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Incomplete definition because it focuses on the passive aspect of the obligation. An obligation is a juridical relation whereby a person (called the creditor) may demand from another (called the debtor) the observance of a determinate conduct, and, in case of breach, may obtain satisfaction from the assets of the latter. The obligation pertaining to Art. 1156 refers only to civil obligations. Civil Obligations can be enforced in court, while Natural Obligations are not enforceable in courts. Should the debtor choose to honor his obligation and perform it, there is nothing wrong with it. The enforceability of natural obligation is more or less dictated by the conscience of the debtor. But it does not make it less than an obligation. It is still an obligation only that you do not have any recourse in law to enforce it. You are totally at the mercy of the debtor—his conscience, whether or not he would like to comply with his obligation. Prescription does NOT extinguish the obligation. What does it extinguish is the right to enforce the action. ELEMENTS OF OBLIGATION: (1) Active subject, one who has the power to demand the prestation, known as the creditor or obligee; (2) Passive subject, one, who is bound to perform the prestation, known as the debtor or obligor; (3) Object or Prestation, is the conduct which calls for the giving, doing or not doing on the part of the debtor; should be susceptible of valuation in terms of money, because the thing that gives an obligatory force to an obligation is the possibility of sanction, and it is only possible if failing fulfillment of the prestation, you are able to proceed to the assets of your debt; (4) Efficient cause or the juridical tie refers to the reason why the obligation exists; the source of the obligation. The personal elements of the Obligation (active and passive subjects) need not be identified or determined in the act constituting the obligation, but they must at least be identifiable or determinable by some kind of criteria. The prestation need not be of an economic value because, all interest, even moral ones, in view of the protection given to them by law, have some pecuniary value. An example of an obligation which is economic in character is a contract of sale. We can easily appreciate that there is pecuniary valuation in case of breach. If the party does not pay by way of the purchase price, then the other party may sue and recover the value of the
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ARTICLE 1156. An obligation is a juridical necessity to give, to do or not to do.
purchase price. We can quantify it. Or, if the property is not delivered, again, it can still be quantified because the sanction is economic in character. It can be easily be translated into monetary value. But what about an obligation which is NOT economic in character, because it is our theory that all interest are susceptible of pecuniary valuation. What can be an example of an obligation which is not of economic in character but is susceptible of monetary value? Obligation between Husband and wife. In case of breach, the remedy of the aggrieved spouse is to seek damages. It cannot be really quantified because it is not economic in character but we have to quantify it. We have to assume that it is susceptible of monetary valuation. There is no clear basis of the damages but we have to assume that there is. Our theory is that all interests are susceptible of pecuniary valuation and this has to be so, otherwise, whatever remedy we may have under the law will be all for naught. If we cannot obtain satisfaction from the assets of the debtor, it is useless to have cause of action, right of action and judgment in our favor. REQUISITES FOR A VALID PRESTATION: (1) It must be licit, possible, physically and judicially; (2) Must be determinate or at least determinable; and (3) Must have a possible equivalent in money or susceptible of economic valuation. OBLIGATION TO GIVE: one in which the prestation consists in the delivery of a movable or an immovable thing, in order to create a real right, or for the use of the recipient, or for its simple possession, or in order to return it to its owner. OBLIGATION TO DO: It includes all kinds of work or services; Obligation to do and Obligation to give: sometimes overlap. The remedies available to obligation to give are different from the remedies available to obligation to do. OBLIGATION NOT TO DO: Obligation not to do an obligation which he may otherwise do. This already includes the obligation to give.
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BOOK IV - Obligations and Contracts TITLE I - Obligations CHAPTER 1 - General Provisions
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ARTICLE 1157. Obligations arise from: (1) Law; (2) Contracts; (3) Quasi-contracts; (4) Acts or omissions punished by law; and (5) Quasi-delicts . o Pelayo vs. Lauron, 12 Phil. 453, January 12, 1909 - In this case, why are the in-laws not responsible for the claim of the doctor? The approach should be one of elimination. If we are going to answer this question, we should not jump right away that there is no provision in the law making the in-laws of a person liable for her medical expenses. We have to say that: Under the law an obligation can be sourced from the law, contract, delict, quasi-delict or quasi-contract. Obviously, this case does not involve a quasi-delict. We can only look only into two possible sources, i.e. law and contract. There is no
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contract between the doctor and in-laws. Based on the facts, they only summoned the doctor. They did not really engage his services. So we are left with the law. But there is nothing in the law which makes an in-law (medical expenses) of a spouse liable. This liability devolves upon the other spouse. ARTICLE 1158. Obligations derived from law are not presumed. Only those expressly determined in this Code or in special laws are demandable, and shall be regulated by the precepts of the law which establishes them; and as to what has not been foreseen, by the provisions of this Book.
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ARTICLE 1159. Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith.
A contract entered into in the name of another by one who has no authority or legal representation, or who has acted beyond his powers, shall be unenforceable, unless it is ratified, expressly or impliedly, by the person on whose behalf it has been executed, before it is revoked by the other contracting party. Art. 1403. The following contracts are unenforceable, unless they are ratified: (1) Those entered into in the name of another person by one who has been given no authority or legal representation, or who has acted beyond his powers. Art. 1404. Unauthorized contracts are governed by Article 1317 and the principles of agency in Title X of this Book. o
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Art. 1317. No one may contract in the name of another without being authorized by the latter, or unless he has by law a right to represent him.
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A juridical relation which arises from certain lawful, unilateral and voluntary acts to the end that no one shall be unjustly enriched or benefited at the expense of another (Art. 2412, NCC). Principally, we have two (2) principal kinds of quasicontracts: (1) Negotiorium Gestio, which is the obligation to indemnify or to reimburse; and (2) Solutio Indebiti, which is the obligation to return the thing by mistake and the obligation to give back what has been received by mistake. Both are based on the presumed will of the debtor that he would want to give back what he had received by mistake; he would want to reimburse the officious manager for all his troubles in managing his business in his absence in accordance with the principle of equity, specifically, the principle that no one shall be unjustly enriched at the expense of the another (Unjust Enrichment). We presume that such is the intent of the debtor because he will not want to be unjustly enriched at the expense of the payor or officious manager. NEGOTIORIUM GESTIO:
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ARTICLE 1160. Obligations derived from quasi-contracts shall be subject to the provisions of Chapter 1, Title XVII, of this Book.
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Principle of Autonomy of Will states that the will of the parties in the contracts has the force of law and should be complied with in good faith. The contract will serve as the law between the parties.
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It is a juridical relation which takes place when somebody takes charge of the agency or management of the business or property of another without any power from the latter. If there is tacit authorization, we do not have negotiorium gestio; we have a contract of agency. There may be obligation that is created but it is not sourced from a quasi-contract. Its source would be a contract, specifically, a contract of agency. If the property or business was not actually abandoned or neglected, the same will be governed by Arts. 1317, 1403 (1), and 1404.
Art. 2144. Whoever voluntarily takes charge of the agency or management of the business or property of another, without any power from the latter, is obliged to continue the same until the termination of the affair and its incidents, or to require the person concerned to substitute him, if the owner is in a position to do so. This juridical relation does not arise in either of these instances: (1) When the property or business is not neglected or abandoned; (2) If in fact the manager has been tacitly authorized by the owner.
The status of contracts that the officious manager entered into in the name of the owner without authority from the latter is "unenforceable." No one can enter into a contract in the name of the other person without the consent of such other person. And if he does so, the contract is unenforceable as against the supposed principal. But as against him (officious manager), that contracts will be his personal liability.
Art. 2149. The ratification of the management by the owner of the business produces the effects of an express agency, even if the business may not have been successful. o
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If there are benefits that had been accrued to him, the officious manager shall be entitled to reimbursement for necessary and useful expenses, as well as indemnification for any damage that he may have suffered as a result of his management.
Art. 2150. Although the officious management may not have been expressly ratified, the owner of the property or business who enjoys the advantages of the same shall be liable for obligations incurred in his interest, and shall reimburse the officious manager for the necessary and useful expenses and for the damages which the latter may have suffered in the performance of his duties.
Art. 2154. If something is received when there is no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises. o o
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The same obligation shall be incumbent upon him when the management had for its purpose the prevention of an imminent and manifest loss, although no benefit may have been derived.
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At the very least, to be entitled to reimbursement, the officious manager must be in good faith and he did not cause any damage (that’s what the law means that the property was still intact).
Art. 2156. If the payer was in doubt whether the debt was due, he may recover if he proves that it was not due. Art. 2157. The responsibility of two or more payees, when there has been payment of what is not due, is solidary.
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Art. 2155. Payment by reason of a mistake in the construction or application of a doubtful or difficult question of law may come within the scope of the preceding article.
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Art. 2151. Even though the owner did not derive any benefit and there has been no imminent and manifest danger to the property or business, the owner is liable as under the first paragraph of the preceding article, provided: (1) The officious manager has acted in good faith, and (2) The property or business is intact, ready to be returned to the owner.
The payment must have been made by mistake and must not have been motivated by any act of liberality. If it is by liberality, then it becomes donation. Usually, the law refers to Solutio Indebiti as payment by mistake. And when we speak of mistake, it includes mistake of law. We are deviating from the provisions of Art. 3. Art. 3 tells us that ignorance of the law excuses no one, which means that no one can ever claim a mistake of law as a defense. But we have a provision that states that payment by a mistaken interpretation of a difficult question of law qualifies as a mistake that can justify an act of recovery of what have been paid under the principle of solution indebiti. For us to deviate from what Art. 3 says, we need a solid basis, the basis is Art. 2155.
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Art. 2152. The officious manager is personally liable for contracts which he has entered into with third persons, even though he acted in the name of the owner, and there shall be no right of action between the owner and third persons. These provisions shall NOT apply: (1) If the owner has expressly or tacitly ratified the management, or (2) When the contract refers to things pertaining to the owner of the business. In essence, the obligation of the owner to the officious manager is to reimburse the officious manager. It is not required that there should be some benefit that has accrued to the owner as a result of the management of the officious manager before the owner reimburses the officious manager.
Art. 2153. The management is extinguished: (1) When the owner repudiates it or puts an end thereto; (2) When the officious manager withdraws from the management, subject to the provisions of Article 2144; (3) By the death, civil interdiction, insanity or insolvency of the owner or the officious manager. o
SOLUTIO INDEBITI: Juridical relation received something from another without any right to demand for it, and the thing was unduly delivered to him through mistake.
Art. 2158. When the property delivered or money paid belongs to a third person, the payee shall comply with the provisions of article 1984. Art. 1984. The depositary cannot demand that the depositor prove his ownership of the thing deposited. Nevertheless, should he discover that the thing has been stolen and who its true owner is, he must advise the latter of the deposit. If the owner, in spite of such information, does not claim it within the period of one month, the depositary shall be relieved of all responsibility by returning the thing deposited to the depositor. If the depositary has reasonable grounds to believe that the thing has not been lawfully acquired by the depositor, the former may return the same. o
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The obligation of the payee was to give back what he has received. When we speak of payment, we are not limited to money, we can also pay by delivering property or some other objects. If there is damage that is caused to the thing by reason of the fault or negligence of the payee who is now obligated to give back what he had received by mistake, his liability would still be mitigated because his liability would only to the extent that he has been benefited. He would not also have any liability in case he has already disposed on the thing save for the obligation to
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Art. 2160. He who in good faith accepts an undue payment of a thing certain and determinate shall only be responsible for the impairment or loss of the same or its accessories and accessions insofar as he has thereby been benefited. If he has alienated it, he shall return the price or assign the action to collect the sum. Art. 2161. As regards the reimbursement for improvements and expenses incurred by him who unduly received the thing, the provisions of Title V of Book II shall govern.
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It is a totally different scenario if the payee is in bad faith. The payee is liable for the loss or impairment regardless of the cause. This can include fortuitous event. Apart from this extended liability for loss or damage to the property, the payee must pay legal interest if the thing received by mistake is a sum of money. If the thing received by mistake is NOT money, then the payee must pay the fruits of the thing. The extent of his liability for the payment of fruits includes the fruits received and or which should have been received if the thing produces fruits.
Art. 2168. When during a fire, flood, storm, or other calamity, property is saved from destruction by another person without the knowledge of the owner, the latter is bound to pay the former just compensation. Art. 2169. When the government, upon the failure of any person to comply with health or safety regulations concerning property, undertakes to do the necessary work, even over his objection, he shall be liable to pay the expenses. Art. 2170. When by accident or other fortuitous event, movables separately pertaining to two or more persons are commingled or confused, the rules on co-ownership shall be applicable.
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Art. 2167. When through an accident or other cause a person is injured or becomes seriously ill, and he is treated or helped while he is not in a condition to give consent to a contract, he shall be liable to pay for the services of the physician or other person aiding him, unless the service has been rendered out of pure generosity.
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He shall furthermore be answerable for any loss or impairment of the thing from any cause, and for damages to the person who delivered the thing, until it is recovered.
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Art. 2159. Whoever in bad faith accepts an undue payment, shall pay legal interest if a sum of money is involved, or shall be liable for fruits received or which should have been received if the thing produces fruits.
Art. 2166. When the person obliged to support an orphan, or an insane or other indigent person unjustly refuses to give support to the latter, any third person may furnish support to the needy individual, with right of reimbursement from the person obliged to give support. The provisions of this article apply when the father or mother of a child under eighteen years of age unjustly refuses to support him.
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deliver the price or assign his right to recover the thing from the person to whom it has been transferred.
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Art. 2162. He shall be exempt from the obligation to restore who, believing in good faith that the payment was being made of a legitimate and subsisting claim, destroyed the document, or allowed the action to prescribe, or gave up the pledges, or cancelled the guaranties for his right. He who paid unduly may proceed only against the true debtor or the guarantors with regard to whom the action is still effective. Art. 2163. It is presumed that there was a mistake in the payment if something which had never been due or had already been paid was delivered; but he from whom the return is claimed may prove that the delivery was made out of liberality or for any other just cause. Art. 2164. When, without the knowledge of the person obliged to give support, it is given by a stranger, the latter shall have a right to claim the same from the former, unless it appears that he gave it out of piety and without intention of being repaid. Art. 2165. When funeral expenses are borne by a third person, without the knowledge of those relatives who were obliged to give support to the deceased, said relatives shall reimburse the third person, should the latter claim reimbursement.
Art. 2174. When in a small community a nationality of the inhabitants of age decide upon a measure for protection against lawlessness, fire, flood, storm or other calamity, anyone who objects to the plan and refuses to contribute to the expenses but is benefited by the project as executed shall be liable to pay his share of said expenses. Art. 2175. Any person who is constrained to pay the taxes of another shall be entitled to reimbursement from the latter. ARTICLE 1161. Civil obligations arising from criminal offenses shall be governed by the penal laws, subject to the provisions of article 2177, and of the pertinent provisions of Chapter 2, Preliminary Title, on Human Relations, and of Title XVIII of this Book, regulating damages. o
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Delicts or crimes are source of obligations because of Art. 100 of the Revised Penal Code which states that every person criminally liable for a felony is also civilly liable. How will we enforce civil liability arising from a crime? By default: the civil action is impliedly instituted in the criminal action. The default procedure will NOT apply if there is: (1) Reservation to file a separate civil action; (2) The civil action was filed ahead of the criminal action; and (3) There is waiver of civil liability. If the civil action is filed ahead of the criminal action and the criminal action is subsequently filed, the civil action is suspended. But if the civil action is reserved, it cannot be
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Art. 31. When the civil action is based on an obligation N arising from the act or omission complained of as a felony, such civil action may proceed independently of the criminal proceedings and regardless of the result of the latter. o o
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Would Art. 31 constitute an independent civil action? No, because there is no criminal component. The concept of independent civil action is that it has a corresponding criminal aspect or criminal liability. If a civil liability arises from a crime, then we apply Art. 100 of the RPC. But if there is no criminal component, would the rule of precedence of criminal action ahead of the civil action be relevant? No, the precedence will not apply because there is no criminal component. What are these independent civil actions recognized by the law?
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Would your suit against the bus operator involve the same act? Yes, the act of collusion perpetrated by his driver. But what is the cause of action against the owner? Breach of Contract of Carriage (Culpa Contractual). Can he proceed independently of the criminal action? Yes, under Art. 31, NCC. This is not based on the same criminal act. It is based on a contract of carriage with the bus operator.
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commenced until the final judgment of the criminal action. The prescriptive period of filing the civil action will not run during the time that the criminal action is pending. Is there any exception to the rule where the civil action is either suspended or if the same is not yet filed, its filing had to be deferred? Yes. The following are the exceptions: (1) Prejudicial Questions; and (2) Independent Civil Actions. Independent civil actions can be filed before, during or after the filing of the criminal action. Do we need to make a reservation for independent civil actions? Is it considered as impliedly instituted? It is NOT impliedly instituted anymore. This is one of the changes in the Rules on Criminal Procedure of 2000. In the same act, we have two (2) actions: (1) Criminal action with accompanying civil liability; or (2) Civil obligation arising from quasi-delict. Strictly speaking, it is not really an exception because what we have in mind here is an independent civil action. That independent civil action is not always deemed a civil obligation or civil liability that arises from a criminal act. Would there be an instance where it is civil liability? Yes, if for instance it is explicitly allowed to be an independent civil action. The damages that you want to recover because of the defamation taken against you is recognized as an Independent Civil Action. But there are other Independent Civil Actions that may invoke the same act but not classified as civil obligation arising from criminal act as for instance the quasi-delict; i.e. to two separate and distinct actions in law. Is the civil action accompanying the crime of reckless imprudence considered to be an independent civil action? No. It would be suspended or be barred until there is a final judgment in the criminal action for reckless imprudence. Take the same act of negligence, this time it can also be pursued or prosecuted as civil action for damages arising from quasi-delict. Does it involve the same act? Yes. Can it proceed independently of the criminal action? Yes, because it is considered to be an Independent Civil Action. Is it the same civil obligation that arises from a criminal act of reckless imprudence? No, because it is a civil action that arises from a quasi-delict even though that quasi-delict also pertains to the same act of negligence. Another instance when a civil action can proceed independently of the criminal action even though it pertains to the same act - Example: You are a passenger aboard a bus. Driver is driving recklessly. Driver figured in an accident, collided with another bus. Who can be sued? Can you sue the driver of reckless imprudence? Yes. Could that have an accompanying civil obligation? Yes. Can you sue the bus operator? Yes.
