Jan 10 2014 Subrogatory and Recissory Action Usurious Transactions -
Anti Usury Act (not the Civil Code)
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Civil Code should never be confused by Civil Law
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Civil Law – Law – governs governs property, family rights, succession and laws that are civil in character
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Civil laws of Spaniards Spaniards – – not not at all Spanish (Napoleon Code)
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Not all civil laws are found in the civil code (special civil laws e.g., family code, condominium code, water code)
Usury law – law – state state regulates the interest that could be charged if an obligation is unsecured, the maximum rate of interest that can be charged is 14% per annum -
If an obligation is secured, the maximum rate of i nterest that can be charged is 12% per annum
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Any rate of interest that is agreed agre ed upon, charged and imposed upon an obligation is usurious
Who has the power to regulate the rates of interest in the country? -
Vested in the monetary board (agency in the C entral Bank)
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Dec. 1982 rates > the monetary board passed Resolution 2224 abolishing the ceiling on interest rates (Jan 1983)
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CB issued Circular 905 after 2224 to disseminate the content of Resolution 2224
2224 increased the legal rate of interest
Abolished the ceiling
Did this give the parties freedom to agree in any interest? (Medera v Gonzales Enterprises) -
Medera applied an additional loan subject to the ff conditions:
New obligation under one promissory note
Consolidated 5.5% interest per month
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Lower court > 5.5% is excessive; 12% should be per annum
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Gonzales assailed the ruling of the lower court
There was no legal basis for the lower court to apply the 12% rate of interest
Legal rate of interest > shall only be applied if the parties only agreed to the terms of payment, but did not agree upon the rate of interest
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SC > This is not a usurious transaction but the amount 5.5% per month is indeed excessive , unconscionable (unenforceable, shocking to the morals of the world)
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Pay principal + 12% interest per annum
SC has never been consistent in the ruling in usurious transactions
“Legal rate of interest”
When is an interest be said as a legal rate? -
When parties to a contract have agree d that the interest should be there , but failed to stipulate the interest rate
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Will apply only if they agreed upon the payment of interest
Civil code > 6% per annum legal rate of interest Resol. 2224 > increased to 12% per annum Did Resolution 2224 repeal the Civil Code? (Phil Rabbit Lines v Judge Leonardo de Castro) -
Mishandled a bus > 1 passenger was injured
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Lower court said “award damages to injuries suffered’ with interest interest at legal rate
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Passenger filed a motion to execute judgment > computed an amount he believed which should be awarded to him
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Phil Rabbit Lines said it will only pay P60,000
When an obligation arise from a loan, involves a loan, forebearance of money, goods, chattels or judgments thereon, then the legal rate is 12% < under Monetary board circular 2224
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Based on a claim for damages so it should not be 1 2% but 6%
Monetary board is not a legislation body so it could not repeal a law
(Eastern Shipping Lines case) -
___ dues < dues paid in the pier – pier – 6% 6%
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Although the obligation does not arise from a loan, forbearance of money, if after judgment of the court has become final and executor and still the debtor fails/refuses to pay the obligation, it automatically becomes a forbearance of loan > 12% should apply
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Subsequent to the monetary board resolution 2224
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Another resolution was passed with respect only to the legal rate of interest
Under the present Monetary Board resolution
Has been returned from 12% to 6% effective July 1, 2013
Effects:
1) returned 12% to 6% interest rates
Abandoned the ruling of eastern shipping with respect to forbearance of money (no longer applicable)
Jan. 14, 2014 Demandability – Demandability – classes classes of obligations 1. Pure – Pure – immediately immediately demandable / not subject to a condition or per iod or term 2. Subject to condition 3. Subject to period or term
Condition – futurity and uncertainty Period – upon which the demandablity of the obligation depends -
Future and certain
Distinguish an obligation from a period Suspensive condition (birth) – gives rise to an obligation; as long as the condition still exists, there will be no obligation Suspensive period (demandability) – makes the obligation demandable; only effect; no retroactivity 1187 effects of conditional obligation – rise to an obligation entire effects shall r etroact to the day of the constitution of the obligation To give – retroact To do or not to do – courts shall determine the retroactivity Reciprocal obligation – mutually compensate; need not deliver the fruits Unilateral (debtor) – keep interest, fruits, because he is not receiving anything
