oblicon - sta maria reviewer 2010-2011

OBLIGATIONS AND CONTRACTS: Reviewer, SY 2010-2011

Based on Melencio Sta. Maria’s Obligations and Contracts: Text and Cases (2003) & class discussions with Atty. Mel Sta. Maria

By Anna Bueno, IA 2014

1

PRESCRIPTION GENERAL PROVISIONS Art. 1106. By prescription, one acquires ownership and other real rights through the lapse of time in the manner and under the conditions laid down by law.

In the same way, rights and conditions are lost by prescription. PRESCRIPTION

An acquisition of a right by a lapse of time; a limitation which refers to the time within which an action must be brought after the right of action has accrued.

A statute of repose whose object is to suppress fraudulent and stale claims from springing up at great distances of time

Negligence as basis of prescription—Both kinds of prescription are essentially based on negligence of the owner of the right.

Retroactive—Acquisition of rights through prescription is retroactive. One is deemed to have acquired the right at the moment the prescription began to run, once the period is completed.

Prescription v. laches—Laches is based on grounds of public policy which requires, for the peace of society, the discouragement of stale claims

PRESCRIPTION LACHES

Fact of delay Fixed time Question of time Statutory Basis: law

Effect of delay Not time-bound Question of equity in permitting the

enforcement of a claim Not statutory Basis: equity

Requisites of laches Conduct on the part of defendant, which gives rise to a claim Delay in asserting complainant’s rights, the complainant having the knowledge &

opportunity to file suit Lack of knowledge or notice of the part of the defendant that the complainant

would assert a right Injury or prejudice to the defendant in the event relief is accorded to the

complainant

TYPES OF PRESCRIPTION a. Acquisitive—acquisition of a right; adverse possession; usurpation. Refers to the possessor as the

actor, as a claimant in possession. Vests property. Basis: assertion of the usurper of an adverse right, uncontested by the true owner of the right, and gives rise to the presumption that the latter has given up the right to the former. Effect of acquisitive prescription? Two sides.

- One side says the right to return the thing is extinguished upon prescription. - Another (Tolentino’s) says that a natural obligation to return the thing subsists, for two

reasons: the law considers an obligation barred by prescription as a natural one1, and the voluntary return of the thing can be considered as a renunciation of prescription.2

1 Art. 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. 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.

2 Art. 1112. Persons with capacity to alienate property may renounce prescription already obtained, but not the right to prescribe in the future.




2

b. Extinctive—loss of the right; limitation of actions. Refers to the neglect of the owner, who is out of possession. Bars the right of action. Basis: probability that alleged right never existed or has already been extinguished, or if it exists, the inconvenience caused by the prescription should be borne by the negligent party.

Art. 1107. Persons who are capable of acquiring property or rights by the other legal modes may acquire the same by means of prescription.

Minors and other incapacitated persons may acquire property or rights by prescription, either personally or through their parents, guardians or legal representatives. CAPACITY FOR PRESCRIPTION

General rule: Capacity to acquire property or rights by other legal modes is required for prescription.

Exception: Minors and other incapacitated persons with discernment can acquire through prescription, but this acquisition will be voidable or annullable, and can be ratified when the minor comes of age or when the incapacitated becomes capacitated. When discernment is absent, these persons can acquire through their legal representatives. This acquisition is completely valid. Discernment requires animus rem sibi habiendi (an intent to appropriate the thing as one’s own), an essential element of possession.

VALID ACQUISITION VOIDABLE ACQUISITION

Majority age Minority age or incapacitated, as long as

through legal representatives

Minority age or incapacitated without the assistance of parents, guardians, or legal representatives

If the property requires just title: the same capacity required for the possession of title is

required. If by donation, capacity for donees is required, etc. In other cases where title is unnecessary, capacity for possession is required—it is an element common to all kinds of acquisitive prescription.

Art. 1108. Prescription, both acquisitive and extinctive, runs against:

(1) Minors and other incapacitated persons who have parents, guardians or other legal representatives; (2) Absentees who have administrators, either appointed by them before their disappearance, or appointed by the courts; (3) Persons living abroad, who have managers or administrators; (4) Juridical persons, except the State and its subdivisions. Persons who are disqualified from administering their property have a right

to claim damages from their legal representatives whose negligence has been the cause of prescription. Art. 1109. Prescription does not run between husband and wife, even though there be a separation of property agreed upon in the marriage settlements or by judicial decree.

Neither does prescription run between parents and children, during the minority or insanity of the latter, and between guardian and ward during the continuance of the guardianship. PERSONS AFFECTED BY PRESCRIPTION

SUBJECTED TO PRESCRIPTION NOT SUBJECTED TO PRESCRIPTION




3

Minors and incapacitated persons who have parents, guardians, and legal representatives

When such minors do not have parents, guardians, or legal representatives

Absentees who have administrators appointed by them or the courts

When such absentee did not leave an administrator and there is no way that the absentee could return

Persons abroad who left managers or administrators

When such person abroad did not leave a manager/administrator and there is no way that the absentee could return to the domicile

Juridical persons Will run against the State’s political subdivisions that act in their proprietary capacity (engaged in business, like a normal corporation).

It does not run against the State and its political subdivisions acting in their sovereign capacity.

Husband and wife, in specific cases provided by the law, such as legal separation, or objections to decisions made by the husband over the administration of common property.

Husband and wife for all other cases, even though there be a separation of property agreed upon in the marriage settlememts or by judicial decree

Parents and children during the age of majority of the latter, or when the children are in the age of majority and are sane

Parents and children during minority and/or insanity of the latter

-- Guardian and ward during the time of the guardianship

Art. 1110. Prescription, acquisitive and extinctive, runs in favor of, or against a married woman.

A useless article, honestly. Art. 1111. Prescription obtained by a co-proprietor or a co-owner shall benefit the others. CO-OWNERSHIP; HOW PRESCRIPTION APPLIES

General rule: Actual possession of the other parties in the co-ownership is not a requisite for the acquisition to favor the others. There is also no need for ratification of other co-owners in order that a prescription obtained by a party may benefit the others. Exception: When the prescription has no/distant relation with the properties owned in common, ratification is needed.

Art. 1112. Persons with capacity to alienate property may renounce prescription already obtained, but not the right to prescribe in the future. RENUNCIATION OF PRESCRIPTION

Bars the remedy, but does not bar the debt. Usually happens when there is a pending debt and the prescriptive time has elapsed, but the

debtor acknowledges the debt and promises to pay it outside of the prescriptive period. The debtor effectively waives the right to the benefits of prescription, one of which is the inability of the creditor to collect the debt that has prescribed. Renunciation enables to creditor to recover the original contract.




4

Unilateral—does not require the approval of the person benefited by it. Tacit—requires 1) acknowledgement of a debt and 2) the promise to pay it outside of the period

and benefits of prescription Renunciation not valid when—1) Made in advance: an agreement that obligations arising from a

contract shall not be subject to prescription is not binding. 2) Made by representatives: only persons with capacity to alienate property may renounce the prescription already obtained.

Art. 1113. All things which are within the commerce of men are susceptible of prescription, unless otherwise provided. Property of the State or any of its subdivisions not patrimonial in character shall not be the object of prescription. OBJECTS OF PRESCRIPTION NOT OBJECTS OF PRESCRIPTION

Everything within the commerce of man, and can be appropriated, can be acquired by prescription.

- Patrimonial property* is an exclusion from the properties of public dominion that cannot be acquired by prescription

- This interpretation is based on statutory construction to reconcile a conflict between Art 1113 and Art 1108.3

Common things (air, high seas) Properties of public dominion** Intransmissible rights “Unless otherwise provided”—though

within the commerce of man, the following cannot be acquired by prescription:

- Movables possessed through a crime4

- Lands registered under the Torrens system5

* Patrimonial property is private government property that is no longer intended for public use or service, according to Art. 421 of the Civil Code. **According to Article 240 of the Civil Code, properties of public dominion include the following:

1. Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges constructed by the State, banks, shores, roadsteads, and others of similar character

2. Those which belong to the State without being for public use, or are intended for some public service or for the development of national wealth.

Art. 1114. Creditors and all other persons interested in making the prescription effective may avail themselves thereof notwithstanding the express or tacit renunciation by the debtor or proprietor.

Saving clause for creditors: Even if a person bound by the obligation renounces the prescription, a creditor can still plead the prescription, thereby resisting payment. This plea does not extend to other creditors.

Art. 1115. The provisions of the present Title are understood to be without prejudice to what in this Code or in special laws is established with respect to specific cases of prescription.

In case of a conflict between other Civil Code provisions: The more specific provision will prevail. In case of conflict between the Civil Code and other statutes: If there are different prescriptive

periods and different types of causes of action, the provisions do not exclude each other from being availed of by the parties.

3 Art 1108 says prescription runs against juridical persons, but not against the State and its subdivisions. 4 Art 1133. 5 Art 1126.




5

Art. 1116. Prescription already running before the effectivity of this Code shall be governed by laws previously in force; but if since the time this Code took effect the entire period herein required for prescription should elapse, the present Code shall be applicable, even though by the former laws a longer period might be required.

Present Civil Code took effect on August 30, 1950. This article is a transitory provision. Three rules:

1. If the prescriptive period under the old Civil Code had already elapsed before the effectivity of the new Civil Code, the old prescriptive period applies.

2. If the prescriptive period under the old civil Code has not elapsed upon the effectivity of the new Civil Code, the new Civil Code will apply if the new Civil Code provides for a shorter time for the prescription.

3. If the prescriptive period under the old civil Code has not elapsed upon the effectivity of the new Civil Code, the old Civil Code will apply if the new Civil Code provides for a longer time for the prescription.

PRESCRIPTION OF OWNERSHIP AND OTHER REAL RIGHTS Art. 1117. Acquisitive prescription of dominion and other real rights may be ordinary or extraordinary.

Ordinary acquisitive prescription requires possession of things in good faith and with just title for the time fixed by law.

REQUISITES OF ACQUISITIVE PRESCRIPTION / TYPES

ORDINARY PRESCRIPTION EXTRAORDINARY PRESCRIPTION

1. Capacity to acquire by prescription

See Art 1107 See Art 1107

2. A thing capable of acquisition by prescription

See Art 1113 See Art 1113

3. Possession of the thing under certain conditions

Good faith and with just title

In the concept of an owner

Open, exclusive, and uninterrupted ownership

Bad faith In the concept of an

owner Open, exclusive, and

uninterrupted ownership

4. Lapse of time provided by law

Movable / personal property – 4 years6

Immovable property – 10 years7

Movable property – 8 years8

Immovable property – 30 years9

CONVERSION OF PRESCRIPTION

What if a possessor’s good faith transforms to bad faith?: Three possible solutions10, but the most acceptable solution is that the prescription will be extraordinary but the possession in good

6 Art 1132 7 Art 1134 8 Art 1132 9 Art 1137




6

faith shall be computed in proportion to the period of extraordinary prescription. This reflects the difference between the two kinds of acquisitive prescription, and puts value to the possession in good faith.

Art. 1118. Possession has to be in the concept of an owner, public, peaceful and uninterrupted. Art. 1119. Acts of possessory character executed in virtue of license or by mere tolerance of the owner shall not be available for the purposes of possession. POSSESSION, TO BE VALID, MUST BE:

1. In the concept of an owner The possessor asserts dominion on the property to the exclusion of all others; must be en

concepto dueño, an adverse possession Acts pertaining to the concept of an owner: (Ramos v. CA) continuous possession, payment of

real estate taxes Not in the concept of an owner:

a. Mere possession with a juridical title (unless such title is repudiated), such as being a trustee, usufructuary, lessee, agent, pledge

b. That which subsists by mere tolerance or is in virtue of a license, because both of these imply consent on the part of the owner, and thus constitute a recognition by the possessor that somebody else owns the property

c. Merely transient, in which case the owner is not divested of the title, but cannot exercise ownership in the meantime

2. Public—a notorious holding of the property known to the community

3. Peaceful—for the period of years required by law for the acquisitive prescription to apply, there

must be no valid interference from others claiming or asserting their rights to the property

4. Uninterrupted—see following notes. Art. 1120. Possession is interrupted for the purposes of prescription, naturally or civilly. Art. 1121. Possession is naturally interrupted when through any cause it should cease for more than one year.

The old possession is not revived if a new possession should be exercised by the same adverse claimant.

Art. 1122. If the natural interruption is for only one year or less, the time elapsed shall be counted in favor of the prescription. Art. 1123. Civil interruption is produced by judicial summons to the possessor. Art. 1124. Judicial summons shall be deemed not to have been issued and shall not give rise to interruption:

(1) If it should be void for lack of legal solemnities;

10 The other two are: 1) the bad faith erases the good faith, and the time of extraordinary prescription will run from the time of possession in bad faith (this puts the possessor in a worse place than one who started in bad faith), and 2) the period of extraordinary prescription will run from the time the possession began (gives identical effect to both kinds of acquisitive prescriptions).




7

(2) If the plaintiff should desist from the complaint or should allow the proceedings to lapse; (3) If the possessor should be absolved from the complaint. In all these cases, the period of the interruption shall be counted for the

prescription.

Art. 1125. Any express or tacit recognition which the possessor may make of the owner's right also interrupts possession. INTERRUPTIONS TO PRESCRIPTION

Once interrupted, all the benefits already accrued in prescription cease; when the prescription runs again, it will be a new one. It is in suspension where past periods may be included in the computation (e.g., suspension because of insanity of a child or during guardianship11)

NATURE OF INTERRUPTION INTERRUPTED NOT INTERRUPTED

a. Natural—any cause except civil

For a period more than one year. If the time elapsed is one year or less.

b. Civil—comes in the form of judicial summons to the possessor —interruption occurs upon receipt of the judicial summons, and not the date of filing of a complaint

It shall be considered an interruption:

1) If the judicial summons is valid,

2) If the plaintiff pursues the complaint to its end, and

3) Upon a final decision against the possessor.

It shall not be considered an interruption:

1) If the judicial summons is void,

2) If the plaintiff desists and proceedings elapse, and

3) Upon a final decision absolving the possessor.

c. Express or tacit

recognition by possessor of owner’s right—one cannot recognize the right of another and at the same time claim adverse possession which can ripen into ownership.

When the possessor him/herself declares or recognizes non-ownership E.g., where the sale is subject

to the owner’s right of redemption, prescription runs only after the expiration of the redemption period.

When a third person declares non-ownership by the possessor

Art. 1126. Against a title recorded in the Registry of Property, ordinary prescription of ownership or real rights shall not take place to the prejudice of a third person, except in virtue of another title also recorded; and the time shall begin to run from the recording of the latter.

General rule: A Torrens title recorded in the Registry of Property is never a subject of prescription to the prejudice of a third person.12 However, the Torrens title can be challenged by a claim of laches, if applicable.

Exception: When another title is also recorded, prescription will begin to run from the recording of such title.

11 Art 1109. 12 A third person is considered one who has acquired a right subsequently by relying on the record on the registry. The third person has to acquire under the following conditions: 1) under onerous title, 2)acquisition is from someone who, according to the registry, can transmit such title, 3) that the acquisition is registered, and 4) that such person has no knowledge of the prescription.




8

Art. 1127. The good faith of the possessor consists in the reasonable belief that the person from whom he received the thing was the owner thereof, and could transmit his ownership. Art. 1128. The conditions of good faith required for possession in Articles 526, 527, 528, and 529 of this Code are likewise necessary for the determination of good faith in the prescription of ownership and other real rights. GOOD FAITH

Its essence lies in the honest belief in the validity of one’s right, ignorance of a superior claim, and the absence of intention to overreach another

When the possessor is not aware of any flaw that exists in the title or mode of acquisition13 Mistake upon a doubtful or difficult question of law Always presumed, and the burden of proof lies in one the party alleging bad faith Does not lose its character until the moment when facts show that the possessor is aware of

that he or she possesses the thing wrongfully Cannot be invoked in the following examples: knowingly using a forged document to establish

one’s possession by acquisitive prescription, or receiving constructive notice of the legal and valid rights of the possession of another during the prescriptive period

Art. 1129. For the purposes of prescription, there is just title when the adverse claimant came into possession of the property through one of the modes recognized by law14 for the acquisition of ownership or other real rights, but the grantor was not the owner or could not transmit any right. Art. 1130. The title for prescription must be true and valid. Art. 1131. For the purposes of prescription, just title must be proved; it is never presumed. JUST TITLE

An act which has for its purpose the transmission of ownership, and which would have actually transferred ownership if the grantor had been the owner.

Thus, just title in prescription is understood in the sense of a titulo colorado—such title where, although there was a mode of transferring ownership, still something is wrong because the grantor is not the owner (Solis v. CA)

Art. 1132. The ownership of movables prescribes through uninterrupted possession for four years in good faith.

The ownership of personal property also prescribes through uninterrupted possession for eight years, without need of any other condition.

With regard to the right of the owner to recover personal property lost or of which he has been illegally deprived, as well as with respect to movables acquired in a public sale, fair, or market, or from a merchant's store the provisions of Articles 559 and 1505 of this Code shall be observed. 3rd paragraph: An owner who has lost or has been unlawfully deprived of property can recover the

thing from the person in possession of the same. If the possessor of the property lost or unlawfully deprived from its owner acquired the thing at a public sale, reimbursement shall be required.

13 Art 526 14 Examples: succession, inheritance, donation




9

Art. 1133. Movables possessed through a crime can never be acquired through prescription by the offender. But prescription will run if the movables are acquired subsequently by another who is not an offender

in a crime. Art. 1134. Ownership and other real rights over immovable property are acquired by ordinary prescription through possession of ten years. Art. 1135. In case the adverse claimant possesses by mistake an area greater, or less than that expressed in his title, prescription shall be based on the possession. Basis shall always be the possession, regardless of what is indicated in the title. Art. 1136. Possession in wartime, when the civil courts are not open, shall not be counted in favor of the adverse claimant. However, if the civil courts are open during wartime, prescription shall be counted. Art. 1137. Ownership and other real rights over immovables also prescribe through uninterrupted adverse possession thereof for thirty years, without need of title or of good faith. Art. 1138. In the computation of time necessary for prescription the following rules shall be observed:

(1) The present possessor may complete the period necessary for prescription by tacking his possession to that of his grantor or predecessor in interest; (2) It is presumed that the present possessor who was also the possessor at a previous time, has continued to be in possession during the intervening time, unless there is proof to the contrary; (3) The first day shall be excluded and the last day included.

1st rule contemplates a transfer of property from one person to another in a manner provided by law.

It is allowed only when there is a privity of contract or relationship between the previous and the present possessors.

2nd rule: A presumption arises that a person has occupied a property during the intervening time if there are facts showing possession on two different times. However, this presumption can be destroyed by evidence to the contrary.

PRESCRIPTION OF ACTIONS Art. 1139. Actions prescribe by the mere lapse of time fixed by law. Art. 1140. Actions to recover movables shall prescribe eight years from the time the possession thereof is lost, unless the possessor has acquired the ownership by prescription for a less period, according to Articles 1132, and without prejudice to the provisions of Articles 559, 1505, and 1133.




10

Without prejudice here means that if a possessor has acquired ownership, no action to recover may be filed, even though there may still be several years remaining in the prescribed 8 years.

Art. 1141. Real actions over immovables prescribe after thirty years. This provision is without prejudice to what is established for the acquisition

of ownership and other real rights by prescription. Art. 1142. A mortgage action prescribes after ten years. A mortgage is an accessory contract, constituted to serve a debt so if the debtor fails to pay the

principal obligation, the creditor can foreclose on the mortgage by selling the same in a public sale and using the proceeds to pay off the debt and interest. If there is any deficiency, the creditor can still go against the debtor. The action to file a claim for the deficiency is a mortgage action.

Art. 1143. The following rights, among others specified elsewhere in this Code, are not extinguished by prescription:

(1) To demand a right of way, regulated in Article 649; (2) To bring an action to abate a public or private nuisance.

Art. 1144. The following actions must be brought within ten years from the time the right of action accrues:

(1) Upon a written contract; (2) Upon an obligation created by law; (3) Upon a judgment.

The cause of action for a written contract occurs when there is a breach of such contract.

Art. 1145. The following actions must be commenced within six years:

(1) Upon an oral contract; (2) Upon a quasi-contract.

A quasi-contract is a juridical relation characterized by certain lawful, voluntary and unilateral acts to

the end that no one should be unjustly enriched at the expense of the other.

Art. 1146. The following actions must be instituted within four years: (1) Upon an injury to the rights of the plaintiff; (2) Upon a quasi-delict.

A quasi-delict is a contractual relation where whoever by act or omission causes damage to another,

there being fault or negligence, is obliged to pay for the damage done Art. 1147. The following actions must be filed within one year:

(1) For forcible entry and detainer; (2) For defamation.

Art. 1148. The limitations of action mentioned in Articles 1140 to 1142, and 1144 to 1147 are without prejudice to those specified in other parts of this Code, in the Code of Commerce, and in special laws. Without prejudice means that in proper cases, the prescriptive period in this chapter may be availed

of notwithstanding other provisions in other laws




11

Art. 1149. All other actions whose periods are not fixed in this Code or in other laws must be brought within five years from the time the right of action accrues. Art. 1150. The time for prescription for all kinds of actions, when there is no special provision which ordains otherwise, shall be counted from the day they may be brought. Art. 1151. The time for the prescription of actions which have for their object the enforcement of obligations to pay principal with interest or annuity runs from the last payment of the annuity or of the interest. Art. 1152. The period for prescription of actions to demand the fulfillment of obligation declared by a judgment commences from the time the judgment became final. Art. 1153. The period for prescription of actions to demand accounting runs from the day the persons who should render the same cease in their functions.

The period for the action arising from the result of the accounting runs from the date when said result was recognized by agreement of the interested parties.

General rule: Art. 1150. Exceptions: Art. 1151, 1152, and 1153. Art. 1154. The period during which the obligee was prevented by a fortuitous event from enforcing his right is not reckoned against him. Art. 1155. The prescription of actions is interrupted when they are filed before the court, when there is a written extrajudicial demand by the creditors, and when there is any written acknowledgment of the debt by the debtor. The interruption renews or starts a new period of prescription. It is not a mere suspension. OBLIGATIONS AND CONTRACTS OBLIGATIONS GENERAL PROVISIONS Art. 1156. An obligation is a juridical necessity to give, to do, or not to do. ESSENTIAL ELEMENTS OF AN OBLIGATION

1. Juridical tie or vinculum juris—efficient cause established by the sources of obligations (Art. 1157) 2. Object—the prestation or conduct required, which in this case is to give, to do, or not to do 3. Subject-persons—the parties involved in an obligation, which consist of the active (obligee,

creditor) and the passive (obligor, debtor). Includes both natural and juridical persons. Art. 1157. Obligations arise from:

(1)Law; (2)Contracts; (3)Quasi-contracts; (4)Acts or omissions punished by law; and




12

(5)Quasi-delicts. SOURCES OF OBLIGATIONS This enumeration is exclusive. No other sources of obligations are provided by the law. These sources

are further discussed below. Art. 1158. Obligations derived from law are not presumed. Only those expressly determined in this Code or in special laws are demandable, and shall be regulated by the precepts of the law which establishes them; and as to what has not been foreseen, by the provisions of this Book.

1. LAW Not presumed Does not depend upon the will of the parties, since this is imposed by the State and generally imbued

with public policy considerations Significance: Existing law enters into and forms part of a valid contract without need for the parties

expressly making reference thereto. Art. 1159. Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith.