(1) Freedom of religion; (2) Freedom of speech; (3) Freedom to write for the press or to maintain a periodical publication; (4) Freedom from arbitrary or illegal detention; (5) Freedom of suffrage; (6) The right against deprivation of property without due process of law; (7) The right to a just compensation when private property is taken for public use; (8) The right to the equal protection of the laws; (9) The right to be secure in one's person, house, papers, and effects against unreasonable searches and seizures; (10) The liberty of abode and of changing the same; (11)The privacy of communication and correspondence; (12) The right to become a member of associations or societies for purposes not contrary to law; (13) The right to take part in a peaceable assembly to petition the Government for redress of grievances; (14) The right to be free from involuntary servitude in any form; (15) The right of the accused against excessive bail; (16) The right of the accused to be heard by himself and counsel, to be informed of the nature and cause of the accusation against him, to have a speedy and public trial, to meet the witnesses face to face, and to have compulsory process to secure the attendance of witness in his behalf;
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The responsibility herein set forth is not demandable from a judge unless his act or omission constitutes a violation of the Penal Code or other penal statute.
Art. 1171. Responsibility arising from fraud is demandable in all obligations. Any waiver of an action for future fraud is void. Art. 2201, par. 2. In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for all damages which may be reasonably attributed to the nonperformance of the obligation. Art. 1174. Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be responsible for those events which could not be foreseen, or which, though foreseen, were inevitable.
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Art. 33. In cases of defamation, fraud, and physical injuries, a civil action for damages, entirely separate and distinct from the criminal action, may be brought by the injured party. Such civil action shall proceed independently of the criminal prosecution, and shall require only a preponderance of evidence.
If the law or contract does not state the diligence which is to be observed in the performance, that which is expected of a good father of a family shall be required.
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The indemnity shall include moral damages. Exemplary damages may also be adjudicated.
Art. 1173. The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of the obligation and corresponds with the circumstances of the persons, of the time and of the place. When negligence shows bad faith, the provisions of Articles 1171 and 2201, paragraph 2, shall apply.
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In any of the cases referred to in this article, whether or not the defendant's act or omission constitutes a criminal offense, the aggrieved party has a right to commence an entirely separate and distinct civil action for damages, and for other relief. Such civil action shall proceed independently of any criminal prosecution (if the latter be instituted), and may be proved by a preponderance of evidence.
Art. 1172. Responsibility arising from negligence in the performance of every kind of obligation is also demandable, but such liability may be regulated by the courts, according to the circumstances.
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(17) Freedom from being compelled to be a witness against one's self, or from being forced to confess guilt, or from being induced by a promise of immunity or reward to make such confession, except when the person confessing becomes a State witness; (18) Freedom from excessive fines, or cruel and unusual punishment, unless the same is imposed or inflicted in accordance with a statute which has not been judicially declared unconstitutional; and (19) Freedom of access to the courts.
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Art. 34. When a member of a city or municipal police force refuses or fails to render aid or protection to any person in case of danger to life or property, such peace officer shall be primarily liable for damages, and the city or municipality shall be subsidiarily responsible therefor.
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The civil action herein recognized shall be independent of any criminal proceedings, and a preponderance of evidence shall suffice to support such action. ARTICLE 1162. Obligations derived from quasi-delicts shall be governed by the provisions of Chapter 2, Title XVII of this Book, and by special laws.
Art. 2179. When the plaintiff's own negligence was the immediate and proximate cause of his injury, he cannot recover damages. But if his negligence was only contributory, the immediate and proximate cause of the injury being the defendant's lack of due care, the plaintiff may recover damages, but the courts shall mitigate the damages to be awarded.
Art. 2180. The obligation imposed by article 2176 is demandable not only for one's own acts or omissions, but also for those of persons for whom one is responsible. The father and, in case of his death or incapacity, the mother, are responsible for the damages caused by the minor children who live in their company. o
Art. 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is called a quasi-delict and is governed by the provisions of this Chapter. Art. 2177. Responsibility for fault or negligence under the preceding article is entirely separate and distinct from the civil liability arising from negligence under the Penal Code. But the plaintiff cannot recover damages twice for the same act or omission of the defendant. Art. 2178. The provisions of articles 1172 to 1174 are also applicable to a quasi-delict.
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What will be the requisites for quasi-delicts? (1) There is fault or negligence on the part of the defendant resulting to a wrongful act or omission, whether voluntary or not, and whether criminal or not; (2) There is damage and injury suffered by another (plaintiff); (3) There is a direct causal relation between the fault or negligence and the resulting damage and injury (Proximate Cause). The plaintiff has the burden of proving the cause and the connection to the damage suffered by him. On this point, it is relevant to understand the Principle of Res Ipsa Loquitur. Res Ipsa Loquitur literally means “the thing speaks for itself.” This can be applied when an injury takes place or when an injury was incurred. And
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If it is culpa contractual, there is no need to prove negligence, we only have to prove the existence of the contract and the fact that the contract was not performed in accordance with its terms. In culpa aquiliana, we need to prove the negligence of the defendant; the damage caused to the plaintiff; and the connection between the damage and negligence. In culpa aquiliana, what happens if the plaintiff is also guilty of contributory negligence? It will not extinguish the liability of the defendant but it can justify mitigation of liability. Is the liability created by quasi-delicts limited to the person who committed the negligent act? No, because of the concept of vicarious liability (Art. 2180, NCC).
CHAPTER 2- Nature and Effect of Obligations
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What are the different kinds of obligations? (1) Obligation to give; (2) Obligation to do; and (3) Obligation not to do. When it comes to obligations to give, can this be further classified? Yes. Generic Obligation to give (generic thing); and Specific Obligation to give (specific thing). A specific thing is one which is specifically designated and particularly segregated from others of the same class; whereas a generic thing is one which is indicated only by its class or genus. What will be the obligation of the debtor in a specific obligation to give? Obligation to give the very thing due under the obligation. Can the debtor insist on delivering another thing on the premise that this thing is more valuable or more expensive? He cannot insist. What if the creditor agrees? He can deliver. If he insists and the creditor agrees, what happens to the original obligation? The original obligation is extinguished. In novation the original obligation is extinguished by simultaneous creation of a new obligation. What are the other obligations of the debtor in a specific obligation to give? (1) Duty to preserve the thing that is due; and the (2) Duty to deliver the fruits, accessions, and accessories. What is entailed by this obligation to preserve? So that the obligation will not be rendered nugatory.
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when we take the occurrence of the injury with the surrounding circumstances, you are allowed by law, by virtue of this principle to make an inference that negligence may have been committed by the defendant. This inference requires the defendant to come up with an explanation as to why the injury is committed. Failure to come up with an acceptable explanation would dispense with any further proof of negligence. This principle draws largely on human experience. If the circumstances based on ordinary human experience would ordinarily preclude the occurrence of this damage then it can only be because there was fault or negligence on the part of the defendant. Res ipsa loquitur is not a rule of substantive law. Its elements are as follow: (1) The occurrence of an injury; (2) The thing which caused the injury was under the control and management of the defendant; (3) The occurrence was such that in the ordinary course of things, would not have happened if those who had control or management used proper care; and (4) The absence of explanation by the defendant. Of the foregoing requisites, the most instrumental is the "control and management of the thing which caused the injury." Fault is when a person acts which are contrary to what should have been done. Negligence (culpa), on the other hand, is failure to observe the care, diligence, and vigilance required under the circumstances. Another relevant concept is proximate cause. Proximate cause will only be relevant if there are more than one possible obligors or possible candidates who shall be liable for the damage. Proximate cause is the adequate and efficient cause which by the natural order of events, unbroken by any efficient intervening cause would produce the injury and without which the result thereof would not have occurred. Illustration: Accident. The bus turned over, gasoline spilled. No electricity. People who rescued brought torches. The bus caught fire killing trapped passengers. Immediate cause: Fire. Proximate cause: Negligence of the bus driver. Negligence is Culpa. Culpa can be culpa contractual or culpa aquiliana. Culpa contractual is where the fault or negligence of the debtor as an incident in the fulfillment of an existing obligation; whereas Culpa aquiliana is where the fault or negligence constitutes an independent source of obligation between parties not previously bound. Culpa aquiliana is a source of obligation. It is important to know when an act is culpa aquiliana or culpa contractual because of the difference in the matters that will have to be proven.
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ARTICLE 1163. Every person obliged to give something is also obliged to take care of it with the proper diligence of a good father of a family, unless the law or the stipulation of the parties requires another standard of care. o
Why is diligence of a good father of a family (ordinary diligence) required? This is the standard of diligence required under the law if there is no stipulation as to the standard of care. This is the diligence which a
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Obligation to deliver the fruits, accessions, and accessories. What is the basis of this obligation? When the obligation to deliver the thing due arises, the creditor has a right to the fruits under the law.
ARTICLE 1165. When what is to be delivered is a determinate thing, the creditor, in addition to the right granted him by article 1170, may compel the debtor to make the delivery. If the thing is indeterminate or generic, he may ask that the obligation be complied with at the expense of the debtor.
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This is an instance where there is liability for a fortuitous event by express stipulation of the law, i.e. when there is delay and there is a promise to deliver the same thing to two different people.
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ARTICLE 1166. The obligation to give a determinate thing includes that of delivering all its accessions and accessories, even though they may not have been mentioned. o
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When does the obligation to deliver arise? It depends on the source of obligation. If the source of the obligation is the law, quasi-contract, delict, or quasi-delict we can always consult the provision of the law as to when his obligation is created. When it comes to contracts, when does the obligation to deliver arise? Upon the perfection of the contract. Why do you say upon perfection of the contract? There is no specific provision in the chapters on obligation and contracts which tell us when the obligation to deliver arises. What we do have is a specific provision in the chapter on sales Art. 1523 which says that upon the perfection of the contract of sale then the obligation to deliver arises. We can use the rule provided in the Law on Sales to apply to contracts in general and say that the obligation to deliver arises from the moment of perfection of the contract. Since the contract of sale, like most contracts, is
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ARTICLE 1164. The creditor has a right to the fruits of the thing from the time the obligation to deliver it arises. However, he shall acquire no real right over it until the same has been delivered to him.
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consensual in nature, it is perfected upon the meeting of the minds of the parties. What kind of right is acquired by the creditor over the fruits of the thing due? Only a personal right (the power belonging to one person to demand of another, as a definite passive subject, the fulfillment of the prestation to give, to do or not to do). What is a real right? The power belonging to a person over a specific thing, without a passive subject individually determined against whom such right may be personally exercised. It can be enforced against anyone and everyone. An example that would illustrate both real rights and personal rights over the fruits of a specific object due under an obligation: “X sells his dog to Y. The dog is to be delivered one (1) week after the contract was entered into. Prior to the delivery of the dog to Y, the dog gave birth to several puppies. The puppies were sold and delivered to Z. When the time to deliver the dog to Y arrived, X refused to deliver the dog together with the puppies.” Will it matter if there is more than one dog in the example? Yes, because it would no longer be a specific obligation to give, and there would no longer be an obligation to deliver the fruits. What would be the remedies available to Y? Y can only run after X, not to Z because there is no privity of contract between Y and Z. Y has a personal right only against X. What is the cause of action of Y against X? Action for specific performance and damages. In an action for specific performance, the plaintiff is enforcing his personal right, the right under the contract. If Y names Z as a party defendant, what defense can Z to resist the complaint against him? Lack of cause of action because Z is not a party to the contract. Only the parties to the contract are bound by the agreement. Supposing there has been delivery made to Y, and then for some reason, X managed to still sell and deliver the puppies to Z. What will be the remedies of Y? In running after Z, what would be his objective? The recovery of the puppies. Y must not be concerned with the contract between X and Z. In what capacity should he bring that action? Is it in his capacity as a creditor? Not anymore, but as owner. As an owner, does he have a cause of action against Z? Yes, because as owner he enjoys real right over the puppies and this can be enforced against anyone in possession of the puppies. In obligations to give a generic object, what are the obligations of the debtor? To deliver a thing that is of the same quantity, quality, and kind as agreed upon by the parties. In a generic obligation to give, the debtor would enjoy a certain degree of discretion, unlike in specific obligation to give. Would there be a limitation on his exercise of his discretion when it comes to complying with his
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reasonable person would exercise over his own belongings. Can the parties stipulate on a different degree of diligence? Yes, provided ordinary diligence is the limit. It is the minimum amount of care. The parties cannot stipulate on another degree of care that is lesser than ordinary diligence; otherwise the obligation will be illusory.
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How will this be more practical to you? In the meantime you can do what you need to do using the object which should have been delivered to you. For example cement for the construction of your house. The construction will not be delayed. Unlike in specific performance, you go to court; even after five (5) years you still don’t have a writ of execution because you are still on trial stage. In the meantime your house remains unfinished and the materials deteriorated even before the construction. Any other remedies available to the creditor? Seek indemnity for damages. Damages here, is it in conjunction with specific performance, or in substitute performance or must it stand alone? It can be in conjunction with either specific performance or substitute performance. The same holds true for specific obligations to give, i.e. the damages may be in conjunction with specific performance. Can you think of an instance where the creditor would have to settle for damages alone? When the obligation could no longer be performed. In the previous example, where the dogs and the puppies were sold to another person prior to the delivery to the buyer, his only recourse there is to ask for damages assuming that the 3rd person acted in good faith. What is the obligation of the debtor in an obligation to do? Basically, to do what is asked of him. What are the remedies of the creditor? Substitute performance. What about specific performance? It is not available because it will amount to involuntary servitude. Is substitute performance available in all kinds of obligation to do? No. It is not available when the personal qualification of the obligor is taken into consideration. What is your remedy (in case personal qualification of the obligor is taken into consideration in an obligation to do)? Only damages. Damages as a remedy is always available. But what would be the basis of our claim for damages? The basis of a claim for damages can be any of the following under Art. 1170, NCC: (1) Fraud, (2) Delay, (3) Negligence, and (4) Contravention of the tenor of the obligation. What is fraud? There has been a lot of ruling to the effect that the Supreme Court does not equate fraud with malice. Fraud does not translate to malice or bad faith, although admittedly there can be fraud attended by bad faith or malice. But, it would be an error for us to think that every case of fraud is always attended by bad faith or malice because as defined by law, fraud is simply a deliberate or intentional evasion of the performance of an obligation. Not necessarily ill- motivated but it is intentional.
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obligation to deliver? It should not be of inferior quality than that intended by the parties, but he cannot be “compelled” to deliver something of superior quality. In the obligation to deliver the dog, X has 3 dogs: German shepherd, Labrador, and Aspin (Asong Pinoy; yung Aspin ang pinakapayat, galisin at pilay pa). These are choices. In the same manner that he cannot be compelled to deliver the Labrador, he cannot also compel the creditor to settle for the Aspin. He cannot also compel his creditor to accept the most inferior of the choices. What other obligations are imposed on the debtor in a generic obligation to give? Is there a duty to preserve as well? In an obligation to give a limited generic thing, the obligor must preserve the source. Let us say it is simply a generic object, pure and simple generic. There is no obligation to preserve. We do not even speak of taking care of it with the diligence of good father of a family because the rationale for requiring this obligation (to preserve the thing) in specific obligations does not apply to generic obligations. In specific obligations, you only have one obligation which is to deliver the specific thing and it can only be delivered in one way, which is delivering the very thing itself. If this specific thing is lost, the obligation will be useless. Yes, there is the remedy of damages, but damages will not always be sufficient to correct the wrong which has been done to you. If it is a family heirloom which was lost, no matter how much money is paid to you, the damage will still remain. If you would not obligate your debtor to take care of the thing, then the possibility of abuse is very great, in which case that would defeat the obligatory force of the agreement. In a generic obligation, the same danger does not exist because you can always comply with the obligation by delivering anything of the same kind, quality, and quantity. In fruits, accessions, and accessories, do we also have that kind of obligation (obligation to give a generic thing)? None. Unless you segregate, you would not know whether it has produced fruits or it has accessions and accessories. Supposing that the debtor does not comply with his obligation in a specific obligation to give, what are the remedies of the creditor? Specific performance (an action to compel the compliance with the obligation). What about in generic obligation to give? (1) Specific Performance; and (2) Substitute performance. What do you mean by at the expense of the debtor? The debtor will have to pay. Which will you opt for, substitute performance or specific performance? Substitute performance because you go to court no longer to secure the delivery that should have been delivered to you because you already have it by virtue of substitute performance. You only go the court to acquire reimbursement or indemnification for your expenses.
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ARTICLE 1167. If a person obliged to do something fails to do it, the same shall be executed at his cost.
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This same rule shall be observed if he does it in contravention of the tenor of the obligation. Furthermore, it may be decreed that what has been poorly done be undone. ARTICLE 1168. When the obligation consists in not doing, and the obligor does what has been forbidden him, it shall also be undone at his expense. ARTICLE 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation.
