 3, Art. 1217) the latter are responsible.
◦ Merely a partial defense
(Art. 1219 – 1221)
Sec. 5 – Divisible and Indivisible Obligations
Effect of Loss or Impossibility of Performance
1. NOT due to the fault of the solidary
6. Divisible vs Indivisible
debtors
• Obligation is extinguished Divisible Indivisible
2. Due to the fault of one of the solidary condition is susceptible condition is not
debtors of partial realization or susceptible to partial
• the obligation is converted into an performance without the realization or
obligation of indemnity for damages, obligation in essence performance because,
but the solidary character of the being changed. otherwise, the essence
obligation remains of the obligation will be
3. Fortuitous event changed.
• the obligation is converted into an If separated into parts, If separated into parts,
obligation of indemnity for damages, its essence is not its essence is changed
but the solidary character of the changed or its value is or its value decreased
obligation remains not decreased disproportionately.
disproportionately,
unjust enrichment – reason or philosophy behind because each of the
Art. 1220 parts into which it is
divided are
***a solidary debtor who paid the entire amount of homogeneous and
the obligation does not step into the shoes analogous to each
(subrogation) of the creditors because he does not other as well as the
acquire the same right to collect the entire amount thing itself.
of the obligation from his co-debtors. He is only
entitled to the proportionate share of each of the
co-debtors. The divisibility of the [performance] obligation IS
NOT divisibility of the thing or the prestation which
(Art. 1222) constitutes the object of the obligation.
***The creditor/s may proceed against any of the
solidary debtors or all of them simultaneously for ***The divisibility or indivisibility of the object itself
the payment of the obligation, but whether only one is a very important factor, probably the most
or all of the solidary debtors are sued jointly, any important, in determining whether the prestation
soliadary debtor may interpose against the claim of which constitutes the object of the obligation is
susceptible to partial performance, or not.

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AUF School of Law Obligations and Contract

comply with the obligation, it is converted


***For a thing to be considered divisible, it is into indemnity for damages
important that it must be possible for reconstruction – the debtor who failed or refused to comply
into its condition prior the division, by uniting the with his obligation shall bear the burden of
different parts into which it had been divided. paying all of the damages suffered by the
creditors
Three kinds of Division – the other debtor may also recover for
• Quantitative – when the thing can me damages form the debtor at fault.
materially divided into parts and such parts
are homogeneous to each other.
◦ Movable- parts are actually separated
from each other (Art. 1225)
◦ immovable- the limits of the parts are True test of divisibility: WON the obligation is
fixed by metes and bounds susceptible of partial compliance.
• Qualitative – the thing can be materially
divided but the parts are not exactly ***The susceptibility of partial compliance should
homogeneous. (i.e inheritance) be understood in the sense of the possibility of
• Ideal/Intellectual – the thing can only be realizing the end or purpose which the obligation
separated into ideal or intellectual parts, seeks to attain. (Applies to obligations to give, to
not material parts. (i.e. co-ownership) do, or not to do)

(Art. 1223) To give


One debtor one creditor- the divisibility is of little The divisibility or indivisibility of the obligation is the
significance. most important factor.
General Rule: the creditor cannot be compelled to • definite & indivisible object- not susceptible
partially receive the prestation in which the of partial fulfillment (Absolute rule)
obligation consists; neither may the debtor may the • divisible object- susceptible of partial
required to make partial fulfillment. performance. except:
Exceptions: ◦ when the law provides for its
• when the obligation expressly stipulates indivisibility which may be inferred or
the contrary presumed either;
• when the different prestations constituting ▪ from the fact that although the
the objects of the obligation are subject to object of the obligation can be
different terms and conditions. separated in parts, yet each part
• When the obligation is in part liquidated constitutes a necessary
and in part unliquidated. complement of the other parts
▪ from the very purpose of the
Plurality of debtors and creditors- the effect of the obligation itself
divisibility or indivisibility of the obligation shall ◦ it is so intended by the parties
depend whether the obligation is joint or solidary. ▪ express
• Joint – ▪ implied
◦ Divisible- Art. 1208 shall apply
◦ Indivisible- Art. 1209 and 1224 To Do
• Solidary – Art. 1211- 1222 shall apply • indivisible prestation- not susceptible of
partial fulfillment (Absolute rule)
(Art. 1224) ◦ In order to determine whether the
Breach of joint indivisible obligation prestation is divisible or not, the object
– the obligation can be enforced only by or purpose of the obligation must
proceeding against all of the debtors always be considered
– if any of the debtors fails or refuse to ▪ it is divisible when it has for its

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AUF School of Law Obligations and Contract

object... agreement of the


1. the execution of a certain number or parties
days of work,
2. the accomplishment of work by As to purpose
metrical units; or Compensatory Punitive
3. the accomplishment of analogous (for reparation)
things which by their nature are
susceptible of partial performance. Established for the Established for the
purpose of indemnifying purpose of punishing
the damages suffered the the obligor or debtor
• Divisible prestation- susceptible of partial
by the obligee or in case of breach
fulfillment, with certain qualifications.
creditor in case of
◦ when the law provides for its
breach
indivisibility
◦ it is so intended by the parties As to Effect
Subsidiary/Alternative Joint/Cumulative
Not to Do
• The determination of the character of the Only the penalty may be both the penalty and the
obligation will depend upon the sound demanded in case of principal obligation may
discretion of the court breach be demanded

(Art. 1226)
Sec. 6 – Obligations with Penal Clause ***Penalty may be considered as reparation or
– one in which an accessory undertaking is substitute for damages or as a punishment in case
attached for the purpose of insuring its of breach of the obligation.
performance by virtue of which the obligor
bound to pay a stipulated indemnity or Reparation – the question of damage is resolved,
perform a stipulated prestation in case of since the stipulated indemnity or prestation
breach. represents a legitimate estimate made by the
– Penalty or penal clause is an accessory contracting parties of the damages caused by the
obligation attached to the principal breach of the obligation.
obligation – proof of actual damage is not needed
– general rule
Purposes of penalty:
• insure the performance of the obligation Punishment – the question of damage is not yet
(funcion coercitiva o de garantia); general resolved
purpose – the right to damages, aside from
• liquidate the amount of damages to be penalty, still subsists
awarded to the injured party in case of – if the injured party desires to recover the
breach of the principal obligation (funcion damages actually suffered by him in
liquidatoria); compensatory; pre-agreed addition to the penalty, he must prove such
amount for the damages damages.
• to punish the obligor in case of breach of – Exception to the general rule
the principal obligation (funcion
estrictamente penal); punitive General Rule: the penalty is fixed by the parties as
a compensation or substitute for damages in case
Kinds of penalty of breach.
As to origin Except:
1. when there is a stipulation to the contrary
Legal Conventional 2. when the obligor is sued for refusal to pay
Constituted by law Constituted by the agreed penalty
3. when the obligor is guilty of fraud

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AUF School of Law Obligations and Contract

◦ (see Art. 1170) • if the penalty is iniquitous or


(the purpose of the penalty is to punish the obligor) unconscionable.
***The obligee can recover from the obligor not
only the penalty, but also the damages or interests ***The creditor cannot recover more than the
resulting from the breach of the principal obligation penalty stipulated even if he proves that the
damage suffered by him exceed in amount such
where both parties were unable to comply with penalty.(the amount is already agreed upon)
their obligation (fortuitous event), th penal clause
cannot be invoked by anyone of them to the (Art. 1230)
prejudice of the other. ***If the principal obligation is void, the penal
clause is also void.
(Art. 1227)
***The debtor cannot exempt himself form the ***if the penal clause is void, the principal
performance of the principal obligation by paying obligation is not affected.
the stipulated penalty. Unless the right has been
expressly and clearly granted to him. Chapter 4
EXTINGUISHMENT OF OBLIGATIONS
***(what happens to the obligation if the right to
choose to pay the penalty in substitute of the (Art. 1231)
principal obligation has been granted to the debtor, modes of extinguishing obligations
is the obligation converted to facultative obligation • payment or performance
or does it remain an obligation with a penal • loss of the thing due
clause?) • condonation or remission of the debt
• confusion
***The creditor cannot demand the fulfillment of the • compensation
principal obligation and the satisfaction of the
• novation
stipulated penalty at the same time. Unless the
• annulment
right must be clearly granted to him.
• rescission
– if there is fault on the part of the debtor, the
creditor can demand not only the • fulfillment of a resolutory condition
satisfaction of the penalty but also the • prescription
payment for damages. • --renunciation or waiver by the creditor
• compromise
(Art. 1228) • expiration of the resolutory term or
***Applicable only to the general rule in Art 1226 condition
and not to the exceptions. • death of one of the contracting parties
(personal obligations)
(Art. 1229) • will of one of the contracting parties
the penalty may be reduced: • mutual assent or dissent
• if the principal obligation has been partly
complied with Section. 1 – Payment or Performance
◦ some but not all the prestation are
complied with by the debtor (Art. 1232)
◦ refers to the quantity or quality of the Payment –
performance • fulfillment of the obligation either voluntarily
• if the principal obligation has been or involuntarily, including its extinguishment
irregularly complied with by any means or modes
◦ all the prestations were complied with • consists in the normal and voluntary
but not in accordance with the tenor of fulfillment of the obligation by the
the agreement realization of the purpose for which it
◦ refers to the form was constituted.

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AUF School of Law Obligations and Contract

◦ Includes performance in any other Rights of a 3rd person


manner, of an obligation. (with the knowledge and consent of the debtor)
• Fulfillment of the obligation by the delivery • right of reimbursement – recover from the
of a sum of money. debtor the entire amount which he has
paid.
(Art. 1233-1235) • right of subrogation
General Rule: there should be complete (without the knowledge and consent of the debtor)
performance. (Art. 1233) • right of reimbursement – recover only
Except: insofar as the payment has been beneficial
• substantial performance in good faith to the debtor
◦ the debtor may recover as though there ***If the obligation has been previously
has been a strict and complete extinguished by any mode, the 3rd person may
fulfillment, less damages suffered by proceed against the creditor based on the principle
the creditor. (Art. 1234) of unjust enrichment.
◦ Case: Diesel Construction vs UPSI
• When the obligee accepts the performance Gratuitous payments – payments effected by a
knowing its incompleteness or irregularity, third person who does not intend to be reimbursed
without expressing any objection or protest. by the debtor.
(Art. 1235) – consent of the debtor is
◦ Based on the principle of estoppel necessary. There is no gift if the
• when the obligation has been converted gift was not accepted by the
into an indemnification (falls under Art. debtor.
1233) – If the consent is SECURED
rules on ordinary donation will
(Art. 1236-1238) apply
General Rule: Creditor is not bound to accept – if the consent is NOT
payment or performance by a third person. This is SECURED, Art. 1236 and 1237
because the creditor may not have confidence in will apply.
the honesty of the 3rd person who might deliver a – Such gratuitous payments are
defective thing or pay with a check which may not valid as far as the creditor is
be honored. concerned.(Art. 1238) so the 3rd
Except: person who offered the gift but
• when it is made by a 3rd person who has was declined by the debtor can
interest in the fulfillment of the obligation. compel the debtor to reimburse
(joint debtor, guarantor, surety) him (3rd person) the amount
• when there is a stipulation to the contrary accepted by the creditor.

persons who may pay obligation: (Art. 1239)


• the debtor himself or his legal ***It is essential that the person who pays the
representatives obligation should have the necessary legal
• any third person who have an interest in capacity to effect such payment.
the fulfillment of the obligation. (subject to – free disposal of the thing due
some juridical effects) – capacity to alienate the thing
effect of absence of one or another will effect the
– Art.1236-1237 are not applicable to a third invalidity of payment
person who pays the redemption price in
sales with right to repurchase, because a ***Even if the creditor has already accepted the
vendor a retro is not a debtor within the payment, it may still be annulled by proper action
meaning of the law. in court, subject to the exception provided in Art.
1427.(But such provision has already been
modified when the age of majority has been

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AUF School of Law Obligations and Contract

lowered to 18 y.o ) • insofar as the payment has been beneficial


(Art. 1240) to him.
to whom payment must be made ◦ The payment is beneficial to him
• person in whose favor the obligation has (incapacitated) when that which has
been constituted been paid or delivered is applied or
• his successor in interest spent for some rational, necessary or
• any person authorized to receive payment useful purpose for his benefit.
◦ by the creditor himself (conventional ***These rules are applicable only to obligations to
authority) give.
◦ by law or legal authority (guardian,
executor or administrator of the estate (Art. 1243)
of a deceased person, assignee or ***Payment by the debtor to the creditor after
liquidator of a partnership or having been judicially ordered to retain the debt is
corporation) invalid.
General rule:payment to unauthorized person is – such payment must be made to the proper
invalid. Exceptions: officer of the court issuing the writ of
• payment made to a 3rd person, provided attachment or garnishment in conformity
that it has redounded to the benefit of the with the Rules of Court.
creditor. This can be invoked through the
following proofs: (Art. 1241) (Art. 1244-1246)
◦ if after payment, the 3rd person obligation to give specific or determinate thing –
acquires the creditor's rights the debtor cannot fulfill his obligation by delivering
◦ if the creditor ratifies the payment to the a thing which is different from what is due although
3rd person such may be of the same value or even more
valuable than that which is due.
◦ if by the creditor's conduct, the debtor
has been led to believe that the 3rd
Obligation to do or not to do – the obligor cannot
person has authority to receive the
fulfill his obligation by substituting another act or
payment
forbearance.
• Payment made to the possessor of the
credit, provided that it was made in good
***if the creditor or obligor accepts the delivery or
faith. (Art. 1242)
substitution, such acceptance shall give the same
◦ Valid payment to the possessor of the effect as a fulfillment or performance of the
credit does not refer to possessor of obligation.
the document evidencing it.
◦ the remedy of the creditor would be to Dation in payment (dacion en pago) –
proceed against the possessor if credit transmission of the ownership of a thing by the
to whom payment was improperly debtor to the creditor as an accepted equivalent of
made. the performance of the obligation.
– Property is alienated to the creditor in
***Although the payment is not valid because it is satisfaction of a debt in money;
not made to a person authorized to receive
– law on sales shall govern (Art. 1245);
payment, nevertheless it is clear that the vendee
– exception in Art. 1244
had acted in good faith; he can not therefore be
said to have incurred in delay; consequently, the
(Art. 1247)
vendor cannot ask for rescission of the contract.
extra judicial expenses – for the account of the
debtor
(Art. 1241)
judicial costs – Rules of Court will govern
payment to incapacitated person is valid:
• if he has kept the amount or thing paid or
***If the debtor changed his domicile in bad faith or
delivered
after he has incurred in delay, the additional

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AUF School of Law Obligations and Contract

expenses shall be borne by him. Rule: the debtor cannot compel the creditor to
accept a check or draft. Except:
(Art. 1248) • when the document has been cashed
3 conditions or characteristics of payment: • when it had been impaired through the fault
• identity – only the prestation agreed upon of the creditor.
and no other must be complied with
• completeness – the thing or service in (Art. 1250)
which the obligation consists must be ***In case of extraordinary inflation or deflation, the
completely delivered or rendered value of the currency at the time of the
• indivisibility – the payment or performance establishment of the obligation would be the basis
must be indivisible of payment.

