I.

Obligations
Chapter I
I. CONCEPT A. DEFNITION ART. 1156, NCC An obligation is a juridical necessity to give, to do or not to do. (1156) Manresa The legal relation between one party and another, the latter being bound to the fulfillment of a prestation which the former may demand of him B. ELEMENTS

General Provisions

Definition A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service (1305) General Rule The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order and public policy (1306) Contracts as force of law between parties obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith (1159);

1.

Active Subject (obligee /creditor) - the one in whose favor the obligation is constituted

C. QUASI-CONTRACTS Definition It is the juridical relation resulting from lawful, voluntary, and unilateral acts by virtue of which the parties become bound to each other to the end that no one shall be unjustly enriched or benefited at the expense of another (2142) Obligations derived from quasi-contracts shall be subject to the provisions of Chapter 1, Title XVII of this Book (1160) Kinds of quasi-contract 1. Negotiorum gestio (Article 2144) unauthorized management; this takes place when a person voluntarily takes charge of anothers abandoned business or property without the owners authority This juridical relation does not arise in either of these instances: a. b. when the property or business is not neglected of abandoned if in fact the manager has been tacitly authorized by the owner

2.

Passive subject ( obligor / debtor ) the one who has the duty of giving, doing or not doing

3. 4.

Object prestation; the conduct which has to be observed by the debtor/obligor Vinculum Juris juridical or

legal tie C. DISTINCTION

BETWEEN NAURAL AND CIVIL OBLIGATIONS

1. 2.

Civil obligations- give a right of action to compel their performance Natural obligations- not being based on positive law but on equity and natural law, do not grant a right of action to enforce their performance; but after voluntary fulfillment by the obligor, they authorize the retention of what has been delivered or rendered by reason thereof (Art. 1423, NCC)

II. SOURCES Obligations arise from: law, contracts, quasicontracts, delicts, quasi-delicts (Art. 1157) A. LAW General Rule: Article 1158 Obligations derived from law are not presumed; only those expressly determined in this Code or in special laws are demandable, and shall be regulated by the precepts of the law which establishes them; and as to what has not been foreseen, by the provisions of this Book B. CONTRACTS

2. Solutio indebiti - undue payment ; This takes place when something is received when there is no right to demand it, and it was unduly delivered thru mistake (2154) D. DELICTS (OBLIGATIONS EX DELICTO) Governing Rules: 1. Pertinent provisions of the RPC and other penal laws subject to Art 2177 Civil Code

Art. 100, RPC

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Every person criminally liable for a felony also civilly liable 2. Chapter 2, Preliminary Relations ( Civil Code ) title, on

is

A. OBLIGATION TO GIVE: 1. a specific thing Duties of the obligor i. to deliver thing itself- (Art. 1244) to preserve the thing (Art. 1163)

Human

3.

Title 18 of Book IV of the Civil Code damages

- on

ii.

What civil liability arising from a crime includes: restitution reparation of damage caused indemnity for consequential damages E. QUASI-DELICTS Definition An act or omission with fault or negligence causing damage to another; not a crime nor contract Article 2176, NCC Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is called a quasi-delict and is governed by the provisions of this Chapter. Governing Rules a. obligations derived from quasi-delicts shall be governed by the provisions of Chapter 2, Title XVII of this Book, and by special laws (1162) b. Title XVIII on damages c. Articles 19-36 on human relations: III. CLASSIFICATION OF OBLIGATIONS Primary Classification according to the Civil Code: (1) Pure and conditional (2) With a period or with a term (3) Alternative and facultative (4) Joint and solidary (5) Divisible and indivisible (6) With a penal clause Secondary Classification according to the Civil Code: (1) Unilateral and bilateral (2) Real and personal (3) Determinate and indeterminate (4) Positive and negative (5) Legal and conventional (6) Civil and natural

standard of care: that of a good father of a family unless the law or stipulation requires another standard of care to deliver the fruits (Art. 1164, par. 1)

iii.

a)

When does the right begin to exist: from the time to deliver arises

when there is no term/condition from the perfection of the contract

b)

when there is a term/condition from the moment the term or condition arises

iv.

deliver the accessions and accessories (Art. 1166)

Accessories - those joined to or included with the principal for the latters better use, perfection or enjoyment Accessions additions to or improvements upon a thing

2. a generic thing- Art. 1246 Creditor cannot demand a thing of superior quality; neither can the debtor deliver a thing of inferior quality

Note Before delivery of the fruits Creditors right is personal or jus in personam, a right which is enforceable only against a definite passive subject, the debtor. After delivery Creditor now has a real right over the fruits from the time of delivery and becomes enforceable against the whole world. In short, it gives a person a direct and immediate juridical power over a thing, which can be exercised not only against a definite passive subject but against the whole world.

B. OBLIGATION TO DO:

Chapter II

Effect of Obligations

I. KINDS OF PRESTATION

a. If failure to do or contravention of tenor: i. Execution at debtors cost (1167) ii. Poorly done be undone (1167)

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If a person obliged to do something fails to do it, the same shall be executed at his cost. This same rule shall be observed if he does it in contravention of the obligation. Furthermore, it may be decreed that what has been poorly done be undone (1167) The creditor may demand that the obligation be performed by the debtor himself or by a third person at the expense of the debtor. However, in cases where the personal qualifications of the debtor are taken into account, the only remedy of the creditor is an action for damages. In the Balane notes, there is no action for compliance for an obligation to do because such would be involuntary servitude which is prohibited by the constitution. C. Obligations not to do: a. Doing what he must have not done: i. Undone at his expense (1168) When the obligation consists in not doing, and the obligor does what has been forbidden him, it shall also be undone at his expense (1168) ii. Damages II. BREACH OF OBLIGATION A. MODES OF BREACH Art. 1170. NCC Those who in performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages. a. Fraud - Voluntary execution of a wrongful act or willful omission, knowing and intending the effects which naturally and necessarily arise from such act or omission FRAUD

i. ii.

Dolo Causante ( causal ) fraud in obtaining consent to the obligation; makes contract voidable Dolo incidente ( incidental ) - fraud in the performance of obligation; does not affect validity of obligations but only gives rise to damages

b.

Negligence/Culpa absence of due diligence Responsibility arising from negligence is also demandable, but liability may be regulated by the courts according to the circumstances (Art. 1172) Distinction between fault and negligence

NEGLIGENCE There is no deliberate intention to cause damage. Liability may be mitigated. Waiver for future negligence may be allowed in certain cases: a) gross can never be excused in advance; against public policy b) simple may be excused in certain cases

There is deliberate intention to cause damage. Liability cannot be mitigated. Waiver for future fraud is void.

Elements i. Omission of diligence requires ii. Diligence required per nature of obligation, circumstances of persons, time and places. c. Contravention thereof to the tenor

Responsibility arising from fraud is demandable in all obligations (incidental fraud) Waiver of action for future fraud is void for being contrary to law and public policy (Art. 1171) because the advance renunciation of the creditor would practically leave the obligation without effect. Past fraud can be renounced. The fraud referred to is fraud in Article 1170, which is the malice or bad faith in the performance of the obligation. Kinds of Fraud

In general, every debtor who fails in the performance of his obligation is bound to indemnify for the losses and damages caused thereby. By the phrase in any manner contravenes the tenor means any illicit act, which impairs the strict and faithful fulfillment of the obligation, or every kind of defective performance. It is therefore immaterial whether or not the actor is in bad faith or negligent, what is required is that it is his fault or the act done contravenes their agreement.

d.

Delay/ Moradefault. Nonfulfillment of an obligation with respect to time.

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1st GENERAL RULE: Delay occurs from the time of creditors judicial or extrajudicial demand Exception: Demand is not necessary to incur in delay when: obligation or law expressly declares time is a controlling motive demand would be useless 2nd GENERAL RULE: In reciprocal obligations, delay happens from the moment one party fulfills his undertaking. (1169) If neither party performs his undertaking, neither incurs delay Kinds

d) if obligation bears interest, debtor does not have to pay from time of delay e) creditor liable for damages f) debtor may relieve himself of obligation by consigning the thing iii. compensatio morae delay by both parties (in reciprocal obligations)the effect: is as if there is no default

Effects of Mora General Rule: Liability for damages Except: in caso fortuito , when the ff. requisites concur:

i.

mora solvendi default on the part of the debtor a) Mora Solvendi Ex re default in real obligations b) Mora Solvendi Ex persona default in personal obligations Requisites a) The obligation must be liquidated, due and demandable. b) The debtor is guilty of nonperformance. c) There was demand made judicially or extra-judicially. Effects when these elements are present: a) The creditor may ask for damages b) The debtor is liable even if the loss is due to fortuitous events. c) The debtor shall bear the risk of loss. Instance when there is no default or mora solvendi a) In negative obligations, because one can never be late in not doing or not giving something b) In natural obligations, because the performance is optional or voluntary on the part of the debtor.

Fortuitous event occurred prior to delay, i.e. delay has not set in (1165) without a promise to give to two differently interested parties (1165) no law or stipulation mandates liability for such (1174) not risky nature (1174) Delay in payment of money is indemnified through interest unless a gratuitous mutuum or simple loan. If no stipulated interest, default interest is (6%) six percent. (2209) If obligation consists in payment of a sum of money, and debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the absence of stipulation, the legal interest, which is six percent per annum. (2209) NOTE: When there is delay, the injured party may ask for damages. But this benefit arising from Mora, default or delay may cease upon: -Renunciation of the creditor -Prescription of action -Extension of time for the fulfillment of the obligation Chavez v. Gonzales Repairer of the typewriter, after several demands of the owner, returned such with missing parts and without having it repaired. The owner had another company fix the typewriter, SC ruled that the original repairer can be held liable not only for the missing parts but also for cost of the execution of the obligation of repairing the typewriter by another company. Repairer is liable under article 1167 and 1170.

ii.

mora accipiendi default on part of creditor

Requisites: 1. Offer of performance by the debtor 2. Refusal of the creditor to accept without just cause. Effec ts: Effects a) responsibility of debtor is reduced to fraud and gross negligence b) debtor is exempted from risk of loss of thing / creditor bears risk of loss c) expenses by debtor for preservation of thing after delay is chargeable to creditor

Bragaza v. CA A contract was entered into for delivery of materials on Dec. 22, 1990 in time for the aggrieved partys wife who expressly wished that she be buried before Christmas day, and where, despite knowing this timetable and having paid for the materials, the supplier failed to make the delivery despite pleas and earnest follow-ups by the widower, Supreme Court

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ruled that time was of the essence of such contract and the supplier should be liable for the delay and breach. N.B. Example of incurring delay without judicial or extrajudicial demand. (#2)Time is of the essence. Contract was entered into in view of burial before Christmas.

extinguished subject to the following exceptions: (1) cases expressly specified by law Art. 1165 - If the debtor delays or has promised to deliver the same thing to two or more persons who do not have the same interest, he shall be responsible for any fortuitous event until he has effected the delivery. Art. 1268 When the debt of a thing certain and determinate proceeds from a criminal offense, the debtor shall not be exempted from the payment of the price, whatever may be the cause for the loss, unless there is refusal without justification on the part of the creditor to accept the thing. Art. 1942 par 1 The bailee is liable for the loss of the thing even if it should be through a fortuitous event, if he devotes the thing to any purpose different from that for which it has been loaned. (2) declared by stipulation (3) nature of the obligation requires the assumption of risk (1174) Requisites for exemption a) cause of event or debtors failure independent of human will b) impossible to foresee or avoid c) impossible for debtor to fulfill in normal manner d) debtor free form participation in the aggravation of the injury to the creditor (Nakpil v. CA) Effect of Concurrent Fault One who negligently creates a dangerous situation cannot escape liability for the natural and probable consequences thereof although an act of God intervened to precipitate the loss. There must be no fraud, negligence, delay or violation or contravention in any manner of the tenor of the obligation. (J. Nakpil and Sons v. CA)

Agcaoili v. GSIS The parties entered into a contract of sale of a government housing unit on the condition that Agcaoili should occupy the same within three days from the receipt of notice. Failure to immediately occupy contractually allowed GSIS to terminate the contract. Agcaoli upon receipt of notice, immediately went to the place and found a house in a state of incompleteness that civilized occupation was not possible. He made the first monthly installment but refused to make further payments until and unless GSIS completed the housing unit. GSIS cancelled the award and required Agcaoili to vacatethe premises. Held: GSIS had no right to rescind sale. In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. (1169, par. 6)

B. FORTUITOUS EVENTS Definition Events which could not be foreseen, or which though foreseen are inevitable. (Article 1174) Act of God An act of God is defined as an accident, due directly and exclusively to natural causes without human intervention, which by no amount of foresight, pains or care, reasonably to have been expected, could have been prevented. (Nakpil v. CA) Act of Man In contrast, force majeure is a superior or irresistible force, which is essentially an act of man, such as wars, strikes, riots, acts of robbers, pirates, and brigands. General Rule: Except in cases expressly specified by law, or when it is otherwise declared by stipulation, or when the nature of the obligations requires assumption of risk, no person shall be responsible for those events which, could not be foreseen, or which though foresee, are inevitable.

C. REMEDIES OF CREDITORS
General Rule: generally transmissible (except as provided otherwise by law, stipulation, or when it is a personal obligation): Rights of Creditor Against Debtor

(1)

When a debtor is unable to fulfill his obligation because of fortuitous events or force majeure, his obligation to comply is

To demand fulfillment of the obligation or specific performance- either specific, substitute or equivalent performance

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(2) To attach the properties of the debtor, except those exempt by law from execution. (3) Accion subrogatoria (4) Accion Pauliana Accion Subrogatoria Definition Novation via change of creditor (1291, par. 3); involves the right of the creditor to exercise all of the rights and bring all of the actions which the debtor may have against third persons. Requisites: a) Creditor must have right of return against debtor b) The debt is due and demandable c) There is a failure of the debtor to collect his own debt from 3rd persons either through malice or negligence d) Debtor's assets are insufficient e) The right of account is not purely personal Accion Pauliana Definition: Rescission, which involves the right of the creditor to attack or impugn by means of a rescissory action any act of the debtor which is in fraud and to the prejudice of his rights as creditor. Requisites: a) There is a credit in favor of plaintiff b) The debtor has performed an act subsequent to the contract, giving advantage to other persons c) The creditor has no other legal remedy d) The debtor's acts are fraudulent e) The creditor is prejudiced by the debtor's act which are in favor of 3rd parties and rescission will benefit the creditor

Term - A day certain is understood to be that which must necessarily come, although it may not be known when. Difference between conditional and those with a term: uncertainty or certainty of a day If the uncertainty consists in whether the day will come or not, the obligation is conditional, and it shall be regulated by the rules of the preceding section. (1193)

Pay v. Viuda de Palanca The debtor issued a promissory note to the creditor to pay a sum of money payable upon receipt of a particular sum of money from the estate of a certain deceased person upon demand. The case for collection on the note was filed 15 years after its execution. The Supreme Court ruled that, since the prescriptive period for filing the action was 10 years and considering that the promissory notes payment constituted a pure obligation and therefore demandable at once, the action to collect could no longer prosper. It was deemed pure since satisfaction of credit could be realized either through debtor sued receiving cash payment from the estate of the deceased or upon demand. Effects 1. acquisition of rights or termination of rights (1181) In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event which constitutes the condition (1181) There are principally two kinds of conditions: (1) a suspensive condition suspends the acquisition of rights until the conditions is fulfilled; that is, until the happening of the event which constitutes the condition (2) a resolutory condition causes the extinguishment or loss of rights already acquired upon the fulfillment of the condition, that is, the happening of the event which constitutes the condition 2. When means permits is deemed a period subject to court determination. When the debtor binds himself to pay when his means permit him to do so, the obligation shall be deemed to be one with a period, subject to the provisions of article 1197 (1180) If debtor will pay when his means permit him to do so, or words of similar import, such as, When I can afford When I am able to When I have money The obligation is not conditional but with a period. The payment here does not depend

Chapter III Different Kinds of Obligations

I. Pure and Conditional Obligations Pure not dependent upon a future or uncertain event, or past unknown to parties, is demandable at once. Conditional dependent upon a condition, i.e. a future or uncertain event, or past unknown to parties. Demandability depends on whether it is suspensive or resolutory.

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upon the will of the debtor, it is only the time when payment is to be made. Since we are referring to the time of effectivity, we consider it a term or a period. Since the time for payment depends upon the will of the debtor, immediate performance cannot be enforced, the right of the creditor is to go to court and let the court fix the date of payment. 3. Kinds of conditions under Art. 1182: a) Potestative one which depend upon the will of one of the parties (facultative condition) b) Casual one which depends exclusively upon chance c) Mixed one which depends upon the will of one of the contracting parties and partly upon chance or the will of a third person 4. Impossible (physically and illegal conditions: and logically)

they have received. In case of the loss, deterioration or improvement of the thing, the provisions which, with respect to the debtor, are laid down in the preceding article shall be applied to the party who is bound to return (1190) These rules apply if the resolutory condition takes place, creating the original creditors obligation to return the thing received. Retroactivity of obligations effect of conditional

If the condition is to do an impossible or illegal thing, both the condition and the obligation are void. If the condition is negative, that is, not to do an illegal thing, both the condition and the obligation are valid. If the condition is negative, that is, not to do the impossible, just disregard the condition, but the obligation remains.

5. Resolutory condition: event happens at determinate time, or indubitably will not happen. The condition that some event happen at a determinate time shall extinguish the obligation as soon as the time expires or if it has been indubitable that the event will not take place (1184) 6. Suspensive condition: event will not happen at determinate time, evident that such cannot occur. The condition that some event will not happen at a determinate time shall render the obligation effective from the moment the time indicated has elapsed, or if it has become evident that the event cannot occur. If no time has been fixed, the condition shall be deemed fulfilled at such time as may have probably been contemplated, bearing in mind the nature of the obligation (1185) 7. Deemed fulfilled when obligor prevents such. The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment (1186) (constructive or presumed fulfillment) 8. Resolutory condition: each returns what each has received from another. when the conditions have for their purpose the extinguishment of an obligation to give, the parties, upon the fulfillment of said conditions, shall return to each other what

a. To give: i. Retroact to day of obligation. ii. Mutual compensation in reciprocal obligations. -seemingly contemplates a simultaneous performance of prestations because otherwise, the fruits and interests would not be able to offset the other iii. If unilateral, debtor shall appropriate fruits and interests received unless intention constituting such was different. - Since debtor still has possession of thing to be given he has control, and power to appropriate such but subject to accounting per demand by the creditor as provided for by 1537 wherein all fruits pertain to the vendee from the time of perfection of the contract. This is in accordance to 1164 wherein there is already personal right at perfection of contract but real right vests only upon delivery.