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However, the demand by the creditor shall not be necessary in order that delay may exist: (1) When the obligation or the law expressly so declare; or (2) When from the nature and the circumstances of the obligation it appears that the designation of the time when the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the contract; or (3) When demand would be useless, as when the obligor
Another basis for damages is delay. Delay is the failure to comply with the obligation with respect to time. Is it enough that there is just delay? No. There should be a demand. What role does demand play? It is only from that time that it is considered that there is legal delay. How is legal delay different from ordinary delay? In ordinary delay, demand is not necessary; while in legal delay, demand is vital to determine that there is already delay which is a basis for damages. It is independent of enforcing the obligation itself. You do not have to wait for the delay to enforce. Unless there is a contrary stipulation, that should be performed or that should be enforced. You have to pay. It is your obligation to pay. There is no need for me to demand for you to pay. What is the significance of my demand? It will only determine from what time you will be liable to me for damages. It is independent of your duty to perform the obligation. Demand would place the debtor in legal delay. What form should demand be made? Judicial or extrajudicial. How do you effect judicial demand? Through a complaint. If you are effecting a judicial demand you have to comply with the form required in filing a complaint. What about extrajudicial demand? Is there a form required? It can be orally done or it can be in writing, but it is better to do it in writing because it is easier to prove. Do not think that because it is an oral demand there is no proof. There can still be proof such as when the oral demand is video recorded. If it is in writing, then chances are it is properly documented. When you say properly documented, it is not enough there is a written copy of demand. It must further show that the demand was received by the other debtor. Otherwise, it will be useless. Since you can make a demand judicially or extrajudicially, is there a requirement that you must first make an extrajudicial demand before you make a judicial demand? There is no requirement. You can always go directly to court; but just to avoid unnecessary expenses, file a demand letter first. Is it always sufficient that demand has been made for legal delay to arise? When is demand not enough when in addition to demand there must be something else which must be present to place the debtor in legal delay? In case of reciprocal obligation. Example: Most of the condominium buildings being built today go through a pre-selling route. That means
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In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins.
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has rendered it beyond his power to perform.
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Dolo can be understood in two (2) senses: Dolo incidente and Dolo causante. What is the kind of dolo involved here that will entitle the creditor to damages? Dolo Incidente. Dolo incidente is the fraud in the performance of the obligation. Dolo causante, on the other hand, is the fraud used to induce another to enter into a contract. This goes to consent. When we speak of dolo causante, this would have the nuance of deceit because you are using fraud to secure consent to an obligation which the other party would not otherwise enter into. Give an example of dolo incidente: A undertook to deliver a brand new car to B. When the car was delivered it turned out to be not brand new but one that is already used. There is a deliberate evasion of the obligation to deliver a brand new car. Is this attended by bad faith? Apparently so, because he said he will deliver a brand new car, but what he delivered was a used car. But, there can be an instance that there is dolo but there is good faith. Example: A obliged himself to deliver a box of imported wine to B. When the box was delivered, it was opened, it turned out that the box did not contain imported wine but just a local variety. Is there dolo here? Yes, because the obligation was not performed. Was there bad faith here? Not necessarily, because it could be that A simply delivered what was delivered to him. He did not know. So he is in good faith and yet at the same time he is guilty of dolo. But, if he knew from the start that the box contains local wine instead of imported wine then he would be in bad faith and still he will be in dolo.
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ARTICLE 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages.
to pay. Can he now walk away from his obligations to the buyer on the premise that the buyer defaulted? NO. Is the buyer in default notwithstanding the fact that he has made a demand and there was no payment made? NO. In reciprocal obligations it is not enough that demand is made. It must further be shown that the party making the demand himself is ready to comply with his obligation; otherwise no amount of demand would put the other party in delay. In this case, the contractor cannot say “I am free because the buyer is already in default,” because he himself is not ready to turn over the unit to the buyer. No amount of demand on his part can put the buyer in default. Give an example where in the law provides that demand is not necessary. In both instances where the law or the stipulation of the parties provides for delay without need of demand, it must be expressly stated that after the lapse of the period for payment, delay will commence. Example: Payment of taxes. Let’s say estate taxes, you are supposed to pay within six (6) months after the death of the decedent. If six (6) months had lapsed and you have not paid, you will automatically be liable for penalties and surcharges. Liability for penalties and surcharges is an indication that you are already in delay because you are paying damages. When it is stipulated in the obligation, how can the parties stipulate on this? Is it enough that they specify a period of time for the payment of the obligation? No. It is not enough that they specify that payment must be made on Jan. 12, 2012 at 12 pm. Even if they are specific down to the time when payment should be made that will not be sufficient to dispense with the need to demand. When from the nature and circumstances of the obligation it appears that the designation of the time when the thing is to be delivered or service to be rendered is a controlling motive for the establishment of the contract. Example: Wedding gown. You don’t need a demand. He should already be liable for damages, because this is one instance that time is obviously a factor or consideration for the contract.
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Damages may be recovered whenever there is delay, fraud, negligence, or when an obligation is performed in contravention with its tenor. The presence of any of these instances will not necessarily mean that there can be the recovery for damages. Particularly, if these instances of this fraud, negligence, delay, or contravention of the obligation is attended by a fortuitous event. What is a fortuitous event? An event which is unforeseen or though foreseen is inevitable. Are we limited to acts of God or calamities or disasters when we speak of fortuitous event? No, it includes both acts of man and acts of God. Acts of man refer to events which prevented the performance of the obligation which are attributable to people other than the obligor. On a grand scale this can refer to war, rebellion, kidnapping. On a small scale this can be ordinary as a simple accident on the road. If someone bumps you while you are driving on the road and prevents you from going to your appointment and performing your obligation then you can invoke fortuitous event. Bottom-line is so long as the debtor had no hand in the occurrence of the event which prevented you from performing the obligation, then that can be classified as a fortuitous event.
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purchase price and if they are not able to pay then they will now be in delay. They will now be in default and under the contract they forfeit everything they have paid to me and I in turn will be free from any obligations to them.” He makes a demand the buyer was not able
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Lastly, when the demand would be useless if the debtor made beyond his power to comply with the obligation. Different kinds of delay: (1) Mora Solvendi, delay on the part of the debtor; (2) Mora Accipiendi, delay on the part of the creditor; and (3) Compensatio Morae, delay on the part of both.
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that your contractor is building the condominium using your money. Let’s say that there is one particular contractor at the middle of the construction of the condominium building his funds run out. He doesn’t want to continue anymore and sell it to somebody else who will take over the project. But the thing is he is obligated to his buyers because they have a turn-over date. He said, “I will make a demand for the full
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ARTICLE 1171. Responsibility arising from fraud is demandable in all obligations. Any waiver of an action for future fraud is void. o
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Can you waive a cause of action arising from future fraud in advance? No, because it would be against public policy. If you are going to waive your right of action for future fraud then there is question, "why enter into a contract at all?” "Why even bind yourself into a contract or obligation?" That is basically a license for the other party to disregard the obligation if and when he decides that he wants to disregard the obligation. In that sense public policy might be affected, because if everything is like that, it could undermine our economic structure.
ARTICLE 1172. Responsibility arising from negligence in the performance of every kind of obligation is also demandable, but such liability may be regulated by the courts, according
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to the circumstances.
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ARTICLE 1175. Usurious transactions shall be governed by special laws. ARTICLE 1176. The receipt of the principal by the creditor, without reservation with respect to the interest, shall give rise to the presumption that said interest has been paid. The receipt of a later installment of a debt without reservation as to prior installments, shall likewise raise the presumption that such installments have been paid.
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What are the requisites of a fortuitous event? (1) The event must be independent of the will of the debtor; (2) The event is unforeseen or if foreseen is inevitable; (3) The event must render it impossible for the debtor to fulfill the obligation in a normal manner; and (4) The debtor must be free of participation or the aggravation of the injury to the creditor. If you invoke fortuitous event as a defense, it will have the effect of extinguishing obligation and exempting you from any liability. To what kinds of obligations can we apply this defense of fortuitous event? You apply this to all kinds of obligations because the words or the tenor of Art. 1174 is broad enough to cover all kinds of obligations - both obligations to give and obligations to do. But, we would need to qualify with regard to obligations to give, i.e. you cannot raise fortuitous event as defense against any claim of liability involving generic objects on the premise that genus never perishes. When will there be liability notwithstanding that there is a fortuitous event? (1) By express provision of the law; (2) By express stipulation between the parties; (3) Nature of the obligation requires the assumption of risk; and (4) When the obligation arises from a criminal offense. When the nature of the obligation requires the assumption of risk: An insurance contract would be one such obligation, but when on the event of Typhoon Ondoy had shown us, if your car gets flooded or gets submerged in the water, it shall not be covered by your policy, unless you have also involved in the Acts of God policy of the insurance company. Ordinarily that may be included. That is the reason why you applied for an insurance – God. Perhaps in the specific insurance policy involved, there was an exclusion that when it comes to fortuitous events, this will not be covered by the insurance policy. If you want to have a coverage even for flooding, you have to pay additional premium.
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ARTICLE 1174. Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be responsible for those events which could not be foreseen, or which, though foreseen, were inevitable.
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If the law or contract does not state the diligence which is to be observed in the performance, that which is expected of a good father of a family shall be required.
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ARTICLE 1173. The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of the obligation and corresponds with the circumstances of the persons, of the time and of the place. When negligence shows bad faith, the provisions of articles 1171 and 2201, paragraph 2, shall apply.
If an obligation arises from a criminal offense, e.g. crime of theft. If you are guilty, what would be your civil liability? The Mona Lisa painting was stolen, what is the liability an obligation of the thief? The thief must return it. Should the Mona Lisa painting be lost due to a fortuitous event before it is returned, is the liability of the thief be extinguished? No. This would fall under the exception. How can he comply with the obligation if the Mona Lisa has been destroyed by a fortuitous event? His liability will be one for damages. That's why we said that the obligation is not extinguished because in lieu of giving back what was stolen, he has to pay for its value. Exception to the exception is where the creditor, for unjustified reasons, refuses to accept the thing stolen and thereafter it is lost due to a fortuitous event. It will revert to the general rule that civil liability is extinguished.
ARTICLE 1177. The creditors, after having pursued the property in possession of the debtor to satisfy their claims, may exercise all the rights and bring all the actions of the latter for the same purpose, save those which are inherent in his person; they may also impugn the acts which the debtor may have done to defraud them. o
Art. 1177 speaks of the extreme remedies of Accion Subrogatoria and Accion Pauliana. But before we go to these extreme remedies, we should discuss first the remedy of rescission under Art. 1191.
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible. The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period. This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with articles 1385 and 1388 and the Mortgage Law. Art. 1385. Rescission creates the obligation to return the
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shall be only to the extent necessary to cover the damages caused). o
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In this case, indemnity for damages may be demanded from the person causing the loss. Art. 1388. Whoever acquires in bad faith the things alienated in fraud of creditors, shall indemnify the latter for damages suffered by them on account of the alienation, whenever, due to any cause, it should be impossible for him to return them.
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If there are two or more alienations, the first acquirer shall be liable first, and so on successively.
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case both parties have committed a breach of the obligation, the liability of the first infractor shall be equitably tempered by the courts. If it cannot be determined which of the parties first violated the contract, the same shall be deemed extinguished, and each shall bear his own damages) will apply.
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The choices are as follows: either you ask for performance, whether specific or substitute, or for rescission. You cannot ask for both performance and rescission. Choosing one means foregoing with the other. However, if after choosing specific performance and going to court suing for specific performance, it turns out that the obligation can no longer be performed, it will be alright to opt for rescission instead. You can always ask for damages in conjunction with either specific performance or rescission, or just damages by itself if either one of the two are no longer available. It is not correct to say the rescission is limited only in reciprocal obligation. It is implied in reciprocal obligation which simply means that you do not have to stipulate on the availability of rescission as a remedy for reciprocal obligations, because by its nature, a reciprocal obligation can only allow one party to make a demand upon the other for the performance of the obligation if he himself is ready to comply with the obligation. So necessarily if you are not ready to perform or if you do not perform your obligation, then that constitutes a resolutory condition which should extinguish the other parties obligation as well. That is natural effect of rescission. That is why we say that in reciprocal obligations, it is already implied. No need to stipulate on its existence. But, when it comes to unilateral obligations, this must be stipulated upon by the parties. Rescission simply means that you want the contract to be set aside and having the contract set aside, the parties should be reinstated to their former conditions, i.e. the status quo before the contract was entered into. There will be mutual restitution. However, the term “rescission” in Art. 1191 is not accurate. The term which should have been used should be “resolution”. The term “rescission” is understood in a different sense, legally speaking. This is provided for under Art. 1384, NCC (Art. 1384. Rescission
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The grounds for rescission under Art. 1384 would include fraud. The ground for rescission under Art. 1191 would include breach of the obligation. Rescission under Art. 1191 is a primary remedy. This can be availed of by the aggrieved party without having to comply with any other requisite, whereas rescission under Art. 1384, is a subsidiary remedy. You resort to rescission as accion pauliana if all other remedies have failed. Otherwise, any resort to accion pauliana would be premature. Lastly, rescission under Art. 1191 is available only to parties to the agreement. If you are not a party to the agreement you cannot ask for rescission under Art. 1191. Rescission as accion pauliana, on the other hand, rd is available to 3 persons. In fact this is the very essence of accion pauliana - that you, as a creditor, are allowed to ask for the setting aside of a contract that you are not even a party to. That is why it is an extraordinary remedy, because it is particularly invasive. If both parties committed the breach, then Art. 1192 (In
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things which were the object of the contract, together with their fruits, and the price with its interest; consequently, it can be carried out only when he who demands rescission can return whatever he may be obliged to restore. Neither shall rescission take place when the things which are the object of the contract are legally in the possession of third persons who did not act in bad faith.
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If you want to rescind the obligation, how will you go about in rescinding the same? Either Judicial or extrajudicial. What is the default mode for rescinding? Under the law the party aggrieved must go to court and ask for rescission. Until the court rescinds the contract, the contract stays alive because the contract is valid. The fact that there is a ground for rescission does not make the contract invalid. But it is not really an issue here. The contract has been breached; until it is set aside it remains to be subsisting and must be complied with. Let’s say you have a management contract and then your manager has been committing a breach of the contract. You want out. But the thing is there is no provision for extrajudicial rescission in your contract. What is the default mode? It is judicial rescission. You have to go to court. You understand how long it can take for the court to say, "Yes, there is ground for rescission, let us rescind the contract." - years. In the meantime, this manager can continue to represent you in transactions. He will continue earning from you. And you will be bound by whatever contract he enters into in your behalf. You don’t want that. Whereas, if you have a provision for the extrajudicial rescission, you can immediately free yourself from the contract by simply giving a “Notice of Rescission.” But the thing is for extrajudicial rescission to be available to you, this must be expressly stipulated by the parties. Otherwise, you have no other choice but to go to court and seek judicial rescission.
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What if your properties involve house and lot? You would have to enter into transactions, either simulated or real, but for a much lower price. He may be in connivance with the 3rd person or he may be in good faith. He may also give it. In accion subrogatoria, if you are bequeathed with something and you do not want to accept, under wills and successions, creditors can intervene and accept the inheritance to the extent necessary to satisfy the obligation to them. What will be our ground for accion pauliana to prosper? The ground under Art. 1191 is simply breach of contract; in accion pauliana, the ground is fraud. Who must be guilty of fraud? The obligor. The fraud here consists of his act of entering into other transactions or fraud aimed to defeat the rights of the creditor. The fraudulent transaction is the one you want to be set aside, the transaction that does not involve yourself. Is it also required that the other party in the transaction be also in bad faith or must be in connivance with your debtor? No. We can be certain that with regard to the debtor, he has the bad intention of defeating the rights of his creditor because of the timing. It is required in accion pauliana that he entered into transactions after the obligations to the creditor have become due or demandable or after he brings an action against you. What is unknown would be the intention of the other party to the transaction, i.e. is he in good faith or in bad faith? Does it matter if the other party is in good faith or in bad faith? Requiring the other party to be in connivance with the debtor would mean an added requisite. There are will be more requisites before your accion pauliana could prosper. Is that the intention of the law? We have to qualify as to the nature of the transaction you are seeking to set aside. If the transaction with the 3rd person is onerous in nature, then we look into the good faith or bad faith of the other party. If the other party is in good faith then we have to respect his rights because he has legally acquired rights in good faith. If he is in bad faith then accion pauliana will have to prosper and any transaction will have to be set aside. However, if the transaction with the 3rd person is gratuitous in nature, you only have to look at the side of the debtor as to whether or not he is in good faith or in bad faith. If he is in bad faith then the accion pauliana should prosper and in this regard the law has provided us with a presumption. What is the presumed intention of the debtor when he makes dispositions by gratuitous title after his obligation to the creditor has become due or has probability of being executed? If you dispose by gratuitous title not leaving enough properties to answer for your obligations, the presumption is that you had intention to defraud your creditors.
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The basic requirement to effect an extrajudicial rescission is that there should be notice to the other party, firstly, to inform him so that he will be able to act accordingly; and secondly, the notice will serve as an opportunity for the other party to question the rescission. This is the downside of extrajudicial rescission. It does not attain any degree of finality because the court can always review whether or not it is valid. But, in the meantime, you are free. You can already enter into a contract without need of this manager; or if we are talking about a contract of lease, you can lease the house to another; or if it is a contract of sale, you can sell it to another. What kind of breach would justify rescission? It should be substantial breach. If the breach is not found to be substantial, the court shall fix the period for the performance of the obligation. Why do we say that these are extraordinary remedies? These are extreme remedies because to avail of these remedies, the minimum requirement is that you must have an unsatisfied writ of execution. It means that you already have a judgment on your action for specific performance and that judgment has become final and executory. A writ of execution has been issued but when you try to carry out the writ of execution it was returned to you unsatisfied because you could not obtain properties belonging to the debtor. While your writ of execution is unsatisfied and you learn that there are recoverable debts or there are properties due to the debtor, but he is not taking any steps to recover then apply for accion subrogatoria. That means another round of litigation. If he does not have recoverable debts or recoverable properties, but you learned that he has entered into transactions that appear to have been entered into to defeat your rights then you avail of accion pauliana. There is a hierarchy: (1) Unsatisfied writ of execution; (2) Accion subrogatoria; and only when accion subrogatoria is not available will you resort to (3) Accion pauliana, because accion pauliana is particularly invasive of the rights of others. What is the rationale of the law for making these remedies available to the creditor? The rationale is because the debtor is liable for the obligation with all of his properties, present and future. In the end, it is needed that the obligation has economic value because eventually it may happen that the only possible satisfaction that he can get would be monetary in nature. And the same could only be satisfied from the properties of your debtor, but he will not willingly give them. That is why you need a writ of execution. But a writ of execution is only feasible if the debtor has properties that can be identified and levied upon. If you are the debtor and you know that the creditor will execute the judgment on you. What will you do? You will hide your properties.