General Rule: Art. 1248 is applicable only to Extraordinary inflation or deflation\


obligation where there is one debtor and one – unusual or beyond the common fluctuation
creditor. Exceptions: in the value of the currency which the
• when the obligation expressly states the parties could not have been foreseen when
contrary the obligation was established. (Tolentino)
• when the different prestations which – uncommon decrease or increase in the
constitutes the objects of the obligation are purchasing power of the currency which
subject to different terms and conditions could not have been reasonably foreseen.
• when the obligation is in part liquidated and (Dean Capistrano)
in part unliquidated. ***Art. 1250 is applicable only to contractual
obligations and not to obligations arising from torts.
(Art. 1249)
***A judgment awarding an amount in US dollar ***requisites for Ballantyne schedule to apply:
may be made with its equivalent amount in local • obligation should have been contracted
currency in the conversion rate prevailing at the during the Japanese occupation
time of payment. The trial court should determine • it could have been paid during the
the the conversion rate if the parties cannot agree Japanese occupation
on the same. (Zagala vs Jimenez) • it could have been paid with Japanese
RA 529 – An Act to assure the uniform value of military notes
Philippine Coins and Currency.
– the rule that payment of debts imoney shall (Art. 1251)
be made in the currency stipulated was Place of payment:
completely abrogated. Obligation Place of payment
RA 4100 – amending RA 529
– the law prohibiting stipulations in domestic deliver a determinate Place where the thing
monetary obligations purporting to give the thing might be at the time the
obligee the right to require payment in obligation was
currency other than the Phil. currency does constituted
not apply to transactions listed on pp. 246, Any other case Domicile of the debtor
Obligations and Contracts, Jurado. (unilateral obligations)

Legal tender – currency which may be used for the Subsection 1. - Application of Payment
payment of all debts, whether public or private
– in the Phil., legal tender would be notes (Art. 1252)
and coins issued by the Central Bank. application of payment- designation of the debt
– Promissory notes payable to order or bills to which the payment must be applied when the
of exchange, checks, etc. are not legal debtor has several obligations of the same kind in
tender favor of the same creditor.

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AUF School of Law Obligations and Contract

Requisites: Prejudicial to the creditor: By applying the


• one debtor, one creditor payment to the principal, the value of the principal
• 2 or more debts of the same kind will be decreased and the value of the interest will
◦ Exception: if at the time the designation also be decreased.
or application is made, such obligations
had already been converted into (Art. 1254)
obligations to indemnify with damages applicable only when payment cannot be applied in
by reason of breach or nonfulfillment. accordance with the rules.
• all debts must be due When the debt due are not of the same burden, the
◦ Exception: rule that the debt which is most onerous to the
debtor shall be deemed to have been satisfied.
▪ when there is a stipulation to the
contrary
Rules to know the most onerous:
▪ the application of payment is made
by the party for whose benefit the Types of Debts Which is more
term or period has been Onerous
constituted. Incurred at different Oldest ones
• amount paid by the debtor not sufficient to dates
pay the total amount of the debt
Debts bearing interest Debt which incurs the
against those which are interest
right to designate belongs primarily to the debtor,
not
only at the time when payment is made.
2 debts both incurring Debt with higher interest
Right of creditor to make application of payment is interest
merely a PROPOSAL of the application of
Secured and not Secured ones
payment. (this is done by giving to the debtor a
secured debts
receipt in which the application of payments is
made subject to the express or tacit approval of Principal vs surety Debt covering that of
the debtor.) the principal
Solidary debtor vs sole Solidary debtor (Jurado)
mistake, fraud, force, or intimidation- causes debtor Sole debtor
that will invalidate or grounds to impugn the (Tolentino)
application of payments
Solidary obligation Share corresponding to
time of payment made- when the debtor may the solidary debtor
exercise the right to make an application of Indemnity vs penalty Indemnity
payment. obligation
***AP is important so as to know which among the Liquidated vs liquidated
obligations will be extinguished. unliquidated

(Art. 1253) Pro rata- in proportion


payment of interest first before payment of – what to apply when the obligations are due
principal. of the same nature or burden

Manresa: the rule is obligatory because it is more ***If the debtor makes a proper AP, but the creditor
in consonance with justice. refuses to accept it because he wants to apply it to
another debt, such creditor incurs in delay (mora
Supreme Court: such rule is only directory and not accipiendi)- Tolentino
mandatory. Applies only in the absence of a verbal – pro rata rule is applied
or written contract.
Case: Paculdo vs Regalado

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Subsection 2. - Payment by Cessation Subsection 3. - Tender of Payment and


Consignation
(Art. 1255)
Cession or assignment- special form of payment (Art. 1256-1258)
whereby the debtor abandons all of his property for tender of payment – manifestation made by the
the benefit of the creditor in order that from the debtor to the creditor to immediately comply with
proceeds thereof the latter may obtain payment of the obligation
their credits.
Requisites: consignation – deposit of the object of the
• plurality of debts obligation in a competent court in accordance with
• partial or relative insolvency of the debtor the rule prescribed by law after refusal or inability
• acceptance of the cession by the creditor of the creditor to accept the tender of payment.
◦ insolvency Law- applicable if the
creditor did not accept the cession Tender of Payment Consignation
Preparatory act Principal act
Kinds of Cession:
• contractual- Art. 1255, NCC Extra judicial in Judicial in character
• judicial- Insolvency Law character

Cession vs Dation in Tender of payment does not by itself produce legal


Payment payment, unless it is completed by consignation.

Plurality of Number of There may be General requisites of consignation – relative to


creditors is parties only one creditor payment. (Arts. 1232-1251)
essential – those which ave already taken up in
Debtor is in Financial Debtor not connection with payment in general.
partial or relative condition necessarily in – Person who pays
insolvency of the financial difficulty – person to whom payment must be
parties made
Universality of Object Thing equivalent – object of the obligation to be paid
debtor's property of the – time when payment or performance
performance of becomes demandable.
the obligation
Special requisites – prescribed by Art. 1256-
Release the Effect Extinguishes the 1258
debtor for the net obligation to the 1. there is a thing due (Art. 1258, par. 1)
proceeds of the extent the value 2. that the payment or performance was
things ceded or of the thing refused or the creditor was incapable of
assigned, unless delivered (as accepting payment
there is a equivalent of the • tender of payment must be made
contrary performance of before the consignation
intention. the obligation) • tender of payment must have been
unconditional
Effects of cession: • that the creditor must have refused to
• partial extinguishment accept the payment.
• no transfer of ownership to the creditors (Sy vs Eufemio)
only transfer of possession including 3. previous notice has been given to the
administration persons interested (i.e. surety or

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guarantor or a solidary co-debtor...not just creditor that he will not accept any tender of
to the creditor) in the fulfillment of the payment.
obligation – a formal act
- to allow the creditor to reconsider his #4 protection to the debtor, to avoid tender of
refusal; to show the debtor's serious payment to the wrong individual
desire to extinguish his obligation
4. that the thing or amount due has been ***When valid tender of payment is made, the
placed at the disposal of judicial authority obligation is not extinguished unless it is completed
– deposited with the Clerk of Court by consignation.
usually accompanied by the filing of the Effect: exemption of the debtor from payment of
complaint for action for interest and/or damages
consignation/action for specific ***Consignation is applicable to both movable and
performance/action for cancellation of immovable objects.
the obligation.
5. after consignation has been made, the Effect of tender of payment:
persons interested in the fulfillment of the • stops the accrual of interest
obligation had been notified thereof. • release the debtor from liability over the
– reason: to enable the creditor to thing due
withdraw the goods or money • ask the judge to order the cancellation of
deposited. the obligation
– Effects: see Art. 1260-1261 • preserve the right of the debtor (Francisco
Case: (Ponce de Leon vs Syjuco, Inc.) vs Bautista)

General Rule: requisites must be strictly complied (Art. 1259)


Exception: in consideration of justice and equity expenses of consignation shall be charged against
(Case: Rural Bank of Caloocan vs CA) the creditor only when consignation have been
properly made
***Since consignation is a special form of payment, 1. when the creditor accepts the thing or
it must conform not only with the special amount deposited
requirements prescribed by law, but also with all 2. when the court decided that consignation
the requisites of a valid payment. have been properly made or cancels the
obligation at the instance of the debtor in
Exceptions to the rule that there must be a accordance with Art. 1260, par. 1.
previous tender of payment:(Art. 1256)
1. when the creditor is absent or unknown (Art. 1260-1261)
2. when the creditor is incapacitated Effects of consignation:
3. when the creditor refused to give a receipt • if the creditor finally accepts the thing or
4. when 2 or more person claim the right to amount deposited, the payment is settled
collect altogether
5. when the title of the obligation has been • if the creditor refuses to accept the thing
lost deposited, litigation for the extinguishment
or cancellation of the obligation on the
Reason for the exceptions: ground of a valid and effective consignation
#2 incapacitated persons do not have the capacity will arise.
to administer their property; the debtor will be • If the creditor neither refuses nor accepts,
made to pay again because the payment is invalid the debtor may ask the court to cancel the
subject to the exception provided in Art. 1241 obligation after showing the the requisites
(protection to the debtor) of consignation have been complied with
(Art. 1260)- tolentino
#3 would mean that there has been a previous
tender of payment or it was already said by the Effects of withdrawal by the debtor:

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• made before the creditor has accepted the effect of fortuitous event: extinguishment of the
consignation or before judicial declaration, obligation, Exceptions:
the obligation remains in force • when by law, the debtor is still liable even
• made with the consent of the creditor, the for fortuitous events
creditor loses every preference which he • when stipulated by the parties
may have over the thing. Solidary co- • when the nature of the obligation requires
debtors, guarantors and sureties, shall be the assumption of risk
released. • when the loss of the thing is due partly to
◦ The solidary co-debtors are released the fault of the debtor
only with regard to their solidarity but • when the loss of the thing occurs after the
not with their respective share in the debtor has incurred in delay
obligation • when the debtor promised to deliver the
◦ the guarantors and sureties are same thing to 2 or more persons who do
released from the obligation since the not have the same interest
obligation could have been • when the obligation arises from a criminal
extinguished if not for the consent of offense
the creditor to withdraw the thing from • when the obligation is generic
consignation;
(Art. 1263)
Prayer of the creditor that the thing be adjudicated loss of a generic thing does not extinguish the
in his favor is already an acceptance on the part of obligation because generic things do not perish
the creditor, the debtor cannot withdraw the thing (genus nunquam peruit)
anymore.
effect of loss in reciprocal obligation: if one of
***For immovable objects or other real properties, the reciprocal obligation is extinguished the other
the court will assign a receiver to consider the must also be extinguished. (Tolentino)
object consigned or deposited.
(Art. 1264)
Section 2. – Loss of the Thing Due court granted discretion to determine whether a
Loss of the thing due- impossibility of compliance partial loss or destruction of the thing is important
with the obligation through any cause as to extinguish the obligation
– impossibility of performance
• perishes (Art. 1265)
• goes out of commerce presumption of fault on the part of the debtor if the
• disappears thing is lost while in his possession. In such case,
the obligation is NOT extinguished.
(Art. 1262) Such presumption does not apply in case of
effect of loss in obligation to give a determinate earthquake, flood, storm, or other calamity.
thing: extinguishment of the obligation
requisites: (Art. 1266)
• thing lost must be determinate impossibility of performance in obligations to do
• the thing was lost without the fault of the extinguishes the obligation.
debtor (if it is lost through the fault of the
debtor, the obligation is converted into an ***Same requisites provided in Art. 1262
obligation to indemnify the creditor for
damages.) ***Legal and physical impossibility must have
• the thing lost before the debtor has occurred AFTER the constitution of the obligation.
incurred in delay (if it is lost after the debtor 2 causes of impossibility
has incurred in delay, the debtor will be • legal impossibility- (direct) when the law
held liable for indemnity for damages) prohibits the performance or execution of
the work agreed upon (immoral or