The effect of a conditional obligation to give, once the condition has been fulfilled, shall retroact to the day of the constitution of the obligation. Nevertheless, when the obligation imposes reciprocal prestations upon the parties, the fruits and interests during the pendency of the condition shall be deemed to have been mutually compensated. If the obligation is unilateral, the debtor shall appropriate the fruits and interests received, unless from the nature and circumstances of the obligation it should be inferred that the intention of the person constituting the same was different. In obligations to do and not to do, the courts shall determine, in each case, the retroactive effect of the condition that has been complied with (1187) b. To do or not to do: - Court determines extent of retroactivity. In obligations to do and not to do, the courts shall determine, in each case, the retroactive effect of the condition that has been complied with (1187) Jurado (1)Why? Because a condition is a mere accidental provision in the obligation, which is constituted by

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the consent of the parties. Therefore, the effects of the conditional obligation, whose efficacy is merely suspended by the condition, once the condition is fulfilled, must retroact to the time of consent, for it was at this moment that the contract was perfected and the obligation arising therefrom established. Hence, if the thing is improved by nature or by time, the improvement shall inure to the benefit of the creditor. (2)The purpose of this rule is to avoid the necessity of mutual accounting for the fruits and interests received. (3)Giving to the debtor the fruits or interests received in case of unilateral obligations is just because the creditor does not acquire a right to the thing until the condition is fulfilled and the debtor does not receive any valuable consideration from him. Of course, if the debtors intention is otherwise, it must govern, as where it is provided, or inferable that he is to account for the fruits or interests received during the pendency of the condition. (4)In obligations to do or not to do, the power of the courts to determine, in the case of one or the other, the retroactive effect of the suspensive condition which has been fulfilled includes fixing the date of such retroactive effect. The principle is applicable to resolutory conditions as regards the extinguishment of the obligation. The creditor has a right to the fruits of the thing from the time the obligation to deliver it arises. However, he shall acquire no real right over it until the same has been delivered to him (1164) The vendor is bound to deliver the thing sold and its accessions and accessories in the condition in which they were upon the perfection of the contract All the fruits shall pertain to the vendee from the time day on which the contract was perfected (1537)

thing is lost when it perishes or goes out of commerce, or disappears in such a way that its existence is unknown or it cannot be recovered; In case of deterioration: when the thing deteriorates without the fault of the debtor, the impairment is to be borne by the creditor;

if it deteriorates through the fault of the debtor, the creditor may choose between the rescission of the obligation and its fulfillment, with indemnity for damages in either case Improvements if the thing is improved by its nature, or by time, the improvement shall inure to the benefit of the creditor;

if it is improved at the expense of the debtor, he shall have no other right than that granted to the usufructuary (1189)

Resolutory Conditions: a)`Obligation to return what has been received (1190) - when the conditions have for their purpose the extinguishment of an obligation to give, the parties, upon the fulfillment of said conditions, shall return to each other what they have received.(1190) b. Exercise due diligence; otherwise, responsibility for loss, deterioration (1190 in relation to 1189) c. Improvement inures to creditor, if at expense of debtor only usufuctuary right (1189)

In case of the loss, deterioration or improvement of the thing, the provisions which, with respect to the debtor, are laid down in the preceding article shall be applied to the party who is bound to return.

Rules

in

Case of Loss, Deterioration or Improvement Pending the Happening of the Condition

A. TO GIVE Suspensive conditions: Exercise due diligence; otherwise, responsibility for loss, deterioration (1189) Improvement inures to creditor, if at expense of debtor only usufructuary right (1189) In case of loss: if the thing is lost without the fault of the debtor, the obligation shall be extinguished if the thing is lost through the fault of the debtor, he shall be obliged to pay damages; it is understood that the

B. TO DO or NOT TO DO Court determination of retroactive effect of obligation (1190 in relation to 1189) as for obligations to do and not to do, the provisions of the second paragraph of article 1187 shall be observed as regards the effect of the extinguishment of the obligation (1190) RECIPROCAL OBLIGATIONS Implied Condition: Compliance by the other with the duties incumbent upon him as party to the debt In reciprocal obligations, a party cannot demand unless he complies or is ready to comply with obligations. (inferred from 1169) subject to same rules on interim obligations and interim remedies

In case of non-compliance

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1. By one party: The remedy of RESOLUTION (Article 1191):

reconstruction of the mine by reason of their relation with Hanlon. N.B. Ocejo doctrine of judicial rescission does not hold as there is no sale of goods that has been fully performed through delivery; i.e. no money was given by Hanlon in consideration of the stocks. The contract here was executory on both sides up until the extinguishment of the 6 month resolutory period. UP v de los Angeles The parties stipulated agreements without the pronouncement. rescission need for of logging any judicial

implied in reciprocal obligations, when the other does not comply Power to Rescind plus damages Compel fulfillment and then rescind if such becomes impossible Court decrees rescission unless just cause for authorizing a period must be without prejudice to third persons who have acquired the thing, in accordance with articles 1385 and 1388 and the Mortgage Law.

3.

By both parties: (Article 1192) In case both parties have committed a breach of the obligation, the liability of the first infractor shall be equitably tempered by the courts. If it cannot be determined which of the parties first violated the contract, the same shall be deemed extinguished, and each shall bear his own damages. Rule against first infractor, as tempered by courts If first infractor cannot be determined, obligation extinguished

N.B. Judicial pronouncement of rescission was unnecessary as it was clearly expressed in their contract. No law prohibits parties from entering agreements wherein violation of the terms of contract would cause cancellation even without court intervention. Rescission on account of infractions by the other party by one of the parties must be made known to that other party who in turn can seek for judicial remedy should he feel that rescission is unjustified.

Central Philippine University v. CA Don Ramon Lopez donated land to CPU with the condition that a medical college would be established upon it. After 50 years, the heirs want to judicially rescind donation for non-compliance with the said condition. The condition is deemed resolutory, i.e. the school has obligation to set up medical college building the moment it accepted the donation with said condition. The deed of donation did not specify a period. Article 1197 provides that courts may fix the duration wherein it can be inferred from its nature and circumstances that a period was intended. However, the court said that 50 years is sufficient time for CPU to have fulfilled its obligation of establishing a medical college. Art. 1191 provides that when one of the obligors cannot comply, obligee may seek rescission and the court shall decree the same unless there is just cause to fix a period. CPU has slept on its obligation for an unreasonable length of time, donation must be rescinded.

Philippine Amusement Enterprises, inc. v. Natividad Rescission should be done judicially unless stipulated in the contract. Rescission will only be granted if breach of the obligation is substantial and not mere occasional malfunction of the machine without even an allegation of loss of income. Ocejo v. International Banking Corp. Injured party has the power to rescind but only through the courts in proper proceedings.

Hanlon v. Haussermann The parties involved agreed to have a flotation proposition to help rehabilitate Benguet Mining Co. Hanlon and Sellner were to provide for 75 thousand in exchange for shares in the company. However, the 6 month period has elapsed without the said payment by Hanlon. Supreme Court held that Hanlon did not have a right to Hausermann et al.s shares as the six month period was a resolutory condition after which default of either party discharged the obligation of the other. Although one contract did not have a resolutory condition, it is deemed that time was of the essence given that the agreement was in the form of an option, and that the subject matter, which is Mining property had speculative and fluctuating value. After the 6-month period had lapsed, Haussermann had the right to look after the interest of the company as its officers and stockholders. It does not appear that defendants acquired any special knowledge or feasibility of

OBLIGATIONS RENDERED VOID BY CERTAIN CONDITIONS Annulling conditions: a. Potestative only if suspensive condition dependent solely on will of debtor when the fulfillment of the condition depends upon the sole will of the debtor, the conditional obligation shall be void. If it depends upon chance or upon the will of a third person, the obligation shall take effect in conformity with the provisions of this Code. (1182) b. Impossible Conditions (1183)

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c. those contrary to law, good customs, morals, public order or public policy (1183) - separable if divisible (1183) Impossible conditions, those contrary to good customs or public policy and those prohibited by law shall annul the obligation which depends upon them. If the obligation is divisible, the part thereof which is not affected by the impossible or unlawful condition shall be valid. (1183) d. Not to do an impossible thing not agreed upon The condition not to do an impossible thing shall be considered as not having been agreed upon (1183) Lao Lim v. CA The stipulation that the lessee has the right to renew contract of lease as long as he needs the premises and he can pay for the same is invalid. It would leave the lessee, Dy the sole power to determine whether the lease should continue or not. A general covenant to renew is deemed satisfied by one renewal unless provision is clearly and expressly made for further renewals. Lease contract deemed extinguished at the end of a year, subject to renewal via new agreement but the lessor did not want to renew. Ergo, no more lease. Osmena v. Rama The parties executed a contract wherein Rama promised to pay once her house was sold. The Supreme Court ruled the condition as invalid as it was dependent on the sole will of Rama, Romero v. CA The Supreme Court ruled that only the injured party could have an action for rescission. Only the vendee has the option to proceed with agreement or waiving the said condition. Rescission under Art. 1191 is predicated on a breach of faith by the other party that violates the reciprocity between them. N.B. In short, this case shows that one cannot rescind a contract on account of ones own failure to fulfill an obligation.

prescription as it could only be counted from the time the contract became disadvantageous. Furthermore, there is a potestative condition dependent on the will of NATELCO, which must be declared invalid. The provision that the contract shall be valid as long as NATELCO needed the electric posts is untenable. N.B. Reformation of contract is not a new contract but is an action to make instrument to express the parties real agreement. Only the instrument of the contract is changed. This case is another example of an invalid potestative condition. Ducusin v. CA A contract of lease for a one-door apartment was entered into. It provided that the term of the contract shall be on a month-to-month basis commencing on Feb. 19, 1975, until terminated by mutual agreement or terminated by the lessor on the ground that his children need the premises for their own use. The Supreme Court held such a condition to be valid as the second condition depended on the will of third persons that of the children of the lessor. N.B. Only that which is dependent on the sole will of the debtor is invalid. No one is supposed to have sole power. II. OBLIGATIONS WITH A TERM A. Acquisition of rights For suspensive terms / termination of right for resolutory terms: AT A DAY CERTAIN Article 1193 Obligations for whose fulfillment a day certain has been fixed, shall be demandable only when that day comes. Obligations with a resolutory period take effect at once, but terminate upon arrival of the day certain. A day certain is understood to be that which must necessarily come, although it may not be known when. If the uncertainty consists in whether the day will come or not, the obligation is conditional, and it shall be regulated by the rules of the preceding section. A period is a certain length of time, which determines the effectivity or the extinguishment of an obligation. A period or term consists in a space of time, which has an influence on obligations as a result of a juridical act and either suspends their demandableness, or produces their extinguishment. In par. 1, the period is suspensive (ex die). In par.2, the period is resolutory (in diem). Example of paragraph 3A promises to give P5,000 to B when X dies. The death of X must necessarily come although it is not known when.

Naga Tel. Co. v. CA NATELCO entered a contract with CASERECO wherein the former was allowed the use of electric post. NATELCO installed ten phone lines for CASERECOs use free of charge. After 10 years, CASERECO wants to reform the contract, as it was one-sided - they were unjustly compensated, and the phone lines have become heavy and their installation have weakened the said posts due to holes that have to be made. Supreme Court allowed for reformation as an increase in phone subscribers necessitate an increase in compensation for the use of electrical posts. NATELCOs unjust enrichment must not be allowed at CASERECOs expense. There is no

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Example of paragraph 4-- A promises to give B the amount of P1,000 if the horse Napoleon owned by C should die in 30 days. It is not certain whether the day of the horses death will come or not in 30 days. Kinds of period: (1) According to source a. Legal fixed by law b. Voluntary fixed by the parties c. Judicial fixed by the court (2)

i. Exercise due diligence; otherwise, responsibility for loss, deterioration (1189) ii. Improvement inures to creditor, if at expense of debtor only usufructuary right (1189) iii. Recovery payment or delivery before due and demandability Anything paid or delivered before the arrival of the period, the obligor being unaware of the period or believing that the obligation has become due and demandable, may be recovered, with the fruits and interest. (1195) Abesamis v. Woodcraft Works, Inc. The contract provided that the appellant shall make shipment before the end of July, but will not commence earlier than April with the option to make partial shipment depending on the availability of logs and vessels. The Supreme Court, in deciding who was to bear the loss as a result of the typhoon in a contract for delivery of logs, ruled that the quoted provision provides for a period. The designated time was calculated to avoid typhoons. On May 5, 1951 the appellant failed to send a vessel to pick up the logs, which were consequently swept away by a typhoon. Since the said date was within the period prescribed, none could incur delay nor demand performance. The loss should be shouldered by the appellee or the logger. C. Benefit of the period i. Presumption: benefit for both Whenever in an obligation a period is designated, it is presumed to have been established for the benefit of both the creditor and the debtor, unless from the tenor of the same or other circumstances it should appear that the period has been established in favor of one or of the other. (1196) If the period is for the benefit of both parties, the creditor may not, before the expiration of the period, demand fulfillment; neither may the debtor fulfill. If the period has been established solely for the benefit of the creditor, he may demand fulfillment when he pleases but the debtor may not oblige him to accept before the arrival of the period. If the period has been established solely for the benefit of the debtor, he may, use it to oppose a premature demand, or renounce it and pay in advance of maturity.

a. b.
(3)

According to effect Suspensive (Ex die) period must lapse before the obligations can be demanded. Resolutory (In diem) period after which the obligation is extinguished According to definiteness Definite refers to a fixed known date or time Indefinite refers to an event which will necessarily happen but the date of its happening is not known.

a. b.

Requisites of Period:

(1)
refer to the future. It must be certain.

It

must

(3)
possible.

It must be

Period distinguished from a condition: As to fulfillment a period is a certain event, which must happen sooner or later at a date known beforehand or at a time, which cannot be determined; while a condition is an uncertain event. As to time a period refers only to the future, while a condition may also refer to a past event unknown to the parties. As to influence on the obligation a period merely fixes the time for the efficaciousness of the obligation. On the other hand, a condition causes an obligation to arise or to cease. (Art. 1193) Effect of payment before the arrival of the period: The debtor may recover what he has paid including the fruits and interest if he is unaware of the period. If he paid voluntarily knowing that the obligation is not yet due, he cannot recover what he has paid. B. Interim obligations In case of loss, deterioration or improvement of the thing before the arrival of the day certain, the rules in article 1189 shall be observed.

D. Fixing of a period

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i. In the following cases, the court may fix a period: (1197) (1) No stipulation, but period is intended as inferred from the nature and circumstances of the obligation (2) If the duration depends upon the will of the debtor (3) If the debtor promises to pay when his means permit ii. Once fixed by the court, the period cannot be changed by such court but the parties may always change the period by mutual agreement. (1197) If the obligation does not fix a period, but from its nature and the circumstances it can be inferred that a period was intended, the courts may fix the duration thereof. The courts shall also fix the duration of the period when it depends upon the will of the debtor. In every case, the courts shall determine such period as may under the circumstances have been probably contemplated by the parties. Once fixed by the courts, the period cannot be changed by them. (1197) iii. Instances when the court may not fix the term or period When no term has been specified by the parties because no term was ever intended, in which case it is considered a pure obligation. When the obligation is payable on demand. When specified period is provided by law. Gregorio Araneta, Inc. v. Philippine Sugar Estates Development Co., Ltd. Two year period set by the lower court was struck down for being arbitrary. The court must determine that the obligation does not fix a period but from the nature and circumstances it can be inferred that a period was intended. From the facts of the case, it can be inferred that the parties intended to defer performance of obligations until after the squatters were duly evicted. Both of the parties knew that there were squatters in the property. No specific period can be made as eviction consists of legal processes, which take an indefinite amount of time. Although it was indefinite, such was the intention of the parties and courts could not just assign a period out of thin air. N.B. Requisites and guidelines for setting a period: there is no period specified but such was intended. Courts should just fix a period, which the parties could have intended.

would pay Sarangaya within sixty days after the latter has secured titles for the said lots. Otherwise the vendees would be liable for Php 50,000 in liquidated damages. Sarangaya was able to obtain titles but the vendees were not able to pay him within the prescribed period. Trial court ruled that Roman should purchase the land at its settled purchase price, and pay for legal costs and attorneys fees. Reliance was made on Article 1191. The Supreme Court ruled that the lower court erred in fixing a period. Purchase offer and counter-offers were already abandoned by the parties and thus adjudication on the said bases was improper. The Trial Court did not fix a period within which Roman could comply with the obligation but merely ordered the purchase to push through. Furthermore, there is no just cause as required by art. 1191. It is unjust to grant an extension of 6 years, done by ordering the purchase, for Roman to comply with his obligation. Roman could just have purchased the land after being served the summons.

iv. When debtor loses the right to use a period Grounds: 1. insolvency, unless guaranty or security 2. does not furnish promised guaranties or securities 3. impaired established guaranties or securities -loss of such thru fortuitous event, unless replaced with new ones satisfactorily 4. violation of consideration of which the creditor agreed to the period 5. attempt to abscond In all the cases above, the obligation despite the fact that the period has not yet lapsed, obligation shall become immediately payable or demandable. The word insolvent does not require a judicial decree of insolvency. It should be understood in its ordinary meaning which may embrace different degrees of financial embarrassment. The insolvency must have occurred after the obligation was constituted. In No. 3 it is sufficient that the guaranties are impaired by the acts of the debtor but in case of fortuitous event, it is required that the guaranties disappear. The word disappear should not be understood in its literal sense but in its legal sense. Gaite v. Fonacier Payment of obligation was secured by two surety bonds: one from a mining company and its stockholders and the other from a bonding company. The obligor was obliged to pay the indebtedness from the time it received the proceeds of the sale of iron ore, the Supreme Court ruled that the obligor in this case lost its right to the period. Failure to renew an expired surety with the bonding company

Roman v. CA Sarangaya and Roman entered a contract for the sale of 5 parcels of land. It provided that Roman

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constituted an impairment of the securities or guaranties. Thus, Fonacier lost his right to the period, i.e. time to sell the iron ore, unless he immediately gives new ones equally satisfactory.

c.

Presumed equal division according to parties, credits and debts being distinct from the other. (1208) Article 1208

v. Effect of Loss of right to term: Demandability Delay starts from time of judicial or extrajudicial demand Unless: obligation or law expressly declares time is a controlling motive demand would be useless

If from the law, or the nature of the wording of the obligations to which the preceding article refers the contrary does not appear, the credit or debt shall be presumed to be divided into as many equal shares as there are creditors or debtors, the credits or debts being considered distinct from one another, subject to the Rules of Court governing the multiplicity of suits. (1208) Jurado :

III. DIVISIBILITY OF RIGHT TO DEMAND OR OBLIGATION TO PERFORM

A. JOINT OBLIGATIONS a. Definition One where the whole liability is to be paid or fulfilled proportionately by the different debtors; and/or is to be demanded proportionately by the different creditors. Also called pro-rata, proportionate, mancomunada, mancomunada simple.

In a joint obligation, each debtor shall be liable only for his part of the debt presumed to be eaual with the other debtors. The above provision is consistent with the rule that a joint obligation is presumed in case of plurality of debtors or creditors for solidary obligation exists only when the law so provides, when expressly stipulated by the parties or when called for by the nature of the obligation.

b.

In case there are two or more debtors or creditors, the law presumes a joint liability. (1207) Article 1207 The concurrence of two or more creditors or of two or more debtors in one and the same obligation does not imply that each one of the former has a right to demand, or that each one of the latter is bound to render entire compliance with the prestation. There is a solidary obligation only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity. Solidarity exists only: (1) When stipulated. When stipulated by the parties using such words like jointly and severally, in solidum, I promise to pay in a note signed by two or more debtors, or similar words; (2) Provided by law. When solidary liability is provided for by law. Thus, civil liability arising from crimes, negotiorum gestio, commodatum or quasi-delict shall be solidary; (3) According to its nature. When the nature of the obligation requires solidarity.

d. Some feature of joint liability Insolvency of one debtor does not make the others liable. Vitiated consent on the part of one debtor does not affect the others. Demand made to one of the debtors is not a demand to all because the debt of one is distinct from the others. Philippine National Bank v. Sta. Maria The principal, in a special power of attorney, merely empowered his agent to borrow money and deliver mortgages of real estate to the creditor and where the said agent indeed borrowed money but executed a mortgage not on the account of his principal but in his own name. The Supreme Court applying Art. 1207 ruled that the mortgage was not joint and several because the special power of attorney did not grant the authority to bind her solidarily with him on any loan he might secure thereunder. N.B. There was no express statement in the obligation, nor was there a law or nature of the obligation requiring solidarity.