Rights of the creditor when the debtor does not comply 3 primary remedies 1. Specific performance – only applies to give; creditor seeking to enforce the obligation 2. Recission – not seeking of performance; unmaking of the contract 3. Damages – return the parties to status quo ante; i f the debtor return everything to the creditor *1 & 2 can never be combined; others can be combined Additional remedies (art 1177): 1. Levying – after exhausting primary; running after assets; court determines if ok to levy; creditor becomes a judgment creditor 2. Accion subrogatoria 3. Accion pauliana Levying – you can levy only in pursuance of a court order ‘follow the rules of court > execution of judgment” -
Personal things first; no to real as long as there are still real properties
Acion pauliana – only applies on valid contracts; if void > action for nullity of contract -
To impugn / assail acts and contracts entered into by t he debtor for the purpose of defrauding the creditor Eg. Void contract: No other properties but one > but that only one was retained; gave to his friend to defraud
Jan 24, 2014 1191 – the power to rescind is implied in reciprocal obligations -
Tacit resolutory in reciprocal obligations
In ordinary obligations (not reciprocal) – to be able to rescind, the power must be expressly provided in the contract (general rule) In reciprocal obligations – recission is implied; need not be agreed upon; implied only in reciprocal 1191 > in order to apply, identify first if obligation is “reciprocal” Reciprocal > the parties are debtors and creditor of each other but their respective obligations must arise from the same cause “power to rescind is implied” – in case of breach in reciprocal obligations, the injured is given the power to rescind How may it be availed of/exercised? -
If it has been established that the obligation is reciprocal, the method shall depend upon the terms of the contract
If the contract recognizes extrajudicial recission – then extrajudicial
If it doesn’t – rescind judicially
1191 – remedies in case of breach of contract 1. Specific performance 2. Recission – despite the repeated use of the word “recission”, jurisprudence said the civil code means “resolution” Distinctions between recission and resolution 1. Resolution is a primary remedy – injured party can avail immediately a.
Recission is subsidiary remedy – only a remedy of last resort i. Why subsidiary? Very harsh remedy; third parties can be affected by recission
2. in resolution – available only to the party to the contract
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in recission – even third persons can invoke the recission if the c ontract has caused the third person damages
3. in resolution – should there be just and valid reasons, the court can deny the action to resolve a.
in recission – under the law, once you have established the cr own of recission, the court has no power to deny the petition for recission
1191 – recission? No! resolution! -
Why? Apply the 3 distinctions
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On what ground can be availed of (specific performance and recission)?
Only on the ground of breach
Will any kind of breach justify the availment of specific performance and recission? According to jurisprudence (Phil amusement board v natividad) -
Involved a contract of lease of a jukebox
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PAB supplied the boxes; Natividad was the lessee
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After using, boxes started to work usatisfactorily
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PAB sent mechanics – still malfunctioned
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After three times, Natividad wanted to rescind
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On the ground of breach
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Despite the breach > SC said no because re cission is a harsh penalty
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If the breach is simple or merely casual, the remedy will not lie
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Only when the breach committed is substantial will the remedy of recission lie
“it will only depend on the initially chosen remedy” Nature of the two remedies provided on 1191 -
Alternative (not cumulative)
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You have to choose only one, but the choosing of one doesn’t necessarily mean the waiver of another
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If specific performance becomes impossible, can shift to recission
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Cannot be reversed because recission can never be impossible
If the chosen remedy is recission, what is the per iod of prescription to be able to choose that remedy?
Go to the law on recission > 4 years
When to begin? From the date the contract sought to be rescinded
Exceptions according to 1191
Recission as initial remedy > shall prescribe from the date the contract sought to be rescinded
Recission s a substitute remedy > will prescribe from the time the initially chosen remedy becomes impossible
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WHY?? Because it is the time which the l aw allows the shifting
Cases: UP v Alumcor? Alonco? -
Forest concession offered for lease to the hig hest bidder
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Contract of lease awarded to alonco
Should the lessee fail to comply, UP shall be free to terminate the contract
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Failed to update payment of rentals despite repeated demands
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UP rebidded the same property
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Alonco said you cannot terminate; should be judicial
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SC: No, because contract expressly provided for extrajudicial recission
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When alonco failed to update rentals, under 1191 is UP of right to rescind?
What is the status of the recission?
Is the act of UP terminating the said contract final?
