Civil Law Outlines
-OBLIGATIONS AND CONTRACTS
JOEMER C. PEREZ
I
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I '
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Chapter
Joemer C. Perez A l l rights reserved.
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ISBN 978-971-0ll-217-3 Published by
Central Book Supply, Inc. 927 Quezon Avenue, Quezon City Philippines 1 104
I: Introduction to Obligations
I
Chapter 2:
Nature and Effect of Obligations
10
Chapter 3:
Remedies
26
Chapter 4:
Kinds of Obligations
35
Chapter 5:
Extinguishment of Obligations
75
Chapter
review or in judicial or other official proceedings.
Serial No.
TABLE OF CONTENTS
6: Introduction to Contracts
131
Chapter 7:
Essential Requisites of Contract
150
Chapter 8:
Form of Contracts
1 89
Chapter 9:
Reformation of lnstruments
194
Chapter I 0:
Interpretation of Contracts
200
Chapter
1 1 : Defective Contracts
207
Chapter
12: Natural Obligations
247
Chapter 13: Estoppel
250
Chapter 14: Trusts
257
Preface Everything should be made as simple as possible, but not any simpler. - Einstein Civil law is an enonnous subject, which covers a wide range of A student of civil law is
topics from the simple to the more complex.
prone to be overwhelmed by the largeness of the subject, particularly as he prepares for the bar exams.
This work is an attempt to help the student navigate this vast field. It is a basic presentation of civil law in outline fonn. It provides a logical arrangement and synthesis of civil law rules and principles based chiefly on coda! provisions and relevant jurisprudence. Commentators are also cited whenever useful or appropriate. The arrangement of topics in the Civil Code has been followed as far as practicable. My aim is to give students a substantial understanding of the essential principles and rules of civil law, with as much nuance as possible, but without overwhelming them with the more abstruse theories and issues.
JCP 2010
\ Nani and Alfonso. To
To me you are perfect, just the way you are. ·.
Chapter
1
Introduction to Obligations I. IN GENERAL A.
DEFINITION:
An obligation is a juridical necessity to give, to
do or not to do.
(Art. 1156)
The definition in
Art. 1156
is incomplete as it considers
obligations only from the side of the obligor, omitting the creditor. Obligation may be defined more comprehensively as a juridical relation whereby a person (the creditor) may demand from another (the debtor) the observance of a determinate conduct and, in case of breach, may obtain satisfaction from the assets of the debtor. 1 Note that the obligation defined under Art. 1156 refers to civil ' obligations, i.e., obligations which are enforceable by courts under the law.
They are different from
natural obligations,
which are not enforceable by the courts under the law, but when performed, they are binding, under the prh1ciples of conscience or moral justice. A common example of a natural obligation is a prescribed debt which cannot be enforced in courts; however, when it is paid by the debtor, the payment becomes binding on the said debtor.
B. CONCEPTS: 2 concepts : 1.
Cre dit
The notion of a civil obligation imports three
- right of a person (creditor) to demand a
prestation or the observance of a particular conduct, which the law will enforce; 1 JBL Reyes, "Observations on the New Civil Code," Lawyers Journal, Vol. XVI, January 31, 1951, p. 47, citing Arias Ramos.
' Id.
pp. 47-50,
2. Debt -duty of another person (debtor) to render a prestation or observe a particular conduct; and
A. LAW I.
Not P resum ed . Obligations derived from law are not
presumed. Only those expressly detem1ined in the Civil Note that in
obligations,
the credit is a personal right,
in which is enforceable against a particular or definite
person (although it is not necessary that such person be
presently identified), as opposed to a realright, which
Code or in special laws are demandable. (Art. a.
is enforceable against the whole world (erga ornnes).'
b.
the exemptions provided by law. (Art. 2236)
C. ELEMENTS: An obligation is constituted upon the concurrence of the following essential elements:4
cause established by the various sources of obligations (law, contracts, quasi-contracts, delicts and quasi-delicts);
The
of the obligation, are the active (obligee) and the passive
2
be
regulated by the precepts of the law which establishes
1 158)
3. Examples of Obligations Created By Law: a.
Obligation between spouses or between parents and
b.
Obligation by emplcyer to provide certain benefits to
children to provide support under the Family Code;
employees under the Labor Code; c.
d.
SOURCES OF OBLIGATION
cam10t
them; and as to what has not been foreseen, by the
(obligor) subjects.
' See Sps. Adorable v. CA, G.R. No. 1 1 9466, November 25, 1999. •Ang Yu Asuncion v. CA, 238 SCRA 602 (1994).
obligation
2. Applicable Law. Obligations derived from law shall be
3. The subject-persons who, viewed from the demandabilify
Obligations arise from the foliowing sources: (Art
Such
presumed.6
object which is the prestation or conduct required to
be observed (to give, to do or not to do); and
II.
A father-in-law has no legal obligation to support his
provisions of Book IV of the Civil Code. (Art.
1 . The vinculum juris or juridical tie which is the efficient
2.
chargeable with a prestation or undertaking to give or
daughter-in-law.
The debtor is liable with all his property, present and future, for the fulfillment of his obligations, subject t�
A legal norm can reqiiire that a particular party be
to deliver or to do or to render some service. But it must be shown that such legal provision in fact exists.5
3. Responsibility-right of the creditor to obtain satisfaction from the debtor's patrimony in case of the debtor's breach.
1 1 58)
Obligation to reimburse necessary expenses under the law on property; Obligations of the owners of a servient estate to the
owners of the dominate estate under the law on
easements;
etc.
1 157) 5 Batchelder v. Central Bank, G.R. No. L-25071, July 29, 1972. ' Pelayo v. Lauron, 12 Phil. 453 (1909). 3
a. . Negotiorum Gestio - 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. (Art. 2144)
B. CONTRACTS 1. Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. (Art. 1159) 2. Definition. A contraci 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. (Art. 1305)
. b. Solutio Indebiti - 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. 2152)
See discussion on Contracts in Chapters 5, et seq.
D. ACTS OR OMISSIONS PUNISHED BY LAW
C. QUASI-CONTRACTS l..
1. Applicable Law. Civil obligations arising from criminal offenses shall be governed by the penal laws, subject to the following provisions of the Civil Code:
Applicable Law. Obligations derived from quasi-contracts shall be subject to the provisions of Chapter l , Title XVII, of Book IV of the Civil Code. (Art. 1160)
a. Article 2177;
2. Definition. Quasi-contracts are obligations ari�ing from certain lawful, voluntary and unilateral acts, to the end that no one shall be unjustly enriched or benefited at the expense of another. (Art. 2142)
b. The pertinent provmons of Chapter 2, Preliminary Title, on Human Relations, and
·
a there is no consent in the sense of In quasi-contracts,� . meeting of minds between the parties; thus there is no contract. However, in view of the peculiar circumstances or factual environment, consent is presumed, to tho end that a recipient of benefiis or favors resulting from lawful, voluntary and unilateral acts of. another may not be unjustly enriched at the expens� of another.7 3. Examples:
1 Philippine National Bank v. CA. G.R. No. 97995, January 21, 1993. 4
c. The pertinent provisions of Title XVIII of Book IV, regulating damages. (Art. 1161) •
2. Civil Lia bil ity Arising From Crime. Under Art. 100 of the Revised Penal Code, every person criminally liable for a felony is also civilly liable. The Civil Code also provides that in crimes, the defendant shall be liable for all damages which are the natural and probable consequences of the act or omission complained of.' (Art. 2202) It is not necessary that such damages have been foreseen or could have reasonably been foreseen by the defendant. (Art. 2202) Civil liability arising from crime may be proved by preponderance of evidence. (Arts. 29, 30, 35) Thus, it 5
is possible that an accused wh6 is acquitted because of
includes homicide (whether attempted, frustrated or consUmmated). 1 1
reasonable doubt may nonetheless be held liable civilly based on preponderance of evidence. (Id.) d.
3. Deemed Instituted. When a criminal action is instituted, the civil action for the recovery of civil liability arising from t)ie offense charged shall be deemed instituted with the criminal action, unless the offended party -
Failure of a policeman or peace officer to render aid or protection to any person in case of danger to life or property. (Art. 34) The peace officer is primarily liable for damages, and the city or municipality is subsidiari\y liable.
a. Waives the civil action,
(Art. 34) 5. No Double Recovery. In no case (even in independent
b.
Reserves the right to institute it separately or
c.
Institutes the civil action prior to the criminal action.8
4. Independent Civil Action.
In the following cases
provided by the Civil Code, the offended party may file an independent civil action, which shall proceed independently of the criminal action and shall require only a preponderance of evidence':
civil actions) may the offended 'party recover damages twice for the same act or omission charged in the criminal action. 1 2
E. QUASI·DELICTS
·
a.
Civil action based 0n an obligation not arising from the act or omission complained of as a felony. (Art. 3 1)
2. Definition. Whoever by act or omission causes damage to
deposit, independent of a criminal action for estafa. 1 0 Violation of civil or constitutional rights and liberties.
Negligence is defined as the. failure to exercise the
(Art. 32) c.
shall be governed by the provisions of Chapter 2, Title XVII of Book IV, and by special laws. (Art. 1 1 62)
another, there being fault or negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is called a quasi-delict. (Art. 2176)
Example: a civil action for breach of contract of
b.
1 . Applicable Law. Obligations derived from quasi-delicts
standard of care that a reasonably prudent person would have exercised in a similar situation.P
'
Defamation, fraud and physical injuries. (Art. 33)
"Physical irifuries" is used in the generic sense. It is not limited to the crime of physical injuries, but ' Rules of Court, Rule 1 1 1 , Section 1(a). ' See also Rules of Court, Rule 1 1 1 , Section 3. . 10 I Tolentino 1 27.
3. Distinguished from Other Sources of Obligation. Negligence as a source of obligation may be classified into three 1 4: " Carandang vs. Santiago, 97 Phil. 94; Madeja v. Caro, G.R. NO. L-51183, December 21, 1983. "See Rules of Court, Rule 1 1 1 , Section 3. "Janssen Pharmaceutica v. Silayro, G.R. No.. 172528, February 26, 2008.
6
7
·
a.
Culpa contractual
-
may also be criminally prosecuted for criminal negligence .
the parties have a pre-existing
(this is. culpa
which will also give rise to civil
liability. The acquittal of the accused in the criminal case
the performance of the contractual obligation, and
does not carry with it the extinction of the civil liability
serves to
based on quasi-delict,19 because they are based on different
increase the liability arising from the
contractual obligation.15 b.
criminal),
contractual relations; the negligence is an incident of
sources of obligation.
Culpa aquiliana (or extra-contractual or quasi-delict) -
the parties generally have no pre-existing contractual
relations; it is the negligence itself which creates the obligation (and therefore the juridical relation between
the parties).1 6
·
However, it has been held that quasi-delict may arise even if there is pre-existing contractual
relation, as the act which bre�ks the contract also be
c.
a
quasi-delict.17
niay
Culpa criminal negligence punished by law, as under Art. 3 65 of the Revised Penal Code on criminal -
negligence. The foregoing liabilities (and the corresponding liabilities) are independent of each other, provided that the offended party cannot recover more than once.18 Thus, e.g., a taxi passenger who became a victim of a vehicular accident may sue the taxi operator under their contract of carriage (this is
culpa contractual), an.d also sue
the driver of the other vehicle which collided with the taxi for quasi-delict, since they had no pre-existing contractual obligations (this is
culpa aquiliana).
The negligent drivers
14
See First Philippine International Bank v. CA, G.R. No. 1 1 5849, January 24, 1996. Sps. Batal v. Sps. Tomina9a, G.R. No. 164601, September 27, 2006. " Sps. Batal v. Sps. Tominaga, G.R. No. 164601, September 27, 2006. 11 Air France v. Carrascoso, 18 SCRA 155 (1966), Singson vs. Bank of the Philippine Islands, 23 SCRA 1 1 1 7 (1968), Coca-Cola Bottlers Philippines, Inc. v. CA, G.R. No. 1 1 0295, October 18, 1993. " See First Philippine International Bank v. CA, G.R. No. 1 15849, January 24, 1996. . 15
8
·
. " Manliclic v. Calaunan, G.R. No. 150157, January 25, 2007. Safeguard Security Agency v. Tangco, G.R; No. 165732, December 14, 2006. 9
ii. Thus, the vendor has the obligation to preserve the thing from the perfection of the contract until the thing is delivered to the vendee.2°
Chapter 2
Nature and Effect of Obligations I.
OBLIGATION TO GIVE A. OBLIGATION TO GIVE A DETERMINATE THING
b. To deliver the fruits of the thing from the time the obligation to deliver the thing arises. (Art. 1164)
I
However, the creditor shall acquire no real right over the thing until the same has been delivered to him. (Art. 1164)
1
(1) A personal right is the power of one person to demand of another, as a definite passive subject, the fulfillment of a prestation to give, to do, or not to do. On the other hand, a real right is the power belonging to a person over a specific thing, without a passive subject individually determined.'1
1. A determinate thing is one that has been specified or distinguished from others of the same kind. For example, the car with plate number JCP-888.
2. When what is to be delivered is a determinate thing, the creditor may compel the debtor to make the delivery (in addition to damages). (Art. 1165) a. This .means that the creditor can compel the debtor to deliver the thing actually specified in the obligation, and the debtor is not allowed to substitute another thing:
i
I
(2) Deliv�ry is required for a creditor to acquire a real right over the thing; before such delivery, the creditor only has a personal right to compel the debtor to deliver the thing to him.
b. If the obliger delays, or has promised to deliver the same thing to two or more persons who do not have the same interest, he shall be responsible for any fortuitous event until he has effected the delivery. (Art. 1165)
c. To deliver all of the accessions and accessories of the thing, even though they may not have been mentioned. (Art. 1166)
B. OBLIGATION TO GIVE AN INDETERMINATE THING 3. The obligation to give a determinate thing includes the following accessory obligations:
1. An indeterminate thing is one that is generic or indicated only by its kind, without being specified or distinguished from others.ofthe same kind. For example,."a car."
a. To take care of the thing with the proper diligence of a good father ofa family. (Art. 1163) 1.
Unless the law or the stipulation of the parties requires another standard of care. (Art. 1163) IO
20 21
Seven Brolhers Shipping Corp. v. CA, G.R. No. 109573, July 13, 1995. Sps. Adorable v. CA, G.R. No. 1 1 9466, November 25, 1999. 11
2. If the thing is indeterminate or generic, he may ask that the obligation be complied with at the expense of the debtor. (Art. a.
1 1 65)
The obligation is satisfied by giving to the creditor a generic thing, at the debtor's expense. This is in addition to damages.
b.
The_ obligation to give a generic thing does not carry
III. TRANSMISSIBILITY OF OBLIGATIONS A. GENERAL RULE: All rights acquired in virtue of an obligation
are transmissible, subject to laws or stipulations to the contrary. (Art.
1 178)
B. EXCEPTIONS: Rights
and
with it the accessory obligations to preserve the thing
transmissible -
because a generic thing is not individualized.
I. By nature; (Art. 1 3 1 1)
a!1d deliver its fruits, accessions and accessories,
obligations
which
are
not
2. By stipulation of the parties; (Art. 1 3 1 1 ) or II. OBLIGATION TO DO AND NOT TO DO .
3 . By provision oflaw.23 (Art. 1 3 1 1)
A. OBLIGATION TO Do: If a person obliged to do something fails to do it, the same shall be executed at his cost. (Art. 1 1 67) I. This same rule shall be observed if he does it contravention of the tenor of the obligation. (Art. 1 1 67)
300), parental authority (Article 327), usufruct (Article 603), contracts for a piece of work (Article 1726), partnership (Article 1830) and agency (Article 1 919).
Examples:
m
2. Furthermore, it may be decreed that what has been. poorly done be undone. (Art. 1 1 67)
legal
support
(Article
IV. PERFORMANCE OF OBLIGATIONS
the
A. IN GENERAL: The thing or service in which the obligation
B. OBLIGATION NOT TO Do: When the obligation consists in not
B. RECEIPT OF PRINCIPAL: The receipt of the principal by the
Note that the debtor cannot be compelled
to do
thing, since it would violate his personal liberty. He can only be held liable for damages.
doing, and the obligor does what has been forbidden him, it
shall also be undone at his expense. (Art.
1 168)
consists must be
completely delivered or rendered, as the case may be. (Art. 1233) See further discussion regarding Payment. creditor without reservation with respect to the interest, shall give rise to the presumption that said interest has been paid.
(Art.
1 176)
Thus, constructions which are made despite the prohibition
or restrictions in the Deed of Restrictions may be
demolished.'2 22 C.ajardo Jr. v. Freedom to
Build, Inc., G.R. No. 134692, August 1 , 2000. 12
" Estate of Hemady v. Luzon Surety Co., 100 Phil. 388 (1956). 13
If the debt produces interest, payment of the principal shall not be deemed to have been made until the interests have
A. DELAYORMORA
been covered. (Art. 1253) 1 . Requisites. c.
RECEIPT OF LATER INSTALLMENT: installment
of
a
debt
without
The receipt of a later
reservation
as
to
They are governed by special
905 of the Central Bank, adopted on 22, l 982, has expressly removed the interest
ceilings prescribed by the Usury Law.
(mora
That
the
obligation
be
demandable
and
already
liquidated;
Circular No. December
· a.
(Art. 1 176)
D. USURIOUS TRANSACTIONS: laws. (Art. 1 175)
In order for the debtor to be in default '9 the following requisites must be present :
prior
installments, shall likewise raise the presumption that such installments have been paid.
solvendi),
Thus, the Usury 24 Law is now "legally inexistent" or "in�ffective." ·
b.
That the debtor delays performance; and
c.
That the creditor requires the performance judicially or extrajudicially (demand). It is important to determine when the debtor is in default because the debtor becomes liable from that 30 time for damages (usually in the form of interest).
However, courts may modify interest rates when found
(Art. 2209) The debtor also assumes
to
(even for a fortuitous event) from the time of default.
be
iniquitous
or
unconscionable
under the 2' circumstances (such as 66% per annum , 72% per 26 27 annum, or 1 08-120% per annum ).
the risk for a thing
(Art. 1 1 65) 2 . General rule o n demand requirement.
Those obliged to
deliver or to do something incur in delay from the time the
V. NON-PERFORMANCE OF OBLIGATION (BREACH OR DEFAULT) Those who in the performance of their obligations are guilty of
fraud, uegligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages. (Art. 1 170)
obligee judicially or extrajudicially demands from them the . fulfillment of their obligation.
Filing of case in court is a judicial demand.
3. Exceptions to demand requirement. creditor shall not
In general, every debtor who fails in the performance of his ·
(Art. 1 1 69) 31
The demand by the
be necessary in order that delay may exist
in any of the following instances:
(Art. 1 1 69)
obligations is bound to indemnify for the losses and damages 28 caused thereby.
" Medel v. CA, G.R. No. 131622, November 27, 1996. 2s Medel v. CA, G.R. No. 131622, NoVember27, 1998. 26 Carpo v. Chua, G.R. Nos. 150773 & 153599, September 30, 2005. " Dino v. Jardines, G.R. No. 145671, January 31, 2006. " Arrieta vs. National Rice & Corn Corp., 10 SCRA 79 (1964), citing De la Cruz v. Seminary of Manila, 18 Phil. 330; Municipality of Moncada v. Cajulgan, 21 Phil. 184; De la Cavada v. Diaz, 37
Phil. 962; Maluenda & Co. v. Enriquez, 46 Phil. 916; Pasumil v. Chong, 49 Phil. 1003; Pando v. Gimenez, 54 Phil. 459; Acme Films v. Theaters Supply, 63 Phil. 657. " Social Security System v. Moonwalk Developmenl and Housing Corp., G.R. No. 73345, April 7, 1993; Santos Ventura Hocorma Foundation, Inc. v. Santos, G.R. No. 153004, November 4, 2004. " Malayan Insurance Co., Inc. v. CA, G.R. No. L·59919, November26, 1 966. " United Coconut Planters Bank v. Sps. Beluso, G.R. No. 159912, August 17, 2007.
14
15
a.
By express provrswn or stipulation. When the
the performance without valid reason. A creditor in default
obligation or the law expressly so declare; or
bears the risk of accidental loss due to fortuitous events.34
The fact that the contract fixes the schedule of
Such creditor's default is not negated by the debtor's
failure io consign the thing to be delivered.35
payment does not dispense with the demand requirement32 ; the contract must specifically state that demand is not necessary or that the debtor is
5. In reciprocal obligations, neither party incurs in delay if
waiving the requirement of demand.
the other does not comply or is not ready to comply in a
proper manner with what is incumbent upon him. (Art.
b. · Time is of the essence. When from the nature and the
1169)
circumstances of the obligation it appears t_hat the
designation of the. time when the thing is to be
From the moment one of the paf\ies fulfills his
delivered or the service is to be rendered was a
controlling
contract; .?r
motive for the
obligation, delay by the other begins. (Art. 1169)
establishment of the
In reciprocal obligations, the performance of one is
i.
For example, delivery of wedding cake at a
ii.
When a common carrier undertakes to convey
conditioned on the other obligation.36
specified date of the wedding.
B. FRAUD
goods, they should be delivered at destination ·
1. Definition, "Fraud" under Art. 1170 refers to bad faith or
. malice in the performance of an obligation which is already
agreement as to the time of delivery.33
existing. It is a conscious and intentional design to evade
the normal fulfillment of existing obligations.37 The
Demand is useless. When demand would be useless, as
consequence of this "fraud" is liability for damages and '
when the obliger has rendered it beyond his power to
rescission of the obligation.
perform.
For example,
when the
It should be differentiated from "fraud" under Art.
obliger had already
1338 (contracts) and Art. 839(5) (wills), which refers
disposed of the thing to be delivered.
4. Creditor's Default. The creditor may also incur default .
(mora creditoris or accipiendi) when h�
fulfillment of the
·
within a reasonable time, in the absence of any
c.
simultaneous
to
deceit (dolo) as a vice of consent in the execution of
contract or wills. The consequence of this "fraud" is
·
refuses to accept
See Social Security System v. Moonwalk Development and Housing Corp., G.R. No. 73345, April 7, .1993. "Maersk Line v. CA, G.R. No. 94761, May 17, 1993.
"'Vda. De Villaruel v. Manila Motor Co., Inc., 104 Phil. 926 (1958). " Vda. De Villaruel v. Manila Motor Co., Inc., 104 Phil. 926 (1958). " Abaya vs. Standard Vacuum Oil Co., 101 Phil. 1262 (1957). Boysaw v. lnterphil Promotions, Inc., 148 SCRA 643 (1987). "Luzon Brokerage Co., Inc. vs. Maritime Building Co., Inc. and Myers Building Co., G.R. No. L25885, January 31, 1972, 43 SCRA 93
16
17
32
b.
the voidability of the contract and invalidity of the
demandable in all obligations. (Art.
extra-contractual or quasi-delict)
obligation (and therefore the juridical relation between
the parties).41
117 1)
i.
Any waiver of an action for future fraud is void. (Art.
However, it has been held that quasi-delict may arise even if there is pre-existing contractual
1 17 1) b.
(or
relations; it is the negligence itself which creates the
2. Always Dem a ndable. Responsibility arising from fraud is
a.
Culpa aquiliana
- the parties generally have no pre-existing contractual
will.38
relations, as the act which breaks the contract may
Thus, it
was held
that
also be a quasi-delict.42
a stipulation completely
exempting a party from any liability in case of loss ' notwithstanding its bad faith, fault or negligence is
ii. Note that in
·
culpa aquiliana,
the employer may
avoid liability for the negligence of his employee
void.39
by invoking the defense of due diligence of a good father of
In culpa the family. (Art. 2180) contractual, this defense is not available.43
C. NEGLIGENCE · I. Liability for Negligence. Responsibility ansmg from negligence in the performance of every kind of obligation
c.
is also demandable, but such liability may be regulated by the courts, according to the circumstances. (Art.
obligation
and
corresponds
with
1 173)
As previously discussed, negligence or
may be of three kinds:
the
attributable to the non-performance), shall apply.
a.
culpa
Wanton negligence in effecting the plans, designs, specifications,
Culpa contractual.
-
negligence punished by law, as under
.
circumstances of the persons, of the time and of the place.
(Art.
-
of the Revised Penal Code on criminal
3. Negligence with Bad Faith. When negligence shows bad faith, the provisions of Articles 1 171 (on fraud) and 2201, paragraph 2 (liability for all damages reasonably
in the omission of that diligence which is required by the of the
365
negligence.
1 172)
2. Definition. The fault or negligence of the obliger consists nature
Culpa criminal
Art.
and construction of
a
building
is
equivalent to bad faith. 44
the parties have a pre-existing
contractual relations; the negligence is an incident of the perfonnance ·of the contractual obligation, and
serves to
increase the liability arising from . the
contractual obiigation.40
41
Sps. Batai v. Sps. Torninaga, G.R. No. 164601, September 27, 2006. Carrascoso, 18 SCRA 155 (1966), Singson vs. Bank of !he Philippine Islands, 23 SCRA 1 1 17 (1968), Coca-Coia Bottlers Philippines, Inc. v. CA, G.R. No.110295, October 18, . 1993. 43 el Pardo v. Manila Eler.lrtc Co., 52 Phil. 900, 904 (1929); De Gula v. Manila Electric Railroad and Light Co., 40 Phil. 706, 710 (1920); Manila Railroad Co. v. Compania Transatlanlica, 38 Phil. 875, 889-890 (1918); Herbosa v. CA, G.R. No. 1 19086·7, January 25, 2002. 44 Nakpil & Sons v. CA, G.R. No. L-47851, Oclober3, 1986. "Air France v.
38 See J.B.L. Reyes, Lawyers' Journal, Jan. 31,
1951, p. 47. Philippine Commercial international Bank v. CA, G.R. No. 97785, March 29, 1996. )' Sps. Batai v. Sps. Tominaga, G.R. No. 164601, September 27, 2006. 39
18
19
5. Extraordinary
4. Or dinary Diligence. If the law or contract does not state
Diligence.
Certain
businesses
or
the diligence which is to be observed in the performance,
professions required the "highest degree of care" because
that which is expected of a goodfather of a family shall be
of their nature. Examples:
required. a.
(Art 1173)
a.
This connotes reasonable care which an ordinarily ' prudent person would have observed when confronted
b.
with a similar situation.45
b.
Examples: i.
Placing
Common Carriers
-
for the protection of life and
property. 50 because of ·the fiduciary nature of their relationship with their depositors.5 1
Banks
-
c. · Pharmacies
-
because of their potential harm to human
life.52
a cellphone in a bag and holding on to that
bag is ordinarily sufficient care of a cellphone
D. OTHER VIOLATIONS OF THE OBLIGATION
while travelling on board the LRT.46 ii.
A shipping company exercised due diligence �hen
I.
its vessel sailed only after the main engine,
and every kind of defective performance.53 Examples:
and found to be in good running condition; when vessel
was
manned
by
competent
and
a.
experienced officers; and when the master ordered
Supplier failed to deliver the cinema films subject of a booking contract.5"
an inspection upon the occurrence ofvibrations.47 b.
iii. A store supervisor who did nothing even if it had
Shipping company failed to deliver the cargo within a reasonable time (delay of two months from the
been informed that a counter was unstable and
estimated date of arrival).55
posed a danger to C)lStomers, is negligent.48 iv.
contravene the tenor" of the
obligation includes any illicit act or omission which impairs the strict and faithful fulfillment of the obligation
machineries, and other auxiliaries were checked the
The phrase "in any manner
c.
A towing service which failed to ensure that its
Bank failed to keep a safety deposit box from being flooded and failed to inform the depositor of the flood,
tugboat was free of mechanical problems is negligent, particularly considering that the barge to be towed was wholly dependent on the tugboat for propulsion.49
50
45
Crisostomo v. CA, G.R. No. 138334, August 25, 2003. "Cruz v. Gangan, G.R. No. 143403, January 22, 2003. 47 Wildvailey Shipping Co. v. CA, G.R. No. 1 19602, October 6, 2000. "Jarco Marketing Corp. V. CA, G.R. No. 129792, December 21, 1 999. " Cargolitt Shipping, Inc. vs. L. Acuario Marketing Corp., G.R. No. 146426, June 27, 2006. .
20
Tiu v. Arriesgado, G.R. No. 138060, September 1, 2004; Calaias v. Court of Appeals, 332 SCRA 356 (2000); Kapalaran Bus Line v. Coronado, 176 SCRA 792 (1 989); 51 Bank of the Philippine islands v. CA, G.R. No. 102383, November 26, 1992, 216 SCRA 51; Far East Bank and Trust Company v. Quirimil, G.R. No. 148582, January 16, 2002. 5 2 Mercury Drug Corp. v. De Leon, G.R. No. 165622, October 17, 2008. 53 Arrieta vs. National Rice & Corn Corp., 10 SCRA 79 (1964); Magat vs. Medialdea, 121 SCRA 418 (1983). 54 Acme Films, Inc. vs. Theaters Supply Corporation, 63 Phn. 657 (1936) 55 Maersk Line v. CA, G.R. No. 94761, May 17, 1 993. 21
which led to the destruction of the stamp collection stored therein.56 d.
Supplier
FORTUITOUS EVENT
stopped
terminating
an
deliveries,
existing
thereby
unilaterally
distributorship agreement
without legal justification.'' e.
A. DEFINITION: A fortuitous event (also known as force majeure) is one which could not be foreseen, or which, though foreseen, was inevitable. (Art.
Repairman failed to repair a typewriter and even returned it "in shambles.'"'
f.
VI. EXCUSE FOR NON-PERFORMANCE:
Constructio\l company deviated ·from the plans and specification, and architect provided defective plans
1. "Act of God" if caused by nature, such as earthquakes, epidemics or pestilence,62 floods or storms,63 fire, etc., or
2. "Act of man"
When an obligation, regardless of its source (i.e.,, law, contracts,
breached,
quasi-contracts,
damages.60 a.
the
contravenor
If the obligor acted in
delicts or quasi-delicts), can
be
held
liable
goodfaith, he shall be
is
for
liable for
B. GENERAL RULE
-
No LIABILITY: No person shall be
responsible for fortuitous events.
(Art. 1174)
To exempt the
obligor from liability for a breach of an obligation due to a fortuitous event, the following requisites must concur:65
1. The cause of the breach of the obligation must be' independent of the will of the debtor;
those damages that are the natural and probable
consequences of the breach of the obligation and which
2.
foreseen at the time the obligation was constituted.
3. The event must be such as to render it impossible for the
the parties have foreseen or could have reasonably
(Art. 2200) b.
if caused by humans (other than the
obligor), such as war,64 robbery, rebellion, etc.
and specifications."
2.
1174). It may either be -
In case
debtor to fulfill his obligation in a normal mauner; and
of.fraud, badfaith, malice, or wanton attitude,
the guilty party is liable for all damages which may be reasonably attributed to the non-performance of the obligation.61
The event must be either unforseeable o r unavoidable;
(Art. 2201)
4. The debtor must be free from any participation aggravation of the injury to the creditor.
C. EXCEPTIONS:
111,
or
The obligor is liable for breach even due to
fortuitous events in the following cases:
so
Sia v. CA, G.R. No. 102970, May 13, 1993. " Pacmac, Inc. v. CA, G.R. No. 72405, May 29, 1987. " Chaves v. Gonzales, G.R. No. L-27454, April 30, 1 970. " Nakpil & Sons v. CA, G.R. No. L-47851, October 3, 1986. "Eastern Shipping Lines v. CA, G.R. No. 97412, July 12, 1994. " Magat vs, Medialdea, 121 SCRA 418 ( 1983). 22
" Crame Sy Panco v. Gonzaga, 10 Phil. 646 (1908). "Government v. Bingham, 13 Phil. 558 (1909). "Castro v. Longa, 89 Phil. 581 (1951). " Nakpil & Sons v. CA, G.R, No. L-47851, October 3, 1986, citing Vasquez v. Court of Appeals, 138 SCRA 553; Estrada v. Consolacion, 71 SCRA 423; Austna v. Court of Appeals, 39 SCRA 527: Republic of the Phil. v. Luzon Stevedonng Corp., 21 SCRA 279; Lasam v. Smith, 45 Phil. 657. 23
1. In cases expressly specified by the law. (Art. 1174)
iii. The collapse of a building due to an earthquake would not absolve the architect and the constructor upon showing that there were defects in the design
2. When it is declared by stipulation. (Art. 1174)
and construction of the said building. 70
3.
When the nature o f the obligation requires the assumption of risk.
iv. Malfunction or loss of brake is not a fortuitous
(Art. l 174)
event, because the owner/driver of a vehicle is supposed to know about the conditions of his
4. If the obligor delays, or has promised to deliver the same
vehicle and keep it off the street if mechanically
thing to two or more persons who do not have the same
interest. (Art.
defective. 71
l 165) v.
5. When. the obligor is guilty of contributory fault or n egligence.66
Tire blow-out is also not a fortuitous event if caused by factors which could have been easily
(Art. 1 170)
discovered with a thorough check-up of the 2 vehicle.7
If upon the happening of a fortuitous event, \here concurs a corresponding fraud, negligence, delay or violation or contravention in any manner of the tenor
vi.
A fire which occurred in a vessel is not a fortuitous
of the obligation, which results in loss or damage, the
event where it was shown to have originated from
obligor caimot escape liability.67
a crack in the fuel oil tank which should have been discovered upon inspection of the vessel.73
i.
Street robbery resulting in the loss of jewelry entrusted to the victim may be considered a
vii.
fortuitous event, but the victim must be free of
ii.
A
common carrier which proceeds with the sailing
of its vessel despite knowledge of an incoming
g
contributory fault or negligence (she must have
typhoon is guilty of ne ligence and cannot invoke
taken the necessary precautions).68
fortuitous event.74
Carnapping per se is not a fortuitous event. Thus, a
mere police report of the carnapping is not
. sufficient to exonerate the obligor who lost a car due to the camapping: It must be established that the event was an act of God or was done solely by third parties, and that the obligor had no fault or participation therein.69 10
Nakpil & Sons v. CA, G.R. No. L·47851, October 3, 1986. Thermochem, Inc. v. Naval, G.R. No. 131541, October 20, 2000. 12 La Mallorca v. De Jesus, G.R. No. L-21486, May 14, 19136. " Edgar Cokaliong Shipping Lines, Inc. V. UCPB General Insurance Company, Inc., G.R. No. 146018, June 25, 2003. "Asia Lighterage and Shipping, Inc. v. CA, G.R. No. 147246, August 19, 2003. 11
•
"Austria v. CA, G.R. No. L-29640, June 10, 1971. "Nakpil & Sons v. CA, G.R. No. L-47851 , October 3, 1986. "Ausfna v. CA. G.R. No. L-29640, June 10, 1971. 69 Jimmy Co v. CA, G.R. No. 124922, June 22, 1998. 24
25
may ask that it be undone at the expense of the debtor. (Art. 1168)
Chapter 3
If the obligation is reciprocal, breach by one party will entitle the other party to demand rescission (as an alternative to performance). (Art. 1191) See further discussion below.
Remedies
Note:
I. IN GENERAL
2. Damages. The creditor may also ask for damages in case ofbreach or non-performance by the debtor. (Art. 1170)
Civil obligations necessarily entail the availability of remedies by which they can be enforced by the creditor. A. PRINCIPAL REMEDIES: In general, to enforce an obligation, the creditor may demand performance and/or indemnity for da ma ges.
I. Performance. a. In obligation to give a determinate thing, the creditor may demand specific performance, or to compel delivery of the thing due. (Art. 1165) b. In obligation to give a generic thing, the creditor may demand substituted peiformance, i.e., that the obligation be complied with at the expense of the debtor. c. In obligation to do, the creditor may demand substituted performance, i.e., that the obligation be executed at the cost of the cost of the debtor. The · creditor may also demand that what has been poorly done be undone. (Art. 1167) d. In obligation not to do, the creditor may demand desistance (or "negative performance," as it were) by the debtor from doing the forbidden thing. The creditor may ask for an injunction for this purpose. If the forbidden thing has already been done, the creditor
B.
SATISFACTION OF CLAIMS: When a creditor avails himself of the remedies allowed by law (supra), and he succeeds in obtaining a favorable judgment, he will naturally be interested in getting satisfaction of the award in his favor. He may do so by taking the following successive measures against his debtor:75 (see Art. 1177) I.
Exhaust the properties of the debtor through levying by attachment and execution upon all the property of the debtor, except such as are exempt by law from execution;
2. Exercise all the rights and actions of the debtor, save those personal to him (accion subrogatoria); and
3. Seek rescission o f the contracts executed b y the debtor in fraud of their rights (accion pau/iana). a. The foregoing remedies are successive. Thus, a creditor can resort to accion subrogatoria only after he has exhausted the properties of the debtor. And he can only resort to accion pau/iana after he has resorted the first two remedies. 76
"Adorable v. CA, G.R. No. 1 1 9466, November 25, 1999. Novembe r 25, 1999.
76 Adorable v. CA, G.R. No. 1 1 9466, 26
27
b.
Thus,
accion subrogatoria
and
accion pauliana
are
obligation of the other.79 Example: In a contract of sale, the buyer's
considered "subsidiary remedies m
obligation to pay the purchase price and the seller's obligation to
.•
c.
deliver the thing sold are reciprocal.so
Another measure which the creditor may take is to file an action to declare the nullity of absolutely simulated transfers by the debtor. This is often confused with
In case of breach of obligation, the injured party may choose beiween the fulfillment of the obligation (specific performance)
rescission, but the two remedies are different'8 i.
and the rescission ofthe obligation, with the payment of
In rescission, the transfer by the debtor is real or
A. RESCISSION (OR RESOLUTION)
merely apparent.·
I.
In rescission, there must be intent to defraud (actual or prest1mptive); in simulation, no such
what is incumbent upon him. (Art. a.
iii. In rescission, the creditor must have first exhausted
unjust that a party be held bound to fulfill his promises when the other violates hi.s.82
1v. In rescission, the transfer is set aside insofar only . as necessary to satisfy the creditor's claim; in
Examples: (1)
simulation, the entire transfer is set aside.
boat fails to arrive in time for loading83;
years; in
obligations are defined as those that arise from the
same cause, and in which each party is a debtor and a creditor of the other, such that the obligation of one is dependent upon the
JBL Reyes & Ricardo Puna, Outline·of Philippine Civil Law, Vol. IV (1958 ed.) (hereafter "IV Reyes .& Puna"), pp. 34-35. 78 IV Reyes & Puna 38 (citing Puig Pena and Manresa). 28
(2)
a
lessor may cancel· the lease contract if the lessee fajls to pay rent84;
(3)
a seller may rescind if the
buyer fails to pay the purchase price. 85 b. Rescission or resolution
· n. REMEDIES IN BREACH OF RECIPROCAL OBLIGATIONS
11
a party may cancel its charter
contract with a shipping company if the latter's
simulati.on, the action to set aside the transfer does not prescribe.
Reciprocal
This is predicated on the breach of faith by the the parties. 81 It is retaliatory in character, it being
required.
4
1191)
defendant which is violative of the reciprocity between
the assets of the debtor; in simulation, this is not
In rescission, the action prescribes in
The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with
intent is required.
v.
damages
in either case. (Art. 1191)
actual; in simulation, the transfer is fictitious and
n.
·
under Art. 1191
is for breach
of stipulations, and should not be confused with
"Presbitero, Jr. v. CA, G.R. No. 102432, January 21, 1993. Leonardo v. Maravilla, G.R. No. 143369, November 27, 2002. " Pryce Corporation v. Philippine Amusement and Gaming Corporation, G.R. No. 157480, 6 May 2005; Spouses Francisco v. DEAC Construction, Inc., G.R. No. 171312, February 4, 2008. " Universal Food Corporation v. CA, G.R. No. L-29155, May 13, 1970, 33 SCRA 1 (JBL Reyes, concurring). "ADR Shipping Services, Inc. v. Gallardo, G.R. No. 134873, September 17, 2002. 84 Cruz v. IAC, G.R. No. 72313, December 29, 1989. " Almira v. CA, G.R. No. 1 15966, March 20, 2003. so
29
rescission under Art. 1381, et seq., which is the setting aside of contracts due to
suffered by the
lesion
plaintift'6 (e.g., a creditor seeks the
rescission of a fraudulent disposition of property made by his insolvent debtor in favor of third persons). Rescission under
Art. 1 191. is a principal action, Art. 1381, et seq. is
while rescission under
c.
an extended period because Art. court such discretion. 89
oi economic damage
4. Generally, the power to rescind must be invoked judicially;
it cannot be exercised solely on a party's own judgment
that the other has committed a breach of the obligation.'° a.
as rescinded and act accordingly, even without prior.
that he has no other recourse to repair the damage
court action or before any judicial. pronouncement of
he suffered).
breach. But his unilateral determination is provisional, since the other party may challenge it by suing him in
Rescission presupposes that the obligation or contract
court. It is then the court which will finally determine
exists.
if the rescission should be set aside or affirmed.9t
Thus, one cannot ask for the declaration of b.
prestation.
1 191)
perform his
own
simply withhold
if the injured party has already performed, such as a would have to seek judicial rescission so the court can
compel the infractor to make him whole (e.g., for the buyer to recover the price he has already paid).92
for a slight or casual breach, but only for such breaches
within the stipulated period, the court cannot grant him
to
a buyer can
buyer who has already paid the purchase price, he
The right to rescind is not absolute. It is not permitted
In lease, however, if the lessee fails to pay the rent '
Thus,
payment if the seller is not ready to deliver. However,
3. The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period. (Art. 1 191)
as are so substantial and fundamental as to defeat the object of the parties in entering into the agreement. 88
extrajudicial rescission is feasible
rescind and simply refuse
has chosen specific performance, if the latter should become impossible. (Art.
Practically speaking,
if the injured party has -not yet performed; he can
2. The injured party may also seek rescission, even after he
b.
However, the injured party m�y consider the contract
subsidiary (in the latter, the plaintiff must show
nullity of a contract, and at the same seek its rescission : under Art. 1 1 9 1 . 87
a.
1659 does not give the
c.
Also, in the sale of immovables,
a demand for
rescission must be made either judicially or by notarial
act,
even if it is stipulated that rescission shall take
place upon failure to pay on time. (Art.
1 592)
"Universal Food Corporation v. CA, G.R. No. L·29155, May 13, 1970, 33 SCRA 1 (JBL Reyes, concurring); Ong v. CA, G.R. No. 97347, July 6, 1999. " Pan Pacific Industrial Sales Co., Inc. v. CA, G.R. No. 125283, February 10, 2006. "Universal Food Corporation v. Court of Appeals, 33 SCRA 1, May 13, 1 970; Roque v. Lapuz, 96 SCRA 741, March 31, 1 980; Multinational Village Homeowners Association, Inc. vs. ARA Security & Surveillance Agency, Inc., G.R. No. 154852, October 21, 2004.
" IV Tolentino 180, citing Mina v. Rodriguez, (CA) O.G. Supp., August 30, 1941, p. 65. '° Tan v. CA, G.R. No. 80479, 28 July 1989, 175 SCRA 656, 661-662. Ong v. Bognalbal, G.R. No. 149140, September 12, 2006. " UP v. Delos Angeles, 35 SCRA 102 (1970); Cruz v. IAC, G.R. No. 72313, December 29, 1989. " IV Tolentino 177-178.
30
31
5. Rescission may be availed of by the injuredparty. A party may not seek rescission if he was the one who prevented the .other party from fulfillment of the obligation.93
cannot demand specific performance (or even rescission under Art. a.
in a
contract to sell
a parcel of land, the
payment of the contract price. Until then, ownership remains in the seller. If the · price is not paid, the
rescission may be ordered as to the portion which remains
obligation to convey title does not arise, and the buyer
unfinished. 94
cannot compel performance.99
7. The right to rescind may be waived, expressly or impliedly. unqualified acceptance of late payments is an
implied waiver of the right to rescind on the basis of such late payments. 95
8. In case of rescission, mutual restituiion is required., This
' means bringing the parties back to their original status prior to the inception of the contract.96 They must return to each other. what they respectively reserved (less damages, if proper).
b.
Also, in a contract to sell scrap iron upon the buyer's opening of a letter of credit, the seller cannot be compelled to sell if the buyer failed to open a letter of credit.100
3. Where the plaintiff is t11e party who did not perform his undertaking under the contract, he is not entitled to insist upon the performance of the contract by the defendant, or recover damages by reason of his own breach.101
4. The right to demand specific performance is without
B. SPECIFIC PERFORMANCE
prejudice to the rights of third persons who have acquired
1 . Specific performance is a remedy which is alternative to rescission. The injured party caunot have both. Thus, e.g., , the lessor cannot rescind the contract and recover possession of the leased property, and at the same time demand future rents. 97
2.
e.g.,
obligation to covey title is conditioned upon full
6. In exceptional cases, partial rescission may be ordered. Example: when a construction is already 75% complete,
Example:
Thus,
191 1).98
the thing, in accordance with Articles the Mortgage Law. (Art.