Jaucian v. Querol Lino Dayandante and Hermenegilda Rogero executed a private writing in which they acknowledged themselves to be indebted to Roman Jaucian. Hermenegilda Rogero signed this document in the capacity of surety for Lino Dayandante; but as clearly appears from the instrument itself, both debtors bound themselves

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jointly and severally to the creditor, and there is nothing in the terms of the obligation itself to show that the relation between the two debtors was that of principal and surety. Hermenegilda Rogero died, and her estate is now administered by Querol. The Supreme Court held that Jaucians claim against the estate is not contingent but absolute, the latter being solidarily liable. His claim did not depend on whether or not Jaucian exhausts all the property of Dayandante in satisfying his claim, but rather as a solidary co-debtor, the former can go after Rogeros estate. Dayandante was declared insolvent as he could not satisfy his debt to Jaucian as decreed by the court, regardless of such, Jaucian can still go after Rogeros estate. The Civil Code make it clear that Hermenegilda Rogero was liable absolutely and unconditionally for the full amount of the obligation without any right to demand the exhaustion of the property of the principal debtor previous to its payment. Her position so far as the creditor was concerned was exactly the same as if she had been the principal debtor. The opinion contains an exposition of the difference between the juridical conceptions of liability incident to multiple obligations, as embodied in the civil law and common law respectively; and the civil law distinction is noted between the apportionable joint obligation and the solidary joint obligation. At common law each of the debtors in a multiple obligation is liable in solidum for the whole, the obligation not being apportionable among the debtors.

creditors is necessary for demanding compliance due to the indivisibility of the obligation. The same is inversely true as regards the debtors. The concurrence of all the creditors is also necessary for acts which are prejudicial. But an act beneficial to al like interruption of prescription may be performed by one of the creditor. Indivisible obligations solidary (1210) are not necessarily

Article 1210 The indivisibility of an obligation necessarily give rise to solidarity. solidarity of itself imply indivisibility. Characteristics:

does not Nor does

Demand must be made to all the joint debtors. The creditor must proceed against all the joint debtors, because the compliance of the obligation is possible only if all of the joint debtors would act together. If one of the debtors is insolvent, the other shall not be liable for his share. If one of the debtors cannot comply, the obligation is converted into monetary consideration. One who is ready and willing to comply will pay his proportionate share, and the other not willing shall pay his share plus damages when his financial condition will improve. If there is more than one creditor, delivery must be made to all, unless one is authorized to receive for the others. RULES: Gives rise to indemnity for damages: noncompliance with undertaking (1224)
(1)

N.B. In a given contract, wherein a party signs as a surety but the agreement states joint and several liabilities, there is a solidary obligation.

Debtors ready fulfill shall not be liable (1224)

(2)

to

JOINT INDIVISIBILITY A joint indivisible obligation is one in which the object or prestation is indivisible, not susceptible of division; while the tie between the parties is joint, that is, liable only to a proportionate share. Prejudiced only by collective acts of ALL creditors (1209) Enforced against ALL debtors (1209) A joint indivisible obligation gives rise to indemnity for damages from the time anyone of the debtors does not comply with his undertaking. The debtors who may have been ready to fulfill their promises shall not contribute to the indemnity beyond the corresponding portion of the price of the thing or of the value of the service in which the obligation consists. (1224) As already stated in a joint indivisible obligation, a suit for specific performance must be directed against all the debtors and if any one of them is not willing to fulfill, the action shall be converted into one for damages where the debtors shall be liable for their respective shares while the unwilling debtor shall pay his share plus damages for he alone shall be liable for damages, the other debtors being willing to deliver.

Article 1209 If the division is impossible, the rights of the creditors may be prejudiced only by their collective acts, and the debt can be enforced only by proceeding against all the debtors. If one of the latter should be insolvent, the others shall not be liable for his share. The above article contemplates an obligation which is joint as to the parties but indivisible as to compliance. The concurrence of all the

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(3)

Prejudiced only by collective acts of ALL creditors / enforced against ALL debtors (1209) If the division is impossible, the rights of the creditors may be prejudiced only by their collective acts, and the debt can be enforced only by proceeding against all the debtors. If one of the latter should be insolvent, the others shall not be liable for his share. (1209) The above article contemplates an obligation which is joint as to the parties but indivisible as to compliance. The concurrence of all the creditors is necessary for demanding compliance due to the indivisibility of the obligation. The same is inversely true as regards the debtors. The concurrence of all the creditors is also necessary for acts which are prejudicial. But an act beneficial to al like interruption of prescription may be performed by one of the creditor.

This is so because indivisibility refers to the object of the obligation which is capable of partial performance while solidarity refers to the liability of one debtor to answer not only for his share of the obligation but also for the shares of the other debtors. Without solidary liability of the debtors, the obligation is joint, and if its object is indivisible, it is a joint and indivisible obligation.

d.

Solidarity exists even if bound by different: MANNER, PERIOD, CONDITIONS (1211) Article 1211 Solidarity may exist although the creditors and the debtors may not be bound in the same manner and by the same periods and conditions. e. Obligation may be joint on the side of the creditors and solidary on the side of the debtors or vice-versa. f. Kinds of solidarity: Active solidarity among creditors Passive solidarity among debtors Mixed solidarity on the part of creditors and debtors Ronquillo v. CA Ronquillo was one of four debtors. The compromise agreement saying individually and jointly indicates solidary liability.

B.

SOLIDARY OBLIGATIONS Definition One where each of the debtors is bound to render compliance of the entire obligation and/or each one of the creditors has a right to demand entire compliance of the prestation. Also called in solidum, jointly and severally, individually and collectively, and mancomunada solidaria.

b. Never presumed: expressly stipulated, provided by law, required by nature of obligation There is a solidary obligation only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity. (1207) Solidarity exists only: when stipulated by the parties using such words like jointly and severally, in solidum, I promise to pay in a note signed by two or more debtors, or similar words; when solidary liability is provided for by law. Thus, civil liability arising from crimes, negotiorum gestio, solutio indebiti, commodatum or quasi-delict shall be solidary; when the nature of the obligation requires solidarity.

Inchausti & Co. v. Yulo Six brothers and sisters admitted solidary liability. Gregorio Yulo was sued for payment of entire indebtedness. However, solidary debtors Francisco, Manuel and Carmen entered into a compromised agreement with plaintiff. SC ruled: Gregorio can be sued for the entire indebtedness plus interest. Partial remission granted to the three debtors also benefited him. Defense of non-maturity of his other co-debtors solidary liability is a defense to allow for mere partial payment. Gregorio was ordered to pay the part of the reduced indebtedness, only insofar as such is demandable. Greg Yulo was solidarily liable, he benefited from remission, but not extension of the period for payment for his own part, thus there was partial demandability.

c.

Solidarity indivisibility (1210)

does

not

imply

Article 1210 The indivisibility of an obligation does not necessarily give rise to solidarity. Nor does solidarity of itself imply indivisibility.

g. Debtor/ passive solidarity distinguished from suretyship: By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the

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obligation of the principal debtor in case the latter should fail to do so. A solidary guaranty is suretyship.

Suretyship If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title I of this Book shall be observed. In such case the contract is called a suretyship. (2047)

should have been included in the case. The Supreme Court rejected the dismissal of the suit invoking Art. 1212 and stated that recovery of the contract price was surely a useful act and can be done even by one solidary creditor. Furthermore, the question as to who should sue was a personal issue among the solidary creditors. N.B. As to who sues for recovery of the obligation should not matter to the debtors as they are wholly obligated to either one of the solidary creditors.

Jurado distinguishes a solidary debtor from a surety. Both are solidarily liable but: A surety does not have an actual loan of his own, solidary debtor is also liable for his own debt in addition to that of others. After paying the debt, a surety has right to collect from principal debtor, while a solidary debtor has right to collect from solidary codebtor. Most importantly, an extension of time would benefit the surety and such would not benefit solidary co-debtors who did not know or consent to an extension of time. (Villa v. Garcia Bosque)

Action against and payment by solidary debtor Article 1216 The creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. The demand made against one of them shall not be an obstacle to those which may subsequently be directed against the others, so long as the debt has not been fully collected. Proceed against anyone, some, or all of them simultaneously (1216) Demand against one: not obstacle for demand against another, unless paid (1216) Article 1217 Payment made by one of the solidary debtors extinguishes the obligation. If two or more solidary debtors offer to pay, the creditor may choose which offer to accept. Payment by anyone extinguishes, if two or more payors, creditor chooses (1217) Loss or impossibility without fault of debtors: Extinguishment If the thing has been lost or if the prestation has become impossible without the fault of the solidary debtors, the obligation shall be extinguished. (1221) with fault of any of the debtors: all responsible with right against negligent debtor fortuitous event, but with delay: all responsible w/ right of action vs. negligent debtor If there was fault on the part of any one of them all shall be responsible to the creditor, for the price and the payment of damages and interest, without prejudice to their action against the guilty or negligent debtor. (1221)

h.

Rights of solidary creditor/s

Do only what is useful to others, not anything prejudicial. (1212) Each on of the solidary creditors may do whatever may be useful to the others, but not anything which may be prejudicial to the latter. (1212) No assignment without consent of others (1213) A solidary creditor cannot assign his rights without the consent of the others. (1213) Jurado: The consent of the other co-solidary creditors is necessary because they may not trust the new creditor who would thereby be entitled to collect the entire debt. Anyone has right to receive payment; but first to first one to demand. (1214) The debtor may pay any one of the solidary creditors; but if any demand, judicial or extrajudicial, has been made by one of them, payment should be made to him. (1214) Jurado: Payment made by the debtor to any one of the solidary creditors extinguishes the obligation. If one of the solidary creditors demands payment of the debt, he has the right to do so and payment must be made to him.

Quiombing v. CA Only one of the solidary creditors filed a suit for collection against the solidary debtors. The debtors moved for the dismissal of the suit on the ground that the other solidary creditors

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If through a fortuitous event, the thing is lost or the performance has become impossible after one of the solidary debtors has incurred in delay through the judicial or extrajudicial demand upon him by the creditor, the provisions of the preceding paragraph shall apply. (1221)

the wife as the nature of the obligation is solidary. N.B. If obligation were solidary, the entire obligation is demandable from anyone of the solidary obligors.

In the last two paragraphs above, fault or the delay of one debtor is the fault or delay of all the solidary debtors as far as the creditor is concerned. But as among the debtors, the one at fault or in delay shall alone bear the damages aside form his share.

Right of action debtors

against

solidary

co-

i.

Rights of Solidary Debtor

Set up all defenses (1222) those derived from nature of obligation those personal to him ot to his share those personal to tohers, only insofar as their share Article 1222 A solidary debtor may, in actions filed by the creditor, avail himself of all defenses which are derived from the nature of the obligation and of those which are personal to him, or pertain to his own share. With respect to those which personally belong to the others, he may avail himself thereof only as regards that part of the debt for which the latter are responsible. The defenses available to a solidary debtor when sued are: defenses derived from the nature of the obligation which is available to all debtors as a defense to compliance with the entire obligation; defenses personal to the debtor like minority, insanity, civil interdiction, etc. Defenses personal to the debtor are not available to the other debtors so as to free the latter from their liability for their own shares in the obligation; defenses that pertain to his co-debtor or codebtors, like the existence of a period or condition for as already stated, solidarity may exist even if the debtors are bound under different periods or conditions. Imperial Insurance, inc. v. David Husband and wife bound themselves solidarily in favor of obligee for a sum of money and when the husband died, the obligee demanded payment from the wife who resisted payment, claiming that the obligees claim is barred by its failure to file a claim in the intestate proceeding of the deceased husband. The Supreme Court ruled that the obligee can properly claim from

payor of obligation may claim from each codebtor their share of the debt (1217) with interest, unless paid before debt is due or demandable He who made the payment may claim from his co-debtors only the share which corresponds to each, with the interest for the payment already made. If the payment is made before the debt is due, no interest for the intervening period may be demanded. (1217) loss of share by insolvency of a solidary co-debtor is borne proportionately by each (1217) When one of the solidary debtors cannot, because of his insolvency, reimburse his share to the debtor paying the obligation, such share shall be borne by all his codebtors, in proportion to the debt of each. (1217) After prescription or if illegal: No reimbursement (1218) Payment by a solidary debtor shall not entitle him to reimbursment from his co-debtors if such payment is made after the obligation has prescribed or become illegal. (1218) Jurado: After the obligation has prescribed or become illegal, it is no longer due; hence, there should be no reimbursement from the co-debtors.

o If made subsequent to total payment: Remission does not release from responsibility other codebtors The remission made by the creditor of the does not release the latter from his responsibility towards the co-debtors, in case the debt had been totally paid by anyone of them before the remission was effected. The above article is intended to prevent fraud whereby to favor a particular debtor, the creditor remits his share, after another has fully paid the obligation. o Total remission obtained by one solidary debtor: NO REIMBURSEMENT The remission of the whole obligation, obtained by one of the solidary debtors, does

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not entitle him to reimbursement from his co-debtors. (1220) The remission of the whole debt is a donation to all the debtors; hence, all are benefited and no reimbursement is authorized by law. Note however that if remission is only made to one of the solidary debtors, the latter can still be held liable for the share of the other co-debtor.

For the purposes of the preceding articles, obligations to give definite things and those which are not susceptible of partial performance shall be deemed to be indivisible. (1225) Divisible: partial performance; by days of work, metrical units, or analogous things When the obligation has for its object the execution of a certain number of days of work, the accomplishment of work by metrical units, or analogous things which by their nature are susceptible of partial performance, it shall be divisible. (1225) Physically divisible: subject to law or what is intended by the parties However, even though the object or service may be physically divisible, an obligation is indivisible if so provided by law or intended by the parties. Not to do: determined by character of prestation In obligations not to do, divisibility or indivisibility shall be determined by the character of the prestation in each particular case. (1225) Indivisibility of an obligation may be: by law, as when taxes are to be paid in full because the law does not permit paying the same by installments; by stipulation of the parties or intention by them to treat the things as indivisible even if they are actually divisible; by the nature of the obligation;

IV. Divisibility of Prestation The divisibility or indivisibility of the things that are the object of obligation in which there is only one debtor and only one creditor does not alter or modify the provisions of Chapter 2 of this Title. (1223) The divisibility or indivisibility refers to the performance, not to the thing which is the object of the obligation. Although a thing is by its nature physically divisible, the obligation is indivisible if full compliance is intended by the parties or is so provided by law. Indivisibility is not versa. (1210) solidarity, and vice

The indivisibility of an obligation does not necessarily give rise to solidarity. Nor does solidarity of itself imply indivisibility. (1210) This is so because indivisibility refers to the object of the obligation which is capable of partial performance while solidarity refers to the liability of one debtor to answer not only for his share of the obligation but also for the shares of the other debtors. Without solidary liability of the debtors, the obligation is joint, and if its object is indivisible, it is a joint and indivisible obligation. A. Divisible Obligation Obligation that is performance capable of partial

Quantum Meruit Principle: DIVISIBLE OBLIGATION: If only partially performed, the obligor can enforce his right in proportion to the services performed. INDIVISIBLE OBLIGATION: If obligor fails to perform the work completely, he cannot recover on this principle because in indivisible obligations, partial performance is equivalent to nonperformance. This principle allows recovery of the reasonable value of the work done regardless of any agreement as to the value. It entitles the party to as much as he reasonably s\deserves as distinguished from quantum valebant or to as much as what is reasonably worth. The sellement of claim under this principle requires application of judgment and discretion and cannot be adjusted by simple arithmetical process. (F.F. Manocop v. CA, GR 122196, Jan. 15, 1997)

execution of certain number of days work expressed by metrical units nature of obligation susceptible of partial fulfillment B. Indivisible Obligation One not capable of partial performance to give definite things not susceptible of partial performance provided by law intention of parties Presumptions: Indivisible: definite performance things, not partial

Solidary Indivisibility

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 Proceed against any or some or all of them. The creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. The demand made against one of them shall not be an obstacle to those which may subsequently be directed against the others, so long as the debt has not been fully collected. (1216) V. Alternative Obligations An alternative obligation is one wherein, out of two or more prestations, which may be given, only one is due. In short, there are several things due but the delivery of one is sufficient to extinguish the obligation. GENERAL RULES: A. As to performance, performance must be: a. Complete- creditor cannot be compelled to receive part of one and another (1199) b. Possible, lawful, and which could have been the object of the obligation (1200) Art. 1199. A person alternatively bound by different prestations shall completely perform one of them. The creditor cannot be compelled to receive part of one and part of the other undertaking. B. As to effect: Effect from time of Communication of Choice by the one given such Art. 1201. The choice shall produce no effect except from the time it has been communicated. (1133) C. CHOICE: Debtor Article 1200 The right of choice belongs to the debtor, unless it has been expressly granted to the creditor. The debtor shall have no right to choose those prestations which are impossible, unlawful or which could not have been the object of the obligation. Exception: expressly granted to Creditor Creditors choice: rules pending communication of choice in to give, to do, or not to do a. If fortuituous, debtor is not liable for loss, thus creditor chooses from any of the remaining. (1205, no.1) b. If fault of debtor, debtor replaces such with a price, creditor chooses from remainder plus the price with the right to damages (1205, no. 2) c. If all things are lost, creditor chooses from anyone of their prices plus damages as replaced by debtor. (1205, no. 3)

N.B. Creditor must not be deprived of choice through fault of debtor. Loss is replaced by price. Art. 1205 When the choice has been expressly given to the creditor, the obligation shall cease to be alternative from the day when the selection has been communicated to the debtor. Until then the responsibility of the debtor shall be governed by the following rules: (1) If one of the things is lost through a fortuitous event, he shall perform the obligation by delivering that which the creditor should choose from among the remainder, or that which remains if only one subsists; cd i (2) If the loss of one of the things occurs through the fault of the debtor, the creditor may claim any of those subsisting, or the price of that which, through the fault of the former, has disappeared, with a right to damages; (3) If all the things are lost through the fault of the debtor, the choice by the creditor shall fall upon the price of any one of them, also with indemnity for damages. The same rules shall be applied to obligations to do or not to do in case one, some or all of the prestations should become impossible. D. As to loss: 1. Choice belongs to the debtor: a. Loss is due to fortuitous event If all are lost, obligation is extinguished. If 2 or more of the objects remain, the debtor can deliver any of the two remaining If only one remains, a pure and simple obligation exists. b. Loss is due to the debtors fault If all are lost, the obligation is converted into monetary consideration as indemnity for the damages taking into consideration the value of the last thing lost plus damages. If 2 or more objects remain, the debtorcan choose which one to deliver between the two, but without damages. If only one remains, there is no more alternativce obligation but a pure and simple obligation. What he should deliver is the remaining object without damages. 2. Choice belongs to the creditor a. If the loss is due to a fortuitous event, the effects are the same as where the right of choice belongs to the debtor. b. Loss is due to debtors fault If none remains, the obligation is converted into monetary consideration taking into account the value of any of the objects chosen by the creditor, plus damages. Damages are awarded because the creditor was deprived of his right to choose.