No. while the injured party becomes entitled, it is not final because the determining entity to validate/invalidate the act is still the court
Case: involved a sale of piece of land (Conspicula/Adomos) -
Sale is done > title was cancelled and new title was transferred to the new buyer
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Conspicula died > heirs questioned validity
Court found the sale defective > not valid
Ordered to reconvey the property to the heirs
The buyer did not agree, appealed to CA
During the pendency, the buyer sold the subject land to another buyer nd
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2 buyer went to the court to compel the seller to comply with the undertakings
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Duringthe 2 sale, buyer presented the undertakings t o the 2 buyer Replaced the specific performance with the action to rescind
Seller: under 1191, being alternative, the choice of one is a waiver of another
The replacement should not be allowed
Even assuming that the buyer went to the court for action to rescind, it has already prescribed
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SC: 1. Wrong, while it is alternative, it is not a waiver. Shifting from specific performance to recission is not proper because specific performance became impossible
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Yes, it is true that it had been more than four years but it is valid because the specific performance became impossible, so the period of prescription will start on the time it became impossible
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Even after the establishment of recission, the court may deny the action of recission to be able to comply with specific performance
Case: Roque v Gapuz – sale of land -
120 equal monthly instalments – first 3 months update
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In succeeding became in default > failed to update payment and arrears
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Seller brought an action seeking recission on account of breach
According to paragraph 3 there is just and valid reasons so he should be allowed for extension of period (gave 45 days CA)
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SC: CA was wrong 3 paragraph will apply only as long as the debtor had not incurred delay
1191 – who has the power to bring an action? Reyes v CA; Solomon case – only the injured party
Feb. 11, 2014 Alternative obligations Alternative – several things due but performance of one extinguishes Conjunctive – several things due but all should be completed to extinguish Facultative –
Conjunctive – presence of the conjunctive “and”
Only one obligation need to be performed
Alternative – presence of the disjunctive “or’
Plural objects > if one is unlawful, would the entire obligations be invalid? > distinguish: Conjunctive > invalidate > why? > all should be delivered Alternative > still okay > deliver only one as long as he doesn’t choose the unlawful object Facultative
Right of choice rd
Alternative > debtor + creditor + 3 parties (consent is required-WHY? The choice should be accepted by both) Conjunctive > no right of choice Facultative > debtor only; cannot be transferred
Solidarity can exist on one side and joint on the other s ide -
Any term as long as the term connotes solidarity
Tests of solidarity: determining the nature of the obligation 1. Parties stipulated solidarity 2. Law requires solidarity 3. Nature of the obligation requires solidarity
If did not comply > it is joint > the law does not presume
Solidary obligations 1. Passive – debtor’s side 2. Active – creditor’s side 3. Mixed – debtor’s and creditor’s PNB case – can the creditor sure one of the debtors or all of the debtors in passive solidary obligations? “although they are necessary parties, they are not indispensable”
You can leave one, you can go against others
Case: Imperial insurance v Stella David Bonds > secure answer to the judgment that the court shall render Indemnity agreement > should the bonds be demandable? > the spouses shall indemnify the bonds Husband died > stella was sued by Imperial insurance > instead of answering, she filed a motion to dismiss > on the ground that Imperial had no cause of action against her bec. Of solidarity > should proceed against the estate under the rules of court within 6 months Supreme court said WRONG, you bound yourself solidarily, they are indispensable parties but not necessary parties, you can file as many actions as you want
Any one of the solidary creditors may seek from any of the solidary debtors > basis – mutual agency (one creditor acts not only on his behalf) Start? From the moment of the perfection of the obligation
End? The moment one of the solidary creditors demands from any of the solidary debtors > the debtor can only pay to the demanding creditor (the mutual agency bet. The demanding and paying is extinguished) If the debtor paid not to the demanding creditor > the payment is void because it is considered as rd
payment to a 3 person > the demanding creditor can compel the repeat of payment With respect to the other debtors who were not given demand they may pay to all the solidary creditors including the one who made the demand beforehand (mutual agency still exists between the other debtors) The demanding creditor cannot refuse payment even though he received the demand beforehand > principles of mutual agency and guaranty apply
Feb. 14, 2014 In how many ways may solidarity exist? 1. Stipulation of the parties Tests of solidarity
2. By law 3. By reason of the nature of the obligation
There is nothing on the face of the obligations > that is why it is presumed Why is it presumed (not just joint?) -
Nothing on the face of the obligation that characterizes / says if its joint or solidary
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On the part of the creditors, it imposes g reater power on the debtor because anyone of them can demand for compliance of the obligation from any one of the solidary deb tors; and anyone of the debtors can be compelled to perform the obligation in favor of any of the debtors
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Basis? Mutual agency (creditor) > one creditor acts on behalf of all the creditor
Mutual guaranty (debtor) > any one of the debtors guarantee any one of the creditors of the performance of the obligation
The moment the demand is made by any of the solidary cre ditors, the principle of mutual agency ceases to exist because the rights of the other creditors are consolidated into the person of the demanding creditor. Should X pay the entire obligation, it is extinguished. However, X acquires the right to be reimbursed with respect to the extent of their respective shares. The obligation now becomes joint because the right of B and C does not go beyond their respective shares
Does the payment of X makes him subrogated into the right of the creditors? No. Because he only acquires the right to seek reimbursement. If X if subrogated into the creditors, he shall have the right to collect the entire payment, that would be unfair Agreement to exclude of the debtors shall be valid inter se, but not on the part of the debtors 1212. creditor cannot do anything prejudicial to the other cre ditors (basis: mutual agency). But in relation to Article 1215, the cre ditor shall deliver to others the share in the obligation (novation) In case the creditor who novated or condoned becomes insolvent, the other creditors doesn’t have any remedy (lapse of the law) > assuming that insolvency is total insolvency Condonation and remission are allowe d in solidary obligations -
Effect of remission? Depends on the object of remission
Obligations with a penal clause (obligations which contain a penalty) -
Purpose of a penal clause
To strengthen the coercive force or tie of the obligaton
Gives more teeth to the obligation
The debtor breaches an obligation without a penal clause, what is the rig ht of the creditor? > becomes entitled to claim damages however he must first prove that he incurred damages With a penal clause? He must first prove breach/damages before claiming payment of the penalty What is the purpose of penalty? Serves as substitute f or the indemnification of damages The creditor cannot claim damages and penalties simultaneously. EXCEPTIONS 1. Partial performance 2. Irregularity 3. Unconscionable
Modes of extinguishment of the obligation 1. 6 primary causes 2. Additional causes – annulment, recission, fulfillment of the re solutory condition, prescription, death When will death extinguish the obligation? -
Not absolute, only a qualified cause
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Only if the obligation is personal (to do)
When will prescription extinguish the obligation? -
Case: DBP v Judge Adil?