1385 and 1388 and
1 191)
Thus, the obligee may no longer demand specific performance if the thing to be given has already been sold by the obligor to a ihird party in good
The breach contemplated in Art.
1 9 1 1 is the obligor's
faith.
failure to comply with an obligation already extant. If the obligation is subject to a suspensive condition which has not been fulfilled, the obligation did not even arise or exist, and could not have been breached. Thus, the other party
" Penalosa v. Santos, G.R. No. 133749, August 23, 2001. " Spouses Francisco v. DEAC Construction, Inc., G.R. No. 171312, February 4, 2008. 95 Development Bank of the Phlllppines v. CA, G.R. No. 137557, October 30, 2000. 96 Laperal v. Solid Homes, Inc., G.R. No. 130913, June 21, 2005, 460 SCRA 375; Unlad Resources Dev't Corp. v. Dragon, G.R. No. 149338, July 28, 2008. " Rios v. Jacinto, 49 Phil. 7 (1926).'
" Ong v. CA, 310 SCRA 1 (1999). 99 Ong v. CA, 310 SCRA 1 (1999). 100 Visayan Sawmill, Inc. v. CA, G.R. No. 83851, March 3, 1993. 101 Seva vs. Alfredo Beiwin, 48 Phil. 581; Boysaw v. lnterphil Promotions, Inc., G.R. No. L22590, March 20, 1987.
32
33
C. DAMAGES I.
Damages shall be awarded
in
either
Chapter 4
case of specific
Kinds of Obligations
performance or rescission of the obligation.
In case of rescission, the damages must be those
consistent with the abrogation of the contract, and not
.those
which
performance.
effectively
amount
to
specific
Thus, in case a lease is rescinded, the
lessor may demand rental arrears and damages done to 0 the leased property, but not future rents. 1 2
2.
Interest may, in the discretion of the court, be allowed upon damages awarded for breach of contract. (Art.
221 0)
3. In case both parties have committed a breach 1of the obligation -
a.
J.
PURE AND CONDITIONAL OBLIGATIONS A. DISTINCTION BETWEEN PURE AND CONDITIONAL 1. Pure a
a.
This is subject to the discretion of the court on what is equitable under the circumstances. 104
b.
The
necessity
considered
a
time. b.
nothing
not
can
payable upon demand.
2 . Cond itio nal - In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, depends upon the happening of a
A condition is a future and uncertain event, or a past
event unknown'to the parties. (Art. i.
"Future and uncertain event"
102
34
because
is
a loan which provides no condition or period for repayment, 1 06 a "demand note" which is
a.
Rios v. Jacinto, 49 Phil. 7 (1926). '" Ong v. Bognalbal, G.R. No. 149140, September 12, 2006. "' Ong v. Bognalbal, G.R. No. 149140, September 12, 2006. See also art. 2215.
demand
Examples:
extinguished, and each shall bear his own damages.
1 192)
condition,
actual
!OS
condition. (Art. 1 1 81)
(Art.
of an
1 1 79)
prevent a creditor from making a demand any
If it cannot be determined which of the parties first
violated the contract, the same shall be deemed
1 1 79, 1 1 81, 1 193)
A pure obligation is demandable at once. (Art.
The second infractor is not liable for damages at liable are compensated by the mitigation of the 103 first infractor' s liability.
(i.e., a future and uncertain event, or a past
which must necessarily come). (Arts.
1 1 92)
all; the damages for which he would have been
obligation whose performance does not depend on
event unknown to the parties) or a period (i.e., a :future day
The liability of the first infractor shall be equitably tempered by the courts. (Art.
-
condition
105 IV Tolentino 143. '°' Floriano v. Delgado, 1 1 Phil. 154 (1908).
35
1 1 79)
Despite the language of Art.
to "future
or
uncertain event," a condition
must be both future
and
uncertain.
1 . Suspensive and Resolutory
If the
element of uncertainty is lacking, it becomes a
period,
B. KINDS OF CONDITIONS
1 179 which refers
which is a "day certain" or that which
.
a.
must necessarily come, although it may not be
known when. (Art.
Suspensive condition (also known as condition precedent) - if the acquisition of rights is dependent on the condition.
1 193)
Thus, a
condition is uncertain to hapjJen, while a period is certain to come. Passing the bar is
b.
Resolutory subsequent)
condition -
(also
known
as
condition
if the extinguishment of rights already '
acquired is dependent on the condition.
a condition; while death of a particular person is period. ii.
2. Potestative, Casual or Mixed a.
"Past event unknown to the parties"
Potestative
Condition - if the fulfillment of the
condition depends on the will of one of the parties.
A
past . . event, having happened already, is
always
certain.
It
knowledge
of that
uncertain.
Example:
is
only
the
parties'
event which may
be
after bar exam results
were released but before they were published,
i.
The conditional obligation (not just the condition) is
void
when the fulfillment of the condition
depends upon the
sole will of the debtor. (Art.
1 1 82)
a father says to his son, "I will give you a car if you passed the bar exams." b.
If the condition is
suspensive,
(1)
E.g., when the obligor says "I will pay you when I like it (or when I consider it properJi'
In this case, the obligation is illusory or not
the obligation is not
meant to be fulfilled.1°'
demandable until the performance of the condition. When the consent of a party to a contract is given
An offer to pay the value of the stock
subject to .the fulfillment of a suspensive condition,
subscription after the offerer had harvested
the contract is not perfected unless that condition is
fish is a condition dependent upon her sole
first complied with.107
will and, therefore, potestative in nature and renders the obligation void.109
c.
If the
condition is
resolutory,
the obligation
is
demandable at once, but without prejudice to the effects of the happening of the event. (Art.
1 179)
(2)
However, when the debtor binds himself to pay when his means permit him to do so, the obligation shall be deemed to be one
'°' Ruperto v. Kosea, 26 Phil 227, December 4, 1913; Gonzales v. Heirs of Cruz, G.R. No, 131784, September 16, 1999. 36
'°' Vda. De Mistica v. Spouses Nagial, G.R. No. 137909, December 1 1 , 2003. '°'Trillana v. Quezon College, Inc., 93 Phil. 383 (1953). 37
with a
period. (Art. 1 1 80) provision of
.l
It is subject to the
Art. 1 1 97,
11.
i.e., the creditor's
i.e., the debtor had already decided to sell h!s property, which sale is dependent on external
remedy is to file an action to fix a period.
factors like the availability of a buyer.112
(3) This rule applies only when the condition is
suspensive. 110
When the potestative condition
resolutory, the obligation is valid.111 , Example: "I will allow you to use my house until I want to get it back." is
ii.
if
the
fulfillment of the condition depends on the
sole
The
conditional
obligation
is
valid
"I will give you this ring ifyou marry my son."
3. Impossible and Unlawful Conditions a. .
ii.
Conditions which
impossible,
impossible
are
unlawful
give birth; or
juridically
because contrary to good customs or
public policy or prohibited by law. (Art.
b. Casual Condition - if the fulfillment of the conditi�n
depends upon chan�e or the will of third persons (not
-
the will of any of the contracting parties).
1 1 83)
Example: payment of money conditioned upon
killing someone or seducing a third person's
i.
The conditional obligation is valid. (Art.
ii.
Example: "I will give you my umbrella if it rains after our dinner," or "I will give you my car ifyour son learns how to drive."
wife.
1 1 82) b.
The impossible or unlawful conditions shall annul the
obligation which
depends upon them. (Art.
1 183)
Note that this rule applies only to contracts or
Mixed Condition - if the fulfillment of the condition
onerous obligations.
and other circumstances, including the will of third
provisions) with impossible or unlawful condition,
i.
only the (Arts.
The conditional obligation is valid. (Art.
Vda. De Mistica v. Spouses Nagiat, G.R. No. 137909, December 1 1 , 2003. Taylor vs. Uy Tieng Piao, 43 Phil. 873 (1922). 38
In gratuitous obligations
(simple/remuneratory donations and testamentary
depends upon the will of one of the contracting parties
persons.
111
Conditions which are physically
Example: condition that a man
Example: "I will give you P500 ifyou wart it" or "I will give you my house if you enter the priesthood."
110
These conditions refer to: i.
will of the creditor.
c.
Examples: "I will pay you as soon as I receive the proceeds from the sale of my property in Spain",
condition
is void or deemed not imposed.
727, 873) This is because in the latter, the
true consideration is the liberality of the donor or
1 1 82)
testator.
11'
Hermosa v. Longora, 93 Phil. 977 (1953). 39
2. 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. (Art. 1 1 85)
c. If the obligation is divisible, that part thereof which is not affected by the impossible or unlawful condition shall be valid. (Art. 1183)
Example: "I will pay you Pl,000 ifyou give me your book, and an additional P500 ifyou can make it dance. " The first obligation is valid, but the
Example: payment of money to X and Y on the
condition that they will not marry each other. until they are both 25 years old - the obligation becomes effective if they both reach their 25th birthday without marrying each other, or if Y dies before her 25th birthday.
second is not. d. The condition not to do an impossible thing shall be considered as not having been agreed upon. (Art. 1 183) The obligation remains valid and becomes a pure one.
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. (Art. 1 1 85) .
Example: "I will pay you Pl, 000 if you do not make this car swim." e. Art. 1 1 83 refers to the impossibility of condition existing at the time of the creation of the obligation; in such a case, the obligation is rendered void ab initio. It should not be confused with exfinguishment of the obligation due to impossibility of performance (Art. 1266), or because it has become certain that the condition will not be fulfilled (Art. 1 1 84). 113
3 . The condition shall be deemed fulfilled when the obliger voluntarily prevents its fulfillment. (Art. 1 1 86) a. Example: .the manager under a management contract - who is unjustly prevented by the other party to perform his management duties is still entitled to his management fees.114
C. CONSTRUCTIVE FULFILLMENT
b. The obliger's prevention must be unjustifiable for it to constitute constructive fulfillment. If there is legal or contractual basis for · the prevention, there is no constructive fulfillment.115
1. 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. 1 1 84)
Examples: if the owner of the house stops work on Example: payment of money on the condition that X must pass the bar exams by 2015 the obligation is extinguished if 2015 expires without X passing the bar, or ifX dies before then.
his house because the contractor violated certain city ordinances, or if the obliger cancels a contract upon a an stipulation that he has a right to do so.116
-
1 14
Nielson & Company, Inc. v. Lepanto Consolidated Mining, G.R. No. L-21601, Decembe r 17, 1966. m 1v Tolentino 162. 11' Taylo r v. Uy Tieng Piao, 43 Phil. 873 (1922).
"' IV Tolentino 156·156. 40
4t
c.
(a) when it
(b) when it goes
obligor voluntarily causes its fulfillment, the condition
{c) when it
Fulfillment of
Suspensive Condition.
Before the
iii. When the thing deteriorates
govern:
creditor; (Art.
The creditor may bring the appropriate actions for the
preservation of his right. (Art. 1 1 88)
iv. Ifit deteriorates the
creditor may also cause the registration of deeds of
sale or mortgage.
v.
If the debtor has paid by mistake, he may recover the
1 1 88)
to give (a determinate thing), the following rules shall be observed in case of the improvement, loss or deterioration of the thing during the pende11cy of the condition:
(2)
(1) the rescission of
its
fulfillment,
with
(Art. 1 1 89)
If the thing is
improved by its nature, or by time,
creditor; (Art.
1 1 89)
improved at the expense of the debtor,
he
shall have no other right than that granted to the
usufructuary.
�
(Art. 1 189)
In this case, the debtor may remove the
improvements, but only if it will not cause damage to the thing. (Art. 579)
lost through the fault of the debtor, 1 1 89)
The debtor
may also set off the improvement� against the
he shall be obliged to pay damages; (Art.
42
and
the improvement shall inure to the benefit of the
vi. If it is
lost without the fault of the debt r, the obligation shall be extinguished; (Art. 1 1 89)
The thing is lost-
obligation
Appreciation in value of land is generally a consequence of nature and time. 1 1 7
In case of obligation
If the thing is
through the fault of the debtor, the
indemnity for damages in either case;
(iii) to compel execution of public instrument; (iv)
ii.
-
creditor may choose between
to enjoin debtor from concealing his property or
If the thing is
1 1 89)
thing in its deteriorated condition.
deterioration of the object of the obligation, or (ii)
same. (Art.
without thefault of the
This means that the creditor must accept the
from doing things that would cause the loss or
1.
in such a way that its
debtor, the impairment is to be borne by the
Examples: (i) creditor may sue to enjoin the qebtor
c.
disappears
recovered (e.g., jewelry is stolen).
suspensive condition is fulfilled, the following rules
b.
out ofcommerce (e.g., land is
existence is unknown or it cannot be
D. EFFECTS
a.
(e.g., house is burned
expropriated by the government), or
is not considered fulfilled.
I. Before
perishes
down), or
By analogy, if the condition is resolutory and the
1 11
Mactan Cebu International Airport Authority v. Tudtud, G.R. No. 174012, November 14, 2008. Heirs of Tito Moreno v. Mactan Cebu International Airport Authority, G.R. No. 156273, October 15, 2003. 43
-- '
damage or deterioration he may have caused. (Art. 580)
3. Upon Fulfillment of Resolntory Condition a.
2. Upon Fulfillment of Suspensive Condition a. The effects of a conditional obligation to give, once the condition has been fulfilled, shall retroact to the day of t'1e constitution of the obligation. (Art. 1 1 87) i.
Thus, the creditor's right will generally prevail over acts or dispositions made by the debtor during the pendency of the condition.
ii. However, the debtor is generally not obliged to give the fruits or interests received during the 1 pendency of the condition. (!) If the obligation is reciprocal, the fruits and interests during the pendency of the condition shall be deemed to have been mutually compensated. (Art. 1 1 87) (2) If the obligation is unilateral, the debtor shall appropriate the fruits and interests received. (Art. 1 1 87) Exception, if there is a contrary intention, whether express or implied from the nature and circumstances of the obligation. (Art. 1 1 87) b. In obligations to do and not to do, the courts shall deten,nine, in each case, the retroactive effect of the condition that has been complied with. (Art. 1 1 87)
44
In obligations to give upon the fulfillment of resolutory condition, the obligation is extinguished and the parties shall return to each other what they have received. (Art. 1 190) -
In case of loss, deterioration or improvement of the thing, the provisions of Art. 1 1 89 (supra) shall be applied to the party who is bound to return. b. In obligations to do and not to do upon the fulfillment of the resolutory condition, the courts shall determine, in each case, the effect of the extinguishment of the obligation. (Art. 1 1 90, in rel. to Art. 1 1 87) -
II. OBLIGATIONS WITH A PERIOD A. IN GENERAL 1. Period or Term. Obligations with a period or term are those which become demandable or which terminate upon the arrival of a "day certain". A day certain is that which must necessarily come, although it may not be known when. (Art. 1 1 93) a. Examples: January 1, 2025 is a day certain because it must necessarily come. The death of a certain person, X, is also a day certain, because it must necessarily come, although it is not known when. b. 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 Art. 1 1 93. Examples: the sale
45
by the debtor of his other properties118 or the obtaining
arrival of the period, he may recover the thing paid or
of a loan from a bank.1 19
delivered, with the fruits and interests. (Art.
Otherwise put, a event, as
period is a fature and certain opposed to a condition which is a future
3. Retroactivity.
1 195)
Unlike a condition, a period has no effect
on the existence of the obligation, but only on their demandability or performance.
and uncertain event.120
Thus, the arrival of a
period does not have a retroactive effeci.121
2. Period may be Susp ensive or Resolutory. a.
· Obligations with Suspensive Period (ex die)
- they
are obligations for ";hose fulfillment a day certain has
been fixed, and shall be demandable only when that day comes. (Art.
Examples: January
C. BENEFIT OF THE PERIOD I.
In General.
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. (Art.
1 193) A promissory note payable ,on
1
a.
1 196)
Thus, in such a case, the debtor may not be compelled to perform the obligation before the arrival of the
2025; a service which must be performed
period, and the creditor may not be compelled to
one year from the execution of the contract.
accept performance before the arrival of the period. b.
Obligations with Resolutory Period (in diem)-
they
take effect at once, but terminate upon arrival of the day certain. (Art.
Example:
b.
Also, because the term is generally for the benefit of both creditor and debtor, a contract whose term has
1 1 93)
A usufruct that will end on
1
already expired may only be renewed if both parties consent. 122
January
2025. 2. Exception.
The period may be established in favor of
either the creditor or the debtor, if it should so appear from
B. EFFECTS
the tenor of the obligation or other circumstances. (Art.
1. Loss, Deterioration or Improvement.
In case of loss,
1 1 96)
deterioration or improvement of the thing before the arrival of the day certain, the rules in Article obligations shall be observed. (Art.
1 1 89 on conditional 1 1 94)
a.
If the period is for the benefit of the debtor, he may not
be compelled to perform the obligation before the arrival of the period, but he
2. Advance Payment by Mistake. If the
obligor is unaware
may
validly do so (pre
payment) if he so wishes.
of the period or believes that the obligation has become due and demandable, and thus pays or delivers before the 1 18
Dandoy v. CA, G.R. No. 150089, August 28, 2007. 110 Berg v. Magdalena Estate, Inc., 92 Phil. 110. 120 Dandoy v. CA, G.R. No. 1 50089, August 28, 2007. 46
121 IV Tolentino 186-187. 122 Fernandez v. CA, 166 SCRA 577 (1988); LL and Co. v. Huang Chao Chun, G.R. No. 142378, March 7, 2002; Josefa v. San Buenaventura, G.R. No. 163429, March 3, 2006. 47
Example:
If the obligation provides that payment d.
may be made "within" the stipulated period, or "on
When
the
debtor
violates
any
undertaking,
in
or b�fore" the stipulated date, the period is for the
consideration of which the creditor agreed to the
benefit of the debtor.
period; or
The debtor then has the
right, but not the duty, to pay before the deadline. e. b.
If the period is for the benefit of the creditor, he may .not be compelled to accept performance before the arrival of the period, but he
may
When the debtor attempts to a.bscond.
D. FIXINGOF PERIOD
validly demand
I. When Applicable. The courts may fix the duration of the
performance if he so wishes.
period in the following cases: The creditor may decline pre-payment for various
a._ If the obligation does not fix a period, but from its
reasons - he may want the interest on his money,
nature and the circumstances it can be inferred that a
he may want to avoid the risk of holding his
period was intended. (Art. 1 197)
money, or the risk of near-term deprecia\ion in currency, etc.
'
1.
Examples: When the debtor undertakes to pay "as
ii.
Example: When a donation imposes conditions but
3. Loss of the Benefit of the Period. The debtor. shall lose
the right to make use of the period (i.e., the creditor may
demand perfom1ance by the debtor even before the arrival of the period) in any of the following cases: a.
(Art. 1 198)
does not fix the period within which to comply 2 with them, the court must fix the perio.d. 1 7
When after the obligation has been contracted, he becomes insolvent, unless he gives a guaranty or security for th� debt;
b.
12 soon as possible,"1 24 or as soon as he has money, 5 126 or when his means permit or "little by little", . him to do so. (Art. 1 1 80)
1 In one case, 28 the Supreme Court held that
When he does not furnish to the creditor the guaranties
compliance with condition to build a school
or securities which he has promised;
had already been delayed for more than
50
years, it was no longer necessary to fix a c.
When by his own acts he has impaired said guaranties
period.
The correctness of this ruling is
or securities after their establishment, and ·when through a fortuitous event they disappear, unless he' immediately gives new ones equally satisfactory; Debtor's failure to renew or extend the 12 surety bond he furnished. 3
Example:
123
Gaile v. Fonacier, G.R. No. L-11827, July 31, 1961. 48
1"
Gonzales v. Jose, 66 Phil. 369 (1938). See Patente v. Omega, 93 Phil. 218 (1953). The Supreme Court should have applied Article 1197 (Art. 1 1 28, old CC), instead of Art. 1182 (Art. 1 1 1 5, old CC). The clause "as soon as possible or as soon as I have monej' indicates that a period was intended. Besides1 application of Art. 1182 would have resulted in a pure obligation, instead of one where the court may fix the period. 120 Seoane v. Franco, 24 Phil. 309 (1913). m Barretto v. City of Manila, 7 Phil. 416 (1907). 1 28 Central Philippine University v. CA, 246 SCRA 51 1 (1995). 12s
49
doubtful. First, there is no such exoeption in
1 1 97 requiring the fixing of a period. Second, it is necessary to fix a period if only to
Art.
Ill. ALTERNATIVE AND FACULTATIVE OBLIGATIONS
A. ALTERNATIVE OBLIGATIONS, IN GENERAL
fix the time from which the 4-year prescriptive
period for revocation should be reckoned.129
I. Alternative Obligation.
In an alternative obligation, there
is more than one object, and the fulfillment of one is
b.
If the period depends
upon the will of the debtor.
(Art.
1 1 97) But if the performance of the obligation depends
upon
the
sole
will
of. the
debtor
In case of
breach of reciprocal obligation,
a.
1 1 91)
(i) obligation to deliver a TV
or
a
either a TV or a refrigerator, not both; (ii) obligation of
1 1 82)
a fire insurance company to rebuild the insured house destroyed by fire or to pay its value.133
the court
may fix a period '(instead of ordering rescissi<;m) if there is a just cause for the same. (Art.
Examples:
refrigerator - it is sufficient for the debtor to deliver
(purely
potestative), the obligation is void. (see Art. c.
sufficient, determined by the choice of the party who has the right to choose.1 32
'
b.
Contrast with Conjunctive Obligation:
There are also
several objects, which must all be fulfilled.134
2. Premature Until Period is Fixed. Until the period is first
Obligation to deliver a TV and a
determined, there can be no breach of contract or failure to 0 perform the obligation.1 3 Before the fixing of the period,
Example:
it would be premature for the creditor to complain of the debtor's alleged breach.1 3 1
refrigerator.
refrigerator - the debtor must deliver both TV and
c.
3. Standard in Fixing the Period. In every case, the courts shall
determine
such
period
as
may
under
the ,
circumstances have been probably contemplated by the parties. (Art.
1 1 97)
Contrast with Facultative Obligation:
There is only
one object, but the debtor may substitute another object.
2. Complete Performance. A person altenratively bound by different prestations shall completely perform one of them.
4.
Finality. Once fixed by the courts, the period cannot be changed by the courts. (Art. 1 197)
(Art. 1 199) The creditor cannot be compelled to receive part of one and part of the other undertaking. (Art.
129 SPJ dissent of J. Davide In Central Philippine University v. CA, 246 SCRA 511 (1995). "' Ungson vs. Lopez, 50 Off. Gaz. 4297; Concepcion vs. People of the Philippines, 74 Phil. 63; Gonzales vs. De Jose, 66 Phil .. 369; Pages v. Basilan Lumber Company, G.R. No. L10679, November29, 1958, 131 Spouses Vasquez v. Ayala Corp.. G.R. No. 149734, November 19, 2004; Spouses Edrada v. Spouses Ramos, G.R. No. 154413, August 31, 2005.
50
1 1 99)
"'See Chavez v. PEA-Amari, G.R. No. 133250, May 6, 2003. J. Ynares-Santiago, dissenting. "' Ong Guan Can v. Century Insurance Co., Ltd., 46 Phil. 592 (1924). "' IV Tolentino 203. 51
B. RIGHT TO CHOOSE, BY DEBTOR I.
General Rule. The right of choice belongs to the debtor.
(Art.
1200)
of the obligation, the latter may damages. (Art. 1203)
rescind
the contract with
5. In Case of Loss of Alternative Prestations.
Exception: Unless it has been expressly granted to the
a.
creditor.
Loss ofAll i.
2. Limitations .
Due to Debtor's Fault
-
When, through the fault
of the debtor, all the things which are alternatively the object of the obligation have been lost, or the
a.
The debtor cannot choose part of one prestation and
compliance
part of another prestation. (Art. 1 199)
impossible - the creditor shall have a right to
of
the
obligation
indemnity for damages. (Art. b.
has
become
1204)
The . debtor shall have no right to choose those prestations which are impossible, unlawful or which
h
could not have been the object of the obligatio .
1 200)
The indemnity shall be fixed taking as a basis
(Art.
the value of the last thing which disapp,eared, or . that of the service which last became impossible. (Art.
1204)
Thus, if the obligation permits payment in local or foreign currency, but the government outlawed all
Damages other than the value of the last
foreign currency, the debtor may only pay in the
. thing or service may also be awarded. (Art.
local currency. 135 c.
1 204)
The debtor shall lose the right of choice when among
ii.
the prestations whereby he is alternatively bound, only one is practicable. (Art.
Not Due to Debtor's Fault
-
If the loss or
impossibility is not, due to the debtor's fault (for
1 202)
example, because of fortuitous event, or because of the creditor) the debtor is relieved of liability.
3 . Effectivity. The choice shall produce no effect except from the time it has been communicated. (Art. 1201) The selection may be made in any form, as long as it is unequivocal. It may even be made tacitly, such as by
(A1ts. b.
Loss ofSome i.
actually performing the chosen prestation.
4. Impairment of Right to Choose.
If through the creditor's
remaining prestations available. ii.
52
If only some of the alternative prestations are lost, the debtor is not liable even if the loss is due to his fault, because he can still comply by choosing the
acis the debtor cannot make a choice according to the terms
"' Tambunting de Legarda v. Miailhe, 88 Phil. 637.
1 1 74, 1203)
If the loss of one or some of the prestations is
to the creditor's fault, 53
due
however, the debtor may
·
choose to rescind the obligation with damages (A11. 1203).
l).
l.
C. RIGHT TO CHOOSE, BY CREDITOR 1. When App licable. The creditor has the right to choose . between alternative prestations only when it is expressly given to him. (Arts. 1200, 1205)
obligation, there is only one principal prestation. If the said principal prestation is void, or lost, or becomes impossible, the obligation is extinguished, even if the substitutes are still available. On the other hand, in an alternative obligation, the obligation is not extinguished by the nullity, loss or impossibility of one or some of the alternatives, as long as other alternatives are still available.
2. Pending tlte Creditor's Choice. Until the selection1by the creditor, the responsibility of the debtor shall be governed by the following rules:
2. Before Substitution - The loss or deterioration of the thing intended as a substitute, through the negligence of the obligor, does not render him liable. (Art. 1 206)
a. 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;
3. Upon Substitution - Once the substitution, has been made, the obligor is liable for the loss of the substitute on account of his delay, negligence or fraud. (Art. 1206)
b. If the loss of one of the things occurs through the fault of the debtor, the creditor may claim either Any of those subsisting, or
n.
The price of that which, through the fault of the debtor, has disappeared, with a right to damages;.
c. 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.
Note: 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. (Art. 1205) 54
Yacultative Obligation. This is when only otie prestation has been agreed upon, but the obligor may render another in substitution. (A1t. 1206)
Contrast with Alternative Obligation: In a facultative
2. Effectivity. When the choice has been expressly given to the creditor, the obligation shall cease to be alternative from the day when the selection has heen communicated to the debtor. (Art. 1205)
i.
lill.C'llLTll.1:WE OBLlGll.TlONS
IV TOINT AND SOLIDARY OBLIGATIONS . •
A. IN GENERAL: In both joint and solidary obligations, there is a concurrence or plurality of debtors and/or creditors in the same obligation. They differ, however, in the extent ofthe obligation to which each debtor can be held liable and/or the extent which each creditor can demand. . 1-. In a joint obligation (mancomunada or pro rata), each of the debtors is liable only for a proportionate part of the debt; and · each of the creditors is entitled only to a 55
proportionate part of the credit.
136
Otherwise put, each
that each of the debtors is liable only for a proportionate 143 part of the debt. (Art. 1 207)
creditor can recover only · his share of the obligation, and 137 each debtor can be made to pay only his part.
a.
The credit or debt shall be presumed to be divided into as many shares as there are creditors or debtors, the
Example: The obligation is joint if
A, B, and C say "We promise to pay P300 to X'. A, B, and C are liable only for P 100 each.
credits or debts being considered
In a
solidary obli gati on (joint and several
or
b.
for the entire obligation, and each of the creditors is 138 Otherwise put, entitled to demand the whole obligation. each creditor may enforce the entire obligation, and each 139 debtor may be obliged to pay it in full. (Art. 1207)
Thus, if the obligation or judgment holding several persons liable is silent as to the nature of extent of their 144 liability, such liability is consideredjoint.
.
2. Exception.
There is a solidary liability only in any of the
following instances
Example: The obligation is solidary if A, B, and C say, "We jointly and severally promise to pay P300 to X', in which case A (or B or C) can be made to pay the entire P300. The obligation is also solidary if it says "individunlly and jointly," 140 or "together or separate{v,'.' 14 1 or if it says, "I promise to pay"142
a.
(Art. 1207):
When the obligation expressly so states,
It is not required that the party use the precise word
"solidary"; it is enough that the obligation state, for example, that each of the debtors can be compelled 145
signed by two or more persons.
to pay the entire debt. b.
JOINT OBLIGATION IS THE GENERAL RULE I . General Rule.
(Art. 1208)
juntas o
separadamente or in solidum), each of the debtors is liable
B.
from one
another, subject to the Rules of Court governing the multiplicity of suits.
2.
distinct
In case of concurrence of two or more
When the
law requires solidarity,
Examples:
Liability for quasi-delict
(Art. 2194) (Art. 1 10, RPC). 927, 1824, 1 9 1 1 , 1915, 2157 of the
creditors or of two ·or more debtors in one and the same
and liability arising from crime
obligation, the presumption is that the obligation is joint so
See also Arts. Civil Code. c.
When the nature
of the obligation requires solidarity.
1 36
Solidbank Corp. v. Mindanao Ferroalloy Corp., G.R. No. 153535, July 28, 2005, citing PH Credit Corporation v. CA, 421 Phil . 821, 832, November 22, 2001; Inciong, Jr. v. CA, 327 Phil. 364, 373, June 26, 1996; Quiombing v. CA, 189 SCRA 325, 328, August 30, 1990; The Imperial Insurance, Inc. v. David, 218 Phil. 298, 302, November 21, 1984. "'Ouiombing v. CA, 189 SCRA 325, 328, August 30, 1990. 138 Inciong, Jr. v. CA. G.R. No. 96405, June 26, 1996. 139 Quiombing v. CA, 189 SCRA 325, 328, August 30, 1990. '" Ronquillo v. CA, G.R. No. L-55138, September 28, 1984. "' "Juntos o separadamenre: Parot v. Gemora, 7 Phil. 94 (1906). "' Paro\ v. Gemora, 7 Phil. 94 (1906). ·
56
Example: Liability for torts or other wrongful acts (e.g., abuse of rights, libel, infring�ment, etc.) is
143
Inciong, Jr. v. CA, G.R. No. 96405, June 26, 1996. Contreras v. Felix, 78 Phil. 570 (1947). 145 Juan Ysmael & Co., Inc. v. Salinas, 73 Phil. 601 (1942). 1 44
57
considered solidary,'46 because a "moral wrong cannot be divided into parts. "147 Thus: corporal�
2. The indivisibility of performance does not prevent the obligation from being considered joint.
directors and officers are solidarity liable with the corporation for the te1mination of employees done 8 with malice or bad faith. 14
a.
The indivisibility of an obligation does not necessarily give rise to solidarity. Nor does solidarity of itself imply indivisibility. (Art.
1210)
C. EFFECTS OF JOINT OBLIGATION b. I.
In a joint obligation, the debt/credit is legally divided into
The indivisible obligation is still presumed
joint.
However, in such a case of joint indivisible obligation
as many shares as there �e creditors or debtors, the credits or debts being considered
distinct from one another. (Art.
1 208) Thus, because tl)e shares are distinct from each other
i.
The right of the creditors may be prejudiced only by their collective acts, (Art.
a.
A joint creditor cannot act in representation , of the others. Neither can a joint debtor be compelled to answer for the liability of the others.149
1209) and
ii. The debt can be · enforced only by proceeding against ail the debtors. (Art.
1209)
(1) Since the prestation can only be performed by b.
The effect of a
demand
or interruption ofprescription
is limited only to the particular creditor or debtor who made or received the demand or intefl'\lption.1 50
all of the debtors, they must all be sued. If one of the debtors cannot perform, the prestation
becomes incapable of performance and is converted to
c.
d.
e.
liability for damages.
The
The extinguishment of the obligation of one of the
debtors are liable only for their proportionate
debtors does not affect the shares of his co-debtors.
shares in the damages.
The nullity or vices of obligation affecting one of the
(2) If one of the debtors should be insolvent, the
debtors do not necessarily extend to the shares of his
others shall not be liable for his share. (Art.
co-debtors.
1209)
The insolvency of one of the debtors does not increase the liability of his co-debtors. (see Art.
1 209)
(3 ) Example: If X, Y and Z are. liable to deliver a Toyota Altis to A, the obligation is
(X cannot just deliver a 1/3 Altis), and also
joint (X "' Worcester v. Ocampo, 22 Phil. 42 (1912). Lafarge Cement v. Continental Cement Corporation, G.R. No. 155173, November 23, 2004, 443 SCRA 522. "' IV Tolentino 222. "' Malayang Samahan ng mga Manggagawa sa M. Greenfield v. Ramos, G.R. No. 1 13907, 20 April 2001, 357 SCRA 77, 93-94. 1" Sembrano v. City of Butuan, G.R. No. 1 63605, September 20, 2006. 1so Agoncillo v. Javier, 36 Phil. 424 (1916). 58
indivisible
cannot be compelled to deliver the
entire Altis alone). A must sue X, Y, and. Z together. If Z cannot perform, the obligation is
converted to liability for the value of the Altis, which X, Y, and Z must all pay, but only pro
rata (113 of the value for each). 59
because active solidarity is essentially a mutual
D. EFFECTS OF SOLIDARY OBLIGATION I.
Classification a s to
agency, which involves a relation of confidence.
S nbj ect. Solidarity may be classified
as: a.
b.
Passive Solidarity, or solidarity in the debtors - each of the debtors can be made to answer for the others, with the resulting right to recover from the other co
Active Solidarity, or solidarity in the creditors - each
debtors their respective shares; there is a
guaranty. 153
·creditor has the authority to claim and enforce the rights of all, with the resulting o.bligation of paying his co-creditors their respective shares; there is
representation or agency. 151 i.
mutual
Each of the solidarity creditors may sue alone, and discharge the el'.tire obligation.152
,
.
Each of the solidary creditors may do whatever
2. Varied Solidarity.
Thus,
a
solidary
creditor
manner and by the same periods and conditions. (Art.
1211) Example:
1212)
may
P30,000.
may
effect
the
only for
2) .1 54
novation,
debt, which shall extinguish the obligation. However, the creditor who extinguished the obligation shall be liable to the others for the share in the obligation corresponding to them. 111 .. A solidary creditor cannot assign his rights without
Quiombing v. CA, 189 SCRA 325, 328, August 30, 1990. Quiombing v. CA, 189 SCRA 325, 328, August 30, 1990. 60
2,
(the
J may
1213)
This is
P20,000
(the portion which matures by Year
3. Extinguishment of the Obligation, In General a.
In general,
payment of the debt to
one of the solidary
creditors, or made by one of the solidary debtors, is sufficient to extinguish the debt. (Arts. 1.
The
paying
debtor
is
1214, 1217)
generally
entitled
to
reimbursement of t11e shares of his co-debtors. (Art.
151
Pl0,000
In Year
sue X or Y or Z (because they are solidarily liable), but
compensation, confusion or remission of the
152
J may sue X or. Y or Z (because
portion which matures in Year I).
1215, a solidary
the consent of the others. (Art.
1,
Solidarity still exists in such a
they are solidarily liable), but only for
is beneficial to his co-creditors.
creditor
3.
scenario. In Year
to be in default and for interest to run), which
Note, however, that under Art.
X , Y, and Z are solidarily liable t o J for
X's liability matures in Year l, Y's in Year 2
and Z's in Year
interrupt
prescription or make a demand (for the debtor
(2)
Solidarity may exist although the
creditors and the debtors may not be bound in the same
may be useful to the others, but not anything which may be prejudicial to the latter. (Art.
(1)
Mixed Solidarity, or solidarity in both the creditors and the debtors.
payment to the suing creditor is sufficient to
ii.
c.
mutual
1 217)
"' IV Tolentino 228. "' lnchausti & Co v. Yulo, 34 Phil. 978.
61
extinguish the obligation or the solidarity of the obligation.155
ii. The collecting creditor is generally responsible to give to his co-creditors their corresponding shares. (Art. 1215)
However, in case of suretyship (wherein the surety is solidarily liable with the principal debtor), an extension of time granted by the . creditor to the principal debtor (without consent of surety) will extinguish the liability of the surety.'56 (Art. 2079)
b. 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. (Art. 1215) i.
But mere . delay by the creditor in collecting from the debtor is not an extension which will discharge the surety.157 (Art. 2079)
With such extinguishment, the debtors are released from their obligation to the creditors. However a.
As among the creditors, the creditor who may have extinguished or collected the debt shall be liable to the others for their corresp�nding share in the credit. (Art. 1215)
b. As among the debtors, the debtor who caused the extinguishment of the obligation is entitled to recover from his co-debtors their shares in whatever he may have paid. or given up to extinguish the obligation. (see Art. 1217) Example: If X, Y and Z are solidarily liable to N for P30,000, which debt is extinguished by compensation with X's credit against N for the same amount, then N is entitled to recover P l 0,000 each from Y and Z as their share in the obligation.
3. Payment to Solidary Creditors a.
If no demand has been made by the solidary creditors, the debtor may pay any one of them (Art. 1214) such payment will be sufficient to extinguish the obligation.158
-
b. If any demand, judicial or extrajudicial, has been made by one of them, payment should be made to him. (Art.
1214) 4. Payment by Solidary Debtors a. Payment made by one of the solidary debtors extinguishes the obligation. (Art. 1217)
ii. In case the remission was made after the. debt had already been totally paid, apply Art. 1219 (infra). iii. Novation. - generally, a mere extension of time for payment given to some of the solidary debtors does not constitute a novation which will
62
1'' lnchausti & Co v. Yulo,
34 Phil. 978. "' El Banco Espanol Filipino v. Donaldson Sim & Co., 5 Phil. 418 (1905); Radio· Corp. of the Philippines v. Roa, G.R. No. 42829, September 30, 1935; Cochingyan v. R & B Surety and . Insurance Co., 151 SCRA339 (1987). See also Art. 2079. 157 Palmares v. CA, G.R. No. 126490, March 31, 1998; Filipinas Textile Mills, Inc. v. CA, G.R. No. 1 19800, November 12, 2003. 155 Quiombing v. CA, 189 SCRA 325, 328, August 30, 1990. 63
ii. The debtor-payor is not entitled to reimbursement from his co-debtors if his payment is made after. the obligation has prescribed or become illegal. (Art. 1218)
If two or more solidary debtors offer to pay, the creditor may choose which offer to accept. (Art. · 1217) b. Right ofDebtor-Payor to Reimbursement i.
(1) The debtor-payor is also not entitled to reimbursement if he pays a debt which had already been extinguished (e.g., already paid or remitted)
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. (Art. 1217)
·
(2) In case of prescribed debt, the debtor-payor cannot recover his payment from the creditor under the rules on natural obligations. (Art. 1424) But in other cases where the obligation to pay does not exist, the debtor-payer may recover his payment from the creditor under the rules on quasi-contracts. (Art. 2154)
(!) If the payment is made before the debt is due,
no interest for the intervening period may be demanded. (Art. 1 2 17)
(2) 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, 111 proportion to the debt of each. (Art. 1217)
c. Enforcement against Solidary Debtors. The creditor . may proceed against any one of the solidary debtors or · some or all of them simultaneously. (Art. 1216)
X, Y and Z are solidarily liable to pay P45,000. X pays the entire debt, which is thus extinguished. X can then recover P15,000 from Y and P1 5,000 from Z as their respective shares (1/3 each) in the debt. In case Z is inso lven� his share shall be borne by X and Y: Y will therefore reimburse P7,500 (in addition to his original share of Pl5,000), while the other P7,500 will be a loss shouldered by X.
Example:
i.
The choice is left to the solidary creditor to determine against whom he will enforce collection:''°
•
ii. The creditor may sue any of the solidary co debtors; he need not implead all of them as they are not indispensable parties.161 iii. The creditor may aiso choose to collect only part of the debt from some of the solidary debtors, and the remaining part from the other solidary debtors.
(3) Note that if the payor is merely a surety, he is not principally liable for the debt. Thus, he may generally recover from the principal debtors the entire payment he has made. 159 160
Inciong, Jr. v. CA, G.R. No. 96405, June 26, 1996. Quiombing v. CA, G.R. No. 93219, 30 August 1990, 189 SCRA 331; Amor de Castro v. CA, G.R. No. 1 1 5838, July 18, 2002; Cerezo v. Tuazon, G.R. No. 141 538, March 23, 2004. 161
1"
See Inciong, Jr. v. CA, G.R. No. 96405, June 26, 1996. 64
65
Such course of action does not convert the solidary
fault of the solidary debtors, the obligation shall be
obligation into a joint one.162
extinguished. (Art.
iii. The demand made against one of them shall not be an obstacle to those which may suqsequently be
With Fault or Delay - If there was fault on the part of any one of them, all shall be responsible to the creditor,
b.
directed against the others, so long as the debt has not been fully collected. (Art.
for the price and the payment of damages and interest.
1 2 1 6)
(Art.
6. Remission of Debt a.
i.
Remission of a. Share after Payment.
ii.
the solidary debtors does not release the latter from his responsibility towards the co-debtors, in case the debt
1.
.
ii.
debt which had already been extinguished by
due to fortuitous event.
a.
As mentioned, the creditor may proceed against any one of the solidary debtors or some or all of them
The remission of the
whole obligation, obtained by one of the solidary
·
debtors, does not entitle him to reimbursement from his co-debtors. (Art.
1 220)
b.
Because the debtor who obtained the remission did not pay or lose anything.
(Art. 1221)
8. Defenses of Solidary Debtors
simultaneously. (Art.
Remission of the Entire Debt.
in delay through
the creditor, even if the loss or impossibility was
payment · b.
The same rule applies if the thing is lost or the
the judicial or extrajudicial demand upon him by
The debtor whose share was "remitted" must still
Strictly speaking, there can be no "remission" of a
1221)
the solidary debtors has incurred
1
pay his share to reimburse the debtor-payor.
But the faultless debtors may recover against the
performance has become impossible after one of
had been totally paid by anyone of them before the
1219)
1221)
guilty or negligent debtor. (Art.
The remission
made by the creditor of the share which affects one of
remission was effected. (Art.
1221)
1216) The choice is left to the
solidary creditor to determine against whom he will enforce collection.163 He need not implead all of them . ' 4 as they are not md'1spensable part1es. 1 6 A so!idary debtor may, in actions filed by the creditor, avail himself of the following defenses1 65: i.
Defenses which are derivedfrom the nature of the obligation these are defenses which pertain to -
7. Loss or Impossibility of Performance a.
Without Fault or Delay
-
If the thing has been lost or
if the prestation has become impossible without the
'" Republic Glass Corp, v. Qua, G.R. No. 144413, July 30, 2004. 66
the validity or enforceability of the obligation.
'" Inciong, Jr. v. CA, G.R. No. 96405, June 26, 1996. 164 Quiombing v. CA, G.R. No. 93219, 30 August 1990, 189 SCRA 331; Amor de Castro v. CA, G.R. No. 1 15838, July 18, 2002; Cerezo v. Tuazon, G.R. No. 141538, March 23, 2004. '" Lafarge Cement v. Continental Cement Corporation, G.R. No. 1 55173, November 23; 2004, 443 SCRA 522. 67
They are total defenses (the debtor cannot be held liable at all).
and a partial defense). As to the share of Z, X can raise the derense that it has not yet become due (a defense pertaining to Z's share, and a partial defense).
ii. Defenses which are personal to him or pertain to
his own share;
(c) lfZ is sued in Year 2, he can be held liable for P l 0,000 corresponding to X, which had already. become due. As to the share of Y, Z can invoke Y's insanity (a defense personal to Y, and a partial defense). As to . his own share, Z can rais"e the defense that it has not yet become due (a .defense pertaining to his own share, and a partial defense).
(1) Defenses which are personal to the defendant
debtor. (such as minority, insanity or vitiated consent) are total defenses.
(2) Defenses which pertain to the share of the
defendant-debtor (e.g., that his share is not yet due or has. already been extinguished) are partial defenses, i.e., the defendant cannot be . held liable for the portion correspondipg to him, but he can still be held liable for the shares of his co-debtors.166 .
V. DIVISIBLE AND INDIVISIBLE OBLIGATIONS A. IN GENERAL
iii. Defenses which personally belong to the other debtors (or pertain to their shares) - these are partial defenses, i.e., the defendant-debtor cannot be held liable for the portions corresponding to the debtor with the defense.167 (Art. 1 222)
1.
it cannot be validly performed in parts, whatever may be the nature of the thing which is the object thereof. 168
2. Divisible Obligation. An obligation is divisble when it can be validly performed in parts.
Example: X, Y, and Z are solidarily liable to J
for P30,000. X's liability matures in Year l , ' Y ' s in Year 2 and Z's in Year 3. Y was insane at the time the obligation was contracted.