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If two or more remain, the obligation is still alternative. The right of the creditor is to choose between the two remaining objects with damages. If he chooses the lost object, the debtor is liable for the value plus damages. If only one remains, the obligation is converted into a simple one. The creditor may choose the remaining object with damages. If he chooses anyone of the two which were lost, the debtor must pay the value plus damages. Art. 1202. The debtor shall lose the right of choice when among the prestations whereby he is alternatively bound, only one is practicable. Art. 1203. If through the creditor's acts the debtor cannot make a choice according to the terms of the obligation, the latter may rescind the contract with damages. (n) Art. 1204. The creditor shall have a right to indemnity for damages when, through the fault of the debtor, all the things which are alternatively the object of the obligation have been lost, or the compliance of the obligation has become impossible. The indemnity shall be fixed taking as a basis the value of the last thing which disappeared, or that of the service which last became impossible. Damages other than the value of the last thing or service may also be awarded. In summary: Alternative obligations are converted to simple obligations when: The debtors choice is communicated to the creditor. The creditor communicated his choice to the debtor, if given the right to choose. Only one of the prestations due is practicable. VI. Facultative Obligations Substitution of Prestations (1206) GENERAL RULE: Loss or deterioration of substitute in case of delay, fraud, or negligence. No liability unless it has been substituted as main prestation. (1206) N.B. one is primary, other is merely contingent. If both were primary, it would not be facultative but rather alternative Art. 1206. When only one prestation has been agreed upon, but the obligor may render another in substitution, the obligation is called facultative.

The loss or deterioration of the thing intended as a substitute, through the negligence of the obligor, does not render him liable. But once the substitution has been made, the obligor is liable for the loss of the substitute on account of his delay, negligence or fraud. (n) Alternative vs. Facultative ALTERNATIVE Various things are due but the giving principally of one is sufficient If one of prestations is illegal, others may be valid but obligation remains c) If it is impossible to give all except one, the last one must still be given FACULTATIVE a) Only one thing is due but a substitute may be given to render payment/fulfillment easy b) If principal obligations is void and there is no necessity of giving the substitute; nullity of P carries with it nullity of S If it is impossible to give the principal, the substitute does not have to be given; if it is impossible to give the substitute, the principal must still be given d) The right of choice is given only to the debtor

d) Right to choose may be given either to debtor or creditor

Effect of the Loss of the Thing: Before substitution: If the principal is lost due to fortuitous event, obligation is extinguished; if due to debtors fault, he is liable for damages. If the thing intended as a substitute is the one which was lost, with or without debtor fault, the obligation to deliver the substitute is extinguished because what is to be delivered is the principal object and not the substitute. The loss of this substitute is immaterial. After substitution: If the principal thing is lost, the debtor is no longer liable whatever be the cause of the loss, because it is no longer due. If the substitute is lost due to fortuitous event, the obligation is extinguished; if due to debtors fault, he is liable for damages. VI. PENAL CLAUSES In an obligation with a penal clause, the penalty shall substitute the indemnity for damages and the payment of interest in case of non-compliance, if there is no stipulation to the contrary. A penal clause is an accessory undertaking to assume greater liability in case of breach. Purposes: To ensure performance of the obligation.

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 To substitute a penalty for the indemnity of damages and the payment of interest in case of non-compliance. To punish the debtor for the nonfulfillment of his obligation. Exceptions when damages and interest may be demandable by the creditors aside from penalty: When it is stipulated. When the debtor is guilty of fraud. When the debtor refuses to pay the penalty. A. Rules in non-existence of Penal Clause: - Damages - Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages. (1170) - Actual/Compensatory Damages: proved -Except as provided by law or by stipulation, one is entitled to an adequate compensation only for such pecuniary loss suffered by him as he has duly proved. Such compensation is referred to as actual or compensatory damages. (2199) Actual Value and Profits Indemnification for damages shall comprehend not only the value of the loss suffered, but also that of the profits which the obligee failed to obtain. (2200) - Good Faith obligor: natural, probable, and foreseeable damages - In contracts and quasi-contracts, the damages for which the obligor who acted in good faith is liable shall be those that are the natural and probable consequences of the breach of the obligation, and which the parties have foreseen or could have reasonably foreseen at the time the obligation was constituted. (2201) - Bad Faith obligor: all damages reasonably attributed - In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for all damages which may be reasonably attributed to the non-performance of the obligation. (2201) B. Rules in existence of Penal Clause: Substitute for damages and interest - Damages -Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages. (1170)

- Substitute and basis for damages - In obligations with a penal clause, the penalty shall substitute the indemnity for damages and the payment of interests in case of noncompliance, if there is no stipulation to the contrary. Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is guilty of fraud in the fulfillment of the obligation. The penalty may be enforced only when it is demandable in accordance with the provisions of this Code. (1226) - Proof not needed - Proof of actual damages suffered by the creditor is not necessary in order that the penalty may be demanded. (1228) Not an alternative or facultative obligation Article 1227 The debtor cannot exempt himself from the performance of the obligation by paying the penalty, save in the case where this right has been expressly reserved for him. Neither can the creditor demand the fulfillment of the obligation and the satisfaction of the penalty at the same time, unless this right has been clearly granted him. However, if after the creditor has decided to require the fulfillment of the obligation, the performance thereof should become impossible without his fault, the penalty may be enforced. Unless otherwise stipulated: Limitation on debtor: payment of penalty does not extinguish obligation Limitation on creditor: cannot demand performance and penalty However: If creditor chooses performance of obligation, and such becomes impossible without his fault, penalty maybe enforced. Equitable reduction of penal clause When: part or irregular compliance of obligation iniquitous or unconscionable The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable. (1229) Nullity of penal clause penal clause as an accessory obligation The nullity of the penal clause does not carry with it that of the principal obligation. The nullity of the principal obligation carries with it that of the penal clause. (1230)

Chapter IV Extinguishment of Obligations

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I. Modes of Extinguishment of Obligation: Payment or performance Loss of the thing due Condonation or remission of debt Confusion or merger of rights Compensation Novation Annulment Rescission Fulfillment of resolutory condition II. Payment or Performance A. DEFNITION Delivery of money or performance in any other manner of the obligation B. REQUISITES FOR VALID PAYMENT a. With respect to prestation itself: (1) identity (2) integrity or completeness (3) indivisibility b .With respect to parties - must be made by proper party to proper party (1) Payor

ii. it falls under art 1241, par 1,2,3 - the benefit is total so, performance is total

(c)

anyone in possession of the credit but will apply only if debt has not been previously garnished to an incapacitated kept the has thing been

Payment made person , valid if: 1. 2. Incapacitated delivered, or

person

Insofar as the beneficial to him

payment

Payment to a 3rd party not authorized, valid if proved & only to the extent of benefit; Presumed if:

1. 2.
3.

After payment, 3rd person acquires the creditors rights Creditor ratifies payment to 3rd person By creditors conduct, debtor has been led to make the payment (estoppel)

(a)

Payor - the one performing, he can be the debtor himself or his heirs or assigns or his agent, or anyone interested in the fulfillment of the obligation; can be anyone as long as it is with the creditor's consent 3RD person pays/performs - only the creditor's consent;

Payment made in good faith to a person in possession of credit shall release debtor, Requisites: 1. Payment by debtor must be made in good faith 2. Creditor must be in possession of the credit & not merely the evidence of indebtedness

(b)

If performance is done also with debtor's consent - he takes the place of the debtor. There is subrogation except if the 3rd person intended it to be a donation

c.

(c)

3rd person pays/performs with consent of creditor but not with debtor's consent, the repayment is only to the extent that the payment has been beneficial to debtor

With respect to time and place of payment - must be according to the obligation Where payment should be made: 1. In the place designated in obligation the

(2) Payee

2.

(a)

payee - creditor or obligee or successor in interest of transferee, or agent 3rd person - if any of the ff. concur: i. it must have redounded to the obligee's benefit and only to the extent of such benefit

If there is no express stipulation and the undertaking is to deliver a specific thing at the place where the thing might be at the moment the obligation was constituted 3. In other case in the place of the domicile of the debtor Time of payment - time stipulated Effect of payment extinguish obligation Except: order to retain debt

(b)

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C.

SUBSTANTIAL PERFORMANCE 1. Attempt in Good Faith to perform without willful or intentional departure 2. Deviation is slight 3. Omission/Defect is technical or unimportant 4. Must not be so material that intention of parties is not attained Effect of Substantial good faith performance in

E. SPECIAL RULES/FORMS OF PAYMENT i. Application of Payments the designation of the debt which payment shall be made, out of 2 or more debts owing the same creditor: May be made according to the stipulation of the parties or application of party given benefit of period; For the application to be valid, it must be debtors choice or w/ consent of debtor Requisites for the Application of payment: 1. Various debts of the same kind 2. Same debtor 3. Same creditor 4. All debts must be due Exception: there may be application of payment even if all debts are not yet due if: a) parties so stipulate b) when application of payment is made by the party for whose benefit the term has been constituted 5. Payment is not enough to extinguish all debts How application is made: 1. Debtor makes the designation 2. If not, creditor makes it by so stating in the receipt that he issues unless there is cause for invalidating the contract 3. If neither the debtor nor creditor has made the application or if the application is not valid, then application, is made by operation of law Who makes application: General Rule: Debtor Exception: Creditor a) Debtor without protest accepts receipt in which creditor specified expressly and unmistakably the obligation to which such payment was to be applied debtor in this case renounced the right of choice b) When monthly statements were made by the bank specifying the application and the debtor signed said statements approving the status of her account as thus sent to her monthly by the bank

1. Obligor may recover as though there has been strict and complete fulfillment, less damages suffered by the obligee 2. Right to rescind cannot be used for slight breach D. CURRENCY Stipulated (1249) Philippine legal tender. The payment of debts in money shall be made in the currency stipulated, and if it is not possible to deliver such currency, then in the currency which is legal tender in the Philippines. (1249) Mercantile documents, payable to order: only when cashed or impaired by creditor. The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents shall produce the effect of payment only when they have been cashed, or when through the fault of the creditor they have been impaired. (1249) ***Impairment contemplates an issuance by a third party, otherwise, creditor can just ask from creditor again but without interest as there was no delay. (Jurado, Balane, and maam Sereno) During encashment: action in abeyance. In the meantime, the action derived from the original obligation shall be held in the abeyance. (1170) a. Extraordinary deflation inflation/

Stipulation (1250) Currency value at time of agreement. In case an extraordinary inflation or deflation of the currency stipulated should supervene, the value of the currency at the time of the establishment of the obligation shall be the basis of payment, unless there is an agreement to the contrary. (1250)

b.
the the the the

Expenses: Art. 1247. Unless it is otherwise stipulated, extrajudicial expenses required by payment shall be for the account of debtor. With regard to judicial costs, Rules of Court shall govern. (1168a)

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In case made: 1.

no

application has been

2.

Apply payment to the most onerous If debts are of the same nature and burden, application shall be made to all proportionately

b) Debtor is released up to the amount of the net proceeds of the sale, unless there is a stipulation to the contrary c) Creditors will collect credits in the order of preference agreed upon, or in default of agreement, in the order ordinarily established by law Consignation Tender -the act of offering the creditor what is due him together with a demand that the creditor accept the same (When creditor refuses w/o just cause to accept payment, he becomes in mora accepiendi & debtor is released from responsibility if he consigns the thing or sum due) Consignation the act of depositing the thing due with the court or judicial authorities whenever the creditor cannot accept or refuses to accept payment; generally requires prior tender of payment Requisites of valid consignation: 1. 2. Existence of valid debt Consignation was made because of some legal cause - previous valid tender was unjustly refused or circumstances making previous tender exempt: a. When the creditor is absent or unknown, or does not appear at the place of payment; b. When he is incapacitated to receive the payment at the time it is due; c. When, without just cause, he refuses to give a receipt; d. When two or more persons claim the same right to collect; e. When the title of the obligation has been lost. 3. Prior Notice of Consignation had been given to the person interested in performance of obligation (1st notice) actual deposit/Consignation proper judicial authorities Subsequent (2nd notice) with

ii. Dacion en Pago mode of extinguishing an obligation whereby the debtor alienates in favor of the creditor property for the satisfaction of monetary debt; extinguish up to amount of property unless w/ contrary stipulation; A special form of payment because 1 element of payment is missing: IDENTITY Governed by law on sales

Conditions for a valid dacion: 1) If creditor consents, for a sale presupposes the consent of both parties 2) If dacion will not prejudice the other creditors 3) If debtor is not judicially declared insolvent iii. Cession/Assignment in Favor of creditors the process by which debtor transfer all the properties not subject to execution in favor of creditors is that the latter may sell them and thus, apply the proceeds to their credits; extinguish up to amount of net proceeds ( unless w/ contrary stipulation ) Kinds:

1.

Legal governed by the insolvency law 2. Voluntary agreement of creditors Requisites for voluntary assignment a) More than 1 debt b) More than 1 creditor c) Complete or partial insolvency of debtor d) Abandonment of all debtors property not exempt from execution e) Acceptance or consent on the part of the creditors Effects: a) Creditors do not become the owner; they are merely assignees with authority to sell

4.

5.

notice of Consignation

Effects: Extinguishment of obligation (1) Debtor may ask judge to order cancellation of obligation (2) Running of interest is suspended

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(3) Before creditor accepts or before judge declares consignation has been properly made, obligation remains ( debtor bears risk of loss at the meantime, after acceptance by creditor or after judge declares that consignation has been properly made risk of loss is shifted to creditor) Consignation allowed in: w/o prior tender

b) if the generic thing has already been segregated c) monetary obligation c. In obligations to do General Rule: Debtor is released when prestation becomes legally or physically impossible without fault on part of debtor EFFECT OF PARTIAL LOSS ( judicial determination necessary) of extent is

a. creditor absent or unknown/ does not appear at the place of payment b. incapacitated to receive payment at the time it is due c. refuses to issue receipt w/o just cause d. 2 or more creditor claiming the same right to collect e. title of obligation has been lost III. LOSS OF THE THING DUE partial or total/ includes impossibility of performance A. CONCEPT Meaning of loss of the thing 1) When the object perishes (physically) 2) When it goes out of commerce 3) When it disappears in such a way that its existence is unknown or it cannot be recovered When is there performance impossibility of

a) b)

when loss is significant may be enough to extinguish obligation when loss insignificant not enough to extinguish obligation IN THE

E. WHEN THING IS LOST POSSESSION OF THE DEBTOR

Presumption: Loss due to debtors fault ( disputable ) Exception: natural calamity, earthquake, flood, storm F. REBUS SIC STANTIBUS - a doctrine which holds that an agreement is valid only if the same conditions prevailing at time of contracting continue to exist at the time of performance Effect of Difficulty Contemplation Beyond Parties

Rule: Obligor may be released in whole or in part Requisites The event or change could not have been foreseen at the time of the execution of the contract (a) The performance is extremely difficult, but not impossible (because if it is impossible, it is extinguished by impossibility) (b) The event was not due to the act of any of the parties (c) The contract is for a future prestation IV. CONDONATION/REMISSION OF THE DEBT gratuitous abandonment of debt or right to claim amounts to a donation, ergo rules of donation applies may be express or implied A. Requisites a. There must be an agreement

1) Physical impossibility 2) Legal impossibility : EFFECT OF TOTAL LOSS a. In obligations to deliver a specific thing General Rule: Extinguished Exceptions: a) Debtor is at fault b) Debtor is made liable for fortuitous event because of a provision of law, contractual stipulation or the nature of the obligation requires assumption of risk on part of debtor b. In obligations to deliver a generic thing General Rule: Not extinguished Exceptions: a) if the generic thing is delimited

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b. There must be a subject matter (object of the remission, otherwise there would be nothing to condone) c. Cause of consideration must be liberality Essentially gratuitous, an act of liberality d. Parties must be capacitated and must consent; requires acceptance by obligor; implied in mortis causa & expressed inter vivos e. Formalities of a donation are required in the case of an express remission f. Revocable subject to rule on inofficious donation ( excessive, legitime is impaired ) & ingratitude & condition not followed g. Obligation remitted must have been demandable at the time of remission h. Waivers or remission are not to be presumed generally Forms: a. Express formalities of donation b. Implied conduct is sufficient Extent: a. total a. Kinds: Principal accessory also condoned

b.

Merger must be clear & definite

c. The obligation involved must be same & identical one obligation only d. Revocable, if reason for confusion ceases, the obligation is revived VI. COMPENSATION Set off it is a mode of extinguishment to the concurrent amount the obligation of persons who are in their own right reciprocally debtors or creditors A. Requisites a. Both parties must be mutually creditors and debtors - in their own right and as principals b. Both debts must consist in sum of money or if consumable , of the same kind or quality c. Both debts are due &

b. partial

b. accessory principal still outstanding c. accessory oblig. Of pledge condoned; presumption only, rebuttable

d. Both debts are liquidated demandable (determined)

e.

Neither debt must be retained in a controversy commenced by 3rd person & communicated w/ debtor (neither debt is garnished) B. Kinds

B. Implied Condonation voluntary delivery presumption; when evidence of indebtedness is w/ debtor presumed that it is a voluntary delivery by creditor; rebuttable effect of delivery of evidence of indebtedness: conclusion that debt is condoned voluntary delivery of private document if in hands of joint debtor only his share is condoned if in hands of solidary debtor - whole debt is condoned Tacit voluntary destruction of instrument by creditor; made to prescribe w/o demanding V. CONFUSION OR MERGER OF RIGHTS character of debtor & creditor is merged in same person with respect to same obligation REQUISITES: a. It must take place between principal debtor & principal creditor only

a)

legal by operation of law; as long as 5 requisites concur- even if unknown to parties & if payable in diff places; indemnity for expense of exchanges; even if not equal debts only up to concurring amount b) conventional agreement of parties is enough, forget other requirement as long as both consented c) facultative one party has choice of claiming/opposing one who has benefit of period may choose to compensate not all requisites are present depositum; commodatum; criminal offense; claim for future support; taxes d) judicial set off; upon order of the court; needs pleading & proof; all requirements must concur except liquidation e) total when 2 debts are of the same amount f) partial when 2 debts are not of the same amount

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C. Effect of assignment of credit to 3rd person; can there still be compensation a. if made after compensation took place no effect; compensation already perfected b. if made before compensation took place depends with consent of debtor debtor is estopped unless he reserves his right & gave notice to assignee with knowledge but w/o consent of debtor compensation may be set up as to debts maturing prior to assignment w/o knowledge compensation may be set-up on all debts prior to his knowledge VII. NOVATION A. CONCEPT Extinguishment of obligation by creating/ substituting a new one in its place by: changing object or principal conditions substituting person of debtor

if suspensive & it never occurred as if no obligation; also nothing to novate if old obligation has condition, must be compatible with the new obligation; if new is w/o condition deemed attached to new if new obligation has condition if resolutory: valid if suspensive & did not materialize: old obligation is enforced D. KINDS

a.