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CHAPTER 3 - Different Kinds of Obligations
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SECTION 1 - Pure and Conditional Obligations
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ARTICLE 1179. Every obligation whose performance does not depend upon a future or uncertain event, or upon a past event unknown to the parties, is demandable at once.
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What are the different kinds of obligations? (1) Pure and Conditional obligations (2) Joint and Solidary obligations (3) Positive and Negative obligations (4) Alternative obligations (5) Facultative obligations (6) Obligations with a penal clause (7) Divisible and Indivisible obligations What are pure obligations? These are obligations which are not subject to a condition or term and are immediately demandable. Would it be correct to say that all immediately demandable obligations are pure obligations? No. Obligations subject to a resolutory condition or resolutory period are also immediately demandable. What is the concept of being immediately demandable? The creditor can demand the performance of an obligation at any time. Example: A obtained a loan from B for P10K. Can A ask for it back after an hour? No. He must be given a reasonable period of time to make use of whatever it is that he derived from the obligation. What are conditional obligations? Obligations which are subject to a future and uncertain event. A condition is something which is in the future and is uncertain, even though under the law it is erroneously referred to as a “future or uncertain event." That is not
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Every obligation which contains a resolutory condition shall also be demandable, without prejudice to the effects of the happening of the event.
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ARTICLE 1178. Subject to the laws, all rights acquired in virtue of an obligation are transmissible, if there has been no stipulation to the contrary
correct because uncertainty and the fact it is in the future must concur. By way of exception, event that happened in the past may constitute as a condition. How can this happen? If the past event is not yet known to the parties. It is not really the happening of the event, but it is the acquisition of knowledge by the parties. Example: A will give B P10K if the reason between the break-up between this high-profile-couple is the reason B gave. The obligation is not conditioned on the event that happened, but the acquisition of knowledge of what really caused that event to take place. What are the different kinds of conditions? (1) Suspensive and Resolutory (2) Suspensive, Mixed and Casual (3) Possible and Impossible (4) Positive and Negative Potestative Condition, one that is subject to the will of the either of the parties, i.e. either the creditor or the debtor. Casual condition, one which is subject to chance or to the will of a 3rd person. Mixed Condition, one that is subject to will of either of the parties and upon chance or will of a 3rd person. These conditions are not mutually exclusive. We can have various permutations involving combinations of these different kinds. It can potestative and at the same time negative and at the same time resolutory. What would be a lethal combination involving potestative, casual and mixed conditions? What combination would render the obligation null and void? Potestative subject to the debtor's will and at the same time suspensive. Why is this lethal? This type of condition would bring about the nullity not only of the condition, but also of the obligation itself. This is because we have here an obligation, the creation of which is dependent solely on the person who will be obligated. Do you think he would want to be obligated? It destroys the efficacy of the legal tie. It cannot be said to be an obligation because he can disregard the same whenever he wants to. He can suppress it and no one can force him to give, to do, or not to do. Example: I will give you money if I want to. This is not an obligation (Art. 1182, NCC). If it is potestative but it is dependent upon the will of the creditor and at the same time suspensive, would it have the same effect on the validity of the obligation? It will not bring about the nullity of the obligation, because the creditor is naturally interested in making the obligation binding. There is no danger in the efficacy of the legal tie. Most important classification of condition: Suspensive and Resolutory. What is a suspensive condition? The happening of the event gives rise to the obligation. Until the happening of the condition, we do not have the obligation.
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Rescission under Art. 1191 has a prescriptive period of ten (10) years from the time that the breach was committed. What about rescission as accion pauliana, what is the prescriptive period? The law itself is silent. It simply says that it must be commenced within a period of four (4) years but it does not say when we begin counting the four-year period. Since the law is silent as to when we start counting the prescriptive period, then the general rule, which is we count it from the time the cause of action appears, applies. When does the cause of action for accion pauliana appear? Only from the time that you had an unsatisfied writ of execution.
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What is a resolutory condition? The happening of the event extinguishes the obligation. This does not suspend the creation of the obligation. The obligation is immediately demandable. Implied from this rule is that the obligation is already existing. In an obligation subject to a suspensive condition, what can the creditor do to protect his rights while he is waiting of the fulfillment of the condition? The law allows him such appropriate actions to preserve his rights - Art. 1188. The creditor may, before the fulfillment
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of the condition, bring the appropriate actions for the preservation of his right. The debtor may recover what during the same time he has paid by mistake in case of a suspensive condition.
ARTICLE 1182. When the fulfillment of the condition depends upon the sole will of the debtor, the conditional obligation shall be void. If it depends upon chance or upon the will of a third person, the obligation shall take effect in conformity with the provisions of this Code. ARTICLE 1183. Impossible conditions, those contrary to good customs or public policy and those prohibited by law shall annul the obligation which depends upon them. If the obligation is divisible, that part thereof which is not affected by the impossible or unlawful condition shall be valid.
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Art. 1197. If the obligation does not fix a period, but from its nature and the circumstances it can be inferred that a period was intended, the courts may fix the duration thereof.
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Supposing the debtor says to creditor that “I will pay when my means permit me to do so.” Would this be an example of a potestative condition? No, by express provision of Art. 1180.
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ARTICLE 1180. When the debtor binds himself to pay when his means permit him to do so, the obligation shall be deemed to be one with a period, subject to the provisions of article 1197.
The reservatarios. Their rights are conditioned on the reservista dying before them. What can they do in the meantime that the reservista is still alive? They can ask for the annotation of the reservable character of the property before the Register of Deeds and this will be sufficient to protect their rights, so that even if the reservista disposes of the property, any person who buys it would still be bound by its reservable character. Additionally, if payment is made before the condition is fulfilled, this can be a case for solutio indebiti because payment is made even though there is no obligation to make payment. It can be that during the time that the condition is still pending fulfillment, the property may have suffered a lost; it may have deteriorated or it may have undergone an improvement. What would be the rules regarding the ownership or the burden for these changes in the meantime the condition is pending fulfillment? Art. 1189, NCC.
The courts shall also fix the duration of the period when it depends upon the will of the debtor.
Art. 1180 provides that when the debtor binds himself to pay when his means permit him to do so, it shall be deemed to be one with a period, subject to the provisions of Art. 1197 which in turn provides that the courts will fix the period if the parties intended the period. If somehow they fail to state the period then the courts will step in and fix it for them but bearing in mind always what the parties would have intended as a period. In this case, the law is taking its cue from the promise of the debtor that he will pay when his means permit him to do so. The court itself is declaring that this is not an expression of a condition but a period. There should be no uncertainty with regard to the obligation to pay.
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In every case, the courts shall determine such period as may under the circumstances have been probably contemplated by the parties. Once fixed by the courts, the period cannot be changed by them.
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ARTICLE 1181. In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event which constitutes the condition. o
In wills and succession, when we were tackling reserva troncal, which party had rights which are conditional?
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What about impossible conditions? Those which are legally impossible or physically impossible. How will it affect the obligation to which it is attached? It will nullify the obligation itself which depends upon such impossible conditions. This is different from the one we observed when it comes to impossible conditions attached to testamentary dispositions and donations. In donations and testamentary dispositions, we simply consider them as not written on the theory that the primary consideration for the donation or disposition is actually the liberality of the donor or the testator, but not so in obligations, particularly on contractual obligations, where the condition, more often than not, is a big part of the consideration. To make the condition invalid, when should the impossibility of the condition exist? It must be impossible at the inception of the obligation to affect its validity. Ensuing or supervening impossibility of the condition will not make the obligation invalid. What would be the effect of supervening impossibility of the condition? It will not affect its validity, but its effect on the obligation itself, as to whether or not it will be
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considered extinguished or perfected, will depend upon the nature of the event, i.e. if it is positive or negative. o ARTICLE 1184. The condition that some event happen at a determinate time shall extinguish the obligation as soon as the time expires or if it has become indubitable that the event will not take place.
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ARTICLE 1188. The creditor may, before the fulfillment of the condition, bring the appropriate actions for the preservation of his right. The debtor may recover what during the same time he has paid by mistake in case of a suspensive condition.
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The rule on Arts. 1184 and 1185, that the condition that some event must take place at a certain time will extinguish the obligation if it appears that the event can no longer take place. In that sense it can extinguish the obligation. However, if the condition imposed in this manner is that a certain event must not take place at a certain time, then it will give rise to the obligation if it appears that it can no longer take place or has become impossible. There are two possibilities: either give rise to the obligation or extinguish the obligation. That will be the effect of supervening impossibility of the condition. But, clearly it has no effect on the validity of the obligation.
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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.
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ARTICLE 1185. The condition that some event will not happen at a determinate time shall render the obligation effective from the moment the time indicated has elapsed, or if it has become evident that the event cannot occur.
effect. It retroacts six (6) months ago when the parties entered into the transaction. How do we treat the fruits may have been earned during the pendency of the fulfillment of the condition? We qualify as to the nature of the obligation. If the obligation is reciprocal, the fruits and interest are deemed to have been mutually compensated. If it is unilateral, the fruits will be for the benefit of the debtor. What about obligations to do or not to do, how do we determine the effect of the happening of the obligation? It would be determined by the court taking into consideration nature and circumstances surrounding the obligation. Supposing it is a resolutory condition which has become fulfilled, how will this affect the rights and obligations of the parties? The obligation will be extinguished and there will be a need for mutual restitution between the parties. Because of this mutual restitution, we can say that there is a reversal of roles between the parties. Our creditor before will be the debtor so that rules governing loss, deterioration, and improvement that we applied previously may also be applicable (Art. 1190, NCC).
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ARTICLE 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment. ARTICLE 1187. The effects of a conditional obligation to give, once the condition has been fulfilled, shall retroact to the day of the constitution of the obligation. Nevertheless, when the obligation imposes reciprocal prestations upon the parties, the fruits and interests during the pendency of the condition shall be deemed to have been mutually compensated. If the obligation is unilateral, the debtor shall appropriate the fruits and interests received, unless from the nature and circumstances of the obligation it should be inferred that the intention of the person constituting the same was different. In obligations to do and not to do, the courts shall determine, in each case, the retroactive effect of the condition that has been complied with. o
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Upon the happening of the condition, what happens if the condition is fulfilled? If a suspensive condition is fulfilled, then it shall give rise to the obligation. You will now have the obligation. Would it be correct to say that even though the parties came to an agreement to have the obligation subject to a condition six (6) months ago, would it be right to say that the efficacy can only be counted from today when the obligation was fulfilled? It is NOT correct to say that the efficacy of the obligation can be counted only from today because efficacy of the obligation has retroactive
ARTICLE 1189. When the conditions have been imposed with the intention of suspending the efficacy of an obligation to give, the following rules shall be observed in case of the improvement, loss or deterioration of the thing during the pendency of the condition: (1) If the thing is lost without the fault of the debtor, the obligation shall be extinguished; (2) If the thing is lost through the fault of the debtor, he shall be obliged to pay damages; it is understood that the thing is lost when it perishes, or goes out of commerce, or disappears in such a way that its existence is unknown or it cannot be recovered; (3) When the thing deteriorates without the fault of the debtor, the impairment is to be borne by the creditor; (4) If it deteriorates through the fault of the debtor, the creditor may choose between the rescission of the obligation and its fulfillment, with indemnity for damages in either case; (5) If the thing is improved by its nature, or by time, the improvement shall inure to the benefit of the creditor; (6) If it is improved at the expense of the debtor, he shall have no other right than that granted to the usufructuary.
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ARTICLE 1193. Obligations for whose fulfillment a day certain has been fixed, shall be demandable only when that day comes. Obligations with a resolutory period take effect at once, but terminate upon arrival of the day certain. A day certain is understood to be that which must necessarily come, although it may not be known when. If the uncertainty consists in whether the day will come or not, the obligation is conditional, and it shall be regulated by the rules of the preceding Section. o o
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ARTICLE 1190. When the conditions have for their purpose the extinguishment of an obligation to give, the parties, upon the fulfillment of said conditions, shall return to each other what they have received.
SECTION 2 - Obligations with a Period
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As for obligations to do and not to do, the provisions of the second paragraph of article 1187 shall be observed as regards the effect of the extinguishment of the obligation.
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In case of the loss, deterioration or improvement of the thing, the provisions which, with respect to the debtor, are laid down in the preceding article shall be applied to the party who is bound to return.
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ARTICLE 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.
ARTICLE 1194. In case of loss, deterioration or improvement of the thing before the arrival of the day certain, the rules in article 1189 shall be observed. o
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period. This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with articles 1385 and 1388 and the Mortgage Law. ARTICLE 1192. In case both parties have committed a breach of the obligation, the liability of the first infractor shall be equitably tempered by the courts. If it cannot be determined which of the parties first violated the contract, the same shall be deemed extinguished, and each shall bear his own
What is a term or a period? A future and certain event. Would death be a period? Yes. I will give you a pizza if my neighbor’s dog dies is an obligation with a term because everyone dies. I will give you a pizza if my dog dies because someone killed it is an obligation with a condition because the dog must first be killed before I will give you a pizza. That condition brings in an element of uncertainty. What is the influence of a term or a period on the obligation? If the period is suspensive, the demandability of the obligation is suspended pending the arrival of the period. What about the creation of the obligation? The obligation already exists; it is only the demandability which is suspended. Example: A will give B a parcel of land upon C’s death. What about a resolutory period? The obligation is immediately demandable. Its effect on the obligation would be the extinguishment of the obligation upon its the arrival. How is a resolutory condition different from a resolutory period? In terms of effect they are the same. The difference lies in the nature of the event constituting the period, constituting the condition. There is certainty in one, there is uncertainty in the other.
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damages.
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The law provides that: (1) In case of loss without fault of the debtor, the obligation will be extinguished; and (2) When the loss is due to the fault of the debtor, he shall be obliged to pay damages. When is a thing considered lost? When a thing perishes, goes out of commerce, or lost in such a way that it can no longer be located. What about deterioration? Deterioration without the fault of the debtor must be borne by creditor; like wear and tear. But, if the deterioration is through the fault of the debtor, the creditor may choose between rescission of the obligation or its fulfillment plus damages. What about improvement? If the improvement of the thing is improved by nature or by time, it should inure to the benefit of the creditor. But, if the improvement is at the expense of the debtor, the debtor shall have same rights of usufructuary. What are the rights of a usufructuary? Limited right of removal, and should removal not be feasible because damages will be inflicted to the property, then he shall have the right to off-set the cost of the improvement against whatever damage he may have caused.
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We apply the same rules as provided in Art. 1189, in case of loss, deterioration, or improvement of the thing due in an obligation subject to a suspensive term.
ARTICLE 1195. Anything paid or delivered before the arrival of the period, the obligor being unaware of the period or believing that the obligation has become due and demandable, may be recovered, with the fruits and interests. o
Should the debtor pay before the obligation becomes demandable, can we also recover what he has paid? Yes, if he has no knowledge of the period or if he
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In an obligation subject to a period, who is intended to be benefited by the period? The presumption in the law is that both parties are intended to be benefited. We only discard this presumption if from the tenor of the obligation or circumstances surrounding the obligation, it can be inferred that it was constituted to favor one of the parties. If the obligation is worded as follows: A will pay B the amount of P10k after a period of ten (10) years. A, after a period of five (5) years decides that he wants to pay the obligation. Can he compel B to accept the payment? No. The period is for the benefit of both parties. The creditor in the meantime would not have the money. He may be spendthrift so it benefits him that he does not have ready access to the money. The debtor on the other hand is benefited because he gets to keep the money; he gets to use the money for the entire period. He cannot insist that the creditor accept payment because the period is for the benefit of the creditor as well. He can waive the period but he cannot compel the creditor to make a similar waiver. Compare this to this obligation: Debtor will pay the creditor the amount of P1M within a period of ten (10) years. Analyzing the obligation itself, does it carry any implication that it is for the benefit of one of the parties alone? Yes, because it is "within," as though the debtor has an option. He can pay anytime within the period of
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In every case, the courts shall determine such period as may under the circumstances have been probably contemplated by the parties. Once fixed by the courts, the period cannot be changed by them.
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ARTICLE 1196. Whenever in an obligation a period is designated, it is presumed to have been established for the benefit of both the creditor and the debtor, unless from the tenor of the same or other circumstances it should appear that the period has been established in favor of one or of the other.
The courts shall also fix the duration of the period when it depends upon the will of the debtor.
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ARTICLE 1197. If the obligation does not fix a period, but from its nature and the circumstances it can be inferred that a period was intended, the courts may fix the duration thereof.
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ten (10) years. It can be after two (2) years, after six (6) years, after nine and a half (9½) years. If he decides that he would want to forego the longer period, that is within his rights to do. He can compel that the creditor to accept payment, except if interest is being paid the creditor. The complexion of the obligation will change again. Notwithstanding the fact that it is the tenor of the obligation that he can pay within so many years, because if interest is being earned by the creditor, it is arguable that it is not just for the benefit of the debtor because the creditor is benefiting as well because of the payment of interest.
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believes that the obligation is already due and demandable. Basically, this the same right given to the debtor in an obligation subject to a suspensive condition who pays ahead or before the fulfillment of the condition; that is recovery of what has been paid. Would you know the rights of a debtor in an obligation subject to a suspensive period be different from the rights of a debtor in an obligation subject to a suspensive condition where both of them paid before the condition is fulfilled or the period has arrived? Both of them have the right to recover what has been paid, but it is only with regard to the debtor in an obligation subject to a suspensive period does the law explicitly provide that he can recover what he has paid together with the fruits and interests. The law is silent with regard to the recovery of the fruits and interests insofar as the debtor in an obligation subject to a suspensive condition is concerned. Although authorities believe that notwithstanding the silence of the law, debtor who pays ahead in an obligation subject to a suspensive condition may still recover fruits and interests on what he has paid under the principle of solutio indebiti.