B. DISTINGUISHED FROM DIVISIBILITY OF THING I. The divisibility of the obligation refers to the prestation, and not to the object thereof.169 Divisibility of obligation refers to its susceptibility of partial performance. Divisibility of the object refers to its capacity to be divided into .parts without diminishing its value disproportionately.
(a) If Y is sued, he can invoke his insanity and be excused altogether (a defense personal to him, and a total defense). (b) If X is sued in Year 2, he can only be held liable for P l0,000. As to the share ofY, X can invoke Y's insanity (a defense personal to Y, 16'
"' lnchausti & Co v. Yulo, 34 Phil. 978. "' lnchausti & Co v. Yulo, 34 Phil. 978.
169
68
Indivisible Obligation. An obligation is indivisible when
Nazarenov. CA, G.R. No. 138842; October 18, 2000. Nazareno v. CA, G.R. No. 138842, October 18, 2000. 69
An obi igation may be considered indivisible even when its object is divisible. For example, the obligation to pay insurance premium is generally considered indivisible/70 even if the sum of money to be paid is divisible.
D. DETERMINING DIVISIBILITY · 1 . Indivisible. (a) Obligations to give definite things and (b) those which are not susceptible of partial performance shall be deemed to be indivisible (see Art. 1233)
2. 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 nature or effects of the obligation. (Art. 1223) c.
2. Divisible. 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. (Art. 1225)
JOINT INDIVISIBLE OBLIGATION: A joint indivisible obligation is an obligation of several debtors where each debtor is liable only for his part (joint) but the obligation cannot be validly performed in part .(indivisible). Thus, it must be performed by all of the debtors, and it can be enforced �nly by proceeding against all of them. (Art. 1209) If any of the debtors does not comply with his undertaking, the joint indivisible obligation gives rise to indemnity for damager.. 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. (Art. 1 224)
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. (Art. 1 225) 3. in obligations not to do, divisibility or indivisibility shall be determined by the character of the prestation in each particular case. (Art. 1225)
VI. OBLIGATIONS WITH A PENAL CLAUSE A. IN GENERAL
Example: A, B, and
C are jointly liable to deliver a laptop computer valued at P30,000 to X. The delivery can only be done by all of the debtors. If C cannot deJiver, the obligation to deliver the laptop gives rise to an obligation to indemnify X for P30,000. A and B, who were ready to perform, can only be held liable for P l 0,000 each.
1 . Definition. A penal clause is an accessory obligation which the parties attach to· a principal obligation for the purpose of insuring the performance thereof by imposing on the debtor a ·special prestation (generally consisting in the payment of a sum of mon�y) in case the obligation is not fulfilled or is irregularly or inadequately fulfilled.171
Example: A lease contract may provide that in case of
breach, the lessee would forfeit his rental deposit,1 72 or 171
"'.Makati Tuscany Condominium Corp. v. Court of Appeals, G.R. No. 95546, 6 November 1992, 215 SCRA 462, 466.
Pryce Corporation v. PAGCOR, G.R. No. 157480, May 6, 2005. Country Bankers Insurance Corp. v. Court of Appeals, G.R. No. 85161, 9 September 1991, 201 SCRA 458, 464-465; Fort Bonifacio Development Corp. v. Yllas Lending Corp., G.R. No. 158997, October 6, 2008.
70
71
172
·
should pay the rentals corresponding to the rema1rung period of the lease.173 A stipulation for attorney's fees is also considered a penal clause.114
b. The penalty may be enforced only when it is demandable in accordance with the provisions of the Civil Code. (Art. 1226)
2. Functions. A penal clause serves (a) to strengthen the
2. Exceptions: Penalty as Cumulative Remedy. Damages
3. Effect of Nullity. The nullity of the.penal clause does not carry with it that of the principal obligation. (Art. 1 230)
a. If there is stipulation for this; b. If the obligor refuses to pay the penalty; or c. If the obligor is guilty of fraud in the fulfillment of the obligation. (Art. 1226)
may still be demanded. (in addition to the penalty178) in the following exceptional cases;
coercive force of the obligation; (b) to provide for liquidated damages resulting from a breach of obligation;175 and (c) to punish the obligor.176
a.
But the nullity of the principal obligation carries with it that of the penal clause. (Art. 1230)
In the foregoing cases, the purpose of the pen�lty is to punish the obligor for the breach. rn
b. This is because the penal clause is just an accessory . obligation.
3. Limitations. a.
B. EFFECT
1 . General Rule: Penalty as Alternative. In obligations with
The debtor cannot exempt himself from the performance of the obligation by paying the penalty.
(Art. 1 227)
a penal clause, the penalty shall substitute the indemnity for damages and the pa0nent of interests in case of noncompliance. (Art. 1 226)
Except in case where this right has been expressly reserved for the debtor. (Art. 1227)
a. Proof of actual damages suffered by the creditor is not necessary in order that the penalty may be demanded. (Art. 1228)
b. The creditor cannot demand the . fulfillment of the obligatio.n and the satisfaction of the penalty at the same time. (Art. 1227) a.
Thus, there is no difference between penalty and liquidated damages in terms of their legal results.177
"' Piyce Corporation v. PAGCOR, G.R. No. 157480, May 6, 2005. Yap Tico & Co. v. Alejano, 53 Phil. 986 (1929). m Llgutan v. CA, G.R. No. 138671, Februaiy 12, 2002. 1 76 Pamintuan v. CA, G.R. No. L·26339, December 14, 1979. m Lambert vs. Fox, 26 Phil. 588 (1914); Yap Tico & Co. v. Alejano, 53 Phil. 986 (1929); Pamintuan v. CA, G.R. No. L-26339, December 14, 1979.
b. However, if after the creditor has decided to require the fulfillment of the obligation, the performance thereof should become impossible
m
i2
Except in case this right has been clearly granted to the creditor. (Art. 1 227)
m
Piyce Corporation v. PAGCOR, G.R. No. 157480, May 6, 2005, citing Ligutan v. CA, G.R. No. 138671, Februaiy 12, 2002. 17' Piyce Corporation v. PAGCOR, G.R. No. 157480, May 6, 2005. 73
without his fault, the penalty may be enforced.
(Art. 1227)
Chapter 5
Extinguishment of
C. REDUCTION OF PENALTY 1 . Partial or Irregular Compliance.
The judge
,
Obligations
shall
equitably reduce the penalty when the principal obligation
has been partly
or irregularly complied with by the debtor.
(Art. 1228)
1. IN GENERAL
2. Iniquitous or Unconscionable Penalty.
Even if there has
been no performance, the penalty
may also be reduced by the courts if it is iniquitous or unconscionable. (Art. 1 228)
A. Art.
1.
courts. To be considered in fixing the amount of
2. 3. 4.
penalty are factors such as: 1.
The type, extent and purpose of the penalty;
ii.
The nature of the obligation;
iii. The mode of the breach and its consequences; iv. The supervening realities; and
v.
The standing and relationship of the parties.1 80
enumerates the following causes of extinguishment
Book IV of the Civil Code:
The question of whether a penalty is reasona)lle or iniquitous is addressed to the sound discretion ' of the
123 1
of obligations which are governed by Chapter 4, Title
V of
Payment or performance; Loss of the thing due;
Condonation or remission of the debt; Confusion o r merger of the rights o f creditor and debtor; Compensation; and
5. 6.
Novation.
B. Other causes of extinguishment of obligations which are governed elsewhere in the Civil Code:
I.
Annulment;
2.
Rescission;
4.
Prescription.
(Art. 1231)
3 . Fulfillment of a resolutory condition; and
C. Other causes of extinguishment not mentioned by Art.
1.
·
1 23 1 :
Death - it extinguishes obligations which are purely 1 personal 1 8 (e.g., support; criminal liability and the civil . 1 82 obl'1gatton ar1s1ng ' . ft·om cnme. ' );
Pryce Corporation v. PAGCOR, G.R. No. 157480, May 6, 2005, citing Ligutan v. CA, G.R. No. 138677, February 12, 2002.
181 Lapuz Sy v. Eufemlo, 43 SCRA 177, January 31, 1972; Javier Security Special Watchman Agency v. Shell.Craft & Button Corp., 1 1 7 Phil. 218, January 31, 1963. "' Republic v. Cojuangco, Jr., G.R. No. 139930, April 17, 2006.
74
75
1ao
·
2.
Arrival of resolutory period;
3.
Mutual desistance - since mutual agreement can create a
B. PAYMENT BY THE PROPER PERSON contract, mutual desistance by the parties can cause its extinguishment1 83;
I . In General. The obligation must be paid by the debtor, and the creditor is entitled to demand payment by the debtor. (see Art.
4. Unilateral desistance - some contracts, such as agency and
Moreover, in obligations to give, the payment must be
partnership, may be terminated by the will of one of the
made by one who has: (a) the free disposal of the thing
parties.
II.
1236)
due; and (b) capacity to alienate. (A1t. 1239) Without these two requisites, the payment shall not
PAYMENT OR PERFORMANCE
be valid. (Art. 1 239185)
A. IN GENERAL 2.
payment or performance
by a third person who has no interest in the fulfillment of the obligation. (Art. 1236)
Payment means not only the delivery of
I . Definition.
money but also the performance, in any other manner, of
.
an obligation. (Art. 1232) 2.
Requisites.
a.
paid unless
the thing or service in which the obligation consists has been completely delivered or rendered, as the
b.
A partial payment made by
a stranger to the obligation
running of the period of prescription with respect to the . remainder of the debt. 186
Requisites for the payment to extinguish the obligation (see ·
3. a.
If there is a stipulation to the contrary.
without the authorization of the debtor will not stay the
1233)
discussion below):184
Exception:
(Art. 1236)
A debt shall not be understood to have been
case may be. (Art.
The creditor is not bound to accept
Third Party Payor.
Rights of the Third Party"Payor.
Identity of the prestation - the very thing due must be delivered or released. (See Art. 1244; infra)
a.
If the payment was
with the knowledge and consent of
the debtor b.
Integrity of the prestation - the prestation must be fulfilled completely. (see Art. 1248;
infra)
i:
The payor can demand from the debtor what he has paid (full reimbursement). (Art.
c.
Payor - payment must be made by theproper person.
d.
Payee
-
payment must be made to
the proper person.
Saura Import & Export Co., Inc. v. DBP, G.R. No. L-24968 April 27, 1972. "' See Alonzo v. Sps. San Juan, G.R. No. 137549, February 1 1 , 2005.
1"
.•
76
1236)
'" Art. 1239 provides that the rule is without prejudice to Art. 1427, which provides for payments made by a "minor between 18 and 21 years of age." Since the age of minority is now 18 years, Art. 1427 may be considered inoperative. 186 Agoncillo v. Javier, 38 Phil. 424 (1918). 77
disobeyed the latter's instruction or exceeded
If the payor does not intend to be reimbursed
his · authority),
by the debtor, the payment is deemed to be a donation, which requires the debtor's consent.
ii.
him in his rights, such as those arising from a mortgage, guaranty, or penalty. (Art.
subrogate the payor, this cannot be done
see also Art.
without the debtor's consent.191
1302[1]) b.
If the payment was
C, PAYMENT TO THE PROPER PERSON
without the knowledge or qgainst the will of the debtor '
1 . In General. i.
The payor can demand from the debtor what he has
following:
beneficial to the debtor. (Art.
a.
paid, but only insofar as the payment has been
(1)
1236)
Thus, the payor cannot recover overpayment,
The person in whose favor the obligation has been constituted, or his successor in interest; (Art.
2. Payment to Wrong Party.
Payment made to a wrong
party does not extinguish_ the obligation, if there is no fault or negligence on the part of the creditor. Such payment is
from the recipient of the payment which is 1 not due. 89
void even when the debtor acted in utmost good faith, or by mistake, or through error induced by the fraud of a third
person. Such payment does not prejudice the creditor, and accrual of interest is not suspended by it.192
An insurance agent who pays the claim of the
insured out of his personal money may be
barred from obtaining reimbursement under his contract of agency with the insurer (if he
78
1240)
1 240)
The payor may, in proper cases, recover
"' Carandang v. Heirs ofDe Guzman. G.R. No. 160347, November 29, 2006. "' PCIB v. CA, G.R. No. 121989, January 31, 2006; Phil. Export and Foreign Loan Guarantee Corp.v. V. P. Eusebio Construction, Inc.. G.R. No. 140047, July 13, 2004. '" PCIB v. CA, G.R. No. 121989, January 31, 2006.
Payment shall be made to any of the
b. . Any person authorized to receive the payment. (Art.
or payment of a debt that had already been prescribed, remitted, compensated, paid or otherwise extinguished.1 88
(2)
1237)
Actually, even if the creditor is willing to
creditor, such as those arising from a mortgage,
1237;
get
The payor cannot compel the creditor to subrogate
The payor is legally subrogated to the rights of the guaranty, or penalty. (Art.
agent may
1236, 2nd par.).190
1238)
The intent not to be reimbursed must be proven; it is not presumed.1 87 ii.
such
latter was benefited by the payment (under Art.
But the payment is in any case valid as to the creditor who has accepted it. (Art.
but
reimbursement from the insurer insofar as the
3. Capacity.
Payment to a person who is incapacitated to
administer his property shall be valid if he has kept the
Dominion Insurance Corp. v. CA, G.R. No. 129919, February 6, 2002. IV TolentirlJl 283. 192 Allied Banking Corp. v. Lim Sia Wan, G.R. No. 133179, March 27, 2008. 190 191
79
thing delivered, or insofar as the payment has been
(2) Other examples 194 : (a) heir who collects the
3. Payment to a Third Pa!ty. In general, payment to a third
credit who collects it, but the assignment is
beneficial to him. (Art. 1241)
credits of the estate but is later found to be incapacitated to succeed; (b) assignee of a
later rescinded or annulled; and (c) holder of
party is void and will not extinguish the obligation.
an instrument payable to bearer, who merely
However a.
found it.
Payment made to a third person shall be valid insofar as it has redounded to the benefit of the creditor. (Art.
ii.
1241)
Thus, the physical holder of a promissory note is
not necessarily in possession of the credit, if such
Such benefit to the creditor need not be proved in the following cases: i.
ii.
�f after the payment, the third person creditor's rights;
If the creditor
person;
ratifies
acquir�s '
the
the payment to the third
iii. If by the creditor's conduct, the debtor has been led
to believe
that the third person had authority to
receiv� the payment. (Art. 1241) b.
Payment made in good faith to any person in
possession of the credit shall release the debtor. (Art. 1242) 1.
holder is not the creditor named in the note.
4.
Judicial Order to Retain the Debt.
Payment made to the
creditor by the debtor after the latter has been judicially ordered to retain the debt sh�ll not be valid. (Art. 1243)
This refers to a situation where the credit has been
garnished by a court (by virtue of a writ of execution or
preliminary attachment) to answer for the creditor's liability in a case or litigation.
Example:
J has a credit of P l ,000 against K. J is
then sued by X, who obtained a writ of preliminary attachment on J's properties.
Thus, the sheriff
garnished J's credit by notifying K.
K should
refrain from paying the P l ,000. IfK pays J despite
The "person in possession of the credit" refers to
the garnishment, such payment would not be valid
to be entitled to the payment. ·
(assuming X eventually obtains a judgment against J) 195 .
the person who, under the circumstances, appears
(1) Example: The lessee may pay rentals to the registered owner of the leased premises.193
"' Orala v.
Possession of the credit is not the same as
possession of the document evidencing the credit.
as far as X is concerned, and X may hold K liable
D. IDENTITY OF PRESTATION
1" IV Tolentino 289. '" See National Bank v. Olatunga Lumber Co., 54 Phil .. 346 (1930);Tec Bi & Co. v. Chartered Bank of India, 41 Phil. 819(1917).
IAC, G.R. No. 73471, May 8, 1 990. 80
81
1 . In General. For payment to be valid, the very thing due must be delivered or released.196 (Art. 1233) a. In obligations to give a determinate thing- the debtor of a . thing cannot compel the creditor to receive a different one, althcugh the latter may be of the same value as, or more valuable than that which is due. (Art.
. 1244)
Example: If X is obligated to deliver his Toyota Altis (Plate Number JCP 888) to Y, X cannot compel Y to accept another Toyota Altis, or even a Mercedes Benz. b. In obligations to give an indeterminate or generic
thingI.
The debtor must deliver must deliver a thing which meets the quality and circumstances stipulated. (Art. 1246)
ii. If the quality and circumstances have not been stated, the creditor cannot demand a thing of superior quality. Neither can the debtor deliver a . thing of inferior quality. (Art. 1246) The purpose of the obligation and other circumstances shall be taken into consideration. (Art. 1246) b. 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. 1244)
2. Dation in Payment. While the debtor is required to
deliver or perform the very thing due, the debtor and creditor may of course agree otherwise. For instance, they
196
A!onzo v. Sps. San Juan, G.R. No. 137549, February 11, 2005. 82
may agree to a dation in payment or dacion en pago, whereby property is alienated to the creditor in satisfaction of a debt in money. (Art. 1245). Dati6n in payment requires delivery and transmission of ownership of a thing owned by the debtor to. the creditor as an accepted equivalent of the performance of the obligation.197 a. Dation in payment is governed by the law on sales. (Art. 1245) The creditor is deemed to be buying the thing or property of the debtor, the payment for which is to be charged against the debtor's debt.198 i.
In its modern concept, what actually takes place in
dacion en pago is an objective novation of the obligation where the thing accepted as an equivalent of the performance of an obligation is considered as the object of the contract of sale, while the debt is considered as ·the purchase price.199 ·
ii. In any case, common consent is an essential prerequisite, be it sale or novation, to have the effect of totally extinguishing the debt or obligation.'00 · b. There is no dation in payment when there is no transfer of ownership in the creditor's favor, as when the possession of the thing is merely given to the creditor by way of security2°1 (e.g., as pledge, mortgage,202 or under trust receipts arrangement203). 197 Fort Bonifacio Development Corp. v. Yllas Lending Corp., G.R. No. 158997, October 6, 2008, citin!lfhilippine National Bank v. Pineda, G.R. No. 46656, 13 May 1991, 197 SCRA 1 . 196 Filinvest Credit Association v. Philippine Acetylene Co., G.R. No. L-50449, January 30, 1 982. '" Filinvest Credit Association v. Philippine Acetylene Co., G.R. No. L-50449, January 30, 1982. 200 Filinvest Credit Association v. Philippine Acetylene Go., G.R. No. L-50449, January 30, 1982. 201 Philippine National Bank v. Pineda, G.R. No. 46658, 13 May 1991, 197 SCRA 1 . 202 DBP v. CA, G.R. No. 1 1 8342, January 5, 1998. 203 See also Vintola v. Insular Bank of Asia and America, G.R. No. L-73271 , 29 May 1987, 150 SCRA 578; Landi & Co. (Phil.) Inc. v. CA, G.R. No. 159622. July 30, 2004.
83
c.
2. Exceptions/Qualifications.
Requisites for dation in payment:204 1.
There must be a perfonnance of the prestation in lieu of payment
(animo solvendz)
which may
a.
When there is a stipulation to the contrary. (Art.
b.
When the debt is
There must be
may effect the payment of the fonner without waiting for the liquidation of the latter.
some difference between the and
that
which
prestation
due
substitution
(aliudpro alio); and
is
given
c.
in
Substantial Performance. When the obligation has may recover as though there had been a strict and complete fulfillment, Ii:ss damages suffered by the obligee.
and debtor that the obligation is immediately extinguished by reason of the perfonnanc,e of a
'
i.
ii.
A person entering into a contract has a right to insist on its perfonnance in all particulars.206 Partial perfonnance is generally not allowed.
d.
is
97 ,5%
1 1 9 1 is not proper.209
Acceptance Without Protest. When the obligee accepts the
may the debtor be required to make partial payments.
perfonnance, . knowing
its
incompleteness
or
irregularity, and without expressing any protest or
(Art. 1248)
objection, the obligation is deemed fully complied with.
In an obligation to pay certain amount of
money, the full amount must be paid; in aiJ. obligation to
· which
There must be an attempt in good faith to perform
rescission under Art,
The
creditor cannot be compelled partially to receive the
Examples:
construction
A
iii. Where there has been substantial perfonnance,
prestations in which the obligation consists. Neither
b.
Example:
the obligation, without any willful or intentional 8 departure therefrom. 20
In General. The prestation must be fulfilled completely.205
a.
(Art. 1234)
complete.207
E. lNTEGRITY OF THE PRESTATION I.
(Art. 1 248)
been substantially performed in good faith, the obligor
iii. There must be an agreement between the creditor
prestation different from that due.
in part liquidated and in part
unliquidated, the creditor may demand and the debtor
consist in the delivery of a corporeal thing or a real right or a credit against the third person; ii.
1248)
construct
a house,
the
i.
construction must be
207
20•
Aquintey v. Sps, Tibong, G.R. No. 1 66704, December 20, 2006. Alonzo v. Sps. San Juan, G.R. No. 137549, February 1 1 , 2005, 200 Palmares v. CA, G.R. No. 126490, March 31, 1998. Empire East Land Holdings, Inc. v. Capitol Industrial Construction Groups, Inc,, G.R. No. 168074, September 26, 2008, 84
This is based on ·the principles of waiver and estoppel.
completed.
20s
(Art. 1235)
..
Diesel Conslruclion Co., Inc. v. UPSI Property Holdings, Inc. G.R. No. 1 54885, March 24, 2008. we See Sps, Buenaflorv. CA, G.R. No. 142021, November29, 2000. 209 Angeles v. Calasanz, G.R. No. L·42283, March 18, 1985. 85
ii.
The law does not require the protest or objection of
contractor, and hired another contractor - the
the creditor to be made in a particular manner or at
obligee may no longer recover from the previous
a particular time. So long as the acts of the
contractor the cost to finish the construction.213
creditor, at the time of the incomplete or irregular
(c) The obligee, knowing that the construction is
. payment or within a reasonable time thereafter, evince that the creditor is not satisfied with said
unfinished, barred the contractor's workers and
be deemed fully extinguished.210
not demand completion of the work - the obligee
stopped payment of the progress billings but did
payment or performance, the· obligation shall not
iii.
cannot demand the cost of the completion works.2.14
An obligee is deemed to have waived strict complianc·e when the following elements are present: (I) An intentional acceptance of the defective or
F.
0THER PROVISIONS I.
or defect; and
2.
(3) Under circumstances that would indicate an consider the performance as
complete and renounce any claim arising from the defect
(a) the bank accepted delayed payments
of a loan on several occasions without objection.212
(b) The obligee, without protest, took over an unfinished construction, deducted the value of the work
from
the
payment
to
the
'" �sguerra v. Villanueva, G.R. No. L-23191, December 19, 1967. '" Amor de Castro v. CA, G.R. No. 1 1 5838, July 18, 2002. Esguerra v. Vnlanueva, G.R. No. L23191, December 19, 1967. . '" See Pagsibigan v. CA, G.R. No. 90169, April 7, 1993. 86
stipulated,
the
1247)
Currency. 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. (Art. a.
R.A.
1249)
529 prohibited the stipulation of a currency other
than Philippine currency, but R.A.
acceptance of incomplete performance.211 '
unfinished
otherwise
is
extrajudicial expenses required by the payment shall be for
8 i 83 removed this
prohibition. Thus, obligations or transactions may now
Mere receipt of partial payment is not per se equivalent to a waiver of the balance or
Examples:
it
Rules of Court shall govern. (Art.
(2) With actual knowledge of the incompleteness
iv.
Unless
the account of the debtor. With regard to judicial costs, the
incomplete performance;
intention to
Expenses.
g
be paid in the currency a reed upon by the parties.215 b.
Obligations in foreign currency may be discharged in Philippine currency based on the prevailing rate at the 6 time ofpayment. 21
"' Empire East Land Holdings, Inc. v. Capitol Industrial Construction Groups, Inc., G.R. No. 168074, September 26, 2008. '" Hanjin Heavy Industries & Construction Co., Ltd. v. Dynamic Planners & Construction Corp., G.R. Nos. 169408 & 170144, April 30, 2008 215 C.F. Sharp & Co. v. Northwest Airlines, Inc., G.R. No. 133498, 18 April 2002, 381 SCRA 314; BPI v. Leobrera, G.R. No. 137147, November 18, 2003. 21 6 C.F. Sharp & Co. v. Northwest Airlines, Inc., G.R. No. 133498, 1 8 April 2002, 381 SCRA 314; BPI v. Leobrera, G.R. No. 137147, November 18, 2003. Note that this is the same rule even when R.A. 529 was in effect. Kalalo v. Cruz, 34 SCRA 337 11970]; Ponce v. Court of Appeals, et al., 90 SCRA 53311979]; General Insurance & Surety Corporation v. Union Insurance Society of 87
third persons and delivered by the debtor to the creditor, and does not apply to instruments executed by the debtor himself and delivered to the creditor.220
3. Payment in Legal Tender. The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents shall produce the effect of payment only (a) when they have been cashed, or (b) when through the fault of the creditor they have been impaired. (Art.
Impairment may happen if a bill of exchange (issued by third party) is dishonored and is not protested on time, resulting in the loss of right of recourse.221 .
1249)
a. In the meantime, the action derived from the original obligation shall be held in the abeyance. (Art. 1249) b. The delivery of a negotiable instrument does not, by itself, operate as payment. The obligation is not extinguished and remains suspended until the payment by commercial document is actually realized.2 17 ,
e. A check may be used for the exercise of the right of redemption, the same being a right and not an obligation. The. tender of a check is sufficient to compel redemption (but is not in itself a payment that relieves the redemptioner from his liability to pay the redemption price).222
A check, whether a manager's check or ordinary check,
3. Extraordinary Inflation or Deflation. In case an
c.
is not legal tender, and an offer of a check in payment of a debt is not a valid tender of payment and may be refused receipt by the obligee or creditor.'"
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. (Art. 1250)
The creditor's acceptance of the check, however, implies an undertaking of due diligence in presenting it for payment. If such diligence is wanting, and debtor sustains loss as a resul� it will be held to operate as actual payment of the debt or obligation for which it was given.219
a. Extraordinary inflation exists when there is a decrease or increase in the purchasing power of the Philippine currency which is unusual or beyond the common fluctuation in the value of said currency, and such increase or decrease could not have been reasonably foreseen or was manifestly beyond the contemplation of the parties at the time of the establishment of the
d. The clause of Article 1249 relative to the impairment of commercial paper by the fault of the creditor, is generally applicable only to instruments executed by canton, Ltd., 179 SCRA 530 11989]; Republic Resources and Development Corporation v. CA, 203 SCRA 164 [1991]; San Buenaventura v. CA, 181 SCRA 197 11990]; Philippine Manpower Services, inc. v. NLRC, 224 SCRA 691 [1993]. 211 Philippine Airlines, Inc. v. Court of Appeals, .G.R. No. 49188, 30 January 1990, 181 SCRA 557, 568; Citibank, N.A. v. Sabeniano, G.R. No. 156132, October 16, 2006. '" Philippine Airlines, Inc. v. Court of Appeals, G.R. No. 49188, 30 January 1990, 181 SCRA 557, 568; Citibank, N.A. v. Sabeniano, G.R. No. 156132, October 16, 2006. '" Papa v. A. U. Va�ncla & Co., G.R. No. 105188, January 23, 1998. 88
National Marketing Corp. v. Federation of United NAMARCO Distributors, Inc., G.R. · No. L22578. January 31, 1973, citing Compania General de Tabacos v. Molina, 5 Phil. 142. '" Quiros v. Tan-Guinlay, 5 Phil. 675 (1906). See, however, Papa v. A. U. Valencia & Co., G.R. No. 105188, January 23, 1998, involving checks drawn by the debtor himself. 221 Siana v. Gimenez, G.R. No, 132768, September 9, 2005; Fortunado vs. CA, 196 SCRA 269, 279 (1991). 210
89
obligation.223 It does not include a normal "erosion" in
i.
the value of the currency which is a universal trend.224 b.
c.
the payment shall be made
1250 to apply, the inflation (or deflation) must be extraordinary, such as in Germany where the deutschemark went from 4.2 to the U.S. dollar in 1921 , 225 to 4.2 trillion to the U.S. dollar in 1923. rate in
1980's (50.34%
If the undertaking is to deliver a determinate thing,
might be
For Art.
The economic crisis in the
.
constituted. (Art. ii.
domicile of the debtor. (Art. 1251)
inflation
If the debtor changes his domicile in bad faith
1984), or in 1997 (the Asian financial crisis,
or after he has incurred in delay, the additional expenses shall be borne by him. (Art.
rate by l 7 points), does · not constitute extraordinary inflation.'26
The existence of extraordinary inflation m,ust be
1 . In General.
officially proclaimed by competent authorities, i.e., the
b.
The rules on application of payments apply to
a person owing several debts of the same kind of a single
creditor. (Art.
1252)
They are not applicable to a person whose obligation as
4. Place of Payment.
a mere surety is both contingent and singular; his
Payment shall be made in the place designated in the obligation. (Art.
1251)
G. APPLICATION OF PAYMENTS
Bangko Sentral.227
a.
1251)
In any other case, the place of payment shall be the
where there was a drop in the dollar-peso exchange
d.
wherever the thing
at the moment the obligation was
liability is confined to such obligation, and he is entitled to have all payments made applied exclusively
1251)
to said obligation and to no other.228
If there is no express stipulation on the place, the
following rules apply -
2. General
Rule
- Debtor's
Right.
The
debtor
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 payment must be applied. (Art.
223
•
Singson v. Caltex, G.R. No. 137798, October 4, 2000; Huibonhua vs. Court of Appeals, G.R. Nos. 95897 and 102604, December 14, 1999; Sierra vs. Court of Appeals, 229 SCRA 60; Hahn· vs. Court of Appeals, 173 SCRA 675; Filipino Pipe and Foundry Corporation vs. NAWASA, 161 SCRA32. ,,. Fiiipino Pipe and Foundry Corporation vs. NAWASA, 161 SCRA 32; Singson v. Caltex, G.R. No. 137798, October 4, 2000; Citibank, N.A. v. Sabeniano, G.R. No. 156132, February 6, 2007. 220 Filipino Pipe and Foundry Corporation vs. NAWASA, 161 SCRA 32. "' Singson v. Caltex, G.R. No. 137798, October 4, 2000; Citibank, N.A. v. Sabenlano, G.R. No. 156132, February 6, 2007. 221 Citibank, N.A. v. Sabeniano, G.R. No. 156132, February 6, 2007; Telengtan Bros. & Sons v. U.S. Lines, Inc., G.R. No. 132284, February 28, 2006; Ramos v. Court of Appeals, G.R. No. 1 1 9872, 7 July 1997, 275 SCRA 167, 175; Mobil Oil Philippines, Inc. v. Court of Appeals, 180 SCRA 651 (1989). .
90
1252) In
other words, the right to specify which among his various
obligations to the same creditor is to be satisfied first rests
with the debtor.
'29
Exceptions/Limitations: a.
If the parties stipulate otherwise. (Art.
2" Magdalena Estates, Inc. v. Rodriguez, G.R. No. L-1841 1 , 229 Paculdo v. CA, G.R. No. 123855, November 20, 2000. 91
1252)
December 17, 1966.
b.
Application shall not be made as to debts which are
not
ii.
yet due. (Art. 1252) Unless the application is made by the party for whose benefit the term has been constituted
iii. The older debt is more onerous than a more recent
(Art.
one232 (unless the more recent debt bears interest,
1252) c.
while the older one does not233).
If the debtor accepts from the creditor a
receipt
in
iv. A secured debt is more onerous than an unsecured
which an application of the payment is made, the former cannot complain of the same, unless ·there is a
cause for invalidating the contract.
debt.234
(Art. 1252)
b.
The debtor is deemed to have waived his right to application.
H.
If the debt produces
interest, payment of the principal
shall not be deemed to have been made until the
interests have beeu covere.d.
(Art. 1253)
Thus, if the creditor agrees to apply a payment to
3. In
Default
of
the
Foregoing Rules.
I.
In General. The debtor may cede or assign his property to (Art. 1255)
his creditors in payment of his debts. a.
This cession is voluntary on the part of the debtor. It is
b.
The creditors do not become owners of the property
When the payment
if application
can
not
be
inferred from
circumstances (e.g., if neither the debtor nor the creditor
a.
The debt which is
most onerous to the debtor, ·among
assigned (unlike in dation in payment). The creditors
cash, which will be used to pay their credits.
other
makes the application), apply the following roles:
also subject to the acceptance by the creditors.
merely become authorized to convert the property · into
carmot be applied in accordance with the preceding roles,
or
payment shall be applied to all of them proportionately.
PAYMENT BY CESSION
the principal, it may be assumed that the interest
had already been paid or wai:ved.230
If the debts due are of the same nature and burden, the
(Art. 1253)
apply payments and acquiesced to the creditor's
d.
An interest-bearing debt is more onerous than one
without interest.231
c.
Payment by cession contemplates the existence of two
or more creditors, and involves the assignment of all
the debtor's property.235
those due, shall be deemed to have been satisfied. (Art.
1253) i.
In general -
A debt incurred as a principal is more onerous than a debt as a mere surety or guarantor.
'" Swagman Hctels and Travel In� v. CA, G.R. No. 161 135, April 6, 2005; Al)ama v. CA, G.R. · No. 126609; January 29, 2004.
'" Menzl & Co. v. Quing Chuan, 69 Phil, 46 (1939). '" Phil. National Bank v. Veraguth, 50 Phil. 253 (1927). "' Menzi & Co. v. Quing Chuan, 69 Phil. 46 (1939). '"Traders Insurance & Surety v. Dy Eng Giok, 104 Phil. 606 (1956j. '" DBP v. CA, G.R. No. 1 18342, January 5, 1998. ·
93
2. Effect. This cession, unless there is stipulation to the
creditor cannot accept or refuses to accept payment.140
contrary, shall only release the debtor from responsibility
(Art. 1258)
for the net proceeds of the thing assigned. (Art. 1255)
i.
'
The agreements which, on the effect of the cession, are
made between the debtor and his creditors shall be
governed by special laws.
ii.
Tender of payment must be distinguished from consignation.
Tender
is
the
antecedent
of
consignation, that is, an act preparatory to the
I . In General.
consignation, which is the principal act with results
in the discharge of the obligation. Tender of
Tender ofpayment is the manifestation by the debtor
of his desire to comply with or to pay the obligation.236
payment may be extrajudicial, while consignation is necessarily judicia!.242
made refuses without just cause to accept it, !lie debtor
2. Consignation Without Prior Tender. As a rule,
If the creditor to whom tender of payment has been shall
be
released
from
responsibility
by
consignation of the thing or sum due. (Art. 1256) i.
the
Tender of payment must be made in legal tender to
be valid. 237
However, payment in check may be considered
valid, if no prompt objection to said form of . . 8 payment 1s made.23 ii.
b.
is not followed by consignation, the debtor is not discharged from the obligation.241
(Art. 1255)
I. TENDER OF PAYMENT AND CONSJGNATION
a.
If the tender of payment (which has been refused)
A
consignation must be preceded by tender of payment to
discharge the obligation. However, in the following cases specified by Art.
the obligation:
Consignation is the act of depositing the thing due ·
When the creditor is absent or unknown, or does not
b.
When he is incapacitated to receive the payment at the
c.
When, without just cause, he refuses to give a receipt;
d.
When two or more persons claim the same right to
e.
When the title of the obligation has been lost.
with the court or judicial authorities whenever the
236 Ramos v. Sarao, G.R. No. 149756, 1 1 February 2005, 451 SCRA 103, 118·119. '" Sooo v. Militante, 208 Phil. 151, 160 (1983); see also Philippine Airlines, Inc. v. Court of Appeals, G.R. No. 49188, 30 January 1990, 181 SCRA 557, 568; Citibank, N.A. v. Sabeniand, G.R. No. 156132, October 16, 2006. 23e Saco v. Militante, 208 Phil. 151, 160 (1983); Pabugais v. Sahijwanl, G.R. No. 156846, February 23, 2004. . 239 Vda. De Zuluela v. Octaviano, G.R. No. L-55350, March 28, 1983. . 94
consignation alone shall discharge
a.
letter merely expressing intent to pay, but not
accompanied by payment, is not equivalent to tender of payment.239
1256,
appear at the place of payment;
time it is due;
collect;
1256)
"' Pabugais v. Sahijwanl, G.R. No. 156846, February 23, 2004. 241 Solid Homes, Inc. v. Laserna, G.R. No. 166051, April 8, 2008. 242 Saco v. Militante, 208 Phil. 151, 160 (1983). 95
(Art.
3. Requisites. In order that consignation may be effective, the debtor
must
show
compliance
with
the
payment thereby avoiding consignation and the
following
subsequent litigation. 249
reqllisites:243 a.
d.
244;
Consignation is not necessary where the payor seeks to exercise a redemption245
or
The amount due was placed at the
court; (Art. 1258) and
There was a debt due
e.
(such as the right of repurchase246 or option247),
instead of performing an
obligation.
After the consignation had been made,. the person interested was
right
disposal of the
Tender of
notified thereof. (Art. 1258)
Two notices are required:
prior to
and
after
the
payment is sufficient for such exercise of right.
consignation. The reason for the second notice is to
The consignation of the obligation had been made
money deposited, to avoid risk of deterioration, 50 depreciation or loss. 2
enable the creditor to withdraw the goods or b.
because the creditor to whom tender of payment was made r�fused to accept it without just cause, or �ecause of any of the
grounds in Art. 1256
which dispenses
with the need for tender of payment; (Arts.
Notes: i.
1256, 1258)
Strict compliance.
The foregoing reqms1tes and
mandatory and must be strictly complied with.m
If the creditor justly refused to accept the. payment
because it was not in legal tender, consignation is
ii. Inejfectuar consignation.
not proper.248
The consignation shall be
ineffectual (a) if there is failure in any of the
foregoing requisites252; or (b) if the consignation is c.
Previous the
notice of the
person
consignation had been given to
not made strictly in.consonance with the provisions
interested in the performance of the
obligation; (Art.
which regulate payment. (Art.
1257)
1257) iii.
This is to give the creditor an opportunity to
Applicability.
The . foregoing reqnisites
do not
strictly apply to debts pursuant to a judgment. In
reconsider his unjustified refusal and to accept
such a case, if the judgment creditor refuses to
accept the payment of the amount due on the judgment, the court may direct the money to be
Soco v. Militante, 208 Phil. 151, 160 (1983); Pabugais v. Sahijwani, G.R. No. 156846, February 23, 2004. 244 Ascue v. CA, G.R. No. 84330, May 8, 1991. 245 Villanueva v. Malaya, G.R. No. 94617, April 12, 2000, citing Co. vs. Philippine National Bank, 1 14 SCRA 842; De Castro vs. Intermediate Appellate Court, 165 SCRA 654; Enage vs. De Escano, 38 Phil. 687. 246 Legaspi v. CA, 142 SCRA 82, 88 (1986), citing Asturias Sugar Central v. .Pure Cane Molasses Co., 60 Phil. 255 (1934), Villegas v. Capistrano, 9 Phil. 416; Rosales v. Reyes, et al., 25 Phil. 495; Paez, eta\. v. Magno, 46 O.G.,p, 5425. 247 Vda. de Quirino v. Pa\arca, 29 SCRA 1 [196g] citing Asturias Sugar Central v. Pure Cane Molasses Co., 60 Phil. 255 and Conejero v. CA, L-21812, April 29, 1966. "' Roman Catholic Bishop of Malolos, Inc. v. \AC, G.R. No. 72110, November 16, 1990.
Cabanos v. Calo, G.R. No. L-10927, October 30, 1958, 104 Phil. 1058; Limkako vs. Teodoro. 74 Phil. 313; Socov. Militante, 208 Phil. 151, 160 (1983). �° Cabanas v. Calo, G.R. No. L-10927, October 30, 1958, 104 Phil. 1058; Saco v: Militante, 208 Phil. 151, 160 (1 g83). 251 Saco v. Militante, 208 Phil. 151, 160 (1983); 252 Pabugais v. SShijwanl, G.R. No. 156846, February 23, 2004.
96
97
243
249
even before the actual approval of the '55 court or acceptance by the creditor.
paid in court and when this is done, order '53 satisfaction of the judgment to be entered. ii.
4. Effect of Consignation.
After
the
creditor
consignation, a.
or
has
after
already
accepted
the . court has
the
already
Cancellation or Discharge of the Obligation. Once the
declared that consignation is proper .- the debtor
consignation has been duly made, the debtor may ask
may withdraw the thing or sum deposited only if the 'creditor consents.
· the judge to order the cancellation of the obligation. (Art. 1 260)
If the creditor should consent or authorize the b.
Expenses.
The
expenses
of
consignation,
withdrawal -
when
properly made, shall be charged against the creditor. (Art. 1259)
(a) The creditor shall lose every preference which he may have over the thing. (Art.
c.
1261)
Withdrawal. 1.
Before the creditor has accepted the consignation, or before a judicial declaration that the
(b) The co-debtors, guarantors and sureties shall be released. (Art. 1261)
consignation has been properly made - the debtor may withdraw the thing or the sum deposited, allowing the obligation to remain in force. (Art. 1260)
ill . LOSS OF THE THING DUE A. IN GENERAL - IN 0BLIGATIONS TO GIVE A
At this point, the debtor is still the owner of the
DETERMINATE THING
property deposited and may thus withdraw 254 it.
1.
General Rule. An obligation to deliver a determinate thing shall be extinguished if it should be lost or destroyed
It has been held, however, that when all
without the fault of the debtor, and before he has incurred
the
in delay. (Art. 1262)
requisites
for
consignation
are
complied with (and there is no reason to disapprove the consignation), the property
a.
Broadly speaking, loss (as a cause for extinguishment
deposited becomes for the account of the
of the obligation)
refers to the
creditor, who must bear .the risk of loss,
performance of the prestation.
impossibility
of
The impossibility which extinguishes obligation refers to that which occurred 253 Salvante v.
1990.
Cruz, 88 Phil. 236 (1951): Francisco v. Bautista, G.R. No. 44167, December 19, 255
254 IV Tolentino 331. 98
Sia v. CA, 92 Phil. 355 (1952). 99
after the
creation of
d. When the obligor is guilty of contributory fault or negligence.256 (Arts. 1262, 1 1 70)
the obligation. If the impossibility existed at the time of the creation of the obligation, it is void ctb initio. (Art. 1348)
Whenever the thing is lost in the possession of the debtor, it shall be presumed that the Joss was due to his fault:
Presumption b. A thing is considered Jost when it: (i) perishes; (ii) goes out of commerce; or (iii) disappears in such a way that its existence is unlmown or it cannot be recovered · (Art. 1 1 89, S;tpra).
(1) unless there is proof to the contrary, and without prejudice to the provisions of article 1 165 (Art. 1265).
If the Joss is partial, the courts shall c. Partial Loss determine whether, under the circumstances, the partial loss is so important as to extinguish the obligation. (Art. 1264) -
d.
(2) except in case of earthquake, flood, storm, or other natural calamity. (Art. 1265)
The extinguishment of an obligation which has ,become impossible to perform follows from the principle that no person shall be liable for fortuitous events, or those which could not be foreseen, or which, though foreseen, were inevitable. (Art. 1 1 74, supra).
e. When the Joss or impossibility occurred after the obligor has incurred in delay. (Arts. 1262, 1 1 65) f.
·
2. Exceptions. The obligation is not extinguished, and the debtor is thus liable for damages, in any of the following cases:
When 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. (Art. 1268)
The bailee (Art. 1 942), depositary (Art. 1 979) and the officious manager (Art. 2147) are, by law, liable for fortuitous events under certain circumstances.
Unless the thing having been offered by him to the person who should receive i� the latter refused without justification to accept it. (Art. 1268)
b. When, by stipulation, the obligor is liable even for fortuitous events. (Arts. 1262, 1 174) c. When the nature of the obligation requires the · assumption ofrisk. (Arts. 1262, 1 1 74)
When the obligor has promised to deliver the same thing to two or more persons who do not have the same interest. (Art. 1 1 65)
g. When the obligation to give the thing due arose from a criminal offense. (Art. 1268)
a. When, by law, the obligor is liable even for fortuitous events. (Arts. 1262, 1 174)
·
: ;
3. Creditor's Remedy. The obligation having . been extinguished by the loss of the thing, the creditor shall have '" Austria v. CA, G.R. No. L-29640, June
100
-
10, 1971. 101
all the rights of action which the debtor may have against third persons by reason of the loss. (Art.
a.
1 269)
Physical impossibility arises when the prestation, by its ·
nature, cannot be accomplished or performed.
Under this provision, the creditor may seek recourse to
Impossibility refers to the nature of the thing to be
the insurance indenmity for the thing lost.257
done, and not to the inability of the obligor to do it. If others can perform the prestation, it is not
4. Effect on Reciprocal Obligations.
In
impossible.'"
reciprocal
obligations, the release of the debtor due to loss or impossibility also releases the creditor from the counter
b.
prestation, because each obligation depends on the other.258
illegal or prohibited by law.