REAL/OBJECTIVE change object, cause/consideration or principal condition b. PERSONAL/SUBJECTIVE substituting person of debtor ( passive ) EXPROMISION- initiative is from 3rd person or new debtor; new debtor & creditor to consent; old debtor released from obligation; - subject to full reimbursement & subrogation if made w/ consent of old debtor; if w/o consent or against will , only beneficial reimbursement; -if new debtor is insolvent, responsible since w/o his consent not

subrogating 3rd person in right of creditor

B. REQUISITES: a. there is a valid obligation

b.

intent to extinguish old obligation express or implied; completely/ substantially incompatible old and new obligation on every point c. capacity & consent of parties to the new obligation d. valid new obligation C. EFFECT OF NOVATION: extinguishment of principal carries accessory, except: stipulation to contrary stipulation pour autri beneficiary consents unless

DELEGACION- initiative of old debtor; all parties to consent; full reimbursement; - if insolvent new debtor not responsible old debtor because obligation extinguished by valid novation unless: - insolvency already existing & of public knowledge or know to him at time of delegacion Parties Delegante old debtor Delegatario - creditor Delegado new debtor subrogating 3rd person to rights of creditor ( active ) conventional- agreement & consent of all parties; clearly established legal- takes place by operation of law; no need for consent; not presumed except as provided for in law: presumed when-

modificatory novation only; obliged to w/c is less onerous old obligation is void

old obligation subsists if: new obligation is void or voidable but annulled already ( except: intention of parties ) if old obligation has condition if Resolutory & it occurred old obligation already extinguished; no new obligation since nothing to novate

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creditor pays another creditor even w/o knowledge

preferred debtors

3rd person not interested in obligation pays w/ approval of debtor person interested in fulfillment of obligation pays debt even w/o knowledge of debtor Difference from payment by 3rd person 1. debtor is not necessarily released from debt 2. can be done w/o consent of creditor 3. 1 obligation 4. 3rd person has no oblig. to pay if insolvent Change of debtor 1. debtor is released 2. needs consent of creditor express or implied 3. 2 obligations; 1 is extinguished & new one created 4. new debtor is obliged to pay

granted to the three debtors should also benefitted him. The new term of demandability in the subsequent agreement between his siblings and the creditor only gives rise to defense of non-maturity of his other co-debtors solidary liability. Such is a defense to allow for mere partial payment. Gregorio was ordered to pay the part of the reduced indebtedness, only insofar as such is demandable. N.B. Solidary debtors can only act to benefit the other solidary debtors. However, extension of terms like period of payment does not automatically apply to everyone except insofar as the demandability of eachs share. This can be understood by Art. 1211 providing that solidarity may exist although creditors and debtors may not be bound in the same mannerand by the same periods and conditions.

Magdalena Estates Inc. vs Spouses Rodriguez No. Novation cannot be presumed in the instant case since there was no inconsistency (i.e. implied novation) with regard to the promissory note executed. The bond was only made to further guarantee compliance with the obligation. The fact that Magdalena accepted the P5000 does not extinguish the spouses' liability as to the interests. The mere fact that the creditor accepts payments from a third person who agreed to assume the obligation, when there is no agreement that the first debtoer shall be released from the responsibility does not constitute obligation. Kabankalan Sugar Co., Inc (Kabankalan) vs Josefa Pacheco (Josefa) When an easement of right of way is one of the principal conditions of a contract, and the duration of said easement is specified, the reduction of said period in a subsequent contract, wherein the same obligation is one of the principal conditions, constitutes a novation and to that extent extinguishes the former contract. Ynchausti&co v. Yulo Six brothers and sisters admitted solidary liability. Gregorio Yulo was sued for payment of entire indebtedness. However, solidary debtors Francisco, Manuel and Carmen had already entered into a compromised agreement with plaintiff. SC ruled: Gregorio can be sued for the entire indebtedness plus interest. There was no novation in an extension of terms, thus Greg Yulos liability is not extinguished. He is only affected insofar as the agreement reduced the debt. Partial remission

II. Contracts
Chapter I. GENERAL PROVISIONS I. Concept A. DEFINITION CONTRACTS A contract is a juridical convention manifested in legal form, by virtue of which, one or more persons bind themselves in favor of another or others, or reciprocally, to the fulfillment of a prestation to give, to do, or not to do. Article 1305

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A contract is a meeting of the minds between two persons whereby one binds himself, with respect to the other, to ive something or to render some service. Art. 1318. There is no contract unless the following requisites concur: (1) Consent of the contracting parties; (2) Object certain which is the subject matter of the contract; (3) Cause of the obligation which is established. (1261) B. KINDS OF CONTRACTS (1) According to perfection a. Consensual b. Real (2) According to degree of importance a. Principal can stand alone b. Accessory dependent upon another contract as to existence and validity c. Preparatory means through which other contracts may be made; Ex. Agency (3) According to subject matter a. Involving things, such as sale or barter b. Involving rights or credits, such as usufruct or assignment of credits c. Involving services such as agency, carriage, etc. (4) According to name a. Nominate special name, such as pledge, mortgage, etc. b. Innominate (5) According to cause a. Onerous exchange of considerations b. Gratuitous no consideration received in exchange for what has been given c. Remuneratory something is given for a benefit or service performed without any legal obligation to do so (6) According to nature of obligation produced or number of parties obligated a. Unilateral Ex. Commodatum and Mutuum b. Bilateral or sinalagmatico (7) According to risk a. Commutative where equivalent values are given by both parties, such as sale, barter and lease b. Aleatory where fulfillment of the contract is dependent upon chance, such as insurance C. STAGES OF A CONTRACT

3.

Consummation or death parties have performed their respective obligations and the contract is put to an end.

D. PRINCIPAL CHARACTERISTICS: AMOR

1.

Autonomy=Freedom or liberty to stipulate parties may establish such stipulations, clauses, terms, and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy (Article 1306) 2. Mutuality-both parties are mutually bound; validity or compliance cannot be left to the will of one of them (Art. 1308) 3. Obligatory force and compliance in good faith 4. Relativity- binding between the parties only, their assigns and heirs (1311) Exceptions: a. Obligations arising from contract which are not transmissible by their nature, stipulation, or provision of law. b. Stipulation Pour Autrui

Requisites: i. Stipulation in favor of a third person ii. The parties clearly and deliberately conferred the favor to the third person. iii. The stipulation must be a part of, and not the whole, the contract. iv. That the favorable stipulation should not be conditioned or compensated by any kind of obligation whatsoever v. Neither of the contracting parties bears the legal representation or authorization of 3rd party vi. The acceptance of the third person must be communicated to the parties of the contract. before revocation by the original parties

c.

When a third person induces another to violate his contract. (1314)- liability to the contracting parties Requisites: (1) Existence of a valid contract (2) Knowledge of the contract by a 3rd person (3) Interference by the 3rd person

d.
e.

1.
2.

Preparation or conception bargaining point Perfection or birth the meeting of minds regarding the subject matter and the cause of the contract.

f.

Accion Directa - the right of a creditor to sue on a contract entered into by his debtor. (1313) Article 1312- In contracts creating real rights, third persons who come into possession of the object of the contract are bound thereby, subject to the provisions of the Mortgage Law and the Land Registration Law Accion Pauliana

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CHAPTER II. ESSENTIAL REQUISITES Art. 1318. There is no contract unless the following requisites concur: (1) Consent of the contracting parties; (2) Object certain which is the subject matter of the contract; (3) Cause of the obligation which is established. (1261) I. CONSENT meeting of minds between parties on subject matter & cause of contract; concurrence of offer & acceptance Article 1319 Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes a counter-offer. A. Requisites a. b. c. d. e. f. Plurality of subject Capacity Intelligence and free will Manifestation of intent of parties Cognition by the other party Conformity of manifestation and cognition

Cognition Theory perfected from the moment the acceptance comes to the knowledge of the offeror; adopted in Philippines Revocation of Acceptance: The acceptance by the offeree may be revoked before reaching the knowledge of the offeror. If it is revoked, the contract is not perfected if the notice of revocation reaches the offeror before the letter of acceptance is received. In unilateral promises, when offer is made to the public, specific acceptance is not required to bind the obligor.

Express or implied acceptance An acceptance may be express or implied. (1320) Mode of acceptance as stipulation The person making the offer may fix the time, place, and manner of acceptance, all of which must be complied with. (1321) Agent as offerer An offer made through an agent is accepted from the time acceptance is communicated to him. (1322) Withdrawal of offer When the offerer has allowed the offeree a certain period to accept, the offer may be withdrawn at any time before acceptance by communicating such withdrawal, except when the option is founded upon a consideration, as something paid or promised. (1324) - e.g. Option money based on a separate option contract; reservation money: forfeited in case transaction does not take place ADVERTISEMENTS: As invitations; not definite offers - Unless it appears otherwise, business advertisements of things for sale are not definite offers, but mere invitations to make an offer. (1325) For bidders are mere invitations for proposals Advertisements for bidders are simply invitations to make proposals, and the advertiser is not bound to accept the highest or lowest bidder, unless the contrary appears. (1326) WHEN OFFER BECOMES INEFFECTIVE: 1. death, civil interdiction, insanity or insolvency of either party before acceptance is conveyed 2. express or implied revocation of the offer by the offeree 3. qualified or conditional acceptance of the offer 4. subject matter becomes illegal or impossible before acceptance is communicated

Note: We follow the theory of cognition and not the theory of manifestation. Under our civil law, the offer and acceptance concur only when the offeror comes to know, and not when the offeree merely manifests his acceptance B. Offer and Acceptance Elements of Valid Offer a. definite b. complete c. intentional Elements of Valid Acceptance a. unequivocal b. unconditional NOTES Certain offer = Absolute acceptance; if qualified, counter-offer. By Letter or Telegram: when and where binding Acceptance made by letter or telegram does not bind the offerer except from the time it came to his knowledge. The contract, in such a case, is presumed to have been entered into in the place where the offer was made. (1319) Expedition Theory contract is perfected from the moment the acceptance is declared or made even if not made known to the offeror.

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PERIOD FOR ACCEPTANCE 1. stated fixed period in the offer 2. no stated fixed period a) offer is made to a person present acceptance must be made immediately b) offer is made to a person absent acceptance may be made within such time that, under normal circumstances, an answer can be received from him OPTION - option may be withdrawn anytime before acceptance is communicated but not when supported by a consideration other than purchase price: option money Note: Ang Yu v. CA (1994) states that a unilateral promise to buy or sell, if not supported by a distinct consideration, may be withdrawn but may not be done whimsically or arbitrarily; the right of the grantee here is damages and not specific performance. Equatorial v. Mayfair(264 SCRA 483) held that an option clause in order to be valid and enforceable must indicate the definite price at which the person granting the option is willing to sell, contract can be enforced and not only damages; Paranaque Kings V CA (1997) states that right of first refusal may be enforced by specific performance. C. PERSONS WHO CANNOT GIVE CONSENT TO A CONTRACT:

1. Upon reaching age of majority they ratify the same

2.

They were entered unto by a guardian and the court having jurisdiction had approved the same 3. They were contracts for necessities such as food, but here the persons who are bound to give them support should pay therefor 4. Minor is estopped for having misrepresented his age and misled the other party (when age is close to age of majority as in the Mercado v Espiritu & Sia Suan v Alcantara cases) Note: In the Sia Suan v Alcantara case, there is a strong dissent by J.Padilla to the effect that the minor cannot be estopped if he is too young to give consent; one that is too young to give consent is too young to be estopped. Subsequently, in Braganza v Villa-Abrille, the dissent became the ruling. Minors could not be estopped Rule On Contracts Entered Insane or Demented Persons Lucid interval; hypnosis Into By and

drunkenness

Contracts entered into during a lucid interval are valid. Contracts agreed to in a state of drunkenness or during a hypnotic spell are voidable. (1328) The incapacity declared in article 1327 is subject to the modifications determined by law, and is understood to be without prejudice to special disqualifications established in the laws. (1329) Rule On Contracts Entered Into Under Mistake Mistake: substance of object, principal conditions In order that mistake may invalidate consent, it should refer to the substance of the thing which is the object of the contract, or to those conditions which have principally moved one or both parties to enter into the contract. (1331)

1.

Unemancipated minors 2. Insane or demented persons 3. Illiterates/ deaf-mutes who do not know how to write 4. Intoxicated and under hypnotic spell 5. Article 1331 - person under mistake; mistake may deprive intelligence 6. Article 1338 - person induced by fraud (dolo causante) Note: Dolus bonus (usual exaggerations in trade) are not in themselves fraudulent Article 1330 A contract where consent is given through mistake, violence, intimidation, undue influence, or fraud is voidable. Rule On Minors Contracts Entered Into By

As to identity or qualifications: Mistake as to the identity or qualifications of one of the parties will vitiate consent only when such identity or qualifications have been the principal cause of the contract. Correction only if: A simple mistake of account shall give rise to its correction. (1331)

General Rule: VOIDABLE Exceptions:

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-Error must be excusable, not caused by negligence -Error must be a mistake of fact, not of law Exceptions on Mistake: a. Illiterate party: When one of the parties is unable to read, or if the contract is in a language not understood by him, and mistake or fraud is alleged, the person enforcing the contract must show that the terms thereof have been fully explained to the former. (1332) b. Knowledge of doubt, contingency, risk: There is no mistake if the party alleging it knew the doubt, contingency or risk affecting the object of the contract. (1333) c. Mutual error: Mutual error as to the legal effect of an agreement when the real purpose of the parties is frustrated, may vitiate consent. (1334) D. DISQUALIFIED TO ENTER CONTRACTS -contracts entered into are void INTO

d.

Produces a well grounded fear that the person making it will carry it over

3. undue influence There is undue influence when a person takes improper advantage of his power over the will of another, depriving the latter of a reasonable freedom of choice. The following circumstances shall be considered: the confidential, family, spiritual and other relations between the parties, or the fact that the person alleged to have been unduly influenced was suffering from mental weakness, or was ignorant or in financial distress. (1337) F. FRAUD There is fraud when, through insidious words or machinations of one of the contracting parties, the other is induced to enter into a contract which, without them, he would not have agreed to. (1338) (Dolo Causante) - Failure to disclose facts, when there is a duty to reveal them, as when the parties are bound by confidential relations, constitutes fraud. (1339) Exceptional Cases: not fraud unless Dolo Causante or substantial/ principal condition a. usual exaggerations in trade, when the other party had an opportunity to know the facts, are not in themselves fraudulent. (1340)

1. those under civil interdiction 2. hospitalized lepers 3. prodigals 4. deaf and dumb who are unable to read and write 5. those who by reason of age, disease, weak mind and other similar causes, cannot without outside aid, take care of themselves and manage their property, becoming an easy prey for deceit and exploitation E. VICES OF FREEDOM 1. violence There is violence when in order to wrest consent, serious or irresistible force is employed. Requisites: a. Irresistible physical force b. Such force is the determining cause for giving consent 2. Intimidation There is intimidation when one of the contracting parties is compelled by a reasonable and well-grounded fear of an imminent and grave evil upon his person or property, or upon the person or property of his spouse, descendants or ascendants, to give his consent. (1335) Requisites: a. Determining cause for the contract b. Threatened act is unjust and unlawful c. Real and serious

Caveat Emptor dealers talk, buyer beware b. opinions: A mere expression of an opinion does not signify fraud, unless made by an expert and the other party has relied on the former's special knowledge. (1341) c. Misrepresentation by a third person does not vitiate consent, unless such misrepresentation has created substantial mistake and the same is mutual. (1342) d. Misrepresentation made in good faith is not fraudulent but may constitute error. (1343)

GENERAL RULE ON FRAUD: serious and parties not pari delicto In order that fraud may make a contract voidable, it should be serious and should not have been employed by both contracting parties. (1344)

There must be a deliberate intent to deceive or to induce The other party relied on this untrue statement.

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Incidental fraud only obliges the person employing it to pay damages. (1344)

d) Determinate as to its kind or determinable w/o need to enter into a new contract e) Transmissible Cannot be Objects: a. Future inheritance where source of property is still alive (1347) b. Those contrary to law morals, good customs, public order, and public policy No contract may be entered into upon future inheritance except in cases expressly authorized by law. All services which are not contrary to law, morals, good customs, public order or public policy may likewise be the object of a contract. (1347) c. Impossible things or services cannot be the object of contracts. (1348)

G. SIMULATED CONTRACTS Simulation is the declaration of a fictitious intent manifested deliberately and by agreement by the parties in order to produce, for the purpose of deceiving others, the appearance of a transaction which does not exist or which is different from the true agreement. Kinds

a.

absolute no intention to be bound at all, fictitious only void from beginning

b.

relative there is intention to be bound but concealed; concealed contract binds when: o no prejudice to 3rd persons o not contrary to law, morals, etc. Effects An absolutely simulated or fictitious contract is void. A relative simulation, when it does not prejudice a third person and is not intended for any purpose contrary to law, morals, good customs, public order or public policy binds the parties to their real agreement. (1346) OBJECT The prestation Article 1347 All things which are not outside the commerce of men, including future things, may be the object of a contract. All rights which are not intransmissible may also be the object of contracts. REQUISITES: a) Within the commerce of man - either existing or in potency Objects outside commerce of men: personal rights, status, capacity of persons public offices political rights property of the public dominion sacred or common things like the air b) Licit or not contrary to law, good customs c) Possible

DETERMINABILITY The object of every contract must be determinate as to its kind. The fact that the quantity is not determinate shall not be an obstacle to the existence of the contract, provided it is possible to determine the same, without the need of a new contract between the parties. (1349)

II.

III. Causa The cause of the contract is the why of the contract, the essential reason which impels the contracting parties to enter into the contract. REQUISITES: a) It must exist b) It must be real, i.e. true c) It must be licit Causes according to type of contract: a. Onerous contracts: prestation or promise of a thing b. Remuneratory contracts: service or benefit remunerated c. Pure beneficence: liberality of contract Article 1350 In onerous contracts the cause is understood to be, for each contracting party, the prestation or promise of a thing or service by the other; in remuneratory ones, the service or benefit which is remunerated; and in contracts of pure beneficence, the mere liberality of the benefactor. Cause is not Motive Article 1351

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The particular motives of the parties in entering into a contract are different from the cause thereof. Motive is the psychological, individual, and personal reason, which induces a party to enter into a contract. Cause is the immediate, direct, and most proximate reason; while motive is the indirect and remote reason. Cause is the objective, intrinsic reason; motive is the individual and purely personal reason of the contract. The motive may be unknown to the other, the cause is always known. The motive may be lawful or unlawful, the cause must always be lawful. Effects When Cause Renders Contract Void: a. absence/ unlawful - Contracts without cause, or with unlawful cause, produce no effect whatever. The cause is unlawful if it is contrary to law, morals, good customs, public order or public policy. (1352) b. false unless prove another cause - The statement of a false cause in contracts shall render them void, if it should not be proved that they were founded upon another cause which is true and lawful. (1353) Want of Cause There is a total lack or absence of consideration. Illegal Cause The cause is contrary to law, morals, good custom, public order, or public policy. False Cause The cause is stated but that cause is not true.

CAUSA NOT STATED IN CONTRACT INADEQUACY OF CAUSA

PRESUMED TO EXIST burden of proof is on the person assailing its existence DOES NOT INVALIDATE CONTRACT PER SE Exceptions: 1. fra ud 2. mis take 3. und ue influence 4. cas es specified by law - contracts entered when ward suffers lesion of more than 25%

Chapter 3 Form of Contracts Form is a manner in which a contract is executed or manifested

a.

Informal may be entered into whatever form as long as there is consent, object & cause

b.

Formal required by law to be in certain specified form such as: donation of real property, stipulation to pay interest, transfer of large cattle, sale of land thru agent, contract of antichresis, contract of partnership, registration of chattel mortgage, donation of personal prop in excess of 5,000

c.