2. CONTRACTS A contract involves two or more persons whereby a right is acquired by at least one of them to an act

or acts, or to forbearance, on the part of the other or others Whatever stipulations, terms, and conditions are included in the contract, as long as they are not

contrary to law, morals, good customs, and public policy or public order, such contract is the law between the two parties.

The Court may interfere with a contract in the following cases: - When the Court fixes a period upon a suspensive potestative condition imposed upon the

fulfilment of the obligation - When the Court fixes a period when a debtor binds himself to pay when his/her means

permit him/her to do so - When the Court equitably reduces the penalty when the principal obligation has been

partially fulfilled by a debtor, or when the penalty is iniquitous or unconscionable - When the Court releases the obligor from an obligation that has become so difficult to be

manifestly beyond the contemplation of the parties Art. 1160. Obligations derived from quasi-contracts shall be subject to the provisions of Chapter 1, Title XVII, of this Book.

3. QUASI-CONTRACT A quasi-contract is a juridical relation involving certain lawful, voluntary, and unilateral acts which

prevent unjust enrichment at the expense of another.

Art. 1161. Civil obligations arising from criminal offenses shall be governed by the penal laws, subject to the provisions of Article 2177, and of the pertinent provisions of Chapter 2, Preliminary Title, on Human Relations, and of Title XVIII of this Book, regulating damages.

4. FELONIES




13

Basis: Civil liability attaches to any person who may be found to be criminally liable.15 This source of obligations is guided by the following rules:

a. The plaintiff shall not be entitled to recover damages twice for the same act or omission of the defendant, even though the negligence may constitute an entirely different cause of action.16

b. When the accused in a criminal prosecution is acquitted on the ground that his guilt has not been proved beyond reasonable doubt, a civil action of damages for the same act or omission may be instituted, requiring only a preponderance of evidence.17

c. When a separate civil action is brought to demand civil liability arising from a criminal offense, and no criminal proceedings are instituted yet during the pendency of the civil case, a preponderance of evidence is sufficient to prove the act complained of.18

d. In cases of defamation, fraud, physical injuries, or when a member of a city or municipal police force fails to render aid or protection to any person in case of danger to life or property, or when any constitutional right under Art. 32 is violated, the civil action shall proceed independently of the criminal action, requiring only a preponderance of evidence.19

Art. 1162. Obligations derived from quasi-delicts shall be governed by the provisions of Chapter 2, Title XVII of this Book, and by special laws.

5. QUASI-DELICT A juridical relation where, if there is no existing pre-contractual relation between the parties, whoever

by act or omission causes damage to another, there being no fault or negligence, is obliged to pay for the damage done.20

NATURE AND EFFECT OF OBLIGATIONS

I. TO GIVE

Art. 1163. Every person obliged to give something is also obliged to take care of it with the proper diligence of a good father of a family, unless the law or the stipulation of the parties requires another standard of care. STANDARD OF CARE REQUIRED FOR THINGS TO BE GIVEN General rule: The standard of care required of the person who has the duty to give a determinate

object is that of the “proper diligence of a good father of a family.” Exception: Unless the law or stipulation of the parties requires another standard of care. However, in

case of a contrary stipulation by the parties, such stipulation should not contemplate a relinquishment or waiver of the most ordinary diligence.

- Example of another standard of care: “extraordinary diligence” exercised by common carriers. Common carriers are persons, corporations, firms, or associations engaged in the business of transporting passengers or goods or both.

TWO KINDS OF THINGS

1. Determinate—an object definite, known, and has already been decided and particularly specified as the matter to be given among the same things belonging to the same kind (e.g., an apple with Atty. Mel’s autograph)

2. Indeterminate or generic—any object belonging to the same kind (e.g., any normal apple)

15 Art. 2176 16 Art. 2177 17 Art. 29 18 Art. 30 19 Art. 33, 34, 32 20 Art. 2176




14

Art. 1164. The creditor has a right to the fruits of the thing from the time the obligation to deliver it arises. However, he shall acquire no real right over it until the same has been delivered to him. RIGHTS BEFORE & UPON DELIVERY OF THE THING BEFORE DELIVERY UPON DELIVERY Creditor has a personal right over the thing.

- A personal right is the power of one person to demand of another, as a definite passive subject, the fulfillment of the protestation to give, to do, or not to do

- Such right which is enforceable only upon the debtor who is under an obligation to give

Creditor has a real right over the thing. - A real right is the power belonging

to one person over a specific thing, without a passive subject individually determined, against whom such right may be personally exercised

- Such right which is enforceable against the whole world and will prejudice anybody claiming the same object of protestation

If the creditor is prejudiced by the acquisition of an innocent third party, the creditor can go against the debtor for damages

If an innocent third party is prejudiced by the acquisition of the creditor, the innocent third party can go against the debtor for damages

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

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

If the obligor delays, or has promised to deliver the same thing to two or more persons who do not have the same interest, he shall be responsible for any fortuitous event until he has effected the delivery. NON-DELIVERY OF THE THING DETERMINATE THING INDETERMINATE THING *IN CASE OF FORTUITOUS EVENT

REMEDIES 1. Action of “specific

performance”—an action to compel the debtor to make the delivery

2. & damages, if the non-delivery is accompanied by the debtor’s fraud, negligence, delay, or breach of contract

1. The creditor may have it done or delivered in any reasonable way, charging all expenses of such fulfillment to the debtor

Thus, the creditor has the right to have somebody else to perform the obligation and the right to charge the expenses thereof to the debtor.

General rule: Debtor is excused if non-delivery of determinate thing was due to a fortuitous event.

Exceptions: a. If the debtor delays b. If the debtor has promised to

deliver the same thing to two or more persons who do not have the same interest

Thus: 1. The obligor may be liable for

damages 2. Or will be bound to replace

the lost object if the obligee agrees




15

Art. 1166. The obligation to give a determinate thing includes that of delivering all its accessions and accessories, even though they may not have been mentioned. In short, obligor is mandated by law to deliver the whole thing.

II. TO DO & NOT TO DO Art. 1167. If a person obliged to do something fails to do it, the same shall be executed at his cost.

This same rule shall be observed if he does it in contravention of the tenor of the obligation. Furthermore, it may be decreed that what has been poorly done be undone. Art. 1168. When the obligation consists in not doing, and the obligor does what has been forbidden him, it shall also be undone at his expense. (1099a) NON-ACCOMPLISHMENT OF THE ACT In a prestation to do, the debtor shall always be liable for the cost in the following instances:

1. When the debtor fails to do it 2. When the debtor contravenes the tenor of the obligation 3. When the debtor poorly fulfils the obligation 4. When the debtor does what is forbidden

“At his cost” in the article both means 1) the right to have somebody else perform the obligation and 2) the right to charge the expenses thereof to the debtor.

III. TO GIVE, TO DO & NOT TO DO

Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation.

However, the demand by the creditor shall not be necessary in order that delay may exist:

(1) When the obligation or the law expressly so declare; or (2) When from the nature and the circumstances of the obligation it

appears that the designation of the time when the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the contract; or

(3) When demand would be useless, as when the obligor has rendered it beyond his power to perform.

In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins.

DEMAND A demand makes an obligation become due. Demand is needed only when the obligation is to do

something other than the payment of money. In the payment of money, the time defaulted is compensated for by interest.




16

Two kinds of demand: extra-judicial and judicial. A commencement of a suit is a sufficient (judicial) demand.

DELAY Delay, or default, as contemplated in this article, means delay with fault or negligence. If it is delay

by mere inadvertence, the obligor will not be held liable under Article 1169. DEMAND DELAY EFFECTS One becomes liable for damages for the

delay not from the time the object of prestation is to be delivered, but from the time of the demand

When a party defaults, the other party has two choices:

1) to ask for specific performance and damages, or 2) to ask for the rescission of the contract and damages

WHEN NOT NEEDED

Generally, demand is not needed for the ff: a. When the obligation or the law expressly declares. E.g., indication in contract, taxes b. When time is of the essence for a particular contract. E.g. delivery of wedding car c. When the obligor has rendered the obligation beyond his or her power to perform.

E.g. donation of a collateral to a third party

Other cases a. Filing of a suit as a demand

General rule: For a party to be able to file a suit to compel the other party to perform an obligation, the law does not make, as a prerequisite, that extra-judicial demand must be made first on such other party prior to the filing of the suit. (Rationale: The filing of the suit is the demand itself. It is a judicial demand.)

b. Reciprocal obligations “Substantial compliance”: The performance of one is conditioned upon the simultaneous fulfillment of another. The obligation of one is a resolutory condition of the obligation of the other, the non-fulfillment of which entitles the other party to rescind the contract.

WHEN NEEDED

Exceptions: Two cases. Extra-judicial demand should be made prior to the filing of a civil suit in ejectment or consignment cases. (Rationale: Fair notice must be given to the debtors in these cases.)

Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages. Rationale for Art. 1170: The compliance with an obligation must always be done in good faith. Need for demand and delay is irrelevant here. There are four causes provided by law which bring forth a suit for damages: 1) fraud, 2) negligence, 3)

contravention of the tenor of the obligation, and 4) delay. If a fortuitous event occurs after any of the causes above (and in effect, aggravates such causes), the

obligor cannot be excused from being liable on the obligation. Art. 1171. Responsibility arising from fraud is demandable in all obligations. Any waiver of an action for future fraud is void. Art. 1172. Responsibility arising from negligence in the performance of every kind of obligation is also demandable, but such liability may be regulated by the courts, according to the circumstances.




17

Art. 1173. The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of the obligation and corresponds with the circumstances of the persons, of the time and of the place. When negligence shows bad faith, the provisions of Articles 1171 and 2201, paragraph 2, shall apply.

If the law or contract does not state the diligence which is to be observed in the performance, that which is expected of a good father of a family shall be required. CAUSE HOW COMMITTED OTHER CHARACTERISTICS Fraud This implies fraud committed after

two parties agree to a contract, and not one which occurs to deceive a party into agreeing for a contract.

It is demandable in all obligations. Any waiver for an action of future fraud is

void.

Negligence An omission of diligence which is required by the nature of the obligation

Subjective: limited by the circumstances of time, nature, and place—liability is judged by these circumstances

Presumption of diligence is that expected of a good father

If committed with bad faith, provisions of Art. 1171 and 2201 (2) apply. Bad faith is a state of mind affirmatively operating with furtive design and some motive of ill will. Not equated with a honest mistake, but a design to mislead another

Contravention of tenor of obligations

See Art. 1166 to 1168

Delay See Art. 1169 Art. 1174. Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be responsible for those events which could not be foreseen, or which, though foreseen, were inevitable. FORTUITOUS EVENT An act of God, 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

Applicable only to determinate things in case of obligations to give. In case of fortuitous event on generic things, the creditor can simply ask for another copy of the thing

Does not serve to extend the contract General rule: fortuitous event excuses an obligor. Exceptions are the ff:

1. When there is fraud, negligence, delay, or breach of contract 2. When there is an assumption of risk in the nature of the obligation 3. When the contract provides that a fortuitous event will not excuse the obligor 4. Other instances provided by law (insurance contract, because its very nature involves the

assumption of risk) Requisites:

1. The cause of breach of obligation must be independent of the will of the debtor 2. The event must either be unforeseeable or unavoidable 3. The event must be such to render it impossible for the debtor to fulfill his or her

obligation in a normal manner 4. The debtor must be free from any participation in, or the aggravation of the injury




18

Art. 1175. Usurious transactions shall be governed by special laws. Art. 1176. The receipt of the principal by the creditor without reservation with respect to the interest, shall give rise to the presumption that said interest has been paid.

The receipt of a later installment of a debt without reservation as to prior installments, shall likewise raise the presumption that such installments have been paid. PRESUMPTIONS OF PAYMENT These presumptions are overturned by strong proof to the contrary.

1. Receipt of principal payment: presumption that interest has been paid. 2. Receipt of last instalment: presumption that all previous instalments have been paid. The receipt

of the last instalment should refer to the specific date of the last instalment. Art. 1177. The creditors, after having pursued the property in possession of the debtor to satisfy their claims, may exercise all the rights and bring all the actions of the latter for the same purpose, save those which are inherent in his person; they may also impugn the acts which the debtor may have done to defraud them. OTHER REMEDIES FOR THE CREDITOR The following successive measures must be taken by a creditor before he or she may bring an action

for rescission of an allegedly fraudulent sale: 1. Exhaust the properties of the debtor through levying by attachment and execution upon all the

property of the debtor, except as such exempt by law from execution 2. Exercise all the rights and actions of the debtor, save those which are personal to him (accion

subrogatoria) 3. Seek the rescission of the contracts executed by the debtor in fraud of their rights (accion

pauliana) Art. 1178. Subject to the laws, all rights acquired in virtue of an obligation are transmissible, if there has been no stipulation to the contrary. TRANSMISSIBLE RIGHTS General rule: Rights acquired in the virtue of an obligation are automatically transmissible. Real

rights are usually transmissible, while personal rights are not. Exceptions: 1) If there is a law or a stipulation in the contract to the contrary, and 2) the owner of the

right cannot transfer rights greater than what he or she possesses to the transferee. DIFFERENT KINDS OF OBLIGATIONS

I. PURE AND CONDITIONAL OBLIGATIONS Art. 1179. Every obligation whose performance does not depend upon a future or uncertain event, or upon a past event unknown to the parties, is demandable at once.

Every obligation which contains a resolutory condition shall also be demandable, without prejudice to the effects of the happening of the event. PURE OBLIGATION




19

An unqualified obligation which is demandable immediately. Its performance does not depend upon a future and uncertain event, or upon a past event unknown to the parties.

CONDITIONAL OBLIGATION The reverse of a pure obligation. Its performance depends upon a future and uncertain event or upon

a past event unknown to the parties, and its efficacy or obligatory force is subordinated by the happening of the future and uncertain event.

CONDITION A condition is an act or event, other than a lapse of time, which, unless the condition is excused, must

occur before a duty to perform a promise in the agreement arises or which discharges a duty of performance that has already arisen.

RESOLUTORY CONDITION SUSPENSIVE CONDITION Extinguishes the obligation once the future and

uncertain event happens Demandable at once A condition subsequent E.g. in reciprocal obligations, the obligation of one is a resolutory condition of the obligation of the other

Gives rise to the obligation upon the happening of a future and unknown event or a past event unknown to the parties

Demandable only at the time the event happens A condition precedent E.g. contract to sell (sale upon completion of payment) and contract of sale (perfection of sale upon completion of payment)

Art. 1180. When the debtor binds himself to pay when his means permit him to do so, the obligation shall be deemed to be one with a period, subject to the provisions of Article 1197. This is one of the cases when the Court assigns a period within which the payment is to be made,

especially when the period depends upon the will of the debtor (“when his means permit him to do so” in this article).

Art. 1181. In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event which constitutes the condition. See table at Art. 1179. Art. 1182. When the fulfillment of the condition depends upon the sole will of the debtor, the conditional obligation shall be void. If it depends upon chance or upon the will of a third person, the obligation shall take effect in conformity with the provisions of this Code. SUSPENSIVE POTESTATIVE CONDITION A condition whose fulfilment depends upon the sole will of the debtor Absolute rule: A suspensive potestative condition is always void. It is the obligation accompanying

the condition which may be: - Void, if the suspensive potestative condition is imposed on the birth of the obligation.

This is now called a suspensive condition facultative as to the debtor - Valid, if the suspensive potestative condition is imposed merely on the fulfilment of the

obligation. In this case, the parties must go to court to have the period fixed.




20

Art. 1183. Impossible conditions, those contrary to good customs or public policy and those prohibited by law shall annul the obligation which depends upon them. If the obligation is divisible, that part thereof which is not affected by the impossible or unlawful condition shall be valid.

The condition not to do an impossible thing shall be considered as not having been agreed upon. IMPOSSIBLE CONDITIONS General rule: An obligation with an impossible condition is void. In addition, the condition to do an

impossible thing is deemed not agreed upon, and is thus not part of the contract. Exception: If the obligation is divisible, the part thereof not affected by the impossible condition is

still valid. Art. 1184. The condition that some event happen at a determinate time shall extinguish the obligation as soon as the time expires or if it has become indubitable that the event will not take place. Art. 1185. The condition that some event will not happen at a determinate time shall render the obligation effective from the moment the time indicated has elapsed, or if it has become evident that the event cannot occur.

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. CONDITION THAT AN EVENT WILL HAPPEN AT A DETERMINATE TIME Two effects:

1. Will extinguish the obligation as soon as the time expires, or 2. Will extinguish the obligation if it has become unquestionable that the event will not happen

CONDITION THAT AN EVENT WILL NOT HAPPEN AT A DETERMINATE TIME Two effects:

1. Shall render the obligation effective from the moment the time indicated has elapsed 2. Shall render the obligation effective if it has become evident that the event will not occur

If no time has been fixed, the time as may have been probably contemplated will be considered Art. 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment. CONSTRUCTIVE FULFILMENT If the obligor voluntarily prevents the fulfilment of a condition in an obligation, the law states that the

obligation shall be fulfilled. Also called the doctrine of prevention. Basis: good faith in both of the parties should not impede, hinder, or obstruct or prevent the

fulfilment of the obligation. Art. 1187. The effects of a conditional obligation to give, once the condition has been fulfilled, shall retroact to the day of the constitution of the obligation. Nevertheless, when the obligation imposes reciprocal prestations upon the parties, the fruits and interests during the pendency of the condition shall be deemed to have been mutually compensated. If the obligation is unilateral, the debtor shall appropriate the fruits and interests received, unless from the nature and circumstances of the obligation it should be inferred that the intention of the person constituting the same was different.




21

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. RETROACTIVE APPLICATION OF OBLIGATIONS General rule: An obligation is deemed to have been fulfilled not on the day of its fulfilment, but the

day of the constitution of the obligation. Only applicable to obligations with suspensive conditions. Application:

1. In reciprocal obligations: the fruits and interests of the object during the pendency of the condition cancel each other out.

2. In unilateral obligations: the fruits and interests of the object during the pendency of the obligation belong to the obligor, unless the circumstances or the intention of the person constituting the obligation says otherwise

Art. 1188. The creditor may, before the fulfillment of the condition, bring the appropriate actions for the preservation of his right.

The debtor may recover what during the same time he has paid by mistake in case of a suspensive condition. PROTECTIVE MEASURES BEFORE THE FULFILLMENT OF AN OBLIGATION For the creditor: bring appropriate actions, e.g., an injunction suit to stop the debtor from alienating

a property which is the object of an obligation, to protect his/her right For the debtor: recover what he or she has paid by mistake before the fulfillment of a condition in an

obligation Art. 1189. When the conditions have been imposed with the intention of suspending the efficacy of an obligation to give, the following rules shall be observed in case of the improvement, loss or deterioration of the thing during the pendency of the condition: (1) If the thing is lost without the fault of the debtor, the obligation shall be extinguished; (2) If the thing is lost through the fault of the debtor, he shall be obliged to pay damages; it is understood that the thing is lost when it perishes, or goes out of commerce, or disappears in such a way that its existence is unknown or it cannot be recovered; (3) When the thing deteriorates without the fault of the debtor, the impairment is to be borne by the creditor; (4) If it deteriorates through the fault of the debtor, the creditor may choose between the rescission of the obligation and its fulfillment, with indemnity for damages in either case; (5) If the thing is improved by its nature, or by time, the improvement shall inure to the benefit of the creditor; (6) If it is improved at the expense of the debtor, he shall have no other right than that granted to the usufructuary. SCENARIOS DURING THE PENDENCY OF AN OBLIGATION This article applies to those obligations with suspensive conditions. Choice of remedy always belongs to the creditor. EVENT W/O DEBTOR’S FAULT W/ DEBTOR’S FAULT LOSS* Obligation is extinguished Debtor to pay damages DETERIORATION Impairment is borne by creditor 1.Rescission of obligation +

damages




22

2.Fulfilment of obligation + damages

IMPROVEMENT (By nature or time) Shall inure to the benefit of creditor

(At the expense of debtor) Debtor shall only be a usufruct**

*A thing is deemed lost when it 1) perishes, 2) goes out of commerce, 3) disappears in such a way that its existence is unknown or it cannot be recovered **A usufruct gives a right to enjoy the property of another with the obligation of preserving its form and substance unless the title constituting it or the law provides. Art. 1190. When the conditions have for their purpose the extinguishment of an obligation to give, the parties, upon the fulfillment of said conditions, shall return to each other what they have received.

In case of the loss, deterioration or improvement of the thing, the provisions which, with respect to the debtor, are laid down in the preceding article shall be applied to the party who is bound to return. This article applies to obligations with resolutory conditions. Same scenarios as in Art. 1198. Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.

This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage Law. POWER TO RESCIND To rescind does not merely mean to terminate a contract and release the parties from further

obligations to each other, but more importantly, it means to abrogate the contract from the beginning and restore the parties to their original positions as if no contract has been made.

Requires a substantial breach of an obligation: substantial as to defeat the object of the parties in entering into an agreement.

RESCISSION IMPLIED RECISSION EXPRESS RECISSION ENFORCEMENT Court action Stipulation in the contract that

the violation of its terms shall cause the cancellation, termination, or rescission thereof w/o court intervention

PURPOSE OF COURT ACTION To enforce recission To judge whether the rescission is proper. Final judgment of court shall only confirm such recission

REVOCATORY ACT Final judgment of the court. Court shall fix a period, however, if there is a just cause.

Notice to the defaulter of such recission




23

Injured party who suffers a substantial breach has the following choices: 1. Fulfillment of obligation + damages 2. Rescission of obligation + damages 3. Rescission, even after the injured party has chosen fulfillment, if fulfillment should become

impossible + damages Art. 1192. In case both parties have committed a breach of the obligation, the liability of the first infractor shall be equitably tempered by the courts. If it cannot be determined which of the parties first violated the contract, the same shall be deemed extinguished, and each shall bear his own damages. IN PARI DELICTO If first violator is determined: Such first violator is liable, but his liability will be tempered because

the other party is also at fault If first violator cannot be determined: Obligation shall be deemed extinguished, and each shall bear

his/her own damages

II. OBLIGATIONS WITH A PERIOD Art. 1193. Obligations for whose fulfillment a day certain has been fixed, shall be demandable only when that day comes.

Obligations with a resolutory period take effect at once, but terminate upon arrival of the day certain.

A day certain is understood to be that which must necessarily come, although it may not be known when.

If the uncertainty consists in whether the day will come or not, the obligation is conditional, and it shall be regulated by the rules of the preceding Section. PERIOD Designates a particular time which is certain to happen as the moment when the obligation will either

be effective or be extinguished. A day certain is understood to be that which must necessarily come, although it may not be known when. When the day may not necessarily come, it is a condition. 1. Suspensive period—gives rise to the effectivity of the obligation 2. Resolutory period—extinguishes the obligation

Art. 1194. In case of loss, deterioration or improvement of the thing before the arrival of the day certain, the rules in Article 1189 shall be observed. Art. 1195. Anything paid or delivered before the arrival of the period, the obligor being unaware of the period or believing that the obligation has become due and demandable, may be recovered, with the fruits and interests. PAYMENT BEFORE PERIOD COMES If the debtor is unaware of the period:

- He or she may recover the thing with fruits and interests only during the time he or she was not obligated to give the thing.