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Prescription does not extinguish the obligation
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What is extinguished is the right to enforce the obligation
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Obligation is still valid after 80 years (prescribed in 50 ye ars) because the creditor did not make a demand, the debtor himself voluntarily paid the obligation
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The civil character of the obligation is the one extinguished
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Civil vs natural obligations – the difference lies in the sanctions
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Civil – actions in court
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Natural – justice, equity, conscience; voluntary performance extinguishes the obligation
PAYMENT -
Not only delivery but also performance
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Not only applies to give, but also to do or not to d o
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There shall be payment in ALL kinds of obligations
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What if a 3 person pays? What is the status?
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If it is a donation, it is valid
Consignation? > Special form of payment -
Not all consignation requires tender of payment
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How do you make a consignation?
Judicial – always made in pursuant of the Civil code
Extrajudicial – made in pursuant of BP 25 (only if obligation allows extrajudicial / judicial consignation) / ONLY in rentals and arrears
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When is consignation not proper? Quirino case
Right of redemption (no debt) or right of option (no debt)
How do you make consignation (PAYMENT)? -
Judicial: prior tender of payment as a rule (upon the unjust refusal of the offer of payment, consignation becomes unjustified)
There is unjust refusal of offer of payment
First notice to the debtor
Still refuses the notice; creditor may file an action before the court
Case: Lopez v CA > 2 notice rule > it is indispensable
Tender of payment (judicial deposit is not always required)
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What is required is judicial placement at court’s disposal so that the debtor can still use the thing due
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Extrajudicial: consignation under BP 25
Law always require deposit (in the proper place of playment)
Must always comply with the requisites of a valid payment
Case: Lim v Chuangcai ?
Feb. 18, 2014 Requisites of payment – matters essential to the validity of payment; absence of one may affect the validity Characteristics of payment – manners of how payment should be made 1. Integrity – substantial performance – partial performance (with damages) – estoppel (waiver on the part of the creditor)
Accept performance knowingly that it is defective; you are not entitled to damages
2. Identity – to deliver the very thing due
EXCEPTION: Dation in payment o
Involves the sale of all properties for the satisfaction of a debt in money
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Dation in payment is not limited to money, it also even include goods / if there is a change in the object
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The purpose is to extinguish the obligation
Novation – an old obligation is replaced with a new one o
Consent is needed because he will be receiving a new thing (extinguishment is either partial / total
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Dation in payment: extinguished obligation
Value of payment should be commensurate? Not necessarily (extinguishment partial / total)
*payment by cession – what is ceded is not property but only the authority to sell Why? > the debtor continues to be the owner of the properties How? > requires the consent of all the creditors -
If one of the creditors does not perm it > can resolve into insolvency proceedings
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Insolvency proceedings – initiated by creditor
How? Courts shall determine if the debtor is indeed insolvent
Does not extinguish debtor’s insolvency or obligation
Courts shall issue a discharge after
Payment by cession depends on how much is realized on the sale of the debtor’s property (reason for not absolute extinguishment) *Novation – not an absolute mode of extinguishment; the old obligation is replaced with a new one
CONTRACTS – definition not complete because the law does not require plurality 1. Essential – consent, object, consideration 2. Natural – matters __ not because parties stipulated it, but because the law made it (e.g. warranty, contract of sales, law on sales) 3. Accidental – stipulated by parties (manner of payment; manners agreed upon by parties) Characteristics of a contract 1. Autonomy of the will – freedom to contract, to enter into agreements of their choice which includes freedom to stipulate
EXCEPTION: There can never be freedom outside the law Art. 1306
2. Obligatory force – parties to a contract are bound not only by what they expressly provided, they are also bound by the consequences 3. Mutuality – the terms must be on a common ground between the parties
Case: PNB v Padilla - Former Sen. Padilla obtained a loan from PNB - With promissory note > rate of interest 18% > PNB shall have the right to increase the rate of interest whenever it becomes necessary > interest became 48% - In law, you cannot increase rate of interest more than once per year
Effectivity, validity of the terms of the contract must n ot be left to one of the parties
4. Relativity – answers the question of who are bound by the contract
Transmissible rights – successors, assigns, heirs
Intransmissible rights – only the parties are bound
How does it become transmissible / intransmissible - By law - By stipulation - By nature of the right - EXCEPTION: stipulation pour autrubi
Stipulation in a contract whereby both parties deliberately confers rights to a third person
Why? A person complete stranger can enforce the contract
Can be withdrawn if the third person has not yet accepted; both parties should withdraw
Art. 1311. An heir cannot be held liable beyond what he is entitled -
Meaning: an heir is entitled to only the residual value of the estate (what remains after the payment of all the debts