When Cause Renders Contract Voidable: a. lesion / inadequacy - Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a contract, unless there has been fraud, mistake or undue influence. (1355) Presumption of Cause: LAWFUL - Although the cause is not stated in the contract, it is presumed that it exists and is lawful, unless the debtor proves the contrary. (1354)

Real creation of real rights immovable prop must be written

over

GENERAL RULE: SPIRITUALITY PRINCIPLE Contracts valid and enforceable in whatever form, even if orally entered into, as long as requisites are present. Except: When required by law Art. 1356 Contracts shall be obligatory, in whatever form they may have been entered into, provided all the essential requisites for their validity are present. However, when the law requires that a contract be in some form in order that it may be valid or enforceable, or that a contract be proved in a certain way, that requirement is absolute and indispensable. In such cases, the right of the parties stated in the following article cannot be exercised. If no form but perfected contract, compel observance of form

ABSENCE OF CAUSA ILLEGALITY FALSITY CAUSA OF

VOID - produce legal effect VOID - produce legal effect

no no

VOIDABLE party must prove that cause is untruthful; presumption of validity but rebuttable

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If the law requires a document or other special form, as in the acts and contracts enumerated in the following article, the contracting parties may compel each other to observe that form, once the contract has been perfected. This right may be exercised simultaneously with the action upon the contract. (1357)

WHEN FORM IS IMPORTANT: General Rule: contract is valid & binding in whatever form provided that 3 essential requisites concur Exception: a. Law requires contract to be in some form for validity b. Law requires contract to be in some form to be enforceable - Statute of Frauds; contract is valid but right to enforce cannot be exercised; need ratification to be enforceable

Note: However, although the provisions of Art. 1357, in connection with Art. 1358, do not operate against the validity of the contract nor the validity of the acts voluntarily performed by the parties for the fulfillment thereof, yet from the moment when any of the contracting parties invokes said provisions, it is evident that under them the execution of the required document must precede the determination of the other obligations derived from the contract.

For enforceability (Statute of Frauds) Article 1403, paragraph 2 (in relation to article 1405) (2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases an agreement hereafter made shall be unenforceable by action, unless the same, or some note or memorandum, thereof, be in writing, and subscribed by the party charged, or by his agent; evidence, therefore, of the agreement cannot be received without the writing, or a secondary evidence of its contents: (a) An agreement that by its terms is not to be performed within a year from the making thereof; (b)A special promise to answer for the debt, default, or miscarriage of another; (c)An agreement made in consideration of marriage, other than a mutual promise to marry; (d)An agreement for the sale of goods, chattels or things in action, at a price not less than five hundred pesos, unless the buyer accept and receive part of such goods and chattels, or the evidences, or some of them, of such things in action or pay at the time some part of the purchase money; but when a sale is made by auction and entry is made by the auctioneer in his sales book, at the time of the sale, of the amount and kind of property sold, terms of sale, price, names of the purchasers and person on whose account the sale is made, it is a sufficient memorandum; (e) An agreement of the leasing for a longer period than one year, or for the sale of real property or of an interest therein; (f) A representation as to the credit of a third person. Ratification of the Statute of Frauds: Prove by oral evidence Article 1405

c.

Law requires contract to be in some form for convenience - contract is valid & enforceable, needed only to bind 3rd parties For validity (formal/solemn contracts) Donation of real property must be in a public instrument, otherwise, void. Donation of personal property exceeding P5,000 must be in writing, otherwise void. Contribution of a partner of immovable property in a partnership, must be in writing, otherwise void. Authority of agent to sell land must be in writing, otherwise sale is void.

Dievas v. Acuna Art. 1357 and 1358 do not require a particular form to validate or enforce a contract, only to ensure its efficacy, so that after its existence have been admitted, the party bound may be compelled to execute necessary document. Solis v. Barroso Even where the contract has not been reduced to the required form, it is still valid and binding as far as contracting parties are concerned. Consequently both presuppose the existence of a valid and enforceable contract. Rodriguez v. Pamintuan From the moment one of the contracting parties invokes the provisions of Article 1357 and 1358, the effect is to place the very existence of the contract in issue, which must be resolved by ordinary rules of evidence. Article 1357 does not require that an action to compel the execution of necessary document must precede the action upon the contract. As a matter of fact, both maybe exercised simultaneously.

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Contracts infringing the Statute of Frauds, referred to in No. 2 of article 1403, are ratified by the failure to object to the presentation of oral evidence to prove the same, or by the acceptance of benefit under them. For convenience i. PUBLIC DOCUMENT: The following must appear in a public document: (1358)

more presumptions wherein such should be known by both parties. Presumptions from rules of court and doctrines as applied to e-mail, internet, and networks:

a. Receipt of letter presumed to come to knowledge regardless of actual reading b. Regular functions have been carried out regularly However, special presumptions for computers was made into law by the e-commerce act. In IBM v. Sec. of Labor, the Supreme Court ruled that Local Area Network or LAN is not sufficient notice for firing an employee since there was still no law providing for such presumptions. Remember that presumptions facilitate transactions and rules of evidence by being pragmatic about it. Otherwise, proving the propositions as found in the presumptions would be impossible and uncertain. E.g. no one can really prove that person A read his e-mail, thus it is more practical to presume that he had done so given proof of his receiving such e-mail.

(1)

Real rights over immovable property, sales of real property - Acts and contracts which have for their object the creation, transmission, modification or extinguishment of real rights over immovable property; sales of real property or of an interest therein a governed by articles 1403, No. 2, and 1405;

(2) Hereditary rights and conjugal property of gains -The cession, repudiation or renunciation of hereditary rights or of those of the conjugal partnership of gains; (3) Power to administer property, other powers to act, prejudice 3rd persons The power to administer property, or any other power which has for its object an act appearing or which should appear in a public document, or should prejudice a third person; Cession of actions from public documents - The cession of actions or rights proceeding from an act appearing in a public document.

Provision of the E-commerce act:

(4)

Present laws apply, electronic documents are valid like ordinary ones. In using ATM of network banks, transaction is final at actual debiting; presumption of authority upon the holder of the ATM card. Electronic devices are valid

ii. At least a PRIVATE DOCUMENT: a. All other contracts where the amount involved exceeds five hundred pesos must appear in writing, even a private one. But sales of goods, chattels or things in action are governed by articles, 1403, No. 2 and 1405. (1358) b. Donations exceeding five thousand pesos (Art. 748) c. Giving authority to an agent for the Sale of land. (Art. 1874) d. Agreements on payment of interests on contracts of loan (art. 1956) e. Antichresis (Art. 2134) iii. Electronic Commerce Act

Message from originator presumed to be made by the owner thereof regardless of who actually typed it. There must be express statement that he (owner) would be held liable for that ID. Receiver has right to assume his actual authorship. On agreements of acknowledgement of receipt, such as actual reply of the receiver, or notice by the server. If no reply or acknowledgement, presumption that it was not sent.

As to time, presumption is at the time such was received by the designated information system or server, or that of the receiver. This also requires a system of acknowledgement of receipt. Web sites require proof or acknowledgement of visiting the site. This is usually done by pre-program procedure like requirement of registration before being given access. On security of signature electronic imprints, identification systems, and codes

- actually amends Art. 1403 by including computers and their networks as means against frauds and proof of contracts - expressly provides for the application of the same principles as normal contracts but adds

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 Tip: always have hard copy back-up SPECIAL CASES: ACTS REQUIRED FOR THE PERFECTION OF CERTAIN CONTRACTS i. REGISTRATION: a. Chattel Mortgages (art. 2140) b. Sales or Transfers of Large Cattle (Cattle Registration act) a. Mutual mistake - When a mutual mistake of the parties causes the failure of the instrument to disclose their real agreement, said instrument may be reformed. (1361) b. Mistaken party, not fraudulent - If one party was mistaken and the other acted fraudulently or inequitably in such a way that the instrument does not show their true intention, the former may ask for the reformation of the instrument. (1362) c. Mistaken party, other knew of mistake and non-conformity of instrument When one party was mistaken and the other knew or believed that the instrument did not state their real agreement, but concealed that fact from the former, the instrument may be reformed. (1363). d. ignorance, lack of skill, negligence, or bad faith of drafter, clerk, typist of instrument - When through the ignorance, lack of skill, negligence or bad faith on the part of the person drafting the instrument or of the clerk or typist, the instrument does not express the true intention of the parties, the courts may order that the instrument be reformed. (1364)

ii. DELIVERY OF THE THING (for Real contracts)

a. PLEDGE - In addition to the requisites prescribed in article 2085, it is necessary, in order to constitute the contract of pledge, that the thing pledged be placed in the possession of the creditor, or of a third person by common agreement. (2093) b. DEPOSIT- A deposit is constituted from the moment a person receives a thing belonging to another, with the obligation of safely keeping it and of returning the same. If the safekeeping of the thing delivered is not the principal purpose of the contract, there is no deposit but some other contract. (1962)

Chapter IV Reformation of Contracts Reformation is that remedy in equity by means of which a written instrument is made or construed so as to express or conform to the real intention of the parties when some error or mistake has been committed. REQUISITES FOR REFORMATION Meeting of minds.

e.

agreement on pledge or mortgage but with instrument on sale If two parties agree upon the mortgage or pledge of real or personal property, but the instrument states that the property is sold absolutely or with a right of repurchase, reformation of the instrument is proper. (1365) Art. 1360 The principles of the general law on the reformation of instruments are hereby adopted insofar as they are not in conflict with the provisions of this Code. (1360). Note: Action prescribes in 10 years from date of execution of instrument NO REFORMATION ALLOWED (Art. 1366) There shall be no reformation in the following cases: (1) Simple donations inter vivos wherein no condition is imposed; (2) Wills; (3) When the real agreement is void. -Action to Enforce bars subsequent action to Reform: When one of the parties has brought an action to enforce the instrument, he cannot subsequently ask for its reformation. STANDING: Reformation may be ordered at the instance of:

b.

True intention not expressed within the instrument. c. Letter b is caused by mistake, fraud, inequitable conduct, or accident. d. There is clear and convincing proof Article 1359 When, there having been a meeting of the minds of the parties to a contract, their true intention is not expressed in the instrument purporting to embody the agreement, by reason of mistake, fraud, inequitable conduct or accident, one of the parties may ask for the reformation of the instrument to the end that such true intention may be expressed.

If mistake, fraud, inequitable conduct, or accident has prevented a meeting of the minds of the parties, the proper remedy is not reformation of the instrument but annulment of the contract.

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either party or his successors in interest, if the mistake was mutual; otherwise, upon petition of the injured party, or his heirs and assigns. (1368)

and the doubts refer to incidental circumstances of a gratuitous contract, the least transmission of rights and interests shall prevail. If the contract is onerous, the doubt shall be settled in favor of the greatest reciprocity of interests. b. DOUBTS with regard to PRINCIPAL OBJECT: If the doubts are cast upon the principal object of the contract in such a way that it cannot be known what may have been the intention or will of the parties, the contract shall be null and void. (1378) Art. 1379 The principles of Interpretation stated in Rule 123 of the Rules of Court shall likewise be observed in the construction of contracts. (n) DEFECTIVE CONTRACTS I. RESCISSIBLE CONTRACTS Rescission is a process to render inefficacious a contract validly entered into, and normally binding, by reason of external conditions, causing an economic prejudice to a party or his creditor. According to the SC, it is a relief to protect one of the parties or a third person from all injury and damages which the contract may cause, to protect some preferential right.

Chapter V. Interpretation of Contracts LITERAL MEANING OF CLEAR TERMS If the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control. EVIDENT INTENTION PREVAILS OVER LETTER If the words appear to be contrary to the evident intention of the parties, the latter shall prevail over the former. CONTEMPORANEOUS AND SUBSEQUENT ACTS CONSIDERED In order to judge the intention of the contracting parties, their contemporaneous and subsequent acts shall be principally considered. GENERAL TERMS IN ACCORDANCE TO INTENTION However general the terms of a contract may be, they shall not be understood to comprehend things that are distinct and cases that are different from those upon which the parties intended to agree. INTERPRET TO EFFECTUATE If some stipulation of any contract should admit of several meanings, it shall be understood as bearing that import which is most adequate to render it effectual. READ AS A WHOLE The various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense which may result from all of them taken jointly. (1374) WORDS IN NATURE AND OBJECT OF CONTRACT Words which may have different significations shall be understood in that which is most in keeping with the nature and object of the contract. CUSTOMS FACILITATE INTERPRETATION The usage or custom of the place shall be borne in mind in the interpretation of the ambiguities of a contract, and shall fill the omission of stipulations which are ordinarily established. (1376) OBSCURE WORDS FOR NON-OBSCURERS The interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity. DOUBTS: a. DOUBTS With Regard To INCIDENTAL CIRCUMSTANCES: When it is absolutely impossible to settle doubts by the rules established in the preceding articles,

Requisites: a) Contract is essentially valid. b) There is lesion or pecuniary prejudice. c) Plaintiff has no other means to obtain reparation d) Plaintiff must be able to return whatever he may be obliged to return due to rescission

The things must not have been passed to 3rd parties who did not act in bad faith It must be made within the prescribed period Grounds: Art. 1381. The following contracts are rescissible: (1) BY GUARDIANS PREJUDICIAL TO WARDS BY MORE THAN . Those which are entered into by guardians whenever the wards whom they represent suffer lesion by more than onefourth of the value of the things which are the object thereof; (2) BY GUARDIANS OF ABSENTEES, MORE THAN . Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the preceding number; (3) IN FRAUD OF CREDITORS (AS SUBSIDIARY MEANS TO RECOVER). Those

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undertaken in fraud of creditors when the latter cannot in any other manner collect the claims due them; (4) THINGS UNDER LITIGATION. Those which refer to things under litigation if they have been entered into by the defendant without the knowledge and approval of the litigants or of competent judicial authority; (5) OTHERS - All other contracts specially declared by law to be subject to rescission. (1381)

i.

LEASE - If the lessor or the lessee should not comply with the obligations set forth in articles 1654 and 1657, the aggrieved party may ask for the rescission of the contract and indemnification for damages, or only the latter, allowing the contract to remain in force. (1659)

Distinction From Rescission Under Article 1191 Reasons hereof are internal to a contract, while in rescission such is primarily on account of prejudice to a third party. (UFC Ketchup) Obligation To Return In Rescission Rescission creates the obligation to return the things which were the object of the contract, together with their fruits, and the price with its interest; consequently, it can be carried out only when he who demands rescission can return whatever he may be obliged to restore. (1385) EXTENT NECESSARY Rescission shall be only to the extent necessary to cover the damages caused. (1384) When Not Allowed: a. When there are other means - The action for rescission is subsidiary; it cannot be instituted except when the party suffering damage has no other legal means to obtain reparation for the same (1383) b. When he who demands rescission has no ability to restore. (1385) c. In possession of 3rd person in good faith - Neither shall rescission take place when the things which are the object of the contract are legally in the possession of third persons who did not act in bad faith. In this case, indemnity for damages may be demanded from the person causing the loss. (1385) d. Nos. 1 & 2 of art. 138, if Court approved - Rescission referred to in Nos. 1 and 2 of article 1381 shall not take place with respect to contracts approved by the courts. (1386) Presumptions Of Fraud: BY GRATUITUOUS TITLE

a.

PAYMENT MADE BY INSOLVENT Payments made in a state of insolvency for obligations to whose fulfillment the debtor could not be compelled at the time they were effected, are also rescissible.

b.

PARTITION WITH LESION TO HEIRS BY AT LEAST Art. 1098. A partition, judicial or extra-judicial, may also be rescinded on account of lesion, when any one of the co-heirs received things whose value is less, by at least one-fourth, than the share to which he is entitled, considering the value of the things at the time they were adjudicated.

c.

DETERIORATION BECAUSE SUSPENSIVE CONDITION DEBTORS FAULT Art. 1189. When the conditions have been imposed with the intention of suspending the efficacy of an obligation to give, the following rules shall be observed in case of the improvement, loss or deterioration of the thing during the pendency of the condition: xxx (4) If it deteriorates through the fault of the debtor, the creditor may choose between the rescission of the obligation and its fulfillment, with indemnity for damages in either case; d. UNPAID SELLER MAY RESCIND under Art. 1534. e. SALE OF OBJECT WHICH IS INFERIOR BY MORE THAN 10% under Art. 1539

f.

SALE OF LAND FOR LACK OF MEASUREMENT under Art.1542

g.

SALE BECAUSE OF LOSS OF IMPORTANT PART THROUGH EVICTION (Art. 1556)

All contracts by virtue of which the debtor alienates property by gratuitous title are presumed to have been entered into in fraud of creditors, when the donor did not reserve sufficient property to pay all debts contracted before the donation. ONEROUS TITLE Alienations by onerous title are also presumed fraudulent when made by persons against whom some judgment has been issued. The decision or attachment need not refer to the

h.

SALE OF ANIMALS W/ REDHIBITORY DEFECTS WARRANTY VS. HIDDEN FAULTS & DEFECTS - Art. 1567.

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property alienated, and need not have been obtained by the party seeking the rescission.

II. VOIDABLE CONTRACTS In addition to these presumptions, the design to defraud creditors may be proved in any other manner recognized by the law of evidence. (1387) Voidable Contracts are those which possess all the essential requisites of a valid contract but either on of the grounds under 1390 is present. Nullity is that imperfection of a contract derived from the determinate vices of capacity or of consent of the parties, which gives rise to an action that if exercised successfully produces the destruction of the act with retroactive effect. GROUNDS: Article 1390 The following contracts are voidable or annullable, even though there may have been no damage to the contracting parties: (1) Those where one of the parties is incapable of giving consent to a contract; (2) Those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud. These contracts are binding, unless they are annulled by a proper action in court. They are susceptible of ratification. (n) PRESCRIPTION: 4 years Article 1391 The action for annulment shall be brought within four years. This period shall begin: In cases of intimidation, violence or undue influence, from the time the defect of the consent ceases. In case of mistake or fraud, from the time of the discovery of the same. And when the action refers to contracts entered into by minors or other incapacitated persons, from the time the guardianship ceases. RATIFICATION: Effects: Art. 1392. Ratification extinguishes the action to annul a voidable contract. Art. 1396. Retroactivity - Ratification cleanses the contract from all its defects from the moment it was constituted. (1313) Form: Art. 1393. Express or Tacit - Ratification may be effected expressly or tacitly. It is understood that there is a tacit ratification if, with knowledge of the reason which renders the contract voidable and such reason having ceased, the person who

REQUISITES FOR RESCISSION OF CONTRACTS IN FRAUD OF CREDITORS (Accion Pauliana): 1. 2. 3. 4. The existence of a credit. Credit must be prior to the contract to be rescinded. Existence of fraud or bad faith on the part of the debtor which can either be presumed or proved. Creditors cannot recover their credits in any other manner.

REMEDIES: 1. Grant rescission only to extent necessary; no other means; ability to restore; no acquirer in good faith; nos. 1 and 2 are not court approved Order return ability to restore; object of contract or its price, together with fruits, plus interests Damages: Who are liable? a. Art. 1189 rules on improvement, loss, or deterioration b. Acquirer in bad faith Whoever acquires in bad faith the things alienated in fraud of creditors, shall indemnify the latter for damages suffered by them on account of the alienation, whenever, due to any cause, it should be impossible for him to return them. (1388) If there are two or more alienations, the first acquirer shall be liable first, and so on successively. (1388) c. One who alienates to acquirer in good faith (1385, par. 3) PRESCRIPTION General rule: The action to claim rescission must be commenced within four years. For persons under guardianship and absentees: For persons under guardianship and for absentees, the period of four years shall not begin until the termination of the former's incapacity, or until the domicile of the latter is known. (1299) PERSONS WHO CAN BRING ACTION FOR RESCISSION: 1. the injured party 2. his heirs 3. creditor, if transaction is fraudulent.

2. 3.