If the debtor and creditor have full knowledge of the period: no problems. Obligation is fulfilled. Why does the law use “fruits and interests”? The preceding term is “paid or delivered.” Fruits refer to “delivered” and interests refer to “paid.” Why does the law include fruits and interests in a case for damages?




24

The obligor has lost the opportunity to make productive use of the money, so the law compensates for that.

Art. 1196. Whenever in an obligation a period is designated, it is presumed to have been established for the benefit of both the creditor and the debtor, unless from the tenor of the same or other circumstances it should appear that the period has been established in favor of one or of the other. BENEFIT OF THE PERIOD General rule: The period is always deemed to be established for the benefit of both the creditor and

debtor. In reciprocal obligations, for example, either party does not incur in delay unless the other starts the fulfilment of his part during the period stipulated. Designations of “creditor” and “obligor” are irrelevant.

Exception: The benefit of the period may be waived (expressly or impliedly) by the party in whose favor it was constituted.

Art. 1197. If the obligation does not fix a period, but from its nature and the circumstances it can be inferred that a period was intended, the courts may fix the duration thereof.

The courts shall also fix the duration of the period when it depends upon the will of the debtor.

In every case, the courts shall determine such period as may under the circumstances have been probably contemplated by the parties. Once fixed by the courts, the period cannot be changed by them. WHEN COURTS SHALL FIX THE PERIOD Two –step process:

1. Court must determine whether the obligation does not fix the period (e.g. depends on the will of the debtor), and from the circumstances and nature of the obligation, a period was intended by the parties.

2. Court must determine the period contemplated by the parties. The Court cannot fix a period based on its opinion.21 This period determined by the court is final and cannot be changed by anyone again.

Art. 1198. The debtor shall lose every right to make use of the period: (1) When after the obligation has been contracted, he becomes insolvent, unless he gives a guaranty or security for the debt; (2) When he does not furnish to the creditor the guaranties or securities which he has promised; (3) When by his own acts he has impaired said guaranties or securities after their establishment, and when through a fortuitous event they disappear, unless he immediately gives new ones equally satisfactory; (4) When the debtor violates any undertaking, in consideration of which the creditor agreed to the period; (5) When the debtor attempts to abscond. LOSS OF THE RIGHT TO A PERIOD Article 1198 applies to both reciprocal and unilateral obligations and those where the period is for the

benefit of both parties or one party.

21 Gregorio Araneta Inc. v. Phil. Sugar Estates Development Co., Ltd.




25

1. INSOLVENCY - Insolvency is defined as the inability to pay, and not necessarily the loss of property. - Need not be judicially declared. - General rule: Period is lost, but the obligation does not become demandable, upon

insolvency - Exception: If the party can give securities or guarantees, the period is restored. Since the

law gives an option for the party to furnish guarantees, the obligation is not immediately demandable in case of insolvency.

2. FAILURE TO FURNISH SECURITIES / GUARANTEES - In this case, the obligation is immediately demandable, as distinguished from the first

case. - Securities can take the form of mortgages or real-estate pledges. - If the guarantor has committed him/herself solidarily to the obligation, the creditor can

opt to go against the guarantor immediately without even going to the principal.

3. IMPAIRMENT / LOSS OF GUARANTEES - Impairment does not mean destruction, but merely a diminishing of the guarantee. - General rule: 1) If by his/her own acts, the party impairs the guarantee, he/she loses the

right to a period. 2) If through a fortuitous event, the guarantee is impaired, the right to a period is lost too.

- Exception: In both cases, the period will be restored if the party gives new guarantees equally satisfactory.

4. VIOLATION OF ANY CONSIDERATION TO A PERIOD - Because the consideration is the reason why the period was agreed upon, any violation of

the consideration results to the loss of the right to the period, and the obligation becomes immediately demandable.

- The consideration is not a resolutory condition. A resolutory condition extinguishes the obligation. The consideration here hastens the extinguishment of the obligation.

5. ATTEMPT TO ABSCOND - To abscond means to physically flee, and not merely a failure to respond to the creditor’s

demands. - Mere attempt make the obligation immediately demandable, because if the party

succeeds in absconding, the creditor may never collect.

III. ALTERNATIVE OBLIGATIONS Art. 1199. A person alternatively bound by different prestations shall completely perform one of them.

The creditor cannot be compelled to receive part of one and part of the other undertaking. “Different prestations” (to give, to do, and not to do) as contemplated in this article refers to both the

loose and strict sense of the protestation. (But to be less confused, treat each object of the prestation individually, as a rule.)

Rules in alternative obligations: - Complete performance of one of the alternatives, unless the creditor accepts partial

performance. - If all but one of the alternatives shall become impossible, the obligation ceases to be

alternative.




26

Art. 1200. The right of choice belongs to the debtor, unless it has been expressly granted to the creditor.

The debtor shall have no right to choose those prestations which are impossible, unlawful or which could not have been the object of the obligation.

Art. 1201. The choice shall produce no effect except from the time it has been communicated. Art. 1202. The debtor shall lose the right of choice when among the prestations whereby he is alternatively bound, only one is practicable. RIGHT OF CHOICE OF THE DEBTOR Presumed by law. The right of choice implies that the debtor can freely destroy the other choices, as

long as one still remains. To have effect, it must be communicated to the creditor. Mode of communication may vary. This right of choice implies that the prestations are not impossible, unlawful, or those which could

not have been the object of the obligation. The debtor cannot choose such prestations. In addition, the right of choice is lost when only one prestation is practicable. Practicable means

‘capable of being done,’ or feasible. Creditor cannot complain. 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. 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. LOSS OF ALTERNATIVES Creditor’s fault:

- If nothing in the prestations is possible because of the fault of the creditor, the debtor can rescind the contract plus damages; or

- Provided that there are still viable alternatives left, the debtor can still choose among the other alternatives if the creditor still wants to pursue the contract

Debtor’s fault: Damages based on the last thing lost or the service which became impossible, plus other damages.

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;




27

(2) If the loss of one of the things occurs through the fault of the debtor, the creditor may claim any of those subsisting, or the price of that which, through the fault of the former, has disappeared, with a right to damages; (3) If all the things are lost through the fault of the debtor, the choice by the creditor shall fall upon the price of any one of them, also with indemnity for damages.

The same rules shall be applied to obligations to do or not to do in case one, some or all of the prestations should become impossible. WHEN THE CHOICE IS EXPRESSLY GIVEN TO THE CREDITOR Obligation shall cease to be alternative. However, the following rules will govern the obligation while

the selection of the creditor has not been communicated: 1. If the debtor loses one of the choices through fortuitous event, the debtor:

- Can perform the obligation by delivering that which the creditor chooses - Or delivering the remaining choice, if one is left

2. If the debtor loses one of the choices through his/her own fault, the creditor: - May claim any of the subsisting alternatives - Or the price of that alternative which disappeared because of the debtor, plus damages

3. If the debtor loses all of the choices through his/her own fault, the creditor: - Can claim the price of any of the things lost, plus damages

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. FACULTATIVE-ALTERNATIVE OBLIGATION Involves a principal obligation and a substitute obligation General rule: That the substitute must be given in case the principal obligation is not fulfilled is not

mandatory. Exception: However, there is nothing stopping the parties from stipulating such in the contract.

Moreover, if the debtor does give the substitute in place of the principal, the creditor cannot decline. A facultative-alternative obligation—

- Is voidable when the substitute is a consideration crucial to the agreement of one of the parties to the obligation, and there was fraud involved with the substitute object

- Becomes valid if the creditor, however accepts the principal object. The contract is cured of the fraud involving the substitute.

IV. JOINT & SOLIDARY OBLIGATIONS

Art. 1207. The concurrence of two or more creditors or of two or more debtors in one and the same obligation does not imply that each one of the former has a right to demand, or that each one of the latter is bound to render, entire compliance with the prestation. There is a solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity. SOLIDARY OBLIGATIONS: NATURE Implies a situation where there are debts or obligations incurred by two or more debtors in favor of

two or more creditors, and giving anyone, some or all of the creditors the right to demand from




28

anyone, some, or all of the debtors the satisfaction of the total obligation and not merely the share of each debtor in the debts or obligations

Not presumed by law. A solidary obligation exists only when: 1. Expressly stated in the contract

- However, if a judicial decision supersedes the contract and declares that the obligation is merely joint, then it must be enforced in a joint manner

2. When the law requires solidarity - E.g., Family Code: Spouses are solidarily liable with their separate properties for

liabilities of the APC or CPG if such APC or CPG is insufficient to cover for the unpaid balance

3. When the nature of the obligation requires solidarity - Art. 19-22 of the Civil Code, when violated by two or more persons, has been deemed to

give rise to a solidary obligation, according to Tolentino WHEN AN OBLIGATION IS SOLIDARY Use of the following terms:

- “Individually and jointly liable” - “Collectively” - “Separately” - “Distinctly” - “Respectively” - “Severally” - “Jointly and severally guaranteed” - “I promise,” or “I hereby bind myself” but only if the names were not identified in the

body of the contract itself. (If a name or some names are identified, obviously it is not a solidary obligation, because a specific person is liable, and not the debtors as a whole.)

Art. 1208. If from the law, or the nature or the wording of the obligations to which the preceding article refers the contrary does not appear, the credit or debt shall be presumed to be divided into as many shares as there are creditors or debtors, the credits or debts being considered distinct from one another, subject to the Rules of Court governing the multiplicity of suits. Art. 1209. If the division is impossible, the right of the creditors may be prejudiced only by their collective acts, and the debt can be enforced only by proceeding against all the debtors. If one of the latter should be insolvent, the others shall not be liable for his share. JOINT OBLIGATIONS: NATURE Presumption of the law is that an obligation is always joint. The joint debtors are obliged to pay only their share in the indebtedness while the creditors can claim

their share in the credit. JOINT INDIVISIBLE OBLIGATIONS An indivisible obligation is one whose payment cannot be divided. Indivisibility refers to the object of

the prestation. Rules:

1. Creditors must act collectively when enforcing the debt. In the same way, the creditors can be prejudiced only by their collective acts.

2. The debtors must also perform the obligation collectively. If one of the debtors fails to perform, indemnity for damages arises.

- Those who were willing to perform the obligation shall only be liable for their corresponding portion in the price of the thing.




29

- Those who refused to perform the obligations shall be liable for their corresponding portion, plus additional damages.

3. In case of insolvency of one of the debtors, the others shall not be responsible for the share of the insolvent debtor.

Art. 1210. The indivisibility of an obligation does not necessarily give rise to solidarity. Nor does solidarity of itself imply indivisibility. Solidarity refers to the nature of the obligation, while indivisibility of the obligation refers to the

nature of the object of prestation. Art. 1211. Solidarity may exist although the creditors and the debtors may not be bound in the same manner and by the same periods and conditions. Art. 1212. Each one of the solidary creditors may do whatever may be useful to the others, but not anything which may be prejudicial to the latter. Art. 1213. A solidary creditor cannot assign his rights without the consent of the others. Art. 1214. The debtor may pay any one of the solidary creditors; but if any demand, judicial or extrajudicial, has been made by one of them, payment should be made to him. Art. 1215. Novation, compensation, confusion or remission of the debt, made by any of the solidary creditors or with any of the solidary debtors, shall extinguish the obligation, without prejudice to the provisions of Article 1219.

The creditor who may have executed any of these acts, as well as he who collects the debt, shall be liable to the others for the share in the obligation corresponding to them.

Art. 1216. The creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. The demand made against one of them shall not be an obstacle to those which may subsequently be directed against the others, so long as the debt has not been fully collected. SOLIDARY OBLIGATIONS: ACTIONS OF CREDITORS 1. Collective actions: Creditors can act individually when such acts are beneficial to the others. (E.g.,

one solidary creditor can sue the debtors without the other creditors joining the suit.) If such creditor acts prejudicially to the others, he/she may be liable for the others’ share in the indebtedness, plus damages.

2. Transfer or rights: No one among the creditors can transfer his/her rights. A transfer of rights may prejudice the other creditors.

3. Receipt of payment, general rule: Anyone among the creditors can receive payment. Exception: When a specific solidary creditor makes a judicial or extra-judicial demand, payment should be made to him/her. Sta. Maria thinks the strict interpretation of this provision should be abandoned, considering Art. 1212. The proper interpretation should be that the creditor who makes the demand is simply given preference without necessarily curtailing the rights of the other creditors to collect.

4. When an obligation is extinguished: The obligation shall be extinguished whenever any of the solidary creditors (with the solidary debtors) shall make any of the following actions: a. Novation—change of the creditors, debtors, or the principal obligation of the contract. b. Compensation—two persons, in their own rights, are creditors and debtors of each other




30

c. Confusion—merger of the characters of debtor and creditor in the same person d. Remission—condonation of the obligation

*To prevent prejudice against the others, the creditor who may have executed any of these acts, as well as he/she who collects the debt, shall be liable to the others for the share in the obligation corresponding to them.

5. Demand of payment: A creditor can proceed against any one or all of the debtors simultaneously. A demand against one is not a bar against a demand against others, as long as the debt is not yet paid. In other words, even though a creditor has a right not to accept partial payment, he/she can accept partial payment from one of the debtors as such acceptance does not bar the creditor from collecting from the others.

Art. 1217. Payment made by one of the solidary debtors extinguishes the obligation. If two or more solidary debtors offer to pay, the creditor may choose which offer to accept.

He who made the payment may claim from his co-debtors only the share which corresponds to each, with the interest for the payment already made. If the payment is made before the debt is due, no interest for the intervening period may be demanded.

When one of the solidary debtors cannot, because of his insolvency, reimburse his share to the debtor paying the obligation, such share shall be borne by all his co-debtors, in proportion to the debt of each.

Art. 1218. Payment by a solidary debtor shall not entitle him to reimbursement from his co-debtors if such payment is made after the obligation has prescribed or become illegal. Art. 1219. The remission made by the creditor of the share which affects one of the solidary debtors does not release the latter from his responsibility towards the co-debtors, in case the debt had been totally paid by anyone of them before the remission was effected. Art. 1220. The remission of the whole obligation, obtained by one of the solidary debtors, does not entitle him to reimbursement from his co-debtors. Art. 1221. If the thing has been lost or if the prestation has become impossible without the fault of the solidary debtors, the obligation shall be extinguished. If there was fault on the part of any one of them, all shall be responsible to the creditor, for the price and the payment of damages and interest, without prejudice to their action against the guilty or negligent debtor.

If through a fortuitous event, the thing is lost or the performance has become impossible after one of the solidary debtors has incurred in delay through the judicial or extrajudicial demand upon him by the creditor, the provisions of the preceding paragraph shall apply. Art. 1222. A solidary debtor may, in actions filed by the creditor, avail himself of all defenses which are derived from the nature of the obligation and of those which are personal to him, or pertain to his own share. With respect to those which personally belong to the others, he may avail himself thereof only as regards that part of the debt for which the latter are responsible. SOLIDARY OBLIGATIONS: ACTIONS OF OBLIGORS

1. Payment:




31

a. Any of the solidary debtors can pay. The creditor may choose from whom among the debtors he will receive payment.

b. The debtor who paid can claim from his co-debtors only their individual shares, plus interest only if the payment was made after the debt is due.

c. If one of the co-debtors is insolvent, such share shall be borne by the co-debtors, in proportion to the debt of each.

d. A solidary debtor cannot demand from the other co-debtors if he or she made payment after the obligation has prescribed or become illegal.

2. Remission: Depends on the time the remission was made. Also, as far as Art. 1219 is concerned, this is applicable only when there is one creditor. If there are many creditors and one creditor individually made a remission, the remission is an act prejudicial to the others according to Art, 1212. If the remission is done, the creditor will be liable for the share the other creditors should receive plus damages, if applicable. a. A solidary debtor is not entitled to reimbursement when a co-debtor obtained the remission

before such solidary debtor has paid the debt on the date due. b. A solidary debtor is entitled to reimbursement when a co-debtor obtains the remission after

such solidary debtor has paid the debt on the date due. 3. Loss of the thing or if prestation becomes impossible:

a. Without fault of any of the debtors: obligation is extinguished. b. With fault of any of the debtors: all shall be liable for damages plus interest, without prejudice

to the innocent debtors’ actions against the guilty or negligent debtor. c. Fortuitous event with delay: apply choice b.

V. DIVISIBLE & INDIVISIBLE OBLIGATIONS

Art. 1223. The divisibility or indivisibility of the things that are the object of obligations in which there is only one debtor and only one creditor does not alter or modify the provisions of Chapter 2 of this Title. Simply put: number of creditors or debtors do not affect the nature of the object of the prestation.

Art. 1224. A joint indivisible obligation gives rise to indemnity for damages from the time anyone of the debtors does not comply with his undertaking. The debtors who may have been ready to fulfill their promises shall not contribute to the indemnity beyond the corresponding portion of the price of the thing or of the value of the service in which the obligation consists. In a joint indivisible obligation, the joint co-debtors must cooperate to fulfil the object of the

prestation. In case one of the co-debtors does not cooperate and the obligation is not fulfilled because of his/her non-cooperation, the obligation shall be converted to a claim for damages, but: a. The cooperating co-debtors will only be liable for their share in the obligation. b. The non-cooperating co-debtor will be liable for his or her share in the obligation plus the sum of

all damages. Art. 1225. For the purposes of the preceding articles, obligations to give definite things and those which are not susceptible of partial performance shall be deemed to be indivisible.

When the obligation has for its object the execution of a certain number of days of work, the accomplishment of work by metrical units, or analogous things which by their nature are susceptible of partial performance, it shall be divisible.

However, even though the object or service may be physically divisible, an obligation is indivisible if so provided by law or intended by the parties.




32

In obligations not to do, divisibility or indivisibility shall be determined by the character of the prestation in each particular case. IN JOINT OBLIGATIONS TO GIVE DIVISIBLE OBLIGATIONS INDIVISIBLE OBLIGATIONS Object of obligation is any of the following:

- Execution of a certain number of days of work

- Accomplishment ofwork by metrical units

- Analogous things which by their nature are susceptible of partial performance

Obligations to give definite things Obligations which are not susceptible of partial

performance If so provided by law or intended by the parties.

Here, the wording of the contract will be very material to show the character of the prestation in each case

IN JOINT OBLIGATIONS NOT TO DO Divisibility of the obligation shall be determined by the character of the prestation in each particular

case

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

The penalty may be enforced only when it is demandable in accordance with the provisions of this Code. PENAL PROVISIONS A penal provision is an accessory obligation which the parties attach to a principal obligation for the

purpose of insuring the performance thereof by imposing upon the debtor a special prestation in case the obligation is not fulfilled or is inadequately or irregularly fulfilled.22 Its purpose is to do away with the necessity of proving damages in case of non-fulfillment.

General rule: A penal provision substitutes the indemnity for damages and the interests in case of non-compliance. Exception: If the obligor a) refuses to pay the penalty or is b) guilty of fraud in the fulfilment of the obligation, damages shall be paid.

General rule: The penalty clause is enforced only when it is demandable in accordance with the provisions of this Code. Exception: Unless the stipulation of the parties or the nature of the contracts (time is of the essence) otherwise demands.

Art. 1227. The debtor cannot exempt himself from the performance of the obligation by paying the penalty, save in the case where this right has been expressly reserved for him. Neither can the creditor demand the fulfilment 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 fulfilment of the obligation, the performance thereof should become impossible without his fault, the penalty may be enforced. Art. 1228. Proof of actual damages suffered by the creditor is not necessary in order that the penalty may be demanded.

22 3 Castan, Eighth Edition, Page 118




33

PENALTY AS AN ACCESSORY OBLIGATION General rules: a) Debtor cannot pay the penalty instead of fulfilling the obligation. b) Also, the

creditor cannot demand the fulfilment of the obligation and the penalty at the same time. Exceptions: The debtor can pay the penalty if this right has been expressly reserved for him or her. b) Also, the creditor can demand the obligation and the penalty simultaneously if this right has been granted.

Special rule: If the creditor requires the obligation to be fulfilled, and performance thereof becomes impossible without his or her fault, the penalty may be imposed.

The nullity of the principal obligation also nullifies the penalty clause; however, the nullity of the penalty clause does not extinguish the principal obligation.

Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable. INTERVENTION OF THE COURTS IN PENALTY CLAUSES This is one exception to the rule that a contract is the law between the parties. If the penalty is

unconscionable, the courts may temper, reduce, or in some cases, delete it. Art. 1230. The nullity of the penal clause does not carry with it that of the principal obligation.

The nullity of the principal obligation carries with it that of the penal clause. EXTINGUISHMENT OF OBLIGATIONS GENERAL PROVISIONS Art. 1231. Obligations are extinguished: (1) By payment or performance: (2) By the loss of the thing due: (3) By the condonation or remission of the debt; (4) By the confusion or merger of the rights of creditor and debtor; (5) By compensation; (6) By novation.

Other causes of extinguishment of obligations, such as annulment, rescission, fulfillment of a resolutory condition, and prescription, are governed elsewhere in this Code. EXTINGUISHMENT OF OBLIGATIONS Re: death

- General rule: Death does not extinguish an obligation. Exception: It extinguishes the obligation if such obligation is personal in nature or intransmissible.

- General rule: Where civil liability does not exist independently of the criminal responsibility, the extinction of the latter by death ipso facto extinguishes the former, provided that death supervenes before final judgment. Exception: If the civil liability neither solely nor originally springs from the crime, the civil liability shall persist despite the extinction of the criminal liability.

I. PAYMENT OR PERFORMANCE

Art. 1232. Payment means not only the delivery of money but also the performance, in any other manner, of an obligation.




34

There are two prestations involved in payment: 1) to give (delivery of money) and 2) to do (performance of an obligation).

Payment is done both by the creditor and debtor in reciprocal obligations. The law expressly declares that in obligations to give, what is required is the delivery of money—and

not cash, check, etc. Art. 1233. A debt shall not be understood to have been paid unless the thing or service in which the obligation consists has been completely delivered or rendered, as the case may be. Art. 1234. If the obligation has been substantially performed in good faith, the obligor may recover as though there had been a strict and complete fulfillment, less damages suffered by the obligee. Art. 1235. When the obligee accepts the performance, knowing its incompleteness or irregularity, and without expressing any protest or objection, the obligation is deemed fully complied with. FULFILMENT OF PAYMENT An obligation is deemed fulfilled when he obligation has been completely delivered or rendered,

including the delivery of all the accessories of a determinate thing in an obligation to give. Anything less than a complete performance may be considered a breach in obligation. There are two exceptions to this rule: 1. Substantial compliance in good faith: for this to apply, the part unperformed must not destroy

the value or purpose of the contract. The breach in obligation is not a material one enough to compel the obligor to rescind the obligation. The debtor can pay less damages suffered by the obligee.

2. Waiver of obligee of incomplete or irregular performance: by not expressing any protest or objection, the obligee accepts the performance of the obligation as fully complied with despite his or her knowledge of such irregularity or incompleteness. (If there is a protest, the law does not require such to be made in any particular manner or time.)