2. Extreme Difficulty Due to Unforeseen Events When the
B. IN OBLIGATIONS TO GIVE A GENERIC THING In
Legal impossibility arises when the prestation becomes
.
General, Loss Does Not Cause Extinguishment
service has become so difficult as to be In an
puction
obligation to deliver a generic thing, the loss or des
the contemplation of the parties,
manifestly beyond
the obligor may also be
released therefrom, in whole or in part. (Art.
1267)
of anything of the same kind does not extinguish the obligation. (Art. a.
.
1263)
a.
Art. 1267 is said to be based on the principle of rebus sic stantibus, under which the parties are considered to
This rule is based on the principle that the genus of a
have stipulated in the light of certain prevailing
thing can never perish.
conditions, and once these conditions cease to exist,
Genus nunquan perit.'59
the contract also ceases to exist. However, Art. b.
An obligation to pay money is generic; therefore, it is
1267 is
not an absolute application of the principle of rebus sic which would endanger the security of
not excused by fortuitous loss of any specific property
stantibus,
of the debtor.260
contractual relations. The parties to the contract must be presumed to have as'sumed the risks of unfavorable developments.
C. IN OBLIGATIONS TO Do
exceptional
1.
It
is
changes
therefore
only
in
of circumstances
absolutely that equity
demands assistance for \he debtor.
Imp ossibility 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.
1 266) .
An "abrupt change ·in the political climate of the cow1try after the EDSA Revolution" and the debtor's "poor financial condition" do not warrant
"'A. Urrutia & Co. v. Saco River Plantation, Inc., 26 Phil. 632 (1913). 2ss IV Tolentino 337, 346, citing Colin & Capitant; Von Tuhr; Perez Gonzalez & Alguer; and Enneccerus1 Kipp & Wolff. 259 Gaisano Cagayan, Inc. v. Insurance Company of North America, G.R. No. 147839, June 8, 2006, citing Bunge Corp. and Universal Comm. Agencies v. Elena Camenforte & Company, 91 Phil. 861, 865 (1952). "" Gaisano Gagayan, Inc. v. Insurance Company of North America, G.R. No. 147839, June 8,, 2006, citing Ramirez v. Court of Appeals, 98 Phil. 225, 228 (1956). ·
i02
application of Art. b.
1267262
If performance has become impossible altogether, Art.
1266 should be applied. "' Reyes v..Caltex (Philippines), Inc., 84 Phil. 654 (1949). "' Phil. National Construction Co. v. CA, G.R. No. 1 1 6896, May 5, 1997. 103
donations
with
respect . to
acceptance,
amount,
and
Condonation must be accepted by the debtor.
(Art.
revocation:265
IV. CONDONATION OR REMISSION OF THE DEBT
a.
1 270)
A. IN GENERAL l.
Definition.
If the debtor refuses to accept the condonation, but
Condonation or remission is an act of liberality
the creditor still does not enforce the debt, the debt
wlrereby the creditor, without receiving any equivalent,
may eventually be extinguished by prescription.
renounces the enforcement of the · obligation, which is accordingly extinguished in its entirety or in that part 23 remitted. 6 2.
Gratuitous.
Condonation
or rem1ss10n · is
The condonation is subject to the rule on inofficious
b.
donations, i.e., the amount condoned cannot be more essentially .
gratuitous, and requires the acceptance by the obligor.
than what the creditor may give by will. (Art. rel. to
(Art.
1 270, in
Art. 752)
1 270) 4. Effect on Accessory
Obligation. The renunciation of the
It is an essential characteristic of remission that it be
principal debt shall extinguish the accessory obligations.
gratuitous, that there is no equivalent received for the
(Art.
benefit given; once such equivalent exists, the nature of the act changes.264 i.
It may become creditor receives
dation in payment a thing
It may become a
novation,
affecting the principal debt previously secured by the
b.
delivery to the creditor, is found in the possession of
when the matter
Condonation i s essentially a donation
of the credit to the debtor, and is thus subject to the rule on
104
(Art. 1274)
and in
receives.
'" Dizon v. CTA, G.R. No. 140944, April 30, 2008. "' Dizon v. CTI\ G.R. No. 140944, April 30, 2008.
the debtor, or of a third person who owns the thing.
'
exchange of some concession which the creditor
3 . Governing Rules.
It is presumed that the accessory obligation of pledge has been remitted when the thing pledged, after its
changed; or
renounced is in litigation or dispute
Thus, the
pledge.
when the object or
compromise,
(Art. 1273 )
accessory obligation of pledge may be waived without
that
principal conditions of the obligation should be
iii. It may become a
But the waiver of the accessory obligation shall leave
. the principal obligation in force.
when the
different from
stipulated; or ii.
a.
1273)
B. MANNER OF CONDONATION: Condonation expressly or impliedly. (Art. 1 270) l.
Express condonation donation. (Art. 1271)
-
"' IV Tolentino 354.
105
may be made
shall comply with the forms of
If the condonation is made mortis causa, the forms of a will must be followed.
2. · Implied
con dona tion.
V.
CONFUSION OR MERGER OF RIGHTS A.
CONCEPT 1 . The obligation i s extinguished from the time the characters
The Civil Code provides two
instances where condonation is implied:
of creditor and debtor are merged in the same person. (Art.
1275) a. · The
delivery of a private document evidencing a credit, made voluntarily by the creditor to the debtor, implies
2.
· the renunciation of the action which the former had against the latter.
Confusion or merger usually takes place when the debtor acquires the credit. heir.
1.
Example:
X borrowed
Pl0,000
from
his father, who subsequently died and left X as his sole
(Art. 1271)
X thus succeed to his father's credit of
Pl0,000
Whenever the private document in which the debt
against X. Thus, as far as the Pl 0,000 credit is concerned,
appears is found in the possession of the debtor, it
the characters of creditor and debtor have become merged
shall be
in the person of X.
presumed
that the creditor delivered it
�
vo I untarily, unless the contrary is prov d. (Art.
1272)
3.
Confusion or merger may also take place when the creditor acquires an encumbered property.
ii.
debtor and his heirs may uphold it if they can
obligation is extinguished266 (but not necessarily the
prove that the delivery of the document was made
principal obligation secured by the mortgage).
1271) B.
An
when the
mortgagee acquires the mortgaged property, the mortgage
in virtue of payment of the debt. (Art. b.
Example:
The waiver may be nullified if inofficious, but the
implied condonation may also result from
EFFECT AND EXTENT
the
presun1ption that the accessory obligation ofpledge has
1.
Confusion or merger which takes place in the person of the
been remitted when the thing pledged, after its delivery
principal debtor or creditor
to the creditor, is found in the possession of the debtor,
1276)
or of a third person who owns the thing. (Art.
�enefits
the guarantors. (Arf.
1274) a.
But merger which takes place in the person of any of the guarantors does not extinguish the obligation. (Art.
However, being a mere presumption, it may be overcome by proof that no condonation was
1276)
intended. b.
Example: X is indebted to Y, which debt is guaranteed by J. If X's debt to Y is extinguished due to merger, J's obligation as guarantor (which is merely accessory) is also extinguished.
But if J acquires Y's credit
'" Yek Tong Lin Fire & Marine Insurance v. Yusingco, 64 Phil. 473 (1937). 106
107
thereby extinguishing J's obligation as guarantor, this does not affect X's . obligation. J can still collect from
b. According to Cause i.
x.
2. Confusion does not extinguish a joint obligation except as
-
If the obligation
is solidary, it may be extinguished by the confusion or merger between any of the creditors with any of the debtors. (see Art. 1215)
In certain cases, compensation may be claimed by only one of the parties, by waiving his right to object to it. This is calledfacultative compensation. Example: if X's debt to Y is ·pure, while Y's debt to X is with a term for Y's benefit and has not yet become due, Y may object to the compensation, but Y may also choose to waive the term and claim compensation.
V. COMPENSATION A. IN GENERAL ! . Definition. Compensation (or offsetting) is a mode of extinguishing (to the concurrent amount) the obligations of persons who, in their own right and as principals, are reciprocally debtors and creditors of each other.267 (Art.
iii. Judicial compensation decreed by a court in a case where the defendant has counterclaims against the plaintiff. -
1278)
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. (Art.
2. Kinds of Compensation. a. According to Extent when the two debts are of the· same amount, in which case both debts · are totally extinguished. (Art. 1281)
Total
1283)
-
B. LEGAL COMPENSATION
ii. Partial when the two debts are not of the same amount, in which case the debts are extinguished only to the concurrent amount. (Art. 1281)
I.
-
168
201
PNB Madecor v. Uy, G.R. No. 67649, June 26, 1968.
129596, August 15, 2001; see also Francia v. IAC, G.R No. L· 108
-
ii. Conventional takes place when the parties agree to compensate their mutual obligations even in the absence of some requisites.269 (A1't. 1 282) (il)jra)
regards the share corresponding to the creditor or debtor in whom the two characters concur. (Art. 1277)
i.
takes place by operation of law when all the requisites . are present.'68 (infra)
Legal
In General. Legal compensation takes place by operation of law (ipso Jure) when all the requisites are present 270 It
PNB Madecor v. June 28, 1968. 169 PNB Madecor v.
Uy, G.R. No. 129598, Augusl 15, 2001;
Francia
Uy, G.R. No. 129598, August 15, 2001; Francia June 26, 1988. 11o PNB Madecor v. Uy, G.R. No. 129598, August 15, 2001. 109
v.
IAC, G.R. No.
L-67649,
v. IAC, G.R. No. L-67649,
occurs even without the awareness of the parties,
1290) or even against their will
(Art.
or without their consent.271
(4)
Its effects arise at the moment when all the requisites concur.272
Taxes
cannot
taxpayer's because
be
claim
taxes
compensated against the
are
not
"debts"
Government and the taxpayer In order that (legal) compensation may be
2. Requisites.
proper, the following five requisites are necessary
with
the
Government, and · the cannot be
considered creditor and debtor to each other.277
(Art. b.
1279):
That both debts consist in a sum of money, or if the . things due are consumable, they be of the same kind,
a.
That each one of the obligors be bound principally,
and also of the same quality if the latter has been
and that he be at the same time a principal creditor of
stated;
the other; Compensation is also possible for fungible things (not necessarily consumable) because, by their
The parties must be mutually debtors and creditors
in their own right and as principals.273 (1)
very nature, fungible things may be substituted for each other.'78 .
Thus, X corporation's debt to Y cannot be offset with Y's debt to a stockholder of X, because the corporation is distinct from its stockholder.'74 ·
(2)
(3)
c.
That the two debts be due;
d.
That they be liquidated and demandable; i.
Also, the debt of partnership ABC to X cannot
"Liquidated" means that the existence and amount
be offset with X's debt to B (a partner in
of the
ABC).275
"unliquidated" claims (such as damages) which are still
the
corporation.
Thus,
determined,
as
opposed
to
and whose amount is not yet
Compensation
cannot extend to
unliquidated, disputed claim existing from brea:ch
corporation, and stockholders, as such, are not of
are
disputed
determined.
A share of stock is not a credit against the creditors
debt
of contract.'79
a
corporation's credit against its stockholder ii.
cannot be offset with the latter's share of
"Demandable" means that the debt is legally enforceable, i.e., it is a civil (and not natural
stock.276
obligation), it has not yet prescribed, it is not
Bank of the Philippine Island v. Court of Appeals, 325 Phil. 930, 938 (1996). 212 Republicv. Court of Appeals, G.R. No. 25012, July22, 1975, 65 SCRA 186, 190. 2n PNB Madecor v. Uy, G.R. No. 129598, August 15, 2001; see also Francia v. IAC, G.R. No. L· 67649, June 28, 1988. 274 See CKH Industrial and Development Corp. v. CA, G.R. No. 1 1 1890, May 7, 1997, 272 SCRA 333. 210 Escano v. Heirs of Escano, 28 Phil. 73 (1914). 276 Garcia v. Lim Chu Sing, 59 Phil. 562 (1934).
subject to a suspensive period or condition which
211
110 .
has not yet.happened, and it is not unenforceable. 211
Francia v. IAC, G.R. No. L·67649, June 28, 1988. See IV Tolentino 369-370, 279 Silahis Marketing Corp. v. IAC, G.R. No, 74027, December 7, 1989. See also Sps. Mirasol v. CA, G.R. No. 128448, Februaiy 1, 2001.
21s
1il
·
a. Note, _however, that when one or both debts are or
rescissib/e
voidable,
they
may
be
compensation has already taken place before the assignment - the obligation is deemed extinguished by operation of Jaw, and the debtor is thus discharged
compensated against each other before they are judicially rescinded or avoided. (Art.
If
of liability by invoking the compensation.
1284)
' They are considered valid until annulled or
Exception:
rescinded.
assignment, this is considered a waiver of the
if
the
debtor
consented
to
the
compensation. iii. · Legal compensation is possible even though the debts may be payable at different places, but there
e.
b.
If
shall be an indemnity for expenses of exchange or
compensation has not yet taken place before the assignment (because, e.g., the debts are not yet mature
transportation to the place of payment.
(Art. 1286)
or liquidated) -
retention or
i.
That over neither of them there be any
controversy,
commenced
by
third
communicated in due time to the debtor.
perspns
and
If the debtor
to him against the assignor. (Art.
(1196)
When a credit is garnished by court
Example:
1285)
Unless the assignor was notified by the debtor
(execution or attachment).
2. Who May
consented - he cannot set up against
the assignee the compensation which would pertain
at the time he gave his consent, that he reserved his right to the compensation.
Invoke
.
Generally, compensation may be
invoked or claimed by the principal debtor (who is also at the same time a principal creditor).
(Art.
1285) ii. Jf the
debtor was informed of the assignment, but did not consent thereto -he may set up the
However, the guarantor may also set up compensati,on
compensation of debts before the assignment, but
as regards what the creditor may owe the principal
not of subsequent ones.
debtor. (Art.
1280)
(Art. 1285)
That is, the guarantor may invoke
any available compensation between the principals,
iii. If the
debtor was not informed of the assignment
and thus benefit from the extinguishment of the
-
principal
prior to the assignment and also later ones until he
obligation
which
results
from
such
compensation.
he may set up the compensation of all credits
had knowledge of the assignment. (Art.
3. Assignment of Credit.280
In case the creditor assigned his
credit to a third party, who then attempts to enforce it, the debtor has the foJlowing rights:
Note:
The reason for the foregoing rules is to protect a
party from being fraudulently deprived of the benefits of compensation.281
'" IV Reyes & Puno 155, citing Manresa.
''° IV Tolentino 374-375, citing Manresa. 112
1285)
1 13
4. Plurality of Debts. If
a persou should have agaiust him
· a.
several debts which are susceptible of compensation, the
seeks to compensate, and
rules on the application of payments shall apply to the order of the compensation.
That each of the parties can dispose of the credit he
b.
(Art. 1289)
That they agree to the mutual extinguishment of their credits.
Thus, the debt which is most onerous to the debtor,
D. LIMITATIONS: The following debts cannot be compensated-
among those due, shall be deemed to have been offset. If the debts due are of the same nature and burden, the offsetting
shall
proportionately.
be
applied
to
all
of
(Art. 1289 in rel. to Art. 1253)
them
�
I.
Debts arising from a contract of depositum; (A .
2.
Debts arising from a contract of commodatum;
5. Effect of Compensation. When all the requisites mentioued in Article 1279 are present, compensation talces
a.
effect by operation of law, and extinguishes both ciebts to
1290) b.
In General.
Both depositurn and commodatum are based on the thing deposited or lent will be returned.
C. CONVENTIONAL COMPENSATION I.
The prohibition is against the depositary and the borrower, in favor of the depositor and bailor.
The
depositor and bailor may choose to waive the benefit
Conventional (or voluntary) compensation is
and set up compensation (facultative).
compensation by agreement; it takes place when the parties
agree to compensate their mutual obligations even in the
c.
absence of some requisites.'"
Note that bank deposits (whether fixed, savings or current deposits) are considered simple loans
1 980), Thus, the parties may agree upon the compensation of
set-off against the depositor's bank.'85
(Art. 1282)
Conventional compensation is possible only
3.
(Art.
and are therefore subject to compensation or ·
debts which are not yet due.
2. Requisities.
(Art. 1287)
trust and confidence of the depositor or bailor that the '
i
the concurrent amount, even though the cred tors and
debtors are not aware of the compensation. (Art.
1287)
obligations to
Claims for support due by gratuitous title; (Art.
the
1287)
when the parties are mutual creditors and debtors of each
l
other.283 Aside from this, the requ rements of conventional
co1npensation are:284
a.
Allowing compensation may defeat the purpose of support, which is to maintain the person to be supported and answer his needs. It may also defeat the exemption of support from attachment and execution. (FC, Art.
282
PNB Madecor v. Uy, G.R. No. 129598, August 15, 2001; Francia v. IAC, G.R. No. L·67649, June 28, 1988. 283 CKH Industrial and Development Corp. v. CA, G.R. No. 1 11890, Mar 7, 1997, 272 SCRA
205)
333.
'" CKH Industrial and Development Corp. v. CA G.R No. 111890. May 7, 1997, 272 SCRA
333.
1 14
285
Sps. Nlsce v. Equitable PC/ Bank, G.R. No. 167434, February 19, 2007, 115
Support in arrears may be subject to compensati:
b.
because the need for the same has already passed.
301, par. 2, in rel. to Art.
4.
1287)
Debts consisting of civil liability
(M ,,
offended party.
and
set
up
compensation
Obligation to,pay
Novation has
d.
Extinctive novation does not necessarily imply that the
2. Classification. a.
According to Manner i.
obligation by changing its object or principal conditions, by substituting a new debtor in place of the old one, or by snbrogating a third person to the rights of the creditor. 287
1291)
In order that an obligation may be extinguished by another which substitutes the same, it is imperative: (i)
declared in unequivocal terms, or (ii) that
the old and the new obligations be on every point
incompatible with each other. (Art. 1292) b.
Express - when the parties terms
Novation, properly speaking, is
extinctive,
that
the
new
extinguishes the old .one.
Definition. Novation is a mode of extinguishing an
that it be so
to
tenns and conditions may be carried, expressly or by implication, over to the new obligation.290
taxes to the government. Taxes are not
IN GENERAL
a.
(i)
new agreement should be complete by itself; certain
VII. NOVATION
(Art.
extinguish an to substitute a new one in
dual function:
existing obligation, and (ii) its p\ace.289
The offended party may choose to
benefit
the
"debts", and are not subject to compensation as a matter of public policy.'86
I.
e'!,.\.ent \na\ \\ tema'm.s com\la\\'o\e 'W\.\b. \b.e amencl.atot'j "' aiteement. c.
(facultative).
A.
<:>1.1\\.e <:i\:1\\1!,a\\<:it\, \.e., \\\.e <:>\(; <:i\)\\1!,a\\<:in s'l.\:ls\s\s \ci ,fue
The prohibition is against the offender, in favor of the waive
5.
mete\1 modif\catory (;<:ies n<:i\ <:a'll'Oe t'tl.e e'!,.\\n'i!,'l.\�\\m.en\
arising from a penal
offense. (Art. 1288) -
lb.at ta¥;,es t'tl.e \)\ace cit t'tl.e fo=et. h ne>'1at\C>n t\\at .\s
ii.
declare in unequivocal
obligation
novates
or
(Art. 1292)
Implied- the novation is inferred from the fact that the old and the new obligations are on every point incompatible with each other. (Art.
1292)
The test of incompatibility is whether the two obligations can stand together, each one having an independent existence; if they cannot and the subsequent obligation 1 would extinguish the first. 29 are
irreconcilable,
i.e., an old
obligation is terminated by the creation of a new one
Francia v. IAC, G.R. No. L-67649, June 28, 1988, citing Republic v. Mambulao Lumber Co., 4 SCRA 622. "' Garcia v. Llamas, G.R. No. 1 54127, December 8, 2003.
"' Garcia v. Llamas, G.R. No. 154127, December 8, 2003. '" California Bus Lines, Inc. v. State Investment House, Inc., 463 Phil. 689, 702 (2003). Sps. Bautista v. Pilar Dev't Corp., G.R. No. 135046, August 17, 1999. 290 Ligutan v. CA, G.R. No. 138677, February 12, 2002. 291 lloilo Traders Finance, In� v. Heirs of Sps. Oscar Soriano, Jr., 452 Phil. 82 (2003).
i 16
117
266
b.
1
According to Cause 1.
Objective
b e c\a\me<': on\'j b'f tbe llebtor, anll be \m"Q\\el\\'f
object or principal conditions (Art. ii.
Subjective
waives it by agreeing to tb.e new ob\igation?-94
- novation caused by change in the
-
1291
[l])
b.
novation caused by change in the
person of the debtor or the creditor (Art.
1291 [2]
The parties concerned must agree to a new contract.
i.
There must be an intention to novate or
ii.
This requirement presupposes that the parties have
& [ 3 ])
3.
Requisites. For novation to take place, the following . . 22 reqms1tes must concur: 9 a.
the capacity to agree to the new contract. c.
There must be a previous valid obligation.
The old contract must be extinguished. If the
i. · If the original obligation was void, the n vation is also void. (Art.
�
1298)
�ulment may
If
the
original
suspensive
debtor or when ratification
1298)
obligation was voidable,
the
d.
i.
an implied waiver of its defect. (see Art.
condition,
expromision, wherein the debtor
If the original ·obligation has prescribed, the A prescribed debt is a natoral
· obligation and suffices as a consideration for the 2 new obligafion. 93 Besides, the prescription may
a
the new
'" Garcia v. Llamas, G.R. No. 154127, December 8, 2003; Sueno v. Land Bank, G.R. No. 174711, September 17, 2008. 293 Villaroel v. Estrada, 71 Phil. 140 (1940).
1299)
If the new obligation is void, the original one shall
1297) ii.
If the new contract' has not yet been executed, the previous obligation is not novated and remains subsisting.295
iii. If the new contract is voidable, it is valid until annulled (Art.
1390),
so the novation becomes
effective. But once the new contract is annulled, it is
deemed
void,
·
so
the
novation
ineffective as well.
118
to
subsist, unless the parties intended that the former
1298)
does not consent
novation is valid.
subject
relation should be extinguished in any event. (Art.
deemed a ratification of the original obligation or
m.
resolutory
was
There must be a valid new contract.
novation is valid, because the debtor's consent is
Exception: in
or
obligation
unless it is otherwise stipulated. (Art.
be claimed
validates acts which are voidable. (Art. ii.
original
obligation shall be under the same condition,
Exception: when a only by the
animus
novandi.
294 Estrada v. Villaroel, (CA) 40 O.G. (5th Supp.)
201, cited in IV Tolentino 398. "' Sueno v. Land Bank, G.R. No. 17471 1 , Seplember 17, 2008. 1 19
becomes
iv. If the new contract is unenforceable (because it is
not in writing, ·per the Statute of Frauds), novation 296 cannot be proven.
4.
Not Pres u med
.
animus novandi
In other words, there must be
Changes that breed incompatibility must be essential in nature and not merely accidental.302 Even if there is no
Novation is never presumed, and the
express novation, such essential change would cause an
(intent to novate), whether totally or
implied novation by creating an incompatibility between
partially, must appear by express agreement of the parties,
the old and the new obligations.
or by their acts that are clear and unmistakable.297
5. Effect on Accessory Obligation.
On the other hand, accidental changes - or changes
When the principal
which are merely incidental to the main obligation, or refer
obligation is extinguished in consequence of a novation, accessory obligations are also extinguished.
merely to secondary agreements - do not cause extinctive
{Art. 1296)
novation.303 The novation
This is because the accessory obligations (e.g., mortgage
is merely modificatory, in which
case the new agreement will not have the effect of
and pledge) were given to secure · a particular obligation
extinguishing the first but would merely supplement it or
supplant some but not all of its provisions.304
and the solvency of a particular debtor; thus, a cqange in
the obligation or debtor destroys the basis of the consent to . . give the accessory obl"1gatlons.298
2. Determination of the Natµre of Change. It is thus
important to determine if the change refers to the object or
"Exception": accessory obligations may subsist only
the principal conditions
insofar as they may benefit third persons who did not give their consent.
essential change.301
incidental
(Art. 1296) However, these
conditions
(essential change), or merely to (accidental change). The
determination is factual in nature, and relative to the
obligations for the benefit of third persons are in reality
circumstances of the case, the intention of the parties, the
distinct obligations.299
economic importance of the modification, and other similar factors.305
B. OBJECTIVE NOVATION
3. Examples of essential changes. I.
Essential Change vs. Accidental Change. novation is caused by change in the
object
Objective
or in the
principal conditions of the obligation. (Art. 1291) Changes in the juridical relation300 (from ccimmodatum to lease of things, or from negotiorum gestio to agency, or from a
mortgage to antichresis, or from a sale to a loan) may also be subsumed under this category.
Change in the price.306
b.
Reduction of the period or duration of an easement of right of way. 307
301 Young v. CA, G.R. No. 83271, May 8, 1991. "' Pilipinas Bank v. Ong, G.R. No. 1 33176, August 8, 2002; California Bus Lines, Inc. v. State Investment House, Inc., G.R. No. 147950, December 1 1, 2003. io3 Young v. CA, G.R. No. 83271 , May 8, 1991; lloilo Traders Finance, Inc. v. Heirs of Sps. Oscar Soriano, Jr., 452 Phil. 82 (2003); Young v. CA, G.R. No. 83271, May 8, 1991. . '°' lloilo Traders Finance, Inc. v. Heirs of Sps. Oscar Soriano, Jr., 452 Phil. 82 (2003). "5 IV Tolentino 389, citing Castan. 306 Matute v. Hernandez, 66 Phil. 68 (1938).
"' Evadel Realty & Dev't Corp. v. Sps. Soriano, G.R. No. 144291, April 20, 2001. "' Philippine Savings Bank v. Manalac, Jr., G.R. No. 145441, 26 April 2005, 457 SCRA 203, 218. '" IV Tolentino 395. 299 IV Tolentino 396. '" See Ligutan v. CA, G.R. No. 138677, February 12, 2002. 120
a.
.
121
c.
i.
Change from a contract to sell (written) to a contract of lease (even if merely verbal).308
d. Change from a sale of real estate to a conditional sale of real estate.309
Extension of the period315 - the period affects only the performance of the obligation and does not create a new one.
ii. Restructuring of the payment scheme (e.g., from repayment in one year to repayment in twenty quarterly instalhnents31 6, or providing for a new schedule ofpayments and additional security"')
In a contract of sale, the title to the property passes to the vendee upon the delivery of the thing sold; in a contract to sell, ownership is, by agreement, reserved in the vendor and is not to pass to the vendee until full payment of the purchase price;
iii. Change or reduction in the interest rate.318 It has been held that an obligation to pay money is not novated by an instrument that expressly recognizes or ratifies the old, changes only tile terms of payment, and adds ' other obligations not incompatible with the old ones, or where , the new contract merely supplements the old one.'19
e. Change from trust receipt agreement to a simple loan.'10 f.
Change from a mortgage to antichresis.311
g. Change from a sale to a loan.312 c.
4. Examples of incidental changes. a. Execution of a mortgage to secure the payment of a loan313 - the contract of loan is not novated by the mortgage, which is merely an accessory contract. b. Changes in the terms of payment . of an obligation to pay,314 such as:
C.
In a construction contract, changes for the redesign of the structure and corresponding reduction in the contract price (particularly where the contract states that changes may be made in the works without invalidating the contract). 320
SUBJECTIVE
NOVATION: Subjective novation is novation by changing the person of the debtor or the person of the creditor.
307
Kabankalan Sugar Co. v. Pacheco, 55 Phil. 555 (1930). Gofii v. CA, G.R. No. L-27434, September 23, 1986. 309 Heirs of Bernabe v. CA, G.R. No. 154402, July 21, 2008. '10 Pilipinas Bank v. Ong, G.R. No. 133176, August 8, 2002. '" Jagunap vs. Mirasol, [CA], 48 O.G. 3911, cited in Ugutan v, CA, G.R. No. 138677, February 12, 2002. "' Soncuya vs. Azarraga, 65 Phil. 635 (1938), cited In Llgutan v. CA, G.R. No. 138677, February . 12, 2002. '" Ugutan v. CA, G.R. No. 138677, February 12, 2002. Asia Banking Corp. v, Lacson Company, Inc., 48 Phil. 482 (1926), . 314 Magdalena Estates, Inc. vs. Rodnguez, 18 SCRA 967, as reiterated in Velasquez vs. Court of Ar peals, 309 SCRA 539,
315 Kabankalan Sugar Co. vs. Pacheco, No. 33654, 29 December 1930, 55 Phil. 555; Tible v. Aquino, G.R. No. L-28967, 22 July 1975, 65 SCRA 207, 218; Pascual v. Lacsamana, 100 Phil. 381, 385 (1956). 316 Sps. Reyes v. BPI Family Savings Ban� G.R. Nos. 149840-41, March 31, 2006. " 7 California Bus Lines, lnc.. v. State Investment House, Inc., G.R. No. 147950, December 1 1 ' 2003. "' Bank of P.I. vs. Abaladejo, No. 30490, 27 March 1929, 53 Phil. 14; Sps. Aguilar v. Manila Banking Corp., G.R. No. 1579 1 1 , September 19, 2006. ' 319 Sps. Reyes v. Court of Appeals, G.R. No. 147758, 26 June 2002, 383 SCRA 471, 482. 320 Gammon Phil., Inc. v. MRTDC, G.R. No. 1 44792, January 31, 2006.
122
123
'°'
1.
Change in the Debtor a.
iii. The consent of the old debtor is required. (Art.
Necessity of Consent i.
(1)
on whether the old debtor has given consent:326
(1) Expromision
The consent may be express or implied, and
the debtor, since it consists of a third person's
assumption of the obligation. As such, it
requires the consent of the thi.rd person and the creditor.
release of the old debtor. 323
(2) Deliigacion
The mere fact that the creditor receives a
necessary.'27
original debtor. 324 b.
Effect ofInsolvency ofNew Debtor i.
is
without
the
the part of the original debtor (i.e., the old obligation shall not be revived). (Art. ii.
124
(substitution
the obligations shall not give rise to any liability on
required.
Asia Banking Corp. v. Elser, 54 Phil. 994 (1929). Aquintey v. Sps. Tibong, G.R. No. 166704, December 20, 2006, citing Babst v. Court of Appeals, 403 Phil. 244, 259-260 (2001). 323 Aquintey v. Sps. Tibong, G.R. No. 166704, December 20, 2006, citing Lopez v. Court of · Appeals, L·33157, June 29, 1982, 1 1 4 SCRA 671, 688. '" Magdalena Estates Inc. v. Rodriguez, 125 Phil. 151, 157 (1966). Quinto v. People, G.R. No. 126712, April 14, 1999, citing Rios vs. Jacinto, etc., 49 Phil. 7; Garcia vs. Khu Yek Ching, 65 Phil. 466; La Campana Food Products, Inc. vs. Philippine Commercial and Industrial Bank, 142 SCRA 394. 325 Ajax Marketing Corp. v. CA, G.R. No. 118585, September 14, 1995; Aquintey v. Sps. Tibong, G.R. No. 166704, December 20, 2006.
expromision
the new debtor's insolvency or non-fulfillment of
The consent of the new debtor is aiso always
322
In
knowledge or against the will of the old debtor) -
debtor merely becomes a co-debtor or a surety. 325
321
and the
thus, the consent of these three persons are
does not extinguish the obligation of the
ii.
the debtor offers,
to the substitution and assumes the obligation; ·
person does not constitute a novation and
old debtor, there is no novation; the third
-
creditor accepts, a third person who consents
guaranty or accepts payments from a third
person who has assumed the obligation of t,he
the initiative for the change
does not come from (and may even be made
For novation to take place, the creditor milst consent (expressly or impliedly322) to the
Without the creditor's consent to release the
-
without the knowledge or against the will of)
with the debtor subsists.'21
(3)
Thus, substitution of the
1293)
may be given at any time while the agreement
(2)
always
debtor may be classified into two kinds, depending
The consent of the creditor .to the change in the debtor is always required. (Art.
1293)
not
In
delegacion
1294)
(substitution is proposed by the
original debtor and accepted by the creditor) - the new debtor's insolvency shall not revive the action of the latter against the original obligor, but (unlike in expromision) it is subjection to the following
exceptions
-
326 Garcia v. Llamas, G.R. No. 154127, December 8, 2003. '" Garcia v. Llamas, G.R. No. 154127, December 8, 2003.
125
(I)
when said insolvency was
already existing and
of
when
public knowledge,
the
debtor
delegated his debt, or
(2)
a.
when said insolvency was and
known to the debtor, his debt. (Art. 1295) c.
2. Change in the Creditor or Subrogation.
of the creditor to a third person, who substitutes him in
already existing
all his rights.328 It transfers to the persons subrogated
when he delegated
the credit with all the rights thereto appertaining, either againsi the debtor or against third person, be they guarantors or possessors of mortgages, subject to
Right ofNew Debtor
stipulation in a conventional subrogation.
Payment by the new debtor gives him the rights mentioned in Articles
1236
and
In
(without the knowledge or against , the will of the old debtor) -
expromision
The new debtor may recover from the qld
(1)
debtor only insofar as the payment has been
beneficial to the old debtor.
(2)
(Art. 1236)
creditor is either legal or conventional. (Art.
subrogated to the rights of the creditor. (Art.
1237) ii.
In
delegacion
(with the knowledge and consent of
the old debtor) -
(1)
The new debtor may demand from the old debtor what he has paid. (Art.
(2)
1236)
subrogated to the rights of the creditor.
Conventional Subrogation - is subrogation which
takes place by agreement329; it requires the consent of
the original parties and of the third person. (Art.
1301)
1.
clearly
Conventional
subrogation
established in 1300) ii.
must
be
order that it may take effect. (Art.
Distinguished from
Assignment
Conventional subrogation is . . assignment of erect•t t , thus330:
not
of Credit. identical
to
(1) Conventional s�brogation: (a) the debtor's consent is necessary;
a new one;
(Art. "' Astro Electronics Corp. vs. Philippine Export and Foreign Loan Guarantee Corp., G.R. No. 136729, September 23, 2003. Philippine National Bank vs. Court of Appeals, G.R. .No. 128661, August 8, 2000, 337 SCRA 381, 404. 3i9 Astra Electronics Corp. vs. Philippine Export and Foreign loan Guarantee Corp., G.R. No. 136729, September 23, 2003. "' Licaros v. Gatmaitan, G.R. No. 1 42838, August 9, 2001; Leoonio v. Capitol Dev't Corp., G.R. No. 149040, July 4, 2007. •
126
1 300)
(b) extinguishes an obligation and gives rise to
The new debtor, upon payment, is legally
1302[2])
b.
.
The new debtor, upon payment, cannot be
(Art. 1303)
Subrogation of a third person in the rights of the
1237. (Art. 1293)
Thus:
i.
Jn General. Subrogation is the transfer of all the rights
127
(c) the nullity of an old obligation may be cured ·by subrogation, such that the new obligation will be perfectly valid;
i.
Legal subrogation is not presumed, except in cases expressly mentioned in the Civil Code. (Art.
ii. There is legal subrogation in the following cases:
(Art. 1302)
(2) Assignment ofcredit:
(1)
(a) the debtor's consent is not required;
When a creditor pays another creditor who is knowledge; (Art.
knowledge (either by formal notice or
Example:
some other means) of the assignment
(Art.
(2)
same right which
by the assigmnent of the creditor's right to another. is subrogation which talces place by operation of law because of certain acts. 332 The -
parties' consent or agreement is not necessary, and it may
take
place
even
without
the
When a third person, not interested in the
(3)
When, even without the knowledge of the · debtor, a person
(c) the nullity of an obligation is not remedied
Legal Subrogation
if an unsecured creditor pays off
obligation, pays with the express or tacit approvalofthe debtor; (Art. 1302)
1 626) . passes from one person to another;
debtor's
knowledge. 333
debtor's
senior security.
debtor who, before knowing of the released from the obligation.
the
junior security pays off a creditor with
proper party (the assignee).331 The assignment, pays his creditor :shall be
without
1302)
a secured creditor, or if a creditor with
so that he may pay the debt to tl'ie
(b) assigmnent refers to the
even
preferred,
Nonetheless, the debtor must have
c.
1 300)
interested in the fulfillment of
the obligation pays, without prejudice to the effects of confusion as to the latter's share. (Art. (a)
1302)
Examples �f interested persons:
co
debtors, sureties, guaranties, mortgagors and pledgors. (b) By express provision of Art.
guarantor
2067,
the
who pays is subrogated by
virtue thereof to all the rights which the 331.
Ledonio v. Capitol Dev'\ Corp., G.R. No. 149040, July 4, 2007, citing Sison v. Yap Tico, 37 Phil. 584, 587-588 (1918) and Aquintey v. Spouses Tibong, G.R. No. 166704' 20 December 2006. 332 Astra Electronics Corp. vs. Philippine Export and Foreign Loan Guarantee Corp., G.R. No. 136729, September 23, 2003. Chemphil Import & Export Corp. vs. Court of Appeals, G.R. Nos. 1 12438-39, December 12, 1 995, 251 SCRA 257, 279. 333 Astra Electronics Corp. vs. Philippine Export and Foreign Loan Guarantee Corp., G.R. No. . 136729, September 23, 2003. ·
128
creditor had against the debtor. (c) The
insurer
who
pays
a
claim
for
indemnity is legally subrogated to the rights of the person indemnified.
129
The
insurer may then seek to recover from the person who is liable for the loss.334 d. Effect of Partial Payment. - 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 (Art. 1304)
Chapter 6
Introduction to Contracts I. IN GENERAL \.
Definition. The Civil Code defines a contract as "a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service." (Art. 1305) a.
"Meeting of minds" - once the minds of the contracting parties meet, a valid contract exists, whether it is reduced to writing or not'" (except in certain contracts, infra). i.
The area of agreement must extend to all points that the parties deem material. Otherwise, there is no contract.336
ii. While a contract need not be in writing, the lack of signature on the draft written contract is indicator that the parties did not reach agreement on all points deemed material.337 b.
there must be at least two parties to a contract. However, a contract may also be multilateral, or involving more than two parties.
"Two persons"
-
Autocontracts are contracts made by a single person
representing two parties (one is a party he represents, while the other is either another party he represents or he himself, in his personal capacity). Generally,
"' Federal Express Corp. v. American Home Assurance Co., G.R. No. 150094, August 18, 2004. citing Philippine Americen General Insurance Co., Inc. v. Sweet Lines, Inc., 212 SCRA 194. August 5, 1992 130
"' National Irrigation Administration v. Gamit. G.R. No. 85869, November 6, 1992. 1.00 Phil. 351 (1956). 337 A. Magsaysay, Inc. v. Cebu Portland Cement Co., 100 Phil. 351 (1956). 3" A. Magsaysay. Inc. v. Cebu Portland Cement Co., 131
autocontrac.ts 8
prohibited.33 Article
1941
are permissible if not expres �ly Express prohibitions may be found in
ii.
However, some contracts are
real contracts, i.e., they
are not perfected until the delivery of the object of the
(sales) and Article .1890 (agency).
obligation. (Art.
1 3 1 6) Examples:
deposit, pledge and
commodatum. However, this rule does not apply to administrators m.
of decedent's estates, in view of the fiducia1y
In a solemn orformal contract, compliance with certain
relationship that they occupy with respect to the
. formalities prescribed by law is essential in order to
heirs of the deceased and their responsibilities
make the act valid, the prescribed form being an
toward the probate court. An administrator is not
essential element thereof.
permitted to deal with himself as an individual in
property. .
Example: donation of real
any transaction concerning trust property. 339 c. c.
"One binds himself, with respect to the other" - the
respective undertakings under the contract culminating in
contract may .also be reciprocal, wherein both parties are
the extinguishment thereof.
obliged to perform a prestation.
2.
3.
Stages of Contract.340 a.
Consummation begins when the parties perform their
Classification of Contracts.
The following are some of the
common classifications of contracts341 -
Negotiation covers the period from the time the
a.
According to dependence:
prospective contracting parties indicate interest in the contract to the time the contract is concluded (perfected). b.
i.
ii.
Perfection of the contract takes place upon the concurrnnce
-
(e.g., pledge, mortgage, or suretyship)
of the essential elements thereof. Until the contract is perfected, it cannot, as an independent source of obligation,
principal - may exist alone (e.g., lease, sale or loan) accessory existence. depends on another contract
b.
According to perfection:
serve as a bindingjnridical relation. i.
In
i. general, contracts are
mere consent
consensual, i.e., perfected by
(Art. 1 315),
ii.
or upon a mere meeting of
(e.g., commo.datum or pledge);
minds, i.e., the concurrence of offer and acceptance, on the object and on the cause thereof. (Art.
consensual - perfected upon consent (e.g., sale); real - perfected upon delivery, in addition to consent
iii.
Example: sale
formal - perfected upon execution of required formalities
(e.g.,
donation
property)
1 458). c.
'" IV Tolentino 408 "' Jaroda v. Cusi, Jr., G.R. No. L-28214, July 30, 1969. "' Ang· Yu Asuncion v. CA, 238 SCRA 602 (1994); San Miguel Properties Phllippines, Inc. v. Spouses Huang, G.R. No. 137290, July 31, 2000, 336 SCRA 737. 132
According to cause:
"' IV Tolentino 410·411 . 133
or
mortgage
of real
i.
E.g., a renunciation of interest in real
- parties exchange equivalent values (e.g.,
onerous
property
as payment of loan by the 33 renouncer is analogous to sale. 4
sale); and ii.
gratuitous
-
one party does not receive an equivalent
d.
(d) Customs of the place.
·
value (e.g., commodatum)
(3)
According to the parties obliged: i.
bilateral
Contracts which do not strictly conform to the standard contracts ·. are allowed and may be considered innominate contracts. 344
- both parties are required to perform
reciprocal prestations (e.g., sale); ii.
unilateral -
only one party is required to perform a
prestation (e.g., commodatum or gratuitous deposit) e.
terms and conditions as they may deem convenient, provided they
nominate (those with particular names, like s�le, lease, deposit, etc.)
ii.
innominate (those without particular names) (1)
are not contrary to law, morals, good customs, public order, or public policy. (Art.
1306)
A person's freedom to contract about his own affairs is part ofthe
Innominate contracts are traditionally divided inio
liberty of the individual under the Constitution.
However, this
four types:
freedom is not absolute and must yield to the common good.345
(a)
public order or public policy are void.
(b) (c) (d)
(2)
AUTONOMY OF CONTRACT The contracting parties may establish such stipulations, clauses,
According to name: i.
II.
Thus, stipulations which are contrary to law, morals, good customs,
Do ut des (I give and you give); Do ut facias (I give and you do); Facio ut des (I do and you give)342; Facio utfacias (I do and you do).
Innominate following:
contracts
are
regulated
A.
"LAW'' I.
by
the
(Art. 1307)
(a) Stipulation ofthe parties; (b) Provisions of Titles I (Obligations) and II (Contracts) of Book !Vof the Civil Code;
2.
Applicable laws form part of and are read into the contract without needfor any express reference.346 Examples of contracts or stipulations prohibited by law: a.
Pactum commissorium ·
-
The
creditor
cannot
appropriate the things given by way of pledge or
(c) Rules governing the most analogous nominate contract;
'" Perez v. Pomar, 2 Phil. 682 (1903); Corpusv. CA, G.R. No. L-40424, June 30, 1980. 134
. 343 Caolbes, Jr. v. Caoibes-Pantoja, G.R. No. 162873, July 21, 2006. 344 Santos v. Acuna, 100 Phil. 230 (1956) 34' People v. Pomar, 46 Phil. 440 (1924). 346. lntra-Strata Assurance Corp. v. Republic, G.R. No. 156571, July 9, 2008; Maritime Company of the Philippines v. Reparations Commission, G.R. No. L-29203, July 26, 1971, 40 SCRA 70. 135
mortgage, or dispose of them. Any stipulation to the contrary is null and void. (Art. 2088) b. Stipulation in contract of employment discriminatirig against women (Labor Code, Art. 135) or prohibitirig them from gettirig married.347 (Labor Code, Art. 136) c. An agreement :o deprive a court of jurisdiction conferred on it by law is void.348 Jurisdiction over an action is conferred by law, and may not be changed by . mere agreement ofthe parties.349
b. Contracts for domestic. services without payment of wages are void. 357 C. PUBLIC POLICY OR PUBLIC ORDER 1 . Public policy or public order refers to the public good or the interest of the society. No person can lawfully do that which has a tendency to be injurious to the public or against the public good. 358 2. Examples:
B. MORALS AND GOOD CUSTOMS
I. Morals and good customs refer to general prii:iciples of morality which have received a good measure' of social acceptance.350 According to the Code Commission, morals and good customs are distinct concepts, but some commentators disagree.351 2. Examples: a. Iniquitous, exorbitant and unconscionable stipulations on interest rates, penalties and attorney's fees,352 such as interest rates of 66% per armum,353 72% per armum,354 or 108-120% per armum.355 Note, however, that there is no fixed mle on what is unconscionable; in one case, interest rate of 7% per month (or 84% per armum) was upheld.356 '" Phil. Telephone and.Telegraph v. NLRC, G.R. No. 1 1 8978, May 23, 1997. "' Principe v. Philippine-Singapore Transport Services, Inc., G.R. No. 80918, August 16, 1989. '" Calimlim, et al. vs. Ramirez, et al., 118 SCRA 399; De Jesus, et al. vs. Garcia, et al., 19 SCRA554. 350 IV Tolentino 418. 351 See, e.g., IV Tolentino 418. '" Imperial vs. Jaucian, G.R. No. 149004, April 14, 2004, 427 SCRA 517, 519. '" Medel v. CA, 359 Phil. 820 (1998). 354 Carpo v. Chua, G.R. Nos. 150773 & 153599, September30, 2005. '" Dino v. Jardines, G.R. No. 145871, January 31, 2006. 356 Sps. Pascual v. Ramos, G.R. No. 144712, July4, 2002. 136
a.