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dangerous) justification.
- (indirect) the law imposes duties of a
superior character upon the obligor which Offer Consignation
are incompatible with the work agreed (Art. 1268) (Art. 1256-1261)
upon.
• Physical impossibility – arises principally Extinguishment of the Payment of the
from the death of the obligor, when the act obligation through loss obligation.
to be performed requires his personal by a fortuitous event
qualifications, or from the death of the Necessary that the Offer is just a step to the
obligee, when the act can be of possible creditor refused to payment.
benefit only to him. accept the offer of the
- it can also arise from mere accident, or debtor without just
from the acts of the debtor himself in which cause to release the
there is no fault, or from the acts of 3rd latter from liability
person affecting the debtor's capacity
Effect of creditor's refusal without just cause:
***Seldom that impossibility of performance may • debtor may make a consignation of the
arise in obligation not to do. in rare exceptional thing and thereby relieve himself of further
cases, Art. 1266 is also applied. liability
• keep the thing in his possession, in which
***Cannot be applied to obligations to give
case, the obligation still subsists, but if the
(Case: PNCC vs CA)
thing is lost through fortuitous event, Arts.
(Art. 1267)
1262-1265 shall govern.
relative impossibility- service has become so
difficult as to be manifestly beyond the
Art. 1268 is not applicable to cases where an offer
contemplation of the parties, the court should be
is not possible, since offer by the debtor is an
authorized to release the obligor in whole or in
essential requisite.
part.
(Art. 1269)
Service = performance
***All the rights of action which the debtor may
have against 3rd persons by reason of the loss of
rebus sic stantibus – the parties stipulate in the
the thing are transmitted by operation of law to the
light of certain prevailing conditions and once these
creditor.
condition cease to exist, the contract also ceases
Transmission made from the moment the
to exist.
obligation is extinguished.
Case: Naga Telephone Co. et al. vs. CA
Example:
• insured object which is lost or destroyed,
(Art. 1268)
creditor may collect from the insurer.
Applicability:
• Expropriated land, the creditor may collect
– obligation of restitution of a certain
the compensation due by reason of the
determinate thing on the part of the person
expropriation.
criminally liable
– cases where such obligation arises by
virtue of reparation or indemnification
– persons who are principally and
subsidiarily liable
***the debtor shall not be exempted from the
payment of the price of the thing, whatever may be
the cause of the loss. except:
– when he offered the thing to the obligee
and the latter refused to accept it without

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Section 3. - Condonation or condonation


Remission of the Debt ◦ Art.748, Civil Code-movable property &
obligations to do or not to do
Remission- an act of liberality by virtue of which, ▪ personal property:
the obligee without receiving any price or • verbal remission shall not be
equivalent, renounces the enforcement of the required since there is no
obligation transfer of property but merely
– as a result, the obligation is extinguished a remission or condonation of
totally or partially an obligation to give a personal
– gratuitous abandonment by the creditor of property.
his rights (Sanchez Roman) • Debtor is relieved from making
Requisites: conveyance of the property.
• it must be gratuitous • Express remission: acceptance
• must be accepted by the obligor by the debtor may be implied or
• the obligation must be demandable tacit, provided that the value of
the thing condoned does not
classification of remission: exceed P5,000
As to form Express- made with the formalities ◦ Art.749, Civil Code-immovable property
prescribed by law for donations • rules on extent of the amount of donation
◦ Art. 750-Art. 752, Civil Code
Implied- can be deduced from the ◦ Art. 771, Civil Code
acts of the obligee or creditor. • rules on revocation of the donation
As to extent Total – entire obligation is
extinguished Implied remission may be deduced form the act or
acts of the creditor which clearly show the intent to
partial – refers only to the principal condone the obligation.
or to accessory obligation or to an – Express or implied acceptance is also
aspect thereof which affects the necessary
debtor (solidarity)
***Will an Express remission which fails to comply
As to Inter vivos – constituted by with the forms prescribed in Arts. 748 and 749 of
constitution agreement of the obligee and the the Code be enforced as a Tacit remission?
obligor Ans: Negative, to rule otherwise would defeat the
purpose of Art. 1270.
Mortis causa- constituted by last
will and testament remedy for void donation:
– reduction of the donation; or
(Art. 1270) – suppression of the donation
gratuitous – most essential characteristics of
remission (Art. 1271-1272)
Delivery of the private document evidencing debt is
***Condonation must necessarily be accepted by a presumption of creditor's renunciation of any right
the debtor. of action for the collection of the debt.
Reason: private document is the best evidentiary
***Condonation is a bilateral act because our Code proof to show that the obligation has not been
requires its acceptance by the debtor paid.
Requisites:
Applicability of the Rules on Donations • document evidencing the credit has been
• rules on acceptance of the debtor delivered by the creditor to the debtor
• rules on forms of donation in express • document must be a private document

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AUF School of Law Obligations and Contract

• delivery must be voluntary Section 4. – Confusion or Merger

presumption of voluntary delivery by the creditor (Art. 1275)


unless the contrary is proved Confusion – merger of the characters of the
– heirs of the creditor may impugn creditor and debtor in one and the same person, by
condonation by establishing that it is virtue of which, the obligation is extinguished.
inofficious in conformity with Art. 771, Civil – meeting in one and the same person the
Code. qualities of a creditor and debtor with
respect to one and the same obligation.
– legitime is part of persons estate reserved Requisites:
by law for his compulsory heirs. • merger of characters of debtor and creditor
– ½ of the entire estate reserved for the must be in the same person
legitimate child/children • it must take place in the person of either
– other half is free portion, may be the principal creditor or principal debtor
distributed to anybody • there must be complete and definite
– Inofficious donation are those which merger of the qualities
exceeds the free portion of the estate
– Collation the value of all gratuitous Kinds of Merger or Confusion:
disposition are added to the estate of a As to cause or Inter vivos- constituted by
person for the benefit of his compulsory constitution agreement of the parties
heirs. mortis causa- constituted by
succession.
(Art. 1273-1274)
As to extent or Total- extinguishes the entire
effect of remission: Extinguishment of the
effect obligation
obligation in its entirety or aspect thereof
Partial-extinguishes only a part
– in joint obligation, the remission only affect or aspect of the obligation or only
the share of the creditor who makes the the shares in joint obligation.
remission and the corresponding share of
the debtor in whose favor the remission is
made. (Art. 1276)
If the merger will take place in the person of the
– In solidary onligation, Arts. 1215, 1219, and
subsidiary creditor and subsidiary debtor
1220 of the Code shall govern.
(guarantor), principal obligation is not extinguished,
there will only be SUBSTITUTION of creditor or
***Remission of the principal obligation is
debtor.
remission of the accessory obligation but remission
In case of:
of the accessory obligations is not remission of
principal obligation. • Guarantor-creditor – can demand the
performance of the obligation from the
– accessory obligation is just dependent on
debtor, in case of default, even from his co-
the principal obligation for their existence
guarantors
and efficacy.
• Guarantor-debtor – the creditor can
Presumption of remission of accessory obligation demand the performance of the obligation
of pledge exist when the thing, after its delivery to directly from the guarantor.
the creditor, was found at the possession of the
debtor. (Art. 1277)
there is only a partial extinguishment of obligation
in case of confusion between one joint debtor and
one joint creditor.

With regard to solidary obligations, the obligation is


altogether extinguished without prejudice to the

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AUF School of Law Obligations and Contract

rights and obligations of the solidary creditors and


debtors among themselves. Counterclaim Compensation

Confusion may be revoked Similarity of debts is not 2 debts must consists in


• agreement: presence of any of the causes necessary money or if not, they
of rescission, annulment, etc. must be of the same
kind and quality
• inheritance: nullity of the will, subsequent
appearance of an heir with better right Does not require Debts must be
Effect: the obligation is recreated in the same form liquidation of debts liquidated
and under the same condition in which it was found
Need to be pleaded to Need not be pleaded
before the merger took place.
be effectual
– period which has elapsed from the moment
the merger took place until its revocation
cannot be computed in the determination of
the period of prescription Kinds of Compensation:
As to cause
Section 5. – Compensation • Legal- takes effect by operation of law
when all the requisites are present (Art.
(Art. 1278) 1278-1279, Civil Code)
Compensation- mode of extinguishing in their • Voluntary- agreement of the parties who
concurrent amount those obligations of persons are mutually creditors and debtors to
who in their own right are creditors and debtors to compensate their respective obligations,
each other. requisites may not all be present
– weighing two obligations simultaneously in ◦ takes effect the moment the parties
order to extinguish them to the extent in agree
which the amount of one is covered by the • Facultative- by the will of only one party
amount of the other. and the other one cannot choose
– Simplified payment (pago abreviado) compensation because of any impediment.
– double advantage over payment: (Art. 1287-1288)
– facility of payment- takes effect by • Judicial- takes effect by judicial decree
operation of law ◦ takes effect the moment the judicial
– guaranty for the effectivity of the credit- decree becomes final and executory
may avoid prejudice to one party by As to effect
fraud or insolvency of the other. • Total – compensation of 2 equal debts
• Partial - compensation of two unequal
Payment Compensation debts.

Takes effect by acts of Takes effect by (Art. 1279)


parties operation of law requisites of compensation:
Capacity to give and to Capacity to give and to 1. 2 parties are principal creditors and
acquire are necessary acquire not essential principal debtors of each other
2. both debts must consist in money, or if the
Complete and Partial payment things due are consumables, they must be
indivisible payment of the same kind and quality
◦ limited to obligations to give
Confusion Compensation ◦ consumables- movables which cannot
be used in a manner appropriate to
One person in whom is 2 persons who are
their nature without being consumed
merged the qualities of creditors and debtors of
◦ fungibles- may be exchanged or
creditor and debtor each other
compensated by another of the same
Only one obligation 2 obligations kind and quality

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3. both debts must be due thereof, it is converted into a liquidated claim by a


4. both debts must be liquidated and court decree, in which case, compensation may
demandable take place
◦ liquidated debts- those that may be
determined by simple arithmetical (Art. 1284)
operation exception to rule No.3, Art. 1279
5. no retention or controversy commenced by
3rd persons over either of the debts and rescissible/voidable obligations (considered
communicated in due time to the debtor demandable) may be compensated against each
◦ retention – application of the credits of other before they are judicially rescinded or
one of the parties to the satisfaction of avoided.
the claims of a 3rd person
◦ controversy – refers to a case in which (Art. 1285)
3rd persons claim to be the creditor Effects of cession:
6. compensation must not be prohibited by When the compensation has taken place:
law • One or other obligation is extinguished,
subsequent assignment of rights by the
#2 compensation cannot be applied to obligations creditor to a 3rd person cannot affect the
to do because of the differences in the respective debtor with respect to the compensation
capacities of the obligors. which has already taken place.
◦ Assignee can just demand indemnity
#5 controversy: the effect is provisional for damages on the ground of fraud
suspension of the compensation. If the credit is ◦ Except: when the debtor consented to
adjudicated to the party interested in the the assignment, in which case, the
compensation, compensation may take place, but assignee can still demand for the
if the credit was adjudicated to the 3rd person who payment of the credit
claims to be the creditor, compensation cannot
take place. When the compensation has not taken place
-effects depend on whether the assignment was
(Art. 1280) made...
right of guarantor to set up compensation, not only • with the consent of the debtor – the debtor
for what such creditor owes him, but also for what cannot set up against the assignee the
such creditor owes the principal debtor. compensation
– exception to Art. 1279, No. 1 ◦ except: if he notified the assignor that
Basis: he reserves his right to the
• Bond of the guarantor cannot be resorted compensation, he can still set up
to so long as the debtor can pay compensation as a defense when the
• When principal obligation is extinguished, assignee demands the payment of the
the accessory obligation of the guarantor is credit.
also extinguished since it is subordinate • With knowledge but without consent of the
thereto. debtor – the debtor may set up the defense
of compensation of debts prior to the
(Art. 1281-Art. 1282) assignment but not subsequent ones.
Art. 1282, example of voluntary obligation ◦ Purpose: to prevent fraud.
**agreement to compensate debts which are not • Without knowledge of debtor - the debtor
yet due may set up the defense of compensation of
all credits which he may have against the
(Art. 1283) assignor and which may have become
when the defendant who has an unliquidated claim demandable, before he was notified of the
for damages against the plaintiff sets it off by assignment.
proving his right to said damages and the amount ◦ Remedy for the assignee: action for

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indemnification against the assignor • agreement of the parties to the new


obligation
(Art. 1286-Art. 1288) • extinguishment of the old obligation
Debts which cannot be compensated: • validity of the new obligation
1. debts arising from contracts of depositum
2. debts arising from contracts of
Extinctive Modificatory
commodatum
3. claims for support for gratuitous title Old obligation is Old obligation subsists
◦ cannot be applied to support in arrears terminated by the to the extent it remains
4. obligations arising from criminal offenses creation of a new compatible with the
5. certain obligations in favor of the obligation that takes the amendatory agreement
government, such as taxes, fees, duties, place of the former
and others of a similar nature.
Kinds of Novation:
Based on justice, trust and confidence, and sel- As to essence • objective/real – change
preservation. either in the cause,
object, or principal
(Art. 1289-1290) conditions of the
effect of compensation – extinguishes both debts obligation
to the extent that the amount of one is covered by
• subjective/personal –
the amount of the other
substitution of the person
of the debtor (passive) or
compensation takes place by operation of law
to the subrogation of a 3rd
(ipso jure)- its effects arise on the very day on
person in the rights of the
which ALL requisites are fulfilled.
creditor (active).
- applicable only to legal compensation
• Mixed – combination of
objective and subjective
Section 6. – Novation
novation.
Novation – (extinctive) substitution or change of an As to form or • Express – declared in
obligation or change of an obligation by another, constitution unequivocal terms that
resulting in its extinguishment or modification, the old obligation is
either by extinguished by a new
• changing its object or principal conditions, one which substitutes the
or same
• by substituting another in place of the • tacit- old and new
debtor, or obligations are
• by subrogating any 3rd person in the rights incompatible with each
of the creditor. other on every point
- mode of extinguishing obligations through the As to extent or • Total – absolute
creation of a new one effected by the change or effect extinguishment
substitution of an obligatory relation by another
• partial – mere
with the intention of substantially extinguishing or
modification
modifying the same.
- two-fold purpose:
• extinguishing the old obligations Objective Novation:
• giving birth to a new obligation to take • change in the cause – e.g. contract of
place of the old sale or a contract of lease in which the
price has not yet been pad to the vendor or
requisites: lessor. If the the parties to the contract
• previous valid obligation subsequently entered into a new