Art. 1236. The creditor is not bound to accept payment or performance by a third person who has no interest in the fulfillment of the obligation, unless there is a stipulation to the contrary. Whoever pays for another may demand from the debtor what he has paid, except that if he paid without the knowledge or against the will of the debtor, he can recover only insofar as the payment has been beneficial to the debtor. Art. 1237. Whoever pays on behalf of the debtor without the knowledge or against the will of the latter, cannot compel the creditor to subrogate him in his rights, such as those arising from a mortgage, guaranty, or penalty. Art. 1238. Payment made by a third person who does not intend to be reimbursed by the debtor is deemed to be a donation, which requires the debtor's consent. But the payment is in any case valid as to the creditor who has accepted it. PAYMENT BY THIRD PARTY DEBTOR Whether or not one who paid completely acquires the rights of the creditor depends on whether or not

the payment has been made without the knowledge or against the will of the debtor. Five situations may arise. If the third party pays—




35

1. Without the knowledge or against the will of the debtor: third person who paid can recover only to the extent the debtor has benefited (this is to be invoked by the debtor, and the extent is to be decided by law). The beneficial effects must be determined at the time the payment was made.

2. With the knowledge but against the will of the debtor: same as 1. 3. With the knowledge and consent of the debtor: there is legal subrogation which transfers to the

person subrogated the credit with all the rights thereto appertaining. Third person can recover from the debtor the amount paid to the creditor, as well as compel the creditor to transfer to him or her any mortgage, guarantee or penalty.

4. Because it is allowed in contract: same as 3. 5. Without the intention to be reimbursed by the debtor: obligation is extinguished whether or not

the consent of the debtor is obtained. The payment will be treated as a donation. Art. 1239. In obligations to give, payment made by one who does not have the free disposal of the thing due and capacity to alienate it shall not be valid, without prejudice to the provisions of Article 1427 under the Title on "Natural Obligations." Art. 1240. Payment shall be made to the person in whose favor the obligation has been constituted, or his successor in interest, or any person authorized to receive it. Art. 1241. Payment to a person who is incapacitated to administer his property shall be valid if he has kept the thing delivered, or insofar as the payment has been beneficial to him.

Payment made to a third person shall also be valid insofar as it has redounded to the benefit of the creditor. Such benefit to the creditor need not be proved in the following cases: (1) If after the payment, the third person acquires the creditor's rights; (2) If the creditor ratifies the payment to the third person; (3) If by the creditor's conduct, the debtor has been led to believe that the third person had authority to receive the payment. Art. 1242. Payment made in good faith to any person in possession of the credit shall release the debtor. Art. 1243. Payment made to the creditor by the debtor after the latter has been judicially ordered to retain the debt shall not be valid. VALIDITY OF PAYMENTS VALID PAYMENTS INVALID PAYMENTS Payment made to:

a. The person in whose favour the obligation has been constituted

b. The successors-in-interest c. Any person authorized to receive it

- Such person must be authorized by the creditor and the law

*Payment made by the debtor to a third person, even though in error and good faith, shall not release the debtor from the obligation and will not

Payment made by a person without free disposal of a thing.

- A person has “free disposal” of a thing when he/she owns it or has been given authority by the owner to use the property as payment

- Any contract entered into by a minor with respect to the alienation of something is annullable




36

deprive the creditor the right to demand payment, except if the payment redounded to the benefit of the creditor General rule: If the payment redounded to the benefit of the creditor, such benefit needs to be proven. Exception: Such benefit does not need to be proven:

a. If the third person acquires the creditor’s rights after payment

b. If the creditor ratifies the payment c. If the creditor’s conduct has led the debtor

to believe that the third person had authority to receive payment

Payment made to a person incapacitated to

administer his/her property, if: a. The incapable person has kept the thing

delivered b. Or, insofar as the payment has been

beneficial to him/her *Payment to the incapacitated is often disadvantageous for the capacitated party, because the capacitated person party cannot annul the contract on the basis of the incapacity of the other person. If the contract is annulled, the capacitated person cannot compel the incapacitated person to make a restitution, except only to the extent the latter has been benefited. Payment made in good faith to the person in

possession of the credit - Whether the creditor negligently,

intentionally, or accidentally allowed a third person to possess the credit is immaterial as far as the debtor who paid in good faith is concerned

Payment to a third person, even though in error and in good faith, when no benefit redounded to the creditor

Payment made after the debtor has been

judicially ordered to retain the debt - Usually this order is made to

protect other creditors

Art. 1244. The debtor of a thing cannot compel the creditor to receive a different one, although the latter may be of the same value as, or more valuable than that which is due.

In obligations to do or not to do, an act or forbearance cannot be substituted by another act or forbearance against the obligee's will. Art. 1245. Dation in payment, whereby property is alienated to the creditor in satisfaction of a debt in money, shall be governed by the law of sales. Art. 1246. When the obligation consists in the delivery of an indeterminate or generic thing, whose quality and circumstances have not been stated, the creditor




37

cannot demand a thing of superior quality. Neither can the debtor deliver a thing of inferior quality. The purpose of the obligation and other circumstances shall be taken into consideration. Art. 1247. Unless it is otherwise stipulated, the extrajudicial expenses required by the payment shall be for the account of the debtor. With regard to judicial costs, the Rules of Court shall govern. Art. 1248. Unless there is an express stipulation to that effect, the creditor cannot be compelled partially to receive the prestations in which the obligation consists. Neither may the debtor be required to make partial payments.

However, when the debt is in part liquidated and in part unliquidated, the creditor may demand and the debtor may effect the payment of the former without waiting for the liquidation of the latter. Art. 1249. The payment of debts in money shall be made in the currency stipulated, and if it is not possible to deliver such currency, then in the currency which is legal tender in the Philippines.

The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents shall produce the effect of payment only when they have been cashed, or when through the fault of the creditor they have been impaired.

In the meantime, the action derived from the original obligation shall be held in the abeyance. Art. 1250. In case an extraordinary inflation or deflation of the currency stipulated should supervene, the value of the currency at the time of the establishment of the obligation shall be the basis of payment, unless there is an agreement to the contrary. MODES OF PAYMENT General rule: The debtor has no choice in the payment of the obligation other than what has been

agreed upon by the parties. Exception: Unless the prestation is subject to a facultative or alternative condition DATION IN PAYMENT Also dacion en pago. This is the delivery and transmission of ownership of a thing by the debtor or

creditor as an accepted equivalent of the performance of an obligation. Requisites: a. Animo solvendi, or the performance of the prestation in lieu of payment which may consist in the

delivery of the corporeal thing, real right, or a credit against the third person b. Aliud pro alio, or a difference between the prestation and what is given in substitution c. An agreement between the creditor and the debtor that the obligation is immediately

extinguished by reason of the performance of a prestation different from that due. Agreement may be express or implied, or even silent. It is important that both parties consider the substitite thing as equivalent to the obligation

- How does one judge the intention of the parties to agree in a dacion en pago? Their contemporaneous and subsequent acts shall be considered.

DACION EN PAGO PACTUM COMMISORIUM Before the creditor becomes the owner of the

collateral property, an intervening agreement subsequent and independent from the original

The parties agree, generally in one single contract, that in the event the debtor fails to pay, the mortgaged or pledged property of the




38

contract is entered into by the creditor and the debtor to have the property collaterized as payment, thereby extinguishing the obligation

Valid, because the appropriation of the

property is not automatic, as compared to a pactum commisorium

debtor shall be automatically appropriated or owned by the debtor

Void, because as a rule, properties mortaged

should be subject to a foreclosure sale first if the properties shall be used to satisfy a debt

PAYMENT OF AN INDETERMINATE THING If the quality has not been stated, the delivery of the indeterminate thing shall neither be of superior

or inferior quality. The quality shall be determined instead through the purpose of the obligation and other circumstances (e.g., financial).

PARTIAL PAYMENTS General rule: Creditor cannot be compelled to receive partial payments, nor the debtor required to

make partial payments. Exceptions:

a. Unless there is an express stipulation to that effect b. When the debt is part liquidated and part unliquidated, the creditor may demand and the debtor

may effect the payment without waiting for the liquidation of the unliquidated part of the debt c. Even if there is no express stipulation, if the creditor accepts the partial payment and benefits

from it. PAYMENT OF DEBTS IN MONEY Shall be made in the currency stipulated, and if it is not possible, the currency which is legal tender in

the Philippines In the fulfilment of an obligation by payment by money, only payment in cash will extinguish the

obligation.

PAYMENT OF DEBTS IN OTHER FORMS Promissory notes payable to order, bills of exchange, or other mercantile documents shall be produce

the effect of payment only when encashed, or when through the fault of the creditor they have been impaired. a. Promissory note—a document where an unconditional promise to pay on a fixed or determinable

future time is made by the debtor to the creditor b. Bill of exchange—an unconditional order in writing addressed by one person to the other, signed

by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum of money to the bearer

c. Check—a bill of exchange drawn on a bank payable on demand - In Far East Bank and Trust Company v. Diaz Realty Inc., the Court said that if payment

by way of a fully-funded check were offered or tendered and the obligee accepts the payment after the obligor’s manifestation that it had been given to settle an obligation, such oblige shall be stopped from denouncing the efficacy of such tender of payment

- Delays in check encashment: Normally a check has to be deposited six months from the date indicated. If the creditor delays, the drawer of the check shall be discharged from liability to the extent of the loss caused by delay. Note how the drawer will only be discharged from a certain amount of liability; the drawer’s obligation is not extinguished by mere delay of the creditor. It is only when the creditor does not present the check for payment and thereafter the bank collapses that it cannot meet the demands for payment, that the drawer of the check shall be discharged.

IN CASE OF EXTRAORDINARY INFLATION OR DEFLATION OF CURRENCY




39

General rule: The value of the currency at the time of the establishment of the obligation shall be the basis of payment

Exception: Unless there is a stipulation to the contrary Extraordinary inflation exists when there is an increase or decrease in the purchasing power of the

Philippine currency which is unusual or beyond the common fluctuation in the value of said currency, and such decrease or increase could not have been reasonably foreseen.

- Effects of such inflation should be officially declared by competent authorities, such as the Bangko Sentral or the Department of Finance.

- Only applies to obligations arising from contracts, and not those arising from law EXTRA-JUDICIAL EXPENSES FOR PERFORMANCE OF PAYMENT General rule: These expenses hall be shouldered by the debtor. (Regarding judicial costs, the Rules of

Court shall govern.) Exception: Unless there is a stipulation to the contrary.

Art. 1251. Payment shall be made in the place designated in the obligation. There being no express stipulation and if the undertaking is to deliver a determinate thing, the payment shall be made wherever the thing might be at the moment the obligation was constituted.

In any other case the place of payment shall be the domicile of the debtor. If the debtor changes his domicile in bad faith or after he has incurred in delay, the additional expenses shall be borne by him.

These provisions are without prejudice to venue under the Rules of Court. VENUE OF PAYMENT General rule: Payment shall be made in the place designated in the obligation. Exception: If there is no express stipulation, and if the thing is determinate, payment shall be made

wherever the thing might be when the obligation was established. In all other cases, payment shall be made at the domicile of the debtor.

- If the debtor changes domicile in bad faith, or after he/she has incurred in delay, additional expenses shall be borne by the debtor.

A. Application of payments

Art. 1252. He who has various debts of the same kind in favor of one and the same creditor, may declare at the time of making the payment, to which of them the same must be applied. Unless the parties so stipulate, or when the application of payment is made by the party for whose benefit the term has been constituted, application shall not be made as to debts which are not yet due.

If the debtor accepts from the creditor a receipt in which an application of the payment is made, the former cannot complain of the same, unless there is a cause for invalidating the contract. Art. 1253. If the debt produces interest, payment of the principal shall not be deemed to have been made until the interests have been covered. Art. 1254. When the payment cannot be applied in accordance with the preceding rules, or if application cannot be inferred from other circumstances, the debt which is most onerous to the debtor, among those due, shall be deemed to have been satisfied.




40

If the debts due are of the same nature and burden, the payment shall be applied to all of them proportionately. PAYMENT OF MULTIPLE DEBTS A debtor with multiple debts may declare at the time of making one payment to which debt must such

payment apply. The general rules of payment already discussed (Art 1232 – 1251) still apply here. However, if the payments cannot be applied in accordance with Art 1252 and 1253, or if the

application cannot be inferred from other circumstances, then the debt which is most onerous to the debtor shall be deemed to have been satisfied. If the debts are all of the same nature, then the payment shall be applied to them proportionately.

- The most onerous debt is the debt which exacts the heaviest burden from among many. General rule: Application shall not be made to debts which are not yet due. Exceptions:

a. Unless the parties so stipulate b. Or when the application for payment is made by the party for whose benefit the term has been

constituted General rule: If the debtor accepts a receipt in which an application of payment is made, the debtor

cannot complain. The debtor must not merely receive the receipt, but accept it. Basis: doctrine of estoppel.

Exceptions: Unless there is a cause for invalidating the contract, like fraud or intimidation. These are causes for annulling the contract.

DEBTS WITH INTEREST The presumption is that the payment of the principal, notwithstanding any remaining interest,

supposes that such interest has been paid. Thus, the rule is if the interests have not been covered yet, the principal has not been paid as well. However this is merely directory, and is rebuttable with sufficient evidence.

As such, the right to apply payment first to the interest can also be waived by the creditor.

B. Payment by cession Art. 1255. The debtor may cede or assign his property to his creditors in payment of his debts. This cession, unless there is stipulation to the contrary, shall only release the debtor from responsibility for the net proceeds of the thing assigned. The agreements which, on the effect of the cession, are made between the debtor and his creditors shall be governed by special laws. Payment by cession is another mode of extinguishing a debt. Cession under this article presupposes

financial difficulties on the part of the debtor, and refers to a situation where the debtor owes two or more creditors. It refers not only to the cession of a debtor of his/her property, but property that is not exempted from being alienated.

Valid only if the creditors agree to the cession.

C. Tender of payment and consignation Art. 1256. If the creditor to whom tender of payment has been made refuses without just cause to accept it, the debtor shall be released from responsibility by the consignation of the thing or sum due. Consignation alone shall produce the same effect in the following cases: (1) When the creditor is absent or unknown, or does not appear at the place of payment; (2) When he is incapacitated to receive the payment at the time it is due;




41

(3) When, without just cause, he refuses to give a receipt; (4) When two or more persons claim the same right to collect; (5) When the title of the obligation has been lost. Art. 1257. In order that the consignation of the thing due may release the obligor, it must first be announced to the persons interested in the fulfillment of the obligation.

The consignation shall be ineffectual if it is not made strictly in consonance with the provisions which regulate payment. Art. 1258. Consignation shall be made by depositing the things due at the disposal of judicial authority, before whom the tender of payment shall be proved, in a proper case, and the announcement of the consignation in other cases.

The consignation having been made, the interested parties shall also be notified thereof. Art. 1259. The expenses of consignation, when properly made, shall be charged against the creditor. Art. 1260. Once the consignation has been duly made, the debtor may ask the judge to order the cancellation of the obligation.

Before the creditor has accepted the consignation, or before a judicial declaration that the consignation has been properly made, the debtor may withdraw the thing or the sum deposited, allowing the obligation to remain in force. Art. 1261. If, the consignation having been made, the creditor should authorize the debtor to withdraw the same, he shall lose every preference which he may have over the thing. The co-debtors, guarantors and sureties shall be released. IN CASE OF CREDITOR’S UNREASONABLE REFUSAL TO ACCEPT PAYMENT General rule: The debtor has to make a tender of payment, and then consign the thing to the judicial

authorities. Exceptions—consignation alone is enough when:

a. The creditor is absent or unknown, or does not appear at the place of payment b. That the creditor is incapacitated to receive payment at the time it is due c. That without just cause, the creditor refuses to give a receipt d. Two or more persons claim the same right to collect e. The title of the obligation has been lost

Expenses of a proper consignation shall be charged to the creditor, because it is the creditor’s failure to accept payment which led to the consignation

TENDER OF PAYMENT CONSIGNATION Both apply in any contract where there is an obligation to pay Tender of payment is an offer of payment

antecedent to the consignation. It may be extra-judicial. It is necessary that a. There be a fusion of intent, ability, and

capability to make good such offer, which must be absolute and must cover the amount due

b. That the tender be made in lawful currency

Consignation is the act of depositing the thing due with the court or judicial authorities whenever the creditor cannot accept or refuses to accept payment and it generally requires a prior tender of payment.




42

Requisites for a consignation to be effectual:

1. That there was a debt due 2. The consignation of the obligation had been made because the creditor to whom tender of

payment has been made refused to accept it, or was incapacitated or absent, or because several persons claimed to be entitled to receive the amount due

3. The previous notice of the consignation has been given to the person interested in the performance of the obligation

4. The amount has been placed in the disposal of the court 5. After the consignation is made, the person interested was notified thereof.

- The purpose of the notice is to give the creditor the opportunity to reconsider his/her unjustified refusal and accept payment thereby avoiding consignation and subsequent litigation

- The circumstances of the case and the order of the court granting the motion can be considered substantial compliance with the requirement of notice to the creditor

EFFECTS OF CONSIGNATION Once consignation has been made, the debtor may ask the judge to order the cancellation of the

obligation. The consignation is retroactive, such that the payment is deemed to have been made at the time of the deposit of the money in court, or when it was placed in the disposal of the judicial authorities.

Before creditor has accepted the consignation or before the judicial declaration of consignation has been made, however, the debtor can still withdraw the thing or the sum deposited, allowing the obligation to remain in force.

Prior to the withdrawal of the debtor of the amount, the creditor may accept the amount consigned either conditionally or with reservation.

If the creditor authorizes the debtor to withdraw the amount after consignation, the obligation is revived, but the creditor shall lose preference to the thing previously deposited to pay his/her debt. Solidary creditors also lose the preference, since the creditor cannot revive the obligation without their consent. This means that any other person who has an interest in the payment can go after it.

II. LOSS OF THE THING DUE

Art. 1262. An obligation which consists in the delivery of a determinate thing shall be extinguished if it should be lost or destroyed without the fault of the debtor, and before he has incurred in delay.

When by law or stipulation, the obligor is liable even for fortuitous events, the loss of the thing does not extinguish the obligation, and he shall be responsible for damages. The same rule applies when the nature of the obligation requires the assumption of risk. Art. 1263. In an obligation to deliver a generic thing, the loss or destruction of anything of the same kind does not extinguish the obligation. Art. 1264. The courts shall determine whether, under the circumstances, the partial loss of the object of the obligation is so important as to extinguish the obligation. Art. 1265. Whenever the thing is lost in the possession of the debtor, it shall be presumed that the loss was due to his fault, unless there is proof to the contrary,




43

and without prejudice to the provisions of article 1165. This presumption does not apply in case of earthquake, flood, storm, or other natural calamity. Art. 1266. The debtor in obligations to do shall also be released when the prestation becomes legally or physically impossible without the fault of the obligor. Art. 1267. When the service has become so difficult as to be manifestly beyond the contemplation of the parties, the obligor may also be released therefrom, in whole or in part. Art. 1268. When the debt of a thing certain and determinate proceeds from a criminal offense, the debtor shall not be exempted from the payment of its price, whatever may be the cause for the loss, unless the thing having been offered by him to the person who should receive it, the latter refused without justification to accept it. OBLIGATION IS EXTINGUISHED OBLIGATION IS NOT EXTINGUISHED If the thing is determinate and it is lost or

destroyed without the fault of the debtor and before the debtor has incurred in delay.

When is loss presumed to be the fault of the debtor? When the thing lost was in possession of the debtor, unless there is proof to the contrary, and without prejudice to the provisions of Art 1165 . (I.e., Thing lost through fortuitous event will still be compensated for if the obligor delays, or if the obligor promises the same thing to two or more obliges who do not have the same interest.) In obligations to do, when the prestation

becomes legally or physically without the fault of the debtor

If the thing is determinate, and it is lost, the obligation is not extinguished: a. When by law or stipulation, the obligor is

liable even for fortuitous events b. When the nature of the obligation requires

the assumption of risk If the thing is generic, the loss or destruction of

the same kind does not extinguish the obligation

If the debt of the thing certain and determinate

proceeds from a criminal offense, the debtor shall not be exempted whatever the cause of the loss may be, unless the creditor refuses without just cause to accept it

COURTS WILL DECIDE

Partial loss of an object: courts will judge based on the circumstances and whether the obligation is so important as to extinguish the obligation.

- The court may consider the partial loss complete, and extinguish the obligation. If it is complete, the rules under Art 1262 and 1263 must apply

In obligations to do, when the service has become difficult as to be beyond the contemplation of the parties

- Based on the doctrine of rebus sic stantibus, or where the parties stipulate in the light of certain prevailing conditions, and once these conditions cease to exist, the contract also ceases to exist. This is one case where the court can enter into the contract, by judging from the intention of the parties whether the obligation should be extinguished

- Only in absolutely exceptional changes of circumstances that equity demands assistance for the debtor

Requisites: 1. The prestation has become so difficult to render 2. And the service has become manifestly beyond the contemplation of the parties




44

- But difficulty alone does not excuse the debtor from fulfilling the prestation. This has been referred to as a “subjective impossibility,” where a promissor’s duty is never discharged by the mere fact that the supervening events deprive him/her of the ability of the ability to perform, if they are not such to deprive other persons, likewise, of the ability to render such performance

Art. 1269. The obligation having been extinguished by the loss of the thing, the creditor shall have all the rights of action which the debtor may have against third persons by reason of the loss. A provision for the protection of the creditor. “Third persons” may be insurance companies or

guarantors. III. CONDONATION OR REMISSION OF THE DEBT

Art. 1270. Condonation or remission is essentially gratuitous, and requires the acceptance by the obligor. It may be made expressly or impliedly.

One and the other kind shall be subject to the rules which govern inofficious donations. Express condonation shall, furthermore, comply with the forms of donation. In effect, a condonation is a donation of the obligee’s credit in favour of the debtor. It is governed by

the rules on inofficious donations. A donation is inofficious if it turns out that the amount donated (remitted or condoned) encroaches or infringes upon the legitime or successional rights of the heirs of the condoning creditor.

Art. 1271. The delivery of a private document evidencing a credit, made voluntarily by the creditor to the debtor, implies the renunciation of the action which the former had against the latter.

If in order to nullify this waiver it should be claimed to be inofficious, the debtor and his heirs may uphold it by proving that the delivery of the document was made in virtue of payment of the debt. Art. 1272. Whenever the private document in which the debt appears is found in the possession of the debtor, it shall be presumed that the creditor delivered it voluntarily, unless the contrary is proved. Art. 1273. The renunciation of the principal debt shall extinguish the accessory obligations; but the waiver of the latter shall leave the former in force. Art. 1274. It is presumed that the accessory obligation of pledge has been remitted when the thing pledged, after its delivery to the creditor, is found in the possession of the debtor, or of a third person who owns the thing. PRESUMPTIONS IN CONDONATION

1. The delivery of the private document evidencing a credit (usually a promissory note), made voluntarily by the creditor to the debtor, implies the renunciation of the debt

- To nullify this waiver, it should be claimed to be inofficious, and the debtor and his/her heirs may do this by proving that the delivery of the document was made in virtue of payment of a debt

2. Whenever the private document in which the debt appears is found in possession of the debtor, it shall be presumed the creditor delivered it voluntarily. However, this is a refutable presumption.




45

3. Renunciation of the principal debt shall extinguish the accessory obligations (but not vice versa) 4. The necessary obligation has been remitted when the thing pledged, after its delivery to the

creditor, is found in the possession of the debtor or any third person who owns the thing (usually a guarantor). However, this is a refutable presumption.

- A pledge involves a movable property constituted by the owner of such property who has free disposal of it, to secure the fulfilment of a principal obligation and such contract is perfected only upon the delivery of the thing pledged to the creditor. It is an accessory contract.