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has a right to invoke it should execute an act which necessarily implies an intention to waive his right. (1311a) Who may ratify: Art. 1394. Ratification may be effected by the guardian of the incapacitated person. (n) Art. 1395. Ratification does not require the conformity of the contracting party who has no right to bring the action for annulment. Requisites for Ratification: Contract must be voidable. Person ratifying knew the reason why the contract is voidable. The ratification must have been made expressly or impliedly. The ratification is made by the injured party. STANDING: The action for the annulment of contracts may be instituted by all who are thereby obliged principally or subsidiarily. However, persons who are capable cannot allege the incapacity of those with whom they contracted; nor can those who exerted intimidation, violence, or undue influence, or employed fraud, or caused mistake base their action upon these flaws of the contract (Mercado v. Espiritu) EFFECTS OF ANNULMENT OF VOIDABLE CONTRACT: OBLIGATION TO RESTORE An obligation having been annulled, the contracting parties shall restore to each other the things which have been the subject matter of the contract, with their fruits, and the price with its interest, except in cases provided by law. In obligations to render service, the value thereof shall be the basis for damages. (1303a) III.

the person who has a right to institute the proceedings. If the right of action is based upon the incapacity of any one of the contracting parties, the loss of the thing shall not be an obstacle to the success of the action, unless said loss took place through the fraud or fault of the plaintiff. Art. 1402. As long as one of the contracting parties does not restore what in virtue of the decree of annulment he is bound to return, the other cannot be compelled to comply with what is incumbent upon him. ( REMEDIES: 1. 2. Declare void restore thing i. if other party can restore ii. if incapacity, only to the extent benefited 3. Damages: who are liable a. Art. 1189 rules on improvement, loss, deterioration b. Who cannot return fruits, value of thing lost, plus interest therein c. Nobody if loss by one who has right to institute proceeding, or by the incapacitated

UNENFORCEABLE CONTRACTS

Those that cannot be enforced in court or sued upon by reason of defects provided by law until and unless they are ratified according to law. -valid but cannot compel its execution unless ratified; extrinsic defect; produce legal effects only after ratified GROUNDS: Article 1403 The following contracts are unenforceable, unless they are ratified: (1) without or in excess of authority - Those entered into in the name of another person by one who has been given no authority or legal representation, or who has acted beyond his powers; (2) Statute of Frauds: those that do not comply with the Statute of Frauds as set forth in this number. In the following cases an agreement hereafter made shall be unenforceable by action, unless the same, or some note or memorandum, thereof, be in writing, and subscribed by the party charged, or by his agent; evidence, therefore, of the agreement cannot be received without the writing, or a secondary evidence of its contents: (a) An agreement that by its terms is not to be performed within a year from the making thereof; (executory contracts) (b) A special promise to answer for the debt, default, or miscarriage of another;

Only in so far benefited (Braganza v. Villa Abrille) - When the defect of the contract consists in the incapacity of one of the parties, the incapacitated person is not obliged to make any restitution except insofar as he has been benefited by the thing or price received by him.

IN CASES OF LOSS IN OBLIGATION TO RETURN: Art. 1400. Whenever the person obliged by the decree of annulment to return the thing can not do so because it has been lost through his fault, he shall return the fruits received and the value of the thing at the time of the loss, with interest from the same date. Art. 1401. The action for annulment of contracts shall be extinguished when the thing which is the object thereof is lost through the fraud or fault of

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(c) Propter nuptias - An agreement made in consideration of marriage, other than a mutual promise to marry; (d) Sale of at least Php 500, unless partial compliance / Auction entry in sales book sufficient - An agreement for the sale of goods, chattels or things in action, at a price not less than five hundred pesos, unless the buyer accept and receive part of such goods and chattels, or the evidences, or some of them, of such things in action or pay at the time some part of the purchase money; but when a sale is made by auction and entry is made by the auctioneer in his sales book, at the time of the sale, of the amount and kind of property sold, terms of sale, price, names of the purchasers and person on whose account the sale is made, it is a sufficient memorandum; (e) An agreement of the leasing for a longer period than one year, or for the sale of real property or of an interest therein; (f) A representation as to the credit of a third person. (3) Those where both parties are incapable of giving consent to a contract.

powers, shall be unenforceable, unless it is ratified, expressly or impliedly, by the person on whose behalf it has been executed, before it is revoked by the other contracting party. (1259a) Art. 1405. Ratification: Statute of Frauds Contracts infringing the Statute of Frauds, referred to in No. 2 of article 1403, are ratified by the failure to object to the presentation of oral evidence to prove the same, or by the acceptance of benefit under them. Art. 1407. Ratification: Mutual incapacity - In a contract where both parties are incapable of giving consent, express or implied ratification by the parent, or guardian, as the case may be, of one of the contracting parties shall give the contract the same effect as if only one of them were incapacitated. If ratification is made by the parents or guardians, as the case may be, of both contracting parties, the contract shall be validated from the inception. FORM: Art. 1406. Compel form: private into public document - When a contract is enforceable under the Statute of Frauds, and a public document is necessary for its registration in the Registry of Deeds, the parties may avail themselves of the right under Article 1357. STANDING:

** Note that a mutual promise to marry even if oral, is enforceable. However, parties cannot compel each other to marry because of the promise. The only right of the injured party is to ask for damages because of the breach, not specific performance. Article 1404. Unauthorized contracts are governed by article 1317 and the principles of agency in Title X of this Book. Article 1317 No one may contract in the name of another without being authorized by the latter, or unless he has by law a right to represent him. A contract entered into in the name of another by one who has no authority or legal representation, or who has acted beyond his powers, shall be unenforceable, unless it is ratified, expressly or impliedly, by the person on whose behalf it has been executed, before it is revoked by the other contracting party. RATIFICATION: Art. 1317. Ratification: w/o or in excess of authority - No one may contract in the name of another without being authorized by the latter, or unless he has by law a right to represent him. A contract entered into in the name of another by one who has no authority or legal representation, or who has acted beyond his

Art. 1408. Unenforceable contracts cannot be assailed by third persons. REMEDIES: 1. ratification i. w/o or in excess of authority a. express; b. impliedly: act constituting waiver of right of action ii. statute of frauds a. unobjected oral evidence; b. receipt of benefit iii. mutual incapacity by parents and guardians 2. compel form article 1357, to become public document for registration IV. VOID AND INEXISTENT CONTRACTS These are contracts which have absolutely no force and effect and are inexistent from the beginning. The maxim is no contract at all.

GROUNDS: Article 1409. The following contracts are inexistent and void from the beginning:

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(1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy; (1347 par. 3, 1352) (2) Those which are absolutely simulated or fictitious; (1346) (3) Those whose cause or object did not exist at the time of the transaction; (1318) (4) Those whose object is outside the commerce of men; (1347, par. 1) (5) Those which contemplate an impossible service; (1348) (6) Those where the intention of the parties relative to the principal object of the contract cannot be ascertained; (1378) (7) Those expressly prohibited or declared void by law. (1347, par. 3) KINDS OF VOID CONTRACT: a) Those lacking in essential elements: no consent, no object, no cause (inexistent ones) essential formalities are not complied with ( ex: donation propter nuptias should conform to formalities of a donation to be valid ) 1. Those w/c are absolutely simulated or fictitious no cause 2. Those which cause or object did not exist at the time of the transaction no cause/object 3. Those whose object is outside the commerce of man no object 4. Those w/c contemplate an impossible service no object 5. Those w/c intention of parties relative to principal object of the contract cannot be ascertained b) Prohibited by law Those expressly prohibited or declared void by law - Contracts w/c violate any legal provision, whether it amounts to a crime or not c) Illegal/Illicit ones Those whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy ; Ex: Contract to sell marijuana

5. 6. 7.

The right to set up the defense of nullity cannot be waived Imprescriptible Anyone may invoke the nullity of the contract whenever its juridical effects are asserted against him

RATIFICATION: NONE These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived. (1409)

PRESCRIPTION: NONE Art. 1410. The action or defense for the declaration of the inexistence of a contract does not prescribe. EFFECTS: Nullity Forfeiture whether or not a crime Recovery depending on fault, innocent or injured party GENERAL RULE: PARI DELICTO PARI DELICTO DOCTRINE -both parties are guilty, no action against each other; those who come in equity must come with clean hands; applies only to illegal contracts & not to inexistent contracts; does not apply when a superior public policy intervenes EXCEPTION TO PARI DELICTO RULE

If purpose has not yet been accomplished & If damage has not been caused to any 3rd person Requisites: i. contract is for an illegal purpose ii. contract must be repudiated by any of the parties before purpose is accomplished or damage is caused to 3rd parties iii. court believes that public interest will be served by allowing recovery (discretionary upon the court ) based on remorse; illegality is accomplished when parties entered into contract; before it takes effect party w/c is remorseful prevents it

CHARACTERISTICS: 1. 2. 3. 4. It produces no effect whatsoever either against or in favor of anyone There is no action for annulment necessary as such is ipso jure. A judicial declaration to that effect is merely a declaration It cannot be confirmed, ratified or cured If performed, restoration is in order, except if pari delicto will apply

Where laws are issued to protect certain sectors: consumer protection, labor, usury law

Art. 1412. NON-CRIMINAL OFFENSE - If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the following rules shall be observed:

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(1) When the fault is on the part of both contracting parties, neither may recover what he has given by virtue of the contract, or demand the performance of the other's undertaking; (2) When only one of the contracting parties is at fault, he cannot recover what he has given by reason of the contract, or ask for the fulfillment of what has been promised him. The other, who is not at fault, may demand the return of what he has given without any obligation to comply his promise. (1306)

may, if public policy is thereby enhanced, recover what he has paid or delivered.

Angeles v. Court of Appeals A sale of homestead within five year prohibitive period is void but in pari delicto does not apply because of public policy. However, recovery does not extend to products or fruits of the land, and the improvements made by the other party. The unjust enrichment principle must apply as to the recovery of the price paid. Philippine Banking Corp. v. Lui She A virtual sale through a very long-term lease of 50 years was deemed void for its contravention to the prohibition on foreign ownership. However, since the prohibition was only for protection and security of Filipino ownership of land, applying article 1416, pari-delicto does not apply. Art. 1417. Excess of maximum price - When the price of any article or commodity is determined by statute, or by authority of law, any person paying any amount in excess of the maximum price allowed may recover such excess. Art. 1418. Additional pay for overwork -When the law fixes, or authorizes the fixing of the maximum number of hours of labor, and a contract is entered into whereby a laborer undertakes to work longer than the maximum thus fixed, he may demand additional compensation for service rendered beyond the time limit. Art. 1419. Additional pay for underpay When the law sets, or authorizes the setting of a minimum wage for laborers, and a contract is agreed upon by which a laborer accepts a lower wage, he shall be entitled to recover the deficiency. STANDING: All those directly affected Art. 1421. The defense of illegality of contract is not available to third persons whose interests are not directly affected. SEPARABILITY: Art. 1420. In case of a divisible contract, if the illegal terms can be separated from the legal ones, the latter may be enforced. As applied in: Angel Jose v. Chelda and Briones v. Cammayo VOID GIVE RISE TO VOID:

GENERAL RULE: NO RECOVERY FOR PARI DELICTO UNLESS COVERED BY 1413 - 1419 EXCEPTIONS: where pari delicto does not apply Art. 1413. USURIOUS INTEREST; recovery plus interest -Interest paid in excess of the interest allowed by the usury laws may be recovered by the debtor, with interest thereon from the date of the payment.

Angel Jose Warehousing Co. v. Chelda In an action for recovery of an unpaid loan, the Supreme Court declared that what is illegal is not the principal debt but the usurious interest. Using art. 1420, only the usurious interest was declared void and the principal debt must still be paid with the 6 % interest allowed by law. There is no conflict between the Civil Code and the Usury Law. Both pertain to the whole usurious interest, but article 1413 only provides for an additional interest from the date of payment of the whole usurious interest. Recovery of principal loan is allowed as an exception to the pari delicto rule, and an application of the unjust enrichment rule. Art. 1414. Repudiation prior to illicitness or prejudice When money is paid or property delivered for an illegal purpose, the contract may be repudiated by one of the parties before the purpose has been accomplished, or before any damage has been caused to a third person. In such case, the courts may, if the public interest will thus be subserved, allow the party repudiating the contract to recover the money or property. Art. 1415. If there is incapacity - Where one of the parties to an illegal contract is incapable of giving consent, the courts may, if the interest of justice so demands allow recovery of money or property delivered by the incapacitated person. Art. 1416. Prohibition for protection When the agreement is not illegal per se but merely prohibited, and the prohibition by the law is designated for the protection of the plaintiff, he

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Art. 1422. A contract which is the direct result of a previous illegal contract, is also void and inexistent.

III. Natural Obligations

KINDS OF ILLEGAL CONTRACTS
CONTRACT CONSTITUTE CRIMINAL OFFENSE Parties are in pari delicto CONTRACT DOES NOT CONSTITUTE CRIMINAL OFFENSE BUT IS ILLEGAL OR UNLAWFUL PER SE No action for specific performance No action for restitution on either side. No confiscation Natural Obligations vs. Civil Obligations a. Right of retention only vs. right to compel performance b. After voluntary fulfillment vs. after constitution of obligation c. Equity and Natural Law vs. Positive Law Features: a. no positive law giving right of action b. no right of action to enforce performance c. voluntary fulfillment of obligation by obligor d. authorize retention of what has been fulfilled; e. no right to recover, or demand return of what has been fulfilled Article 1423 Obligations are civil or natural. Civil obligations give a right of action to compel their performance. Natural obligations, not being based on positive law but on equity and natural law, do not grant a right of action to enforce their performance, but after voluntary fulfillment by the obligor, they authorize the retention of what has been delivered or rendered by reason thereof. Some natural obligations are set forth in the following articles. `The following are natural obligations: a. Prescribed action of obligee. (1424) Art. 1424. When a right to sue upon a civil obligation has lapsed by extinctive prescription, the obligor who voluntarily performs the contract cannot recover what he has delivered or the value of the service he has rendered. b. Prescribed action of 3rd person payor without knowledge and consent of debtor against the latter. (1425) N.B. Relate to rights of 3rd party payors in Art. 1236 and 1237 Art. 1425. When without the knowledge or against the will of the debtor, a third person pays a debt which the obligor is not legally bound to pay because the action thereon has prescribed, but the debtor later voluntarily reimburses the third person, the obligor cannot recover what he has paid.

Only one party is guilty

No action for specific performance No action for restitution on either side. Both shall be prosecuted Thing/price to be confiscated in favor of government No action for specific performance Innocent party is entitled to restitution Guilty party is not entitled to restitution Guilty party will be prosecuted Instrument of crime will be confiscated in favor of govt

No action for specific performance 2.Innocent party is entitled to restitution Guilty party is not entitled to restitution

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c.

Annulled contract of 18-21 minor without consent of parents. (1426, 1427) i. returns whole thing or price he has received N.B. Relate to Art. 1241, only insofar benefited ii. fulfills obligation, and good faith consummation and spending of what has been delivered N.B. Relate to Art. 1327, unemancipated minors cannot give consent to contracts. ***However, take these articles in light of RA 6809, lowering age of minority to 18 Art. 1426 When a minor between eighteen and twentyone years of age who has entered into a contract without the consent of the parent or guardian, after the annulment of the contract voluntarily returns the whole thing or price received, notwithstanding the fact the he has not been benefited thereby, there is no right to demand the thing or price thus returned. Art. 1427 When a minor between eighteen and twenty-one years of age, who has entered into a contract without the consent of the parent or guardian, voluntarily pays a sum of money or delivers a fungible thing in fulfillment of the obligation, there shall be no right to recover the same from the obligee who has spent or consumed it in good faith. (1160A) d. Failed action to enforce contract Art. 1428. When, after an action to enforce a civil obligation has failed the defendant voluntarily performs the obligation, he cannot demand the return of what he has delivered or the payment of the value of the service he has rendered. e. Successions: i. Heirs paying decedents debt beyond what he has received ii. Will voided by lack of formalities, intestate heir pays a legacy Art. 1429. When a testate or intestate heir voluntarily pays a debt of the decedent exceeding the value of the property which he received by will or by the law of intestacy from the estate of the deceased, the payment is valid and cannot be rescinded by the payer. Art. 1430. When a will is declared void because it has not been executed in accordance with the formalities required by law, but one

of the intestate heirs, after the settlement of the debts of the deceased, pays a legacy in compliance with a clause in the defective will, the payment is effective and irrevocable.

IV. Estoppel
Estoppel: admission or representation conclusive upon person making such; cannot be denied or disproved Art. 1431. Through estoppel an admission or representation is rendered conclusive upon the person making it, and cannot be denied or disproved as against the person relying thereon. Art. 1432. The principles of estoppel are hereby adopted insofar as they are not in conflict with the provisions of this Code, the Code of Commerce, the Rules of Court and special laws. GENERAL RULE: Effective only between parties thereto or successors in interest Art. 1439. Estoppel is effective only as between the parties thereto or their successors in interest. Types by means: Art. 1433. Estoppel may in pais or by deed. By Conduct (in pais) intentional and culpable negligence elements: acts inducing another to believe certain facts to exist with intent or culpable negligence the other party rightfully relies and acts on such belief other party would be prejudiced if the guilty party is allowed to deny facts first represented by him Types: by silence by acceptance of benefits by acts representations or admissions By Deed - cannot question admission in document or deeds By Record cannot question executive and legislative records By Judgment no denial of adjudicated facts by competent court By laches (Tijam v. Sibonghanoy) situation giving right of faction delay in asserting complainants rights lack of knowledge or notice that complainant would assert his rights injury or prejudice would arise if relief is granted The following are Estopped in sales: ownership transfers to buyer

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Seller or grantor who is not owner at time of sale but he later acquires ownership of such Art. 1434. When a person who is not the owner of a thing sells or alienates and delivers it, and later the seller or grantor acquires title thereto, such title passes by operation of law to the buyer or grantee. ii. Seller represents owner in a sale; cannot contest title of ownership of buyer Art. 1435. If a person in representation of another sells or alienates a thing, the former cannot subsequently set up his own title as against the buyer or grantee. b. Lessee or bailee cannot claim ownership of thing leased or received against lessor or bailor Art. 1436. A lessee or a bailee is estopped from asserting title to the thing leased or received, as against the lessor or bailor. c. Misleader in 3rd party contracts on immovable property Requisites: On guilty party: a. His fraudulent representation/ wrongful concealment b. Intent other party to act upon facts misrepresented Other party: does not know facts acted in accordance with misrepresentations Notice: no requirement for prejudice or injury if relief is granted Art. 1437. When in a contract between third persons concerning immovable property, one of them is misled by a person with respect to the ownership or real right over the real estate, the latter is precluded from asserting his legal title or interest therein, provided all these requisites are present: (1)There must be fraudulent representation or wrongful concealment of facts known to the party estopped; (2)The party precluded must intend that the other should act upon the facts as misrepresented; (3)The party misled must have been unaware of the true facts; and (4)The party defrauded must have acted in accordance with the misrepresentation. d. In a pledge: owner allowing another to feign ownership, cannot claim ownership as defense against pledge. Art. 1438. One who has allowed another to assume apparent ownership of personal property for the purpose of making any transfer of it, cannot, if he received the sum

for which a pledge has been constituted, set up his own title to defeat the pledge of the property, made by the other to a pledgee who received the same in good faith and for value.

V. Trusts
DEFINITION
OF

TRUST

Trust is the legal relationship between one person having an equitable ownership in property and another person owning the legal title to such property, the equitable ownership of the former entitling him to the performance of certain duties and the exercise of certain powers by the latter. It is a right, enforceable in equity, to the beneficial enjoyment of property the legal title to which is in another. As it is founded in equity, it can never result from act violative of law.