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agreement whereby the obligation to pay is effect in obligation with a term or period:
converted into a loan made to the vendee • postponement of term or period – there is
or lessee, the result is real or objective no novation
novation ◦ reason: there is no incompatibility
• change in object – e. g. certain amount is • reduction of the duration of the term – there
due or any change whereby the obligation is a novation
to pay is converted into an obligation to ◦ reason: clear case of incompatibility
render a personal service. Similar with and change of the principal condition of
dation in payment. the old obligation.
• change in principal conditions of the
obligation – only those changes of an (Art. 1293)
essential character can effect a novation of novation by substitution of the debtor – personal
the previous or original obligation. novation
• effected with the consent of the creditor
(Art. 1292) ◦ expromision – effected with the
***refers to forms of novation consent of the creditor at the instance
of the new debtor even without the
novation by presumption has never been favored knowledge or against the will of the old
debtor
animus novandi – intent to substitute a new ▪ substitution with the knowledge and
obligation for the old one; must be clearly consent of the old debtor
established before we can say that there is a
▪ substitution without the knowledge
novation resulting in the extinguishment of the old
and consent of the old debtor
obligation and in the creation of a new one.
◦ delegacion - effected with the consent
(Delegatus debitor est odiosus in lege)
of the creditor at the instance of the old
debtor with the concurrence of the new
Express novation- declared in unequivocal terms:
debtor; refers to the substitution of
• clearly results from the agreement, or
debtors effected when the original
• shown by full discharge of the original debt debtor offers and the creditor accepts a
otherwise the old contract remains in force and the 3rd person who consents to the
new one is added to it substitution
▪ requisites: initiative of the
Implied novation – test of incompatibility
substitution must emanate from the
***WON the 2 obligations can stand together, each
original debtor
having its own independent existence.
▪ consent of the new debtor
No incompatibiliy = No novation ▪ acceptance by the creditor
• reiteration or ratification of the old contract
difference according to Manresa
with slight modifications or alterations
• 2nd contract provides for another method of Expromision Delegacion
payment Initiative for the change Initiative for the change
• 2nd contract provides for additional security does not emanate from emanates from the
• 2nd contract provides for postponement of the debtor debtor
the date of payment
may be made without Must be made with the
• creditor receives another guaranty or the consent of the concurrence of the
accepts payment from 3rd person, so long debtor since it consists original debtor since it is
as there is no agreement that the principal in a 3rd person he who offers the
debtor shall be released from the assuming his obligation substitution
obligations
• filing of a surety bond Substitution may be consent of the debtor
effected even without (delegante), creditor

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AUF School of Law Obligations and Contract

the consent of the (delegatorio), and 3rd ◦ new debtor can demand the
original debtor person (delegado) to be reimbursement of the entire amount
substituted is necessary which he has paid, and at the same
time be subrogated in all of the rights of
difference according to the case Quinto vs People: the creditor
Expromision Delegacion (Art. 1294-1295)
Initiative does not come The debtor offers, the Effect of non-payment of the new debtor:
from the debtor and creditor accepts a 3rd general rule: novation by substitution of the debtor
may be made without person who consents to whether by expromision or delegacion has the
his knowledge the substitution and effect of releasing the original debtor from his
assumes the obligation obligation to the creditor, and the same time of
substituting the new debtor thereto.
***In either mode of substitution, the consent of
the creditor is INDISPENSABLE. ***Art. 1294 is applicable only to expromision.
- no time nor form prescribed when such consent • If the substitution is without the knowledge
must be given and ow it must be given. or against the will of the original debtor, the
new debtor's insolvency SHALL NOT
Effect of payment by new debtor: REVIVE the original debtor's liability to the
• old debtor must reimburse to the new creditor
debtor whatever benefits he may have • if the substitution is with the knowledge and
derived therefrom. consent of the original debtor, the new
• Expromision- relationship shall be debtor's insolvency SHALL REVIVE the
regulated by the rules regarding payment original debtor's liability to the creditor
of a debt by a 3rd person
◦ with debtor' consent – new debtor can ***Art. 1295 is applicable only to delegacion.
demand the reimbursement of the Right of action of the creditor against the original
entire amount which he has paid, and debtor can no longer be revived EXCEPT in the
at the same time be subrogated in all of ffg. cases:
the rights of the creditor • when the insolvency of the delegado was
◦ without the knowledge and consent of already existing and of public knowledge at
the debtor (payment without knowledge the time the delegante delegated his debts
and consent)– new debtor can demand • when such insolvency was already existing
reimbursement from the old debtor only and known to the original debtor when he
insofar as the payment has been delegated his debt.
beneficial to such debtor, no
subrogation (Art. 1296)
◦ without the knowledge and consent of applicable to:
the debtor (payment with knowledge • objective novation
and consent) – new debtor can • novation by substituting the person of the
demand the reimbursement of the debtor
entire amount which he has paid, and
at the same time be subrogated in all of effect upon accessory obligations:
the rights of the creditor • it may subsist if there is a stipulation
• Delegacion – relationship between the constituted in favor of a 3rd person which
parties shall be regulated by their may be demanded separately from the
agreement; in the absence thereof, the principal obligation, although subordinated
relationship shall be governed by the rules to the latter
regarding payment of a debto by a 3rd ◦ pour autrui – beneficial stipulation;
person with the debtor's consent. stipulation in a contract, clearly and
deliberately conferred by the

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AUF School of Law Obligations and Contract

contracting parties as a favor upon a 3rd obligation is fulfilled – there is no novation


person, who must have accepted it since the requisite of a valid previous
before it could be revoked (Art. 1311) obligation would be lacking
• if conditions of both obligations are
(Art. 1297-1298) incompatible – 1st obligation is
- requisite of a valid new and old obligation before extinguished, new obligation remains (as
effecting novation is logical because the purpose of the latest expression of the will or intent of
novation is substitution of the new obligation for the the parties)
old.
(Art. 1300)
Old obligation novation by subrogation
• void – there is nothing to novate; new • conventional subrogation – takes place by
obligation cannot take effect agreement of the original creditor, the 3rd
person, and the debtor
• voidable – when annulment depends upon • legal subrogation – takes place by force of
the debtor or when a voidable obligation is law.
ratified, novation is valid
◦ expromision without the consent of the (Art. 1301)
debtor – debtor can still avail himself of conventional subrogation – must be clearly
the right to invoke the voidable established in order to take effect.
character of the obligation against any
claim of the 2nd debtor conventional Assignment of rights
◦ if the new debtor is aware of the defect subrogation
of the old obligation at the time when
he assumed payment, he cannot avail Governed by Art. 1300- Governed by Art. 1624-
himself of the right to invoke the 1304 1627
voidable character of the obligation Debtor's consent is Debtor's consent is not
against any claim of the creditor. required required
Has the effect of Has the effect of
extinguishing the old transmitting the rights of
new obligation
obligation and gives rise the creditor to another
• void – old obligation subsist, unless the
to a new obligation person without
parties intended that the former relation
modifying or
should be extinguished in any event
extinguishing the
obligation
(Art. 1299)
If the original obligation was subject to a Defects or vices in the Defects or vices in the
suspensive or resolutory condition, the new original obligation are original obligation are
obligation shall be under the same condition, cured not cured
unless it is otherwise stipulated. Effect arises from the Arises form the moment
moment of novation or the debtor is notified of
Effect if old and new are subject to a different subrogation the cession.
condition:
• both condition can stand together – both
(Art. 1302)
the condition in the original and new
General rule: Legal subrogation is not presumed,
obligation must be fulfilled; the new
except:
obligation becomes demandable
1. When a creditor pays another creditor who
• only the condition affecting the 1st
is preferred, even without the debtor's
obligation is fulfilled – previous obligation is
knowledge;
revived, new obligation loses its force
• the 2 obligations remain distinct and
• only the condition affecting the 2nd

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AUF School of Law Obligations and Contract

separate. form, by virtue of which one or more


2. When a third person, not interested in the persons bind themselves in favor of
obligation, pays with the express or tacit another or others, or reciprocally to the
approval of the debtor; fulfillment of a prestation to give, to do, or
• apply Art. 1236-1237 not to do.
3. When, even without the knowledge of the
debtor, a person interested in the fulfillment convention – includes any kind of agreement
of the obligation pays, without prejudice to which may create,modify, or extinguish patrimonial
the effects of confusion as to the latter's and even family relations
share. – genus
• Payment made by a co-debtor cannot
produce the effect of subrogation Contract distinguished from other terms:
because he cannot enforce against his Source of rights Contract-agreement of the
co-debtors the payment of the original and obligations parties
obligation
Others - law
(Art. 1303-1304)
Effect of total subrogation: Nature of the rights Contract- concrete, limited,
transfer of all the rights which the original creditor and obligations and transitory
had against the debtor or against 3rd persons
others- elastic, absolute,
– accessory obligations are not extinguished.
permanent
– This rule is absolute in legal
subrogation
– in conventional subrogation – such Contract Marriage
accessory obligation may be increased Parties may be 2 or Necessary that parties
or reduced depending upon the more persons of the must be one man and
agreement of the parties. same or different sexes one woman
Governed primarily by Governed by law
Effect of partial subrogation: the agreement of the
- both the rights of the 3rd person and that of the parties
creditor shall co-exist. When executed, the When celebrated, the
– In case of conflict, creditor's right shall be result is contract result is status
preferred.
Can be terminated or Cannot be dissolved or
dissolved by mere terminated
TITLE II agreement
CONTRACTS In case of breach, In case of breach,
remedy is to institute an remedy is to institute an
CHAPTER 1 action for damages action for legal
separation, or adultery
(Art. 1305) or concubinage
Contract (cum traho)- meeting of the minds
between 2 persons whereby one binds himself, Elements of contracts:
with respect to the other, to give something or to
Essential elements- Common – present in all
render some service.
without which there can contracts (consent of
– agreement
be no contracts both parties, object of
– limited exclusively to those agreements the contract, cause of
which produce patrimonial obligations the obligation, parties)
– specie
– juridical convention manifested in legal

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AUF School of Law Obligations and Contract

special – present only in are not contrary to law, morals, good


certain contracts customs, public order, or public policy.
(delivery in real
contracts, form in 4th relativity of contracts
solemn contracts) – take effect only between the parties, their
assigns and heirs.
extraordinary – unique
to a specific contract 3 phases or stages of the life of contract
(price in a contract of 1st stage:GENERATION
sale) – preliminary preparation, conception of
generation, period of negotiation, ending at
Natural elements derived from the nature
the moment of agreement of the parties
of the contract and
ordinarily accompany
2nd stage: PERFECTION
the same
– moment when parties come to agree on
the terms of the contracts
presumed by law
although can be
3rd stage: CONSUMMATION
excluded by the
contracting parties – fulfillment or performance of the terms
agreed upon in the contract
Accidental elements Exist only when the
parties expressly Classification of contracts:
provide for them for the Accdg to their • Preparatory – necessary
purpose of limiting or relation to as a preliminary step
modifying the normal other towards the celebration of
effects of the contract. contracts another subsequent
contract
• principal – can subsist
auto-contract – there is only one party involved independently
but said party merely acts in the name and for the • accessory – can exist
account of two distinct contracting parties. only as a consequence of
1. When a representative of another contracts another prior contract.
with himself
2. when as representative of 2 persons brings Accdg. to their • Consensual – perfected
about contract with himself and the perfection by mere agreement of the
principals parties
• real – perfected with the
characteristics of contracts (OMAR) consent of the parties and
1st: obligatory force or character the delivery of the object
– contracting parties are bound, not only to by one party to the other.
the fulfillment of what has been expressly Accdg. To • Common or informal –
stipulated, but also to all of the form no particular form
consequences thereof.
• special or formal –
nd require some particular
2 mutuality of contracts
form
– contracts are binding upon both of the
parties Accdg. To their • Transfer of ownership
purpose • conveyance of use
3rd autonomy of contracts • rendition of service
– parties may establish such agreements as
Accdg. To • Things
they may deem convenient, provided they

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AUF School of Law Obligations and Contract

subject matter • services established must not be contrary to:


• law
Nature of the • Unilateral – gives rise to – mandatory or prohibitive in character
vinculum an obligation for only one – expressive of fundamental principles of
which they of the parties justice
produce • bilateral – gives rise to – impose essential requisites
reciprocal obligation
• morals
Accdg. To • Onerous – 1 of the – principles which are incontrovertible
cause parties aspire to procure and are universally admitted and which
for himself a benefit have received social and practical
through the giving of an recognition
equivalent or • good customs
compensation – includes even those moral precept not
• gratuitous – 1 of the recognized universally but is
parties proposes to give sanctioned by the practice of a certain
to the other a benefit community
without equivalent or • public order
compensation. – safety, peace and order of the country
Accdg. To risk • Commutative – each of or of any particular community
involved the parties acquires an • public policy
equivalent of his – no person can lawfully do that which
prestation and such has a tendency to be injurious to the
equivalent is pecuniarily public or against public good.
appreciable and already
determined. test: WON restraint is reasonably necessary for
• aleatory – which each of the protection of the parties
the parties has to his
account the acquisition of (Art. 1307)
an equivalent of his innominate contracts- lack individuality
prestation although – not regulated by special provisions of law
pecuniarily appreciable – covered by:
and such is not yet • provisions of Titles I and II of Book IV of
determined. Civil Code, (stipulation of the parties,
general provisions or principles)
Accdg. to • Nominate – have their
norms • rules governing the most analogous
own individuality,
nominate contracts
regulated by special
provisions of law • customs of the place
• innominate – lack
4 kinds of innominate contracts
individuality, not regulated
by special provisions of • do ut des
law • do ut facias
• facio ut des
(Art. 1306) • facio ut facias
***right of the contracting parties to establish any
stipulation, clause, term or condition as they may nominate contracts - have their own distinctive
deem convenient. (constitutional and statutory individuality and are regulated by special
right) provisions of law
• sales (Arts. 1458-1637)
limitations: stipulation, clause, term or condition • barter (Arts. 1638-1641)

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AUF School of Law Obligations and Contract

• lease (Arts. 1642-1766)