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If the debtor promises to pay when his means allow him to do so, then we consider this as an obligation subject to a period and not one subject to a condition. This is not the only instance where we have an obligation subject to a period and yet there is no specific period. There are other instances where the parties intend to be bound by a period but somehow failed to provide one. How can we ascertain this? In an ideal situation, the parties would be clear that we intend to have a period but we failed to specify the period. This will not happen in real life. We have to look at the circumstances. How do we know that there is such an intention? You look at the nature of the obligation. Is it something which could be done within a short period of time? If it is something that can be done then we should classify this as immediately demandable. If you buy in a sari-sari store to buy soft drinks, would it take years before the soft drinks is given to you? You can see that it is immediately demandable. It precludes the possibility of an intention to provide for a period. If you are having your dream house built. You are newly-weds. You ordered your contractor to build the house one (1) week after your return from your honeymoon. Upon your return there is no house yet. Can you go to court and say we would like to place the contractor in delay? It will be premature because the period has not lapsed yet. You say, what period, we don’t have a period? Yes, you don’t have a specific period but you obviously intended to subject your obligation to a period. You ask, how did that happen? By the nature of the obligation you imposed on your contractor.
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Pay attention to paragraph three (3). There is a qualification which is important. The law makes a distinction between impairment and loss. If it is mere impairment but it is through the act of the debtor himself, then the period is lost; but if the cause is a fortuitous event, mere impairment is not sufficient to give rise to the loss of the period. It must be that the security itself must be lost. Example: There is a lightning that struck the car which was given as a security. The car was only damaged a little. Would this give rise to the loss of the period? No, because this is simply impairment and one which is not caused by the fault of the debtor, but by a fortuitous event. In Gaite vs. Fonacier (G.R. No. L-11827, July 31, 1961), the question that the Supreme Court was whether appellants, Fonacier and his sureties, still have the right to insist that Gaite should wait for the sale or shipment of the ore before receiving payment; or, in other words, whether or not they are entitled to take full advantage of the period granted them for making the payment. The Supreme Court held that the appellant have forfeited the right to compel Gaite to wait for the sale of the ore before receiving payment of the balance of P65,000.00, because of their failure to renew the bond of the Far Eastern Surety Company or else replace it
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ARTICLE 1198. The debtor shall lose every right to make use of the period: (1) When after the obligation has been contracted, he becomes insolvent, unless he gives a guaranty or security for the debt; (2) When he does not furnish to the creditor the guaranties or securities which he has promised; (3) When by his own acts he has impaired said guaranties or securities after their establishment, and when through a fortuitous event they disappear, unless he immediately gives new ones equally satisfactory; (4) When the debtor violates any undertaking, in consideration of which the creditor agreed to the period; (5) When the debtor attempts to abscond.
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with an equivalent guarantee. The expiration of the bonding company's undertaking on December 8, 1955 substantially reduced the security of the vendor's rights as creditor for the unpaid P65,000.00, a security that Gaite considered essential and upon which he had insisted when he executed the deed of sale of the ore to Fonacier. The case squarely comes under paragraphs 2 and 3 of Art. 1198, NCC. Appellants' failure to renew or extend the surety company's bond upon its expiration plainly impaired the securities given to the creditor (appellee Gaite), unless immediately renewed or replaced. There is no merit in appellants' argument that Gaite's acceptance of the surety company's bond with full knowledge that on its face it would automatically expire within one year was a waiver of its renewal after the expiration date. No such waiver could have been intended, for Gaite stood to lose and had nothing to gain barely; and if there was any, it could be rationally explained only if the appellants had agreed to sell the ore and pay Gaite before the surety company's bond expired on December 8, 1955. But in the latter case the defendants-appellants' obligation to pay became absolute after one year from the transfer of the ore to Fonacier by virtue of the deed Exhibit "A.". Gaite acted within his rights in demanding payment and instituting this action one year from and after the contract (Exhibit "A") was executed, either because the appellant debtors had impaired the securities originally given and thereby forfeited any further time within which to pay; or because the term of payment was originally of no more than one year, and the balance of P65,000.00 became due and payable thereafter.
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What will the court do now? The court will fix the period for you. Courts cannot make contracts for the parties. So whatever period the court comes up with, it must be based on what the parties must have intended. Usually, industry wise, how long would it take to build a house from two (2) storeys, three (3) storeys, four (4) storeys? Maybe eight (8) months to one (1) year. That would be reasonable. How are the circumstances? How is the supply of cement in the Philippines, supply of steel these are the factors to be taken by the court. After the court has fixed the period and the period has lapsed, then you say that there is delay. You can now have the right to make a demand to place your debtor in delay. Until that happens, there is no delay, there is no default. You don’t have any right for damages.
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SECTION 3 - Alternative Obligations ARTICLE 1199. A person alternatively bound by different prestations shall completely perform one of them. The creditor cannot be compelled to receive part of one and part of the other undertaking. o o o o o
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How many objects can an obligation have? One or more. What do we call an obligation which has only one object? Pure or simple. And if it has several objects? Multiple. Multiple obligations, in turn, may be classified into: (1) Conjunctive; (2) Alternative; (3) Facultative. Conjunctive Obligation is one where the debtor has to perform several prestations; it is extinguished only by the performance of all of them. Alternative Obligation is where there are several prestations, but only one is needed to be performed to extinguish the obligation. Facultative Obligation is when only one prestation has been agreed upon, but the obligor may render another in substitution.
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ARTICLE 1200. The right of choice belongs to the debtor, unless it has been expressly granted to the creditor. The debtor shall have no right to choose those prestations which are impossible, unlawful or which could not have been the object of the obligation.
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ARTICLE 1201. The choice shall produce no effect except from the time it has been communicated. o
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In an alternative obligation, who enjoys the right to make the choice as to which prestation will be performed? General Rule: Debtor; Exception: Creditor. If the choice will be given to the creditor, how should the choice be given? There must be an express grant in favor of the creditor of the right to make the choice. Would there be any limitation on the right of the debtor to make the choice? Yes. The debtor shall have no right to choose those prestations which are impossible, unlawful or which could not have been the object of the obligation. Why does the law impose these limitations on the right of the debtor to choose the prestations? Because, doing so basically exempts the debtor from performing his obligation. It calls for the extinguishment of the obligation although the debtor basically did nothing. Let’s say that if the debtor chooses the impossible prestation, then he will be exempt from liability although he did not do anything owing to the impossibility of the prestation that he chose.
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When will the choice made by the debtor produce its intended effect? It is the communication of the choice which will produce the legal effect, either orally, in writing, or tacitly. What do we mean by tacit choice? One way of making a tacit choice is by performing the chosen prestation right away. Should there be consent on the part of the creditor? No, because first, the law simply requires communication, it did not require consent on the part of the creditor for
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the choice to have any effect. Secondly, the essence of the alternative obligation is that there is concentration on choice present. The choice is given to the debtor. And for him to be required to get the consent of the creditor before his choice can be made would run counter to the very essence of this characteristic of the alternative obligation because we will deprive the debtor of the right to choose the prestation that he wants to perform. We said that the choice will have its effect once it was communicated to the creditor, what is this effect that will arise from this making of the choice? The obligation becomes pure. So what if it becomes pure obligation? From that moment the debtor, for some instances the creditor, will now be bound by his choice. And he cannot say that he is changing his mind and he is deciding to pursue the other prestation. The choice becomes irrevocable. It may happen that all of the prestation due, except for one, may have already been rendered impossible or may have been lost due to the fault of the debtor. So he is left with one option, would he face any liability for the loss of all this other prestations? No. We do not even consider the cause for the loss or the impossibility of the other prestations? No. Because it will be no different from a situation where he can still choose the last remaining option. Parang initsapwera nya lang yung iba. So regardless of the reason for the loss or impossibility of the other prestations, there would be no liability on the part of the debtor. He would still be allowed to discharge the obligation by performing the last remaining possible prestation.
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Do not say that there are several obligations due because we are just speaking of a single obligation involving several prestations. For us to say that there are several prestations due, is it required that these prestations be entirely different from one another? That they, for instance involve different objects? No. The prestations may involve the same object. Example: The object is an Apple, but there would be differences in the terms and conditions for the performance of the prestations. Like: Prestation A – delivery of the apple cooked in any manner; Prestation B - delivery of the apple at a certain place; and Prestation C – immediate delivery of the apple as is. Although we still have the same object involving these prestations, there are differences in the terms and conditions in the performance of the prestations.
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ARTICLE 1202. The debtor shall lose the right of choice when among the prestations whereby he is alternatively bound, only one is practicable. o
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It may happen that all of the prestations are either lost or rendered impossible, what will happen then? We consider first upon whom between the parties caused the impossibility or the loss of all of the prestation. If the cause for the loss or impossibility of all of the prestation is due to the fault of the debtor then the creditor may demand indemnity for damages.
ARTICLE 1203. If through the creditor's acts the debtor cannot make a choice according to the terms of the obligation, the latter may rescind the contract with damages. o
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The indemnity for damages should be the value of the last thing which disappeared or that of the service which last became impossible plus damages. Supposing the debtor loses all of his options or as the law puts it, the debtor cannot make a choice according to the terms of the obligation due to the fault of the creditor, what will be the options of the debtor? The debtor may rescind the contract with damages under Art. 1203, NCC.
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A or B and since I chose them and they were lost by fortuitous event, then my obligation should be considered extinguished?” No, he cannot because the
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Until then the responsibility of the debtor shall be governed by the following rules: (1) If one of the things is lost through a fortuitous event, he shall perform the obligation by delivering that which the creditor should choose from among the remainder, or that which remains if only one subsists; (2) If the loss of one of the things occurs through the fault of the debtor, the creditor may claim any of those subsisting, or the price of that which, through the fault of the former, has disappeared, with a right to damages; (3) If all the things are lost through the fault of the debtor, the choice by the creditor shall fall upon the price of any one of them, also with indemnity for damages.
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obligation has been transformed into a simple obligation. Earlier in the discussion, we said that should any of the prestations become impossible or lost regardless of the reason, then there would be no liability on the part of the debtor because it is as though he made the choice to perform the last prestation available. The same scenario is also applicable in this given example. The last prestation available will constitute a simple obligation. So, if it cannot be performed because of the fault of the debtor, then we go by the general rules of obligation and contracts which would make him liable for the loss or impossibility of the last available prestation. Let’s say that: (1) Prestation A – lost thru the; fault of the debtor; (2) Prestation B – lost thru the fault of the debtor; (3) Prestation C – impossible thru a fortuitous event. Would there be any liability on the part of the debtor? With the same logic, we said that if all the other prestations have been lost or rendered impossible then the last remaining prestation will now be the only choice of the debtor and has the effect of being transformed into a simple obligation. So, it goes to reason that if the simple obligation is rendered impossible by fortuitous event, then the obligation should be considered extinguished. According to Senator Tolentino: there should be liability on the part of the debtor, since it was due to his fault that the other two (2) prestations were lost.
ARTICLE 1205. When the choice has been expressly given to the creditor, the obligation shall cease to be alternative from the day when the selection has been communicated to the debtor.
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In this case, are we limited to the instance that all of the prestations are rendered impossible or lost? No, there may be a situation that all but one have been lost. The bottom line is the debtor could no longer make the choice in accordance of what has been agreed upon. It is not always the case that all of the prestation becomes impossible or will be lost all at once, the loss may due, solely, with the fault of the debtor, sometimes it can be a combination of fortuitous event for some prestation and fault of the debtor for the others. How should meet the liability of the debtor if we have several prestations? Let's say we have: (1) Prestation A – lost thru a fortuitous event; (2) Prestation B – lost thru a fortuitous event; (3) Prestation C – lost thru the fault of the debtor. Would the debtor have any liability or would the obligation be simply extinguished? No. The debtor is liable. Could the debtor say, “I would have chosen prestation
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However, according to Justice Caguioa, from the legal point of view, the obligation is extinguished. We apply this rule. The indemnity shall be fixed taking as a basis the value of the last thing which disappeared, or that of the service which last became impossible. Damages, other than the value of the last thing or service, may also be awarded.
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ARTICLE 1204. The creditor shall have a right to indemnity for damages when, through the fault of the debtor, all the things which are alternatively the object of the obligation have been lost, or the compliance of the obligation has become impossible.
The 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.
ARTICLE 1206. When only one prestation has been agreed upon, but the obligor may render another in substitution, the obligation is called facultative. The loss or deterioration of the thing intended as a substitute, through the negligence of the obligor, does not render him liable. But once the substitution has been made, the obligor is liable for the loss of the substitute on account of his delay, negligence or fraud. . o How can this kind of obligation arise? The parties can stipulate. o If the parties were to stipulate, must the parties also stipulate the substitute? They may or may not, for as long as they agreed that the debtor can give something or perform some other service in substitution. o Example: The parties did not stipulate a substitute. “Uuwi
ako ng probinsya, dadalhan kita ng bigas pag-uwi ko, pero pag walang bigas iba na lang dadalhin ko para sayo.” o o
The choice of what will be the substitute depends on the discretion of the debtor in that example. Another example: The parties stipulated a substitute.
“Uuwi ako ng probinsya, dadalhan kita ng bigas paguwi ko, pero pag walang bigas unggoy na lang.”
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In this example: the debtor stipulated on what the substitute would be and that is fine as well, because the essence of a facultative obligation is that the debtor is allowed to render a different prestation in substitution of the first that has been originally agreed upon.
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Whenever we have plurality of subjects, we need to consider joint and solidary obligation. If we have more than one creditor, are we required to have more than one debtor? No, it suffices that there is plurality on either sides of the subjects, i.e. plural active subjects, plural passive subjects; or plural active and passive subjects.
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What is the default mode in obligations involving plurality of subjects? Joint obligation. What would be the implication of having a joint obligation? Each one of the debtors would be proportionately liable for his share of the obligation and in the same manner, each one of the creditors would only be entitled to a proportionate share of the obligation.
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ARTICLE 1208. If from the law, or the nature or the wording of the obligations to which the preceding article refers the contrary does not appear, the credit or debt shall be presumed to be divided into as many shares as there are creditors or debtors, the credits or debts being considered distinct from one another, subject to the Rules of Court governing the multiplicity of suits.
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ARTICLE 1207. The concurrence of two or more creditors or of two or more debtors in one and the same obligation does not imply that each one of the former has a right to demand, or that each one of the latter is bound to render, entire compliance with the prestation. There is a solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity.
When will the default obligation be not applicable? (1) When the obligation expressly so states; (2) When the law requires solidarity; (3) When the nature of the obligation requires solidarity. Example of an obligation which because of its nature, it is treated as solidary: When there are several joint tortfeasors in quasi-delicts. Example of an obligation which is solidary because of an express provision of law: In a contract of commodatum, if we have more one bailee, then the bailees will be solidarily liable for the loss of the thing that is loaned. Example of an obligation which is solidary that has been stipulated by the parties: In an instrument, it was written: “I promise to pay,” then it was signed by several debtors “together or separately.” The words “together or separately” are also an indication that it is a solidary obligation.
What is the difference of a solidary obligation from a joint obligation? In a solidary obligation, each one of the debtors may be asked to perform the entire obligation and each one of the creditors may demand the performance of the entire obligation. There are different kinds of solidarity depending on which part of the obligation exists: (1) Active Solidarity – solidarity among the creditors; (2) Passive Solidarity – solidarity among the debtors; and (3) Mixed Solidarity – solidarity on both creditors and debtors. But it is possible that there is solidarity among the debtors on one hand and then on the part of the creditors, we have a joint obligation. Like the promissory note, that is if the payee is more than one person and there is no indication that will justify the application of the exception allowing solidary bond among the creditors, then we will have to consider them as jointly entitled to the obligation. Example: The promissory note is signed by three (3) debtors for 360K and the payees are three (3) creditors. If in the promissory note, there was no indication that they will be active solidary creditors, then the exceptions do not apply. We shall have to treat the creditors as jointly entitled. How much can be demanded by these creditors from the debtors? We all know that debtor 1, debtor 2 and debtor 3 are solidarily bound, so each one of them can be compelled to pay the entire 360k. That is consistent with the passive solidarity existing among them. The problem is in the creditors, there is no active solidarity on their part, so how can they proceed against anyone of the debtors? They will have to proceed against the debtors as one. Meaning that creditor 1, creditor2, and creditor3 will have to make a collective demand upon debtor 1 if they want to get the entire 360k from debtor 1 or upon debtor 2 or debtor 3. It is easier if the situation is passive solidarity but how can we have active solidarity? It appears that we can only have that by stipulation.
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ARTICLE 1209. If the division is impossible, the right of the creditors may be prejudiced only by their collective acts, and the debt can be enforced only by proceeding against all the debtors. If one of the latter should be insolvent, the others shall not be liable for his share. ARTICLE 1210. The indivisibility of an obligation does not necessarily give rise to solidarity. Nor does solidarity of itself imply indivisibility. ARTICLE 1211. Solidarity may exist although the creditors and the debtors may not be bound in the same manner and by the same periods and conditions. o
If there is passive solidarity, does it also follow that all the debtors will be uniformly bound by the same terms and conditions? No. It can happen that one of the solidary
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but less my share because of the suspensive period. I will be only liable to my share once the period arrives” o
ARTICLE 1214. The debtor may pay any one of the solidary creditors; but if any demand, judicial or extrajudicial, has been made by one of them, payment should be made to him. o
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(Defense which pertains to the share in the obligation). Minority of debtor 2 and vitiated consent of debtor 4 will not cause for the total exemption. It can only be for partial exemption from liability to the extent of the shares
What does active solidarity mean for the creditor? What does active solidarity allow them to do? It is said that there is some kind of mutual agency among the creditors such that any one of them can demand for the performance of the entire obligation from anyone of the debtors. Should a demand be made from any one of the creditors, how would that demand affect the others? It limits the right of the other co-creditors because once a solidary creditor has made a demand upon a debtor, then that debtor must pay the obligation to the creditor who has made the demand. So, in a way, it limits the right of the other creditors because apparently, any demand that they make could now be useless because one of them has already made a demand. But although it limits their rights, they are not prejudiced because of the presence of the concept of mutual agency. That demand made by one of the creditors is being made on their behalf as well, and not just for the benefit of the creditor making the demand.
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ARTICLE 1213. A solidary creditor cannot assign his rights without the consent of the others.