CHARACTERISTICS 6.

OF

TRUST a relationship of fiduciary

It is a relationship;

7. It is character;

8. It is a relationship with respect to property, not one involving merely personal duties; 9. It involves the existence of equitable duties, imposed upon the holder of the title of the property to deal with it for the benefit of another; 10. It arises as a manifestation of intention relationship. result of a to create the

DISTINGUISHED

FROM

BAILMENT

A delivery of property in trust necessarily involves a transfer of legal title, or at least a separation of equitable interest and legal title, with the legal title in the trustee, whereas it is a characteristic of a bailment that the bailee has possession of, without legal title to the property subject to the bailment.

DISTINGUISHED

FROM

DONATION

A trust is an existing legal relationship and involves the separation of legal and equitable title, whereas a gift is a transfer of property and, except in the case of a gift in trust, involves a disposition of both legal and equitable ownership. A trust constituted between two contracting parties for the benefit of a third person is not subject to the rules governing donations of real property. The beneficiary of a trust may demand performance of the obligation without having formally accepted

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the benefit of the trust in a public document, upon mere acquiescence in the formation of the trust and acceptance under the second paragraph of Article 1311 of the Civil Code.

trust has been beneficiary.

created

is

referred

to

as

the

CLASSIFICATION

OF

TRUST

From the viewpoint of whether it becomes effective after the death of the trustor or during his life: DISTINGUISHED
FROM

CONTRACT

1.

Testamentary trust vivos

A trust always involves an ownership, embracing a set of rights and duties fiduciary in character which may be created by a declaration without consideration, whereas a contract is a legal obligation based on an undertaking supported by a consideration, which obligation may or may not be fiduciary in character.

2.

Trust inter (sometimes called living trusts)

From the viewpoint of the creative force bringing it into existence: 1. Express trust which can come into existence only by the manifestation of an intention to create it by the one having legal and equitable dominion over the property made subject to it; 2. Implied trust which comes into existence either through implication of an intention to create a trust as a matter of law or through the imposition of the trust irrespective of and even contrary to any such intention; it may either be: a. A resulting trust which arises where a person makes or causes to be made a disposition of property under circumstances which raise an inference that he does not intend that the person taking or holding the property should have the beneficial interest in the property; is founded on the presumed intention of the parties; OR b. A constructive trust which is imposed where a person holding title to property is subject to an equitable duty to convey it to another on the ground that he would be unjustly enriched if he were permitted to retain it; the duty to convey the property arises because it was acquired through fraud, duress, undue influence, mistake, or through breach of a fiduciary duty, or through the wrongful disposition of anothers property.

DISTINGUISHED

FROM

GUARDIANSHIP

OR

EXECUTORSHIP

In trust, the trustee or holder has the legal title to the property; a guardian, administrator, or executor does not have legal title to the property. DISTINGUISHED
FROM

STIPULATION POUR AUTRUI

A trust may exist because of a legal provision or because of an agreement; a stipulation pour autrui can arise only in the case of contracts. A trust refers to specific property; a stipulation pour autrui refers to specific property or to other things. DISTINGUISHED
FROM

AGENCY

A trust and an agency are distinguishable on the basis of the non-representative role of the trustee and the representative role of the agent.

CO-OWNERSHIP

AS A

TRUST

A co-ownership is a form of a trust, with each co-owner being a trustee for each of the others.

PARTIES

TO A

TRUST

1. Trustor or the person who creates or established the trust; 2. Trustee or the person who takes and holds the legal tile to the trust property, for the benefit of another, with certain powers and subject to certain duties;

VALDEZ

VS.

OLARGA

3.

Beneficiary or cestui que trust or the person has an equitable interest in the property and enjoys the benefit of the administration of the trust by the trustee Art. 1440 A person who establishes a trust is called the trustor; one in whom confidence is reposed as regards property for the benefit of another person is known as the trustee; and the person for whose benefit the

It has been held in numerous decisions involving fiduciary relations such as those occupied by a trustee with respect to the cestui que trust that as a general rule the formers possession is not adverse and therefore cannot ripen into a title by prescription. Thus, adverse possession in such a case requires the concurrence of the following circumstances:

1.

That the trustee has performed unequivocal acts of repudiation amounting to ouster of the cestui que trust;

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2.

That such positive acts of repudiation have been made known to the cestui que trust; and 3. That the evidence thereon should be clear and conclusive.

3. The trustee must manage and dispose of the estate and faithfully discharge his trust in relation thereto according to law or according to the terms of the trust instrument as long as they are legal and possible 4. The trustee must render a true and clear account

EXPRESS TRUSTS REQUISITES There must be: 1. A competent trustor and trustee, An ascertainable trust res, and Sufficiently certain beneficiaries Q: MAY

5. The trustee cannot acquire the property held in trust by prescription as long as the trust is admitted (if he repudiates and this is made known to the party involved, prescription is permitted)

2.
3. Therefore:

A TRUSTEE OF A TRUST ESTATE BE PERSONALLY LIABLE?

1.

The requirement that the express trust be written is only for enforceability, not for validity between the parties; hence, Article 1443 may, by analogy, be included under the Statute of Frauds; 2. By implication, for a trust over personal property, and oral agreement is valid and enforceable between the parties;

A: In the absence of an express stipulation in a contract entered into by a trustee for a corporation that the trust estate and not the trustee should be liable on the contract; the trustee is liable in its individual capacity. Q: WHEN
MAY A TRUSTEE SUE AS SUCH?

A: Before a trustee may sue or be sued alone as such, it is essential that his trust be express. ACCEPTANCE, DECLINATION,
OR

RENUNCIATION

BY THE

TRUSTEE

3.

Regarding third persons, the trust must be in public instrument registered in the Registry of Property if it concerns real property. CREATION

In the case of an express trust, acceptance of trust by a trustee is necessary to charge him with the office of the trustee and the administration of the trust and to vest the legal title in him. However, his acceptance of the trust is not necessary to its existence and validity, since if he declines the trust, the courts will appoint a trustee to fill the office that he declines. One designated or appointed as trustee may decline the responsibility and thereby be free from any legal or equitable duty or liability in the matter. Unless a contrary intention appears in the instrument constituting the trust, declination or refusal or disqualification of a trustee does not operate to defeat or void the trust, nor does it operate to vest legal as well as equitable title in the beneficiary. Renunciation of a trust after its acceptance can only be by resignation or retirement with court approval, with agreement of beneficiaries, and on satisfaction of all legal liabilities growing out of the acceptance of the trust. When a person administering property in the character of a trustee inconsistently assumes to be holding in his own right, this operates as renunciation of the trust and the beneficiaries of the property are entitled to maintain an action to declare their right and remove the unfaithful trustee.

1.

By conveyance to the trustee by an act inter vivos or mortis causa 2. By admission of the trustee that he holds the property only as a trustee There must be a clear intent to create a trust. Thus, no particular or technical words are required.

CAPACITY 1. The trustor must be capacitated to convey property 2. The trustee must be capacitated to hold property and to enter into contract 3. The beneficiary must be capacitated to receive gratuitously from the trustor ADMINISTRATION 1.
OF THE

TRUST

ACCEPTANCE

OF

TRUST

BY THE

BENEFICIARY

The trustee must file a bond

2. The trustee must make an inventory of the real and personal property in trust

This is essential to the creation and validity of a trust.

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Acceptance is presumed if the granting of benefit is purely gratuitous (no onerous condition) EXCEPT if there is proof that he really did not accept. Acceptance by the beneficiary of a gratuitous trust is not subject to the rules for the formalities of donations.

may bar an action to enforce it, an express repudiation made known to the beneficiary is required

unless there is concealment of the fact giving rise to the trust

KINDS TERMINATION 1. 2. 3. 4. Mutual agreement of all the parties Expiration of the term Fulfillment of the resolutory condition Rescission or annulment 1. Resulting trust a trust whish is raised or created by the act or construction of law, or in its more restricted sense, it is raised by implication of law and presumed always to have been contemplated by the parties, the intention as to which is to be found in the nature of their transaction, but not expressed in the deed or instrument of conveyance. Examples are those found in Articles 1448 to 1455 of the NCC 2. Constructive trust a trust raised by construction of law; in a more restricted sense and as contra-distinguished from a resulting trust, it is a trust not created by words, expressly or impliedly evincing a direct intention to create a trust by the construction of equity in order to satisfy the demands of justice; it does not arise by agreement or intention but by operation of law

5. Physical loss or legal impossibility of the subject matter of the trust 6. 7. Order of the court Merger

8. Accomplishment of the purpose of the trust EFFECT

OF

LACHES

Cestui que trust is entitled to rely upon the fidelity of the trustee. Laches applies from the trustee openly denies or repudiates the trust and the beneficiary is notified thereof, or is otherwise plainly put on guard against the trustee. On the other hand, when it does not appear when the trustee repudiated existence of the fiduciary relation, the same shall be taken to have been made only upon the filing of his answer to the complaint.

Examples of implied trusts: Art. 1447. The enumeration of the following cases of implied trust does not exclude others established by the general law of trust, but the limitation laid down in article 1442 shall be applicable. a. Property paid for by another party to have a beneficial interest Trustor: Payor, Trustee: Holder of legal estate, Beneficiary: payor Art. 1448. There is an implied trust when property is sold, and the legal estate is granted to one party but the price is paid by another for the purpose of having the beneficial interest of the property. The former is the trustee, while the latter is the beneficiary. However, if the person to whom the title is conveyed is a child, legitimate or illegitimate, of the one paying the price of the sale, no trust is implied by law, it being disputably presumed that there is a gift in favor of the child. b. Donation where donee has to have no or mere partial beneficial interest. Trustor: donor, Trustee: donee, Beneficiary: donor Art. 1449. There is also an implied trust when a donation is made to a person but it appears that although the legal estate is transmitted to the donee, he nevertheless is either to have no beneficial interest or only a part thereof.

IMPLIED TRUSTS CONCEPT Implied trusts are those which, without being expressed, are deducible from the nature of the transactions as matter of intent, or which are super induced on the transaction by operation of law, is matters of equity, independently of the particular intention of the parties. The doctrine of implied trusts is founded upon equity. As such, trust can never result from acts violative of the law. DISTINCTION
BETWEEN

EXPRESS

AND

IMPLIED TRUSTS Implied Trust

Express Trust Created by the intention (through direct and positive acts) of the parties

Comes into being by operation of law independent of the particular intention of the parties

Cannot be proved by parol evidence when it concerns an immovable or any interest therein In order that laches or acquisitive prescription

Can be proved by oral evidence when it concerns an immovable or any interest therein Laches constitutes a bar to actions to enforce it,

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c. Security of debt to pay price of sale: property acquired by loan in name of creditor Trustor: debtor/lendee, Trustee: Lender, Beneficiary: debtor/ lendee Art. 1450. If the price of a sale of property is loaned or paid by one person for the benefit of another and the conveyance is made to the lender or payor to secure the payment of the debt, a trust arises by operation of law in favor of the person to whom the money is loaned or for whom its is paid. The latter may redeem the property and compel a conveyance thereof to him. d. Succession to an heir but put in name of another. Trustor: heir, Trustee: whose name is in legal title, Beneficiary: heir Art. 1451. When land passes by succession to any person and he causes the legal title to be put in the name of another, a trust is established by implication of law for the benefit of the true owner. e. Multiple purchasers, but in name of only one Trustor: non-nominate purchaser, Trustee: nominate purchaser insofar as the others share, Beneficiary: non-nominate purchaser Art. 1452. If two or more persons agree to purchase property and by common consent the legal title is taken in the name of one of them for the benefit of all, a trust is created by force of law in favor of the others in proportion to the interest of each. f. Grant in reliance of declaration to be a mere holder or conduit for grantor or third person Trustor: grantor, Trustee: declarer of intention to hold it for 3rd person, Beneficiary: grantor or 3rd party Art. 1453. When property is conveyed to a person in reliance upon his declared intention to hold it for, or transfer it to another or the grantor, there is an implied trust in favor of the person whose benefit is contemplated. g. Absolute conveyance to creditor for security of an obligation; reconveyance upon fulfillment Trustor: debtor, trustee: creditor, beneficiary: Art. 1454. If an absolute conveyance of property is made in order to secure the performance of an obligation of the grantor toward the grantee, a trust by virtue of law is established. If the fulfillment of the obligation is offered by the grantor when it becomes due, he may demand the reconveyance of the property to him. h. Objects acquired or conveyed by use of trust funds,

Trustor: Owner of trust fund, Trustee: trustee of trust funds or 3rd person receiver of conveyance, Beneficiary: Owner of trust fund Art. 1455. When any trustee, guardian or other person holding a fiduciary relationship uses trust funds for the purchase of property and causes the conveyance to be made to him or to a third person, a trust is established by operation of law in favor of the person to whom the funds belong. i. Acquisition by mistake or fraud Trustor: conveyor, Trustee: acquirer by mistake or fraud, Beneficiary: conveyor Art. 1456. If property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a trustee of an implied trust for the benefit of the person from whom the property comes. Q: WHEN TRUST?
IS AN IMPLIED TRUST CONVERTED TO EXPRESS

A: An implied trust may be converted to an express trust by the recognition by the implied trustee of the right to the property of the owner. ACQUISITION By trustee:
OF PROPERTY THROUGH PRESCRIPTION

1.

The possession of a trustee is in law possession of the cestui que trust and, therefore, it cannot be a good ground for title by prescription No prescription shall run in favor of a co-owner against his co-owners or co-heirs as long as he expressly or impliedly recognizes the coownership Express trusts disable the trustee from acquiring for his own benefit the property committed to his management or custody at least while he does not openly repudiate the trust and makes such repudiation known to the beneficiary Trustee may claim title by prescription founded on adverse possession where it appears that: He has performed open and unequivocal acts of repudiation amounting to an ouster of the cestui que trust Such positive acts of repudiation have been made known to the cestui que trust The evidence thereon should be clear and conclusive; and The period fixed by law has prescribed (the period commences to run from and after said repudiation and the knowledge thereof by the cestui que trust. By third persons:

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Though the statute of limitations does not run between trustee cestui que trust as long as the trust relation subsists, it does not run between the trust and third persons. Thus, a third person who holds actual, open, public, and continuous possession of a land adversely to the trust, acquires title to the land by prescription as against such trust.

Continuous recognition of a resulting trust precludes any defense of prescription or laches in a suit to declare and enforce the trust. When a person through fraud succeeds in registering a land in his name, the law creates a constructive trust in favor of the defrauded party. (See Article 1456). The latter is granted the right to recover the property fraudulently registered within a period of ten years. In the computation of time necessary for prescription, the present possessor may complete the period necessary for prescription by tacking his possession to that of his grantor. This rule, however, applies only where there is privity between successive possessors. But according to Paras, citing two 1950s cases, the action should be filed within four (4) years from the discovery of the fraud. The only limitation upon the right of the beneficiary to recover title over the property held in trust is that the same must not have been transferred to an innocent purchaser for value in which event, his remedy is to ask for damages. LACHES

PRESCRIPTIBILITY IMPLIED TRUST

OF

ACTION

FOR

RECONVEYANCE

BASED ON

An action for reconveyance of property (real or personal) to enforce an implied trust in ones favor prescribed in ten (10) years from the time the right of action Accrues (the action being based upon an obligation created by law), that is, from the moment the law creates the trust because the so-called trustee does not recognize any trust and has no intention to hold for the beneficiary.

Were the action for conveyance of real property is based on constructive trust resulting from its fraudulent registration in the name of another (see Article 1456), the action may be filed from the discovery of the fraud or notice thereof, which is deemed to have taken place from the inscription of the instrument and/or issuance of the new certificate of title by virtue thereof. The issuance of said certificate of title constitutes constructive notice to the public. In another case, however, where the ownership of the land was sold fictitiously to avoid a foreclosure of mortgage, it was ruled that the ten-year prescriptive period should be counted not from the registration of the simulated sale, but from the date of recording of the release of the mortgage, on which date the cestui que trust was charged with the knowledge of the settlement of the mortgage obligation, the attainment of the purpose for which the trust was created. But if the legitimate owner of the subject property, which was fraudulently registered in the name of another, had always been in possession thereof, the constructive notice rule cannot be applied. The action for reconveyance is in reality an action to quiet title; therefore, the action is imprescriptible.

EFFECT

OF

Implied trust may be barred not only by prescription but also by laches. Laches constitutes a defense to a suit to declare and enforce an implied trust, and for the purpose of the rule, express repudiation is not required, unless the trustee fraudulently and successfully conceals the facts giving rise to the trust. Inasmuch as the trustee in an implied trust does not recognize any trust and has no intent to hold for the beneficiary, the latter is not justified in delaying the action to recover his property. It is his fault if he delays. The doctrine of laches, however, is less strictly applied between near relatives than when the parties are strangers to each other.

GENERAL RULE

UNDER

ARTICLE 1448

But where the rights of the beneficiary are recognized by the trustee, the ten-year prescriptive period commences to run from the time the trustee begins to assert his title or to hold adversely, as when the trustee files an ejectment suit against the beneficiary, or when he registers the deed of assignment of property to him and secures the cancellation of the certificate of title in the name of the former owner and the issuance of new certificate of title in his own name, or when he sells portions of the property.

A resulting trust arises in favor of a person from whom a consideration comes for a reconveyance of property (real or personal) to another, but the trust is rebuttable by proof of a contrary intention of the persons from whom the consideration comes, and such proof may be by parol evidence. The trust results only in favor of one advancing the consideration, and not in favor of one for whose benefit the purchase may have been made. EXCEPTIONS No trust is implied if the person to whom the legal estate is conveyed is a legitimate or illegitimate child of the payor. The reason is

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there is a presumption that a gift or donation was intended in favor of the child. When an actual contrary intention is proved.

Articles 1448, 1449, 1451 and 1453 are resulting trusts. Articles 1450, 1454, 1455 and 1456 are constructive trusts. Article 1455 o The general rule is that where trust money cannot be applied either immediately or within a short time to the purpose of the trust, it is the duty of the trustee to make the fund productive to the beneficiary by investment of it in some proper security. But trustees must not make investment of funds in their own names but always indicate that they are made in trust capacities. This article applies to any trustee, guardian, or other person holding a fiduciary relationship. The mistake referred to in this article is a mistake made by a third person, not that made by a party to the contract. For if made by a party, no trust is created. Similarly, the fraud referred to is extra-contractual.

The difference between an expressed and implied trust is not just limited to form with the former written and the other is not. Their difference extends to the relationship between the trustor and the trustee. In implied trusts, agreement between them is not essential. All that is necessary is for the circumstances surrounding each situation be present, and then such would be deemed a trust. The same must be the reason they also call such as constructive trusts.

Article 1456 o

Fabian v. Fabian Four children inherited a land from their father who died in 1928. Through fraudulent means, a daughter and a niece was able to secure titles to the land in 1937. By 1945, they subdivided the lot into two. In 1960, the other heirs of the father applied for reconveyance on the ground of implied trust. Held: Constructive or implied trusts maybe barred by statute of limitations unlike expressed ones. Their action has both prescribed and laches has already set in. Prescription of ten years for constructive or implied prescription runs from date of constructive notice to the world, i.e. from issuance of new certificate of title. N.B. In the former, there is an open, continuous, and uninterrupted possession. In the latter there is none of such, but an admission of non ownership or ownership by another. Caragay-Layno v. CA Claimant whose property has been wrongfully registered in the name of another, but which has not passed to a third party, can properly seek reconveyance. Action to quiet title or render it undisputable is imprescriptible since such property has been in claimants open possession.

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