Void: stipulation that a credit card holder who reported the loss/theft of his credit card continues to be liable for unauthorized charges until the credit company notifies .its member establishments. Such clause leaves the holder at the mercy of the credit card company.359
b. Void: stipulation which repudiates the existence of employer-employee relationship to circumvent the compulsory coverage of the employee under the Social Security law. 360 The employment status of a person is defined and prescribed by law and not by what the parties say it should be. 36 1 c.
Void: agreement to stifle prosecution of a crime.362 It would be detrimental to the administration ofjustice. .
351 See De las Reyes v. Alo]ado, 1 6 Phil. 499 (1910). "' Ferrazzini v. Gsell, 34 Phil. 697 (1916). '" Ermitano v. Court of Appeals, 365 Phil. 671 (1999); Acol v. Phn. Commercial Credit Card, Inc.. G.R. No. 1.35149, July 25, 2006. "' Republic v. Asiapro Cooperative, G.R. No. 172101, �ovember 23, 2007. '" Republic v. Aslapro Cooperative, G.R. No. 172101, November 23, 2007, citing Chavez v. National Labor Relations Commission, supra note 26 a.I 493; Lopez v. Metropolitan Wateiworks and Sewerage System, G.R. No. 154472, 30 June 2005, 462 SCRA 428, 445·446. "' Arroyo vs. Berwln, 36 Phil. 386 (1917); Monterey vs. Gomez, et al., 104 Phil. 1059 (1958); United General Industries, Inc. v. Pa�r; G.R. No. L-30205, March 15, 1982.
137
d.
a stipulation by a
Void:
common carrier
exempting
h.
itself from liability or limiting its liability for injury or 363 loss caused by its own negligence. (see Art. 1745)
automatic
Valid:
forfeiture
clause
sale
in
by
installment, which deems any previous payments forfeited and the contract automatically rescinded upon the failure of the buyer to pay three successive monthly
i.
installments or any one yearend lump sum payment.368
However, a stipulation fixing the sum that may be recovered from a common. carrier is valid if it is reasonable and just under the circumstances, and has been fairly agreed upon.
ii. In a contract of private
i.
carriage,
dues.369
the parties may
loss of or damage to the cargo caused even by the
j.
negligence of the ship captain. As the contract is
k.
the buyer must be in a.ctual possession of the house at
Valid: stipulation that the creditor may apply any of the payment of the debtor's obligation.371
allocations or foreign exchange allocations from the 365
3. "Non-involvement clauses" f.
Valid:
provision in a construction contract providing
for a I -year period during which the contract is liable
for defects. Contractor cannot be expected to make a
Valid:
trade and place, and if they .are not greater than is necessary
fixed-period employment contracts, unless the
a.
workmanship.
g.
they are valid if there are reasonable limitations as to time, to
guarantee 366
on
all
materials
are those which prevent an
employee from working for another employer. In general,
and
perpetual
5
debtor's moneys in the creditor's hands for the
prosecution or following-up of applications for import govenunent.
stipulation in the sale of soCialized housing that
years.370
strictly involved.364 stipulation for the commission of an agent in the
Valid:
all times and cannot dispose of the same within
not of common carriage, public interest is not
Void:
provision in deed of restrictions that a buyer of
-
homeowners' association and must pay association
validly stipulate that the shipowner is not liable for
e.
Valid
a parcel of land automatically becomes member of the
(Art. 1750)
afford
a
fair
and
reasonable
protection
to
the
employer.372 Examples: Clause prohibiting the employee from working for any
period was purposely intended to circumvent the
company or business in the Philippines for
employee's right to his security of tenure. 367
void, as there is no limitation as to trade.373
5
years
-
363 Ysmael & Co. v. Barretto, 51 Phil. 90. Valenzuela Hardwood and Industrial Supply, Inc. v. CA, G.R. No. 102316, June 30, 1997. 365 Tee v. Tacloban Electrlc and Ice Plant Co., 105 Phil. 168 (1959); Sy Suan v. Regala, 105 fhil. 1024 (1959). 366 William GolangcO Construction Corporation, v. Philippine Commercial International Bank, G. R. No. 142830, March 24, 2006. 367 Brent School vs. Zamora, 181 SCRA 702 [1990].
"' Valarao v. CA0G.R. No. 130347, March 3, 1999. 369 Cariday Investment Corporation v. Court of Appeals, 176 SCRA 31 (1989); Bel Air Village Association, Inc. v. Dionisio, 174 SCRA589 (1989). 3;o Republic v. David, G.R. No. 155634, August 16, 2004. 371 National Sugar Trading v. PNB, G.R. No. 151218, January 28, 2003. "'Tiu v. Platinum Plans Phil., Inc., G.R. No. 163512, February 28, 2007. 373 Ferrazziniv. Gsell, 34 Phil. 697, 714 (1916).
138
139
36"
Clause prohibiting the employee from working for any company engaged in the same businesses of his former employer for I year void, as the limitation as to trade is not reasonable; the employee only worked in the abaca business of the employer, and not in. any of its numerous other businesses.374
b.
also required. In real contracts (e.g., commodaturn; pledge), delivery of the object is also required.
-
C. OBLIGATORINESS: Obligations arising from contracts have the
force of law between the contracting parties and should be complied with in good faith. (Art. 1 1 59)
c. Clause prohibiting employee from opening, owning or having any connection with any other drugstore within a radius of four miles from the employer's place of business d1iring the time the employer was operating his drugstore valid.315
!.
d.
2. The mere fact that one has made a poor bargain may not be
·
-
Clause prohibiting an independent agent for 1 year from engaging directly or indirectly in actiyities of other companies that compete with the business of her principal valid.316
a ground for setting aside the agreement. 378 The law does not relieve a party from the effects of an unwise, foolish or disastrous contract, entered into with full awareness of what he was doing and entered into and carried out in good faith. Courts have no jurisdiction to look into the wisdom of the contract entered into by the parties or to render a decision different therefrom. 3 79
-
e.
Clause prohibiting employee from engaging in any pre need business akin to her employer's within 2 years
-
valid.371
From the perfection of contract, 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. 13 15)
D.
III. CHARACTERISTICS A. AUTONOMY: (see discussion above)
MUTUALITY: The contract must bind both contracting parties;
its validity or compliance cannot be left to the will of one of them. (Art. 1308)
! . 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. 1309)
B. CONSENSUALITY: Contracts are generally deemed perfected by mere consent. (Art. 13 15) No special form is necessar>y. (Art. 1356)
The determination shall not be obligatory if it is evidently inequitable. In such case, the courts shall decide what is equitable under the circumstances. (Art. 1310)
Exceptions: In formal contracts (e.g., donation; mortgage of real property), compliance with special formalities is
374 G. Martini, Ltd. v. Glaiserman, 39 Phil.
120, 125 (1918).· Del Castillo v. Richmond, 45 Phil. 679, 683 (1924). 376 Consulta v. Court of Appeals, G.R. No. 145443, March 18, 2005, 453 SCRA 732, 745. 377 Tiu v. Platinum Plans Phil., Inc., G.R. No. 163512, February 28, 2007. 375
.
140
'" Fernandez v. Manila Electric Railroad, etc., Co., 14 Phil. 274 (1909). Sanchez v. Court of Appeals, 345 Phil. 155, 190-191 (1997).
379
141
2.
Under the principle of mutuality, no party can renounce a
b.
contract unilaterally or without the consent of the other. 30 To abandon a contract, mutual assent is required. 8
1 3 1 1, contracts are generally transmissible to the assigns and heil"s of the original contracting parties, except in the following cases387 �
2. Transmissibility.
Unless the parties stipulated that either one of them may unilaterally terminate the contract.381
3.
Escalation clauses which grant the creditor an
a.
absolute
right to adjust the interest independently and upwardly,
(Art. 1 3 1 1)
1 . Not Binding on Third Parties.
Where the rights and obligations are not transmissible
This refors to rights and obligations which are
Contracts take effect only between the parties,
their assigns and heirs.
strictly personal (intuitu personae). Examples:
-
. (1)
Contracts can only bind '
the parties who entered into it, and it generally cannot
Those relating to family relations (such as
parental
authority,
action
for
nullity
or
(such
as
annulment of marriage or for legal separation,
favor or prejudice a third person, even if he is aware of
cohabitation);
such contract and has acted with knowledge thereof. Since
a contract may be violated only by the parties thereto as
(2)
against each other, a party who has not taken part in it
cannot sue for performance, unless he shows that he has a
real interest affected thereby.383 a.
UnderArt.
by their nature.
without the consent of the debtor, is void.'82
E. RELATIVITY:
A subsidiary of the creditor corporation cannot collect from the debtor. 386
(3)
Those arising
from public
suffrage or public office);
law
Those which involve or require the personal skills,
characteristics,
qualifications
or
A party who is not privy to the contract cannot sue
circumstances of a particular individual (such
privy to a contract cannot be sued or held liable for
or
upon breach thereof.384 Similarly, a person who is not breach thereof.385
as a contract for a concert by a famous singer,
.
(4) "' HDMF v. CA, G.R. No. 118972, April 3, 1 998: Professional Academic Plans, Inc. v. Crisostomo, G.R. No. 148599, March 14, 2005. 381 Cruz v. Puna, G.R. No. L-50998, January 31, 1983. "' Philippine National Bank v. Court of Appeals, G.R. No. 107569, November 8, 1994, 238 SCRA 20; Sps. Florendo v. CA, G.R. No. 101771 , December 17, 1996; New Sampaguita Buflders Construction, Inc. v. Philippine National Bank, G.R. No. 148753, July 30, 2004; Fioirendo v. Metrobank, G.R. No. 148325, September 3, 2007; Equitable PCI Bank v. Ng Sheung Ngor, G.R. No. 171545, December 19, 2007. 363 MWSS v. Bautista, G.R. No. 171351, March 14, 2008; Sps. Borromeo v. CA, G.R. No. 169846, March 28, 2008. 384 Sps. Tan v. G.V.T. Engineering Services,,G.R. No. 1 53057, August 7, 2006. "' Integrated Packaging Corp. v. CA, G.R. No. 115117, June 8;2000. 142
a
portrait
commissioned
distinguished painter);
Criminal responsibility (Art.
Code)
from
a
89, Revised Penal
However, civil liability arising from crime
continues to be an obligation of the deceased offender's estate.388
3" Sps. Borromeo v. CA, G.R. No. 169846, March 28, 2006. 3" Estate of K. H. Hemady v. Luzon Surety Co., 100 Phil. 388 (1956). 368
Beiamala v. Poiinar, G.R. No. L-24093, November 18, 1967. 143
b. Where the rights and obligations are not transmissible by stipulation. c.
sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a third person. (Art. 1 3 1 1)
Where the rights and obligations are not transmissible by provision oflaw.
b. Requisites of a valid stipulation pour autrui'91 : i.
Examples: usufruct (Art. 603); agency (Art. 1919) commodatum (Art. 1939)
There _must be a stipulation ·in favor of a third person;
The heir is not liable beyond the value of the property he received from the decedent. (Art. 1 3 1 1) Money debts left by the decedent are not transmissible in the sense that they are paid from the estate of the decedent, and only the net estate or remainder goes to the heirs. If the decedent's estate is not sufficient to ' pay his debts, his heirs cannot be held liable for said debts in their personal capacity.389
ii. The stipulation in favor of a third person should be a part, not the whole, of the contract;
3 . Qualifications to the Principle of Relativity. In the following cases, a contract may be said to affect even non parties390: (a) stipulation pour autrui (Art. 131 1); (b) contracts creating real rights (Art. 1 3 1 2); (c) creditors' right to rescind contracts which defraud them (Art. 1313); (d) stranger's liability for unlawful interference with a contract (Art. 1 3 14); (e) accion decreta (Art. 1729).
interest and privy in the promise. Put otherwise, the contracting parties must have intended to create a cause of action in favor of the beneficiary.392
Note:
iii. The contracting parties must have clearly and deliberately conferred a favor upon a third person, not a mere incidental benefit or interest;
(1) There must be an intent to benefit a third party, and to recognize Ilim as the primary party-in
..
(2) An agent who stands to receive a commission
under a contract to sell a property is not a beneficiary of a stipulation pour autrui and thus cannot enforce the contract. His interest is merely incidental.393
These are further discussed below. 4.
Stipulation Pour Autrui. If a contract should contain some stipulation in favor of a third person (stipulation pour autrui), he may d.emand its fulfillment provided he communicated his acceptance to the obliger before its revocation. (Art. 1 3 1 1) a.
To constitute a valid stipulation pour ·autrui, a mere incidental benefit or interest of a person is not
"' See Rules of Court, Rules 88-90. 390 Sps. Lagandaon v. CA, G.R. Nos. 102526-31, May 21, 1998. J. Vitug, dissenting. 144
iv. The third person must have communicated his acceptance to the obliger before its revocation; and (1) Acceptance may be in any form. Even if the benefit amounts to a donation, the acceptance 391
Baluyot v. CA, G.R. No, 122947, July 22, 1999; Sps. Ramos v. CA, G.R. No. 132196, December 9, 2005. 392 Limitless Potentials, Inc. v, Quilala, G.R. No. 157391, July 15, 2005. 393 Uy v, CA, G.R. No, 120465, September 9, 1999. 145
(2)
need not follow the fonnalities required for the
provisions of the Mortgage Law and the Land Registration
acceptance of a donation.394
Laws. (Art.
1312)
Acceptance may be implied from the third
A real right directly affects the property subject to it;
party's
thus, whoever comes into possession of such property
enjoyment
of benefits
under
the
stipulation,395 or from his perfonnance of his
must respect that real right.401
obligations under the stipulation.396
Example: a registered mortgage over a property is (3)
Before acceptance by the third party, the
binding even on a third person who subsequently
original contracting parties may revoke the
acquires it, even if he was not party to the mortgage.402
stipulationpour autrui. v.
'
Neither of the contracting parties bears the legal
6. Contracts to Defraud Creditors.
. representation or authorization of the third party. c.
Examples:
(i) a stipulation in a sublease contract that
a.
the sublessee should directly pay rent to the principal
1313)
Example: contracts of the debtor disposing his property gratuitously, without reserving sufficient property to
lessor391; (ii) a stipulation in a deed of donation
pay off his previous debts. (Art.
requiring the donee to transfer title over a portion of the subject property to the present occupants of the said
b.
portion398; (iii) a stipulation in a deed of partition that
1387)
The defrauded creditor may sue for the resc1ss1on
(accion pau/iana) of the contract 13 81, par. 3 ; Art. 1 1 77)
the frnits of a particular parcel of land will be given to
intended to defraud
him. (Art.
the Church to defray certain religious expenses399; (iv) a stipulation in a contract between BANKARD, a
7. Unlawful Interference with Contracts. Any third person
credit card company, and its affiliated establishment
who induces another to violate his contract shall be liable
that the latter will honor the BANKARD credit card offered by a cardholder.400
for damages to the other contracting party. (Art. a.
5. Contracts Creating Real Rights.
Creditors are protected
in cases of contracts intended to defraud them. (Art.
1 314)
Elements of unlawful or tortious interference403:
In contracts creating
real rights, third persons who come into possession of the
i.
Existence of a valid contract;
object of the contract are bound thereby, . subject to the
ii.
Knowledge on the part of the third person of the existence of contract; and
394 Florentino v. Encarnacion, Sr., G.R. No. L-27696, 30 September 1 977, 79 SCRA 193; Limitless Potentials, Inc. v. Quilala, G.R. No. 157391, July 15, 2005. "' Florentino v. Encarnacion, Sr., G.R. No. L-27696, 30 September 1977, 79 SCRA 193. "' Tabar v. Becada, 44 Phil 619 (1923). 397 Limitless Potentials, Inc. v. Ouilala, G.R No. 157391, July 15, 2005. "' Baluyot v. CA, G.R. No. 122947, July 22, 1999. 399 Florentino v. Encarnacion, Sr., G.R. No. L-27696, 30 September 1977, 79 SCRA 193. <00 Mandarin Villa, Inc. v. CA,.G.R. No. 1 19850, June 20, 1996. 146
iii. Interference of the third person is without legal justification or excuse.
'°'
IV Tolentino 438. Sps. Paderes v. CA, G.R. No. 147074, July 15, 2005. 403 So Ping Bun v. CA, G.R. No. 120554, September 21, 1999. 4o2
147
b.
Examples.\ (a) X induced the owner· to lease a building
to him, knowing that said building had already been leased to another person, y4°4;
Unless it is
(b) J induced the owner
of a cinema film to break his contract of lease with a theater owner, K, and lease the film to
J,
authority to do the act had been previously given, except where the rights of third parties have
Remedies:
intervened between the act and the ratification.'0'
The wronged party is entitled to
damages, but the
liability for damages of the meddler cannot be
.·
worse than the liability of the contracting party who breached the contract.406 ii.
Injunction is also
�
a proper remedy to res ain such
unlawful interference.'07
8. Accion directa.
Those who put their labor upon or furnish
materials for a piece of work undertaken by the contractor
have an action against the owner up to the amount owing from the latter to the contractor at the time the claim is made.
IV.
(A1t. 1729)
UNAUTHORIZED CONTRACTS
I.
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.
(Art. 13 17)
Ratification is generally retroactive. It is as though
city.405
i.
expressly or impliedly, by the
is revoked by the other contracting party.
for the
purpose of exhibiting it in another theater in the same
c.
ratified,
person on whose behalf it has been executed, before it
(Art. 1 317)
2. 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.
(Art. 1317)
404 So Ping Bun v. CA, G.R. No. 120554, September 21, 1999. 405 Gilchrist v. Cuddy, 29 Phil. 542 (1915); 406 Daywalt v. Corporaclon de PP. Agustinos Recoletos, 39 Phil. 587 (1919).
407 Yu v. Court of Appeals, G.R. No. 86683, January 21,
148
1993.
40' De
Jesus v. Daza, 77 Phil. 170 (1946). 149
Chapter 7
Essential Requisites of
a.
The offer must be certain. (Art.
b.
The acceptance must be absolute. (Art.
Contract
1 3 1 9) 1319)
A qualified acce'ptance constitutes a counter-offer. (A11. c.
L GENERAL PROVISIONS
1319)
In addition to the subject matter and the consideration, the area of agreement must extend to
all points that the
parties deem material.4\0
There is no contract unless the following requisites concur:
B. OFFER
1 . Consent o f the contracting pa11ies; 2. Object certain which is the subject matter of the contract; .
3. Cause o fthe obligation which i s established. (Art. 13 18) Note that for formal contracts, compliance with special formalities is additionally required. For real contracts, delivery of the object is additionally required.
1. Definition.
"Offer" means· a unilateral proposition which
one party makes to the other for the celebration of the
Contract. 4J I
2. Certain. The offer must be certain. (ii.rt. 13 19) There is an offer in the context ofArticle
1 3 1 9 only if
the contract caii come into existence by the mere
acceptance of the offeree, without any further act on the part of the offerer. Hence, the offer must be . definite, complete and intentional.412
II. CONSENT A.
IN GENERAL I.
Concept.
. An. invitation to negotiate,4" or an offer to Consent is the conformity of the parties to the
terms of the contract; the acceptance by one of the offer made by the other; the concurrence of the minds of the parties on the objeCt and the cause which shall constitute the contract. 409
2. Manifestation.
Consent is manifested by the meeting of
"entertain" or deliberate on whether to purchase a yacht,414 is not a definite offer.
3 . Effectivity. An offer is effective until either party becomes incapacitated, or until the offer is withdrawn by the offerer.
Greater Metropolitan Manila Solid Waste Management Committee v. JANCOM Environmental Corp., G.R. No. 163663, June 30, 2006.
"" A. Magsaysay, Inc. v. Cebu Portland Cement Co 100 Phil. 351 (1 956); Bugatti v. CA, G.R. No. 138113, October 17, 2000. 41 1 Sps. Paderes v. CA, G.R. No. 147074, July 15, 2005. 41 2 Sps. Paderes v. CA, G.R. No. 1 47074, July 15, 2005. 413 Sps. Paderes v. CA, G.R. No. 147074, July 15, 2005. 41 4 Rosenstock v. Burke, 46 Phil. 217
150
151
the offer and the acceptance upon the thing and the cause
which are to constitute the contract. (Art. 4°'
1 3 1 9)
.•
a.
Incapacity. . An offer becomes ineffective upon the
(2)
death, civil interdiction, insanity, or insolvency of either party before acceptance is
conveyed. (Art. 1323)
and sell which, as long as the object is
Withdrawal. As a general rule, the offerer may
by
the
its mailing,
offeree
learns
withdrawal.415 Thus, if A makes an offer to
when
ii.
and not of
Ji!,
its
As an
a
exception, the
bilateral
offer may not be withdrawn
consideration, as (Art. 1324) The In such a
the price in the principal contract.
situation, a contract of "option" is created.
withdrawal (before the contract could be perfected by
(1)
B's receipt of the acceptance).
An "option contract" grants a person ·the choice,
for
a
distinct
and
sep'arate
consideration, to purchase a determinate thing 42 at a predetermined fixed price. 0
When the offerer has allowed
the offeree a certain period to accept -
(2)
As a general rule, the offer may still be withdrawn
Withdrawal of the offer or option would be a breach of the option contract, which would
at any time before acceptance by communicating
render the offerer liable for damages.421
1324) .Thus, a unilateral sell under Art. 1479 may be withdrawn
such withdrawal. (Art.
In case of . breach, the remedy of the
at any time.416
(1)
is first
consideration must be separate and distinct from
already mails withdrawal to B, there is no contract.
promise to
becomes
something paid or promised.
and B
The offer is deemed withdrawn upon B's mailing of
i.
accepted,
when it is founded upon a
mails his acceptance to A, but before receipt thereof, A
When Period is Given.
1479,
promise· to buy and sell.419
The withdrawal is effective immediately after its when
certain,
Note also that a unilateral promise to sell,
acceptance by the offeree.
necessarily
price
par.)
withdraw the offer at any time before he learns of the
such as
the
reciprocally demandable.41 8 (Art.
learns of the acceptance by the offeree.
manifestation,
and
determinate
"Conveyed" means the time when the offerer
· b.
Also, a unilateral promise to sell must be distinguished from a bilateral promise to buy
offeree/optionee is damages for breach of the option contract,. and not damages or
However, this right should not be exercised
specific performance of the contract which
whimsically or arbitrarily, as it could give rise to a claim for damages under Art. ofrights.417
1 9 on abuse
Laudico v. Anas, 43 Phil. 270 (1922). Atkins, Kroll & Co. v. Cua, 102 Phil. 948 (1958); Ang Yu Asuncion v. CA, 238 SCRA 602, 613 (1994). 417 Ang Yu Asuncion v. CA, 238 SCRA 602, 613 (1994).
4" 41'
152
is the object of the option.
The option
contract is distinct from the main contract
Ang Yu Asuncion v. CA, 238 SCRA 602, 612 (1994). Atkins, Kroll & Co. v. Cua, 102 Phil. 948 (1958). 420 Beaumont v. Pneto, 41 Phil. 670 (1916). 421 Ang Yu Asuncion v. CA, 238 SCRA 602, 614 (1 994). 416
419
153
(e.g., sale) which is the object of the
seek specific performance of the owner' s
option.422
(3)
obligation to grant him the right of first refusal427 (by allowing the right-holder to .
If the consideration given is really intended as
buy the property at the same terms and
part of the consideration for the main contract, the
main
perfected.423
contract Thus,
an
conld
be
(Art. 1482) A
party).
"earnest money" in a
contract of sale is evidence of its perfection.
(4)
conditions at which it was sold to the third
deemed
"right offirst refusar' (where X gives Y the
right to buy a property should
4. Advertisements. a.
X decide.to sell
invitations to make an offer. (Art.
it) is not an option contract because it depends on whether X will decide to sell the property . 2 and on terms that are not yet determm�te.4 4
b,
refusal
does
not
need
refusal may be a clause in a principal contract (e.g., lease), in which case the consideration for the right of first refusal forms part of the consideration for the
. .
prmc1pa1 contract.'2'
Advertisements for bidders are simply invitations to accept the highest or lowest bidder, unless the contrary appears. (Art.
separate
consideration to be valid. The right of first
1325)
make proposals, and the advertiser is not bound to
Since it is not an option contract, a right of first
Unless it appears otherwise, business advertisements of things for sale are not definite offers, but mere
c.
1326)
Public advertisements offering rewards or prizes, such as in contests or competitions, constitute unilateral promise. When a member of the public performs an act pursuant to the offer (e.g., participates in the contest), such action constitutes an acceptance which converts the promise into a contract binding on the
In case the right of first refusal is violated
advertiser.428
- i.e., the owner sells the property to a third person without first allowing the right-holder to purchase it - the right
"' Ang Yu Asuncion v. CA, 238 SCRA 602, 614 (1994). 423 Ang Yu Asuncion v. CA, 238 SCRA 602, 614 (1994); Sps. Co v, CA, G.R. No. 1 12330, August 17, 1999. 42• Ang Yu Asuncion v. CA, 238 SCRA 602, 614-615 (1994). Equatortal Realty Development, Inc. v. Mayfair Theater, Inc,, 264 SCRA 483, 500 (1996). "" Equatorial Realty Development, Inc. v. Mayfair Theater, Inc., 264 SCRA 483, 505 (1996). 426 Equatorial Realty Development, In� v. Mayfair Theater, Inc,, 264 SCRA 483, 510 (1996); . Paranaque Kings Enterprtses, Inc. v. CA, 268 SCRA 727 (1997); Riviera F1lipma, Inc. vs. Court
of Appeals, G.R. No. 1 173!i5, Aprtl 5, 2002, 380 SCRA 245, 259-260; Tanay Recreation Center and Development Corp. v. Fausto, G.R. No. 140182. April 12, 2005. 421 Equatorial Realty Developmen\ Inc. v. Mayfair Theater, Inc., 264 SCRA 483, 509-10 (1996); Paranaque Kings Enterprises, Inc. v. CA, 268 SCRA 727 (1997); Riviera Filipina, Inc. vs, Court of Appeals, G.R. No. 117355, April 5, 2002, 380 SCRA 245, 259-260; Tanay Recreation Center and Development Corp. v. Fausto, G.R. No. 140182. April 12, 2005. Note that in Ang Yu Asuncion v. CA, 238 SCRA 602, 614·615 (1994), the Supreme Court (through J. Vitug) held that a right of first refusal is not governed by the law of contracts, and violation cannot give rtse to action for specific pertormance. It Is covered by the provisions of human relations and violation may give rtse to damages for abuse of rights under Art. 19. In Equatortal, J. Vitug dissented and reiterated that a right of first refusal cannot be considered a contract because the basic terms (particularly the consideration for the future sale) wou1d have yet to be determined and fixed. 429 Dela Rosa v. BPI, 51 Phil. 926 (1924).
154
155
holder may: (a) seek the rescission of the sale as a rescissible contract426; and (b)
·
·
C.
ACCEPTANCE 1. Definition. Acceptance is the conformity by the offeree to the proposition of the offerer.
2. Absolute. a. The acceptance must be absolute. (Art. 1319) To produce a contract, the acceptance must not qualify, modify or vary the terms of the offer. There is no acceptance sufficient to produce consent, when a condition in the offer is removed, .or a pure offer is accepted with· a· condition, or when a term is established, or changed, in the acceptance, or when a simple obligation is · converted by the acceptance into an alternative one; in other words, when something is desired which is not exactly what is proposed in the offer.429 b. A qualified acceptance constitutes a counter-offer. (Art. 1 3 1 9) Any modification or variation from the terms of the offer annuls the latter and frees the offerer.430 The original offerer is free to accept or refuse the counter-offer. 3. Knowledge of the Acceptance. The acceptance of an offer must be made known to the offerer.431 The contract is perfected only from the time the acceptance of the offer is made known to the offerer.432 Unless and until the offerer
knows of the acceptance, there is no meeting of the minds of the parties, no real concurrence · of offer and acceptance.433 a. The offerer may withdrriw his offer before he learns of the acceptance thereof by the offeree.434 The contract is not perfected if the offerer withdraws his offer, and the withdrawal is made before he learns of the acceptance.435 b. Acceptance made by letter or telegram does not bind the offerer except from the time it came to his knowledge. (Art. 13 19) The contract,' in such a case (acceptance by letter or telegram), is presumed to have been entered into in the place where the offer was made. (Art. 1 3 1 9) c. An offer made through an agent is accepted from the time acceptance is communicated to him (i.e., the agent). (Art. 1 322) A messenger or intermediary or Jetter-earner who brings the offer is not necessarily an agent. The contract is not perfected by communicating the acceptance to a messenger.
4. Express or Implied. An acceptance may be express or ·
implied. (Art. 1320)
a. Acceptance may be implied from the contemporaneous and subsequent acts of the contracting parties. Thus, performance of the conditions in a "conditional
42' Sps. P.aderes v.
CA, G.R. No. 1 47074, July 15, 2005. Sps. Paderes v. CA, G.R. No. 147074, July 15, 2005. '" Malbarosa v. CA, G.R. No. 125761, April 30, 2003, citing Jardine Davies, Inc. v. Court of Appeals, et al., 333 SCRA 689 (2000). 432 Malbarosa v. CA, G.R. No. 125761, April 30, 2003.
"' Malbarosa v. CA, G.R. No. 125761, April 30, 2003, citing Enriquez v. Sun Life Assurance, 41 Phil. 269. Laudico v. Arias, 43 Phil. 270 (1922). "4 Laudico v. Arias, 43 Phil. 270 (1922). 4" Laudico v. Arias, 43 Phil. 270 (1922); Malbarosa v: CA, G.R. No. 125761, April 30, 2003.
i56
157
430
D. CAPACITY TO GIVE CONSENT
counter-offer" amounts to acceptance of said counter offer. 436
b.
I . Capacity.
give consent to a contract unless there is a ground for his
In general, the offeree is not bound to answer a
incapacity provi_ded by law.
proposal, and his silence per se cannot be construed as an
acceptance.437
an
As
exception,
however,
Capacity is presumed; the party who alleges the
acceptance may be implied from silence if clearly
incapacity of a certain person has the burden to prove
warranted by the circumstances. (see Art. 1 870) c.
2. Incapacity.
(Art. 1321)
5. Time, Place and Manner.
contract:
The person making the offer
a.
may, fix the time, place, and manner of acceptance, all of which must be complied with. a.
b.
·
such incapacity. 440
If the offeree requires express acceptance, it should be done expressly.
As a general rule, any person of legal age can
(Art. 1321)
The following cannot give consent to a
Unemancipated minors (Art. 1327) i.
The reference to "unemancipated" minors is meant
An acceptance which is not made in the manner, place
to distinguish them from minors who had been
constitutes a counter-offer, which the offerer may
. persons below 1 8 years old could marry). With the
emancipated by marriage (under the Civil Code,
or period prescribed by the offerer is not effective but
setting the age of consent for
accept or reject. 438
Family Code
In general, when the offerer has not fixed a period for
majority, there is no longer a possibility of an
marriage to
a person present, the acceptance must be made
n.
immediately. 439
however, has been criticized on the ground that a
but the revocation must be niade known to the offerer
Davis, Inc. v. CA, G.R. No. 1 28066, June 19, 2000. '" Mendoza v. CA, G.R. No. 116710, June 25, 2001. 438 Malbarosa v. CA, G.R. No. 125761, April 30, 2003. 439 Malbarosa v. CA, G.R. No. 125761, April 30, 2003.
436 Jardine
158
minor cannot be bound by his representations in
For as soon as the
offerer learns of the acceptance, the contract is deemed perfected.
A minor (near the adult _age) who misrepresented
that he was of legal age may be deemed estopped to deny his lack of capacity.44 1 This doctrine,
6. Revocation of Acceptance. Acceptance may be revoked, he learns of the acceptance.
years old, which is also the age of
emancipated minor.
the offeree to accept the offer, and the offer is made to
before
18
·
the same way that he cannot be bound by his contracts. 442
44° Calalan v. Basa, G.R. No. 159567, July 31, 2007, citing Miguela Carillo v. Justimiano Jaojoco 46 Phil. 957, 960 (1924), Vitalista, el al. v. Perez, et al., G.R. No. 164147, June 16, 2006, 49 { SCRA 127. 441 Mercado v. Espiritu, 37 Phil. 215 (1917); Suan v. Alcantara, 85 Phil. 669 (1950). 442 J. Padilla, concurring, in Suan v. Alcantara, 85 Phil. 669 (1950). J. Padilla cited Young vs. Tecson, 39 O.G. 953.
159
b.
Note that in this case, the burden of proof
Insane or demented persons; (Art. 1 327) 1.
valid. (Art. ii.
has shifted to the party alleging sanity or lucidity.
Contracts entered into during a lucid interval are
1328)
c.
Contracts agreed to in a state of drunkenness or during a hypnotic spell are voidable. (Art.
Deaf-mutes
who do not know how to write.
1328) 3. Other Grounds for Incapacity/Disqualification.
Notes: (!)
incapacity declared in Article
1327
The
.is subject to the
modifications determined by law, and is understood to be
The person who questions the sanity of a party
to a contract must prove that such party was of
without prejudice to special disqualifications established in
unsound mind at the
the laws. (Art.
contract.443
time of the making of the
a.
(a) It is not sufficient to show ,that the ' contracting party was judicially declared incompetent
several
days
after
(b) A person suffering from
1329)
The Rules of Court provide that an "incompetent" person may be placed 6n guardianship.
The word
"incompetent" includes:446
the
execution of the contract444
schizophrenia
does not necessarily lose . his competence
i.
Persons suffering the penalty of civil interdiction;
ii.
Hospitalized lepers;
to intelligently dispose his property. The
iii. Prodigals;
years, with only very slow deterioration of
iv. Persons who are deaf and dumb who are unable to
said illness waxes and wanes over many
intellect. · The party who challenges the
read and write;
capacity of the schizophrenic must still show that at the time of the contract, the
v.
schizophrenic was not of sound mind.445
(2)
(Art.
1327)
they have lucid intervals, and
A person who has been judicially declared mentally
incapacitated
guardianship may still
and
placed
vi. Persons not of unsound mind, but by reason of age,
on
disease, weak mind, an.d other similar causes,
validly enter into
contracts if it can be shown that he had a
cannot,
160
without
outside
aid,
take
care
of
themselves and manage their property, becoming
lucid
interval at the time of execution.
"' Carrillo v. Jao]oco, 46 Phil. 597 (1924); C•talan v. 444 Carrillo v. Jaojoco, 46 Phil. 597 (1924). 445 Catalan v. Basa, G.R. No. 159567, July 31, 2007.
Persons who are of unsound mind, even though
thereby an easy prey for deceit arid exploitation. .
Basa, G.R. No. 159567, July 31 , 2007. .
"' Rule 92, Section 2. 161
b.
The law also provides for specific disqualifications, such as the disqualification of foreigners to acquire
land or
the
disqualification of spouses
to sell to each
other.
Defect or lack of·valid consent, to make a contract voidable, must be established by full, clear and convincing evidence, and
not merely by a preponderance thereof.450 The presumption is
4. Effect of lncapacity.
that a person takes ordinary care of his concerns and that
a: If one of the parties to a contract is incapacitated, the contract is
b.
by error; freedom is vitiated by violence, intimidation or undue . il:ifluence; spontaneity is, vitiated by fraud.449
voidable (not void). (Art. 1390)
1. Mistake.
If both parties to a contract are incapacitated, the contract is
private transactions have been fair and regnlar.451
unenforceable (not void). (Arts. 1403[3] and
1407) If a party is disqualified by law, the cqntract is
void,
a.
In order that mistake may invalidate consent, it should refer to: i.
The substance of the thing which is the object of
the contract (Art.
1 3 3 1), or
ii. Those conditions which have principally moved
E. VICES OF CONSENT
one or both parties to enter into the contract. (Art.
Consent is essential to the exiStence of a contract. If consent is
441 absent, the contract is non-existent.
1331) (I)
Mistake as to the identity or qualifications of
If consent is present, but it was given through mistake,
·one of the parties will vitiate consent only
voidable. (Art. 1330)
the principal cause of the contract. (Art.
when such identity or qualifications have been
violence, intimidation, undue influence, or fraud, the contract is
Consent has the following requisites:
or with an exact notion of the matter to which it refers; should be
free;
Identity
(1) it should be intelligent
and (3) it should be
spontaneous.448
(2)
can
usually
to perform in a concert or paint a portrait).
These
vices or defects of consent � intelligence in consent is vitiated
qualifications
become material in obligations to do (e.g.,
it
requisite characteristics are vitiated by the aforementioned
or
1331)
(2)
A simple mistake of account shall give rise to its correction.
(Art. 1331)
'"Amado v. Salvador, G.R. No. 171401, December 13, 2007. "' Lim, Jr. v. San, G.R. No. 159723, 9 September 2004, 438 SCRA 102, 106·107; Leonardo v. CA, G.R. No. 125485, 13 Seplember2004; Vcia. De Ape v. CA, G.R. No. 133638, April 15, 2005; Catalan v. Basa, G.R. No. 1 59567, July 31, 2007; Espino v. Vicente, G.R. No. 168396, June 22, 2006; Amado v. Salvador, G.R. No. 171401, December 13, 2007.
'" Lim, Jr. v. San, G.R. No. 159723, 9 September 2004, 438 SCRA 102, 106-107; Leonardo v. CA, G.R. No. 125485, 13 September 2004; Vda. De Ape v. CA, G.R. No. 133638, April 15, 2005. 450 Lim, Jr. v. San, G.R. No. 159723, 9 September 2004, 438 SCRA 102; Acabal v. Acabal, G.R. No. 148376, March 31, 2005. 451 Heirs of Zamba�s v. CA, G.R. No. L-54070, February 28, 1983.
162
163
This
refers
computation.
to
error in mathematical
be considered valid even if there is a mistake
The amount intended will
in the designation of its lot number or TCT number.456 The remedy here is reformation of
govern.
instrument.
Notes: (1)
The concept of error in both: (a)
ignorance,
Art. 1331
b.
includes
which is the absence of
doubt, contingency or risk contract. (Art. 1333)
knowledge with respect to a thing, and (b)
mistake
There is no mistake if the party alleging it
knew the
affecting the object of the
properly speaking, which is a wrong i.
conception about said thing, or a belief in the
To invalidate consent, the error must be real and
existence of some circumstance, fact, or event,
not one that could have been avoided by the party
which in reality does not exist. In both cases,
alleging it. An error so patent and obvious that nobody could have made it, or one which could
there is a lack of full and correct knowledge about the thing.452
have been avoided by ordinary prudence, cannot be invoked by the one who made it in order to annul
d
his contract.457
Examples of mistake proper: (a) ale of a parcel of land which the seller mistakenly thought he owned453; (b) sale a parcel of land
which
the
seller
thought
represented to be out to be only
(2)
30 hectares, 18 hectares454•
ii.
and
thereon
may
be
considered
inexcusable as it could be avoided through a geodetic survey.458
but turned
The error must be the . causal, not merely
c.
Mutual error
as to the
legal effect
of an agreement
when the real purpose of the parties is frustrated, may
incidental, factor that induced the complaining ss party to enter into the contract. 4 Error as to quality (a DVD movie which
Alleged mistake as to the area of the land or encroachments
vitiate consent. (Art.
·
i.
1334)
As a rule, mistake of law,459 or misappreciation of
turned out to be boring) or as to value (a
the legal import of the contract, 460 will not vitiate
jewelry which turned out tO be overpriced)
consent.
is generally merely incidental.
ii.
(3)
Art.
1334
provides for an exception, but the
Mere error as to designation will not vitiate
following requisites must be present: (a) the error
consent, as long as the intended object is clear .
is
mutual;
(b) it refers to the
legal effect
of the
Thus, a sale of a particular parcel of land may 452 Sps. Theis v. CA, G.R. No. 126013, February 12, 1997. '" Sps. Theis v. CA, G.R. No. 126013, February 12, 1 997. "' Asian v. Jalandoni, 45 Phil. 296 450 Periquet v. Reyes, G.R. No. L-23886, December 29, 1967.
164
"' Atilanov. Atilano, G.R. No. L-22487, May 21, 1969. "' Alcasid v. CA, G.R. No. 104751, October 7, 1994; Domingo Realty, Inc. v. CA, G.R. No. 126236, January 26, 2007. "' Domjngo Realty, Inc. v. CA, G.R. No. 126236, January 26, 2007. . "' Dandan v. Ariel Realty & Management Corp., G.R. No. 173114, September 8, 2008. "' Periquet v. Reyes, G.R. No. L-23886, December 29, 1967. 165
agreement; (c) the real purpose of the parties is
weakness, tender age or other handicap, the courts must be vigilant for his protection. (Art.
ji·ustrated. iii. Art.
1334 may encompass mistake as to the nature
e.
of the contract.461 Thus, if A promises to lend B a
particular thing, and B agrees in the belief that it is donated to him, there is no contract.462
d.
2. Violence.
unable to read, or if the language not understood by him, and
a.
mistake or fraud is alleged, the person enforcing the
contract must show that the terms thereof have been
fully explained to the former. (Art. (i) Note that Art.
1332
There is violence when in order to wrest consent,
serious or irresistibleforce is employed. (Art. 1335) Requisites of violence as a vice of consent:
.
1332)
i.
creates a presumption of
mistake and fraud, upon a showing that:
(!) one of
a language not understood by him.
If these
b.
other party (who seeks to enforce the contract) to
showing that the contract was fully explained to
If the illiterate party is the one seeking to enforce
the contract, he need not prove that the contracts
was fully explained to him.
3.
moral dependence, ignorance, indigence, mental .
Intimidation. a.
There is intimidation when one of the contracting
parties is compelled to give his consent by a reasonable
and well-grounded fear of an imminent and grave evil
property of his spouse, descendants or ascendants. (Art.
v.
1 335)
Requisites of intimidation as vice of consent466: i.
166
who did not
upon his person or property, or upon the person or
iii. A11. 1334 is based on the principle that when one of the parties is at a disadvantage on account of his
'" IV Tolentino 488. '" IV Tolentino 478. "' Sales v. CA, G.R. No. L·40145, July 29, 1992; Leonardo September 2004. '" Sales v. CA, G.R. No. L-40145, July 29, 1992.
of the
Violence shall annul the obligation, although it may
have been employed by a
third person take part in the contract. (Art. 1336)
rebut the presumption of mistake and fraud463 (by the disadvantaged party and was freely consented
determining cause
contract, or. must have caused the consent to be
ii, The force must be serious or irresistible.
circumstances .are shown,. the burden shifts to the
to).464
The force must be: the given;
the parties is unable to read, or (2) the contract is in
ii.
If a party signed a contract without knowing what it . ' vo1' d.465 was, there is no consent, and the contract is
·
When one of the parties is contract is in a
24)
The intimidation must be the
determining cause of
the contract, or must have caused the consent to be given;
CA, G.R. No. 125485, 13
'" Baranda v. Baranda, G.R. No. L-73275, 20 May 1987, 150 SCRA 59. "' De Leon v. CA, G.R. No. 80965, June 6, 1990. 167
u.
iv. The threat produces a
groundedfear fro1n
The threatened act be unjust or unlawful; A threat to enforce one's
whom it comes has the necessary means or ability to inflict the threatened injury.
claim through
competent authority, if the claim is just or
legal, does not vitiate consent.
b.
(Art. 1335)
(a) There is nothing unlawful in a threat to sue
as a means to enforce a claim, even if a the claimant believes it was his right to do
absolutely to act as requested, but is nevertheless
overcome by force or intimidation to such an extent that he becomes a mere automaton and acts
criminal charges against a bank . teller
mechanically only. 472
unless she· returns the proceeds of a
mortgage
foreclose
To vitiate consent, it must be
judgment, and his will rebel and he refuses
file an estafa case against an eriployee unless the latter resigns,'68 or to file
to
does not vitiate it.
pressure he cannot resist; or that his sense,
(b) Thus, therei s no intimidation in a threat to
or
Mere reluctance or hesitation in giving consent shown that the party acted against his will under a
so.467
check,'69
To determine the degree of intimidation, the age, sex and condition of the person . shall be borne in mind. (Art. 1335) i.
claim proves to be unfounded, as long as
spurious
reasonable and well
the fact that the person from
a
ii. A high level of education usually entails that a
unless the debtor signs promissory notes to restructure the loan.470
person is less susceptible to intimidation.473
c.