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ARTICLE 1212. Each one of the solidary creditors may do whatever may be useful to the others, but not anything which may be prejudicial to the latter.
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pertaining to debtor 2 and debtor 4 (Defense which are personal to his co-debtors).
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debtors may have his obligation subject to a suspensive term; another may have his obligation subject to condition. That will not detract from the fact that they are solidarily bound. Why is it important to know this? It is important because this may be relevant when it comes to the defenses available to a solidary debtor. This is one of the defenses that may be raised by a solidary debtor in an action brought by a creditor against him. What are the defenses that may be raised by a solidary debtor in an action brought by a creditor? (1) Defenses which are inherent in the obligation itself; (2) Defenses which are personal to the debtor; (3) Defenses which pertain to the share in the obligation; and (4) Defenses which are personal to his co-debtors. If the defense is inherent in the obligation itself, it calls for total exemption from liability. If the defense is personal to the debtor, it calls for total exemption from liability in so far as that debtor is concerned. If the defense pertains to the share in the obligation, it calls for partial exemption from liability. Why only partial? Because he may still be asked to pay for entire obligation less the share pertaining to him subject to his right to ask for reimbursement from the other debtors who are not entitled to any defenses. If the defense is personal to his co-debtors, it calls for partial exemption from liability because the exemption can only extend to the share of the debtor entitled to that personal defense. Let’s us say we have passive solidarity, and the contract is an oral contract of sale of land: We have a Creditor, with the following debtors: (1) Debtor 1 (who's obligation is subject to a suspensive period); (2) Debtor 2 (minor); (3) Debtor 3; (4) Debtor 4 (whose consent was vitiated). Demand is made by the creditor upon debtor 1, what defenses may be raised by debtor 1? Note that the demand must be in the form of a complaint because the law speaks of "defenses which may be raised in an action brought by the creditor" so it must be a judicial demand. The contract is unenforceable and that will entitle him to total exemption because that will go to the very obligation (Defense which is inherent in the obligation itself). The obligation is due, except with regard to his share as it is subject to a suspensive period. Since he is the only one affected by the period, he can raise it as a defense, but only as to his share. So he can say that "I will pay you
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ARTICLE 1215. Novation, compensation, confusion or remission of the debt, made by any of the solidary creditors or with any of the solidary debtors, shall extinguish the obligation, without prejudice to the provisions of article 1219. The creditor who may have executed any of these acts, as well as he who collects the debt, shall be liable to the others for the share in the obligation corresponding to them. ARTICLE 1216. The creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. The demand made against one of them shall not be an obstacle to those which may subsequently be directed against the others, so long as the debt has not been fully collected. o o
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Upon whom can the creditor make a demand? Anyone of the debtor. Supposing that creditor 1 made a demand upon debtor 3, can creditor 1 still make a demand from debtor 1 or debtor 2? Yes. Supposing that creditor 1 has instituted a complaint for collection against debtor 3, can he still send letters of
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What does passive solidarity imply to our debtors? Each one of the debtors may be asked to perform the entire obligation. And should this debtor who may be asked to perform the whole obligation pays, what happens then? The obligation between the creditors and debtors will be extinguished and the debtor making payment may demand reimbursement from the other debtors. Will the debtor making payment insist that he should be now subrogated to the rights of the creditors? He cannot, because that obligation has already been extinguished and with its extinguishment there will be another set of obligation that will arise among the debtors themselves. This obligation consists of reimbursing the paying debtor proportionately. What happens if anyone of the other solidary debtors happens to be insolvent? Then the other debtors will be liable for the share of the insolvent debtors. Mutual Guaranty among the debtors; by allowing themselves to be bound solidarily, they guaranty the solvency of all of the other debtors such that should anyone of them be insolvent, then in addition to their share in the liability, they will also have to bear proportionately the share belonging to the insolvent debtor. General Rule: A joint debtor will not answer for the insolvency of his co-debtor. Exception: In case of co-guaranty. In co-guaranty, we also apply the general rule that the co-guarantors will only be jointly liable, but despite the fact that they are only jointly liable, they are answerable for the insolvency of their co-guarantees.
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demand to debtor 1 and debtor 2? Yes, because the law says that he can make a demand upon any of the debtors so long as the obligation remains unpaid (Art. 1216, NCC). Once a demand is made then, hopefully, it will have its desired effect, which is to instigate payment. And if payment is made, what will be the effect of that payment? It will extinguish the obligation of the debtors to the creditors. But what will happen after the extinguishment of the obligation of the debtors to the creditors? The creditor who received payment is now obligated to give the shares of the other creditors. Is payment is the only means by which the obligation of the debtors to the creditors may be extinguished? No. How else can it be extinguished? (1) Loss of the thing; (2) Remission; (3) Confusion or merger; (4) Compensation; (5) Novation. If the obligation is extinguished for any cause other than payment, we can say that such extinguishment would be prejudicial to the other creditors, because the creditor who caused the extinguishment did not receive anything in return from the debtors for which the other creditors will get their share. So how can we reconcile this provision in the law which allows the solidary creditor to do all of these things with the provision in the law that none of the creditors can do anything which is prejudicial to the others (reconciling Art. 1212 with Art. 1215)? Should there be any extinguishment of the obligation for causes other than payment, then the creditor who is either remitting, condoning or undergoing compensation or confusion with any of the solidary debtors will be similarly liable as though he received payment. It means that such creditor will still have to give to the other creditor their share in the payment supposedly of the obligation. He will not be excused. In addition, he may even made liable for damages. Take note that, on the surface, when it comes to solidary obligations, it may appear that we have singleness of prestation (unity of prestation) as though there is only one relationship existing that is between the creditors on one hand, and the debtors on the other. But once the obligation between the creditors and debtors is extinguished, another set of obligation among the creditors themselves would arise. And that will be dictated by the obligation of the creditor receiving payment to give the others their share. That is mutual agency, “pag natanggap ko, agent mo ako, I need to remit to you.” And the remittance or the giving of the share will not always be equal. No matter the apparent singleness of the prestation, the creditors may still be bound by different proportions of their rights. It is not always equal.
ARTICLE 1217. Payment made by one of the solidary debtors extinguishes the obligation. If two or more solidary debtors offer to pay, the creditor may choose which offer to accept. He who made the payment may claim from his co-debtors only the share which corresponds to each, with the interest for the payment already made. If the payment is made before the debt is due, no interest for the intervening period may be demanded. When one of the solidary debtors cannot, because of his insolvency, reimburse his share to the debtor paying the obligation, such share shall be borne by all his co-debtors, in proportion to the debt of each. ARTICLE 1218. Payment by a solidary debtor shall not entitle him to reimbursement from his co-debtors if such payment is made after the obligation has prescribed or become illegal. ARTICLE 1219. The remission made by the creditor of the share which affects one of the solidary debtors does not release the latter from his responsibility towards the codebtors, in case the debt had been totally paid by anyone of them before the remission was effected. ARTICLE 1220. The remission of the whole obligation, obtained by one of the solidary debtors, does not entitle him to reimbursement from his co-debtors.
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ARTICLE 1222. A solidary debtor may, in actions filed by the creditor, avail himself of all defenses which are derived from the nature of the obligation and of those which are personal to him, or pertain to his own share. With respect to those which personally belong to the others, he may avail himself thereof only as regards that part of the debt for which the latter are responsible. o
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anymore because of the remission.”
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“Wala na akong liability because of the remission, you can no longer claim from me.” In this case who can the paying debtor run after for his share? The creditor who received the payment because that payment is no longer due because of the remission. So if the question is, “what will be the effect of a remission that is made prior to payment?” then we have to qualify: who is demanding payment? Is it the creditor or a co-debtor?
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The remission only extends to extinguish his share in the obligation but it did not dissolve the solidary bond among the debtors. He is still a solidary debtor, so he may still be asked to pay the obligation by the creditor making the demand less his share. Then after making payment, he may go to the other debtors to ask for reimbursement. But if the demand is made upon the solidary debtor benefited by the remission by the other debtor who paid after the remission, then he can rightfully say,
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ARTICLE 1221. If the thing has been lost or if the prestation has become impossible without the fault of the solidary debtors, the obligation shall be extinguished. If there was fault on the part of any one of them, all shall be responsible to the creditor, for the price and the payment of damages and interest, without prejudice to their action against the guilty or negligent debtor. If through a fortuitous event, the thing is lost or the performance has become impossible after one of the solidary debtors has incurred in delay through the judicial or extrajudicial demand upon him by the creditor, the provisions of the preceding paragraph shall apply.
Loss or impossibility of performance will render the obligation extinguished. Qualify as to the nature of the obligation, i.e. as to the reason of the loss or impossibility of performance. In ordinary obligation, the prestation should be determinate or specific. Otherwise, it is not susceptible to loss and the loss to completely absolve the debtor must be due to a fortuitous event or due to reasons not attributable to them. But supposing that due to the fault of any one of the solidary debtors or due to a fortuitous event, the thing is lost, how will this affect the rights of the solidary debtors? If the loss is due to fortuitous event, then the obligation is extinguished without any liability for damages. But if there is fault or delay, fortuitous event does not excuse non-performance. The obligation remains. What is the indemnity that must be given to the creditor? The price of the obligation. If there is fault or delay, fortuitous event does not excuse nonperformance even if the thing due has been lost due to fortuitous event, the obligation remains. But this time it is converted into one for damages. Actual damage - you have to give the actual value of the thing that was lost. Apart from the value of the thing lost, they are also liable for consequential damages or even interest. Can this be claimed by the creditor from any one of the debtors? Yes, they are liable for the entire indemnity which is the price of the thing due plus damages. Supposing C (one of the solidary debtors) is an innocent solidary debtor, he pays A (creditor). C is now entitled to be reimbursed. What can he ask from B and D by way of reimbursement? Entire indemnity. From whom can he claim the demand? From the guilty debtor. The paying debtor can claim the entire indemnity from the guilty debtor. Anything that has been paid by the debtor without deducting such guilty debtor's share. He will not participate for the payment at all. There is loss here of the thing due because of the fortuitous event and they would have been excused from performing if it has not been due to the fault of the guilty debtor. Because of this loss, the other debtors are no longer required to contribute in the indemnity. They will not contribute - it makes sense because they are not guilty. They are also not required to contribute in the value of the obligation because of the loss that took place on account of the fortuitous event. The indemnity must be shouldered by the guilty debtor.
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Of all the modes of extinguishing an obligation, the more significant mode would be remission. If there is remission, there is really nothing received by the creditor who is effecting remission. The remission may either be total or partial. If it is a total remission then it has the effect of extinguishing the obligation in its entirety. It may happen that the remission was secured by one of the solidary debtors. Would this scenario give the debtor any special rights as against his co-debtors? No. It will not entitle him to any right to be reimbursed. What if the remission was partial? If there was already payment made by the other co-debtors before the remission, it will not excuse the debtor effecting remission for any liability for reimbursement, because the payment of the paying debtor preceded the remission. There was nothing to condone anymore because the obligation was extinguished. What if the remission came before payment? We have to qualify. The solidary debtor benefited by the remission may still be liable to the other creditors. Na-condone nga yung share nya but if demand is made upon him by other creditors, he cannot say, “I will not be liable
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ARTICLE 1223. The divisibility or indivisibility of the things that are the object of obligations in which there is only one debtor and only one creditor does not alter or modify the provisions of Chapter 2 of this Title. ARTICLE 1224. A joint indivisible obligation gives rise to indemnity for damages from the time anyone of the debtors does not comply with his undertaking. The debtors who may have been ready to fulfill their promises shall not contribute to the indemnity beyond the corresponding portion of the price of the thing or of the value of the service in which the obligation consists. ARTICLE 1225. For the purposes of the preceding articles, obligations to give definite things and those which are not susceptible of partial performance shall be deemed to be indivisible.
ARTICLE 1226. In obligations with a penal clause, the penalty shall substitute the indemnity for damages and the payment of interests in case of noncompliance, if there is no stipulation to the contrary. Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is guilty of fraud in the fulfillment of the obligation. The penalty may be enforced only when it is demandable in accordance with the provisions of this Code. ARTICLE 1227. The debtor cannot exempt himself from the performance of the obligation by paying the penalty, save in the case where this right has been expressly reserved for him. Neither can the creditor demand the fulfillment of the obligation and the satisfaction of the penalty at the same time, unless this right has been clearly granted him. However, if after the creditor has decided to require the fulfillment of the obligation, the performance thereof should become impossible without his fault, the penalty may be enforced. ARTICLE 1228. Proof of actual damages suffered by the creditor is not necessary in order that the penalty may be demanded.
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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.
SECTION 6 - Obligations with a Penal Clause
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SECTION 5 - Divisible and Indivisible Obligations
the debt can be enforced only by proceeding against all the debtors. If one of the latter should be insolvent, the others shall not be liable for his share.
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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.
In obligations not to do, divisibility or indivisibility shall be determined by the character of the prestation in each particular case.
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What are indivisible and divisible obligations? Indivisible Obligation (not susceptible of partial performance); Divisible Obligation (susceptible of partial performance). Joint Indivisible Obligation: It is indivisible because of the subject matter. It may also be indivisible because of its nature or because it is so stipulated by the parties or by law. Example: A race horse, if the same is going to be delivered, then it must be delivered wholly. And just because it is indivisible, it does not mean that we are precluded from having plurality of subjects. We can still have more than one creditor and more than one debtor. In this scenario, the parties will just have to perform together. The debtors have to perform together and the creditors must also make the demand together. In case there is any breach, then the obligation will be converted into a divisible obligation because in that situation, it will just be an obligation to pay damages.
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Art. 1209. If the division is impossible, the right of the creditors may be prejudiced only by their collective acts, and
ARTICLE 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable. ARTICLE 1230. The nullity of the penal clause does not carry with it that of the principal obligation. The nullity of the principal obligation carries with it that of the penal clause. o
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What is a penal clause? An accessory obligation to assume greater liability in case of breach. By its term, “accessory,” it means that it requires a principal obligation in order to validly exist. It has a three-fold purpose: (1) To ensure the performance of the obligation - If the debtor did not perform the obligation, then he will be liable for payment of the penalty in the penal clause; (2) To provide for liquidated damages - Liquidated damages does away the need to prove the damages suffered. If there are liquidated damages, then there is no need to prove the actual amount of damages, there is only need to prove breach; and (3) To punish the other party in case of breach.
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CHAPTER 4 - Extinguishment of Obligations General Provisions ARTICLE 1231. Obligations are extinguished: (1) By payment or performance; (2) By the loss of the thing due; (3) By the condonation or remission of the debt; (4) By the confusion or merger of the rights of creditor and debtor; (5) By compensation; (6) By novation.
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Would these be exclusive such that if there is a mode that is not included in the list, it cannot be said that it also extinguishes an obligation? The list is NOT exclusive. What can be an example of a cause that is not included in the list that will cause the extinguishment of an obligation? (1) Renunciation by the creditor in favor of the debtor; (2) Compromise of the parties. What about death? Only those obligations which are purely personal to the debtor are extinguished by death.
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ARTICLE 1234. If the obligation has been substantially performed in good faith, the obligor may recover as though there had been a strict and complete fulfillment, less damages suffered by the obligee o
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Other causes of extinguishment of obligations, such as annulment, rescission, fulfillment of a resolutory condition, and prescription, are governed elsewhere in this Code.
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SECTION 1- Payment or Performance ARTICLE 1232. Payment means not only the delivery of money but also the performance, in any other manner, of an obligation.
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ARTICLE 1233. A debt shall not be understood to have been paid unless the thing or service in which the obligation consists has been completely delivered or rendered, as the case may be. o
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What is payment? The fulfillment of the prestation due, a fulfillment that extinguishes the obligation by the realization of the purposes for which it was constituted. Payment is commonly perceived as something which involves delivery of money; would this be an accurate understanding of payment? No. Payment can refer to any manner of performance of the obligation. It may include the delivery of money, but it is not limited to the delivery of money.
What are the characteristics of payment? Integrity (Art.1233); Identity (Art.1244); and Indivisibility (Art.1248). Integrity means that the payment must be complete. What are the exceptions to the characteristic of integrity? (1) Substantial performance (Art.1234); and (2) Waiver or estoppel (Art.1235).
What will be the requisites for substantial performance? (1) Attempt in good faith to perform the obligation; (2) The obligation must be performed but it was not performed to meet in accordance with its tenor. When we say that there is substantial performance, it indicates that the obligation was performed but it was not performed to be in accordance with its tenor. So there is some kind of deviation. Does it matter what the nature of deviation is? Yes, it is required that the deviation should not pertain to the material aspect of the obligation. It must be something that is incidental or trivial. Example of a deviation that is not material: The debtor is supposed to deliver a cake and he is also required to place the cake in a container. The container must be color blue so that it will be in accordance with the party’s motif. But at the time of delivery, the debtor placed the cake in a container a little similar with blue, like purple or violet. The placing of the cake in a purple or violet container is immaterial. It does not go to the very essence of the obligation. In which case, substantial performance will be acceptable. The idea is that if there is substantial performance, then it is to be treated as though there was complete performance and that should be sufficient to extinguish the obligation. The next exception is, “despite knowledge of incompleteness or irregularity of performance.” This is waiver or estoppel. The law made use of the word “irregularity” and “incompleteness”, are they the same or different? They are different. Incomplete refers to the amount of the performance. If the obligation is not fully performed, then there is incomplete performance. Irregular refers to the kind of performance. If the whole obligation is fully performed but not in the manner agreed upon, there is irregular performance. We can have an irregular performance that is complete. The performance is complete only that it is not in accordance with the tenor of the obligation. If there is incomplete performance, then there are some portions which were not performed. What does identity of payment mean? To be valid, the payment must consist of the performance of the very prestation that has been agreed upon. If the obligation
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If there is a penal clause that will take the place of damages and interest. He can no longer claim such, except if there is a stipulation to the contrary or if the debtor is guilty of fraud in the performance of the obligation or if there is refusal on the part of the debtor to pay the penalty. The courts may step in and mitigate the liability if it is unconscionable or if there has been partial or irregular performance. Since it is an accessory obligation, the nullity of the penal clause will not affect the principal obligation.