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Heirs already paid indirectly (subtracted from the total estate)
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Can an heir be liable to the debts of the deceased? An heir can never be held liable
When a person dies, the debts should be paid before t he computation of the estate < determination of the heirs
March 7, 2014 Contracts have 3 essential elements (different from elements) 1. Consent 2. Object 3. Cause / consideration There is no definition of consent in Civil code – only how consent is manifested -
Making of an offer
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Acceptance of the object and cause (meeting of the minds for both)
Effect? Results in the perfection of contract
Parties become bound
After perfection, next is implementation
2 elements of consent 1. Offer 2. Acceptance Offer can come in any form -
If the offeror in his offer provide “should provide a specific way”, it must be complied < if oral acceptance? No effect
Place of perfection – in the place where the offer was made If made through someone? If the offeror dies before the receipt of the acceptance? -
It depends on the capacity of the sender of offer
If sender is an agent, knowledge of him is considered as knowledge of the offeror (law on agency)
If sender is merely a messenger, no effect
Consensual contracts -
When does consent take place? Meeting of offer and acceptance
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When does perfection take place? It takes place during acceptance
Case: Arias v Laudico? (notice of withdrawal > sent)
Perfection of contract?
1. Consent (consensual contracts) 2. Delivery of object (real contracts) a.
What perfects the contract is delivery
b. Is not consent necessary here? It is still necessary. The mere consent does not perfect the contract. Who cannot give consent? 1. Unemancipated minors (18 below) 2. Insane / demented 3. Deaf mutes who does not know how to read and write Unemancipated minors (they are things on the past subject to RA 6809) -
Reduction of the age of majority from 21 to 18
Art. 14 A minor 18 to 21 can contract marriage provided with parental consent -
Already modified by RA 6809
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Minor is a person below 18
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Also modified on law on emancipation in the Civil code (3 ways)
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Law (reaching age of majority)
Marriage
Voluntary concession of parents and child to be emancipated according to the Ci vil Code
Family code
Law
Marriage
Agreement between parent and child
RA 6809 > only one mode of emancipation – by law
Obligation and contracts should only read minors (not unemancipated) -
In contraction with other laws
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Rule law on sales > minors can contract by themselves provided if it is a necessity (food, clothing etc. exclusive)
Insane and demented -
They are not the same but common (mental ailme nt)
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Insanity is greater than dementia
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Dementia – think like children
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Deaf mute who does not know how to write
Should be total deafness
Mutism / shortness of tongue
Lack of knowledge of writing
1327. Not disqualified
Others who cannot give consent > other provisions incapacity v. disqualification -
incapacity – provided that he can be represented by someone, can still contract
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disqualification – he cannot be represented, cannot contract
alienage is a special disqualification for certain contracts
not an absolute rule on disqualification - Case: Chisman (alien, relaxed rule) - Case: a Chinaman (acquired land before naturalization) - Law on sale: if brought by a foreigner
Real property – null and void
Personal property – allowed by law
Art. 1332 When a person does not know h ow to read, or if the language of the contract is written on the language not known to him, and if there is fraud or mi stake, the other party must prove to the court that he has explained the contract When will this obligation arise? -
Case: Bunyi v. Reyes
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Will arise only after when the party claiming the fraud or mistake does not really know how to read, this should be first determined
Vices of consent – defect in the consent Read Braganza v Villa-Abrille (cited Mercado case) Can the minor invoke as a defense his minority? -
If passive misrepresentation: yes
(Villa Abrille: contract was silent, never claimed age)
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If active misrepresentation: no
(Mercado: expressly represented)
Cannot bring an action to annul
Bound by estoppel (stopped from denying the truth as to what you had misrepre sented)
If minor had allowed the contract to prescribe without seeking annulment? -
In passive misrepresentation the prescription is 4 years
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You lose the right to annul if prescribed
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He loses the right, however he cannot have any positive relief
Vices of consent – defect in the consent that is given to a contract 1. Mistake 2. Violence 3. Intimidation
4. Undue influene 5. Fraud Mistake? What kind of mistake? -
Must be a mistake of fact (excused for noncompliance)
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Not a mistake of law (not an excuse)
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Must be unilateral / only one party should commit it
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If mutual mistake refer to legal … / confuses the parties
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Must be a substantial mistake > refers to the object or purpose or conditions
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If merely accidental, shall not vitiate
Violence? Intimidation? -
Refers to external force, irresistible < Violence
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Involves internal force / threats < intimidation
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Purpose of both is to get the consent of a person
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If consent is given as a result? Will it become voidable?