IV. CONFUSION OR MERGER OF RIGHTS

Art. 1275. The obligation is extinguished from the time the characters of creditor and debtor are merged in the same person. Art. 1276. Merger which takes place in the person of the principal debtor or creditor benefits the guarantors. Confusion which takes place in the person of any of the latter does not extinguish the obligation. Art. 1277. Confusion does not extinguish a joint obligation except as regards the share corresponding to the creditor or debtor in whom the two characters concur. Basis of confusion: a person cannot collect a debt from him/herself. Extinguishes the obligation for the following: Confusion between the principal debtor and creditor

benefits the guarantors. Does not extinguish the obligation for the following:

a. Confusion between a guarantor and a creditor/debtor does not extinguish the principal obligation, only the accessory obligation.

b. Confusion in a joint obligation except the share corresponding to the creditor or debtor in which the two characters concur

V. COMPENSATION

Art. 1278. Compensation shall take place when two persons, in their own right, are creditors and debtors of each other. Art. 1279. In order that compensation may be proper, it is necessary: (1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other; (2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated; (3) That the two debts be due; (4) That they be liquidated and demandable; (5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor. Art. 1280. Notwithstanding the provisions of the preceding article, the guarantor may set up compensation as regards what the creditor may owe the principal debtor.




46

Art. 1281. Compensation may be total or partial. When the two debts are of the same amount, there is a total compensation. Art. 1282. The parties may agree upon the compensation of debts which are not yet due. Compensation is a mode of extinguishing an obligation whereby parties are mutually debtors and

creditors of each other. Compensation is effected whereby parties are mutually debtors and creditors of each other. May be total or partial.

Compensation is effected by operation of law as long as the requisites are present and even though the debts are payable at different places. In partial compensation, however, indemnities may exist for the expenses of exchange or transportation to places of payment

REQUISITES OF COMPENSATION 1. Each of the obligors be bound principally and that each of them be at the same time the principal

creditor of the other - Exception: Compensation can be set up by the guarantor, even if the creditor and

guarantor are not mutual creditors and debtors of each other. The obligation of the guarantor can be extinguished by invoking compensation as far as the principal debtor is concerned

- Taxes are not debts for purposes of legal compensation

2. Both debts consist in an amount of money, or if the things due are consumable, that they be of the same kind, and also the same quality of the latter has been stated

- “Consumable” as used in this law means fungible, or capable of substitution - There can be compensation involving things which are determined, such as any

computer, but not specific determinate things like a computer with the serial number 777

3. That two debts are due - However, they do not need to be incurred at the same time - General rule: A debt cannot be demanded if it is not yet due. Exception: The parties can

agree that the compensation can be made even as to the debts which are not yet due. This is called a contractual compensation.

4. That the debts be liquidated and demandable - Debt must be determined and certain. Compensation cannot take place where one of the

debts is not yet liquidated (e.g., there’s a running interest)

5. Neither of the debts have any retention or controversy, commenced by third persons and communicated in due time to the debtor

- “Due time” should be meant the period before legal compensation was supposed to take place, considering that legal compensation operates so long as the requisites occur, even without any conscious intent on the part of the parties

Art. 1283. If one of the parties to a suit over an obligation has a claim for damages against the other, the former may set it off by proving his right to said damages and the amount thereof. Voidable contracts are valid until annulled. Thus, compensation may take place as long as the contract

is valid. JUDICIAL SET-OFF For this to apply, the amount of damages or the claim sought to be compensated must be duly proven




47

Art. 1284. When one or both debts are rescissible or voidable, they may be compensated against each other before they are judicially rescinded or avoided. Art. 1285. The debtor who has consented to the assignment of rights made by a creditor in favor of a third person, cannot set up against the assignee the compensation which would pertain to him against the assignor, unless the assignor was notified by the debtor at the time he gave his consent, that he reserved his right to the compensation.

If the creditor communicated the cession to him but the debtor did not consent thereto, the latter may set up the compensation of debts previous to the cession, but not of subsequent ones. If the assignment is made without the knowledge of the debtor, he may set up the compensation of all credits prior to the same and also later ones until he had knowledge of the assignment. ASSIGNMENT OF CREDIT IN COMPENSATION Case 1 Creditor assigns his/her rights in favor of a third person:

- If the debtor consents to the assignment and reserves his/her right to compensation, and notifies the creditor of such reservation, compensation can set it up against the third person as well

- If the debtor consents to the assignment but does not notify the debtor that he/she reserved the right to compensation, it cannot be set up against the third person

Case 2 Debtor did not consent to the assignment of rights even if he/she was notified of it

- The debtor may set up the compensation of dents previous to the cession (assignment of rights), but not of subsequent ones

Case 3 Debtor did not have any knowledge at all of the assignment of rights

- The debtor may set up compensation of all the credits prior to the same and also later ones until he/she had knowledge of the assignment

Art. 1286. Compensation takes place by operation of law, even though the debts may be payable at different places, but there shall be an indemnity for expenses of exchange or transportation to the place of payment. Art. 1287. Compensation shall not be proper when one of the debts arises from a depositum or from the obligations of a depositary or of a bailee in commodatum.

Neither can compensation be set up against a creditor who has a claim for support due by gratuitous title, without prejudice to the provisions of paragraph 2 of Article 301. Art. 1288. Neither shall there be compensation if one of the debts consists in civil liability arising from a penal offense. WHEN COMPENSATION IS IMPROPER Basically compensation is improper in these cases because the persons are not mutual creditors and

debtors of each other




48

1. Debts arising for a depositum or from the obligations of depository. A deposit is constituted from the moment a person receives the thing belonging to another with the obligation of safely keeping it and returning the same

2. Obligation of a bailee in commodatum—the bailee acquires the use of the thing loaned but not its fruits. The bailee cannot retain the thing loaned on the ground that the bailor owes him something, even though it may be by reason of expenses

3. Debts arising from duty to support. 4. Debts consisting of a civil liability arising from a penal offense

Art. 1289. If a person should have against him several debts which are susceptible of compensation, the rules on the application of payments shall apply to the order of the compensation. Art. 1290. When all the requisites mentioned in Article 1279 are present, compensation takes effect by operation of law, and extinguishes both debts to the concurrent amount, even though the creditors and debtors are not aware of the compensation.

VI. NOVATION Novation here refers to extinctive obligation and not modificatory novation. Extinctive novation

presupposes that an obligation’s terms are still existing before change is introduced upon it. The change must refer to the principal obligation; there is no novation regarding the accessory obligation.

Novation is never presumed. No specific form of words or writing is necessary to give effect to a novation.

REQUISITES OF NOVATION

1. A previous valid obligation 2. The agreement of all the parties to a new contract 3. The extinguishment of the old contract 4. Validity of the new one

There can be no novation unless two distinct and successive binding contracts take place, with the later one designed to replace the preceding convention. Also, if a subsequent contract is designed to novate a previous contract and not all parties to the original contract consented to or are made parties to the original contract, there can be no novation.

A new contract which merely supplements the old one (by modifying the terms of payment and adding other obligations compatible with the old one) is not novation.

Art. 1291. Obligations may be modified by: (1) Changing their object or principal conditions; (2) Substituting the person of the debtor; (3) Subrogating a third person in the rights of the creditor. Art. 1292. In order that an obligation may be extinguished by another which substitute the same, it is imperative that it be so declared in unequivocal terms, or that the old and the new obligations be on every point incompatible with each other. Art. 1293. Novation which consists in substituting a new debtor in the place of the original one, may be made even without the knowledge or against the will of the latter, but not without the consent of the creditor. Payment by the new debtor gives him the rights mentioned in Articles 1236 and 1237.




49

Art. 1294. If the substitution is without the knowledge or against the will of the debtor, the new debtor's insolvency or non-fulfillment of the obligations shall not give rise to any liability on the part of the original debtor. Art. 1295. The insolvency of the new debtor, who has been proposed by the original debtor and accepted by the creditor, shall not revive the action of the latter against the original obligor, except when said insolvency was already existing and of public knowledge, or known to the debtor, when the delegated his debt. Art. 1296. When the principal obligation is extinguished in consequence of a novation, accessory obligations may subsist only insofar as they may benefit third persons who did not give their consent. Art. 1297. If the new obligation is void, the original one shall subsist, unless the parties intended that the former relation should be extinguished in any event. Art. 1298. The novation is void if the original obligation was void, except when annulment may be claimed only by the debtor or when ratification validates acts which are voidable. Art. 1299. If the original obligation was subject to a suspensive or resolutory condition, the new obligation shall be under the same condition, unless it is otherwise stipulated. Art. 1300. Subrogation of a third person in the rights of the creditor is either legal or conventional. The former is not presumed, except in cases expressly mentioned in this Code; the latter must be clearly established in order that it may take effect. Art. 1301. Conventional subrogation of a third person requires the consent of the original parties and of the third person. Art. 1302. It is presumed that there is legal subrogation: (1) When a creditor pays another creditor who is preferred, even without the debtor's knowledge; (2) When a third person, not interested in the obligation, pays with the express or tacit approval of the debtor; (3) When, even without the knowledge of the debtor, a person interested in the fulfillment of the obligation pays, without prejudice to the effects of confusion as to the latter's share. Art. 1303. Subrogation transfers to the persons subrogated the credit with all the rights thereto appertaining, either against the debtor or against third person, be they guarantors or possessors of mortgages, subject to stipulation in a conventional subrogation. Art. 1304. A creditor, to whom partial payment has been made, may exercise his right for the remainder, and he shall be preferred to the person who has been subrogated in his place in virtue of the partial payment of the same credit.




50

TYPES OF NOVATION 1. Objective novation—a change in the object or principal conditions of an existing obligation. (E.g.,

a dacion en pago) To effect change in the obligation, such change must be: a. Express: it is imperative that the new obligation expressly declare in unequivocal terms that

the old obligation is extinguished b. Implied: the new obligation is on every point incompatible with the new one. The test of

incompatibility is whether ot not the two obligations can stand together, each one having its own independent existence. If they cannot, there are incompatible and the latter obligation novates the first. Corollarily, the changes must be essential and not merely accidental.

2. Subjective novation—there is a change of either the person of the debtor, or of the creditor of an existing obligation. a. Change in the debtor may be in the form of any of the following. (It must be noted that it is

necessary for any of these two to exist that the old debtor be released expressly from the obligation, and the third person or new debtor assumes his/her place in the relation.) - Expromission: Old debtor is substituted without the knowledge of the debtor, but with

consent of the creditor - Delegacion: Old debtor suggests to the creditor that he/she be substituted by a new

debtor of his/her choice and the creditor agrees —In both cases, payment by the new debtor gives him/her the rights in Art 1236 and 1237. On the other hand, the insolvency of the new debtor produces the following effects:

o If it is an expromission, the new debtor’s insolvency or non-fulfillment of the obligation shall not make the old debtor liable

o If it is a delegacion, the new debtor’s insolvency shall not revive the action against the old debtor except when the said insolvency was 1) already existing and public knowledge, 2) or was already known to the debtor when he/she delegated the debt

b. Change in the creditor is called subrogation. It has two forms: - Legal subrogation takes effect by the mandate of the law and does not proceed from the

agreement of the parties. The law which forms the basis of the subrogation must be clearly identified and invoked to enforce the rights pertinent thereto. It is presumed there is legal subrogation when:

o A preferred creditor is paid by another creditor without the debtor’s knowledge o A third person not interested in the obligation pays with the express or tacit

approval of the debtor o A third person interested in the fulfilment of the obligation (guarantor or solidary

debtor) pays without the consent of the debtor, without prejudice to the effects of confusion as to the third person’s share

- Conventional subrogation must be clearly be established in unequivocal terms of the substituting obligation or by the evident incompatibility of the new and old obligations in every point. It requires the consent of the third parties and the third person

—In both cases, the new creditor shall possess all the rights thereto appertaining. In a conventional subrogation, the parties, however, can stipulate the extent of the subrogation, provided these are not contrary to law or public policy.

IN A NEW OBLIGATION

1. If third persons did not give their consent to the novation, the accessory obligations may subsist insofar as to benefit such third persons

2. If the new obligation is void, the former one will subsist unless the parties agree that in any event the old one will be extinguished

3. The novation is void if the original obligation was void, unless it is clear that the subsequent one can stand on itself without any reference to the old one

4. If the original obligation was subject to a suspensive or resolutory condition, the new obligation shall be under the same condition unless it is otherwise expressly stipulated




51

CONTRACTS GENERAL PROVISIONS Art. 1305. A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service. (1254a) WHAT IS A CONTRACT? Since its is a source of obligation, it can be defined as a legally enforceable agreement A juridical convention manifested in legal form, by virtue of which two or more persons bind

themselves in favor of another or others, or reciprocally, to the fulfilment of the prestation to give, to do, or not to do23

In its broadest sense, it is an agreement whereby at least one of the parties acquires a right, either in rem or in personam, in relation to some person, thing, act, or forbearance

However, there are some cases where there is a “meeting of the minds” in a contract but it cannot be legally enforced because it lacks some of the formal requirements for enforceability (e.g., agreements under the Statute for Frauds)

STAGES OF A CONTRACT

1. Negotiation—covers the period from the time the prospective contracting parties indicate interest in the contract to the time the contract is concluded (perfected)

2. Perfection—takes place upon the concurrence of the essential elements thereof - A contract consensual in perfection is so established upon the mere meeting of the minds,

or the concurrence of offer and acceptance - A real contract requires the above-mentioned plus the delivery of the object of the

agreement (as in a bailee in commodatum) - A solemn contract requires compliance in certain formalities prescribed by law (such as

in a donation) to be perfected 3. Consummation—begins when the parties perform their respective undertakings under the

contract, resulting in the extinguishment thereof Art. 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy. Art. 1307. Innominate contracts shall be regulated by the stipulations of the parties, by the provisions of Titles I and II of this Book, by the rules governing the most analogous nominate contracts, and by the customs of the place. ATTRIBUTES OF CONTRACTS

1. AUTONOMY General rule: Persons are free to stipulate anything in their contracts. Proviso: Such stipulations

must not be contrary to law, morals, good customs, and public policy. - This rule also forbids anyone from coercing or intimidating another to enter into a

contract Cases:

- Azcuna Jr. V. Court of Appeals: While there is a rule limiting stipulations in contracts to those consistent with public policy, a person, after entering into an agreement, cannot turn his or her back on his word with the plea that he or she was inflicted a penalty so

23 Jardine Davis v. CA




52

shocking to the conscience and impressed with inequity as to call for relief sought on the part of the judicial tribunal

- Pakistan International Airlines v. Ople: Contractual stipulations contravening provisions of the law designed to protect laborers and employees were not valid. Matters of public policy are deemed written into the contract.

- Teves v. People’s Homesite and Housing Corporation: In the absence of express legislation or constitutional prohibition, a court, in order to declare a contract void as against public policy, must find that such contract has a tendency to injure the public, is against the public good, or contravenes some established interest of society, or is inconsistent with sound policy and good morals.

*INNOMINATE CONTRACTS Contracts which are not specifically governed by any provision in the Civil Code, but which likewise

involve the fulfilment or accomplishment of some prestations: - A prestation where the parties mutually give each other a certain thing (do ut des) - A prestation to mutually render a service (facio ut facias) - A mixed prestation: one party gives something and the other party does something (do ut

facias, facias ut des) These contracts are governed by the following, in order of priority:

a. Stipulation of the parties, as long as there are not contrary to law, morals, good customs, public order, or public policy

b. Provisions regarding obligations and contracts under Title I and II of the Civil Code. Though innominate, these are still contracts which are sources of obligations, and hence, they should follow the general rule on obligations and contracts

c. Rules governing the most analogous nominate contracts (sale, barter, exchange, lease, partnership, agency loan, deposit, aleatory contracts, etc.

d. Customs. A custom is a rule of conduct formed by repetition of oral acts uniformly observed as a social rule, legally binding and obligatory and must be proved as fact.

2. NON-IMPAIRMENT

General rule: Only laws existing at the time of the execution of the contract are applicable thereto. Exception: Unless the contract specifically intended that it should have a retroactive effect.

General rule: The contract is the law between the parties. Exception: This rule yields to the superior and legitimate exercise of police power by the State to promote the general welfare of the people.

Statutes promulgated in the exercise of valid police power are considered written into the contract. - Ortigas v. CA: The construction of a buyer of a commercial edifice in consonance with a

zoning ordinance does not impair the contract of sale which says that only residential buildings may be built in the piece of land.

Art. 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them. Art. 1309. The determination of the performance may be left to a third person, whose decision shall not be binding until it has been made known to both contracting parties. Art. 1310. The determination shall not be obligatory if it is evidently inequitable. In such case, the courts shall decide what is equitable under the circumstances.

3. MUTUALITY Garcia v. Rita Legarda Inc.: There must be mutuality between the two contracting parties based on

their essential equality [because it is] repugnant to have one party bound by the contract leaving the




53

other free therefrom. The purpose of this article is to render void a contract containing a condition which makes fulfilment dependent exclusively upon the will of one of the contracting parties

There is mutuality in the following cases: - When the vendor has the right to declare a contract cancelled in case of default of one the

vendee - A stipulation in the lease contract which says that the contract may be renewed for a like

term at the option of the lessee No mutuality:

- When one of the parties can increase the interest of a loan agreement at will *CONTRACTS OF ADHESION A type of contract wherein a party, usually a corporation, prepares the stipulations in a contract while

the other party merely affixes his or her signature or adhesion thereto. These are binding as ordinary contracts

Generally these are valid, and there must be a showing that it is highly inequitable for such contract to be invalidated.

*DETERMINATION OF PERFORMANCE: THIRD PERSON Requisites to be binding:

1. The decision to let a third person determine the performance of a contract must be communicated to all the parties.

2. The determination must not destroy the mutuality of contracts. 3. The determination must not be evidently inequitable, otherwise the court will decide what is

equitable. Art. 1311. Contracts take effect only between the parties, their assigns and heirs, except in case where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by provision of law. The heir is not liable beyond the value of the property he received from the decedent.

If a contract should contain some stipulation in favor of a third person, he may demand its fulfillment provided he communicated his acceptance to the obligor before its revocation. A mere incidental benefit or interest of a person is not sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a third person. Art. 1312. In contracts creating real rights, third persons who come into possession of the object of the contract are bound thereby, subject to the provisions of the Mortgage Law and the Land Registration Laws. Art. 1313. Creditors are protected in cases of contracts intended to defraud them.

4. RELATIVITY Generally, contracts take effect only between the immediate parties, and cannot favour or prejudice a

third person, even if such person is aware of the contract and have acted with knowledge thereof. This relativity of contracts extends to the parties’ assigns and heirs—and thus the transfer of action from one person to another is effected by operation of law, under certain conditions.

- The parties’ assigns and heirs are always parties to a contract, except in three circumstances:

a. When the nature of the contract makes its obligations non-transmissible - Usually where acts stipulated in a contract require the special knowledge, genius, skill,

taste, ability, experience, judgment, discretion, integrity or other personal qualification of one or both parties, it is personal in nature, and thus non-transmissible, or




54

- When the contract is of such character that it may not be performed well by the promissor’s personal representative (then the obligation is discharged by the death of the promissory)

b. When there is a stipulation that the obligations are non-transmissible c. When the law provides for non-transmission (e.g. a lease, the lessee cannot assign the lease

without the consent of the lessor; in a contract of voluntary deposit, the depositary cannot deposit the thing to a third person unless there is a stipulation to the contrary)

Exceptions to the relativity rule: STIPULATIONS POUR ATRUI

- A third party may enforce a contract which has been made for his or her benefit although he or she is not a party to such contract. Requisites:

a. A stipulation in favour of a third person—it is unnecessary that such person be named in the contract

b. Such stipulation is only a part of the contract c. The contracting parties must have clearly and deliberately conferred a favour

upon the third person, and not a mere incidental benefit or interest d. Neither of the contracting parties bears the legal representation of the third party e. The favoured party must have communicated his or her acceptance of the

stipulation to the obligor before the revocation—it is not necessary, as a general rule, for the third party to make a formal acceptance prior to the bringing of the suit. The assent of the beneficiary shall be presumed, and the commencement of an action to enforce a promise is sufficient as an acceptance.

A person who came into a possession of a contract involving real rights—for example, lease of real estate binds a subsequent buyer

Creditors—a contract shall be rescissible if it is undertaken in fraud of creditors and the latter cannot

in any other manner collect the claim due them. Even if the creditor is not a party to the contract, he or she is given legal personality in law to terminate the contract

A third person who induces another to violate a contract

- Requires malice. If persuasion be used for the indirect purpose of injuring the plaintiff, or benefiting the defendant at the expense of the plaintiff, it is a malicious act, which in the law is a wrongful act and from which an actionable act of injury may issue. Malice must be shown to exist

- However no liability exists where the third party was acting in the lawful exercise of some right

Art. 1315. Contracts are perfected by mere consent, and from that moment the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law. Art. 1316. Real contracts, such as deposit, pledge and Commodatum, are not perfected until the delivery of the object of the obligation. PERFECTION OF CONTRACTS General rule: Contracts are perfected by consent. Exceptions: Real contracts, as well as a deposit,

pledge, and commodatum, for example, are not perfected until the delivery of the object. - A deposit is constituted the moment a person receives a thing belonging to another with

the obligation of safely keeping it and of returning the same. - A pledge is constituted by the owner of the object to be pledged to secure a loan.




55

- A bailee in commodatum acquires the use of the thing, but not its fruits; delivery of the thing is essential here.

Art. 1317. No one may contract in the name of another without being authorized by the latter, or unless he has by law a right to represent him.

A contract entered into in the name of another by one who has no authority or legal representation, or who has acted beyond his powers, shall be unenforceable, unless it is ratified, expressly or impliedly, by the person on whose behalf it has been executed, before it is revoked by the other contracting party. CONTRACTS OF AGENCY A person binds himself or herself to render some service to do something in representation or in

behalf of the other, with the consent or the authority of the other. - General rule: Principal of the agent must comply with all the obligations which the agent

may have contracted within the scope of authority, except when the agent has exceeded his or her power. In this case however the principal may ratify the obligation whether expressly or tacitly, before it is revoked by the other contracting party.

- Even if the agent exceeded authority, the principal is solidarily liable with the agent if the former allowed the latter to act as though the agent had full powers.

ESSENTIAL REQUISITES OF CONTRACTS 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. Absence of any one of these requisites creates an inexistent contract, where the rule on pari delicto

cannot apply. An inexistent contract, being void, should be distinguished from a void, ostensible contract where the requisites may be present but violative of the law, and where pari delicto applies.

Art. 1319. Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes a counter-offer. Acceptance made by letter or telegram does not bind the offerer except from the time it came to his knowledge. The contract, in such a case, is presumed to have been entered into in the place where the offer was made. Art. 1320. An acceptance may be express or implied. FIRST REQUISITE: CONSENT Concurrence of the wills of the offeror and the acceptor as to the thing and cause which constitutes the

contract. Consent has two essential elements: a. Offer

- A manifestation of willingness to enter into a bargain, with the intention of making the other party understand that his or her assent to the bargain is invited, and will conclude such bargain

- Formally initiates a negotiation. An example is an imperfect promise (policitacion) which is merely an offer

- The withdrawal of an offer is effective by constructive notice, such as by its mailing and not necessarily when the offeree




56

b. Acceptance - Perfects a contract through a concurrence of will on the part of both of the parties - Except where a formal acceptance is so required, although the acceptance must be

affirmatively and clearly made and must be evidenced by some acts or conduct communicated to the offeror, the acceptance may be made in an informal manner

- Must be unconditional and identical to the terms of the offer. If it is not, it is merely a counter-offer. A condition imposed on a perfection of a contract results to a failure of the contract, while conditions merely imposed on the performance of the obligation merely gives the other party options or remedies to protect interests.