(c) Thus, a threat to file a case for immorality
against a bar candidate if he does not
Intimidation shall annul the obligation, although it may
have been employed by a
third person
take part in the contract. (Art.
marry a girl he had sex with, does not vitiate consent. 47 1
who did not
1336)
4. Undne lnflnence. iii. The threat must be real and serious, there being an evident disproportion between the evil and the
a.
resistance which all men can offer, leading to the
depriving the latter of a reasonable freedom of choice.
choice of the contract as the lesser evil; and
"' Lee v. CA. G.R. No. 90423, September 6, 1991, Berg v. National City Bank of New York, 102 Phil. 309, 316. 466 Callanta v. NLRC, G.R. No. 105083, August 20, 1993. '" Lee v. CA, G.R. No. 90423, September 6, 1991. "' Development Bank of the Phils. v. CA, G.R. No. 138703, June 30, 2006; 'Development Bank of the Phils. v. Perez, G.R. No. 148541, November 11, 2004. 471 Ruiz v. Atienza, CA, 40 O.G. 1903. 168
There is undue influence when a person takes improper
advantage of his power over the will of another, . (Art.
1337)
Undue influence is any means employed upon .a
party which, under the circumstances, he could not "'Lee v. CA, G.R. No. 90423, September 6, 1991, citing Vales v. Villa, 35 Phil, 769, 789. See Lee v. CA, G.R. No. 90423, September 6, 1991; Sicangco v, NLRC, G.R. No. 110261, August 4, 1994; Amkor Technology Phils, Inc. v. Juangco, G.R. No. 166507, January 23, 2007,
473
169
well resist and which controlled Iris volition and
ignorance, indigence, mental weakness, tender age,
induced him to give his .consent to the contract,
and other similar handicap.478 (Art.
24)
which otherwise he would not have entered into. It ii.
must destroy the free agency of a party and
In some except�onal cases, the court may even set
interfere with the· exercise of that independent
aside
discretion which is necessary for determining the
contract (such as a clause on an inconvenient
advantages
venue).479
or
disadvantages
of
a
proposed
prejudicial
stipulations
in
an
adhesion
A typical example is transportation
tickets, which are usually accepted by passengers
contract.474
or the riding public without paying much attention, b.
The following
particularly when the available common carriers 0 serving a given area "are few ,48
circumstances shall be considered (Art.
1337): i.
The
confidential,
family,
spiritual
and
iii. Note, however, that contracts of adhesion are not
other
invalid per se and not strictly against the law; they
.relations between the parties, or ii.
are as binding as ordinary contracts.481
'
so
in
contracts
entered
This is
The fact that the person alleged to have been
particularly
into ·by
unduly influenced was suffering from mental
educated persons or by seasoned businessmen, since they are presumed to have acted with due
weakness, or was ignorant or in financial distress.
care and to have signed the contracts with full However, financial distress
per se
knowledge of its import.482
cannot be
The court may also .
consider the nature of the transaction and the
equated with undue influence.475
amount of money involved; major transactions c.
A contract of adhesion is one
involving huge sums of money are naturally
wherein almost all of the provisions are drafted by one
deemed to have· b.een entered only with care,
party. The participation of the other party is limited to
deliberation and diligent study.483
Contracts ofAdhesion affixing
his
-
signature
or his
'adhesion'
to
the
contract.476 i.
Any ambiguity, obscurity or doubt in a contract of
"'Alcasid v. CA, G.R. No. 1 04751, October 7, 1994. Nos. 150773 & 153599, September 30, 2005. 476 Equitable PCI Bank v. Ng Sheung Ngor, 541 SCRA233, 239 (2007). 477 Spouses Panlilio v. Citibank, N.A., 539 SCRA 69, 93 (2007). See also Ayala Corporation vs. Ray Burton Development Corporation, 294 SCRA 48, 69 (1998); Spouses Litonjua v. L&R Corp., 328 SCRA 796, 805 (2000); Rizal Commercial Banking Corporation v. Court of Appeals, 305 SCRA 449, 454-455 (2002).
Corporation vs. Ray Burton Development Corporation, 294 SCRA 48, 68·69 (1998). Sweet Lines, Inc. v. Teves, 83 SCRA361 (1978). "' Sweet Lines, Inc. v. Teves, 83 SCRA 361 (1978). 481 Rizal Commercial Banking Corporation v. Court of Appeals, 305 SCRA 449, 454 (2002); Ayala Corporation vs. Ray Burton Development Corporation, 294 SCRA 48, 67-68 (1998). 482 Development Bank of the Philippines vs. National Merchandising Ccrporation, 40 SCRA 624 (1971); Spouses Liton)ua v. L&R Corp., 328 SCRA 796 (2000); Pilipino Telephone Corporation v. Tecson, 428 SCRA 378 (2004); Dia v. St. Ferdinand Memorial Park, Inc., 509 SCRA 453 (2006); Spouses Panlilio v. Citibank, N.A., 539 SCRA 69 (2007); Uy v. People, G.R. No. 174899, September 1 1, 2008. '" Development Bank of the Philippines vs. National Merchandising Corporation, 40 SCRA 624 (1971); Pilipino Telephone Corporation v. Tecson, 428 SCRA 378 (2004); Spouses Panlilio v. Citibank, N.A., 539 SCRA 69 (2007); Uy v. People, G.R. No. 174899, September 1 1 , 2008.
170
171
adhesion is construed or resolved strictly against the party who prepared it.477 The purpose of this is to protect a party who is disadvantaged because of
4" Sps. Carpo v. Chua, G.R.
47' Ayala 419
d. Undue influence shall annul the obligation, although it may have been employed by a
third person
who did
not take part in the contract. (by analogy with
b.
Classification. The fraud or dolo which is present at the time of birth or perfection of a contract may either
Art.
488
be dolo causante or dolo incidente.
1336)
i.
5. Fraud.
Dalo causante or causal fraud - insidious words or m�chinations of one of the contracting parties,
a.
In General. There. is fraud when, through insidious
through which the other is induced to enter into a
words or machinations of one of the contracting
contract which, without them, he would not have agreed to. (Art.
parties, the other is induced to enter into a contract
1338)
which, without them; he would not have agreed to.
(I) Dalo causante
(Art. 1338)
detennines or is the essential
cause of the consent. i.
It is the type of fraud
which vitiates consent. 489
"Insidious words or machinations" include false promises, the exaggeratio11 of hopes or benefits, the abuse of confidence, the use of !pretended
(2)
names, qualities, or powers, and the thousand other
To vitiate consent, the following requisites must �ollcur490:
forms of deceit, .by which one may be misled.484 (a) It must have been employed by one ii.
The fraud under Art.
contracting party upon the other (Art.
1338 which is deemed a vice
and
of consent refers to that which is employed prior or
creation of the contract.4"
simultaneous to the
This should be distinguished from fraud under Art.
1344);
(b) It must have induced the other party to enter into the contract (Art. 1338);
1 171, which is fraud in thefulfillment of a contract
or obligation
1342
already existing. Fraud under Art
1 1 71 is bad faith in the performance of an
(c) It must have been serious (Art.
1344);
obligation or a conscious and intentional design to evade
the ·
normal
fulfillment
of
(d) It mnst have resulted in damage and injury
existing
to the party seeking annulment.
obligations.486 iii. Good faith is presumed, and allegations of fraud must
be
proved .
evidence.487
by
clear
and
ii. Dalo inc/dente or incidental fraud - fraud which is not serious in character and without which the
convincing
other party would still have entered into the contract. 491
..
'" Strong v. Gutierrez Repide, 6 Phil. 680 (1906). "' Caram, Jr. v. Laureta, G.R. No. L-28740, February 24, 1981. 486 Luzon Brokerage Co., Inc. vs. Maritime Building Co., Inc. and Myers Building Co., G.R. No. L· 25885, January 31, 1972, 43 SCRA 93 487 Chiang Yla Min v. CA, G.R. No. 137932, March 28, 2001. 172
488 Geraldez v. CA,
G.R. No. 108253, February 23, 1994. Geraldez v. CA, G.R. No. 108253, February 23, 1994. "" Alcasid v. CA, G.R. No. 104751, October 7, 1994. "' Geraldez v. CA, G.R. No. 108253, February 23, 1994.
489
173
•
remained
Dalo incidente refers
unimpaired
regardless · of
the
consideration of the sale.494
only to some particulars
or accident of the obligations. It merely obliges the person employing it to pay damages. 492
ii.
The usual exaggerations in trade, when the other party had an opportunity to !mow the facts, are not
(Art. 1344)
u
in themselves fraud lent. c.
(Art. 1 340)
Determination ofFraud. (1) The law allows considerable latitude to seller's i.
Failure to disclose facts, when there is a duty to
statements or dealer's talk; it is natural for the
reveal them, as when the parties are bound by
seller to exaggerate the value, qualities and
confidential:relations, constitutes fraud. (Art.
characteristics of his products.
1339)
The buyer is
expected to make the proper inquiries and not
Examples: (1) X,
controlling
to simply rely on or accept the
the managing director and
stockholder
of company
ABC
seller's
assertions at face value.495
purchased, through an agent, additiol)al ABC shares from an existing stockholder;
Y.
X
(2) However, there may be fraud if the seller
!mew, but did not disclose to Y, that the value
makes false statements of fact or gives· his products false appearances which are designed
of the shares would be greatly enhanced because of a transaction being negotiated.
to mislead.
It
was held that the purchase was fraudulent. As managing director,
X .had the
duty to disclose
Also, Art.
(3)
1 10 of the Consumer Act (RA 7394)
the circumstances affecting the value of the
prohibits
shares. 493
advertisement" to induce the purchase of ·
(2)
"false,
deceptive
or
misleading
consumer products or services�496
A mortgaged his .land to Bank to secure a
loan. A then sold the land to Z who assumed the mortgage.
Z entered into an agreement
"'.ith the Bank for the restructuring of A's lo\lll and for the discharge of the mortgage. Bank later cancelled its agreement with Z when it discovered that the real consideration for A's sale of the land to. Z was much higher than what Bank thought. It was held that there was no fraud in Z's failure to disclose the real consideration for the sale, as Z had no duty to make
such
4" Geraldez v. 493
disclosure;
CA, G.R. No. 108253, February 23, 1994. Strong v. Gutierrez Replde, 41 Phil. 947; 213 U.S. 419. 174
the bank security
· "4 Rural Bank of Sta. Maria, Pangasinan v. CA, G.R. No. 1 10672, September 14, 1999. 4" Songco v. Sellner, 37 Phil. 254; Trinidad v. IAC, G.R. No. 65922, December 3, 1991. 496 "ARTICLE 1 10. Fatsa Deceptive or Misleading Advertisement. - It shall be unlawful for any
person to disseminate or to cause 1he dissemination of any false, deceptive or misleading advertisemant by Philippine mail or in commerce by print, radio, television, outdoor advertisement or other medium for the purpose of inducing or which is likely to induce directly or indirectly the purchase of consumer products or services. An advertisement shall be false, deceptive or misleading if it is not in conformity with the provisions of this Act or if it is misleading in a material respect. - In determining whether any advertisement Is false, deceptive or misleading, there shall be taken into account, among other things, not only representations made or any combination thereof, but also the extent to which the advertisement fails to reveal material facts in the light of such representations, or materials with respect to consequences which may result from the use or application of consumer products or services to which the advertisement relates under the condition� prescribed in said advertisement, or under such conditions as are customaiy or usual." ·
t75
ii.
iii. A mere expression of an opinion does not signify fraud. (Art.
party has relied on the former's special
1 . Definition. Simulation occurs when an apparent contract is
1341)
a declaration of a fictitious wil� deliberately made by
agreement of the parties, in order to produce, for the
iv. Misrepresentation by a third person does not vitiate
purpose of deception, the appearance of a juridical act
1342)
Unless (1)
which does not exist or is different from that which was 0 really executed. 5 0
such misrepresentation has created
substantial mistake and (2) the same is mutual. (Art
2. Requisites of simulation501:
1342)
The deceived person has a cause of action against the third p�rson who him.497
v.
d.
aeceived
a.
An outward declaration of will different from the will
b.
The false appearance must have been intended by
Misrepresentation made in good faith is not fraudulent but niay constitute error.
(Art. 1343)
c.
Effects of Fraud. i.
Dula causante
makes
the
t
employed by both. contracting parties. (Art. also
renders
the
employing it liable for damages. 498 The fraud is
serious
impress, or to lead
person into error.499
of the parties;
mutual agreement; and
The purpose is to deceive third persons.
3. Types of Simulation. Simulation of a contract may be absolute or relative. (Art. 1345)
provided that it is: (a) serious, an4 (b) has not been
Dalo causante
1344)
·
person
a.
Absolute simulation to be bound at all. i.
176
when the parties do not intend
Example: When X and Y enters into a sale of land,
but did not really intend it; no consideration was given and the land was not delivered.
when it is sufficient , to an
-
(Art. 1345)
ordinarily prudent
n.
An absolutely simulated or fictitious contract is void (Art.
1346), because consent is totally absent.
Villaflor v. Court of Appeals, 280 SCRA 297, 337 (1997): Mendezona v. Ozamiz, G.R. No. 143370, February 6, 2002; Sps. Payongayong v. CA, G.R. No. 144576, May 28, 2004. 501 Loyola v. Court of Appeals, 326 SCRA 285, 294 (2000); Penalosa v. Santos;363 SCRA 545, 556 (2001); Sps. Payongayong v. CA, G.R. No. 144576, May 28, 2004. 500
"' Hill v. Veloso, 31 Phil. 160 (1915). 498 Geraldez v. CA, G.R No. 108253, February 23, 1994. '" Sierra v. CA, G.R. No. 90270, July 24, 1992.
(Art. 1344)
F. SIMULATED CONTRACT
Unless (!)' made by an expert and (2) the other
consent. (Art.
only obliges the person employing
it to pay damages.
1341)
knowledge. (Art.
Dalo incidente
177
Ill. OBJECT OF CONTRACTS
iii. An
absolutely
a
from
distinguished alienation. 502
(I)
simulated
contract
fraudulent
must
contract
be
or
"Object" is the thing, right or service which is the subject matter of the contract. (see Arts.
In absolutely simulated- contract, no contract
The following are the requisites for a thing, right or service to be an
really exists or was intended; it may thus be
object of contracts:
attacked by any creditor, at any time, and even if the debtor is not insolvent.
(2)
A. WITIDN THE COMMERCE OF MAN
In fraudulent alienation, a contract exists and
was intended to take effect (for purpose).
If intended
I 3 1 8 and 1347)
a
I.
fraudulent
All things which are not outside the commerce of man, including futUre things, may be the object of contracts.
to defraud a creditor, it
(Art. 1347)
may be rescinded by creditors prior ·to the contract, upon showing that the debtor is
a.
insolvent, and within a prescription1 period of
Relative Simulation true agreement. i.
Example:
-
when the parties conceal their
b.
(Art. 1345)
When
X and Y enters into a purported
c.
The real or true agreement is binding on the parties, provided that:
law, morals, good customs, public order or
public policy. (Art.
so2
1346)
Rodriguez v. Rodriguez, 20 SCRA 908 (1967); IV Tolentino 517. 178
or
private
(i) public office'04 and political rights; (ii)
relations;
and
(iii)
Even fature things may be the object of contracts.
(Art.
1 347) Future things are those which are not yet
existing, or not yet owned by the obligor at the time of
( I) It does not prejudice a third person, and It is not intended for any purpose contrary to
Examples:
of appropriation
properties of public dominion, such town plaza,'05 airport lands and 8 buildings,'06 forest lands,5 07 roads and highways,50 1 0 foreshore land,'09 watershed,'1 submerged lands. 51
sale of land, but their real intent is for it to be
(2)
susceptible
purely personal rights, such as those arising from family
donation, or equitable mortgage. ii.
are not
ownership. 503
four years. b.
Things "outside the commerce ofman" are those which
the contract.
See Land Bank v. Republic, G.R. No. 150824, February 4, 2008 and Republic v. CA. G.R. No. 126316, June 25, 2004. 504 Collantes v. CA, G.R. No. 169604, March 6, 2007. 505 Municipality of Cavite v. Rojas, 30 Phil. 602 (1915); Espiritu v. Municipal Council, 102 Phil. 866 (1958). 5" Manila International Airport Authority v. CA, G.R. No. 155650, July 20, 2006. "' Land Bank v. Republic, G.R. No. 150824, February4, 2008. 50• Villarico v. Sarmiento, G.R. No. 136438, November 1 1 , 2004. '°' Republic v. CA, G.R. No. 126316, June 25, 2004. "' Santa Rosa Realty Dev't Corp. v. CA, G.R. No. 112526, October 12, 2001. 51 1 Chavez v. Public Estates Authority, G.R. No. 133250, May 6, 2003 an
179
(2) Thus, a person may sell "future goods", i.e., those
That the object of the contract forms part of.the inheritance; and
·
which are not yet existing at the time of perfection of sale, but are to be manufactured or acquired thereafter. (Art.
(3)
That the promissor has, with respect to the object, an expectancy of a right which is purely
1462)
hereditary in nature. d.
No
contract may be
inheritance except law. (Art. 1 347) i.
entered
into
upon
future
in cases expressly authorized by
iii. The exception referred to in Art.
inter vivas under Art. 1080.
such partition takes effect only upon his death, and 1 is revocable at any time during his lifetime.5 7
person may in the future acquire by succession.512 A renunciation of the right to inherit from someone who is still alive is void.m
(2)
expect to inherit frorn some.one who is still alive is void.514 ii.
the
following
reqnisites
must
concur:515
(I)
All rights which are not intransmissible may also be the
3.
1 347)
All services which are not contrary to law, morals, good customs, public order or public policy may likewise be the object ofa contract. (Art.
To be considered a "contract upon a future inheritance,"
2.
object of contracts. (Art.
A partition by the heirs of the property they
A person may, during
his lifetime, make a partition of his properties, but
Future inheritance is any property or right that a
(1)
1347 is a partition
1347) ·
B. POSSIBLE Impossible things or services cannot be the object of contracts.
That the succession has not yet been opened;
(Art.
1 348)
It is impossible for a lessor to undertake the maintenance of Upon the death of deceden� the succession opens, and the heirs may thus enter into contracts
over
their
shares
in
the
inheritance, even before the settlement or 16 partition of the estate. 5
the public drainage system; he can only maintain the . . 18 . . . 5 pnvate pipes or dramage of the ·1eased premises.
C. CERTAIN I . As to Kind. The object of every contract must be determinate as to its kind. (Art.
1349)
512 Blas v.
Santos, 1 1 1 Phil. 503 (1961); J.L.T. Agro, Inc. v. Balansag, G.R. No. 141882, March 1 1 , 2005. "' Uson v. Del Rosario, G.R. No. L-4963, January 29, 1953. 514 Tordilla v. Tordilla, 60 Phil. 162 (1934). 515 J.L.T. Agro, Inc. v. Balansag, G.R. No. 141882, March 1 1 , 2005. 51' Osorio v. Osorio, 41 Phil. 531 (1921).
517 J.L.T. Agro, Inc. v. Balansag, G.R. No. 141882, March 1 1 , 2005. '" Guevent Industrial .Dev't Corp. v. Phil. Lexus Amusement Corp., G.R. No. 159279, July . 11, 2006.
180
181
•
The object may be generic (a car, a dog). (see Art.
2.
Cause of Contracts.
1 1 65) a.
2. As to Quantity. The fact that the quantity is not
each contracting party, the prestation or promise of a thing or service by the other. (Art. 1350) .
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. (Art.
i.
undertaking to pay the purchase price. The cause should not be confused with the object, which is
circumstances stipulated in the contract.
the thing sold. ii. In
IV. CAUSE OF CONTRACTS
Definition. Cause i s the essential reason which moves the
guaranty
or
This is true even if the mortgagor, surety, guarantor or accommodating party is a third party or stranger to the principal obligation.522
is the immediate, direct and proximate reason which
justifies the creation of an obligation through the will of the 51 contractmg parties. 9 .
b.
consideration is often used interchangeably with cause .or "causa ", the two are not
Bonuses granted
exactly similar. "Causa" is broader than consideration Anglo-American
legal
concept),
as
In remuneratory contracts, the cause is the
benefit which is remunerated. (Art. 1350)
Although the term
(an
surety,
"accommodati-0n", the cause is the same as that of
contracting parties to enter into it. In other words, the cause
•
mortgage,
the principal obligation secured by the mortgage, . . 521 surety, guaranty or accomrnodatton.
IN GENERAL I.
In a sale, the cause consists of the seller's undertaking to deliver the property and the buyer's
1349)
The quantity must at least be determinable, based on
A.
In onerous contracts, the cause is understood to be, for
to
service or
employees to excite their zeal
and efficiency, with consequent benefit for the
"causa"
employer, do not constitute donation having 2 l'b 1 eral'tty c 1or a const'derat'10n.5 3
encompasses even a natural obligation and pure liberality as sufficient cause for a contract.520 c.
In gratuitous contracts (contracts ofpure beneficence), the cause is the mere
liberality of the benefactor.
(Art.
1350) 121
'" General Enterprises Inc. vs. Lianga Bay Logging Co., 1 1 SCRA 733 (1964); Basic Books (Phil.), Inc. vs. Lopez, et al., 1 6 SCRA 291 (1966); Uy v. CA, G.R. No. 120465, September 9, 1999; Roxas v. De Zuzuarregui, Jr., G.R. No. 152072, January 31, 2006, 481 SCRA 258, 276; Camacho v. CA, G.R. No. 127520, February 9, 2007. 520 IV Tolentino 530-531.
Pyle v. Johnson, 9 Phil. 249 (1907); China Banking Corporation v. Lichauco, 46 Phil. 460 (1924); Acuna v. Veloso, 50 Phil. 241 (1927); Severino v. Severino, 56 Phil. 185 (1931); Sps. Carpo v. Chua, G.R. Nos. 150773 & 153599, September 30, 20Q5: 522 China Banking Corporation v. Lichauco, 46 Phil. 460 (1924); Acuna v. Veloso, 50 Phil. 241 (1927); '" Philippine Long Distance Co. vs. Jeturlan, G. R. L-7756, July 30, 1955, cited in Liguez v. CA, 102 Phil. 577 (1957).
182
183
·
i.
a. This
covers
exclusively
contracts to
procure
designed the
welfare
of the
a failure of cause when it turned out that the lands are not suitable for housing.528
satisfaction for the donor or without serving the self-interest of the donor.524
b.
Example 2: Where the owner of a company transferred
c.
Example 3:
Examples: commodatum; donation.525
B. DISTINGUISHEJJ FROM MOTIVE: The particular motives of the parties in entering into a contract are different from the cause thereof.
In a case where the National Housing
Authority bought lands to be used for housing, there is
beneficiary, without any intent of producing any
ii.
Example I:
and
solely
(Art. 1 351) While cause is the essential reason for the
motive is the particular reason of a party in entering into a contract and which does not affect the other party.526 is the seller's undertaking to deliver a computer to him.
The buyer' s motive may be different, e.g., to be able to surf
C.
EXISTENCE OF CAUSE: Contracts must have a cause, as it is an essential requisite. Contracts whatever (Art
I. Presumption. do not affect the contract. A party's motive does not even
have to be known to the other party.
without cause produce
no effect
1352), i.e., void.
the internet, or edit his photos, or start an online business.
2. Ordinarily, a party's motives for entering .into the contract
Where a man donated land to a woman
with the motive of getting her to agree to have sexnal
relations with him, the motive was deemed the (illegal) cause.530
contract,
I. Example: In the sale o f a computer, the cause for0the buyer
his shares to a government. crony with the motive of obtaining a government contract, the motive was deemed the (illegal) cause.529
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. 1354)
2. Distinguished from Failure to Pay the Consideration.
3. However, as an exception, the motive may be regarded as
Lack of consideration is different from failure to pay the
when the contract is conditioned upon the attainment of the
contract, while the latter results in a right to demand the
the cause "'V11hen the motive predetermines the cause", i.e.,
consideration. The former prevents the existence of a valid .
motives of one of the contracting parties. 527
fulfillment or cancellation of the obligation under an existing valid contract.531
5"
Philippine Long Distance Co. vs. Jeturian, G. R. L-7756, July 30, 1955, cited in Liguez v. CA, 102 Phil. 577 (1957). 52' Although donation is referred to as an act of liberality under Art. 725, it Is actually a contract, since it requires the consent of both parties. See concurring opinion of J. Antonio In Alejandro v. Geraldez, G.R. No. L-33849, August 18, 1977. 5" Republic vs. Claribel, 36 SCRA534 (1970); Uyv. CA, G.R. No. 120465, September 9, 1999. 527 Llguez v. CA, 102 Phil. 577 (1957); E. Razon Inc. vs. Philippine Ports Authority, 151 SCRA 233 (1987); Philippine National Construction Corp. vs. Court of Appeals, 272 SCRA 183 (1997); Uyv. CA, G.R. No. 120465, September9, 1999. 184
528 Uyv. CA, G.R. No. 120465, September9, 1999. '" E. Razon Inc. vs. Philippine Ports Authority, 151 SCRA 233 (1987). "' Liguez v. CA, 102 Phil. 577 (1957). 53 1 San Miguel Properties Philippines., inc. v. Huang, 336 SCRA 737 (2000); Montecillo Reynes, G.R. No. 13801 B, July 26, 2002.
185
v.
consideration, is contrary to public policy and the due
Where the deed of sale states that the purchase price
administration ofjustice.536
has been paid but in fact has never been paid, the d�ed
of sale is void ab initio for lack of consideration.532
c.
3. Manner of Payment. In a contract of sale, a definite agreement on the manner of payment of the price is an essential element.'33
The agreement as to the manner of
(illegal) cause.'37
•,
payment goes into the price, such that a disagreement on
d. Where a man donated land to a woman with the motive
the manner of payment is tantamount to a failure to agree
of getting her to agree to have sexual relations with
on the price or consideration.534
him, the motive was deemed the (illegal) cause.'38
OF CAUSE: The cause must be legal. Contracts unlawful cause produce no effect whatever (Art. 1352),
n. LEGALITY with
3. False Cause.
Presumption.
The statement of a false cause in contracts
shall render them void, unless it should be proved that they
i.e., void.
I.
Where the owner of a company transferred his shares to a government crony with the motive of obtaining a government contract, the motive was deemed the
were founded upon another cause which is true and lawful.
The cause is presumed lawful.
'
(Art. 1353)
Although
the cause is not stated in the contract, it is presumed that it (exists and) is lawful, unless the debtor proves the contra1y.
E. ADEQUACY OF CAUSE
(Art. 1354)
2. Unlawful Cause.
I.
The cause is unlawful if it is contrary to
law, morals, good customs, public order or public policy.
General Rule.
b.
lesion
(injury) or
inadequacy of cause shall not invalidate a contract.
(Art.
1355)
(Art. 1352) Examples: a.
As a general rule,
consideration which renders the contract void.'"
The Jaw does not require that the price or consideration be equal to the exact value of the subject matter of the It will not relieve a party from the contract."'
An ·agreement to stifle the prosecution of a person
bargain.'40
The tetmination of marital relations is an unlawful
consequences of an unprofitable
charged with a crime, for a pecuniary or other valuable
2.
532
Ocejo Perez & Co. vs. Flores, 40 Phil. 921; Mapalo vs. Mapalo, G.R. No. L·21489, May 19, 1966, 1 7 SCRA 114, 122; Vda. De Catindig v. Heirs of Catalina Roque, 74 SCRA 83; Montecillo v. Reynes, G.R. No. 138018, July 26, 2002. 533 Amado v. Salvador, G.R. No. 17140.1 , December 13, 2007, citing Marnelego v. Banco Filipino Savings and Mortgage Bank, G.R. No. 161524, 27 January 2006, 480 SCRA 399, 408; Co v. Court of Appeals, G.R. No. 123908, 9 February 1998, 286 SCRA 76, 85; Velasco v. Court of Appeals, 151-A Phil. 868, 887 (1973). 534 Amado v. Salvador, G.R. No. 171401, .December 13, 2007, citing Toyota Shaw, Inc. v. Court of Appeals, G.R. No, 1 1 6650, 23 May 1995, 244 SCRA 320, 328; R.F. Navarro and Co. v. Sugar Producers Cooperative Marketing Association, 1 1 1 Phil. 820, 828 (1961). '35 De Leon v. CA, G.R. No, 80965, June 6, 1990. 186
Exceptions a.
53 S
contract or bad
In cases specified by law.
Arroyo v. Berwin, 36 Phil. 386 (1917).
(Art. 1355)
151 SCRA233 (1987). Liguez v. CA, 102 Phil. 577 (1957). 20 November 2003, 416 SCRA 539 Sps. Buenaventura v. Court of Appeals, G.R. No. 126376, 263; People's Air Cargo & Warehousing Co., Inc. v. CA, G.R. No. 1 17847, October 7, 1998; Sps. Paguyo v. Astorga, G.R. No. 130982, September 16, 2005. ''° Vales v. Villa, 35 Phil. 769 (1916).
537 E. Razon Inc. vs. Philippine Ports Authority, 536
187
Under
. 1.
Art. 1381,
contracts which are entered into
Chapter 8
in behalf of wards or absentees are rescissible if they suffer
Form of Contracts
lesion by more than one-fourth of the
value of the things which are the object of the
· ii.
contracts. Also, inadequacy of price may indicate an intent to
I. IN GENERAL
defraud creditors, which may render the contract rescissible under Art. b.
A. GENEJµl, RULE: FORM NOT NECESSARY.
1381.
obligatory, in
provided all the essential. requisites for their validity are
If there has been fraud, mistake or undue influence. (Art. i.
present.
1355)
1.
Le.\·ion or inadequacy of price may indicate, that the consent (of the party suffering lesion) was' vitiated
Our contractual system upholds the spirit and intent of the Contracts are
generally deemed perfected by mere consent. (Art.
renders the contract voidable.
2.
13 15)
Thus, the general rule is that the form (oral or written) is
irrelevant to the binding effect
Gross inadequacy of price does not affect a
inter partes
of a contract
that possesses the three validating elements of consent,
contract of sale, except as may indicate a defect in
subject matter, and causa.541
the consent, or that the parties really intended a donation or some other act or contract (Art.
(Art. 1356)
contracting parties over the formalities.
by fraud, mistake or undue influence, which
ii.
Contracts shall be
whatever form they may have beetr entered into,
1470)
For example, the following contracts are consensual, and are thus valid even if they are merely
i.
ii.
..
oral:
sale; 542 lease;543
in. contract fior services; 544 ·
iv. partition;'" .
541
Dauden-Hernaez v. Delos Angeles, G.R. No. L-27010, April 30, 1969. CA, G.R. No. 149322, November 28, 2008. See also Carbonell v. CA, G.R. No. L· 29972, January 26, 1976; Delos Reyes v. CA, G.R. No. 129103, September 3, 1999. 54J See Pagurayan v. Reyes, G.R. No. 154577, July 23, 2008; Pasricha v. Don Luis Dison Really, G.R. No. 136409, March 14, 2008: Chua Tee Dee v. CA, G.R. No. 135721, May 27, 2004. . 544 Dauden·Hernaez v. Delos Angeles, G.R. No. L-27010, April 30, 1969. 545 Chavez v. lntennedlate Appellate Court, G.R. No. 68282. November 8, 1990, 191 SCRA 211, 216; Tan v. Lim, G.R. No. 128604, Seplember 25, 1998, 296 SCRA 455, 474-475: Hernandez v. Anda!, 78 Phil. 196, 203 (1947). s.:1 Yaneza v.
'
·
188
189
(5) Contract of' partnership when an immovable is
3.
contributed
However, the binding . effect o f oral contracts i s generally limited to the contracting parties
public instrument (Art.
usually requires registration for a contract to be binding on
third persons, and an oral contract cannot be registered unless it is reduced into a public document.546
B. EXCEPTIONS: WHEN FORM IS NECESSARY.
Article
the Code establishes only two exceptions, to wit:
1356
(7) Contract of antichresis,
of
(Art.
necessary for contracts that the law requires to be proved
by some writing (memorandum) of its terms, as in those
order to make them valid and enforceable.
covered by the old Statute of Frauds, now Article
·I
following are examples:
a. which the law
requires to be embodied in a public
b.
instrument in order "that the donation may be
valid," i.e., existing or binding.
(2) Donation of movables worth more than P5,000.00
which must be in writing, "otherwise the donation
(Art. 748);
Contracts to pay interest on
(4)
loans (mutuum) which (Art.
Stipulation
limiting the liability of carrier
Their existence is not provable by mere oral testimony
or para! evidence.
The form required is for evidentiary purposes only.
Thus, the Statute of Frauds would not apply if: i.
The contr�ct is wholly or partly executed, or
ii.
The parties permit a contract to be proved, without any objection.547
Note: In the foregoing exception cases, the requirement of form is absolute and indispensable. (Art. 1356) If the formal
must be ''expressly stipulated in writing"
1956); and
requirement has not been complied with, a party cannot seek its enforcement or compel compliance with the formal
to · a
degree less than extraordinary diligence, which
requirement
of the goods (Art.
with.
190
(Art. 1356), because the law does not
recognize any existing or enforceable contract to begin
must be in writing and signed by the shipper/owner
1744);
'" See Campillo v. CA, G.R. No. 56483, May 29, 1984.
1403(2)
of the Civil Code . .
These are called solemn or formal contracts. The
(3)
2134)
2. When Required by Law to Prove the Contract. Form is
requires that they be in some particular form (writing) in
shall be void"
wherein the amount of
principal and interest must be specified in writing.
Form is necessary for contracts for which the law itself
(Art. 749)
1773);
(6) Real estate mortgage (Art. 1 874); and
I. When Required B y Law for Validity o r Enforceability.
(!) Donation of immovable property,
there must be an inventory of the
property, signed by the parties, and attached to the
The law
(inter partes).
-
Domalagan v. Bolifer, 33 Phil. 471 (1915-1916); Swedish Match, AB v. CA, G.R. No. 128120, October 20, 2004.
547
191
II.
c.
FORMAL REQUIREMENT AS A MATTER OF CONVENIENCE
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
A. IN GENERAL:
[f the law requires a document or other special
prejudice a third person;
fonn, such as in the acts and contracts enumerated in Article d. The cession of actions or rights proceeding from an act
1 358 (infra), the contracting parties may compel each other to
appearing in a public document.
observe that fonn, once the contract has been perfected. (Art.
1357)
2.
1.
2.
The foregoing requirement of a public document in Art.
This right may be exercised simultaneously with the action
1358
upon the contract. (Art.
enforceability. 549
1357)
This right presupposes the existence of a valid contract.548
is
only for
convenience,
not for
validity
or
. Thus, failure to follow the proper fonn (e.g., non
It is not available or cannot be exercised for contracts
appearance
where form is necessary for validity/enforceabil ty (i.e.,
invalidate the contract. The parties can simply compel
solemn contracts) or for proving the contracts (i.e.,
each other to observe that fonn, once the contract has
contracts covered by the Statute of Frauds). (Art.
been perfected.550
i
1356,
before
the
notary
public)
does
not
supra) c. PRIVATE DOCUMENT (AT LEAST): Contracts Art.
provides that "all other contracts where the amount involved
B. PUBLIC DOCUMENT REQUIREMENT 1.
Under Art.
1358,
exceeds five hundred pesos must appear in writing, even a private one. But sales of goods, chattels or things in action are
the following must appear in a pnblic
document: a.
governed by Articles,
1403, No. 2 and 1405." (Art. 1358)
Acts and contracts which have for their· object the
This does not mean that contracts involving more than
creation, transmission, modification or extinguishment
P500
of real rights over immovable property;
not enough that the law should require that the contract
are void or unenforceable if not in writing. It is
be in writing, as it does in Art. governed by Articles
1403,
No. 2, and
1405,
1 358.
i.e.,
they must appear in writing (even a private document) to be enforceable; b . . The cession, repudiation or renunciation of hereditary rights or of those of the conjugal partnership of gains; 54'
Penalosa v. Santos, 416 Phil. 12 (2001 ). 416 Phil. 12 (2001). "' Dauden·Hemaez v. Delos Angeles, G.R. No. L-27010, Apnl 30, 1969. 55o Penalosa v. Santos,
Solis v. Barroso, 53 Phil. 912 (1928). 192
The law must
further prescribe that without the writing the contract is not valid or not enforceable by action.'5 1
Sales of real property or of an interest therein are
548
1358
193
the contents of the written agreement."553
Chapter
9
written agreement to express the true intent and agreement
Reformation of Instruments
of the parties."
3.
simply confirms and perpetuates the real contract between the parties. 554
A. NATURE: Reformation is a remedy (originally in equity), whereby a written instrument is made or construed so as to
Reformation involves a determination of the true intent
express or conform to the real intention of the parties, where
of the parties. It involves a question of fact and not a
some mistake, fraud, inequitable conduct or accident has
mere question of law, and is different from mere
occurred or been committed. In granting reformation, the court
interpretation of the contract.555
is not making a new contract for the parties, but establishing and perpetuating the real contract between the partie� which,
B. PURPOSE: Equity orders the reformation of an instrument in
under the technical rules of law, could not be . enforced but for such reformation.552
Art. 1359 provides that when,
order that the true intention of the contracting parties may be expressed. The rationale of the doctrine of reformation is that it would be unjust and inequitable' to allow the enforcement of a
there having been a meeting of
written instrument which does not reflect or disclose the real
the minds of the parties to a contract, their true intention is not in
the
meeting of the minds of the parties.556
instrument purporting to embody the
agreement, by reason of mistake, fraud, inequitable conduct or
C.
accident, one of the parties may ask for the reformation of the instrument to the end that such true intention may be expressed.
1.
2.
There must have been a meeting of the minds of the parties to the contract;
If mistake, fraud, inequitable conduct, or accident has prevented a meeting of the minds of the parties, the. proper of the contract.
REQUISITES557
1. 2.
remedy is not reformation of the instrument but annulment
·
In an action for reformation o f instrument, the court does not attempt to make another contract'.for the parties, but
I. IN GENERAL
expressed
One of the
exceptions to the parol evidence rule is "the failure of the
The instrnment does not express the true intention of the parties; and
(Art. 1359)
Reformation is an exception to theparol evidence rule, i.e., that "when the terms of an agreement have been reduced to
553
v. Arjona, G.R. No. 158901, March 9, 2004, 425 SCRA 57, 65; Multi·Ventures Capital & Mgl Corp. v. Stalwart Mgt. Seivices Corp., G.R. No. 157439, July4, 2007.
Rule 130, Section 9. National lrngation Administration v. Gamit, G.R. No. 85869, November 6, 1992. 554 National Irrigation Administration v. Gamit, G.R. No. 85869, November 6, 1992; Quiros v. Arjona, G.R. No. 158901, March 9, 2004, 425 SCRA 57, 65; MulU-Ventures Capital & Mgl Corp. v. Stalwart Mgt. Services Corp., G.R. No. 157439, July 4, 2007. 555 National Irrigation Administration v. Gamit, G. R. No. 85869, November 6, 1992. 556 National Irrigation Administration v. Gamit, G.R. No. 85869, November 6, 1992. 557 National Irrigation Administration v. Gamit, G.R. No. 85869, November 6, 1992; Tuazon v. CA, G.R. No. 1 19794, October 3, 2000.
194
195
writing, it is considered as containing all the terms agreed
upon and there can be, between the parties and their successors in interest, no evidence of such tenns other than . ss2 Quiros
The presumption is that an instrument sets out the true
(who did not understand the language in which the
agreement of the parties thereto558; thus, the.burden of
contract was written).561
proving otherwise is on the party who insists that the contract should be reformed. 559
3.
2. Mistake By One Party; Concealment By the Other. When one party was mistaken and the other knew or
The failure of the instrument to express the true intention
believed that the instrument did not state their real
of the parties is due to mistake, fraud, inequitable conduct
agreement, but concealed that fact from the fonner, the
or accident.
instrument may be reformed. (Art.
1363)
C. IGNORANCE, LACK OF SKILL, NEGLIGENCE OR BAD FAITH:
When through the ignorance, lack of skill, negligence or bad
II. SPECIFIC INSTANCES OF REFORMATION
faith on the part of the person drafting the instrument or of the
A. MUTUAL MISTAKE: When a mutual mistake of the parties
clerk or typist, the instrument does not . express the true
causes the failure of the instrument to disclose their real
agreement, said instrument may be reformed. (Art.
intention of the parties, the courts may order that the instrument
. be reformed.
1361) I
B. MISTAKE BY ONE PARTY
D. SALE WHICH JS REALLY A MORTGAGE OR PLEDGE:
If two
parties agree upon the mortgage or pledge ofreal or personal
I.
property, but the instrument states that the property is sold
Mistake By One Party; Fraud or Inequitable Conduct By the Other. If one party was mistaken and the other
absolutely or with a right of repurchase, reformation of the
acted fraudulently or inequitably in such a way that the
instrument is proper.
instrument does not show their true intention, the former may ask for the reformation of the instrument. (Art. a.
Example
1362)
I: When the parties agreed on a contract of .
III. WHEN REFORMATION IS NOT PROPER A. GRATUITOUS ACTS: There shall be no reformation in the following cases: (Art. 1366)
lease, but one of the parties SlllTeptitiously inserted certain stipulations which were .noi agreed upon.560 '
b.
Example 2: When the parties agreed to a sale subject to
1.
repurchase, but the defendant did not include the
2.
"' BA Finance Corporation v. Intermediate Appellate Court, G.R. No. 76497, January 20, 1993, 217 SCRA 261, 277; Multl·Ventures Capital & Mgt. Corp. v. Stalwart Mgt. Services Corp., G.R. . No. 157439, Ju� 4, 2007. "' Huibonhoa v. Court of Appeals, 378 Phil. 386, 407 (1999); Multi-Ventures Capital & Mgt. Corp. v. Stalwart Mgt. Services Corp., G.R. No. 157439, July 4, 2007. 550 National Irrigation Administration v. Gamit, G.R. No. 85869, November 6, 1992.
Simple <;ionations
imposed; and
condition of repurchase unbeknownst to the plaintiff
196
(Art. 1365; see also Arts. 1 602-1605)
inter vivas
wherein no c.ondition is
Wills. Donations and wills are purely gratuitous dispositions
of property, so the law will not normally ·interfere with
561
Ong Chua v. Carr, 53 Phil. 975. 197
how the donor or testator wanted to dispose of his
The provisions of the Civil Code primarily apply to the
1.
reformation of instruments. (Art.
property. Att.
789
provides that "when there is an imperfect
The principles of the general law on the reformation of
2.
instruments are adopted insofar as they are not in conflict
description, or when no person or property ·exactly
with the provisions of the Civil Code. (Art.
answers the description, mistakes and omissions must be corrected,
if the
:B.
refers merely to errors or imperfections in the description, not to the manner of disposition.562
B. PROCEDURE I. D'eclaratory Relief. The procedure for ·the reformation of instrument shall be governed by rules of court to be promulgated by the Supreme Court. (Art.
Vorn AGREEMENTS: There shall be no reformation when the real agreement is void
(Art. 1 366)
Real Party in Interest. Reformation may be ordered at the
2.
instance of either party or his successors in interest, if the
When one of the parties has brought an action to
mistake was mutual; otherwise, upon petition of the injured
enforce the instrument, he cannot subsequently ask for its reformation. (Art.
1369)
Under the Rules of Court, the ruies on declaratory relief apply to actions for reformation of instrument.564
Reformation would be useless if the actual agre�ment is ' void and cannot be enforced.
C. ESTOPPEL:
1 360)
error appears from the
context of the will or from extrinsic evidence." This ·
1 360)
party, or his heirs and assigns.
1367)
(Art. 1368)
But a party who is sued on a contract may file a counterclaim for its reformation. '63
3 . Prescription. The prescriptive period for reformation is 10 years (Art. 1 144), counted from the time the right of
If mistake, fraud, inequitable
intention (by overt acts) not to abide by the true agreement
D. NO MEETING OF MINDS:
action accrues, i.e., the time the other party manifests an
conduct, or accident has prevented a me.eting of the minds of the parties, the proper remedy is not reformation of the
·
of the parties (not necessarily the time of execution of the contract). 565
instrument but annulment of the contract.
IV. GOVERNING LAW AND RULES A. GOVERNING LAW
'" IV Tolentino 556. "' See Gojo v. Goyala, G.R. No. L-26768, October 30, 1 970 and Cebu Contractors Consortium Co. v. CA, G.R. No. 107199, July 22, 2003.