NO. Case: Ruiz v Atienza
Not all threats will vitiate consent; only those which shall produce a wrongful act. (e.g. fear/danger to life or property)
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are in-laws included among those persons be intimidated? YES. Under ascendants
March 11, 2014 Vices of consent – for the purpose of getting the consent of a person/s to a contract 1. Mistake – Art. 1332 If one of the contracting parties does not know how to read contract …, the enforcing party must prove that he explained the contents of the contract.
When? Must first show to the courts that he is an illiterate, cannot understand the language of the contract > if not established > nee d not be shown to the court
2. /3. Violence and Intimidation – vitiate consent (know the distinctions)
Violence – physical, external
Intimidation – internal, emotional force, fear - Ruiz v Atienza Not all threats will vitiate consent, only threats to commit an unlawful act rd
- In the case of violence and intimidation, even though employed by 3 persons, will also vitiate consent
Why? It is not necessary that there be connivance > violence and intimidation immediately produce effect rd
- If fraud, it will not affect / invalidate the contract; EXCEPTION 3 persons connived with one of the parties
4. Undue Influence
No physical, no moral force
Imposition of one’s will over another
Should not be confused with referential fear (does not vitiate consent; fear of displacing another to whom respect is due; it is a unilateral act)
5. Fraud (must be serious) and machinations intended to induce the other to enter i nto a contract without which he did not enter
One who tries to exaggerate (sales talk) – will not vitiate as long as the other party was given chances
Opinion persona; if given by an expert shall not vitiate consent
Should not be made by both parties or else the fraud of one another will compensate each other
Simulation -
You do two things: pretend that there is (a contract) and pretend that it is (what appears)
Kinds of simulation 1. Absolute – no contract at all, although the parties do not intent to be bound by what appears 2. Relative – the parties intended to be bound, but not in the manner that it is intended to appear Act of simulating is like fraud Declaration of nullity of a contract In absolute simulation – contract is void Conceal their true agreement < relative simulation Status of absolute – void; relative – valid unless it was INTENDED to cause prejudice VALIDITY is the general rule, NULLITY is the exception
3 essential elements of a contract 1. Consent 2. Object 3. Cause / consideration Object – things within the commerce of men e.g. rights, services “within the commerce of man” -
Things which are susceptible of private ownership
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Present or future things
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Art. 1409 paragraph 3 present “at the time of transaction”
Future things – does not exist at the time of perfection > as long as it exi sts at the time of performance (Law on sales, not necessarily at time of perfection) -
When the object of the contract on the Law on sales is a future thing, it must have potential existence
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“potential existence” – susceptible of coming from an existing thing
Coconut seller even without coconut fruits > valid, because the person have coconut trees
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Sales m__ resparati? > law on sales
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Other laws > future things are vali d if they have potential existence
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With respect to future things, the law re quires it only to be present at the time of the performance
As long as he is the owner of the thing in the time of the delivery
Rights – it must be lawful and transmissible (intransmissible rights only binds the parties) -
If the contract involves transmissible rights > parties, heirs, assigns, successors in interest
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If the contract involves intransmissible rights > only the parties
Services – lawful and possible Last element: cause / consideration -
Reason of the existence of the contract
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Why of the contract
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Is this the same with juridical tie? YES
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Is there a difference between cause and consideration? Phil. Laws-NO / U.S. Laws-YES
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Is there a difference between cause and motive?