Art. 1321. The person making the offer may fix the time, place, and manner of acceptance, all of which must be complied with. Art. 1322. An offer made through an agent is accepted from the time acceptance is communicated to him. Art. 1323. An offer becomes ineffective upon the death, civil interdiction, insanity, or insolvency of either party before acceptance is conveyed. Art. 1324. When the offerer has allowed the offeree a certain period to accept, the offer may be withdrawn at any time before acceptance by communicating such withdrawal, except when the option is founded upon a consideration, as something paid or promised. Art. 1325. Unless it appears otherwise, business advertisements of things for sale are not definite offers, but mere invitations to make an offer. Art. 1326. Advertisements for bidders are simply invitations to make proposals, and the advertiser is not bound to accept the highest or lowest bidder, unless the contrary appears. EFFECTIVE OFFER INEFFECTIVE / NOT AN OFFER An offer which complies with the time, place,

and manner of acceptance made by the offerer. However such offer which fails to comply may still be ratified by the offeree

Offer communicated to an agent who acts with the consent or authority of the principal

Business advertisements of an object certain, with concrete terms and conditions

An offer accepted before either party has died, become insane, insolvent, or subjected to civil interdiction. “Accepted” means that the offer has come to the actual knowledge of the offeror

Business advertisements with incomplete terms Advertisements to bidders

OFFERS AS OPTION CONTRACTS: WHEN IS A WITHDRAWAL VALID? OPTION—a contract granting a privilege to buy or sell at a determined price within an agreed time. It exists as a privilege only on the part of the buyer. The consideration in an option contract may be anything of value, such as transmissible rights.

- The option money in an option contract is different from earnest money which is considered as part of the price in a contract of sale and can be proof of the perfection of the contract

Rules: 1. If the period is not founded upon a consideration, the offeror can still withdraw the offer before it

is accepted, or if acceptance has been made, before such acceptance is made known to the offeree 2. If the period is founded upon a consideration, it would be a breach of contract to withdraw the

offer during the agreed period, and the offeror would be liable for damages




57

Art. 1327. The following cannot give consent to a contract:

(1) Unemancipated minors; (2) Insane or demented persons, and deaf-mutes who do not know how to write.

Art. 1328. Contracts entered into during a lucid interval are valid. Contracts agreed to in a state of drunkenness or during a hypnotic spell are voidable. Art. 1329. The incapacity declared in Article 1327 is subject to the modifications determined by law, and is understood to be without prejudice to special disqualifications established in the laws. Art. 1330. A contract where consent is given through mistake, violence, intimidation, undue influence, or fraud is voidable. Art. 1331. In order that mistake may invalidate consent, it should refer to the substance of the thing which is the object of the contract, or to those conditions which have principally moved one or both parties to enter into the contract.

Mistake as to the identity or qualifications of one of the parties will vitiate consent only when such identity or qualifications have been the principal cause of the contract.

A simple mistake of account shall give rise to its correction.

Art. 1332. When one of the parties is unable to read, or if the contract is in a language not understood by him, and mistake or fraud is alleged, the person enforcing the contract must show that the terms thereof have been fully explained to the former. Art. 1333. There is no mistake if the party alleging it knew the doubt, contingency or risk affecting the object of the contract. Art. 1334. Mutual error as to the legal effect of an agreement when the real purpose of the parties is frustrated, may vitiate consent. Art. 1335. There is violence when in order to wrest consent, serious or irresistible force is employed.

There is intimidation when one of the contracting parties is compelled by a reasonable and well-grounded fear of an imminent and grave evil upon his person or property, or upon the person or property of his spouse, descendants or ascendants, to give his consent.

To determine the degree of intimidation, the age, sex and condition of the person shall be borne in mind.

A threat to enforce one's claim through competent authority, if the claim is just or legal, does not vitiate consent.

Art. 1336. Violence or intimidation shall annul the obligation, although it may have been employed by a third person who did not take part in the contract. Art. 1337. There is undue influence when a person takes improper advantage of his power over the will of another, depriving the latter of a reasonable freedom of




58

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. Art. 1338. There is fraud when, through insidious words or machinations of one of the contracting parties, the other is induced to enter into a contract which, without them, he would not have agreed to. Art. 1339. Failure to disclose facts, when there is a duty to reveal them, as when the parties are bound by confidential relations, constitutes fraud. Art. 1340. The usual exaggerations in trade, when the other party had an opportunity to know the facts, are not in themselves fraudulent. Art. 1341. A mere expression of an opinion does not signify fraud, unless made by an expert and the other party has relied on the former's special knowledge. Art. 1342. Misrepresentation by a third person does not vitiate consent, unless such misrepresentation has created substantial mistake and the same is mutual. Art. 1343. Misrepresentation made in good faith is not fraudulent but may constitute error. Art. 1344. In order that fraud may make a contract voidable, it should be serious and should not have been employed by both contracting parties.

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

Art. 1345. Simulation of a contract may be absolute or relative. The former takes place when the parties do not intend to be bound at all; the latter, when the parties conceal their true agreement. Art. 1346. An absolutely simulated or fictitious contract is void. A relative simulation, when it does not prejudice a third person and is not intended for any purpose contrary to law, morals, good customs, public order or public policy binds the parties to their real agreement. NATURE OF CONTRACTS ACCORDING TO DEFECTIVE CONSENT DEFECTIVE CONSENT / VOID & INEXISTENT CONTRACTS

1. Consent given through undue influence which is contrary to public policy

Illustrative case is Marubeni Corporation v. Lirag where an agreement obtained through the influence of executive public officials was deemed as a null and void contract.

2. Absolute simulated contracts

An absolute simulated contract “exists” when the parties do not intend to be bound at all, and the contract is not intended to either produce legal effects or in any way alter the juridical position of the parties

DEFECTIVE CONSENT/ VOIDABLE CONTRACTS

Any contract entered by a minor below 21 is annullable but only at




59

1. Consent given by unemancipated minors and insane or demented persons who also do not know how to read or write

Atty. Mel says the law here contemplates “passive misrepresentation” on the part of the minors, and not active commitment of fraud, which can be a basis for damages

the instance of the minor. When such contract has been annulled by the minor when he/she comes of age, the other capacitated party can be restituted, however, to the extent the then-minor was benefited.

Similarly , any contract with the consent of an insane person is annullable also at the instance of the insane party. It is essential to prove the insanity of the party at the time of contract perfection. Such insanity must have a direct bearing on the agreement.

Any contract entered during a lucid interval of the sane person is also valid.

2. Consent given in a

state of drunkenness or during a hypnotic spell

Mere drunkenness is not enough. Intoxication must be of such a character as to perpetuate an undue advantage over the drunken person: a. When it appears the drunkenness has been brought about by

the opposite party b. When a fraudulent advantage has been taken of it c. The drunkenness was so complete to deprive the other person

of his reason of an agreeing in mind

3. Consent given through a) mistake, b) violence, c) intimidation, d) undue influence, or e) fraud.

a. The mistake must refer to the following: - The substance of the thing which is the object of the

contract - Conditions which have principally moved one or both

of the parties to enter into the contract - Mistakes of identity only when the identity is the

principal cause of the contract - A mutual error which refers to the legal effect of an

agreement where the real purpose of the parties is frustrated

There is no mistake if the party alleging it harboured doubts about the object but still risked consenting to the contract

When a person 1) is unable to read or consents to a contract in a language he/she does not understand, and 2) alleges fraud or mistake on the other party, the other party must prove that the contract was explained according to the true intentions of the parties

b. Violence refers to serious or irrestible force employed. c. Intimidation refers to a reasonable or well-grounded fear of an

imminent and grave evil on the person or property of the party or his/her spouse, ascendants, or descendants. Requisites:

- Intimidation must be the determining cause of the contract or must have caused the consent to be given

- Threatened act is unjust or unlawful - Threat is real, tangible, direct, serious—there is a

disproportion between the evil and the resistance people can offer

- The intimidation produces a well-grounded (i.e., not a general or imaginary) fear from the fact that the person from whom it comes from has the necessary means or




60

ability to inflict the injury Mere threat to bring a good faith or lawful action does not amount

to duress. Third parties who may use violence or intimidation can also bring

forth a case for annulment of the contract. d. Undue influence occurs when a person takes improper

advantage of his power over the will of the other. It can be determined by looking at the confidential, spiritual, or familial relations between the parties, or one of the parties’ mental weakness, ignorance, or financial distress.

- Solicitation, importunity, argument, and persuasion are due influence and do not vitiate consent

e. Fraud is committed through insidious words or machinations

designed to make a false representation of a material fact in order to induce another to act thereon to his or her injury. It must be serious and should not have been contracted by both of the parties.

Fraud exists when: - A party who has a duty to disclose facts fails to reveal

them to the other contracting party, with whom he has confidential relations

- When the expression of opinion of an expert has been relied on by one of the parties

- A misrepresentation by a third person has created substantial mistake and the same is mutual between the two parties.

4. Relative simulation of contract

A relative simulation of contract may exist to conceal the parties’ true agreement. It binds the parties to their real agreement only when the simulation does not prejudice a third person and when it is not intended for any purpose contrary to law, morals, good custom, public policy, and public order.

Art. 1347. All things which are not outside the commerce of men, including future things, may be the object of a contract. All rights which are not intransmissible may also be the object of contracts.

No contract may be entered into upon future inheritance except in cases expressly authorized by law.

All services which are not contrary to law, morals, good customs, public order or public policy may likewise be the object of a contract. Art. 1348. Impossible things or services cannot be the object of contracts. Art. 1349. The object of every contract must be determinate as to its kind. The fact that the quantity is not determinate shall not be an obstacle to the existence of the contract, provided it is possible to determine the same, without the need of a new contract between the parties. SECOND REQUISITE: OBJECT OF CONTRACTS Atty. Mel said that the minimum requirement for an object is that it be determinable and generic




61

CAN BE AN OBJECT CANNOT BE AN OBJECT Things that are included in the commerce of

humans, including future things - E.g., in a contract of sale, things of

potential existence may be the object, provided that that the expectancy is deemed subject to the condition that such thing will come to existence

Transmissible rights Services which are not contrary to law, morals,

good customs, public order or public policy Determinate objects whose quantity can be

determined without the need of a new contract

Future inheritance (except in cases expressly provided by law) - Future inheritance is any property or right

not in existence or incapable of determination at the time of the contract, that a person may in the future acquire by succession

Impossible things or services Indeterminable things or services as to their

kind

Art. 1350. In onerous contracts the cause is understood to be, for each contracting party, the prestation or promise of a thing or service by the other; in remuneratory ones, the service or benefit which is remunerated; and in contracts of pure beneficence, the mere liberality of the benefactor. THIRD REQUISITE: CAUSE OF CONTRACTS The cause of a contract is the essential or more proximate purpose which the contracting parties have

in view at the time of entering the contract. It may or may not be tangible, and can take different forms—a prestation, a giving of a sum of money, an expectation or profits.

KINDS OF CONTRACTS ACCORDING TO CAUSE

1. Onerous contract: for each contracting party, the cause is a prestation or promise of a thing or service by the other. In reciprocal contracts the obligation or promise of each party is the consideration for that of the other

2. Renumeratory contract: the cause is the service or benefit which is renumerated (paid for with money)

3. Contracts of pure beneficence: mere liberality of the donor is the cause of the contract. It does not involve any material thing, but involves only the generosity of the benefactor.

Art. 1351. The particular motives of the parties in entering into a contract are different from the cause thereof. CAUSE VERSUS MOTIVE Cause is the essential reason for a contract. Motive is the particular reason for a contracting party

which does not affect the other party and which does not preclude the existence of a different consideration.

General rule: the motivation of the parties is independent from the cause of the contract. The motive of a party does not affect the validity of the party. Exception: When the realization of such motive has been made a condition (often an implied condition) upon which the contract is made to depend; when the motive predetermines the purpose of the contract.

Art. 1352. Contracts without cause, or with unlawful cause, produce no effect whatever. The cause is unlawful if it is contrary to law, morals, good customs, public order or public policy. Art. 1353. The statement of a false cause in contracts shall render them void, if it should not be proved that they were founded upon another cause which is true and lawful.




62

Art. 1354. Although the cause is not stated in the contract, it is presumed that it exists and is lawful, unless the debtor proves the contrary. Art. 1355. Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a contract, unless there has been fraud, mistake or undue influence. NATURE OF CONTRACTS ACCORDING TO DEFECTIVE CAUSE VOID Proviso to render VALID

1. Contracts without cause, or with unlawful cause—contrary to law, morals, good customs, public order, or public policy

- Although a cause is not stated in the contracts, the presumption is that it exists and is lawful, unless the debtor proves the contrary

None

2. Statement of a false cause If it should be proved that the false cause is founded upon another cause which is true and lawful; if it is a relatively simulated contract

3. A lesion or inadequacy of cause that is a) specified in law or b) concurs with fraud, mistake, or undue influence

Mere inadequacy of cause shall not invalidate a contract. A valuable consideration, however small or nominal, if given or stipulated in good faith, in the absence of fraud, is sufficient (Penaco v. Rava)

FORMS OF CONTRACTS Art. 1356. Contracts shall be obligatory, in whatever form they may have been entered into, provided all the essential requisites for their validity are present. However, when the law requires that a contract be in some form in order that it may be valid or enforceable, or that a contract be proved in a certain way, that requirement is absolute and indispensable. In such cases, the right of the parties stated in the following article cannot be exercised. Art. 1357. If the law requires a document or other special form, as in the acts and contracts enumerated in the following article, the contracting parties may compel each other to observe that form, once the contract has been perfected. This right may be exercised simultaneously with the action upon the contract. Art. 1358. The following must appear in a public document:

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

(2) The cession, repudiation or renunciation of hereditary rights or of those of the conjugal partnership of gains;

(3) The power to administer property, or any other power which has for its object an act appearing or which should appear in a public document, or should prejudice a third person;




63

(4) The cession of actions or rights proceeding from an act appearing in a public document.

All other contracts where the amount involved exceeds five hundred pesos must appear in writing, even a private one. But sales of goods, chattels or things in action are governed by Articles, 1403, No. 2 and 1405. WHEN IS FORM ESSENTIAL IN A CONTRACT? General rule: As long as the essential requisites in a contract are present, a contract binds the parties

no matter what form they may have been entered. Exceptions: a. When the law requires that the contract be in some form to be valid

- Donations of immovable property - Interest payments

b. When the law requires that the contract be in some form to be enforceable - That the contact be proved by some writing, as in those covered by the Statute of Frauds

c. When the law requires that the contract be in some form for greater efficacy or to bind third persons

- Contracts which require a public instrument (see Article 1358). The failure to put in a public or private document these transactions will not render the agreement invalid. In this sense, Article 1358 is merely directory. The actions outlined therein are still enforceable by action or suit even though they are not in a public instrument.

- Parties in contracts which require this form have a specific right exclusive to them: they may compel each other to observe that form once the contract has been perfected, and this is a right which may be exercised simultaneously with the action upon the contract

REFORMATION OF INSTRUMENTS Art. 1359. When, there having been a meeting of the minds of the parties to a contract, their true intention is not expressed in the instrument purporting to embody the agreement, by reason of mistake, fraud, inequitable conduct or accident, one of the parties may ask for the reformation of the instrument to the end that such true intention may be expressed. If mistake, fraud, inequitable conduct, or accident has prevented a meeting of the minds of the parties, the proper remedy is not reformation of the instrument but annulment of the contract. 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. REFORMATION Connotes a valid written contract, because a contract not written cannot be reformed. Presupposes a meeting of the minds, only that the instrument does not refer to the true intention of

the parties by reason of mistake, fraud, inequitable conduct, or accident. - However, if such fraud, inequitable conduct, mistake, or accident prevented a meeting of

the minds, the remedy is annulment of the contract, not reformation Thus, the determination whether a contract may be reformed is a two-step process:

a. It must be shown that the instrument embodying the contract does not reveal the true intention of the parties

b. The existence of a real and an actual contract must be shown. Basis of reformation is equity. The courts by reformation do not attempt to make a new contract for

the parties, but tries to make the instrument express their real agreement. The rationale for such doctrine is that it would be unjust and inequitable to allow the enforcement of a written instrument which does not reflect the parties’ meeting of the minds.




64

Burden of proof is upon the party who insists the party should be reformed based on some legal ground. It is also a right in personam.

Prescriptive period is within ten years from the time the cause of action accrues. (The action may also be barred by laches.) The cause of action accrues upon:

- the knowledge of the ground for reformation, or - from the date of the execution of the instrument embodying the contract if the causes for

reformation were already known at the time of the execution of the contract The action for reformation is called a special civil action for declaratory relief under the Rules of

Court, and its purpose is to secure an authoritative statement of the rights and obligations of the parties for their guidance in the enforcement thereof

Art. 1361. When a mutual mistake of the parties causes the failure of the instrument to disclose their real agreement, said instrument may be reformed. Art. 1362. If one party was mistaken and the other acted fraudulently or inequitably in such a way that the instrument does not show their true intention, the former may ask for the reformation of the instrument. Art. 1363. When one party was mistaken and the other knew or believed that the instrument did not state their real agreement, but concealed that fact from the former, the instrument may be reformed. Art. 1364. When through the ignorance, lack of skill, negligence or bad faith on the part of the person drafting the instrument or of the clerk or typist, the instrument does not express the true intention of the parties, the courts may order that the instrument be reformed. Art. 1365. If two parties agree upon the mortgage or pledge of real or personal property, but the instrument states that the property is sold absolutely or with a right of repurchase, reformation of the instrument is proper. 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. Art. 1367. When one of the parties has brought an action to enforce the instrument, he cannot subsequently ask for its reformation. WHEN IS REFORMATION PROPER? PROPER 1. THERE IS A MISTAKE.

a. There is a mutual mistake of the parties which involves factual matters (generally). - To prove that the mistake was mutual and involved factual matters which

caused the failure of the expression of the parties’ true intent, more than a mere preponderance of evidence is required.

- There may be no need for reformation even though there was mistake when the parties executed the contract according to their true intent without need of court intervention (Atilano v. Atilano)

b. One party is mistaken, and the other acted fraudulently or inequitably in such a way to conceal the parties’ true intention




65

c. One party is mistaken, and the other knew or believed that the instrument did not state their real agreement

d. The clerk, typist, or person drafting the instrument commits an error through negligence, lack of skill, ignorance, or bad faith

2. IT IS A MORTAGE OF REAL OR PERSONAL PROPERTY, but the instrument says it is an absolute sale with a right of repurchase.

IMPROPER 1. Simple donations inter vivos where no condition is imposed - These donations are acts of liberality, and do not involve any meeting of

the minds (there is no negotiation or agreement) 2. Wills

- Similar to simple donations 3. When the real agreement is void 4. When the party seeking reformation has already brought an action to enforce the

instrument - Such party is stopped already

Art. 1368. Reformation may be ordered at the instance of either party or his successors in interest, if the mistake was mutual; otherwise, upon petition of the injured party, or his heirs and assigns. WHO MAY ORDER REFORMATION?

1. In mutual mistake: either party or their successors in interest 2. Not mutual mistake: upon petition of the injured party, his/her heirs or assigns

Art. 1369. The procedure for the reformation of instrument shall be governed by rules of court to be promulgated by the Supreme Court. INTERPRETATION OF CONTRACTS Art. 1370. If the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control.

If the words appear to be contrary to the evident intention of the parties, the latter shall prevail over the former. INTERPRETATION REFORMATION The act of making intelligible what was before

not understood, ambiguous or not obvious The determination of the meaning attached to

the words written or spoken which make the contract

A remedy in equity where a written instrument is made or construed as to express or conform to the real intention of the parties

General rule: The intention of the parties is reflected from the wordings of the contract, and therefore

the literal stipulations shall control. Exception: When the wording is ambiguous, apply the rules in statutory construction and those outlined in this chapter.

Sir Mel’s summary of rules—how to discern intention, in order of applicability: 1. Examine the text. If it is unclear... 2. Consider the context. Context can be ascertained from the following:

a. The prior, contemporaneous, and subsequent acts of the parties b. Applying ejusdem generis and noscitur a sociis c. Examining the nature of the contract




66

d. Customs and usage (but only to fill omissions) e. Contra proferentem f. Applying the gratuitous and onerous rule

Relevant cases: - Santi v. CA: The stipulation “said period of the lease being extendable for another period

of twenty years” means clearly that the lessor’s intention is not to automatically extend the lease contract but to give her time to ponder and think whether to extend the lease.

- Fernandez v. CA: The Court said that the interpretation of the phrase “renewable for another ten years at the option of both parties under such terms, conditions, and rental reasonable at that time” is that the plaintiff cannot renew the lease by a unilateral act of exercising his option.

- Universal Textile Mills Inc. v. National Labor Relations Commission: The interpretation or construction of a contract does not include its modification or the creation of a new one. It must be construed and enforced according to the terms employed, and a court has no right to interpret the agreement as meaning something different from what the parties intended to be expressed by the language they saw fit to employ.

Art. 1371. In order to judge the intention of the contracting parties, their contemporaneous and subsequent acts shall be principally considered.

- Pingol v. CA: The Court deemed a contract as one of absolute sale, and not a contract to sell, by looking at the contemporaneous and subsequent acts of the vendee. Pursuant to the deed of sale, the vendor delivered actual and constructive possession of the property to the vendee, who occupied and took such possession, constructed a building thereon, among others. These are demonstrative acts that the vendor recognized the vendee as the absolute owner of the property sold.

- Rapanut v. CA: The Court decided that the phrase “...payable in monthly instalments of P500 with an interest of 10% per annum on the remaining balance until the full amount is paid” means that the 10% interest on the balance is added to whatever remains of the principal whenever an instalment is paid (petitioner’s interpretation), and not that the 10% interest must be paid every year (respondent’s interpretation). The Court observed that the respondent accepted the payments petitioner religiously made for four years without objection.

- Javier v. CA: Where the parties to a contract have given it a practical construction by their conduct as by acts in partial performance, such construction may be considered by the court in construing the contract, determining its meaning and ascertaining the mutual intention of the parties at the time of contracting.

- Carceller v. CA: Analysis and construction, however, should not be limited to the words in the contract. The reasonableness of the result obtained should also be considered. In contractual relations, the Court allows the parties reasonable leeway on the terms of their agreement, and that contracts should not be interpreted in a harsh and inequituous way.

- Gonzales v. Previsora Filipina: The import of a word ultimatedly depends upon the consideration of the entire provision, its nature, the object and the consequences that would follow it from construing it one way or the other. Thus if a provision demands a mandatory application, the word “may” be construed as “shall.”

Art. 1372. However general the terms of a contract may be, they shall not be understood to comprehend things that are distinct and cases that are different from those upon which the parties intended to agree. NOSCITUUR A SOCIIS General and unlimited terms are restrained and limited by particular terms that follow.