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is to give a specific thing, then the very thing that is promised to be given should be delivered. If it is an obligation to be a generic thing, then a thing that belongs to the same kind, quality and quantity should be delivered. What are the exceptions to the characteristic of identity? (1) Dacion en pago (Art.1245); (2) Facultative obligation. Why is dacion en pago an exception? The obligation is payment of sum of money, but the parties agreed that instead of paying in sum of money, what is delivered is a property belonging to a debtor. The transaction will be governed by the law on sales.
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(7) When the debtor dies and he has several heirs and the obligation is divisible; (8) In joint obligations where each debtor is bound to pay only his proportionate share. Example of stipulation to the contrary: Delivery of 100 sacks of rice in 10 equal installments, i.e. sale on installments. In the absence of stipulation, the purchase price must be paid all at once. But if the parties agreed, then payment can be made by installments. What does liquidated mean? The thing or amount is already determined, ascertained, settled, there is no dispute as to amount, as to what is due and as to how much is due. Example of an obligation which is composed of portions which are liquidated or parts of which are unliquidated: The creditor was off-loaded from a passenger plane that means that the value of the creditor’s ticket has become useless to him. Essentially, he suffered a loss corresponding to the amount of the ticket. But aside from that, he also suffered emotional pain and humiliation of being asked to leave the plane and for that one, he is entitled to moral damages. The thing is moral damages is something that has to be proven in court. And until the court says that he is entitled to moral damages in such amount, it is not yet liquidated. So the obligations of the airline to the creditor consist of actual damages (the cost of the ticket) plus moral damages. The cost of the ticket is liquidated because that is already a certainty; there is no dispute as to how much the debtor paid for the ticket. But the other part, the moral damages, that is still unliquidated. The creditor can ask for the value of the ticket. Who can make payment? In its literal sense and if the obligation does not call for the personal qualification of the debtor, then essentially, anyone can make payment. But if we are going to take the question as to who can compel the creditor to accept payment, then these are the people who can compel: (1) Debtor himself; (2) His heirs and assigns; (3) His agents and representatives; and (4) Third person interested in the obligation. Why is this important? Because in the end, it is the consent of the creditor to accept payment, which will extinguish the obligation. The consent of the original debtor will only determine the rights acquired by the person making payment on his behalf. As to the question of who can compel the creditor to accept payment, they are the persons earlier enumerated. They cannot be refused by the creditor. If the creditor refuses, then the creditor will be in mora accipiendi. And mora accipiendi in turn, will trigger legal consequences to arise. There will be a shifting of one of the burdens for the loss of the thing due. Who is this 3rd person who has an interest in the obligation? A 3rd person who has material interest in the obligation.
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ARTICLE 1235. When the obligee accepts the performance, knowing its incompleteness or irregularity, and without expressing any protest or objection, the obligation is deemed fully complied with. ARTICLE 1236. The creditor is not bound to accept payment or performance by a third person who has no interest in the fulfillment of the obligation, unless there is a stipulation to the contrary. Whoever pays for another may demand from the debtor what he has paid, except that if he paid without the knowledge or against the will of the debtor, he can recover only insofar as the payment has been beneficial to the debtor. ARTICLE 1237. Whoever pays on behalf of the debtor without the knowledge or against the will of the latter cannot compel the creditor to subrogate him in his rights, such as those arising from a mortgage, guaranty, or penalty. o
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ARTICLE 1238. Payment made by a third person who does not intend to be reimbursed by the debtor is deemed to be a donation, which requires the debtor's consent. But the payment is in any case valid as to the creditor who has accepted it.
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ARTICLE 1239. In obligations to give, payment made by one who does not have the free disposal of the thing due and capacity to alienate it shall not be valid, without prejudice to the provisions of article 1427 under the Title on "Natural Obligations."
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Is it possible that a 3rd person paying the obligation of the debtor may not recover the entire amount that he gave as payment to the creditor? Yes, it is possible
because if the consent is not given or it is against the will of the debtor, then the basis of recovery will be the extent of benefit. And there are instances when the benefit does not correspond to the amount paid. When will this happen? If there is already prescription. There is no obligation to pay anymore, but the 3rd person pays. It means that there is no benefit to the debtor. He cannot ask reimbursement from the debtor, or, if there is partial payment made earlier, then that is less benefit to the debtor. If he cannot recover from the debtor, who can the 3rd person recover from? From the creditor on the basis of solutio indebiti.
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Can it be the debtor’s mother? Can the debtor’s mother compel the creditor to accept payment? No. Does she have an interest in the obligation? She may have an interest but it is not the interest contemplated by law. The interest contemplated by law is material interest. Example: Third-party Mortgagors, Surety, Guarantors. What would be his interest in the obligation? That in case of non-performance of the obligation, there will be loss in his part. What loss will he suffer? He will lose his properties. What will happen to his properties? It will be foreclosed. So instead of going through the process of foreclosure, the process to redeem, the third-party mortgagor can cut it off by paying the obligation and he is allowed by law because he has a material interest in the obligation. Supposing that there is a third person who has no material interest, he pays the obligation, would that be a valid payment? Will that extinguish the obligation? It will extinguish the obligation. When we say that payment is made to the creditor, it presupposes that the creditor accepted the payment. When he accepts, the obligation is extinguished. Does it matter, whether or not the debtor gave his consent? It matters in determining only the rights acquired by the 3rd person, but the obligation is still extinguished. If the debtor consented, the 3rd person who made payment acquires: (1) The right of subrogation; (2) Entitled to full reimbursement. If the debtor did not gave his consent, the 3rd person who made payment acquires: (1) No right of subrogation; (2) Entitled to reimbursement only insofar as the payment has been beneficial to the debtor.
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Should the payor have the capacity to act? Yes. Why do we distinguish as to the kind of obligation involved? In obligations to do, it does not matter, because by performing, he effects payment and the obligation is extinguished. In obligations to give, the debtor must deliver the thing but not just physical delivery; there must be transfer of title. He cannot transfer title unless he has capacity to act because capacity to act is the power to do acts with legal effect.
ARTICLE 1427. When a minor between eighteen and twenty-one years of age, who has entered into a contract without the consent of the parent or guardian, voluntarily pays a sum of money or delivers a fungible thing in fulfillment of the obligation, there shall be no right to recover the same from the obligee who has spent or consumed it in good faith. o
The law makes reference to Art. 1427, will this exception still apply? Not anymore, because the age of majority is now eighteen (18).
ARTICLE 1240. Payment shall be made to the person in whose favor the obligation has been constituted, or his successor in interest, or any person authorized to receive it. o
To whom should payment be made? (1) Creditor; (2) Successors-in-interest; (3) Assigns; (4) Any person authorized to receive payment by law or by stipulation.
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Payment made to a third person shall also be valid insofar as it has redounded to the benefit of the creditor. Such benefit to the creditor need not be proved in the following cases: (1) If after the payment, the third person acquires the creditor's rights; (2) If the creditor ratifies the payment to the third person; (3) If by the creditor's conduct, the debtor has been led to believe that the third person had authority to receive the payment. o
ARTICLE 1242. Payment made in good faith to any person in possession of the credit shall release the debtor. ARTICLE 1243. Payment made to the creditor by the debtor after the latter has been judicially ordered to retain the debt shall not be valid. ARTICLE 1244. The debtor of a thing cannot compel the creditor to receive a different one, although the latter may be of the same value as, or more valuable than that which is due. In obligations to do or not to do, an act or forbearance cannot be substituted by another act or forbearance against the obligee's will. ARTICLE 1245. Dation in payment, whereby property is alienated to the creditor in satisfaction of a debt in money, shall be governed by the law of sales. o
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The law tells us the instances when we presume that the benefit has redounded to the creditor. These are the instances enumerated in Art. 1241. Example of number 3: This usually happens in big corporations. The corporation is engaged in the manufacture of cement. Let’s say thru a telephone conversation, the corporation agreed that it will deliver the cement and the corporation asked to whom it should be delivered, and then the other corporation said, “basta may tao dun.” In the delivery receipt, there is someone who signed but no printed name and position. So in case, there was no payment made but there was delivery, there will be a problem if the other corporation denies payment and the cement corporation does not know upon who should pay. One remedy to such a problem would be to say that the cement corporation was led to believe that such person has the authority to receive payment (for delivery of cement). Payment made in good faith to any person in possession of the credit. Take note that the law requires that the person to whom payment is made must be in possession of the credit not just in possession of the evidence of credit. Let’s say that Mr. Sison has issued a promissory note in favor of Ms. De Guia and the promissory note says, “Payable to the order of Ms. De Guia.” One day Ms. Dizon shows up at the doorstep of Mr.Sison and she is in possession of the promissory note payable to Ms. De Guia. If Mr. Sison were to pay Ms. Dizon, can we say that it is a valid payment such that the obligation under the promissory note will now be extinguished? No. Because Ms. Dizon was not in possession of the credit. What she has is only the evidence of the credit.
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What can we change in the example given that would make Ms. Dizon in possession of the credit and not just evidence of the credit? The promissory note must be payable to bearer. That will be sufficient to clothe Ms. Dizon at least an ostensible right to the promissory note that will serve as basis on the part of Mr. Sison to make the payment in good faith.
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ARTICLE 1241. Payment to a person who is incapacitated to administer his property shall be valid if he has kept the thing delivered, or insofar as the payment has been beneficial to him.
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If the debtor makes payment not to the enumeration above, then the payment will be invalid. And if the payment is invalid, then the obligation is not extinguished and it still subsists. Exception: Payment to a third person is valid provided that it redounded to the benefit of the creditor. Payment made in good faith to any person in possession of the credit shall release the debtor.
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What are the special forms of payment? (1) Application of payments; (2) Dacion en pago; (3) Payment by cession; (4) Tender of payment and consignation. What is dacion en pago? An act by virtue of which the debtor voluntarily performs in favor of the creditor, by way of payment, a prestation different from that due, and which the latter accepts as a valid substitute. We said before that dacion en pago will be governed by the law on sales because here, we have a substitution of the payment of a monetary obligation with the delivery of property belonging to the debtor. So, in effect the value of the amount due would now be treated as the purchase price for the thing to be delivered. But looking at it in a legal point of view, what actually transpires in dation in payment? Novation, there is novation because we extinguish the first obligation which is payment of a sum of money thru the creation of new obligation in which is now consisting of the sale of a property for the amount originally due from the debtor. Would it be correct to say that we only have dation in payment if the obligation involves a payment of a sum of money? No, if we would go to that premise that dation en pago is essentially a novation, then there is no reason why we should limit it to those instances where the obligation involved is one pertaining to payment in sum of money. The only consequence would be that the resulting new obligation will now be governed by the law on sales.
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ARTICLE 1248. Unless there is an express stipulation to that effect, the creditor cannot be compelled partially to receive the prestations in which the obligation consists. Neither may the debtor be required to make partial payments.
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However, when the debt is in part liquidated and in part unliquidated, the creditor may demand and the debtor may effect the payment of the former without waiting for the liquidation of the latter. When should payment be made? At the time stipulated by the parties. Is it also dependent at the kind of obligation involved? Yes. If the obligation is a pure obligation or subject to a resolutory condition or period: The payment must be made upon demand. If the obligation is subject to a suspensive condition or period: The payment must be made upon the happening of the condition or arrival of the period. How should payment be made? It depends on what kind of obligation. In obligation to do or not to do, the debtor performs the obligation by doing the specified task or prestation or refraining from the prohibited prestation or act. In obligation to give a specific thing, he must deliver the very thing that has been agreed upon as well as its accessions, accessories, fruits and income. In obligation to give a generic thing, he must deliver the thing that belongs to the same genus or kind as that agreed upon. As to quality, the debtor is not required to deliver something of superior quality but he cannot also delivery a thing of inferior quality.
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ARTICLE 1247. Unless it is otherwise stipulated, the extrajudicial expenses required by the payment shall be for the account of the debtor. With regard to judicial costs, the Rules of Court shall govern.
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ARTICLE 1246. When the obligation consists in the delivery of an indeterminate or generic thing, whose 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. The purpose of the obligation and other circumstances shall be taken into consideration.
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To what extent will the obligation be extinguished? Absolute extinguishment, because it is novation. Requisites of dacion en pago: (1) There must be performance of the prestation in lieu of payment (animo solvendi) which may consist in the delivery of a corporeal thing or a real right or a credit against the 3rd person; (2) There must be some difference between the prestation due and that which is given in substitution; and (3) There must be an agreement between the creditor and debtor that the obligation is immediately extinguished by reason of the performance of a prestation different from that due. Example: A is the creditor of B for 200k. He likewise delivered his parcel of land as a security. Upon failure to pay, can B (debtor) sell the collateral to A (creditor) for 200k? Is this valid? No, this is pactum commissorium. How can we say that it is dacion en pago and not pactum commissorium? Dacion en pago applies to all kinds of obligations, while pactum commissorium applies only to those obligations which are secured either by mortgage or pledge. Further, in dacion en pago, there is a separate agreement between the parties, whereas in pactum commissorium, it is included in the document or agreement. By virtue of the fact that dation in payment involves ceding property belonging to the debtor for the creditor, we can say that there is some kind of similarity between dation in payment and payment by cession. But the circumstances in payment by cession are different from the circumstances in dation in payment. In dation in payment, there is only one creditor; whereas in payment by cession, there is more than one creditor. In dation in payment, there is transfer of property belonging to the debtor; whereas in payment by cession, there is transfer of patrimony, i.e. all properties. Dation in payment does not presuppose insolvency or illiquidity; whereas payment by cession implies that the debtor has difficulty in paying the obligation, essentially, insolvent. If not insolvent, illiquid, that the debtor is suffering from liquidity problems. In dation in payment, there is transfer of ownership over the property that the debtor is giving in lieu of money; whereas in payment by cession, there is no transfer of ownership but the debtor gives the authority to sell the properties. Dation in payment gives the debtor total extinguishment of the obligation; whereas payment by cession gives the debtor extinguishment of the obligation to the extent of what may be covered by the proceeds of the sale. In payment by cession, the purpose of giving the authority to sell the properties is so that the creditor may use the proceeds of the sale to satisfy the obligation of the debtor.
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ARTICLE 1249. The payment of debts in money shall be made in the currency stipulated, and if it is not possible to deliver such currency, then in the currency which is legal tender in the Philippines. The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents shall produce the effect of payment only when they have been cashed, or when through the fault of the creditor they have been impaired. In the meantime, the action derived from the original obligation shall be held in abeyance.
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In any other case the place of payment shall be the domicile of the debtor. If the debtor changes his domicile in bad faith or after he has incurred in delay, the additional expenses shall be borne by him. These provisions are without prejudice to venue under the Rules of Court.
If the debtor accepts from the creditor a receipt in which an application of the payment is made, the former cannot complain of the same, unless there is a cause for invalidating the contract. ARTICLE 1253. If the debt produces interest, payment of the principal shall not be deemed to have been made until the interests have been covered. ARTICLE 1254. When the payment cannot be applied in accordance with the preceding rules, or if application cannot be inferred from other circumstances, the debt which is most onerous to the debtor, among those due, shall be deemed to have been satisfied. If the debts due are of the same nature and burden, the payment shall be applied to all of them proportionately. o
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ARTICLE 1252.He who has various debts of the same kind in favor of one and the same creditor, may declare at the time of making the payment, to which of them the same must be applied. Unless the parties so stipulate, or when the application of payment is made by the party for whose benefit the term has been constituted, application shall not be made as to debts which are not yet due.
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There was a time when we had this Uniform Currency Act (RA No. 529). That law actually prohibited the parties from stipulating on the payment of monetary obligation in currencies other than the Philippine Peso. In other words, that law suppressed Art.1249. Such law was repealed by RA No. 8183 and the effect of the repeal is to revert the rule to that provided in Art.1249, meaning to say that the parties are now again allowed to stipulate on the currency which payment of monetary obligation may be made. What is considered legal tender in the Philippines? Coins, bills, notes issued by the Bangko Sentral ng Pilipinas, and which cannot be refused by the creditor. What about promissory notes, bills of exchange or checks? They are not considered as legal tender unless it is encashed. For a while, there were various rulings by the Court to the effect that cashier’s checks and manager’s checks issued by banks are as good as cash, such that payment made in these checks would be tantamount to payment by money. Do we still adhere to these rulings? Not anymore. What is the value of receipt when it comes to payment? It is the best evidence of payment. Is it the only evidence of payment that can be used? No, parole evidence, that the declaration of the debtor that he has paid and his witnesses is admissible as evidence of payment. As an evidence of payment, is a receipt presumptive or conclusive? Presumptive, meaning to say that the fact of payment as proved by the receipt may still be rebutted. If a receipt is issued to acknowledge payment made by check, it does not mean that the presence of the receipt will already be conclusive proof of payment because the debtor must still show, if the proof is rebutted, that the check was actually encashed.
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SUBSECTION 1 - Application of Payments
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There being no express stipulation and if the undertaking is to deliver a determinate thing, the payment shall be made wherever the thing might be at the moment the obligation was constituted.
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How will they determine that there is inflation? There must be a competent authority declaring extraordinary inflation.
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ARTICLE 1251. Payment shall be made in the place designated in the obligation.
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ARTICLE 1250. In case an extraordinary inflation or deflation of the currency stipulated should supervene, the value of the currency at the time of the establishment of the obligation shall be the basis of payment, unless there is an agreement to the contrary.