• partnership (Arts. 1767-1867) ***For an escalation clause to be valid, there must
• agency (Arts. 1868-1932) also be a de-escalation clause.
• loan (Arts. 1933-1961)
• deposit (Arts. 1962-2009) (Art. 1311)
Relativity of contracts – a contract can only bind
• insurance, gambling, annuity (Arts. 2010-
the parties who had entered into it or their
2027)
successors who have assumed their personality or
• compromise and arbitrartion (Arts. 2028-
their juridical position, and that as a consequence,
2046)
such contract can neither favor nor prejudice a 3rd
• guaranty (Arts. 2047-2084) person.
• pledge, mortgage, antichresis (Arts. 2085- exception: if the rights and obligations arising from
2141) the contract are not transmissible.
• By their nature
***The contract which is in restraint of trade is
◦ (e.g. personal or special qualifications
valid as long as there is a stipulation as to time
of the obligor)
and place especially if for the protection of the
• by stipulation of the parties
parties. (Del Castillo vs Richmond, 45 Phil. 679)
◦ (e.g. contract provides that the obligor
Cases: shall perform an act by himself and not
through another)
• Tiu vs Platinum Plans, 517 SCRA 101
• By provision of law
• Avon Cosmetics vs Luna, 511 SCRA 376
◦ (e.g. those arising from contract of
partnership or of agency)
(Art. 1308-1310) Persons bound by contracts:
mutuality of contracts – equality of the • parties
contracting parties ◦ their assigns
◦ their heirs – by virtue of the right of
consequences: succession, are subrogated to all the
1. the fulfillment of a contract cannot be left to rights and obligations of the deceased
the will of one of the contracting parties and can not be regarded as 3rd parties
– power to determine the validity of the with respect to a deceased
contract
– power to determine WON the contract monetary obligation which the decedent may have
shall be fulfilled incurred during his lifetime cannot be transmitted to
2. validity or fulfillment may be left to the will his heirs through succession. - such obligation
of a 3rd person, such decision will only be must be liquidated in the testate or intestate
binding when it has been made known to proceeding for the settlement of the estate of the
the contracting parties decedent.
3. validity or fulfillment can be left to chance
(sensu contrario in Art. 1308) It is the estate, rather than the heir , which must be
considered as the continuation of the decedent's
contracts where mutuality is illusory because one personality.
of the contracting parties is placed in a position of
superiority Obligations not monetary in character, and which
• obligor promises to pay certain amount will therefore constitute part of the inheritance are
which is not determined (Liebenow vs Phil. chargeable against the heirs, but only to the extent
Vegetable Oil, 39 Phil. 60) of the value of the property which they may have
received from the decedent.
• agreement where the fulfillment of the
contract is left to the will of the contracting
General rule: Contracts cannot produce any effect
parties in the negative form of rescission ()
whatsoever as far as third persons are concerned

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AUF School of Law Obligations and Contract

Exception: • WON the contracting parties desired to


1. where the contract contains a tender him such an interest.
stipulation in favor of a 3rd person
(stipulation pour autrui) 2. where the 3rd person comes in
◦ if a contract should contain some possession of the object of a contract
stipulation in favor of a 3rd person, he creating a real right (Art. 1312)
may demand its fulfillment provided he 3. where the contract is entered into in
communicated his acceptance to the order to defraud a 3rd person (Art. 1313)
covered by topic on rescissible contracts
obligor before its revocation (Art. 1311,
par. 2) 4. where the 3rd person induces a
◦ revocation must be done by mutual contracting party to violate his contract
agreement or at least by direction of (Art. 1314)
the party purchasing the exchange or 5. contracts creating status (e.g. contract of
who initiated the insertion of the marriage)
stipulation (Kauffman vs PNB) 6. group contracts (e.g. Collective Bargaining
◦ corresponds almost always to the Agreement)
juridical conception of a gift or donation
◦ beneficial stipulation (pour autrui) – The voidable character of the contract cannot be
stipulation in a contract, clearly and asserted by one who is not a party to the
deliberately conferred by the transaction or his representative.
contracting parties as a favor upon a 3rd
person who must have accepted it (Art. 1312)
before it could be revoked and not just real right – right belonging to a person over a
mere incidental interest specific thing without a passive subject individually
▪ Kinds of pour autrui determined against whom such right may be
• those where the stipulation is personally enforced
intended for the SOLE benefit – enforceable against the whole world
of the 3rd person (gratuitous in – 3rd person who come to be in possession of
character) the object of the contract creating a real
• those where an obligation is right will have to be bound by the right,
due from the promisee to a 3rd subject to the provisions of the Mortgage
person which the former seeks Law and the LR law
to discharge by means of such
stipulation.
Requisites of pour autrui: (Art. 1313)
• stipulation in favor of the 3rd person creditors are protected in cases of contracts
intended to defraud them
• stipulation must be part, not a whole of the
contract – must be read in relation to Arts. 1380 &
1177 of the Civil Code
• contracting parties must have clearly and
deliberately conferred a favor upon a 3rd
(Art. 1314)
person
– any person who induces another to violate
• the 3rd person must have communicated
the contract shall be liable for damages to
his acceptance to the obligor before its
the other contracting party
revocation
– the right to perform a contract and to reap
• neither of the contracting parties bears the
from such performance, and also the right
legal representation of authorization from
to performance by the other party are
the 3rd party.
property rights which entitle each party to
protection and to seek compensation by an
Test of beneficial stipulation: the intention of the
action in tort for any interference therewith.
parties as disclosed by their contract.
Requisites:

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AUF School of Law Obligations and Contract

• existence of a valid contract William Sevilla vs Sevilla).


• knowledge on the part of the 3rd person of In recent cases decided by the SC, the
the existence of such contract tribunal went back to the doctrine applying
• interference of the 3rd person without legal the principle that those contracts entered
justification or excuse into without being clothed the proper
◦ malice is generally implied authority are unenforceable (Cases:
Escueta vs Lim and Gozun vs Mercado)
(Art. 1315-1316)
perfection of contracts – moment in the life of the Voidable contracts Unenforceable
contract where the parties come to an agreement contracts
with respect to the object or cause of the contract. Binding unless annulled Cannot be sued upon
– signifies the birth of the contract as unless they are ratified
obligatory tie, resulting from the
concurrence of th wills of the contracting Farther away from Intermediate ground
parties.- Manresa absolute nullity between voidable and
void contract.

General rule: Perfection of a contract is produced Unenforceable contracts are susceptible of either
by mere consent. express or implied ratification by the one in whose
Exception: behalf it was executed before it is revoked by the
• contracts of commodatum, pledge, and other contracting party.
deposit are perfected upon delivery of the
object by one of the contracting parties. CHAPTER 2
ESSENTIAL REQUISITES OF CONTRACTS
consensuality – some submit that this is one of
the fundamental characteristic of a contract But (Art. 1318)
this does not hold water in those Real contracts bases of contract:
which requires delivery before its perfection. elements law will of the
contracting
Consensual contracts – perfected by mere parties
consent of the parties
real contracts – perfected after delivery of the Essential are... Imposed Conformed to.
object (pledge, commodatum, depositum, mutuum) Natural are... presumed Accepted or
repudiated
It is only when there is a complete manifestation of
Accidental are... Authorized established
the meeting of the offer and the acceptance upon
the thing and the cause which are to constitute the
contract. Sec. 1. – Consent

(Art. 1317) (Art. 1319)


– No person may enter into a contract in the consent (cum sentire) – most important element
name of another without the proper – constitutes the very heart and soul of
authority from the latter or from law. contracts
– based on the principle of obligatory force – agreement of wills.
and relativity of a contract. – Concurrence of the wills of the contracting
– Effect upon the contract when a person parties with respect to the object and cause
acted without the proper authority required: which shall constitute the contract.
Renders the contract unenforceable but Requisites:
the SC in some case held that these 1. consent must be manifested by the
contracts are Void ab initio (Cases: concurrence of the offer and the acceptance
Paluwagang Bayan vs King and Heirs of (Art. 1319-1326)

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AUF School of Law Obligations and Contract

once there is such a manifestation of the


concurrence of the wills of the contracting Actual knowledge – required by law; offeror must
parties, the period or stage of negotiation is have read the contents of the letter or telegram
terminated. accepting his offer.
Offer – proposal to make contract – mere receipt of the letter is not sufficient.
– must be certain or definite – Presumption that once the offeror has
received the letter, he already had read the
acceptance – must also be certain and definite contents thereof, except:
– must also be absolute – when he is absent
– when he is incapacitated (at the time of
counter-offer – qualified acceptance; involves a the receipt of the letter)
new proposal; rejection of the original offer
Same rule applies in case where the acceptance is
amplified acceptance – there is a perfected made by a person who is not in the presence of the
contract with regard the original offer; but with offeror (contratacion entre ausentes)
regard to the additional, the offeree is now making
a counter-offer. cognition theory will not apply if the offeror himself
refused to open the telegram for some reason or
Complex offers – rule depends whether the offers another.
are interrelated or not.
Offeror withdraws offer:
Example: ***offeror may still withdraw the offer so long as
- offer to sell lot no1, and lease on lot no2...the he still has no knowledge of the acceptance by the
offeree accepted only the 1st offer, is there a valid offeree. (Case: Laudico vs Arias)
contract?YES with regard the 1st offer.. – effect of withdrawal is immediate
- offer to mortgage the property and loan 1M...the
offers are interrelated, they may not be separately Offeree withdraws acceptance:
accepted. ***the acceptance may be revoked before it
comes to the knowledge of the offeror, because in
Public offer – offer made to the public gives rise to such case there is still no meeting of the minds,
a perfected contract the moment it is accepted. since the revocation has canceled or nullified the
acceptance which thereby ceased to have any
contracts that are consensual in nature are legal effect. (Tolentino)
perfected upon mere meeting of the minds
acceptance by letter or telegram: - vs -
the contract is perfected the moment....
theories: ***the offeree loses the power to retract the
(a) Manifestation theory – ...the acceptance acceptance from the moment that he accepts.
is declared or made Reason: since the offeree is the first person who
(b) Expedition theory - … the offeree knows of the concurrence of wills of the parties, as
transmits/sents the notification of a consequence, the obligation, as far as he is
acceptance to the offeror. concerned, must also commence earlier.
(c) Reception theory –... the notification is in (Manresa)
the hand of the offeror or delivered to the
offeror, in such a manner that he can the view of Tolentino is more logical, the only
procure the knowledge of its content. decisive moment to consider (moment of
(d) Cognition theory - … the acceptance perfection) is the moment when the offeror has
comes to the knowledge of the offeror knowledge of the acceptance made by the offeree.
par. 2, Art. 1319 said that acceptance made by
letter or telegram does not bind the offeror except 2. the contracting parties must possess the
from the time it came to his knowledge. necessary legal capacity (Art. 1327-1329)

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AUF School of Law Obligations and Contract

3. the consent must be intelligent, free, If it is founded upon a consideration, the offeror
spontaneous and real (Art. 1330-1346) cannot withdraw his offer

(Art. 1320) article contemplates an option contract – a


Form of acceptance: preparatory contract.
• express (Art. 1325-1325)
• implied Advertisements for bidders are simply invitations to
make proposals, and the advertiser is not bound to
Presumptive consent is the basis of quasi- accept the highest or lowest bidder, unless the
contracts (Perez vs Pomar) contrary appears.

***the form prescribed by law should be followed, (Art. 1327)


otherwise, there will be no valid and binding capacity of the contracting parties – essential
acceptance element of a contract
– indispensable requisite of a consent
(Art. 1321-1323)
the person who makes the offer has the right to Incapacitated to give consent:
specify the manner, time and place of acceptance 1. unemancipated minors
exception:
Art. 1322 is not applied when what is referred to is ◦ when it is entered into by a minor who
a mere messenger and not an agent who has the misrepresents his age
capacity to negotiate and represent the principal. ▪ based on the principle of estoppel
▪ must be active not merely
An offer becomes ineffective upon the death, civil constructive
interdiction, insanity, or insolvency of either party ◦ when it involves the sale and delivery
before acceptance is conveyed. of necessaries to the minor (Art.1449)
◦ when it involves a natural obligation
Conveyed – moment when the offeror has and such obligation is fulfilled
knowledge of the acceptance by the offeree. voluntarily by the minor (18-21 y.o)
◦ when it is a marriage settlement or
Reasons for Art. 1323: propter nuptias (20-21 male; 18-21
– death extinguishes personality and juridical female)
capacity ◦ when it is a life, health, or accident
– civil interdiction (accessory penalty for insurance taken on the life of the minor
RT) person is deprived of parental (18 y.o above) with minor's estate,
authority, guardian, and also deprived of father, mother, husband, wife, child,
the right to manage or dispose of his brother or sister as beneficiary.
property, he cannot execute acts inter ***there are no more emancipated minors since the
vivos. age of majority has been raised to 18 y.o.
– Insanity – insane person cannot give a 2. insane or demented persons
valid consent to a contract. He loses the ◦ contracting parties are unable to
capacity to do acts with legal effects understand the nature and
– insolvency – modifies or limits capacity to consequences of the contract at the
act. time of its execution by reason of any
cause affecting his intellectual or
(Art. 1324) sensitive faculties. (includes
if the option is without consideration, the offeror drunkenness, or under hypnotic spell)
may withdraw his offer by communicating such ◦ contracts entered into during lucid
withdrawal to the offeree at any time before interval is valid.
acceptance. ◦ A question of cat which must be
decided by the court

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AUF School of Law Obligations and Contract

3. deaf-mutes who do not know how to Based upon Based upon public policy
write – there is no way that the stipulations subjective and morality
in the contract be explained to them to circumstances of
insure that they understand what they are certain persons which
entering into. compel the law to
4. other incapacitated persons suspend the person's
◦ married woman in cases specified by right to contract
law
incompetent (Sec. 2 of Rule 92 of the New Rules Effect is a Voidable Effect is a void contract
of Court) includes: contract (Art. 1390) (Art. 5 & Art. 1409 No. 7
of the Civil Code)
• persons suffering from civil interdiction
• hospitalized lepers
• prodigals (Art. 1330)
vices which may vitiate consent:
• deaf and dumb who are unable to read
vices of the will (vicios de la formacion de la
• who are of unsound mind
voluntad)
• those who by reason of age, weak mind or
• mistake
other similar cases, cannot, without aid
• violence
from other, take care of themselves and
manage their property becoming thereby • intimidation
easy prey fro deceit and exploitation. • undue influence
• fraud
these incapacitated persons can enter into a vices of declaration (vicios de la declaracion)
contract only through a parent or guardian. • simulation of contracts

Effects: Accdg. to Manresa, Art. 1330 is a negative


Defective contract – effect of incapacitated enumeration of the requisites of consent.
persons entering into a contract not through a • Intelligent (mistake)
parent or agent. • free (violence, intimidation & undue
influence)
Voidable contracts – only one of the contracting • spontaneous (fraud)
parties is incapacitated to give consent. • real (simulation of contracts)

Unenforceable contracts – when both parties are ***in the absence of the 1st 3 requisites, the
incapacitated to give consent.. contract is voidable.