67

EJUSDEM GENERIS A general term joined with a specific one will be deemed to include only things that are like, of the

same genus, as the specific one. Art. 1373. If some stipulation of any contract should admit of several meanings, it shall be understood as bearing that import which is most adequate to render it effectual.

- Lao Lim v. CA: The Court interpreted a contract to mean that there is a renewal of the lease every three years and that a 20% increase of rentals will only take effect if the parties decide to renew the lease, because a contrary interpretation will result in a situation where the continuation and the effectivity of the contract will depend only upon the will of the lessee, in violation of Article 1308 of the Civil Code. The compromise agreement should be understood as bearing that import which is most adequate to render it effectual.

- Caltex v. Intermediate Appellate Court: Provisions in a contract must be given a construction as will give effect to them. If it were the intention of the parties to limit the respondent’s obligation to P4M they should have stated so, and there would have been no need to qualify the statement of said amount with the clause “as of June 1980 plus any applicable charges on the overdue account,” among others.

- Ridjo Tape and Chemical Corporation v. CA: Construction in terms of a contract which would amount to impairment or loss of right is not favoured; conservation and preservation, not waiver, abandonment, or forfeiture of a right, is the rule.

Art. 1374. The various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense which may result from all of them taken jointly. The various provisions of a contract must be read as a whole and not in isolation. Each provision

must be related to each other in order to clearly now the total import and application of the law, and so that a harmonious whole can be attained.

- Ruiz v. Sheriff of Manila: The clause “failure to pay two successive monthly amortizations will cause the loan to be automatically die and payable in its entirety. Notwithstanding the foregoing, this loan shall not run for more than five years” is not self-conflicting, according to the Court. It means that while monthly amortizations could be as little as P300, the loan should be paid anyway in five years; and that failure to pay two successive amortizations would render the entire loan due and payable. Thus, if there is default committed for twelve months, any foreclosure of a mortgage is not premature.

- Fernandez v. CA: The important task in contract interpretation is always the ascertainment of the intention of the parties through looking to the words they used to project the intention of their contract—all the words, and not just a particular word or two, and words in context and not words standing alone.

- China Banking Corp v. CA: Mortgages given to secure future advancements or loans are valid and legal contracts, and amounts named as consideration in said contracts do not limit the amount for which the mortgage may stand as security, if from the four corners of the instrument the intent to secure future and other indebtedness can be gathered.

Art. 1375. Words which may have different significations shall be understood in that which is most in keeping with the nature and object of the contract.

- Pasay City Government v. Court of First Instance of Manila: The Court interpreted the words “in proportion” to mean that the parties to a compromise contemplated a divisible obligation.




68

Art. 1376. The usage or custom of the place shall be borne in mind in the interpretation of the ambiguities of a contract, and shall fill the omission of stipulations which are ordinarily established. It is important to note that usage or custom will only be admissible if a contract’s provisions are

doubtful. An express contract embodying in clear and positive terms the intention of the parties cannot be varied nor contradicted by evidence of usage or custom. A written and express contract cannot be controlled, varied, or contradicted by usage or custom.

Art. 1377. The interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity. CONTRA PROFERENTEM Means “against the proferrer.” If there is an ambiguity in a document and all the other methods of

construction have failed to resolve so that there are two alternative meanings to certain words, the Court may construe the words against the party who put forward the document, and give effect to the meaning more favourable to the other party

Based on the maxim verba accipiuntur fortius contra proferentem: a contract is interpreted against the person who wrote it.

Art. 1378. When it is absolutely impossible to settle doubts by the rules established in the preceding articles, and the doubts refer to incidental circumstances of a gratuitous contract, the least transmission of rights and interests shall prevail. If the contract is onerous, the doubt shall be settled in favor of the greatest reciprocity of interests.

If the doubts are cast upon the principal object of the contract in such a way that it cannot be known what may have been the intention or will of the parties, the contract shall be null and void. When a contract is gratuitous in nature, the least transmission of rights should prevail.

- Central Philippine University v. CA: Where a donee seeks the execution of a donation even though such done did not fulfil a condition sought by the donor, because such donor did not seek the enforcement of the condition for a long time anyway, the Court ruled for the revocation of the donation.

When a contract is onerous in nature, doubt shall be settled in favour of the greatest reciprocity of interests.

- Castelo v. CA: Between two interpretations of a stipulation in a contract—whether during the period of January 1, 1983 up to June 30, 1983, 12% per annum plus 1% penalty charge a month was payable on the remaining diminishing balance, or whether during the same period, only 12% interest was payable while the 1% per month penalty charge would begin to accrue on any balance remaining unpaid—the Court chose the latter. If the parties intended the former they would have stated a 24% interest (1% per month = 12% per year).

- Gaite v. Fonacier: The Court ruled that a provision in a contract transferring Gaite’s rights to Fonacier in exchange for an amount of money, and where the remaining balance of the money will be paid “from and out the first letter of credit covering the first shipment of iron ores and of the first amount derived from the local sale of iron ore” should be interpreted as providing for a suspensive period, and not a suspensive condition. The Court ruled that a greater reciprocity of interests obtains if the buyer’s obligation is deemed to be actually existing, with only its maturity date postponed or deferred, than if such obligation was viewed as non-binding until the ore was sold.




69

When the contract’s principal object is expressed in such a way that the intention of the parties cannot be known, the contract is null and void.

Art. 1379. The principles of interpretation stated in Rule 123 of the Rules of Court shall likewise be observed in the construction of contracts. OTHER PRINCIPLES OF INTERPRETATION Interpretation according to legal meaning, unless the parties intended otherwise Construction that will give effect to all provisions is favoured Particular intent will control a general one that is inconsistent with it Interpretation according to the circumstances The terms in a contract are presumed to be used in their general acceptation, but if evidence can be

shown that they have a local, technical, or otherwise peculiar signification, then they must be construed as such accordingly

Written words control printed Experts and interpreters can be presented in court in case the contract cannot be deciphered and such

persons are proved to be skilled in deciphering the characters Of two constructions, that sense is to prevail against either party in which he supposed the other

understood it, or that view which is more favourable to the party in whose favour the provision was made

Construction in favour of a natural right Interpretation according to usage RESCISSIBLE CONTRACTS Art. 1380. Contracts validly agreed upon may be rescinded in the cases established by law. Art. 1381. The following contracts are rescissible: (1) Those which are entered into by guardians whenever the wards whom they represent suffer lesion by more than one-fourth of the value of the things which are the object thereof; (2) Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the preceding number; (3) Those undertaken in fraud of creditors when the latter cannot in any other manner collect the claims due them; (4) Those which refer to things under litigation if they have been entered into by the defendant without the knowledge and approval of the litigants or of competent judicial authority; (5) All other contracts specially declared by law to be subject to rescission. Art. 1382. Payments made in a state of insolvency for obligations to whose fulfillment the debtor could not be compelled at the time they were effected, are also rescissible. RESCISSIBLE CONTRACTS Valid contracts that can be terminated on legal grounds Rescission is principally based on some economic damage (lesion) as a result of the inequitable

conduct by one party TYPES OF RESCISSIBLE CONTRACTS




70

1. Entered by guardians, wherein the ward suffers lesion by more than ¼ of the value of the property

- Rescission cannot take place however when the contract has been judicially approved 2. Entered by representatives of absentees, wherein the absentee suffers lesion by more than ¼ of

the value of the property - Rescission cannot take place however when the contract has been judicially approved

3. Those undertaken in fraud of creditors, and which makes collection of the creditors’ claim impossible

- Bobis v. Provincial Sheriff of Camarines Norte: The fraud is never presumed, but must be proved by clear preponderance of evidence. It is essential that it be shown that both contracting parties have acted maliciously and with fraud for the purpose of prejudicing said creditors, and that the latter are deprived by the transactions of all means by which they may effect collection of their claims

4. Those which refer to things under litigation, unless it has been entered with the knowledge or approval of the litigants, or of competent judicial authority

5. Payments made in state of insolvency, for which the debtor cannot be compelled to pay at the time the obligation was effected

- A state of insolvency occurs when a debtor’s liabilities exceed his/her assets and can barely pay off his/her debts

6. All others declared by law to be rescissible - For example, a contract of sale entered in violation of the right to first refusal is

rescissible Art. 1383. The action for rescission is subsidiary; it cannot be instituted except when the party suffering damage has no other legal means to obtain reparation for the same. SUBSIDIARY NATURE Must be the last remedy, of last resort (e.g., an accion pauliana, an action to rescind contracts made

in favour of creditors, and which has the ff. requisites: a) a judgment, b) the issuance of a trial court of a writ of execution for the satisfaction of the judgment, c) the failure of the sheriff to enforce and satisfy the judgment of the court.)

A cause for action in a rescission can only be made in a proper and direct action filed for that purpose, and not on a mere motion incidental to another case

- Air France v. Court of Appeals: Rescission is a relief which the law grants on the premise that the contract is valid and for the protection of one of the contracting parties and third persons from all injury and damage the contract may cause, or to protect some incompatible and preferential right created by the contract. An action for rescission may not be raised or set up in a summary proceeding, through a motion, but in an independent civil action and only after a full-blown trial

Art. 1384. Rescission shall be only to the extent necessary to cover the damages caused. Art. 1385. Rescission creates the obligation to return the things which were the object of the contract, together with their fruits, and the price with its interest; consequently, it can be carried out only when he who demands rescission can return whatever he may be obliged to restore.

Neither shall rescission take place when the things which are the object of the contract are legally in the possession of third persons who did not act in bad faith.

In this case, indemnity for damages may be demanded from the person causing the loss.




71

Art. 1386. Rescission referred to in Nos. 1 and 2 of Article 1381 shall not take place with respect to contracts approved by the courts. RESTITUTION IN RESCISSION In restitution, the parties shall be placed in the same position where they were before they entered the

said contract. - Possible: When the one who demands rescission can return whatever he/she may be

obliged to restore - Not possible: a) When the objects cannot be restored, or b)when the objects of the

contract are legally in the possession of a third person who did not act in bad faith. Damages may be demanded from the person causing the loss, however, in this case. A person in good faith is one who buys the property of another without notice that some other person has a right or interest in such a property and pays a full and fair price at the time of the purchase or before he/she has notice of the claim or interest of some other person in the property

Art. 1387. All contracts by virtue of which the debtor alienates property by gratuitous title are presumed to have been entered into in fraud of creditors, when the donor did not reserve sufficient property to pay all debts contracted before the donation.

Alienations by onerous title are also presumed fraudulent when made by persons against whom some judgment has been issued. The decision or attachment need not refer to the property alienated, and need not have been obtained by the party seeking the rescission.

In addition to these presumptions, the design to defraud creditors may be proved in any other manner recognized by the law of evidence. REBUTTABLE PRESUMPTIONS OF FRAUD RE: RESCISSION Requisites: Alienation by gratuitous title

1. Debts are contracted prior to the donation or alienation by onerous title. Maturity of debts is not a requirement

2. There is no reservation of sufficient property to pay all debts contracted before the donation or alienation

Alienation by onerous title 1. The alienation made during the pendency of a suit presupposes a judgment, or a writ of

attachment 2. The attachment need not refer to the property alienated 3. The attachment need not to have been obtained by the party seeking rescission

- Provincial Sheriff v. Court of Appeals: Art. 1387 does not apply in a case where there has

been no transfer or alienation of property. The Court found in this case that the transfer of the “Modern Furniture Store” from one person to another referred merely to its business name and style , and not the store itself or its contents—because the old store has been razed in a fire, and the new store was built from the capital of the new owner.

Art. 1388. Whoever acquires in bad faith the things alienated in fraud of creditors, shall indemnify the latter for damages suffered by them on account of the alienation, whenever, due to any cause, it should be impossible for him to return them.




72

If there are two or more alienations, the first acquirer shall be liable first, and so on successively. THIRD PARTY IN BAD FAITH; MORE THAN ONE Liability of third party buyer who knew an alienation was made in fraud of creditors:

1. Restitution, if possible 2. If not, damages

Art. 1389. The action to claim rescission must be commenced within four years. For persons under guardianship and for absentees, the period of four years shall not begin until the termination of the former's incapacity, or until the domicile of the latter is known. PRESCRIPTIVE PERIOD; WHEN IT BEGINS TO RUN The action to rescind prescribes in four years The period begins to run after the aggrieved party has unsuccessfully exhausted all possible legal

remedies to enforce the obligation or recover losses, and from the time— 1. The incapacity of persons under guardianship terminates, in cases of persons under guardianship 2. The absentee learns of the contract, in cases of absentees 3. The fraud is discovered, for contracts entered in fraud of creditors 4. Of the knowledge of the transaction, for contracts entered with respect to things under litigation

without approval VOIDABLE CONTRACTS Art. 1390. The following contracts are voidable or annullable, even though there may have been no damage to the contracting parties: (1) Those where one of the parties is incapable of giving consent to a contract; (2) Those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud. These contracts are binding, unless they are annulled by a proper action in court. They are susceptible of ratification. Art. 1391. The action for annulment shall be brought within four years. This period shall begin:

In cases of intimidation, violence or undue influence, from the time the defect of the consent ceases.

In case of mistake or fraud, from the time of the discovery of the same. And when the action refers to contracts entered into by minors or other incapacitated persons, from the time the guardianship ceases. VOIDABLE CONTRACTS Damage need not exist Valid until annulled, unless any defect (enumerated in the grounds below) is cured by ratification,

which can be claimed within four years GROUND PERIOD BEGINS TO RUN:

1. Incapacitated in giving consent

From the time guardianship ceases

2. Vitiated consent (by mistake, violence,

For intimidation, violence or undue influence, from the time such defects cease




73

intimidation, undue influence, or fraud

For mistake of fraud, upon discovery of the same

Art. 1392. Ratification extinguishes the action to annul a voidable contract. Art. 1393. Ratification may be effected expressly or tacitly. It is understood that there is a tacit ratification if, with knowledge of the reason which renders the contract voidable and such reason having ceased, the person who has a right to invoke it should execute an act which necessarily implies an intention to waive his right. Art. 1394. Ratification may be effected by the guardian of the incapacitated person. Art. 1395. Ratification does not require the conformity of the contracting party who has no right to bring the action for annulment. Art. 1396. Ratification cleanses the contract from all its defects from the moment it was constituted. RATIFICATION May be expressly or tacitly given. Express, e.g.: A writes a letter continuing a lease of contract even

though A’ s consent was vitiated by B. Tacit, e.g.: Instead of a letter, A willingly and continuously pays the rentals for the subject’s leased premises.

A unilateral act generally done by the injured party and not by the party causing the injury. The consent of the injuring party is thus not required

Can be given by the guardian of an incapacitated person, especially if it will redound to the benefit of the ward

The curing effect retroacts to the day when the contract was entered Art. 1397. The action for the annulment of contracts may be instituted by all who are thereby obliged principally or subsidiarily. However, persons who are capable cannot allege the incapacity of those with whom they contracted; nor can those who exerted intimidation, violence, or undue influence, or employed fraud, or caused mistake base their action upon these flaws of the contract. WHO CAN FILE AN ACTION FOR ANNULMENT? General rule: Only the aggrieved parties (those obliged principally and subsidiarily, such as heirs) can

file. - The right to annul and other actions and obligations must have been transmitted to the

heir, or the latter cannot bring an action to annul a contract in representation of the contracting party who made it

Exception: When a third person can prove prejudice against him/her, that person may file an action for annulment. The person must show the detriment which positively would result to him or her from the contract in which he or she had no intervention. (Ibañez v. Hongkong and Shanghai Bank, etc.)

Art. 1398. An obligation having been annulled, the contracting parties shall restore to each other the things which have been the subject matter of the contract, with their fruits, and the price with its interest, except in cases provided by law.

In obligations to render service, the value thereof shall be the basis for damages.




74

Art. 1399. When the defect of the contract consists in the incapacity of one of the parties, the incapacitated person is not obliged to make any restitution except insofar as he has been benefited by the thing or price received by him. 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. RESTITUTION General rule: After the obligation has been annulled, the parties must restore to each other the things

(or services) that are the subject matter of the contract, plus their fruits and interest except in cases provided by law

Exceptions: 1. An incapacitated minor is obliged to make restitution only in so far as he/she has been

benefited 2. When the object has been lost through the fault of one of the parties, he/she shall return the

fruits received, and the value of the thing at the time of the loss, plus interest Art. 1401. The action for annulment of contracts shall be extinguished when the thing which is the object thereof is lost through the fraud or fault of the person who has a right to institute the proceedings.

If the right of action is based upon the incapacity of any one of the contracting parties, the loss of the thing shall not be an obstacle to the success of the action, unless said loss took place through the fraud or fault of the plaintiff. EXTINGUISHMENT OF ACTION FOR ANNULMENT

1. When the injured party loses the object of the obligation through his/her own fault or fraud 2. When the incapacitated party causes the loss of the object. Loss of the thing per se, however, is

not a ground for extinguishment of the action to annul

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. Exception to this rule applies to incapacitated minors, who may only restitute in so far as they have

been benefited UNENFORCEABLE CONTRACTS Art. 1403. The following contracts are unenforceable, unless they are ratified: (1) Those entered into in the name of another person by one who has been given no authority or legal representation, or who has acted beyond his powers; (2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases an agreement hereafter made shall be unenforceable by action, unless the same, or some note or memorandum, thereof, be in writing, and subscribed by the party charged, or by his agent; evidence, therefore, of the agreement cannot be received without the writing, or a secondary evidence of its contents:




75

(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. (3) Those where both parties are incapable of giving consent to a contract. Art. 1404. Unauthorized contracts are governed by Article 1317 and the principles of agency in Title X of this Book. Art. 1405. Contracts infringing the Statute of Frauds, referred to in No. 2 of Article 1403, are ratified by the failure to object to the presentation of oral evidence to prove the same, or by the acceptance of benefit under them. UNENFORCEABLE CONTRACTS

1. Those entered into in the name of one person by another with no authority therefor, or who acted in excess of authority

2. Those which do not comply with the Statute of Frauds. This statute mandates that for certain executor contracts to be enforceable in a court of law, the only evidence that can prove such is a written proof of the agreement like some notes or memoranda. Why? To prevent perjury.

- The list of contracts that must comply with the statute is exclusive - Nature of the memo: In Berg v. Magdalena, the Court said no particular form of

language or instrument is necessary to constitute a memo. It may be informal or formal, and need not be contained in a single document

- In the following cases, a) an agreement or some note or memorandum in writing and b) the signature of the party charged or his/her agent in such writings are needed.

a. An agreement whose terms dictate that there will be no performance within year of the making thereof

- Exceptions: 1) Babao v. Perez set down the rule that if there is complete performance within a year by

one of the contracting parties, the contract is taken out of the statute 2) If the contract stipulates that it shall be executed immediately, although it has been reset

to another date so it can be finished beyond one year b. Guarantor: a special promise to answer for the debt, default, or miscarriage of another

- Within statute: collateral obligation; a third party and a defendant are liable in the same way, and to do the same thing, one as principal and the other as surety

- Outside statute: original obligation; the third party is primary liable for the payment of the debt, and the credit was transferred to him/her

c. Agreement made in consideration of marriage




76

- Mandatory - Breach of promise to marry is not actionable

d. An agreement for the sake of goods, etc., at a price higher than P500, unless the buyer accept and receive part of the goods or pay some part of the purchase money; an auction sale recorded in the sales book is a sufficient memo

e. Lease agreement for a period more than a year, or for the sale of real property or an interest therein

- Need not be notarized, for notarization only binds third persons f. Representation to the credit of a third person

- If made in bad faith, can be a source of damages The Statute of Frauds is not applicable when: The contract has been consummated or there has been partial performance.

- To enforce the rest of the contract (which is presumably made orally), it must be proven that the agreement relied on is definite, clear, unambiguous and unequivocal, as well fair, reasonable, and just.

- Oral testimony is admissible, as well as acts indicating partial performance (payment of taxes, possession, improvements)

The contract has been ratified through any of the following: 1. Failure to object to the presentation of oral evidence proving the contract 2. Acceptance of benefits under the contract

When may the Statute of Frauds be invoked?

1. Specific performance 2. Violation of contracts

3. Those where both parties are incapable of giving consent

- Effect of ratification by a parent or guardian of one contracting party: the contract is now voidable.

- Effect of ratification of both parents of both parties: the contract is validated from inception

Art. 1406. When a contract is enforceable under the Statute of Frauds, and a public document is necessary for its registration in the Registry of Deeds, the parties may avail themselves of the right under Article 1357. The registration of the property and an action upon a contract can be exercised simultaneously. Art. 1407. In a contract where both parties are incapable of giving consent, express or implied ratification by the parent, or guardian, as the case may be, of one of the contracting parties shall give the contract the same effect as if only one of them were incapacitated.

If ratification is made by the parents or guardians, as the case may be, of both contracting parties, the contract shall be validated from the inception. Art. 1408. Unenforceable contracts cannot be assailed by third persons. The contract cannot be executed, anyway. VOID AND INEXISTENT CONTRACTS




77

Art. 1409. The following contracts are inexistent and void from the beginning: (1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy; (2) Those which are absolutely simulated or fictitious; (3) Those whose cause or object did not exist at the time of the transaction; (4) Those whose object is outside the commerce of men; (5) Those which contemplate an impossible service; (6) Those where the intention of the parties relative to the principal object of the contract cannot be ascertained; (7) Those expressly prohibited or declared void by law.

These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived.

Art. 1410. The action or defense for the declaration of the inexistence of a contract does not prescribe. Art. 1411. When the nullity proceeds from the illegality of the cause or object of the contract, and the act constitutes a criminal offense, both parties being in pari delicto, they shall have no action against each other, and both shall be prosecuted. Moreover, the provisions of the Penal Code relative to the disposal of effects or instruments of a crime shall be applicable to the things or the price of the contract.

This rule shall be applicable when only one of the parties is guilty; but the innocent one may claim what he has given, and shall not be bound to comply with his promise. Art. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the following rules shall be observed: (1) When the fault is on the part of both contracting parties, neither may recover what he has given by virtue of the contract, or demand the performance of the other's undertaking; (2) When only one of the contracting parties is at fault, he cannot recover what he has given by reason of the contract, or ask for the fulfillment of what has been promised him. The other, who is not at fault, may demand the return of what he has given without any obligation to comply his promise. Art. 1413. Interest paid in excess of the interest allowed by the usury laws may be recovered by the debtor, with interest thereon from the date of the payment. Art. 1414. When money is paid or property delivered for an illegal purpose, the contract may be repudiated by one of the parties before the purpose has been accomplished, or before any damage has been caused to a third person. In such case, the courts may, if the public interest will thus be subserved, allow the party repudiating the contract to recover the money or property. Art. 1415. Where one of the parties to an illegal contract is incapable of giving consent, the courts may, if the interest of justice so demands allow recovery of money or property delivered by the incapacitated person.