Motive – personal reason
Cause is known to both parties, motive-no
If the cause is valid, does it mean that the contract is valid? YES If the motive is unlawful will it affect validity? YES, provided except if illegality will affect validity -
Example: motive becomes integral part of the existence of the contract
Is it necessary that the cause to be adequate? NO, what the law requires i s sufficient Cause may be sufficient, valid, insufficient / inadequate, void > void unless you will make it appear that it is founded on another valid contract Presumptions of cause
1. Existence 2. Validity If the law on the contract of sale is inadequate, it does not invalidate the contrac t, it just does not have an effect, only a defect on part of the parties Forms of contract
March 18, 2014 Restitution only on damages Restitution not available on fraud 2 grounds for recission 1. damages 2. fraud in contracts involving fraud, when will recission lie: 1. if gratuitous – without leaving / reserving enough property to answer for his obligations 2. if onerous – sell the property after the issuance of writ of attachment / judgment what must be returned after recission > no excep tion: principle of quasi-contract 1. the thing received altogether 2. fruits
No right of choice
3. the price plus interest incapacity only applies to voidable contracts! Not applicable to recissible! Incapacity not a ground for recission! In voidable contracts – there is ratification If the ground for annulment is incapacity to give consent, who may ratify? > parents and guardians From date of recording > fraud (registered) From date of discovery > (not registered) Can there be annulment without restitutiom? -
Yes. If the ground for annulment is incapacity but he was required to restore what he has benefitted
Statute of Frauds
nd
1. One of those enumerated under the 2 paragraph 2. Must be totally executor on both sides 3. In writing 4. Applies only on specific performance or damages Effect if not complied with: you cannot prove the oral agreement by an oral evidence What does “in writing” mean? -
Requirement that in writing does not mean the entire agreement must be in writing
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Only the essentials must appear, not the entire agreement
Purpose of State of Frauds – to prevent fraud / perjury through reliance of one’s memory 1. The nonperformance by agreement of the parties (not e xternal) 2. Only applies to personal guaranty (no collateral)
Real guaranty (always with a security / collateral)
3. Under the Civil Code in settlement and donations propter nuptias must be covered by the Statute of Frauds (oral is valid)
Under the Family code > marriage settlement must be in writing i. in donation propter nuptias – present – donations ii. in testamentary and formality of wills – future – it must be in a will; not enough in writing
what can be donated? > all present property EXCEPTION donation propter nuptias – allows future
4. not absolute, auction sale nd
2 paragraph – there is no sales agreement yet
Does not allow the use of ?? price
5. Must be a real property
Hernandez case
statute – sale itself
Mindanao case – grant of the right of way
Not all property included; must be within
Espina v Abaya – partition agreement
s ecific erformance leasin /sale
Who may avail (recission)? -
Either one of the parties who suffered lesion
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Defrauded party
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Third person
Who may avail in voidable? -
Those who are bond primarily and subsidiarily
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EXCEPTION: third persons who suffered injury
Who may avail in unenforceable?
agency – authority of the agent
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Either of the parties
Void contracts -
Pari delicto / in delicto
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Torres v Ventura (when will pari delicto not apply)
violation of the homestead law
Navarra v Navarra (in cases of Family Code)
March 25, 2014 Unenforceable Contracts Statute of Frauds 1. Writing 2. 6 enumeration 3. Executor on both sides 4. For specific performance / damages Effect: you cannot produce an oral contract by oral ev idence Hernandez case (2 enumeration, only in real properties) 1. Leasing for more than one year 2. Sale The law on agency 1874 – whenever the sale of an im movable is made through an agent, if the authority of the agent is not in writing, it is void Statute of frauds – “sale itself” must be in writing An oral sale of an immovable property is valid, but not reg istrable Void Contracts Art. 1409 -
A non-existing contract
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Confers no right
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Imposes no obligation
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Imprescriptible > can be brought at any time by anyone
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What does not exist cannot produce any effect
Ninal case (rulings, 2 parts) -
Distinction between an action for annulment and declaration of nullity
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Interpretation of article 34 of Family code; art. 47 applies to voidable, not void marriages
Pari delicto – they cannot bring an action against each other -
Not allowed to sue each other (basis:)
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He who goes to court for purposes for seeking redress must come with clean hands
In delicto – not equally at fault Can there be a void contract outside of Article 1409? – law on sales 1306 is the only limitation on the right to contract and right to stipulate (connect) Law on sales (Art 1544 Double sale) > Laureta case > same seller, same object, different buyers not only on double sale but also on double donation st
1. Who registers 1 in good faith 2. Possession 1st in good faith st
3. Gets the title 1 in good faith Natural obligation – valid obligation not enforceable by court action -
Have sanctions but not similar to civil
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Justice, equity and conscience
Payment made by an incapacitated – can recover what he has paid subject to Art. 1427 1311 – heir is not liable beyond the value of the inheritance that he has received -
What he is entitled to is what is l eft after the debt has been paid
1430 you cannot be compelled to perform -
Not an actionable obligation