(Art. 1328-1329) ***in the absence of the 4th requisite, the contract
contracts entered into during a lucid interval are may be either void ab initio or valid as far as the
valid. real agreement is concerned, depending upon
whether the simulation is absolute or relative.
***Those referred to in Art. 1329 are those who are
prohibited from entering into a contract with certain (Art. 1331)
persons with regard to certain property under mistake – wrong conception of a thing and the
certain circumstances. lack of knowledge with respect to a thing.
2 kinds:
Incapacity to give Disqualification/prohibit • mistake of fact – when one or both of the
consent to a ion to contract contracting parties believe that a fact exist
contract when in fact it does not
Restrains the right to Restrains the very thing ◦ mistake as to object
contract itself ▪ identity of the thing (error in
corpore)

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▪ substance of the thing (error in • the real purpose of the parties must
substantia) have been frustrated.
▪ conditions of the thing (provided
such condition principally moved (Art. 1335-1336)
one or both of the parties to enter violence – use of irresistible force
into the contract) requisites:
▪ quantity of the thing (error in • force employed to wrest consent must be
quantitate) serious or irresistible
◦ mistake as to person • it must be the determining cause for the
▪ name of a person. party upon whom it is employed in entering
▪ Identity of a person – effect is into the contract.
voidable contract
▪ qualification of a person intimidation – compelling by reasonable and well
requisites: grounded fear of an imminent or grave evil upon
• the mistake must be either with regard his person, property, or upon the person or
to the identity or with regard to the property of his spouse, descendants, or
qualification of the person ascendants
• such identity or qualification must have
violence and intimidation are sometimes called
been the principal consideration for the
duress.
celebration of the contract
*Usually, these mistakes occur in
Requisites:
obligations to do.
• one of the contracting parties is compelled
• mistake of law – when one or both f the
to give consent by a reasonable and well
contracting parties arrive at an erroneous
grounded fear of an evil
conclusion regarding the interpretation of a
question of law or the legal effects of a • the evil must be imminent and grave
certain act or transaction. • the evil must be unjust
General rule: only mistake of fact which will vitiate • the evil must be the determining cause for
consent renders the contract voidable. A mistake of the party upon whom it is employed in
law does not render the contract voidable entering into the contract.
(ignorantia legis non excusat) Character of intimidation:
• actual
Case: Asiain vs Jalandoni • serious
(Art. 1332) • possible of realization
intended for the protection of a party to a contract • and that the actor can and still carry out his
who is at a disadvantage due to his illiteracy, threat
ignorance, mental weakness, or handicap.
determination of the degree of intimidation:
Fraud is present when there is an insidious words • age
or machinations of one of the contracting parties, • sex
the other is induced to enter into the contract which • condition of the person
without them, he would not have agreed to it.
effect of just or legal threat:
(Art. 1333-1334) -it does not vitiate consent
General rule: mistake of law will not vitiate consent. the contract would still be perfectly valid and not
Exception: mutual error voidable.
requisites:
Violence intimidation
• mistake must be with respect to the
legal effect of the agreement External Internal
• mistake must be mutual (physical compulsion - (moral compulsion-

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Castan) Castan) dolo incidente – incidental fraud; deceptions or


misrepresentation NOT of a serious character
Prevents the expression Influences the will, employed by one party and without it, the other
of the will substituting it inhibiting it in such a party would still have entered into the agreement
with a material act way that the expression
dictated by another therefor is apparently
Dolo causante dolo incidente
that of a person who
has freely given his Fraud Serious in Not so serious
consent. character
Cause which induces Not the cause
Case: Martinez vs Hongkong & Shanghai Bank the party upon whom it
distinction between vitiated consent and reluctant is employed in entering
consent the contract

(Art. 1337) Effect is a voidable Effect is liability for


undue influence – taking improper advantage of contract damages
one's power over the will of another, depriving the
latter of a reasonable freedom of choice. Requisites:
• insidious words
Test: WON the the influence exerted has • insidious words must be serious
overpowered or subjugated the mind of a • insidious words must have induced the
contracting party as to destroy his free agency, other party to enter into the contract – such
making him express the will of another rather than fraud must be the principal or causal
his own. inducement or consideration for the
Thing to be considered: consent of the other party.
• confidential, spiritual, family, and other • fraud should not have been employed by
elations between parties the contracting parties or by third persons
test: there must be proof of concrete facts
(Art. 1338) constituting the fraud or insidious words or
fraud – insidious words or machinations employed machinations employed by one of the contracting
by one of the contracting parties in order to induce parties
the other to enter into a contract, which, without
them, he would not have agreed to. (Art. 1339)
Failure to disclose facts, when there is a duty to
Kinds of fraud: reveal them, as when the parties are bound by
Art. 1338, Civil Code Art. 1170-1171, Civil confidential relations, constitutes fraud.
Code
(Art. 1340)
Fraud in the perfection Fraud in the
The usual exaggerations in trade, when the other
of the contract performance of the
party had an opportunity to know the facts, are not
obligation
in themselves fraudulent.
Employed in securing Fraud employed by the
the consent of the other obligor in the (Art. 1341)
party performance of a pre- A mere expression of an opinion does not signify
existing obligation fraud, unless made by an expert and the other
party has relied on the former's special knowledge.
Dolo causante – causal fraud; deceptions or
misrepresentation of a serious character employed Case: Songco vs Sellner
by one party and without it, the other party would
not have entered into the agreement (Art. 1338) (Art. 1342)
Misrepresentation by a third person does not vitiate

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consent, unless such misrepresentation has of men


created substantial mistake and the same is - appropriability and transmissibility
mutual. 2. the object should be real or possible
- objects that are inexistent cannot be the
Case: Rural Bank of Caloocan vs CA object of contracts.
- future things may be the object of
(Art. 1343-1344) contracts
serious character of fraud – refers to the ◦ conditional contract – presumption in
magnitude and importance of the fraud in securing case of doubt about the nature of
the consent of the other party. contract
◦ aleatory contract
(Art. 1345-1346) – exception: future inheritance may not
simulation of contracts be the object of contract (Art. 1347)
absolute Relative – exception to exception: Art. 1080 of the
Contracting parties do Parties conceal their Civil Code; partition of estate inter
not intend to be bound true agreement vivos, provided that the legitime of
by the contract at all compulsory heirs is not prejudiced
3. the object shall be licit
Contract is not really Still has legal effects
4. the object should be determinate
desired or intended to
- the genus of the object should be
produce legal effects or
expressed although there might be no
in any way alter the
determination of the individual specie
juridical situation of the
parties
***The fact that the quantity is not determinate
Effect: void contract Still binds the shall not be an obstacle to the existence of the
contracting parties to contract, provided it is possible to determine the
their real agreement, same, without the need of a new contract between
when it does not the parties.
prejudice a 3rd person
and is not intended for cannot be objects of contracts:
any purpose contrary to • outside the commerce of men
law, morals, good • intransmissible rights
customs, public order, • future inheritance, except in cases
or public policy expressly authorized by law
◦ reason:
Case: Loyola vs CA ▪ possibility that one of the
contracting parties may be tempted
Sec. 2. – Object of contract to instigate the death of the other in
Object – most fundamental and indispensable order that inheritance will become
requisite of a contract. his
– the thing, right or service which is the ▪ probability that fraud and prejudice
subject matter of the obligation which is may be committed or occasioned
created or established. thereby
– The what of the contract. • services which are contrary to law, morals,
good customs, public order, public policy
(Art. 1347 – 1349) • impossible things or services
General rule: All things or services may be the
◦ absolute impossibility of service –
object of contracts
arises from the nature or essence of
Requisites:
the act or service itself; void contract
1. the object shall be within the commerce
◦ relative impossibility of service – arises

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form the circumstances or qualifications will affect the validity of will not affect the
of the obligor rendering him incapable the contract existence of the
of executing the act or service, allows contract
the perfection of the contract, although
the fulfillment thereof is hardly
***The motives of the contracting parties are as
probable.
different or complex and as capable of infinite
▪ If impossibility may permanent in variety as the individual circumstances which may
character, contract is void move men to acquire things or make money.
• objects which are not of possible
determination as to its kind ***The motives may be regarded as the causa
when the contract is conditioned upon the
Sec. 3. – Cause of Contracts attainment of the motive of either contracting
(Art. 1350-1351) parties.
Cause – the why of the contract Cases: Liguez vs CA, Rodriguez vs Rodriguez,
– juridical reason why the parties entered Phil. Banking Corp. vs Lui She
into the contract
– essential reason which moves the ***The cause of the accessory contract is identical
contracting parties to enter into a contract. with that of the principal contract.
– Immediate, direct, or most proximate
reason which explains & justifies the ***When a moral obligation arises wholly from
creation of the obligation through the will of ethical considerations, unconnected with any civil
the contracting parties. obligation and as such, is not demandable in law
Onerous contracts The prestation or but only in conscience, it can not constitute a
promise of a thing or sufficient cause or consideration supporting an
service by the other onerous contract.
Cases: Fisher vs Robb, Villaroel vs Estrada
Remunetory contracts Service or the benefit
which is remunerated or Remunetory contracts – one in which one of the
compensated contracting parties compensates the service or
Pure beneficence Liberality or generosity benefit rendered by the other party, although such
of the benefactor service or benefit does not constitute a
demandable debt.
In onerous contracts, even a mere promise is a
sufficient causa or consideration. (Art. 1352-1355)
Remedy: rescission or specific performance. essential requisites of cause: (elt)
• the cause should be in existence at the
***the object of an onerous contracts is the same time of the celebration of the contract.
as to both parties, although the cause is different. - • The cause should be licit or lawful
Tolentino • the cause should be true.

Cause Motives ***The cause is presumed to be existing and


licit/lawful. (Art. 1354)
Direct, proximate Indirect and remote
reason of a contract reason of a contract ***inexistent cause, false, or unlawful/illicit cause
Objective or juridical Psychological and produces no effect (void ab initio)
reason of a contract purely personal reasons Case: Carantes vs CA – inadequate causa or
consideration
Always the same Differs for each
contracting parties lesion or inadequacy of cause will not invalidate
Its legality or illegality Its legality or illegality the contract, unless there be fraud, mistake, or
undue influence (voidable contract if any of the 3 is present). (Art.

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1355) • necessary for the convenience of the


contracting parties or for the efficacy of the
unlawful cause – contrary to law, morals, good contract (Arts. 1356-1358)
customs, public order, public policy • necessary for the validity of the contract
effect: contract void ab initio (scattered provisions of the Code and
Cases: Veles vs Ramas as compared with Mactal some special laws)
vs Melegrito (incipient criminal liability) • necessary for the enforceability of the
contract (Statute of Frauds)
CHAPTER 3
FORMS OF CONTRACTS (Arts. 1357-1358)
principles deducible from jurisprudence
(Art. 1356) • Arts. 13657-1358 require the execution of
spiritual system of the Spanish Code – the law the contract in a private or public document
looks more at the spirit/intent rather than at the to insure its efficacy.
forms of the contract. • Both articles presupposes the existence of
a contract which is valid and enforceable.
General Rule: contracts shall be obligatory,
• Invoking Arts. 1357-1358 place the
provided all the essential elements of a contract
existence of the contract in issue, which
are present.
must be resolved by the ordinary rules of
Exceptions:
evidence
• when the law requires that the contract
• Art. 1357 does not require that the action to
must be in a certain form in order to be
compel the execution of the necessary
valid
document must precede the action upon
◦ must appear in writing the contract.
▪ donation and acceptance of • Art. 1358 does not affect the validity or
personal property whose value enforceability of the contract. Present for
exceeds P5,000.00 mere convenience
▪ sale of a piece of land or any Case: Dauden-Hernaez vs De Los Angeles
interest therein through an agent
▪ agreements regarding payment of CHAPTER 4
interest in contract of loan REFORMATION OF INSTRUMENTS
▪ antichresis
◦ must appear in public document (Art. 1359)
▪ donations of immovable properties REFORMATION – used when the true intention of
regardless of value the parties to a perfected and valid contract are not
▪ partnerships where immovable expressed in the instrument purporting to embody
property or real rights are their agreement by reason of mistake, fraud,
contributed to the common fund inequitable conduct or accident
◦ must be registered – based on justice and equity
▪ chattel mortgages requisites:
▪ sales or transfer of large cattle • meeting of the minds of the contracting
• when the law requires that the contract parties
must be in a certain form in order to be • true intention not expressed in the
enforceable. instrument
◦ Covered by the Statutes of Frauds • such failure to express their true intention
is due to mistake, fraud, inequitable
Case: BF Corp vs CA – contract may not be limited conduct, or accident.
in a single document or writing
Reformation of Annulment of contract
forms of contracts: contract

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Presupposes a valid Based on a defective – the one who adheres to the contract is in
contract in which there contract in which there reality free to reject it entirely, if he
has already been a has been no meeting of adheres, he gives his consent. (Ong Yiu vs
meeting of the mind the minds because the CA)
consent of one or both – its enforceability will have to be determined
of the contracting by the peculiar circumstances obtaining in
parties has been each case and the situation of the parties
vitiated. concerned
– in case of conflict, the contract will be
Not a remedy when Remedy when there has
interpreted against the one who drafted the
there has been fraud, been no meeting of the
contract.
mistake, inequitable minds because of
2steps needed to follow(contracts of credit cards)
conduct or accident. mistake, fraud,
to absolve a card holder from liability for
inequitable conduct, or
unauthorized purchase made through lost or stolen
accident
card
1. the card holder must give a written notice
(Art. 1360-1369) to the credit card company
when can one party ask for the reformation of 2. credit company must give notice to all its
the contract: member establishments of such lost or
• mutual mistake of the parties (Art. 1361) theft
• one party was mistaken and the other party
acted fraudulently(Art. 1362)
• one party mistaken, the other knew or CHAPTER 5
believed that the instrument does not show INTERPRETATION OF CONTRACTS
their real intent but concealed that fact to
the former (Art. 1363) (Art. 1370-1371)
• through the ignorance, lack of skill, ***Intention of the contracting parties always
negligence or bad faith on the part of the prevail because their will has the force of law
person drafting the instrument or the clerk between them.
or typist. (Art. 1364)
• Parties agree upon the mortgage or pledge ***Literal sense of the stipulations shall be
of a real or personal property, but the followed.
instrument states that the property is sold
absolutely or with a right of repurchase ***Once the intention has been ascertained, it
(Art. 1365) becomes an integral part of the contract as though
it had been originally expressed therein in
when there can be no reformation: unequivocal terms.
• simple donation inter vivos wherein no
condition is imposed The character of the transaction between the
• wills parties is not determined by the language used in
• when the real agreement is void (Art. 1366) the document but by their intention. (Manila
• when one of the parties brought an action Banking Corp. vs Teodoro, Jr.)
to enforce the instrument (Art. 1367)
contemporaneous and subsequent acts of the
contract of adhesion – one in which one of the parties must be considered in order to judge the
parties imposes a ready made form of contract, intention of the contracting parties.
which the other party may accept or reject, but Case: Tanguilig vs CA
which the latter cannot modify
(Art. 1372-1379)
– as binding as a mutually executed
ARTICLE 1372. However general the terms
transaction (Ayala Corp. vs Ray Burton
of a contract may be, they shall not be understood
Dev't. Corp.)