78

Art. 1416. When the agreement is not illegal per se but is merely prohibited, and the prohibition by the law is designated for the protection of the plaintiff, he may, if public policy is thereby enhanced, recover what he has paid or delivered. VOID CONTRACTS Produces no legal effects at all Action to declare the contract void is imprescriptible. Even the doctrine of laches cannot apply to

resist an imprescriptible legal right Restitution generally applies—if both parties have no fault or are not guilty, the restoration of what

was given by each of them is in order

VOID AND INEXISTENT CONTRACTS

1. Those which are simulated of fictitious

2. Those whose cause or object did not exist at the time of the transaction

3. Those whose object is outside the commerce of men

4. Those which contemplate an impossible service

5. Those where the intention of the parties relative to the principal object of the contract cannot be ascertained

Absence of an essential element (consent, cause, object) in a contract

Pari delicto does not apply Examples: Gardner v. Court of Appeals: A simulated contract purporting to

be a sale of land, but was actually intended to merely protect a party to a joint venture for the cash advances he was to make for a realty subdivision the parties wanted to put up, was declared void

De Leon v.Court of Appeals: A stipulation in a contract which has for its consideration the termination of a marriage ,was declared contrary to law and public policy

VOID AND OSTENSIBLE CONTRACTS

1. Those whose cause, object, or purpose is contrary to law, morals, good customs, public order, or public policy

2. Those expressly prohibited or declared void by law - However, not all

contracts which violate the law are void. Only those which violate mandatory or prohibitory provisions (Art. 8. Civil Code) are void

Elements are complete, but the purpose of the contract is ostensible

Pari delicto applies, subject to exceptions

Examples: Maharlika Publishing Corporation v.Tagle: The bidding and

contract of sale given to a wife of a GSIS official is declared void for violating Art. 1491 of the Civil Code prohibiting public officers and employees from purchasing property under their administration in an auction sale

Cui v. Arellano University: A waiver of the right to transfer to other schools and a demand for refund if ever a scholar transfers is declared void for being against public policy

Pari delicto applies: When the act is a criminal offense, and the nullity of an

obligation proceeds from a contract, and both parties are in pari delicto

- If one party is innocent, such may claim what he/she has given, and shall not be bound to comply with his/her promise. Guilty party is not entitled to anything.

When the act is not a criminal offense, but both parties are at

fault - If only one is at fault, the innocent party may demand the




79

return of what has been given and is not bound to comply with his/her promise. Guilty party is not entitled to anything.

Exceptions; where pari delicto may not apply: The Court may allow a party to recover money or property in the following cases, when the interest of justice or public interest demands:

1. If an agreement has been repudiated before it has accomplished its purpose or before it causes damage to a third person

2. If the party who gave consent is proven to be incapacitated 3. If the agreement is not illegal per se but merely prohibited,

and the prohibition is designed for the protection of the plaintiff

Art. 1417. When the price of any article or commodity is determined by statute, or by authority of law, any person paying any amount in excess of the maximum price allowed may recover such excess. Art. 1418. When the law fixes, or authorizes the fixing of the maximum number of hours of labor, and a contract is entered into whereby a laborer undertakes to work longer than the maximum thus fixed, he may demand additional compensation for service rendered beyond the time limit. Art. 1419. When the law sets, or authorizes the setting of a minimum wage for laborers, and a contract is agreed upon by which a laborer accepts a lower wage, he shall be entitled to recover the deficiency. Arts. 1418 and 1419 are examples of ostensible contracts where only one of the parties is at fault, and

thus the innocent party has the right to demand what he/she is entitled to receive. Art. 1420. In case of a divisible contract, if the illegal terms can be separated from the legal ones, the latter may be enforced. A possible exception to the rule that a void contract is void in its whole—if the contract is divisible and

the legal terms can be separated from the illegal ones, the former may be enforced. For example, a contract of loan is valid even though the collateral is in the nature of a pactum commissorium, which is void

Art. 1421. The defense of illegality of contract is not available to third persons whose interests are not directly affected. WHO CAN ALLEGE THE ILLEGALITY OF A CONTRACT Parties to the contract Any third party who is directly prejudiced, even if such a person is not a party

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




80

Art. 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. 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. 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. Art. 1426. When a minor between eighteen and twenty-one years of age who has entered into a contract without the consent of the parent or guardian, after the annulment of the contract voluntarily returns the whole thing or price received, notwithstanding the fact the he has not been benefited thereby, there is no right to demand the thing or price thus returned. 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. Minor in the present law is below eighteen years old. 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. 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.




81

ESTOPPEL 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. General rule is the one in Art. 1431. Exceptions:

1. Estoppel is not applicable against the government suing in its capacity as sovereign or asserting governmental rights

- It follows that the government cannot be estopped by the mistake and errors of its officers 2. If law and public policy will be violated, there is no estoppel 3. Estoppel does not apply to questions of law, as it applies only to questions of fact

- Kalalo v. Luz: If the act, conduct, or misrepresentation of party sought to be estopped is due to ignorance founded on an innocent mistake, estoppels will not arise

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. Art. 1433. Estoppel may be in pais or by deed. ESTOPPEL IN PAIS ESTOPPEL BY DEED A bar which occurs when one, because of

something which he has done or omitted to do. The party is denied the right to plead or prove an otherwise important fact.

Active estoppels; equitable estoppels In Manacling v. Bun, the Court said it is necessary that there be a concurrence of the ff requisites:

a. Conduct amounting to false representation or concealment of material facts, or at least false representation to convey the impression that the facts are otherwise and inconsistent with those which the party subsequently attempts to assert

b. Intent, or expectation that this conduct shall be acted upom

c. Knowledge, actual or constructive, of the real facts

A bar which precludes one party to a deed (written agreement) and his privies from asserting as against the other party and his privies any right or title in derogation of the deed, or from denying the truth of any of the material facts asserted in it

Passive estoppel

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. 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. Art. 1436. A lessee or a bailee is estopped from asserting title to the thing leased or received, as against the lessor or bailor.




82

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. 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. ESTOPPEL IN THE LAW ACT ESTOPPED WHEN

1. A person who is not the owner of the thing sells or alienates and delivers it

Later the seller, even though not the owner, acquires title to the thing, such title passes by operation of law to the buyer or grantee

- This means the seller cannot invoke that he/she is now the owner

2. A person who is an agent of another sells or alienates a thing

The seller tries to set up his/her own title against the buyer or grantee

- As an agent, the seller does not have the title to the thing

3. A person is a bailee or a lessee The bailee or or lessee asserts title to the thing leased or received

- A bailee in commodatum or a lessee do not own the property but merely acquires the use of the thing/ possesses the property

4. A person misled another person with respect to the ownership of real right over real estate, in a contract between third persons concerning immovable property

The person tries to assert his or her rights, provided the ff requisites are present:

a. Fraudulent representation or wrongful concealment of facts known to the person estopped

b. Guilty party’s intention that the innocent party will act upon the fraudulent facts

c. Innocent party’s unawareness of the real facts

d. The innocent party acted in accordance with the misrepresentation

5. A person allowed another to assume apparent ownership of the property, for the purpose of making a transfer of such a property

The person tries to set up his/her own title to the property, even after a) such property has been constituted as a pledge and b) the person has received the sum for which a pledge has been




83

constituted - This means that if you authorize

another to possess your property and even to pledge it for a loan, you cannot later say the property is yours (and not the other perspn’s) and thus cannot be pledged. This applies moreso if you have received the benefits arising from the loan contracted by the person you authorized to possess/ pledge the property

Art. 1439. Estoppel is effective only as between the parties thereto or their successors in interest. WHO ARE AFFECTED BY ESTOPPEL?

1. Contracting parties 2. Successors-in-interest

TRUSTS 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 trust has been created is referred to as the beneficiary. Art. 1441. Trusts are either express or implied. Express trusts are created by the intention of the trustor or of the parties. Implied trusts come into being by operation of law. Art. 1442. The principles of the general law of trusts, insofar as they are not in conflict with this Code, the Code of Commerce, the Rules of Court and special laws are hereby adopted. A trust is defined as a right enforceable solely in equity, to the beneficial enjoyment of property, the

legal title of which is vested in another EXPRESS IMPLIED Intention is expressly present; the intent is

created by the direct and positive acts of the parties, some writing or deed or will or words evidencing the intention to create a trust

- No particular form is required for the words

Trusts over immovable property cannot be proved by oral evidence

Prescription General rule: the trustee cannot acquire the

Intention is not expressly present, but it is deducible from the nature of the transaction (resulting trust); the law may also induce the intent in the transaction and thus, this kind of trust works by operation of law (constructive trust)

May be barred by laches May be proved by oral evidence

1. Resulting trust - Intent is presumed to be always

have been contemplated by the




84

thing in trust by prescription. Exception: Acquisitive prescription may bar

the action of a beneficiary where: a. The trustee has performed unequivocal acts

of repudiation b. Such acts were made known to the

beneficiary (cestui que trust) c. The evidence thereon is clear and

conclusive Acceptance of the trust By the trustee: not necessary, unless the

appointment of such trustee is material and is provided in the instrument constituting the trust. In case the trustee refuses to accept, however, the Court will appoint a trustee.

By the beneficiary: It is necessary. Such acceptance will be presumed in cases where the trust imposes no onerous condition to the beneficiary.

parties - Imprescriptible, as long as the

trustee has not repudiated the trust 2. Constructive trust

- No intention presumed from any of the acts of the parties, but is a mere construction of equity

- Prescription may supervene - Substantially an appropriate

remedy against unjust enrichment Examples of implied trusts in the provisions

below are not exclusive Also, if a trust takes the form of any of the

provisions under implied trusts, but there is a will, deed, writing, or there are words evidencing the same, it is an express trust

EXPRESS TRUSTS Art. 1443. No express trusts concerning an immovable or any interest therein may be proved by parol evidence. Art. 1444. No particular words are required for the creation of an express trust, it being sufficient that a trust is clearly intended. Art. 1445. No trust shall fail because the trustee appointed declines the designation, unless the contrary should appear in the instrument constituting the trust. Art. 1446. Acceptance by the beneficiary is necessary. Nevertheless, if the trust imposes no onerous condition upon the beneficiary, his acceptance shall be presumed, if there is no proof to the contrary. 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. 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.




85

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. 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. 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. 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. 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. 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. 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. 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. Art. 1457. An implied trust may be proved by oral evidence. EXTRA-CONTRACTUAL OBLIGATIONS QUASI-CONTRACTS

Art. 2142. Certain lawful, voluntary and unilateral acts give rise to the juridical relation of quasi-contract to the end that no one shall be unjustly enriched or benefited at the expense of another.

Art. 2143. The provisions for quasi-contracts in this Chapter do not exclude other quasi-contracts which may come within the purview of the preceding article. A quasi-contract is not an implied contract, because there is no meeting of the minds between the

parties.




86

The listing of quasi-contracts here (negotorium gestio, solutio indebiti) is not exclusive.

NEGOTORIUM GESTIO Art. 2144. Whoever voluntarily takes charge of the agency or management of the business or property of another, without any power from the latter, is obliged to continue the same until the termination of the affair and its incidents, or to require the person concerned to substitute him, if the owner is in a position to do so. This juridical relation does not arise in either of these instances: (1) When the property or business is not neglected or abandoned; (2) If in fact the manager has been tacitly authorized by the owner. In the first case, the provisions of Articles 1317, 1403, No. 1, and 1404 regarding unauthorized contracts shall govern.

In the second case, the rules on agency in Title X of this Book shall be applicable. NATURE OF A NEGOTORIUM GESTIO It is not undertaken for profit Requisites:

a. There is no authorization on the part of the person who takes charge of the agency or management of the business

b. The property or business is neglected or abandoned Circumstances where a negotiorum gestio may arise, according to Sison and Azarraga v. Balgos:

a. The business matter relates to determined things or affairs, and that there be no administrator or representative of the owner charged with the management thereof

b. The idea of express or tacit mandate on the part of the owner is foreign to all, because very often the management of a third person is without the owner’s knowledge

c. The actor is inspired by the beneficent idea of averting losses and damages to the owner or to the interested party

Art. 2145. The officious manager shall perform his duties with all the diligence of a good father of a family, and pay the damages which through his fault or negligence may be suffered by the owner of the property or business under management.

The courts may, however, increase or moderate the indemnity according to the circumstances of each case. Thus, the officious manager cannot say that he is not an authorized manager in order to escape

liability for any damage arising through his/her fault.

Art. 2146. If the officious manager delegates to another person all or some of his duties, he shall be liable for the acts of the delegate, without prejudice to the direct obligation of the latter toward the owner of the business.

The responsibility of two or more officious managers shall be solidary, unless the management was assumed to save the thing or business from imminent danger. General rule: An officious manager is responsible for all the acts of the delegate, and their

responsibility shall be solidary. This is without prejudice to the direct obligation of the delegate toward the owner of the business.




87

Exception: The responsibility shall not be solidary if the management was assumed to save the thing or business from imminent danger.

Art. 2147. The officious manager shall be liable for any fortuitous event: (1) If he undertakes risky operations which the owner was not accustomed to embark upon; (2) If he has preferred his own interest to that of the owner; (3) If he fails to return the property or business after demand by the owner; (4) If he assumed the management in bad faith. Art. 2148. Except when the management was assumed to save property or business from imminent danger, the officious manager shall be liable for fortuitous events: (1) If he is manifestly unfit to carry on the management; (2) If by his intervention he prevented a more competent person from taking up the management. Art. 2149. The ratification of the management by the owner of the business produces the effects of an express agency, even if the business may not have been successful. Art. 2150. Although the officious management may not have been expressly ratified, the owner of the property or business who enjoys the advantages of the same shall be liable for obligations incurred in his interest, and shall reimburse the officious manager for the necessary and useful expenses and for the damages which the latter may have suffered in the performance of his duties.

The same obligation shall be incumbent upon him when the management had for its purpose the prevention of an imminent and manifest loss, although no benefit may have been derived. Art. 2151. Even though the owner did not derive any benefit and there has been no imminent and manifest danger to the property or business, the owner is liable as under the first paragraph of the preceding article, provided: (1) The officious manager has acted in good faith, and (2) The property or business is intact, ready to be returned to the owner. Art. 2152. The officious manager is personally liable for contracts which he has entered into with third persons, even though he acted in the name of the owner, and there shall be no right of action between the owner and third persons. These provisions shall not apply: (1) If the owner has expressly or tacitly ratified the management, or (2) When the contract refers to things pertaining to the owner of the business. LIABILITIES OF OFFICIOUS MANAGER AND OWNER Officious manager is liable: Owner is liable:

For contracts which he/she has entered into with third persons, even though he/she acted in the name of the third persons

- Unless the owner a) ratifies the

1. When the owner enjoys the advantages of the business, even though he/she has not ratified it

- There is a duty to reimburse the officious manager for the damages




88

management or b) the contract refers to things pertaining to the owner of the business

In case of fortuitous event, and— a. If the officious manager undertakes

risky operations the owner did not usually take

b. If the officious manager preferred his own interest over the owner’s

c. If the officious manager fails to return the property or the business after the owner’s demand

d. If the officious management was assumed in bad faith

The following also make the officious manager liable, unless the management was assumed to save the property from imminent danger: e. If the officious manager is manifestly

unfit to carry on the management f. If because of the officious manager’s

intervention he/she prevented a more competent person to take up the management

the latter has suffered by reason of necessary expenses

2. When the management has been undertaken by the officious manager to prevent an imminent loss, although there has been no benefit

3. When the officious manager acted in good faith, regardless of benefit or imminent danger

4. When the property is intact and ready to be returned to the owner, regardless of benefit or imminent danger

Art. 2153. The management is extinguished: (1) When the owner repudiates it or puts an end thereto; (2) When the officious manager withdraws from the management, subject to the provisions of Article 2144; (3) By the death, civil interdiction, insanity or insolvency of the owner or the officious manager. EXTINGUISHMENT OF NEGOTORIUM GESTIO

1. Owner repudiates it - Benedicto v. Board of Administrators: The Court said the authority of the Board of

Administrators created to manage Broadcast City, which was abandoned after the EDSA revolution, ceased when a reorganized Board of Directors demanded that Broadcast City be returned to them.

2. Officious manager repudiates it, too. However the officious manager must require the person concerned or the owner to substitute him/her. He/She cannot withdraw from the business and not leave a substitute.

3. Death, civil interdiction, insanity, or insolvency of the officious manager SOLUTIO INDEBITI Art. 2154. If something is received when there is no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises. Art. 2155. Payment by reason of a mistake in the construction or application of a doubtful or difficult question of law may come within the scope of the preceding article.




89

Two requisites: 1. There is no right to collect these excess sums 2. The amounts have been paid by mistake (of fact)

- Exception: A mistake in law may also come under solution indebiti if the mistake is brought by a doubtful or difficult question of law

Art. 2156. If the payer was in doubt whether the debt was due, he may recover if he proves that it was not due. Art. 2157. The responsibility of two or more payees, when there has been payment of what is not due, is solidary. Art. 2158. When the property delivered or money paid belongs to a third person, the payee shall comply with the provisions of article 1984. Art. 1984. The depositary cannot demand that the depositor prove his ownership of the thing deposited.

Nevertheless, should he discover that the thing has been stolen and who its true owner is, he must advise the latter of the deposit.

If the owner, in spite of such information, does not claim it within the period of one month, the depositary shall be relieved of all responsibility by returning the thing deposited to the depositor. If the depositary has reasonable grounds to believe that the thing has not been lawfully acquired by the depositor, the former may return the same. Art. 2159. Whoever in bad faith accepts an undue payment, shall pay legal interest if a sum of money is involved, or shall be liable for fruits received or which should have been received if the thing produces fruits.

He shall furthermore be answerable for any loss or impairment of the thing from any cause, and for damages to the person who delivered the thing, until it is recovered.

Art. 2160. He who in good faith accepts an undue payment of a thing certain and determinate shall only be responsible for the impairment or loss of the same or its accessories and accessions insofar as he has thereby been benefited. If he has alienated it, he shall return the price or assign the action to collect the sum. Art. 2161. As regards the reimbursement for improvements and expenses incurred by him who unduly received the thing, the provisions of Title V of Book II shall govern. Art. 546. Necessary expenses shall be refunded to every possessor; but only the possessor in good faith may retain the thing until he has been reimbursed therefor.

Useful expenses shall be refunded only to the possessor in good faith with the same right of retention, the person who has defeated him in the possession having the option of refunding the amount of the expenses or of paying the increase in value which the thing may have acquired by reason thereof.

Art. 547. If the useful improvements can be removed without damage to the principal thing, the possessor in good faith may remove them, unless the person who recovers the possession exercises the option under paragraph 2 of the preceding article. Art. 548. Expenses for pure luxury or mere pleasure shall not be refunded to the possessor in good faith; but he may remove the ornaments with which he has embellished the principal thing if it suffers no injury thereby, and if his successor in the possession does not prefer to refund the amount expended.




90

Art. 549. The possessor in bad faith shall reimburse the fruits received and those which the legitimate possessor could have received, and shall have a right only to the expenses mentioned in paragraph 1 of Article 546 and in Article 443. The expenses incurred in improvements for pure luxury or mere pleasure shall not be refunded to the possessor in bad faith, but he may remove the objects for which such expenses have been incurred, provided that the thing suffers no injury thereby, and that the lawful possessor does not prefer to retain them by paying the value they may have at the time he enters into possession. Art. 550. The costs of litigation over the property shall be borne by every possessor. Art. 551. Improvements caused by nature or time shall always insure to the benefit of the person who has succeeded in recovering possession. Art. 552. A possessor in good faith shall not be liable for the deterioration or loss of the thing possessed, except in cases in which it is proved that he has acted with fraudulent intent or negligence, after the judicial summons.

A possessor in bad faith shall be liable for deterioration or loss in every case, even if caused by a fortuitous event.

Art. 553. One who recovers possession shall not be obliged to pay for improvements which have ceased to exist at the time he takes possession of the thing. Art. 2162. He shall be exempt from the obligation to restore who, believing in good faith that the payment was being made of a legitimate and subsisting claim, destroyed the document, or allowed the action to prescribe, or gave up the pledges, or cancelled the guaranties for his right. He who paid unduly may proceed only against the true debtor or the guarantors with regard to whom the action is still effective. Art. 2163. It is presumed that there was a mistake in the payment if something which had never been due or had already been paid was delivered; but he from whom the return is claimed may prove that the delivery was made out of liberality or for any other just cause. OTHER QUASI-CONTRACTS Art. 2164. When, without the knowledge of the person obliged to give support, it is given by a stranger, the latter shall have a right to claim the same from the former, unless it appears that he gave it out of piety and without intention of being repaid.

The Court discussed the precursor of this article, which was Article 1984 of the Old Civil Code, in De Marcaida v. Redfern:

- For one to recover under the provisions of Art. 1984, the following must be alleged and proved: 1) That the support has been furnished a dependent of one bound to give support but who fails to do so, 2) The support was supplied by a stranger, and 3) The support was given without the knowledge of the person charged

Art. 2165. When funeral expenses are borne by a third person, without the knowledge of those relatives who were obliged to give support to the deceased, said relatives shall reimburse the third person, should the latter claim reimbursement.




91

Art. 2166. When the person obliged to support an orphan, or an insane or other indigent person unjustly refuses to give support to the latter, any third person may furnish support to the needy individual, with right of reimbursement from the person obliged to give support. The provisions of this article apply when the father or mother of a child under eighteen years of age unjustly refuses to support him. Art. 2167. When through an accident or other cause a person is injured or becomes seriously ill, and he is treated or helped while he is not in a condition to give consent to a contract, he shall be liable to pay for the services of the physician or other person aiding him, unless the service has been rendered out of pure generosity. Art. 2168. When during a fire, flood, storm, or other calamity, property is saved from destruction by another person without the knowledge of the owner, the latter is bound to pay the former just compensation. Art. 2169. When the government, upon the failure of any person to comply with health or safety regulations concerning property, undertakes to do the necessary work, even over his objection, he shall be liable to pay the expenses. Art. 2170. When by accident or other fortuitous event, movables separately pertaining to two or more persons are commingled or confused, the rules on co-ownership shall be applicable. Art. 2171. The rights and obligations of the finder of lost personal property shall be governed by Articles 719 and 720. Art. 719. Whoever finds a movable, which is not treasure, must return it to its previous possessor. If the latter is unknown, the finder shall immediately deposit it with the mayor of the city or municipality where the finding has taken place.

The finding shall be publicly announced by the mayor for two consecutive weeks in the way he deems best.

If the movable cannot be kept without deterioration, or without expenses which considerably diminish its value, it shall be sold at public auction eight days after the publication.

Six months from the publication having elapsed without the owner having appeared, the thing found, or its value, shall be awarded to the finder. The finder and the owner shall be obliged, as the case may be, to reimburse the expenses. Art. 720. If the owner should appear in time, he shall be obliged to pay, as a reward to the finder, one-tenth of the sum or of the price of the thing found. Art. 2172. The right of every possessor in good faith to reimbursement for necessary and useful expenses is governed by Article 546. Art. 546. Necessary expenses shall be refunded to every possessor; but only the possessor in good faith may retain the thing until he has been reimbursed therefor.

Useful expenses shall be refunded only to the possessor in good faith with the same right of retention, the person who has defeated him in the possession having the option of refunding the amount of the expenses or of paying the increase in value which the thing may have acquired by reason thereof.




92

Art. 2173. When a third person, without the knowledge of the debtor, pays the debt, the rights of the former are governed by Articles 1236 and 1237. Art. 2174. When in a small community a nationality of the inhabitants of age decide upon a measure for protection against lawlessness, fire, flood, storm or other calamity, any one who objects to the plan and refuses to contribute to the expenses but is benefited by the project as executed shall be liable to pay his share of said expenses. Art. 2175. Any person who is constrained to pay the taxes of another shall be entitled to reimbursement from the latter.

oblicon - sta maria reviewer 2010-2011

Documents