"' Rule 63, Section 1 . 555 Tormon v. Cutanda, 1 1 9 Phil. 84 (1963); Veluz v . Veluz, 133 Phil .459 (1968); Naga Telephone Co., Inc. v. CA, G.R. No. 107112, February 24, 1994, 230 SCRA 351; Pilipinas Shell Pelroleum Corporation v. John Bordman Ltd. of lloilo, Inc., G.R. No. 1 59831, October 14, 2005, 473 SCRA 151; Multi-Realty Development Corp. v. �akati Tuscany Condominium Corp., G.R. No. 146726, June 16, 2006. See, however, Rosello·Bentirv. Leanda, G.R. No. 128991, Apnl 12, 2000 and Cebu Contractors Consortium Co. v. CA, G.R. No. 107199, July 22, 2003, .which counted the prescriptive period from the time of execution of the contract
198
l99
parties, the literal meaning of its stipulations shall control.
Chapter
(Art. 1370)
10
Interpretation of Contracts
Where the language of a written contract is clear and 9 unambiguous, there is no room for construction.56 The contract must be taken to mean .that which, on its
I.
face, it purports to mean, unless some good reason can
IN GENERAL
be assigned to
show that the words understood in a different sense.570
"Interpretation" is the act of making intelligible what was before not understood, ambiguous, or not obvious. It is a method by which the meaning of language is ascertained. The "interpretation" of a contract is the determmation of the meaning attached to the words written or spoken which make the contract. 566 Where the language of a written contract is clear and unambiguoi'.is' '
. there is generally no room for construction· or interpretation.567 Interpretation comes into play when the court finds, upon a preliminary inquiry, that the contract is ambiguous, i.e., susceptible of two or more reasonable alternative interpretations. Where the written terms of the contract are n.ot ambiguous and can only be read one way, the court will interpret the contract that way as a matter of law. If the contract is determined to be ambiguous, then
2.
Intention Prevails. over the former.
(Art. 1370)
B. DETERMINING THE INTENTION 1 . Contemporaneous and Subsequent Acts. In order to judge the intentipn of the contracting parties,
their
contemporaneous and subsequent acts. shall be principally considered. (Art. a.
·
1371)
Note that by this principle, the court can look into
extrinsic
evidence, outside the four corners of the
written contract. b.
PRINCIPLES. OF INTERPRETATION
If the words appear to be contrary to
the evident intention of the parties, the l�tter shall prevail
the interpretation of the contract is left to the court, to· resolve the ambiguity in light of the evidence. '68
IT.
should be
This falls under the exception to the "parol evidence rule." Under Rule
130,
Section
9,
when the terms of
an agreement have been reduced to writing, it is generally considered as containing all the terms agreed
A. PRIMACY OF INTENTION
upon and there can be, between the parties and their
1 . Plain Meaning Rule. If the terms of a contract are clear and leave no doubt upon the intention of the contracting
'" National Irrigation Administration v. Gamit, G.R. No. 85869, November 6, 1992. '" Olivares v. Sarmiento, G.R. No. 158384, June 12, 2008, c1ling Heirs of the Late Spouses Aurelio and Esperanza Balite v. Lim, G.R. No. 152168, 10 December 2004, 446 SCRA 56: Tuazon v. Court of Appeals, 396 PM. 32 (2000).. '"Abad v. Goldloop Properties, Inc., G.R. No. 168108, April 13, 2007. 200
successors-in-interest, no evidence of such terms other than the contents of the written agreement.
569 Olivares v. Sarmiento, G.R. No. 158384, June 12, 2008, citing Heirs of the Late Spouses Aurelio and Esperanza Bal:te v. Lim, G.R. No. 152168, 10 December 2004, 446 SCRA 56; Tuazon v. Court of Appeals, 396 Phil. 32 (2000).. "' Bautista v. CA, 379 Phil. 386, 399 (2000): Abad v. Goldloop Properties, Inc., G.R. No. 168108, April 13, 2007.
201
However, a party may present evidence to modify,
a contract, and shall fill the omission of stipulations which
explain or add to the terms of the written agreement if
are ordinarily established. (Art.
1 376)
he puts in issue in his pleading: i.
ii.
An intrinsic
ambiguity, mistake or imperfection in
The interpretation of obscure words
C. CONTRA PROFERENTUM:
or stipulations in a contract shall not favor the party who
the written agreement;
caused the obscurity.
The failure of the written agreement to express the
1.
true intent and agreement of the parties thereto;
(Art. 1377)
Any ambiguity is to be taken
contra proferentum,
i.e.,
construed against the party who drafted the contract and caused the ambiguity which could have been avoided by the exercise of a little more care. 571
iii. The validity of the written agreement; or iv. The existence of other terms agreed to by the
2.
parties or their successors-in-interest after the
Thus, any ambiguity, obscurity or doubt in a contract of adhesion is construed or resolved strictly against the party
execution of the written agreement.
obscurity
2. Scope of Terms.
But where no such ambiguity,
who prepared it.'72
However general the terms of a contract
or
doubt
exists,
no
such
construction
is
warranted.573
may lie, 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. (Art.
D. IMPOSSIBILITY OF SETTLING DOUBTS: When it is absolutely impossible to settle doubts by the rules established in articles
1372) ·
3. Most Effectual Interpretation. If some stipulation of any
contract should admit of several meanings, it shall be
1 370-1377, the following rules apply (Art. 1378): 1.
If the doubts refer to
incidental circumstances
-
understood as bearing that import which is most adequate to render it effectual.
(Art. 1373)
a.
Where contract is
gratuitous, the least transmission of
rights and interests shall prevail.
4. Holistic Interpretation.
(Art, 1 3 78)
The various stipulations of a
contract shall be interpreted together, attnbuting to the doubtful ones that sense which may result from all of them takenjointly.
(Art. 1 374)
5. Consistency with the Nature and Object.
Words which
may have different significations shall be understood in that which is most in keeping with the nature and object of the contract. (Art.
1375)
6. Usage or Custom.
The usage or custom of the place shall
be borne in mind in the interpretation of the ambiguities of 202
571 Orient Air Services and Hotel Representatives vs. Court of Appeals; 197 SCRA 645 [1991]; Nacu vs. Court of Appeals, 231 SCRA 237 [1994]; De Leon vs. Court of Appeals, 186 SCRA 345 [1990]; Equitable Banking Corporation vs. Intermediate Appellate Court, 161 SCRA 518 [1988]; Eastern Assurance and Surety Corp. vs. IAC, 179 SCRA 562 [1989]; Prudential Bank v. Alviar, G.R. No. 150197, July 28, 2005. 512 Sps. Panlilio v. Citibank, NA, G.R. No. 156335, November 28, 2007, citing Bay View Hotel v. Ker and Co., Ltd., G.R. No. L·28237, Atigust 31, 1982, 116 SCRA 327, 334; Eastern Shipping Lines Inc. v. Margartne.Verkaufs-Union GmbH, G.R. No. L·31087, September 27, 1979, 93 SCRA 257, 262; Eastern Assurance and Surety Corp. v. Intermediate Appellate Court, G.R. No. 69450, November 22, 1989, 179 SCRA 561, 568; Orient Air Services and Hotel Representatives v. Court of Appeals, G.R. No. 76931, May 29, 1991, 197 SCRA645, 655. "' Sps. Panlilio v. Citibank, N.A., G.R. No. 156335, November 28, 2007.
203
b. Where contract is onerous, the doubt shall be settled in favor of the greatest reciprocity of interests. (Art. ·
instrument, the intention of the parties is to be pursued.; and. when a general and a particular provision are inconsistent, the latter is paramount to the former. So a particular intent will control a general one that is inconsistent with it. (Sec. 12)
1378) '
A contract which may be interpreted as either a sale with repurchase or a loan with mortgage should be construed as the latter, as it involves the . . . . greatest rec1proc1ty of mterests.574 2. 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. (Art. 1378)
III. RULES OF COURT PROVISIONS · The principles of interpretation stated in the Rules of Court shall likewise be observed in the construction of contracts. (Art. 1379) Rule 130 provides for the following rules in the interpretation of documents:
I. Interpretation of a writing according to its legal meaning. The language of a writing is to be interpreted according to the legal meaning it bears in the place of its execution, unless the parties intended otherwise. (Sec. 10)
2. Instrument construed so as to give effect to all provisions. In the construction of an instrument where there are several provisions or particulars, such a construction is, if possible, to be adopted as will give effect to all. (Sec. 1 1) 3. Interpretation according to intention; general and particular · provisions. In the construction of an "' Olina vs. Medina, 13, Phil. 379; Labasan v. Lacuesta, G.R. No. L·25931, October 30, 1978. 204
4. Interpretation according · to circumstances. For the proper construction of an instrument, the circumstances under which it was made, including the situation of the subject thereof and of the parties to it, may be shown, so that the judge may be placed in the position of those whose language he is to interpret. (Sec. 13) 5. Peculiar signification of terms. The terms of a writing are presumed to have been used in their primary and general acceptation, but evidence is admissible to show that they have a local, technical, or otherwise peculiar signification, and were so used and understood in the particular instance, in which case the agreement must be construed accordingly. (Sec. 14) 6. Written words control printed. When an instrument consists partly of written words and partly of a printed form, and the two are inconsistent, the former controls the latter. (Sec. 15) 7.
Experts and interpreters to be used in explaining certain writings. When the characters in which an instrunient is written are difficult to be deciphered, or the language is not understood by the court, the evidence of persons skilled in deciphering the characters, or who understand the language, is admissible to declare the characters or the meaning of the language. (Sec. 16)
8. Of two constructions, whic.h preferred, When the terms of an agreement have been intended in a different sense by the different parties to it, that sense is to prevail against either party in which he supposed the other understood it, 205
and when different constructions of a provision are
Chapter
otherwise equally proper, that is to be taken which is the most favorable to the party in whose favor the provision
was made. (Sec.
11
Defective Contracts
17)
9. Construction in favor of natural right. When an
instrument is equally susceptible of two interpretations, one
is· favor of natural right and the other against i� the former is to be adopted. (Sec.
18)
10. Interpretation according to usage. An instrument may be construed according to usage, in order to determine its true
I.
IN GENERAL 5 The Civil Code classifies defective contracts into four 75:
A. RESCISSIBLE CONTRACTS: They are the least infirm .contracts.
Though valid and possessing all the essential requisites of
character. (Sec. 19)
contracts, they may be set aside forhaving caused economic
damage to one of the contracting parties or to a third party.
B. VOIDABLE CONTRACTS: They are contracts where the consent of one party is defective, either because of want of capacity to
give . consent, or because consent is vitiated by mistake, violence, intimidation, undue influence, or fraud.
considered valid until annulled. c.
They are
UNENFO)l.CEABLE CONTRACTS: They are contracts which
cannot be enforced (unless ratified) because of lack of authority, or of the required writing, or because of incapacity of
both parties.
D. VOID CONTRACTS: They are the most infirm contracts. One or
more of _the essential requisites are absent, making them absolute nullity and without any effect.
'" See J. Vilug's dissent in Equalorial Realty Development, Inc. v. Mayfair Theater, Inc., 370 SCRA 56, 90 (2001). See also Balane, Defective Contracts in Philippine Civil Law, Journal of the IBP, Vol. 30, No. 2 (3rd and 4th Quarters 2004). 206
207
th� plaintiff must show that he has no other recourse to repair the damage he suffered).
II. RESCISSIBLE CONTRACTS A. IN GENERAL I.
c. Prescription for rescission under Art. \ 1 9 1 is 10 years . for written contracts (Art. 1 144) or 6 years for oral contracts (Art. 1 1 45), while prescription for rescission under Art. 1381 is 4 years. (Art. 1389)
In terms of their efficaciousness, resCissible contracts are
regarded, among the four types of defective contracts, as being the closest to perfectly executed contracts: A rescissible contract contains all the requisites of a valid contract and is considered legally binding, but by reason of injury or damage to either of the contracting parties or to third persons, such as creditors, it is susceptible to rescission at the instance of the party who may be prejudiced thereby.576
2. A rescissible contract is valid, binding and effective until it is rescinded. The proper way by which it can be a�sailed is by an action for rescission based on any of the causes expressly specified by law.577 3. The rescission of rescissible contracts (under Art. 1381, et seq.) should be distinguished from "rescission" or "resolution" under Art. 1 1 9 1 .578 a.
Rescission under Art. 1 1 9 1 is a remedy for breach of obligations, while rescission under Art. 1381 is a remedy for the economic injury caused by a contract. . Thus, rescission under Art. 1 191 may be filed only by a contracting party; rescission under Art. 13 8 1 may be filed even by a third party.
b.
Rescission under Art. 1 191 is a principal action, while rescission under Art. 1381 is subsidiary (in the latter,
B. CAUSES: Contracts validly agreed upon may be rescinded in the cases established by law. (Art. 1380) Under Art. 1 3 8 1 , the following contracts are rescissible: I.
Lesion to Wards. Those contracts 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; (Art. 1381)
2. Lesion to Absentees. Those contracts agreed upon in representation of absentees, if the latter suffer lesion by more than one-fourth of the value of the things which are
the object thereof; (Art. 1381)
a. "Lesion" means the damage caused to the ward or absentee due to the discrepancy between the consideration received and the value of the things alienated. b. Rescission referred to in the first two items (contracts by guardians, or for absentees) shall not take place with respect to contracts· approved by the courts. (Art. 1386) c.
srs
See J. Vitug's dissent in Equatorial R,ealty Development, Inc. v. Mayfair Theater, Inc., 370 SCRA 56, 90 (2001 ). 577 See J. Vitug's dissent in Equatorial Realty Development, Inc. v. Mayfair Theater, Inc., 370 SCRA 56, 90 (2001). . '" Universal Food Corporation v. CA, 144 Phil. 1 (1970); lringan v. Court of Appeals, 418 Phil. 286, 296·297 (2001); Rivera v. Del Rosario, G.R. No. 144934, January 15, 2004. 208
·
Court approval is required for acts of ownership (as distinguished from mere acts of administration) executed by guardians or representatives of absentees. If court approval is lacking, the contract is unenforceable for lack of authority (Art. 1403, par. 1 ), even if lesion is not shown. 209
iv. Evidence when the latter cannot in any other manner
collect the claims due them; (Art. a.
The transfer of all or nearly all of his property by a · debtor, especially when he is insolvent or greatly embarrassed financially.
entered into in fraud of creditors, when the donor did
vi. The fact that the transfer is made between father
sufficient property to pay all debts
and son, when there are present other of the above
contracted before the donation. (Art.
Alienations by
onerous title
circumstances.
1387)
are
also
presumed
vii. The failure of the vendee to take exclusive
fraudulent when made by persons against whom some
possession of all of the property.
judgment or writ of attachment has been issued. (Art.
1387)
4. Things Under Litigation.
property
alienated,
defendant without the knowledge and approval of the
and need not have been
litigants or of competent judicial authority; (Art.
obtained by the party seeking the rescission. (Art.
1387)
5 . By Provision of Law.
creditors
may
be proved
in any
other manner
to whose fulfillment the debtor could not be compelled at the time they were effected, are also rescissible.
fraud in a sale579:
(Art.
The fact that the consideration of the conveyance is
1382)
For Art.
fictitious or is inadequate. ii.
and (b)
the obligation paid was not yet due at the time of the payment.
begun and while it is pending against him.
C. WHO MAY FILE: iii. A sale upon credit by an insolvent debtor.
The action for rescission may be filed by the
following persons580:
560
210
1382 to apply, it is required that: (a) the
payment is made in a state of insolvency;
A transfer made by a debtor after suit has been
'" Oria v. McMicking, 21 Phil. 243 (1912).
All other contracts specially
Payments made in a state of insolvency for obligations
1387) The
following circumstances are considered badges of
i.
1381)
declared by law to be subject to rescission. (Art. 1381)
In addition to these presumptions, the design to defraud recognized by the law of evidence. (Art.
Those contracts which refer to
things under litigation if they have been entered into by the
The decision or attachment need not refer to the
c.
complete
gratuitous title are presumed to have been
not res.erve
b.
v.
1381)
All contracts by virtue of which the debtor alienates property by
or
insolvency.
3. Fraud of Creditors. Those contracts undertaken in fraud
of creditors
of large indebtedness
IV Tolentino 587. 2il
1 . The injured person (the ward or absentee suffering lesion; the creditor defrauded; or the plaintiff in a case where the
(1) if the
transferee
acquired
the
property
gratuitously, he is obliged to surrender it
thing in litigation was alienated);
regardless of his good faith or bad faith.
2. The heirs of such person; (2) if the
transferee
acquired
the
property
onerously (with consideration), he is obliged to
3. The creditors of such person (accion subrogatoria, by virtue of Art. 1 177).
surrender it only if he acted in bad faith.
(Art.
1385)
D.
REQUISITES
f.
a.
Rescissi·on must be for a cause provided by law. (Arts.
For persons under guardianship and for absentees,
1380, 1381) b.
the period of four years shall not begin until the
Since rescission is a
subsidiary
termination of the farmer's incapacity, or until the
action, it can be
domicile of the latter is known. (Art. 1389)
instituted only when the party sufferin& damage has no other legal means to obtain reparation for the same.
2. Requisites for Rescission of Contracts in Fraud of Creditors (Accion Pauliana)581 -
(Art. 1383) c.
d.
Rescission shall be only to the
cover the damages caused.
extent necessary (Art. 1384)
to
a.
Rescission can be carried out only when · he who demands rescission can return whatever he may be obliged to restore.
defendant entered into a transaction, the latter
could not have intended to defraud him.
(Art. 1385)
b.
That the debtor has made a
c.
That the creditor has
to lesion suffered by the ward or absentee. Rescission shall not take place when the things which are the object of the contract are legally in the
possession of third persons faith. (Art. 1 3 85)
subsequent contract conveying a patrimonial benefit to a third person; no other legal remedy to
satisfy
his claim, but would benefit by rescission of the
conveyance to the third person;
who did not act in b�d
In case of a fraudulent transfer by the debtor of his
581
Siguan v. Um, G.R. No. 134685, November 19, 1999; Khe Hong Cheng v. CA, G.R. No. 144169, March 28, 2001.
property,
2i2
That the plaintiff asking for rescission, has a credit prior to the alienation, although demandable later; If the plaintiff has no credit at the time the
This applies to contracts which are rescissible due
e.
The action to claim rescission must be commenced
withinfour years. (Art. 1389)
I. General Requisites -
.
.
·
2i3
i.
good faith, and (2) for a sufficient and valuable consideration.'87
As a subsidiary remedy (Art. 1383), an accion pauliana presupposes the following: · I) a judgment; 2) the issuance by the trial court of a writ of execution for the satisfaction of the judgment, and 3) the failure of the sheriff to enforce and satisfy the judgment of the court. 582
e. That the third person who received the property conveyed, if by onerous title, has been an accomplice
in thefraud.
ii. If a creditor seeks to rescind ·a transaction before he has exhausted all the properties of the debtor, the action to rescind may be dismissed as premature. 583
For a·contract to be rescinded for being in fraud of creditors, both contracting parties must be shown to have acted maliciously so as to prejudice the creditors.588
If the debtor has other properties available, it would be premature to even consider if the subject transaction is ftaudulent.584
E. EFFECTS: 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. (Art. 1385)
iii. Thus, the 4-year prescription period commences to run only upon discovery by the judgment creditor that the debtor no longer had any properties to satisfy the debt.585 (The period is not reckoned from the date of the rescissib!e transaction or the registration thereof.)
I.
Consequently, it can be carried out 011ly when he who demands rescission can return whatever he may be obliged to restore. (Art. 1385)
2. Neither shall rescission take place when the things which are the object of the contract are legally in the possession ofthirdpersons who did not act in badfaith. (Art. 1385)
d. That the act being impugned isfraudulent; i.
The creditor seeking rescission has the burden of proving fraud, although he may rely on certain disputable presumptions under Art. 1387 ' (supra).586
ii. To' overcome the presumption of fraud, it must be established that the conveyance was made (I) in
'" Khe Hong Cheng v. CA, G.R. No. 144169, March 28. 2001. "' Khe Hong Cheng v. CA, G.R. No. 144169, March 28. 2001. "' Siguan v. Lim. G.R. No. 134685, November 19, 1 999. "' Khe Hong Cheng v. CA, G.R. No. 144169, March 28, 2001. '" Union Bank of the Philippines v. Sps. Ong, G.R. No. 152347, June 21, 2006. 2i4
a. In this case, indemnity for damages )Jlay be demanded from the person causing the loss. (Art. 1385) b. If the buyer acted in good faith in purchasing a property (particularly if he relied on a certificate of title which has no adverse annotations), i.e., he did not know of the seller's debts, the · sale cannot be rescinded.589 ·
"' China Banking Corp. v. CA, G.R. No. 129644, September 7, 2001; MR Holdings v. Bajar, G.R.No. 138104, April 1 1 , 2002. "'Union Bank of the Philippines v. Sps. Ong, G.R. No. 152347, June 21; 2006. "' Union Bank of the Philippines v. Sps. Ong, G.R. No. 152347, June 21, 2006. 215
3.
Whoever acquires in bad faith the things alienated in fraud of creditors, shall
indemnify the latter for damages suffered of the alienation, whenever, due to any cause, it should be impossible for him to return them. (Art. by
them on
b.
account
c.
1 388)
person by one who has been given
(Art. 1388)
legal representation,
2. Vitiated Consent.
A. IN GENERAL
binding, although they can be annulled because oi want
an aciion for that purpose
(Art. 1 390).
Before annulment,
they are effective and obligatory between parties.591 They can be confinned or ratified (Art.
1 . Direct Action. The validity of a voidable contracts may be assailed only by a ''proper action in court" (Art. 1 390), i.e., through an action for that purpose.592
The validity of voidable contracts cannot be attacked
contract may be voidable even though there may have
collaterally (like voidable marriages593 or voidable
(Art. 1390)
judgments594).
Those where one of the parties is
incapable of giving consent to a contract; (Art.
which can be attacked collaterally.
2. Who May File. a.
1391)
1327) is voidable.
590
MWSS v. CA, G.R. No. 1 26000, October 7, 1998. 591 MWSS v. CA, G.R. No. 126000, October 7, 1998. 216
The action for the annulment of contracts may be instituted by all who are thereby obliged principally or
Thus, a contract executed by a senile or demented
person (who cannot enter into contracts under
This differentiates them from void
contracts (or marriages or judgments), the validity of
The following contracts are voidable or annullable
Lack of Capacity.
a.
C. ACTION FOR ANNULMENT
1 390).
been no damage to the contracting parties.
I.
Those where the consent is vitiated by
See discussion on these vices of consent supra.
of
Voidable contracts are valid and binding until set aside in
B. CAUSES :
unenforceable. (Art. 1403, par.
(Art. 1391)
Voidable or anullable contracts are existent, valid, and
4. A
or who has acted beyond his
mistake, violence, intimidation,_ undue influence or fraud.
capacity or vitiated consent of one of the parties.590
3.
no authority or
l ; Art. 1 3 1 7)
III. VOIDABLE CONTRACTS
2.
contract is
Lack of capacity is different from lack of authority. If
powers, the contract is
I.
the
the contract is entered into in the name of another
If there are two or more alienations, the first acquirer
. shall be liable first, and so on successively.
both parties lack capacity, unenforceable. (Art. 1403, par. 3)
If
subsidiarity.
Art.
(Art. 1 397)
592 MWSSv.
CA, G.R. No. 1 26000, October7, 1998. ° "' Vda. De Jacob v. CA, G.R. No. 135216, August 19, 1999. 594 Gomez v. Concepcion, 47 Phil. 717 (1925). 217
1.
Strangers to a contract cannot sue to annul and set
i.
. aside the same.
(Art. 1397)
contract of sale of a land to which he was not a party ,595 n.
ii. Persons who exerted intimidation, violence, or undue influence, or employed fraud, or caused mistake cannot base their action upon these flaws
"Exception": There have been cases holding that a
of the contract. (Art. 1397)
stranger may sue for annulment when he is
3.. Prescription. The action for annuhnent shall be brought within four years. (Art. 1391)
prejudiced in his rights with respect to one of the
contracting parties and can show detriment which
. would positively result to him from the contract in 6 which he has no intervention.59
This period shall begin:
·
Note, however, that the exception , giving
a.
strangers the standing to set aside a contract cif!'·a contract.
In cases of intimidation, violence or undue influence from the time the defect of the consent ceases.
usually rests on a basis other than the
voidability
him (for being
For instance, 'a
A contract executed under the pressure of the
rescissible)591 ; a co-owner may
President/dictator may be annulled within four 6 years from his deposition. 00
set aside a sale made by another co-owner in
excess of his portion (for being void insofar as affected
owner).'98 b.
the portion
of the
·
-
(Art.
1391)
creditor may set aside a contract defrauding
it
are capable cannot allege the
incapacity of those with whom they contracted.
Thus, a squatter or trespasser cannot annul the
·
Persons who
plaintiff
b.
In case of mistake or fraud · discovery of the same. (Art. i.
The plaintiff must be the injured party or victim, and not the party responsible for the defect. 599
-
from the time of the
1391)
Discovery
commences from the date of the execution of the contract601 or, at the very least,
from the date of registration thereof with the Register of Deeds, as registration is constructive 60 notice to the world. 2
"' Banez v. CA. G.R. No. L-30351, September 1 1 , 1974. '" Teves v. People's Homesite and Housing Corporation, 23 SCRA 1141 (1968); Reyes v. CA, G.R. No. 94214, December 1, 1992. '" Guzman Bocaling & Co. v. Bonnevie, G.R. No. 86150, March 2, 1992; See Equatorial Realty Development, !nc. v. Mayfair Theater, Inc., 264 SCRA 483, 500 (1996), J. Panganiban, separate concurring. "' Fernandez v. Fernandez, G.R. No. 143256, August 28, 2001. "' Reyes v. CA, G.R. No. 94214, December 1, 1992; Samahan ng Magsasaka sa San Josep v. Vallsno, G.R. No. 158314, June 3, 2004. 218
60o MWSS v. CA, G.R. No. 126000, October 7,
2001.
1998; Miailhe v. CA, G.R. No. 108991, March 20,
601 Sps. Dela Cruz v. Sps. Segovia, G.R. No. 149801, June 26, 2008. 602 MWSS v. CA, G.R. No. 126000, October 7, 1998, citing Pascua
vs. Florentino, 136 SCRA 208; Balbin vs. Medalla, 108 SCRA 666; Guerrero vs. CA, 126 SCRA 109; Marcopper vs. Garcia, 143 SCRA 178; Ramos vs. CA, 112 SCRA 542. See also Government Service Insurance System v. Santiago, G.R. No. 155206, 28 October 2003, 414 SCRA 563, 571, citing Philippine Economic Zone Authority v, Fernandez, 411 Phn. 107, 1 1 9 (2001). 219
ii.
c.
a
If consent is totally absent, the contract is void and hence imprescriptible.603 b.
Jn case of contracts entered into by minors or other incapacitated persons - from the time the guardianship ceases.
Examples of ratification: i.
(Art. 1391)
voidable contract;'°'
D. RATIFICATION ii.
1 . Concept. Voidable contracts are susceptible of ratification. (Art. 1 390) Ratification extinguishes the action to annul a voidable contract. (Art. 1 392) a.
Acceptance and retention of benefits .under the
Use of the proceeds of the voidable contract;607
iii. Introduction by the seller of the buyer as the new owner of the property .608
Ratification means that a person knowingly and
3. Who May Ratify.
voluntarily adopts or gives sanction to an unaut)iorized or defective act, which would otherwise not be binding.
a.
on him.604
For voidable contracts due to
lack of capacity,
ratification may be effected by the incapacitated person (upon gaining capacity) or by his guardian (during the
b.
ward' s incapacity). (Art.
Ratification requires that: (a) the ratifying party knows of the reason which renders the contract voidable; and (b) such reason has ceased. (Art.
b.
1393)
Fcir
voidable
1394)
contracts
due
to
vice of consent,
ratification may be effected by the person whose consent was vitiated.
2. Manner. Ratification may be effected expressly or tacitly. (Art. 1393) . c. a.
There is a tacit (or
implied)
Ratification does not require the conformity of the contracting party who has no right to bring the action
ratification if; with
for amiulment. (Art.
knowledge of the reason which renders the contract
1395)
voidable and such reason having ceased, the person who has a right to invoke it should execute an act
4. Effect of Ratification.
Ratification cleanses the contract
which necessarily implies an intention to waive his
from all its defects from the moment it was constituted.
right. (Art.
(Art.
1393)
1396)
Implied ratification may take various forms - like silence or acquiescence, acts showing approval or 005
Fi•Estate Golf & Development, Inc. v. Navarro, G.R. No. 152575, June 29, 2007, citing Heirs of Rosa Dumaliang v. Damiano Serban, G.R. No. 155133, 21 February 2007 and Baranda v. Baianda, G.R. No. L-73275, 20 May 1987, 150 SCRA 59. 6"' Maglucot·Aw vs. Maglucot. 329 SCRA 78, 94 (2000).
Yasuma v. Heirs of De Villa, G.R. No. 150350, August 22, 2006. MWSS vs. Court of Appeals, 297 SCRA 287, 307 (1998); Francisco v. Herrera, G.R. No. 139982, November 21, 2002. 607 Phil. Free Press Inc. v. CA, G.R. No. 132864, October 24, 2005. 606 Sps. Alfredo v. Sps. Borras, G.R. No. 144225. June 17, 2003.
220
221
603
606
Ratification retroacts to the time the contract was
except insofar as he has been benefited by the thing or
made.
price received by him. (Art.
E. EFFECT OF ANNULMENT
4. Inability to Make Restitution.
1.
I n General. The effect o f annulment of the contract i s to
a.
1399)
Due to Loss of the Thing Caused by Plaintiff. - The
wipe it out of existence, and to restore the parties, insofar
action for annulment of contracts shall be extinguished
as legally and equitably possible, to their original situation
when the thing which is the object thereof is lost
before the contract was entered into. If a voidable contract
through the fraud or fault of the person who has a right
is annulled, the restoration of what has been given is
to institute the proceedings.
proper.609
(Art. 1401)
If the right of action is based upon the incapacity
2. General Rule: Restitution. An obligation having been
of any one of the contracting parties, the loss of the
annulled, the contracting parties shall restore to each other
thing shall not be an obstacle to the success of the
the things which have been the subject matter of the
action, unless said loss took place through the
contract, with their fruits, and the price with its nterest,
fraud or fault of the plaintiff.
except in cases provided by law.
(Art. 1398)
i
b. a.
In obligations to render service, the value thereof shall
be the basis for damages.
(Art. 1401)
Due to Loss of the Thing Caused by Defendant. Whenever the person
obliged by the
decree of
annulment to return the thing can not do so because it
(Art. 1398)
has been lost through his fault, he shall returri the fruits b.
As long as one of the contracting parties does not
received and the value of the thing at the time of the loss, with interest from the same date. (Art. 1400)
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.
(Art. 1402)
c.
Restatement of the Rule.
-
In case the thing which is
the object of the contract has been lost (regardless of c.
The principle of unjust enrichment applies here. Thus,
the cause of voidability of the contract - whether due
if a lease is annulled, the lessee cannot demand the
to incapacity or vice of consent), the following rules
return of past rentals which correspond to the period ' 0 that he was in possession.of the property.61
apply: i.
If loss is through the fraud or fault
of the plaintiff
(the party who has the right to institute the action)
3. Exception: Incapacity. When the defect of the contract consists in the incapacity of one of the parties, the
- the action for annulment is
barred (Art. 1401);
incapacitated person is not obliged to make any restitution ii.
If loss is through the fraud orfault ofthe defendant � the action is
'°' Katipunan v. Katipunan, Jr., G.R. No. 132415, January 30, 2002; Villanueva v. Ctiiong, G.R. No. 159889, June 5, 2008. "' IV Tolentino 607·608. 222
not barred; the defendant must pay
the value of the thing at the time of the loss (with
223
interest from the same date) as well as the fruits received. (see Art. iii. If loss is
defective act, which would otherwise not be binding on him.613
1400);
not due to thefraud or fault of any party not
a.
(such as by fortuitous event) - the action is
barred;
restitution may still be effected by paying
silence or acquiescence, acts showing approval or
adoption of the act, or acceptance and retention of
without interest (since the payer was not at fault).
benefits flowing therefrom.614 b.
UNENFORCEABLE CONTRACTS
Assail. Unenforceable contracts cannot be
assailed by third persons.
I . Concept. Unenforceable contracts
are those which cannot
4. Types.
be enforced in court (unless they are ratified) becatlse they are entered · into without or in excess of authority, or they
There
contracts (Art.
do not comply with the statute of frauds, or both of the
a.
contracting parties do not possess the required legal
are
(Art. 1408)
three
categories
of unenforceable
1403):
Those entered into in the name of another person by
one who has been given no authority or legal
capacity.611
representation, or who has acted beyond his powers;
Unenforceable contracts cannot serve as basis for a suit
b.
or action; the courts will refuse to enforce them and dismiss the suit.
b.
. . ' 15 Rat1'fi1catton 1 s generaIIy retroact1ve.6
3. Who May
A. IN GENERAL
a.
express or implied. (see Art. 1 3 1 7)
Implied ratification may take various forms - like
the value of the thing at the time of loss, but
IV.
Ratification may be
Those that do not comply with the Statute of Frauds; and
'
c.
In a suit founded on an unenforceable contract, the defendant can interpose its unenforceability as a defense and ask for the dismissal of the suit.612 (The
Those where both parties are incapable of giving consent to a contract.
These categories are further discussed below.
defendant's failure to set up this defense may be deemed a waiver thereof and a ratification of the
. B. LACK OF AUTHORITY
contract.)
1.
2. Ratification. Unenforceable contracts may be ratified. (Art. 1403) Ratification means that a person knowingly.and
Unauthorized
Contracts.
The
first
those entered into in the name of another person by one
613
Mercado v. Allied Banking Corp., G.R. No. 171460, July 27, 2007. 612 Rule 16, Section 1 (i). 224
of
unenforceable contracts are unauthorized · contracts, or
voluntarily adopts or gives sanction to an unauthorized or
611
category
Ma9lucol-Aw vs. Maglucot, 329 SCRA 78, 94 (2000). Koji Yasuma v. Heirs of De Villa, G.R. No. 150350, August 22, 2006. '"De Jesus v. Daza, 77 Phil. 170 (1946). 014
225
·
who has been given no authority or legal representation, or
the party with whom he has contracted (Art.
who has acted beyond his pow,ers.
unless -
a.
•
' Example
i.
1: If X sold the car of his friend Y, without
Example house to
1 898),
ii. The other contracting party is aware of the limits of the agent's power (in which case the contract is
2: If A was authorized by the owner of a
lease
The principal ratifies the contract (see Art. or
the latter's authorization, the sale is unauthorized and thus unenforceable b.
1 897),
it out to third persons, but A
sold
void). (Art.
it
1 898)
instead, the sale is beyond A's powers and thus unenforceable. c.
C. STATUTE OF FRAUDS
The unauthorized sale by a co-owner of the entire co owned property is unenforceable as to the pro-indiviso shares of his co-owners who did not consent.61 6 I
Governing
Law. Unauthorized Article 1 3 1 7 and the principles Code. (Art. 1404)
2.
a.
Under Art.
contracts are governed by
I.
Noncompliance with the Statute o f Frauds.
The second
type of unenforceable contracts are those that do not comply with the Statute of Frauds as set forth in Art. a.
of agency under the Civil
1403.
The Statute of Frauds refers to the law which requires certain contracts or transactions to be put in writing and signed by the party charged thereby. Its purpose is to prevent fraud and perjury in the enforcement of obligations
1 3 17, no one may contract in the name of
depending for their evidence
unassisted memory of witnesses. 6 17
another without being authorized by the latter, or
on the
unless he has by law a right to represent him. A contract entered into in the name of another by one has acted beyond his powers, shall be
(Art.
unenforceable.
1 3 17)
Unless it is
ratified, expressly or impliedly, by the
1403), unless the other party fails to object (Art. 1405).
2. Contracts Covered by the Statute of Frauds. In the
person on whose behalf it has been executed,
following cases an agreement shall be unenforceable by
before it is revoked by the other contracting party.
action, unless the same, or some note or memorandum
(Art. b.
Contracts covered by the Statute of Frauds cannot be proven without the writing or through oral evidence
(Art.
·
b.
who has no authority or legal representation, or who
1317)
thereof, be in writing, and subscribed by the party charged, or by his .agent:
Under the principles of agency, if the agent exceeds the scope of his authority, the agent is personally liable to
"' Cabales v. CA, G.R. No. 162421, August 31, 2007. 226
617 Swedish Match, AB v. CA, G.R. No. 128120, October 20, 2004; Sps. Torcuator v. Sps. Bernabe, G.R. No. 134219, June 8, 2005.
227
a.
b.
An agreement that by its terms is not to be performed
within a year from the making thereof; (Art. 1403, par.
A special promise to answer for the debt, default, or
miscarriage of another; (Art. 1403, par. 2, subpar. b)
2, subpar. a)
I.
The statute of frauds applies if the agreement is;
its own terms,
not to be perfonned within
This applies to the ·obligation of the defendant as a
'
guarantor of a third party. If the obligation is the
by
principal debt of the defendant (e.g., supplier
1 year.
provided lumber to the defendant for his account,
It does not apply if the agreement is merely silent
and not for the account of the
on the time ofperfonnance.618
ii.
The statute of frauds applies if the agreement is not to be perfonned
on both sides
within
1 year. It
c.
does not apply if the agreement is to be fully
perfonned
on one side within 1 year.619
An agreement made in consideration of marriage,
other than a mutual promise to marry; (Art.
2, subpar. c)
iii. The statute of frauds applies only to executory
�
a.
contracts. It does not apply to contracts w ich had already been executed (whether fully or partially,
Thus, it does not apply to a contract of sale
b.
which had been partially executed by the
parties, with the transfer of the possession of
Thus, the father of the groom-to-be may not sue
the father of the bride-to-be on an oral agreement
5 A mutual promise to marry is not enforceable, 62 even if written.
However, a breach thereof may
give rise to liability for damages if attended with 6 bad faith, 62 or an action to recover money or
the property to the buyer and the partial
payments of the purchase price thereof.621 b.
1403, par.
that the fonner would improve the latter's house in 4 consideration of the marriage of their children.62
and whether on one or both sides).620 a.
defendant's
contractor who took delivery of the lumber), the 23 Statute of Frauds does not apply . 6
property advanced on account of the promise.627
If a contract has been totally or partially
d.
enable the defendant to keep the benefits
An agreement for the sale ofgoods, chattels or things in action, at a price not less than five hundred pesos. (Art. 1403, par. 2, subpar. d)
and at the same time, evade the obligations
i.
perfonned, the exclusion of parol evidence
would promote fraud or bad faith, for it would already derived by him from the transaction, assumed or contracted by him thereby.622
The Statute of Frauds does not apply (no writing required) if:
623
618
Arroyo v. Azur, 76 Phil. 493 (1946). 619 Philippine National Bank v. Philippine Vegetable Oil Co., 49 Phil. 857 (1927). 620 Ciemeno v. Lobregat, G.R. No. 137845, September 9, 2004. 621 Clemeno v. Lobregat, G.R. No. 137845, September 9, 2004. "' Swedish Match, AB v, CA, G.R. No. 128120, October 20, 2004. 228
Reiss v. Memije, 15 Phil. 350 (1910). Cabague v. Auxilio, 92 Phil. 294 (1952). See �lso Domalagan v. Bolifer, 33 Phil. 471 (1916). 625 De Jesus v. Syqula, 58 Phil. 866 (1933). '" Garcia v. Del Rosario, 33 Phil. 189; Cabague v. Auxilio, 92 Phil. 294 (1952); Baksh v. CA, G.R. No. 97336, February 19, 1993. 6" De Jesus v. Syquia, 58 Phil. 866 (1933). 624
·
229
a.
the buyer accepts and receives part of such
iii. In a sale of land through an agent, the authority of
goods and chattels, or the evidences, or some
the agent should be in writing; otherwise, the sale
of them, of such things in action, or b.
shall be void.
the buyer pays at the time some part of the purchase money.
(Art. 1403, par. 2,
f.
subpar. d)
ii. When a sale is made by auction and entry is made
by the auctioneer in his
credit of a third person is actually a stranger to the.
the sale, of the amount and kind of property sold,
contract between that third person and the person
terms of sale, price, names of the purchasers and
who relies on the representation. Thus, the liability
person on whose account the sale is made, it is a d)
of the person who makes the representation is
1403, par. 2, subpar.
actually not ex Thus,
contractu
but arising from
tort.
has been said that this category of contracts
was
improperly
included.631
signature of the party charged is not required.
3. Requirement of Note or Memorandum. If a contract is covered by the Statute of Frauds under Art. 1403, par. 2,
An agreement of the leasing for a longer period. than one year, or for the sale of real property or of an
"the same, or some note or memorandum thereof, [must]
interest therein; (Art. 1403, par. 2, subpar. e) 1.
it
unenforceable
Note that in such an exceptional situ�iion, the
e.
A representation as to. the credit of a third person. (Art. 1403, par. 2, subpar. f) This person who makes a representation as to the
sales book, at the time of
sufficient memorandum: (Art.
(Art. 1 784)
be in writing, and subscribed by the party charged." However, for a note or memorandum to satisfy the Statute
A right of first refusal is different from a contract of sale of real property, and is not covered by the
of Frauds, it must be complete in itself and cannot rest partly in writing �nd partly ii;i parol (oral) evidence.632
statute of frauds.628
a.
ii. The statute of frauds does not apply to a partition,
The note or memorandum must contain the names of the parties, the terms and conditions of the contract,
which does not involve the transfer of property but
and a description of the property sufficient to render it
merely a confirmation of title.629 Thus, an oral
capable of identification. Such note or memorandum
pai1ition is valid.630
must contain the essential elements of the contract expressed with certainty that may be ascertained from the note or memorandum itself, or some other writing to which it refers or within which it is connected, . . 1 ' 633 without resortmg to paro ev1dence.
828
Rosencor Development Corporation v. lnqulng, G.R. No. 140479, 8 March 2001, 354 SCRA 119; Barbosa v. Hernandez, G.R. No. 133564, July 10, 2007. 829 Pada·Kilario v. CA, G.R. No. 134329, January 19, 2000; Vda. de Reyes v, Court of Appeals 199 SCRA 646, 657 (1991), citing Thunga Chui v. Que Bentec, 2 Phil. 561, 563-564 (1903) and Barcelona, et al. v. Barcelona and Court of Appeals, 100 Phil. 251, 255 (1956). "' Tan v.lim, G.R. No. 128004, September 25, 1998. ,
230
"' IV Reyes & Puna 254. Swedish Match, AB v. CA, G.R. No. 128120, October20, 2004. '" Swedish Match, AB v. CA, G.R. No. 128120, October 20, 2004.
'32
231
Thus, a note which does not indicate the price and the mode of payment is insufficient.634 b.
5 . Ratification. Contracts infringing the Statute of Frauds are ratified by:
The note or memorandum need not be contained in a single document, nor, when contained in two or more
a.
papers, need each paper be sufficient as to contents and
evidence to prove the same (Art.
signature to satisfy the statute. Two or more writings properly
connected
may be
considered together,
b.
matters missing or uncertain in one may be supplied or rendered certain by another, and their sufficiency will
signature. 635
sufficient
wi'iting
Unenforceable contracts under the Statute of Frauds should
to
not be confused with contracts which require a public
evidence the agreement for purposes of complying
document under Arts.
with the statute of frauds.636
4. Evidence.
1405)
6. Distinguished from the Public Documents Requirement.
The exchange of correspondence between the constitute
The acceptance of benefit under them. (Art.
buildings on the leased property . is a ratification of 6 the contract. 38
requirements of the statute as to contents and as to
may
1405), or
In an oral lease, construction by the lessee of
depend on whether, taken together, they meet the
parties
The failure to object to the presentation of oral
contracts are perfectly
1357 and 1358. The latter group of
enforceable
-
either because they
comply with the Statute of Frauds (e.g., there is a written
Where the Statute of Frauds is applicable,
note or memorandum, albeit in private document), or
"evidence . . . of the agreement cannot be received without
because they are not covere!i by the Statute of Frauds at all.
the writing, or a secondary evidence of its contents." (Art.
The parties may just need them to appear in a public
1403, par. 2). In other words, parol or oral evidence is
document for convenience or for registration purposes, in
barred.
which case they may simply compel each other to execute the corresponding public document ·
But the other party should promptly object to the presentation of oral evidence; failure to do so would be
When a contract is enforceable under the Statute of
a waiver of such objection and a ratification of the contract. (Art.
Frauds, and a public document is necessary for its registration in the Registry of Deeds, the parties may
1405)
avail themselves of the right under Art._
1357, i.e.,
Cross-examination regarding the contract ·may be
compel each other to execute a public document. (Art.
deemed
1406)
a waiver of the objection to parol
evidence.637
634 Swedish Match, AB v. CA, G.R. No. 128120, October 20, 2004. "' Limketkai Sons Milling, Inc. v. CA, G.R. No. 1 1 8509, December 1, 1995. 636 City of Cebu v. Heirs of Rubi, 306 SCRA 408 (1999). "'Abrenica vs. Gonda, 34 Phil. 739 (1916); Taloslg vs. Vda. de Nieba, 43 SCRA 472 (1972); Limkelkai Sons Milling, Inc. v. CA, G.R. No. 1 18509, December 1, 1995. 232
'" Sps. Camara v. Sps. Maiabao, G.R. No. 154650, July 31, 2003. .