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to comprehend things that are distinct and cases e


that are different from those upon which the parties
intended to agree. (1283) As to Defect
ARTICLE 1373. If some stipulation of any There is There is Contract Lack of
contract should admit of several meanings, it shall damage or vitiation of entered one or
be understood as bearing that import which is most injury consent or into some of
adequate to render it effectual. (1284) either to 1 legal without the
ARTICLE 1374. The various stipulations of a of the capacity of authority; essential
contract shall be interpreted together, attributing to parties or 1 of the does not requisites
the doubtful ones that sense which may result from to 3rd parties comply of a valid
all of them taken jointly. (1285) persons with contract.
ARTICLE 1375. Words which may have Statute of
different significations shall be understood in that Fraud; both
which is most in keeping with the nature and object parties are
of the contract. (1286) legally
ARTICLE 1376. The usage or custom of the incapacitat
place shall be borne in mind in the interpretation of ed
the ambiguities of a contract, and shall fill the
omission of stipulations which are ordinarily As to Effect
established. (1287) Valid and Valid and Cannot be Produce no
ARTICLE 1377. The interpretation of enforceabl enforceabl enforced legal effect
obscure words or stipulations in a contract shall not e until they e until they by a proper
favor the party who caused the obscurity. (1288) are are action in
ARTICLE 1378. When it is absolutely rescinded annulled by court
impossible to settle doubts by the rules established by a a
in the preceding articles, and the doubts refer to competent competent
incidental circumstances of a gratuitous contract, court court
the least transmission of rights and interests shall
As to prescriptibility of action or defense
prevail. If the contract is onerous, the doubt shall
be settled in favor of the greatest reciprocity of Action of Action for For total or Action for
interests. rescission annulment partial declaration
If the doubts are cast upon the principal object of may may performanc of nullity
the contract in such a way that it cannot be known prescribe prescribe e, the does not
what may have been the intention or will of the action for prescribe.
parties, the contract shall be null and void. (1289) recovery
ARTICLE 1379. The principles of may
interpretation stated in Rule 123 of the Rules of prescribe
Court shall likewise be observed in the
As to susceptibility of ratification
construction of contracts.
Not susceptible susceptible Not
CHAPTER 6 susceptible of of susceptible
RESCISSIBLE CONTRACTS of ratification ratification of
ratification ratification
Classes of defective contracts: As to who may assail contracts
• rescissible contracts
• voidable contracts Contracting Contracting Contracting Contracting
• unenforceable contracts parties; 3rd party party parties; 3rd
person person
• void or inexistent contracts
prejudiced whose
interest is
rescissible voidable un Void directly
enforceabl

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affected.
Rescission of Rescission by mutual
As to how contracts may be assailed
contracts consent
Directly Directly or Directly or Directly or
Causes mentioned in Agreement of the
collaterally collaterally collaterally
Arts. 1381 and 1382 parties to rescind the
contract.
(Art. 1380)
rescissible contracts – all of the essential Restoration to the Effects should be
elements of a contract are present; contract is condition of the parties determined by the
valid, but by reason of injury or damage to either of prior to the constitution agreement made by the
the contracting parties or to 3rd persons, it may be of the contract parties, or by the
rescinded. application of other
Characteristics: legal provisions except
• defects consists in injury or damage to Art. 1385
either of one of the contracting parties or to Case: Aquino vs Tanedo
3rd persons.
• Before rescission, they are valid and (Art. 1381-1382)
therefore legally effective rescissible contracts are:
• can only be attacked directly 1. contracts in behalf of ward
• can be attacked by I of the contracting • entered into by guardians whenever their
parties or the 3rd person injured or wards suffer lesion or damages by more
defrauded. than ¼ of the value of the thing which are
• Susceptible of convalidation only by the object thereof.
prescription and not by ratification • Rules of Court: judicial guardian entering
into a contract with respect to the property
rescission – remedy to secure the reparation of of his ward must ordinarily secure the
damages caused to the contracting party or 3rd approval of a competent court.
person by a contract; by means of restoration of • Apply Arts 326, CC; Rules 95-96 New
things to their condition prior to the celebration of Rules of Court
the contract. 2. contracts in behalf of absentees
Rescission of Resolution of • rescissible if the absentee suffer the lesion
contracts reciprocal obligations or damage by more than ¼ of the value of
(Art. 1380-1389) (Art. 1191) the thing which are the object thereof.
• principles applicable in Art. 1381, par 1 are
May be instituted by a May be instituted only applicable to this provision since the
party to the contract by a party to the powers and duties of representatives are
and/or even 3rd person contract the same as that of the guardian.
Several causes or Ground: failure of one Requisites for par. 1 & 2 of Arts. 1381
grounds: lesion, fraud, the contracting parties • contract must have been entered into by
and other expressly to comply with what is the guardian in behalf of his ward or a legal
specified by law incumbent upon him. representative in behalf of an absentee
• ward or absentee must have suffered
Court has no power to The court has
lesion of more than ¼ of the value of the
grant an extension of discretionary power to
property which is the object of the contract.
time for performance of grant an extension for
the obligation performance provided • Contract must have been entered into
that there is just cause. without court approval
• there must be no other means for obtaining
May apply to Unilateral Applies only to reparation for the lesion
and reciprocal contracts reciprocal contracts • the person asking for the rescission must
be able to return whatever he may be

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obliged to restore. ◦ it must have been made in a state of


• Object of the contract must not be legally in insolvency
the possession of 3rd person who acted in ◦ the obligation must have been one
good faith. (otherwise, remedy is which the debtor could not be
indemnification for damages) compelled to pay at the time such
3. contracts in fraud of creditors payment was effected.
• when the creditor cannot in any manner • Basis of the rescissible character is fraud
collect the claims due them. • contemplates obligations with terms or are
• Requisites: subject to suspensive condition; void and
◦ existing credit prior to the celebration of natural obligations; and those condoned or
the contract. have prescribed.
◦ Fraud or at least an intent to commit 6. other contracts declared by law to be
fraud to the prejudice of the creditor rescissible
seeking rescission. • Arts. 1098, 1189, 1526, 1534, 1539, 1542,
◦ No other manner by which the creditor 1556, 1560, 1567, and 1659 of the Civil
can collect the credit Code
◦ object of the credit is not in legal (Art. 1383)
possession by 3rd person who acted in ***Action for rescission is subsidiary it cannot be
good faith.(otherwise, remedy is to instituted except when the party suffering damage
proceed against the person causing the has no other legal means to obtain reparation for
loss for damages) the same.
• accion pauliana- action to rescind contracts Who may institute action:
in fraud of the creditors • person prejudiced
◦ party suffering the lesion in the
◦ requisites: rescissory action on the ground of fraud
▪ plaintiff asking for the rescission ◦ creditor who is defrauded in rescissory
has a credit prior to the alienation actions
▪ debtor has made a subsequent ◦ other persons authorized to exercise
contract conveying patrimonial the same in their rescissory actions.
benefit to a 3rd person • representatives of those prejudiced
▪ creditor has no other legal remedy • heirs of those prejudiced
▪ act being impugned is fraudulent. • creditors by virtue of the subrogatory action
▪ 3rd person has been an accomplice (Art. 1177)
in the fraud.
• Purpose is to guarantee an existing debt ***If the decedent himself does not have the right
• there is personal right that deserves the to institute the action, the heir acting as
protection of law representative of the decedent also does not have
4. contracts referring to things in litigation the right to institute the action; however, it will be
• if entered into by the defendant without the possible for him to institute the action in his own
knowledge and approval of the litigants or right (No.3 Art. 1381, Civil Code)
of competent judicial authority. Case: Concepcion vs Sta. Ana
• Purpose is to secure the possible effectivity
(Art. 1384)
of a claim
purpose of rescission: reparation of damage or
• there is a real right involved that deserves
injury suffered by one of the contracting parties or
the protection of law
3rd person.
5. contracts by insolvent (Art. 1382)
• insolvency – refers to the financial situation Extent of rescission shall be only be to that
of the debtor in which it is impossible for necessary to cover the damage caused.
him to fulfill his obligations.
• requisites:

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(Art. 1385) or attachment need not refer to the


par. 1 of the provision applies only to rescissory property alienated, and need not have
actions on the ground of lesion and not to been obtained by the party seeking the
rescissory action based on fraud. rescission.
3. Any other manner recognized by law of
Effect of rescission: evidence
• return the things which were the object of ***Where no judgment or preliminary attachment
the contract (Includes fruits or interests) exists against the debtor, the 2nd presumption is not
◦ fruits – natural, industrial, civil, and applicable.
other accessions obtained by the thing
◦ interest – legal interest ***The presumptions are disputable and may be
***rescission cannot apply if the one who demands rebutted by satisfactory and convincing evidence to
cannot return what he may be obliged to restore. the contrary. Case: Honrado vs Marcayda et al.

The determination of good or bad faith of the Badges of fraud: (conveyance)


contacting parties is important in order to assess 1. inadequate cause or consideration
the fruits or the value thereof which must be 2. transfer made by a debtor after the suit has
returned as well as the expenses which must be been begun and while it is pending against
reimbursed. him
3. sale on credit by an insolvent debtor
In transfer of properties through gratuitous title, 4. evidence of large indebtedness or large
good faith of the transferee is not a defense. insolvency
5. transfer of all of the property of a debtor
Rescission shall not take effect upon 3rd person, 2 when he is insolvent
requisites: 6. transfer made between father and son
• the thing must be legally in the possession 7. failure of vendee to take exclusive
of 3rd person (immovable,property: the possession of all property
thing must be registered in the name of the
3rd person for the requisite to apply) ***If it happens that there are 2 or more alienation,
Case: Sikatuna vs Guevarra the 1st acquirer shall be liable first, and so on
• such 3rd person must not have acted in bad successively.
faith.
Remedy if maintaining an action for the rescission Par. 2 of Art. 1388 seems to have forgotten the
is impossible is to bring an action for indemnity debtor; this is because the debtor is already
for damages against the person who caused the presumed to be insolvent.
loss.
(Art. 1389)
(Art. 1386-1388) 4year-prescriptive period for commencement of
proof of fraud- needed to be established in order action for rescission.
that a contract may be rescinded – this period must be counted from the time
of the termination of the incapacity of the
presumption of fraud: ward (Art. 1381, par.1)
1. alienation of property by gratuitous title if – this period must be counted from the time
the debtor has not reserved sufficient the domicile of the absentee is known (Art.
property to pay all of his debts contracted 1381, par.2)
before such alienation/donation – this period must be counted from the time
2. Alienations by onerous title when made by of the discovery of fraud (Art. 1381 par.
persons against whom some judgment has 3&4; Art. 1382)
been rendered in any instance (even if not – in certain cases of rescissible contracts of
yet final and executory) or some writ of ale, the prescriptive period is 6 months or
attachment has been issued. The decision even 40 days from the day of delivery.