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Supreme Court: prescription does not extinguish an obligation
What is extinguished is the sealing character
Converting to it a natural obligation
If the payment is made voluntarily – cannot be recovered
March 28, 2014 Void contracts (Laureta case) Under the doctrine of pari delicto > essential that both parties are equally at fault Effects of pari delicto 1. Neither one can sue each other (basis: clean hands)
2. Neither one can recover what he has given to another Rules in pari delicto, not absolute EXCEPTIONS: 1. Ventura case – pari delicto does not apply to violations of the Homestead Law -
Why? The moment the grant under it has bee n violated > it is converted into a public character but not automatically i. Ligao v CA > no automatic cancellation or reversion of the Homestead grant ii. Should bring an action for reversion
Only the solicitor general is authorized to bring an acti on, the State is not precluded to bring an action
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Homestead law not allows performance of the any within 5 years: i. Cannot encumber ii. Cannot alienate iii. Cannot dispose
Cannot be done by the patentee or the grantee; if committed any of the 3 acts, it amounts to a violation
2. Velasco case – does not apply to actions under Art. 36 for nullity on the basis of psychological incapacity -
Nothing can prevent the court to declare both parties / spouses as psychologically incapacitated
3. Actions for disbarment (Mortel v. Aspiras?) -
Case about an atty who promised to marry a girl but let his son marry her instead
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Disbarments are exceptions to pari delicto
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Relief is not granted to the complainant
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Purpose of disbarment is to remove misfits and persons who does not dese rve to be legal practitioners
Natural obligations -
Not based on law / not human law
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Based on equity and natural law
Distinctions between law and equity Law
Law is a rule of conduct which must be just and obligatory and formulated by a competent legislative power for common good / common benefit (Manresa) Law is an ordinance of reason promulgated by competent authority and must be for the common good (St. Augustine) Law is always promulgated by competent authority-congress
Equity
Equity is justice outside legality. Cannot and does not supplant the law but it may supplement the law (Aguila v CFI)
Equity is not enacted by law-making bodies, it emanates from natural law
When there is conflict between law and equity, law always prevails When there is an applicable law, equity does not apply Dural in nature (sanctions of positive law)
Equity is grounded on the precepts of conscience rather than sanctions based on positive law Applies only in the absence of law > not a replacement Ethical in nature (morals)
The sanction of natural obligation – justice, equity, conscience -
Cannot be enforced through a civil action
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No recovery on what has been paid (rule applies on voluntary payments only!)
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If voluntary, can be recovered
In relation to RA 6809 (reduced the age of minority to 18) Recovery in cases of pari delicto > may be allowed EXCEPTIONS: 1. Violations of price control law 2. Violations of labor law 3. Violations of minimum wage law
In other cases, it is the court’s discretion. In these cases, it is a matter of right
REVIEW REVIEW REVIEW Obligations Delay – the mere fact that the debtor has not performed on the due date o n the moment of demand does not put him in delay. IT MUST BE CULPABLE DELAY. If the cause is not imputable – NOT IN DELAY Last paragraph of Art. 1169 < demand is not necessary (demand is replaced by the “offer”) -
Not in delay (4)
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When will there be delay in reciprocal obligations? -
If there is an offer or performance of the other, and the other party does not perform, there is delay
USURIOUS – no more usurious transactions according to Resolution 2224 (removed the ceiling on interest rates) Case: Medel v CA (never asked in the bar because of the flip flopping rulings regarding the amount of interest) Legal rate of interest – increased from 6 > 12% -
Case: Eastern Shipping Lines no longer holds hand – since July 1, 2013 > 6% again
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Will apply only if the parties have agreed on the payment of interest but failed to stipulate on the rate
Kinds of Interests 1. Moratory – use of somebody else’s money 2. Compensatory – interest in form of punishment 3. Interest to become due a.
Moratory – must appear in writing
b. Compensatory – interest imposed by the court, need not in writing Compounding of interest > payment of interest of the interest is not paid -
Not illegal but not favored by the law
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More /heavier burden on the part of the debtor
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Requirements (there must be agreement in writing / oral not allowed) -
EXCEPTION: Judicial _____
Classification of obligations in so far as demandability is concerned 1. Know the distinction between condition and period 2. What obligations are immediately demandable 3. What are the effects of an illegal / impossible condition a.
Does not automatically nullify i. If the illegal / impossible condition can be separated from valid conditions; valid ii. If cannot separate > find out how the illegal / impossible condition was attached: 1. Attached negatively – valid 2. Attached positively – void
Alternative obligations (as per plurality of obligations) 1. Conjunctive obligations – characterized by “and”; several obligations, everything should be complied with a.
No right of choice
2. Alternative obligations – several things due, compliance of one is enough 3. Facultative – one thing due, debtor has the rig ht for substitution of the principal Cause or consideration -
If contract has no cause? -
If it may be proven: valid
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If it appears not to have any cause: not necessarily void (establish another valid cause)
PROBLEMS 10 ONLY FOR FINALS
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