233
b.
D. lNCAPACITY OF BOTH PARTIES 1 . Incapacity of Both Parties.
The third
unenforceable contracts are those where
type
of
both parties
are
an essential element is lacking (as opposed to contracts
where the elements are present, but illegal). 641
. incapable of giving consent to a contract.
2. Ratification. 1409).
If only one of the contracting parties is incapacitated, ·
the contract is voidable. (Art. 1391)
guardian, as the case may be, of the capacitated parties.
be ratified (Art
.
of the inexistence of a contract does not prescribe. (Art.
1410)
If the contract is ratified by the parent/guardian of one
of the contracting parties, the effect is to make the
b.
cannot
4. lmprescriptible. The action or defense for.the declaration
(Art. 1407)
contract
A void contract
3 . Waiver. The right to set up the defense of illegality of a contract cannot be waived. (Art. 1409)
·
2. Ratification. Ratification may be made by the parent or
a.
Technically, "inexistent" contracts are those in which
voidable
5. Who can Invoke. The right to set up the nullity of a void
("as if only one of the parti'es were
or non-existent contract is not limited to the parties; it is
incapacitated"). (Art. 1407)
extended to
If the contract is ratified by the parent/guardian of both
contract, whenever juridical effects founded thereon are 42 asserted against him. 6
("the contract shall be validated from the
But the defense of illegality of contract is not available
contracting parties, the effect is to make the contract
valid
inception"). (Art. 1407)
third persons who are directly affected by the
to third persons whose interests are not directly affected. (Art. 1421)
B. DISTINGUISHED FROM OTHER DEFECTIVE CONTRACTS
V. VOID AND INEXISTENT CONTRACTS A.
IN GENERAL
1. Rescissible Contracts.
1 . Concept. A void or inexistent contract is one which. has no
a.
Rescissible contracts
-
valid and binding until
force and effect from the very beginning. Hence, it is as if
rescinded, as all the essential elements are present; they
it has never been entered into.639
are rescissible only because of an economic injury suffered by another person.
a.
It produces no civil effect and does not create, modify
Void contracts -void from the beginning because one
of the essential elements is lacking.
or extinguish a juridical relation.640
'" Francisco v. Herrera, G.R. No. 139982, November 21, 2002. "' Hulst v. P.R. Builders, Inc., G.R. No. 156364, September 3, 2007. 234
641
. 642
See Gonzales vs. Trinidad, 67 Phil. 682 (1939). Arsenal v. IAC, 227 Phil. 36 (1986). ·235
b.
Rescissib/e contracts
-
y by the
persons injured thereby.
Void contracts
- can be attacked by any person ·
directly affected. c.
Rescissible contracts
Void contracts
can be attacked onl
- rescission prescribes in four
years.
Void contracts - the action for declaration ofnullity is imprescriptible.
e.
a.
-
can
be
attacked
directly
or
b.
Unenforceable contracts - can be assailed only by the Void contracts
c.
- can be assailed by any person
Unenforceable
contracts
the
defense
of
unenforceability must be set up or the objeciion to parol evidence must
Void contracts -void from the beginning because·one
be raised in timely manner,
of the essential elements is Jacking.
otherwise they are waived. .
Voidable contracts - can be attacked only by persons
be waived.
Void contracts - defense of nullity or illegality cannot
obliged thereby, either principally or subsidiarily. -
can be attacked by any person
Voidable contracts
- annulment prescribes in four
directly affected.
years.
Void contracts - the action for declaration of nullity is imprescriptible. d.
- may be valid, although
directly affected.
Voidable contracts - valid and binding until annulled;
·
Unenforceable contracts
Void contracts -void from the beginning because one
essential elements.
c.
Voidable contracts - can be ratified. Void contracts .,-- cannot be ratified.
parties to the contract.
they are voidable because of a defect in one of the
Void contracts
or
of the essential elements is lacking.
2. Voidable Contracts. 643
b.
directly
they may not be enforced or proved (unless ratified).
collaterally.
a.
attacked
2. Unenforceable Contracts.
action for rescission).
Void contracts
can be
coJlateraJly.
Rescissib/e contracts - can be attacked directly (in an
d.
-
d.
Unenforceable contracts - can be ratified. Void contracts - cannot be ratified.
C. TYPES OF. VOID OR INEXISTENT CONTRACTS:
In general,
void or inexistence ·contracts are those where one of the essential requisites of a valid contract (consent, object and cause) is totaJly absent. The absence may be in a legal sense, e.g., a cause may be actuaJly present but if it is illegal or
Voidable contracts - can be action for annulment).
attacked directly (in an '
immoral, it may be considered legally absent. More specifically, Art.
1409 provides that the following
contracts are inexistent and void from the beginning -
'" See Leonardo v. CA, G.R. No. 125485, September 13, 2004. 236
2'37
1 . Those whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy; a.
The cause for a contract is presumed lawful.
a.
A person·who has leased his property to another person
b.
Note that things having a potential existence may be
(Art.
1354) b.
Examples of unlawful cause. i.
The termination of marital relations is an unlawful consideration which renders the contract void.644
ii.
An agreement to stifle the prosecution of a person
the object of the contract of sale. the thing sold at the
a.
b.
shares to a government crony with the motive of
Examples:
(i) public office650 and political rights; (ii)
·purely personal rights; such as those arising from
obtaining a government contract, the motive was
family
deemed the (illegal) cause.646
relations;
dominion,
and
(iii)
properties
such town plaza,651
of public
airport lands and
buildings, 652 forest lands,'53 roads and highways,654
iv. Where a man donated land to a woman with the
foreshore land,'55 watershed,'56 snbmerged lands.657
motive of getting her to agree to have sexual relations with him, the motive was deemed the
5. Those which contemplate an impossible service;
(illegal) cause. 647
Impossible things or services cannot be the object of
2. Those which are absolutely simulated or fictitious;
contracts.
(Art. 1348) Example: It
is impossible for a
lessor to undertake the maintenance of the public
An absolutely simulated or fictitious contract is void (Art. 1 346), because consent is totally absent. The parties do not intend to be bound at all. (Art. 1345)
238
Things "outside the commerce of man" are those ownership. 649
iii. Where the owner of a company transferred his
De Leon v. CA, G.R. No. 80965, June 5, 1990. "' Arroyo v. Berwin, 36 Phil. 386 (1917). 646 E. Razon Inc. vs. Philippine Ports Authority, 151 SCRA 233 (1987). ·," Liguez v. CA, 102 Phil. 577 (1957).
time it is delivered. (Art. 1459)
which are . not susceptible of appropriation or private
and the due administration ofjustice.645
644
What is
4. Those whose object is outside the commerce of men;
valuable consideration, is contrary to public policy
the transaction;
(Art. 1461)
necessary is that the vendor can transfer ownership of
charged with a crime, for a pecuniary or other
3 . Those whose cause o r object did not exist at the time of
cannot lease it again to a third party while the original lease was still valid and subsisting.648
648 Bercero v. Capitol
•
# '
Dev'\ Corp., G.R. No. 154765, March 29, 2007. "' See Land Bank v. Republic, G.R. No. 150824, February 4, 2008 and Republic v. CA, G.R. No. 126316, June 25, 2004. 650 Collantes v. CA, G.R. No. 169604, March 6, 2007, , 55' Municipality of Cavite v. Rojas, 30 Phil. 602 (1915); Espiritu v. Municipal Council, 102 Phil . 866 (1958). 552 Manila International Airport Authority v. CA, G.R. No. 155650, July 20, 2006. '" Land Bank v. Republic, G.R. No. 150824, February 4, 2008. "' Vlllarico v. Sarmiento, G,R. No. 136438, November 1 1 , 2004. 555 Republic v. CA, G.R. No. 126316, June 25, 2004. 556 Santa Rosa Realty Dev'! Corp. v. CA, G.R. No. 112526, October 12, 2001. 557 Chavez v. Public Estates Authority, G.R. No. 133250, May 6, 2003 and November 1 1 , 2003, 239
the parties are in pari
drainage system; he can only maintain the private pipes '8 or drainage of the leased premises. 6
delicto, no
affirmative relief of any
kind will be given to one against the other.661
In case· of pari
6. Those where the intention of the parties relative to the principal object of the contract cannot be ascertained;
delicto, the defendant is in a better position
because the court refuses to give judicial relief to the plaintiff.
However, the court's refusal to lend aid to the
Nullity results if the uncertainty refers to the principal
plaintiff is not intended to benefit the defendant.
object
intended to deter illegality.662
of the contract, in such a way that it cannot be
It is
known what may have been the intention or will of the parties. (Art. 1378) If the uncertainty refers merely to
incidental circumstances, the
Exceptions:
contract is valid; the
rules in Art. 1378 apply to resolve the uncertainty.
a.
7. Those expressly prohibited or declared void by law.
Example:
The law
contracts uponfuture
Note:
generally
generally
inheritance. (Art. 1347)
The pari delicto rule does not apply to inexistent contracts, i. e., contracts which are void because of the absence of an essential element (as opposed to contracts which are void because of illegality of the
�rohibits
cause or subject matter).663
Example:
A contract which is the direct result of a previous (Art. 1422)
The pari
delicto
rule does not apply to
absolutely simulated contracts or (o contracts
illegal contract, is also void and inexistent.
without consideration (even if they may have been entered for an illegal motive or purpose664).
D. RULES ON RECOVERY b.
1. General Rule.
Parties to a void agreement cannot expect
the aid of the law; the courts leave them as they are, in pari delicto or "in equal
because they are deemed
The pari delicto rule does not apply ,if it would violate public policy.665 a.
Example
1: A squatter who had been ousted by a
fault."6" Each must bear the consequences of his own
fellow squatter is · not barred from filing an
acts.660
ej ectment suit on .the ground that they are both squatters and in pari
delicto.
To deny a squatter
No action arises from an illegal contract; no suit can be maintained for its specific performance, or to recover the property agreed to be sold or delivered, or the money agreed to be paid, or damages for its violation; and where
661
Guevent Industrial Dev'! Corp. v. Phil. Lexus Amusement Corp., G.R. No. 159279,j July 1 1 , 2006. 65' Bercero v. Capitol D,ev't Corp., G.R. No. 154765, March 29, 2007; Hulst v. P.R. Builders, Inc., G.R. No. 156364, September 3, 2007. 660 Bercero v. Capitol Dev't Corp., G.R. No. 154765, March 29, 2007.
Silagan v. Intermediate Appellate Court, 196 SCRA 774, 765 (1991); Acabal v. Acabal, G.R. No. 148376, March 31, 2005; Bercero v. Capitol Dev't Corp., G.R. No. 154765, March 29, 2007; Hulst v. P.R. Builders, Inc., G.R. No. 156364, September 3, 2007. 662 Acabal v. Acabal, G.R. No. 146376, March 31, 2005. "' Gonzales vs. Trinidad, 67 Phil. 682 (1939); Vasquez v. Porta, 98 Phil. 490 (1956); Madina v. CA, G.R. No. 109355, October 29, 1999 664 Gonzales vs. Trinidad, 67 Phil. 662 (1939); Vasquez v. Porta, 96 Phil. 490 (1956). 6" Silagan v. IAC, 274 Phil. 182 (1991); Acierto v. De las Santos, 95 Phil. 887, 889 (1954).
240
241
656
the right to sue for ejectment would invite mayhem and lawlessness.666 b. Example 2: The pari delicto rule does not apply to disbarment proceedings, as they are intended to protect the public and the courts.667
2. lllegal Cause or Object. When the nullity proceeds from
· the illegality of the canse or object of the contract, the following rules apply: a.
If the act constitutes a criminal offense: i.
c. The law permits the return of that which may have been given under a void contract to: ·
i.
actid. ,,
The innocent party (Arts. 141 1-1412);
Moreover, the provisions of the Revised 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. (Art.
ii. The debtor who pays usurious interest (Art. 1413); iii. The party repudiating the void contract before the illegal purpose is accomplished or before damage is caused to a third person.and if public interest is ' subserved by allowing recovery (Art. 1414);
141 1) ii. When only one of the parties is guilty - they shall
have no action against each other, and the guilty · party shall be prosecuted. However, the innocent party may claim what he has given, and shall not be bound to comply with his promise. (Art. 1 4 1 1)
iv. The incapacitated party if the interest of justice so demands (Art. 1415); v. The party for whose protection the prohibition by law is intended, if the agreement is not illegal per se but merely prohibited and if public policy would be enhanced by permitting recovery (Art. 1416); and vi. The party for whose benefit the law has been intended such as in price ceiling laws (Art. 1417) and labor laws (Arts. 1418-1419). The foregoing instances are further discussed below.
When both parties are in pari delicto - they shall have no action against each other, and both shall be prosecuted. (Art. 1411) "In pari de/icto non oritur
b. If the act does not constitute a criminal offense: i.
When both parties' are at fault - neither may recover what he has given by virtue of the contract, or demand the performance of the other's undertaking. (Art. 1412)
ii.. When only one of the parties is at fault (1) The party at fault cannot recover what he has given by reason of the contract, or ask for the fulfillment of what has been promised him. (2) The party who is aot at fault may demand the return of what he has given without any obligation to comply with his promise. (Art. 1412) -
"' Pajuyo v. CA, G.R. No. 146364, June 3, 2004. "' Mortel v. Aspiras, 100 Phil. 586, 592 (1956). 242
143
The rule bars the party from pleading the illegality of the contract either as a cause of action or as a defense. Where the plaintiff can establish a cause of action without exposing its illegality, the vice does not affect his right to recover. 668
Notes:
Thus, e.g., where a married man donated a land to his paramour, who was minor at the time, the paramour may later seek recovery of the land on the strength of a donation regular on its face. To defeat its effect, the donor (or his heirs) may plead and prove that the same is illegal. But if the donor is the guilty party or is equally guilty with the donee, he is barred . 9 from settmg up sueh 1· 11egal'tty.66 ·
·
E.g., where the father falsified a deed of donation to her daughter (making it appear that the donation was made jointly with his wife, who was actually deceased, to avoid inheritance taxes and costs of publication), the father/donor and the daughter/donee are in pari de/icto. The father/donor cannot be allowed to file an action for annulment of the donation.670
3 . Illegal Purpose. When money i s 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. 1414)
"' Uguez v. CA, 1 02 Phil. 577 (1957). See, however, Tala Realty Services Corp. v. Banco Filipino Savings and Mortgage Bank. G.R. No. 137533, November 22, 2002. '" Liguez v. CA, 102 Phil. 577 (1957). 010 Ramirez v. Ramirez, G.R. No. 165088, March 17, 2006. 244
a. Thus, an alien who enters into a contract to buy a land but rescinds the same before transfer of title may be allowed to recover the purchase price he paid (but not damages).671 b. In· an agreement where the mother-in-law agreed to transfer certain properties to her daughter-in-law in consideration of the termination of marital relations with her son, the court allowed the mother-in-law to recover the properties since the agreement was repudiated before the purpose has been accomplished:612
4. Illegal Contract by an Incapacitated Person. Where one of the parties to an illegal contract is incapable of giving consent, the courts may, · if the interest of justice . so demands, allow recovery of money or property delivered by the incapacitated person. (Art. 1415) 5. Prohibited Contracts. 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. (Art. 1416) 6. Excess Interest or Price. , a.
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. 1413) Circular No. 905 of the Central Bank, adopted on December 22, J 982, has expressly removed the interest ceilings prescribed by the Usury Law.
671 Hulst v. P.R. Builders, Inc., G.R. No. 156364, September 3, 2007. '" De Leon v. CA, G.R. No. 60965, June 6, 1990.
245
Thus, the U sucy Law is now "legally inexistent" or "ineffective."673 b. When the price of any article or comnodity is determined by statute, or by authority of Jaw, any . person paying any amount in excess of the maximum price allowed may recover such excess. (Art. 1417) 7. Overwork or Underpayment. a. When the Jaw 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 _):ieyond the time limit. (Art. 1418) b. When the iaw sets, or authorizes the setting of a minimum wage for laborers, and a contract is agreed upon by which a laborer accepts a 19wer wage, .he shall be entitled to recover the deficiency. (Art. 1419) .
E. SEPARABILITY OF ILLEGAL TERMS: In case of a divisible contract, if the illegal terms can be separated from the. legal ones, the latter may be enforced. (Art. 1420)
Chapter 1 2
Natural Obligations I. IN GENERAL
A. DISTINCTION BETWEEN CIVIL AND NATURAL OBLIGATIONS Obligations are civil or natural. Civil obligations give a right of action to compel their performance. (Art. 1423)
Natural obligations, not being based on positive Jaw but on
equity and natural law, do not grant a right of action to enforce their performance, but , after voluntary fulfillment by the obligor, they authorize the retention of what has been delivered or rendered by reason thereof. (Art. 1423)
B. RATIONALE The law recognizes certain instances wherein there is a moral, but not a lega� duty to perform or pay. If the obligor performs or pays, out of his honor or conscience, he will not be permitted to change his mind and recover what he has paid. The law requires him to abide by his honor or conscience. 674 C. VOLUNTARINESS I.
"' Medel v. CA, G.R. No. 131622, November27, 1998. 246
"Voluntary performance" means that the obligor performs an obligation with the knowledge that he cannot be legally compelled to do so. If the payment is made by mistake (i.e., the obligor thought that the obligation is civil), the payor may recover under the principle of so/utio indebiti. (Art. 21 54)
"' Report of the Code Commission, pp. 58-59. 247
2.
a contract without the consent of the parent or guardian,
A natural obligation does not arise if performance is not
voluntarily pays a sum of' money or delivers a fungible
voluntary but was compelled by coercive processes (such
thing i.n fulfillment of the obligation, there-shall be no right
as by writ of execution).675
to recover the same from the obligee who has spent or consumed it in good faith. (Art.
II.
EXAMPLES OF NATURAL OBLIGATIONS
Note that under current law, the age of majority is
18 years old. (Art. 234, FC, as amended by RA 6809) Thus, Arts. 1426 and 1427 may be deemed inoperative.
A. PRESCRIBED OBLIGATIONS I.
Performance of Prescribed Obligations. When a right to sue upon a civil obligation has lapsed by' extinctive
C. VOLUNTARY PERFORMANCE BY DEFENDANT
prescription, the obliger who voluntarily performs the
Payment by Defendant Despite Failure of Action Against Him. When, after an action to enforce a civil
contract cannot recover what he has delivered or the value of the service he has rendered.
2. Reimbursement
Obligations.
of
·
(Art. 1424)
Payments
for
obligation has failed, the defendant voluntarily performs the obligation, he cannot demand the return of what he has
Pre�cribed
delivered or the payment of the value of the service he has
When without the knowledge or ag�inst the
rendered. (Art.
will of the debtor, a third person pays a debt which the obliger is not legally bound to pay because the action thereon has prescribed, but the debtor later voluntarily . reimburses the third person, the obliger cannot recover what he has paid.
•
(Art. 1425)
D. VOLUNTARY PERFORMANCE BY HEIR I.
Payment By Heir In Excess of His Inheritance. When a testate or intestate heir voluntarily pays a debt of the
received by will or by the law of intestacy from the estate
1 . Return b y "Minor" of Thing or Price Received. 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 annuhnent of the contract voluntarily returns the whole thing or price received, notwithstanding the fact that he has not been benefited thereby, there is no right to demand the thing or price thus returned. (Art.
1426)
Performance by
1428)
decedent exceeding the value of the property which he
B. OBLIGATIONS OF A "MINOR"
2.
1427)
of the deceased, the payment is valid and cannot be rescinded by the payer. (Art.' 1429)
2. Payment of Legacy Under a Defective Will. 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.
a
"Minor."
When a minor between
. (Art.
1430)
eighteen and twenty-one years of age, who has entered into
"' Manila Surety & Fidelity Co. v. Lim, 106 Phil. 771 (1959). 248
249
Chapter
b. Reliance by Party Invoking Estoppel - the other person in fact relies, and relies reasonably or justifiably, upon that communication;
13
Estoppel
The party invoking the doctrine must have been misled to his prejudice. This is the most important element of equitable estoppel.679
I. IN GENERAL
c. Prejudice to Party Invoking Estoppel - the other person would be harmed materially if the actor is later permitted to assert any claim inconsistent with his earlier conduct; and
A. CONCEPT
)
I . Through estoppel an admission or representation is
rendered conclusive upon the person making it, and cannot be denied or disproved as against the person relying thereon. (Art. 143 1 )
d. Knowledge of Party Estopped - the actor knows, expects or foresees that the other person would act upon the information given or that a reasonable person in the actor's position would expect or foresee such action.
2 . A party may not go back ou his own acts and representations to the prejudice of the other party who relied upon them. 676
·
In the law of evidence, whenever a party has, by his own declaration, act, or omission, intentionally and deliberately led another to believe a particular thing true, and to act upon such belief, he cannot, in any litigation arising out of such declaration, act, or omission, be permitted to falsify it. 677
3. The elements of estoppel are: 678 a. Representation by Estopped Party - the actor who usually must have knowledge, notice or suspicion of the true facts, communicates something to another in a misleading way, either by wprds, conduct or silence;
616
4. Estoppel cannot be predicated on an illegal act. As between the parties to a contract, validity cannot be given to it by estoppel if it is prohibited by law or is against public policy.680 B. KINDS OF ESTOPPEL: Estoppel may be in pais or by deed. (Art. 1433) Jurisprudence also recognizes estoppel by !aches. I.
Estoppel in pais or equitable estoppel - arises when one, by his acts, representations or admissions or by his silence when he ought to speak out, intentionally or through culpable negligence, induces another to believe certain facts to exist and such other party rightfully relies
Philippine National Bank vs. Intermediate Appellate Court, et al., 189 SCRA 680 (1990); Caltex v. CA, G.R. No. 97753, August 10, 1992. m Rules of Court, Rule_131, Sec. 2(a). Caltex v. CA, G.R. No. 97753, August 10, 1992. "' British American Tobacco v. Camacho, G.R. No. 163583, August 20, 2008, citing Philippine Bank of Communications v. Court of Appeals, 352 Phil. 1, 9 (1998).
679 Philippine Savings Bank v. Chowklng Food Corp., G.R. No. 177526, July 4, 2008, citing Vega v. San Ca�os Milling Company Limited, G.R. No. 21549, October 22, 1924. 680 United Coconut Planters Bankv. Beluso, G.R. No. ,159912, August 17, 2007 citing Eugenio v. Perdido, 97 Phil. 41, 44 (1955); Auyong Hian v. Court of Tax Appeals, G.R. No. L-26782, 12 September 1974, 59 SCRA 110, 133-134.
250
251
·
· and acts on such belief so that he will be prejudiced if the
reasonable time, warranting a presumption that the
former is permitted to deny the existence of such facts.681
2. Estoppel by deed or by record
-
party entitled to assert it either has abandoned it or declined to assert it. 687 .
occurs when a party to
a deed and. his privies are precluded from denying any
b.
material fact stated in the said deed as against the other 2 party and his privies. 68 a.
i.
When a person has entered into a solemn engagement which he has asserted therein.683 Thus, e.g., in a deed
ii.
property, the mortgagee cannot subsequently assert 4 title. to the same.68
I
right on which he bases his suit; and
object certain, such deeds cannot be the basis . of 6
iv. Injury or prejudice to the defendant in the event
estoppel. 68
relief is accorded to the complainant.
a person who failed or neglected to
C. PARTIES ESTOPPED
assert a right for an unreasonable and unexplained length
of time is presumed to have abandoned or otherwise
I.
He cannot later on seek to
enforce the same, to the prejudice of the other party, who
has no notice or knowledge that the former would assert
officers.689
former state.
However, this principle does not apply if it will cause
In other words, estoppel by !aches arises from the
injustice.690
negligence or omission to assert a right within a
252
(Art. 1439)
is not bound by the mistakes or errors of its agents or
latter cannot, without injury or prejudice, be restored to his
'" Ganzon v. Honorable Court of Appeals, 385 SCRA 399, 411-412 (2002). '" Sps. Chien v. Sta. Lucia Realty & Dev't Inc., G.R. No. 162090, January 31, 2007. '"Lopez v. CA, G.R. No. 127627, March 5, 2003. ''"' Sps. Del Campo v. CA, G.R. No. 108228, February 1 , 2001 ees Lopez v. CA, G.R. No. 127827, March 5, 2003. "' Lopez v. CA, G.R No. 127627, March 5, 2003.
Estoppel i s effective only as between the parties thereto or
their successors in interest.
2. Estoppel generally does not lie against the State. The State
such rights and whose condition has so changed that the
a.
knowledge of the defendant's conduct and after he
defendant that the complainant would assert the
special power of attorney were void due to lack of an
declined to assert such right.
Delay in asserting 'complainant's right after he had
iii. Lack of knowledge or notice on the part of the
estoppel. 685 Thus, where an extra-judicial partition and
-
whom he claims, giving rise to the sitnation
has an opportnnity to sue;
A void deed, however, may not be the basi� of, an
3 . Estoppel by /aches
Conduct on the part of defendant or one under complained of;
by deed, he shall not be permitted to deny any matter
of mortgage which states that the mortgagor owns the
b.
The essential elements 'of !aches are688:
·
&17 Philippine .National Construction Corporation v. National Labor Relations CommiSslon, 366 Phfl. 678 (1999), citing Tijam v. Sibonghanoy, 131 Phil. 556 (1968) and Medija v. Patcho, 210 . Phil. 509 (1983).· '" Sps. Domingo v. Roces, G.R. No. 147468, Aprfl 9, 2003. "' Cudia v. CA, G.R. No. 110315, January 16, 1996; Republic v. CA, G.R. No. 126316, June 25, 2004; Administrative Code of 1967 (E.O. No. 292), Sec. 11 of Book I of Chapter 3. 690 Uy v. Commission of Audit, G.R. No. 130685, March 21, 2000.
253
landlord and tenant between them.693 The tenant can assert
D. GOVERNING LAW:
title against his landlord if he acquired t11e property
The principles of estoppel are adopted
after
fue commencement of their lease.
insofar as they are not in conflict with the provisions of the Civil Code, the Code of Commerce, the Rules of Court and special laws.
2.
(Art. 1432)
Lessees are estopped to deny their landlord's title, or to '
assert a better title not only in themselves, but also in some
third person, while they remain in possession of the leased premises and until they surrender possession
II. EXAMPLES OF ESTOPPEL
A. SELLER ACQUIRES TITLE TO THING SOLD:
When a person
who is not the owner of a thing sells or alienates and delivers it,
D. OWNER MISLEADS BUYER OF lMMOVABLE: contract
and later the seller or grantor acquires title thereto, such title passes by operation of law to the buyer or grantee.
1.
third
persons
concerning
When in a immovable
ownership or real right over , the real estate, the latter is precluded from asserting his legal title or interest therein,
but he later acquired the remaining
provided aU these requisites are present:
validates the entire transaction and
title to the whole thing passes to the buyer.691
2.
between
property, one of them is misled by a person with re.spec! to the
(Art. 1434)
Thus, e.g., if. at the time of the sale, the seller ownyd only
1/3 of the thing sold, 2/3, such acquisition
to the
landlord. 694
I.
There must be fraudulent representation or wrongful
2.
The party precluded must intend that the other should act
concealment of facts known to fue party estopped;
In one case, it was held ihat if at the time of the sale, the seller was not yet the owner of the thing sold, but he later
upon the facts as misrepresented;
inherits it, the title passes by operation of Jaw to the buyer.692 However, this appears contrary to the prohibition against contracts uponfature
inheritance. (Art. 1347)
B. AGENT OF SELLER ACQUIRES TITLE TO THING SOLD:
3. If ,a
person in representation of another sells or alienates a thing, the
4.
The party defrauded must have acted in accordance with the misrepresentation.
former cannot subsequently set up his own title as against the buyer or grantee.
The party misled must have been unaware of the true facts; and .
(Art. 1437)
(Art. 1435) E. OWNER MISLEADS PLEDGEE:
C. LESSEE OR BAILEE: A lessee or a bailee is estopped from
purpose of making any transfer of it, cannot, if he received the
asserting title to the thing leased or received, as against the lessor or bailor.
(Art. 1436) 693
I.
One who has allowed another
to assume apparent ownership of personal property for the
The tenant i s not permitted to deny the title of his landlord
at the time of the commencement of the relations
"' Estoque v. Pajimula, G.R. No. L·24419, July 15, 1968. Pisuena v. Heirs of Unating, G.R. No. 132803; August 31, 1999.
692
254
of
Rules of Court, Rule 131, Sec. 2(b). Julag-ay v. Estate of Buenaventura, Sr., G.R. No. 149788, May 31, 2006, citing VSC Commercial Enterprises, Inc. v. Court of Appeals, Oscar Estopace and Jose Silapan, G.R. No. 121159, December 16, 2002, 394 SCRA 74; Geminian'o v. Court of Appeals, G.R. No. 120303, July 24, 1996, 259 SCRA 344, 351, citing Borre v. Court of Appeals, 158 SCRA 560, 566; Manuel v. Court of Appeals, G.R. No. 95469, July 25, 1991, 199 SCRA 603, 607; Munarv. Court of Appeals, G.R. No. 100740, November 25, 1994, 238 SCRA372, 380. 694
255
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. (Art. 1438)
Chapter 1 4
Trusts I.
GENERAL PROVISIONS A. DEFINITION: A trust is a legal relationship with respect to property, between one person having an equitable ownership of property and another person owning the legal title to such property, in which the equitable ownership of the former entitles him to the performance of certain duties and the exercise of certain powers by the latter.695 1 . Note that in a trust relation, there is a separation of the legal title and equitable ownership of the property. Legal title is vested in one party (the trustee) while equitable ownership is vested in another (the beneficiary).696
2. Note also that in a trust relation, equitable duties are imposed on the holder of the legal title (the trustee). These duties consist mainly of dealing with the trust property for the benefit of the equitable owner (beneficiary).697
B. PARTIES TO A TRUST I.
Trustor
-
the person who establishes a trust. (Art. 1440)
the person in whom confidence is reposed as regards property for the benefit of another person. (Art. 1440)
2. Trustee
-
'" Caneza v. Rojas, G.R. No. 148788, November 23, 2007, citing Tigno v. Court of Appeals, 345 Phil. 486, 497 (1997) and Morales v. Court of Appeals, 274 SCRA 282 (1997). "' Caneza v. Rojas, G.R. No. 148788, November 23, 2007 697 Tala Really Services Corp. v. Banco Filipino Savings & Mortgage Bank, 392 SCRA 506 (2002), citing Huang v. CA, 236 SCRA 420 (1994). 256
257
3. Beneficiary
-
been created.
the person for whose benefit the trust has
(Art. 1440) He is also called cestui que trust.
of Commerce, the Rules of Court and special laws are adopted. (A1t.
1442)
The trustor and the beneficiary may be a single person. II. EXPRESS TRUSTS C.
ELEMENTS OF A TRUST :
trust
res,
The elements of a trust are:
(1)
the
or the property held in trust which must be duly
identified and definite; and the three parties, namely, trustor; (3) trustee; and
(4) beneficiarY.698
(2)
D. KINDS OF TRUST: Trnsts are either express or implied. I.
Express trusts are created by the intention of the trustor or of the parties. (Art. 1441)
2. Implied trusts 1441) Implied
A. CONCEPT: Express trusts are created by the intention of the trustor or of the parties.
I.
�
come into being by operation of l w. (Art.
infra).
E. LAWFUL PURPOSE: A trust will not be created or enforced ifit is violative of the law or for the purpose of evading the law.699
property ·sold pursuant to government housing programs701 or land distribution programs.
in
acquiring
702
F. GOVERNING LAW:
The principles of the general law of trusts,
insofar as they are not in conflict with the Civil Code, the Code
Express trusts are created by the direct and positive acts of
Express trusts concerning an
interest must be in writing to
immovable
or any
be enforceable. They cannot•be
proved by parol or oral evidence. (Art.
1443)
However, in one case, the Court allowed oral testimony to
prove the existence of a trust, which had been partially
prohibited or disqualified from acquiring or holding real
restrictions
(Art. 1444)
the parties, by some writing or deed or will, or by words
B. PROOF:
This usually happens when the beneficiary is legally
property, and uses the trustee as a "dummy." Examples are prohibitions against land ownership by aliens,700 or
express trust, it being sufficient that a trust is clearly
evincing an intention to create a trust.703
trusts are either resulting or constructive
trusts (see discussion
No particular words are required for the creation of an intended.
2.
(Art. 1441)
performed.704 C. ACCEPTANCE
I.
By Trustee
-
No trust shall fail because the trustee
appointed declines the designation, unless the contrary should appear in the instrument constituting the trust.
(Art.
1445) 2. By
Beneficiary
-
Acceptance by the beneficiary is
necessary. Nevertheless, if the trust imposes no onerous
'" Caneza v. Rojas, G.R. No. 148788, November 23, 2007. '" Kiel vs. Estate of P.S. Sabert, 46 Phil. 193 (1924); Ramos v, CA, 232 SCRA 348 (1994); Tala Realty Servic•s Corp. v. Banco Filipino Savings & Mortgage Bank, 392 SCRA 506 (2002) 100 Heirs of Yap v. CA, G.R. No. 133047, August 17, 1999. 101 Ramos v. CA, 232SCRA 348 (1994); Pigao v. Rabanillo, G.R. No. 150712, May2, 2006. 102 Saltiga de Romero v. CA, G.R. No. 109307, November 25, 1999.
'°' Ramos v. Ramos, 61 SCRA 284 (1974); Estate of Grimm v. Estate of Parsons, G.R. No. 159810, October9, 2006, 504 SCRA 67, 81. 7"' Ringor v. Ringor, G.R. No. 147863, August 13, 20d4, 436 SCRA 4% 496.
258
259
c. KINDS OF IMPLIED TRUST: Implied trusts are : either resulting or constructive trusts -
condition upon the beneficiary, his acceptance shall be presumed, if there is no proof to the contrary. (Art.
1446)
D. PRESCRIPTION: In . express trusts, a trustee cannot, by
1 . Resulting trusts are based on the doctrine that valuable
prescription, acquire ownership over property entrusted to him
consideration, and not legal title, determines the equitable title or interest to a property, and are presumed always to
until and unless he repudiates the trust.705
have been contemplated by the parties.709
1. This is because the possession of a trustee is not adverse706
a.
(at least until repudiated).
purchased by X but the consideration or purchase price is paid by Y for the purpose of having the beneficial
2. In case of repudiation, the action prescribes in 10 years
interest over it.
from repudiation. 707 b.
Specific examples of resulting trusts may be found in Arts.
Ill. IMPLIED TRUSTS
,.
Thus, e.g., there is a resulting trust when a property is
1448, 1449, 1451, 14S 2 and 1453 (infra). 110
2. Constructive trust is created, not by any word evincing a
A. CONCEPT: Implied trusts are created by operation of law. (Art. 1441) They come into being even in the absence of an express
direct intention to create a trust, but by operation of law in order to satisfy the demands of justice and to prevent unjust
intent by the parties to create a trust.
enrichment. It is raised by equity in respect of property,
which has been acquired by fraud, or where although
B. PROOF: An implied trust may be proved by .oral evidence. (Art. 1457) This rule applies whether the implied trust.
acquired originally without fraud, it is against equity that it
711
should be retained by the person holding it.
concerns movables or immovables.
a.
However, the evidence must be trustworthy and received
E.g., when a trustee reg'isters the trust property in his name by fraud or mistake, there is constructive trust.712
by the courts with extreme caution, and should not be made to rest on loose, equivocal or indefinite declarations.708
b.
In express or resulting tiust, when the trustee dies, the trust relations (being personal to the trustee) are terminated. If the property is retained by the trustee's
705
Palma vs. Cristobal, 77 Phil. 712; Manalang vs. Canlas, 94 Phil. 776; Cristobal vs. Gomez, 50 Phil. 810; Sevilla vs. de los Angeles, 97 Phil. 875; Marabil�s vs. Quito, 100 Phil. 64; Bancairen vs. Diones, 98 Phil. 122, 126; Juan vs: Zuniga, 62 O.G. 1351; 4 SCRA 1221; Jacinto vs. Jacinto, L-17957, May 31, 1962. See Tamayo vs. ·callejo, 147 Phil. 31, 37; Canezo v. Rojas, G.R. No. 148788, November 23, 2007. 1oe Diaz vs. Gorricho and Aguado, 103 Phil. 261, 266; Laguna vs. Levantino, 71 Phil. 566; Sumira vs. Vistan, 74 Phil . .138; Golfeo vs. Court of Appeals, 63 O.G. 4895, 12 SCRA 199; Caladiao vs. Santos, 63 0.G. 1956, 10 SCRA 691. 101 Diaz v. Gorricho, 54 O.G. p. 8429; Escay v. CA, G.R. No. L-37504, December 18, 1974, 61 SCRA 369, 388; Secuya v. De Selma, G.R. No. 136021, February 22, 2000, 326 SCRA 244, . 254. 100 Canazo v. Rojas, G.R. No. 148788, November 23, 2007.
Morales v. CA, G.R. No. 117228, June 19, . 1997, 274 SCRA 282; Aznar Brothers Realty Company v. Aying, G.R. No. 144773, 16 May 2005, 458 SCRA 496; Lopez v. CA, G.R. No. ' 157784, December 16, 2008. 710 Lopez v. CA, G.R. No. 157784, December 16, 2008. 711 Morales v. CA, G.R. No. 1 1 7228, June 19, 1997, 274 SCRA 282; Aznar Brothers Realty Company v. Aying, G.R. No. 144773, 16 May 2005, 458 SCRA 496; Lopez v. CA, G.R. No. 157784, December 16, 2008. 712 Lopez v. CA, G.R. No. 157784, December 16, 2008.
260
261
709
heirs (who actually have no right to do so), a constructive trust is created.713 c.
An action for reconveyance based on constructive trust
b.
Constructive trusts are illustrated iu Arts.
1455 and 145.6 (infra).114
prescribes in ten years (Art. l
of the issuance of the certificate of title over the
property.7 19 Such registration/ issuance is constructive notice that the registrant claims the property as his.720
D. PRESCRIPTION I.
But if the person claiming to be the owner thereof
In Resulting Trusts - the trustee cannot, by prescription,
acquire ownership over the property entrusted to him until
is in actual possession of the property, the right to
and unless he repudiates the trust. 715
seek reconveyance, which in effect seeks
to quiet
title to the property, does not prescribe.121
This rule is similar to that in express trusts, and is
based on .the principle that the trustee's possession is
The one who is in actual possession of the land claiming to be its owner may wait until his
not adverse. 2. In Constructive Trusts
-
possession is disturbed or his title is attacked
prescription may run or
before taking steps to vindicate his right 722
supervene even if the trustee does not repudiate the
relationship.716 a.
144[b]), which begins to
run from the date of registration of the deed or the date
1450, 1454,
c.
This is because in constructive trust, no fiduciary
enforcement
may be barred by
E. EXAMPLES
The holding of a
(Art.
constructive trust is for the trustee liirnself, and
118
therefore, at all times adverse.
713
its
OF RESULTING TRUSTS: The following enumeration of examples of resulting trusts is not exhaustive724
The so-called trustee
neither accepts any trust nor intends holding the property for the beneficiary.
constructive,
/aches. 723
relation actually exists and the trustee does not
recognize the trust at all.717
Note, however, that whether the trust is resnlting or
I.
1447) -
Beneficiary Pays the Purchase Price
"purchase money resulting trust"125).
(also known as
There is an implied
Canezo v. Rojas, G.R. No. 148788, November 23, 2007. Lopez v. CA, G.R. No. 157784, December 16, 2008. 715 Heirs of Candelarta vs. Romero, 109 Phil. 500, 502-3; Martinez vs. Grano, 42 Phil. 35; Buencamino vs. Matias, 63 0.G. 11033, 16 SCRA 849; Canezo v. Rojas, G.R. No. 148788, November 23, 2007. '" Canezo v. Rojas, G.R. No. 148788, November 23, 2007, citing Buan Vda. de Esconde v. Court of Appeals, 323 Phil. 81, 89 ( 19961. 111 Alzona vs. Capunitan, G.R. No. L-10228, February 28, 1962, 4 SCRA 450; Gerona vs. de Guzman, G.R. No. L·19060, May 29, 1964, 1 1 SCRA 153; Clartdad vs. Henares, 97 Phil. 973; Gonzales vs. Jimenez, L-19073, January 30, 1965, 13 SCRA 80; Bonaga vs. Soler, 112 Phil. 651; J. M. Tuason & Co., vs. Magdangal, G.R. No. L-15539, January 30, 1962, 4 SCRA 84. 11• Canezo v. Rojas, G.R. No. 148788, November 23, 2007, citing Aznar Brothers Realty Companyv. Aying, G.R. No. 144773, May 16, 2005, 458 SCRA496, 508.
Belcodero v. CA, G.R. No. 89667, October 20, 1993. Lopez v. CA, G.R. No. 157784, December 16, 2008. 111 Heirs of Jose Olviga vs. Court of Appeals, G.R. No. 104813, October 21, 1993, 227 SCRA 330; Vda. de Cabrera v. CA, G.R. No. 108547, 3 February 1997, 267 SCRA 339; Mendizabal v. Apao, G.R. No. 143185. February 20, 2006. m Heirs of Jose Olviga vs. Court of Appeals, G.R. No. 104813, October 21, 1993, 227 SCRA 330; Vda. de Cabrera v. CA, G.R. No. 108547, 3 February 1997, 267 SCRA 339; Mendizabal v. Apao, G.R. No. 143185. February 20, 2006. "' Ramos v. Ramos, 61 SCRA 284, 300 (1974); Vda. De Esconde v. CA, G.R. No. 103635. . February 1, 1996. 724 See Cuenco v. Vda. De Manguerra, G.R. No. 149844, October 13, 2004. 12s Morales v. CA, G.R. No. 117228, June 19, 1997.
' 262
263
m
7"
12o
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. (Art. 1448)
F. EXAMPLES OF CONSTRUCTIVE TRUSTS:
The following
enumeration of examples· of resulting trusts is not exhaustive (Art. 1447) -
The supposed "buyer" who receives title is the trustee, while the person who pays the price is the beneficiary.
(Art: 1448)
1 . Conveyance as Security for Purchase Price. If the price
of a sale of property is loaned or paid by cine person for the
benefit of another and the conveyance is made to the lender lfowever, if the person to whom the title is
or payor to secure the payment of the debt, a trust arises by
conveyed is a child (legitimate or illegitimate) of
operation of law in favor of the person to whom the money
the one paying the price of the sale, no trust is
is loaned or for whom it is paid. The latter may redeem the
implied by law, it being disputably presumed that
property and compel a conveyance thereof to him. (Art.
there is a gift in favor of the child. (Art. 1448)
1450)
2. Donee Has no Beneficial Interest. There is also an
d
implied trust when a donation is made to a pers n but it
2. Conveyance as Security for Obligation. If an absolute conveyance of property is ·made in order to secure the
appears that although the legal estate is transmitted to the
performance of an obligation of the granter toward the
donee, he nevertheless is either. to have no beneficial
grantee, a trnst by virtue of law is established. If the
interest or only a part thereof. (Art. 1449)
fulfillment of the obligation is offered by the granter when it becomes due, he. may demand the reconveyance of the
3 . Inherited Property Titled in Trustee;s Name. When land
property to him.
(Art. 1454)
passes by succession to any person and he causes the legal title to be put in the name of another, a trusris established
3 . Purchase Using Trust Funds. When any trustee, guardian
by implication of law for the benefit of the true owner.
or other person holding a fiduciary relationship uses trnst
(Art. 1451)
funds for the purchase
of property and causes the
conveyance to be made to him or to a third person,
4 . Co-purchased PropertyTitled in Trustee's Name. Iftwo .
or more persons agree to purchase property and by common consent the legal title is taken in the name of' one
a trust
is established by operation of law in favor of the person to whom the funds belong. (Art. 1455)
of them for the benefit of all, a trust is created by force of
4. AcquisitiOn Through Mistake or Fraud. If property is
law in favor of the others in proportion to the interest" of
acquired through mistake or fraud, the person obtaining it
each.
(Art. 1452)
is, by force o.f law, considered a trustee of an implied trust for the benefit of the person from whom the property
5. Property Conveyed to Trustee For Another. When
comes. (Art. 1456)
property is conveyed to a person in reliance upon his declared intention to hold it for, or transfer it to another or the granter, there is an implied trust in favor of the person whose benefit is contemplated. (Art. 1453)
264
265
a.
Example
b.
Example 2:
J : X borrowed the c·ertificate of title from Y,
tricked Y into sig1.1ing a deed of transfer and obtained a 26 transfer certificate ohitle in his (X's) name. 7 The overseer of a property transferred the 727 tax declaration in his name using a fake quitclaim.
"' Rodrigo v. Ancilla, G.R. No. 139897, June 26, 2006. Sps. Bejoc v. Cabreros, G.R. No. 145849, July22, 2005.
m
266