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3rd person who is


CHAPTER 7 prejudiced.
VOIDABLE CONTRACTS
Voidable contracts – element of consent of one of
(Art. 1390)
the contracting parties is vitiated either by lack of
Voidable contracts:
legal capacity of one of the contracting parties, or
1. Those where one of the parties is
by mistake, violence, intimidation, undue influence,
incapable of giving consent to a contract;
or fraud.
2. Those where the consent is vitiated by
– binding until annulled by a competent court mistake, violence, intimidation, undue
influence or fraud.
Remedies:
• attack the validity of the contract ***if the consent is absolutely lacking or simulated,
◦ direct – by means of proper action the contract is inexistent, not voidable.
(annulment)
◦ indirect – as a defense (annulability or
relative nullity)
• convalidate it either by ratification or (Art. 1391)
prescription. 4 years prescriptive period – shall commence:
• from the time the defect of the consent
Characteristics: ceases (intimidation, violence, or undue
1. defect consists in the vitiation of consent of influence)
one of the contracting parties • from the time of the discovery of mistake or
2. binding until annulled by a competent court fraud
3. susceptible of convalidation by ratification • from the time the guardianship cease
or by prescription (contracts entered into by the minors or
4. defect or voidable character cannot be other incapacitated persons)
invoked by 3rd persons ◦ 2 conflicting views:
▪ prescription applies only to ACTION
Voidable contracts Rescissible contracts and NOT defense
Intrinsic defect (vitiation External defect ▪ prescription applies to BOTH action
of consent) (damage or prejudice and defense – this one is more
either to one of the logical
contracting parties or to Case: Carantes vs CA
a 3rd person)
(Art. 1392-1396)
Contracts are voidable There should be Ratification – confirmation; act or means by virtue
even if there is no damage or injury of which efficacy is given to contract which suffers
damage or injury caused to consider a from a vice of curable nullity.
contract rescissible. Requisites:
Annulability Is based on Rescissibility is based 1. contract should be tainted with a vice which
the law on equity is susceptible of being cured
2. the confirmation should be effected by the
Remedy and sanction Mere remedy
person who is entitled to do so under the
Predominated by public Predominated by law
interest private interest 3. it should be effected with knowledge of the
vice or defect of the contract
Susceptible of Not susceptible to
4. the cause of the nullity or defect should
ratification ratification
have already disappeared
May be invoked only by May be invoked by the
the contracting arty contracting party or by a ***if the person entitled to effect the confirmation

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ratifies or confirms the contract with knowledge of • mutual restitution


the mistake, but not of the fraud, his right to ask for ◦ to give: things subject matter of the
an annulment is not extinguished thereby since the contract, its fruits, and the price with
ratification has only purged the contract of mistake, interest, except in cases provided by
but not the fraud. law
◦ to do: apportionment of damages
Forms of ratification: based on the value of the prestation
(with knowledge of the reason which renders the with corresponding interests.
contract voidable and such reason having ***when the defect of the contract
ceased...) consists in the incapacity of one of the
• express – declaration of desire to contracting parties, the incapacitated
convalidate the contract and express person is not obliged to make any
declaration to renounce his right to annul restitution except insofar as he has
the contract. been benefited by the thing or price
• Tacit – executing an act which necessarily received by him.
implies an intention to waive his right to
annul the contract. ***In the obligation of the incapacitated person to
make restitution, it is sufficient that there has been
Effects of ratification: a prudent and beneficial use by him of the thing
• extinguishes the action to annul the which he has received. (food, clothing, shelter,
contract. health, etc.)
• Cleanses the contract of its defects from – presumption that no benefit has accrued to
the moment it was constituted. the incapacitated person
– burden of proof of benefit is casted upon
the person who has capacity.
(Art. 1397) – Art. 1399 is not applicable in cases where
requisites to confer the necessary capacity for the the incapacitated person can still return the
exercise of action to annul: thing that he received.
• plaintiff must have an interest in the – There is IMPLIED ratification when the
contract incapacitated person failed to ask for the
• the VICTIM and not the party responsible annulment of the contract and also
for the vice or defect must be the person squandered that part of the consideration
who must assert the same which remained.
– In consonance with the principle
General rule: a third person who is a stranger to enunciated in Art. 1241 (payment made to
the contract cannot institute an action for an incapacitated person)
annulment.
Exception: when the 3rd person is prejudiced in his (Art. 1400-1402)
rights with respect to one of the contracting parties, Effect of failure to make restitution because of
and can show detriment which would positively loss:
result to him from the contract in which he has no • due to the fault of the defendant
intervention. ◦ return the fruits received and the value
Case: Teves vs People's Homesite & Housing of the thing at the time of the loss, with
Corp. interests on the same date
◦ action for annulment not extinguished
(Art. 1398-1399)
◦ instead of being compelled to restore
effects of annulment
the thing, the defendant can only be
• contracting parties are released from their compelled to pay the value thereof at
obligations (contract not yet consummated) the time of the loss
• apply Art. 1398-1402 of the Civil Code • due to the fault of the plaintiff
(consummated contract)

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◦ Art. 1401 shall apply; action for purpose of preventing frauds


annulment shall be extinguished, ◦ such statute states that evidence of the
regardless as to whether the loss agreement cannot be received without
occurred during the plaintiff's incapacity the writing or a secondary evidence of
or after he had acquired capacity. its contents
• fortuitous event ◦ statute simply provides the method by
◦ contract can be annulled; the which the contracts enumerated therein
defendant/plaintiff can be held liable may be proved.
only for the value of the thing at the ◦ Effect: no action can be enforced
time of the loss, but without interest unless the requirement that the
thereon contract be in writing be complied with.
◦ Form required is for evidentiary
purpose
◦ Statute of Frauds is applicable only to
those contacts which are purely
CHAPTER 8 executory and not to those which have
UNENFORCEABLE CONTRACTS been consummated either totally or
partially. (Case: Carbonnel vs Poncio)
(Art. 1403-1408) et al.; Inigo vs Estate of Maloto)
Unenforceable contracts – cannot be enforced ◦ 6 contracts covered:
by a proper action, unless ratified; ▪ An agreement that by its terms is
Classes: not to be performed within a year
1. contracts entered into without or in from the making thereof;
excess of authority (Art. 1403, No.1) or; • limit of human memory is 1
◦ there is absolutely no consent year
◦ applicable principles: • if one of the contracting parties
▪ no one may contract in the name of has already complied with the
another without being authorized by obligations imposed upon him
the latter or unless he has right to by said contract within the
represent him. If he is duly year, the other party cannot
authorized, he must act within the invoke the Statute of Fraud
scope of his powers ▪ A special promise to answer for the
▪ such contracts are unenforceable debt, default, or miscarriage of
as reiterated in the law on agency another;
▪ such contract may be ratified by the • such promise must be
person in whose behalf it has been collateral, not independent or
executed, before it is revoked by original for Statute of Frauds to
the other contracting party apply.
***Confirmation and ratification were not used ▪ An agreement made in
interchangeably in the old law, but in the new law, consideration of marriage, other
the term ratification is now used to designate the than a mutual promise to marry;
act of validating any kind of defective contract. • marriage settlements and
Recognition, on the other hand, is merely donations propter nuptias are
to cure a defect of proof. covered by the statute of fraud
▪ An agreement for the sale of
2. contracts which do not comply with
goods, chattels or things in action,
the statute of frauds (Art. 1403, No. 2)
at a price not less than five hundred
◦ there is no writing, note, or pesos
memorandum by which the contract
• loan is not covered, provision
may be proved
applies only to SALE of goods,
◦ Statute of Frauds was enacted for the

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chattels, and things in action VOID OR INEXISTENT CONTRACTS


• if the transaction involves
inseparable goods, the prices Void or Inexistent contract – lacks absolutely
of the items shall be either in fact or in law one or some of the elements
considered as a whole which are essential for its validity.
• if the transaction separable
goods, the prices of the items Void Inexistent
shall not be less than P500
all of the requisite of a one or some or all of the
▪ An agreement for the leasing for a
contract are present, requisites which are
longer period than one year, or for
but the cause, object, or essential for the validity
the sale of real property or of an
purpose is contrary to of a contract are
interest therein;
law, morals, good absolutely lacking,
• oral agreement to extend the customs, etc.. such as those simulated
lease is covered by the Statute , or those which cause
▪ A representation as to the credit of or object did not exist at
a third person. the time of the
• Quasi-delict transaction
• misrepresentation by a 3rd
person will make him liable Neither party may be Open to attack even by
only if he has signed a heard to invoke its the parties thereto
document in representing the unlawful character
credit of another person. (certain provisions of
Civil Code)
◦ These contracts are susceptible to
ratification Principle of in pari Principle of in pari
▪ by the failure to object to the delicto is applicable delicto is not applicable
presentation of oral evidence to May produce legal Cannot produce any
prove the same effects effect whatsoever
▪ by the acceptance of the benefits
under them.
(Art. 1409)
3. contracts where both the contracting
Inexistent and void from the beginning
parties do not possess the required
legal capacity. • cause, object, purpose are contrary to law,
public morals, good customs, public order,
◦ Absolutely vitiated consent
public policy
◦ if only one party is incapacitated, the
• absolutely simulated or fictitious
contract is voidable
• cause or object did not exist at the time of
◦ may be ratified by the parents or
transaction
guardians of the incapacitated persons,
in effect, the contract becomes ◦ except if the object is possible to come
voidable into existence (this is to harmonize Art.
1409 with the provision that future
◦ if ratified by the parties themselves
objects may be some future thing)
after gaining the capacity, the contract
shall be validated from its inception • object is outside the commerce of man
• contemplates an impossible service
Characteristics of unenforceable contracts: • where the intention of the parties relative to
• cannot be enforced by proper action the principal object of the contract cannot
• susceptible of ratification be ascertained
• cannot be assailed by 3rd persons • expressly prohibited or declared void by
law
***cannot be ratified; defense of illegality cannot be
CHAPTER 9 waived

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law
Characteristics of void and inexistent – rule of in pari delicto is applicable because
contracts: there is an illegal cause
• produce no legal effect (quod nullum est
nullum producit effectum) only 1 party is at fault:
◦ Except: Art. 1411-1412 – nullity is • executed contract
based on the illegality of the cause; any ◦ guilty party is barred from recovering
action by a guilty party to recover what he has given to the other party by
whatever he has already given under reason of the contract
the contract is barred ◦ innocent party may demand the return
• not susceptible of ratification of what it has given
• right to set up the defense of inexistence or • executory contract
absolute nullity cannot be waived ◦ contract cannot produce any legal
• action or defense for the declaration of effect whatsoever
their inexistence or nullity is imprescriptible ◦ parties cannot demand for the
(Art. 1410) fulfillment of any obligation arising from
• inexistence or absolute nullity cannot be the contact nor be compelled to comply
invoked by a person whose interests are with such obligation
not directly affected.
Exceptions in applicability of in pari delicto:
(Art. 1410) • payment in usurious interest (Art. 1413)
action or defense of declaration of nullity is ◦ “interest paid in excess of the interest
imprescriptible – because the defects are more or allowed by the usury law” - means the
less permanent, thus cannot be cured by whole usurious interest; with interest
prescription thereon from the date of payment
Case: Castillo vs Galvan • payment of money or delivery of property
for an illegal purpose (Art. 1414)
***An action to declare the nullity of a void • payment of money or delivery of property
judgment does not prescribe (Paluwagan ng by an incapacitated person (Art. 1415)
Bayan Bank vs King)
• agreement that is not illegal per se but is
prohibited by law (Art. 1416)
Case: Aznar Brothers Realty vs Heirs of
◦ “in pari delicto is not applicable to a
Augusto – no unreasonable delay in asserting
homestead; the purpose of the law is to
their rights
give land to a family for home and
– in spite the imprescriptibility, laches may
cultivation, consequently, the law
bar the action of a party in asserting the
allows the homesteader to reacquire
nullity of the contract
the land even if it has been sold.”
(Angeles vs CA, 102 Phil. 1006)
(Art. 1411-1422)
◦ rule of in pari delicto is inapplicable
in pari delicto – equally at fault
where the same violates a well-
– the law will not aid either party to an illegal
established public policy (Angeles vs
agreement, it leaves them where they are.
CA, 102 Phil. 1006) and Phil. Banking
– Applies only to cases of existing contracts vs Lui She
with an illegal cause or object and not to
• payment of any amount in excess of the
simulated or fictitious contracts nor to those
maximum price of any article or commodity
which are inexistent
fixed by law. (Art. 1417)
Case: Rodriguez vs Rodriguez
• Contract where by a laborer undertakes to
– circumvention of provision on prohibited
work longer than the maximum number of
donation between spouses
hours fixed by law (Art. 1418)
– appellant is clearly as guilty as her
• contract whereby a laborer accepts a wage
husband in the attempt to circumvent the

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lower than the minimum wage fixed by law – such principle will afford solution to many
(Art. 1419) questions which are not foreseen in our
legislation
ARTICLE 1421 – person is not allowed to take inconsistent
The defense of illegality of contract is not available positions
to third persons whose interests are not directly
affected. Kinds of Estoppel
ARTICLE 1422 • estoppel in pais (equitable estoppel)
A contract which is the direct result of a previous ◦ arises by acts, representations, or
illegal contract, is also void and inexistent. admissions, or by his silence induces
another to believe certain acts to exist
TITLE III and such other rightfully relies and acts
NATURAL OBLIGATIONS on such belief, as a consequence of
which he will be prejudiced if the former
(Art. 1423-1430) is permitted to deny the existence of
Natural obligations – obligations without a such facts
sanction; susceptible of voluntary performance ▪ estoppel by silence – inaction;
– once there is voluntary performance or ▪ estopel by acceptance of benefits
fulfillment, one cannot recover what he has
• estoppel by deed or by record (technical
delivered.
estoppel)
◦ estoppel by deed – type of technical
Natural obligations Civil obligations estoppel by virtue of which a party to a
based on equity and Based on positive law deed and his privies are precluded from
natural law asserting as against the other party or
his privies any right or title in
do not grant a right of enforceable by court derogation of the deed or from denying
action to enforce their action any material fact therein.
performance
◦ Estoppel by record – parties are
precluded from denying the truth of
Natural obligations Moral obligations matters set forth in a record whether
There is a juridical tie No juridical tie judicial or legislative.
between the parties whatsoever ▪ Estoppel by judgment – bars the
which is not enforceable party from raising any question that
by court action might have put in issue and
decided in the previous litigation
Voluntary performance Voluntary fulfillment • estoppel by laches
by the obligor produces does not produce legal
◦ failure or neglect, for an unreasonable
legal effect which the effect which courts will
and unexplained length of time, to do
courts will recognize recognize and protect
that which, by exercising due diligence,
and protect
could or should have been done earlier
◦ presumption that the party entitled to
TITLE IV assert it either has abandoned it or
ESTOPPEL declined to assert it.
◦ Stale demands
(Art. 1431-1439)
◦ not a mere question of time but is
Estoppel – a condition or state by virtue of which
principally a question of the inequity or
an admission or representation is rendered
unfairness of permitting a right or claim
conclusive upon the person making it and cannot
to be enforced or asserted
be denied or disproved as against the person
Elements of laches:
relying thereon.
• conduct on the part of the defendant, or of

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one under whom he claims, giving rise to


the situation of which complaint is made
and for which the complainant seeks a
remedy
• delay in asserting the complainant's right;
having knowledge and opportunity to
assert his right
• lack of knowledge or notice on the part of
the defendant that the complainant would
assert the right on which he bases his suit
• injury or prejudice to the defendant in the
event relief is accorded to the complainant,
or the suit is not held to be barred

***No definite period for laches to take in unlike in


prescription.

Case: Bucton vs Gabar


“The action here although one for
reconveyance is actually one for
quieting of title – when the plaintiff is in
possession is actually imprescriptible.”
- Justice J.B.L. Reyes

-end-

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