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What is application of payments? The designation of the debt to which should be applied the payment made by a debtor who owes several debt to the same creditor. Its requisites are as follow: (1) Several debts are due; (2) The same debt or and the same creditor; (3) The debts are all of the same kind; (4) The payment made is not sufficient to cover all debts. (5) The parties have not agreed previously on the application. In payment by cession, we have several creditors; in application of payment, we have several debts or obligations but in favor of one and the same creditor. Also in application of payments, the debtor is making payment and the payment that he is making should not be sufficient to cover all of the obligations, why not? What happens if it is sufficient? There is no need to designate which obligation will be satisfied first because the essence of application of payment is that the debtor gets to choose which obligations will be satisfied ahead of the others. Who is given this option of choosing which obligation will be paid first? The debtor. How can the creditor exercise this option of applying payments? By designating the obligation which the payment is applied in the receipts; and if the debtor simply accepts the receipt of the creditor where he
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made application of payment, then he is already estopped. SUBSECTION 2 - Payment by Cession
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What is Tender of Payment? Declaration of intention by the debtor manifesting his firm decision to immediately pay the obligation. It is not correct to say that it is simply an offer to pay, it must be coupled with the readiness to perform the obligation. Why is tender of payment important? When validly made, a tender of payment that is refused by the creditor without justifiable reason will put the creditor in mora accipiendi. In a sense, this is a counterpart on the debtor. If the creditor has demand on his side, then the debtor has tender on his part. When is tender validly made? It must pertain to an obligation that is already due. It must be paid by the debtor or any other person who can compel payment on the part of the creditor. The payment offered must comply with all the characteristics of payment, meaning to say, it cannot be partial, it must be complete. And if it is for a sum of money, it must be payment in legal tender. Requisites of tender of payment: (1) The tender must be made to the creditor, and not to a third person, although the latter is interested in the obligation; (2) The tender must be of the very thing due or if the obligation is monetary, it must be made in legal tender; (3) The tender must be of the whole amount due including interest;
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ARTICLE 1258. Consignation shall be made by depositing the things due at the disposal of judicial authority, before whom the tender of payment shall be proved, in a proper case, and the announcement of the consignation in other cases. The consignation having been made, the interested parties shall also be notified thereof. ARTICLE 1259. The expenses of consignation, when properly made, shall be charged against the creditor. ARTICLE 1260. Once the consignation has been duly made, the debtor may ask the judge to order the cancellation of the obligation.
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Consignation alone shall produce the same effect in the following cases: (1) When the creditor is absent or unknown, or does not appear at the place of payment; (2) When he is incapacitated to receive the payment at the time it is due; (3) When, without just cause, he refuses to give a receipt; (4) When two or more persons claim the same right to collect; (5) When the title of the obligation has been lost.
The consignation shall be ineffectual if it is not made strictly in consonance with the provisions which regulate payment.
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ARTICLE 1256. If the creditor to whom tender of payment has been made refuses without just cause to accept it, the debtor shall be released from responsibility by the consignation of the thing or sum due.
ARTICLE 1257. In order that the consignation of the thing due may release the obligor, it must first be announced to the persons interested in the fulfillment of the obligation.
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SUBSECTION 3 - Tender of Payment and Consignation
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ARTICLE 1255. The debtor may cede or assign his property to his creditors in payment of his debts. This cession, unless there is stipulation to the contrary, shall only release the debtor from responsibility for the net proceeds of the thing assigned. The agreements which, on the effect of the cession, are made between the debtor and his creditors shall be governed by special laws.
(4) The tender must be made at the time the obligation is due; and (5) The tender must be unconditional. Aside from triggering delay on the part of the creditor, tender can also pave the way for consignation which in turn, if found by the court to have been properly made may result in the extinguishment of the obligation. Art. 1256 enumerates the instances where we do NOT make a tender of payment prior to making consignation.
Before the creditor has accepted the consignation, or before a judicial declaration that the consignation has been properly made, the debtor may withdraw the thing or the sum deposited, allowing the obligation to remain in force. ARTICLE 1261. If, the consignation having been made, the creditor should authorize the debtor to withdraw the same, he shall lose every preference which he may have over the thing. The co-debtors, guarantors and sureties shall be released. o
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Why is it better to consign instead of tendering to an incapacitated creditor? Why allow the debtor to effect consignation right away instead of making a tender of payment to an incapacitated creditor? Because making a tender of payment to an incapacitated creditor will not necessarily result in the extinguishment of the obligation should he receive the payment. The law makes a qualification. The obligation will only be extinguished to the extent that there has been benefit to the incapacitated payee or should he retain the thing that has been delivered. In the instance that there are two or more persons taking the same claim, the action for consignation should be coupled with an action for interpleader. When the debtor consigns, it presupposes that he knows who the creditor is, but in the case that there are two or more people fighting over the same thing, the
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ARTICLE 1262. An obligation which consists in the delivery of a determinate thing shall be extinguished if it should be lost or destroyed without the fault of the debtor, and before he has incurred in delay. When by law or stipulation, the obligor is liable even for fortuitous events, the loss of the thing does not extinguish the obligation, and he shall be responsible for damages. The same rule applies when the nature of the obligation requires the assumption of risk.
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A thing is considered lost, when it perishes, it goes out of commerce, or disappears in such a way that its existence is unknown or it cannot be recovered. Requisites: (1) The thing must be determinate; (2) The debtor must not be at fault; (3) The debtor is not in default; (4) The loss occurs after the perfection of the obligation. General Rule: Loss of the thing, if all requisites concur, will extinguish the obligation and will relieve the debtor from liability. Exceptions: (1) When the law expressly so provides; (2) When the parties expressly so stipulate; (3) When the nature of the obligation requires the assumption of risk; (4) When the debtor is guilty of concurrent negligence; (5) When the debtor is in mora; (6) When the debtor has promised to deliver the same thing to two or more different parties; (7) Where the obligation to deliver a determinate object arises from a criminal act, unless the creditor unjustly refuses; and (8) In obligations to deliver generic things.
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SECTION 2 - Loss of the Thing Due
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debtor is not certain who is entitled. To be safe, file an action for interpleader and at the same time consign the thing with the court. Requisites for a valid consignation: (1) A debt must be due; (2) Tender of payment and unjustified refusal to accept by the creditor; (3) Notice of consignation to all the parties interested; (4) Filing of the complaint against the creditor coupled with judicial deposit of the thing due with proof of tender and notice; (5) Notice after consignation to all the parties interested. Process of consignation: (1) There must be tender of payment, unless it is exempted; (2) There must be notice of the intention to consign to the creditor. The notice must already indicate where the debtor intends to make the consignation (First Notice); (3) Filing of the complaint against the creditor coupled with judicial deposit of the thing due with proof of tender and notice; (4) Notice to the creditor (Second Notice), and Notice to all persons interested; and (5) There will be a proceeding, where the debtor must establish that consignation is proper, that the obligation is existing; obligation is due; the debtor made a tender; and such tender was refused without justified reason. (6) After presentation of the evidence of the debtor and creditor, the debtor may call upon the court to make a declaration regarding the validity of the consignation. What is the purpose of the first notice? To give the creditor an opportunity to reconsider his unjustified refusal for him to accept the payment in order to avoid litigation because should the consignation become properly made, then the expenses incurred by the debtor in making consignation would be for the account of the creditor. What is the purpose of the second notice? To give the creditor the opportunity to protest the consignation. He may question the validity of the consignation. Prior to the judicial declaration of the validity of the consignation or prior to the creditor accepting the consignation, the debtor may still change his mind and take back the thing that he has consigned and allow the obligation to subsist. If the court finds that the consignation was properly made, then it will have the effect of extinguishing the obligation. Do not think that the obligation will be extinguished the moment the debtor filed a complaint in court. There must be a finding on the part of the court that the debtor has properly made a consignation.
ARTICLE 1263. In an obligation to deliver a generic thing, the loss or destruction of anything of the same kind does not extinguish the obligation. o
Exception: In case the generic object is to be taken from a specific mass or source.
ARTICLE 1264. The courts shall determine whether, under the circumstances, the partial loss of the object of the obligation is so important as to extinguish the obligation. ARTICLE 1265. Whenever the thing is lost in the possession of the debtor, it shall be presumed that the loss was due to his fault, unless there is proof to the contrary, and without prejudice to the provisions of article 1165. This presumption does not apply in case of earthquake, flood, storm or other natural calamity. ARTICLE 1266. The debtor in obligations to do shall also be released when the prestation becomes legally or physically impossible without the fault of the obligor.
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SECTION 3 - Condonation or Remission of the Debt
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Loss, in obligations to do, translate to impossibility of performance. If the impossibility of performance occurs at the time of the constitution of the obligation, it prevents the birth of the obligation since the object of the obligation is missing. If the impossibility of performance occurs at the time of execution or performance, then it will either extinguish the obligation or not depending on whether the same is imputable to the debtor or not. There is a presumption in the law when it comes to loss of the thing due while in the possession of the debtor. What is that presumption? If the thing is lost, it was due to the fault of the debtor. This presumption is rebuttable. Art.1267 is supposed to be an application of the Doctrine of Rebus Sic Stantibus. What does it mean? It means that when the parties entered into a contract they are presumed to have taken into consideration the circumstances prevailing at the time, so that in case later on the circumstances so materially change, making it difficult, but not impossible for the debtor to perform, the debtor may rescind the same. Art.1267 speaks of only of difficulty, not impossibility. What is involved in Art.1267 is that there is a change of circumstances of the parties as to make the service difficult in such a way that is manifestly beyond what was earlier contemplated by the parties. This is an embodiment of the Doctrine of Unforeseen Events, on the theory that, when a debtor enters into a transaction, he entered into the transaction based on the prevailing circumstances, so that if the circumstances drastically change as to make it so difficult as to be manifestly beyond what was earlier contemplated, then the obligation should be considered extinguished and the debtor is freed from the obligation either in full or in part. This is an extreme exceptional circumstance. We are not to apply Art.1267 liberally. Applying it liberally would impair the security of contracts.
If in order to nullify this waiver it should be claimed to be inofficious, the debtor and his heirs may uphold it by proving that the delivery of the document was made in virtue of payment of the debt. ARTICLE 1272. Whenever the private document in which the debt appears is found in the possession of the debtor, it shall be presumed that the creditor delivered it voluntarily, unless the contrary is proved. ARTICLE 1273. The renunciation of the principal debt shall extinguish the accessory obligations; but the waiver of the latter shall leave the former in force. ARTICLE 1274. It is presumed that the accessory obligation of pledge has been remitted when the thing pledged, after its delivery to the creditor, is found in the possession of the debtor, or of a third person who owns the thing.
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ARTICLE 1271. The delivery of a private document evidencing a credit, made voluntarily by the creditor to the debtor, implies the renunciation of the action which the former had against the latter.
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ARTICLE 1269. The obligation having been extinguished by the loss of the thing, the creditor shall have all the rights of action which the debtor may have against third persons by reason of the loss.
One and the other kinds shall be subject to the rules which govern inofficious donations. Express condonation shall, furthermore, comply with the forms of donation.
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ARTICLE 1268. When the debt of a thing certain and determinate proceeds from a criminal offense, the debtor shall not be exempted from the payment of its price, whatever may be the cause for the loss, unless the thing having been offered by him to the person who should receive it, the latter refused without justification to accept it.
ARTICLE 1270. Condonation or remission is essentially gratuitous, and requires the acceptance by the obligor. It may be made expressly or impliedly.
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ARTICLE 1267. When the service has become so difficult as to be manifestly beyond the contemplation of the parties, the obligor may also be released therefrom, in whole or in part.
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Condonation is an act of liberality whereby the creditor waives the enforcement of the obligation contracted in his favor. Is this similar to donation? Yes, it is essentially a donation, but a donation of credit. It is subject to the same rules of inofficious donations. And if we make an express donation, it is required that it must follow the form for donations. Requisites: (1) Capacities of the parties, i.e., creditor and debtor must have the capacity to make and accept donations; (2) Consent of the parties since remission is an agreement and requires acceptance by the obligors. The acceptance of the remission of the debt – all kinds of debts may be condoned whether pure or conditional or with a term. The remission must be gratuitous. In case of express remission, the formalities required by law for ordinary donation must be complied with. SECTION 4 - Confusion or Merger of Rights
ARTICLE 1275. The obligation is extinguished from the time the characters of creditor and debtor are merged in the same person. Civil Law Review II | Obligations and Contracts | UST Law
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o ARTICLE 1276. Merger which takes place in the person of the principal debtor or creditor benefits the guarantors. Confusion which takes place in the person of any of the latter does not extinguish the obligation.
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ARTICLE 1279. In order that compensation may be proper, it is necessary: (1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other; (2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated; (3) That the two debts be due; (4) That they be liquidated and demandable; (5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor. On the 5th requisite, there must be no writ of garnishment or levy that has been issued against any one of the parties which will prevent them from effecting payment. Once all of these requisites concur, compensation will take place as a matter of law. The parties need not even be aware that compensation has taken place. If they only become aware of it after the compensation has taken place, then either one of them can invoke it and the same will be recognized as having occurred as of the time the requisites concurred.
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ARTICLE 1278. Compensation shall take place when two persons, in their own right, are creditors and debtors of each other.
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What is Confusion or Merger? Meeting in one person of the qualities of creditor and debtor of the same obligation. Requisites: (1) It must take place between the creditor and the principal debtor; (2) It must be complete and definite. How many obligations are involved in confusion? One obligation. Only this time the creditor and debtor are the same person. Does it always start that there is only one obligation? No. How can we have confusion or merger? Example: Mr. Sison issued a promissory note to Ms. De Guia who in turn issued the same to Ms. Dizon who then issued the same promissory note to Mr. Sison. And now Mr. Sison is the holder of the promissory note which he also issued. On that strength, he is now the debtor and the creditor under the promissory note, so the obligation should be considered extinguished. If the obligation has an accessory obligation and the principal obligation is extinguished by virtue of the confusion or merger, what happens to the accessory obligation? It will be extinguished because the accessory cannot exist without the principal obligation. If the obligation is secured by a guaranty and the obligation is extinguished by remission, the guarantor would be benefitted because he would have to be released. But supposing that the confusion does not take place in the person of the creditor and debtor, but it takes place in the person of the guarantor, what would be the effect of his acquisition of credit on the principal obligation and on the contract of guaranty? There is no confusion affecting the principal obligation. What we have is assignment of credit, such that the guarantor is now replacing the creditor. Given that the guarantor becomes the creditor, what happens in the contract of guaranty? Extinguished. The creditor cannot be his own guarantor. It will be absurd. The idea of guaranty is that it requires that it should be given by a person other than the debtor, and mostly other than the creditor. Can confusion be revoked? Yes, because it takes place by agreement of the parties. It does not always take place by operation of law. Confusion on joint obligations will not extinguish the obligation, only the part of the debtor whose personality the creditor and debtor merged.
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SECTION 5 - Compensation
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ARTICLE 1277. Confusion does not extinguish a joint obligation except as regards the share corresponding to the creditor or debtor in whom the two characters concur.
If the obligation is solidary, the confusion will extinguish the entire obligation, However, the solidary debtors will have to reimburse the person to whom such confusion happened.
ARTICLE 1280. Notwithstanding the provisions of the preceding article, the guarantor may set up compensation as regards what the creditor may owe the principal debtor. ARTICLE 1281. Compensation may be total or partial. When the two debts are of the same amount, there is a total compensation. ARTICLE 1282. The parties may agree compensation of debts which are not yet due.
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ARTICLE 1283. If one of the parties to a suit over an obligation has a claim for damages against the other, the former may set it off by proving his right to said damages and the amount thereof. ARTICLE 1284. When one or both debts are rescissible or voidable, they may be compensated against each other before they are judicially rescinded or avoided. ARTICLE 1285. The debtor who has consented to the assignment of rights made by a creditor in favor of a third person, cannot set up against the assignee the compensation which would pertain to him against the assignor, unless the assignor was notified by the debtor at
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ARTICLE 1288. Neither shall there be compensation if one of the debts consists in civil liability arising from a penal offense. ARTICLE 1289. If a person should have against him several debts which are susceptible of compensation, the rules on the application of payments shall apply to the order of the compensation. ARTICLE 1290. When all the requisites mentioned in article 1279 are present, compensation takes effect by operation of law, and extinguishes both debts to the concurrent amount, even though the creditors and debtors are not aware of the compensation . o How is confusion or merger different from compensation? Confusion or merger involves only one obligation, whereas compensation involves two obligations. o Compensation is the extinction in the concurrent amounts of the obligations of those persons who are mutually debtors and creditors of each other. Example: A obligated himself to deliver 5k to B. B obligated himself to deliver 10k to A. There is compensation up to the concurrent amount. o Different kinds of compensation: (1) Legal – it takes place by operation of law; (2) Conventional – when the parties agree to the compensation of the mutual obligations even though all the requisites required by law for compensation are not present; (3) Judicial – when compensation is decreed by the court when there is a counterclaim or set-off interposed by a party; and (4) Facultative – when the compensation can be claimed by the party who can oppose it and who is the only party prejudiced by the compensation. o Judicial Compensation happens when there is a counterclaim filed by the plaintiff. At the end of the trial, while the court may find for the plaintiff that he is entitled to recover something from the defendant, the court might as well find that the defendant is entitled to some of his counterclaim. Instead of asking the plaintiff to pay so much to the defendant, the defendant being also allowed to recover so much from the plaintiff, the court may, by virtue of judicial compensation, deduct the amounts due to the defendant from the amount he has to pay to the plaintiff. o In Conventional Compensation, why would the parties have to come into agreement? Conventional compensation may be relevant if anyone of the
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What can happen if there is any assignment of credit that has been made? How will this affect the capacity of either one of the parties to invoke compensation? Art. 1285. The thing with assignment is that, unlike subrogation, assignment does not require the consent of the debtor. The creditor can assign his credit as against the debtor to an assignee without need of getting the debtor's consent. In lieu of consent, only notice has to be given by the creditor to the debtor. The purpose of the notice is not to make the assignment valid but to bind the debtor. We said that compensation takes place by operation of law. The turning point there is the giving of notice. Because once notice is given or once knowledge of the assignment is made, that will be the cut-off point, beyond which no compensation may be invoked. If B made an assignment to E, after both obligations became due, then there is legal compensation. Since no notice of assignment was made to A, then A can still invoke the compensation that has taken place because he still has every right to treat the credit as still belonging to B. But once notice is given to him, he is already bound by the assignment and he can no longer treat the credit as belonging to B but already belonging to E. The important thing to look out is when notice is given and the notice in relation to when the compensation takes place. If the compensation takes place ahead of notice, A can invoke compensation after learning of the assignment because the compensation preceded the assignment. If there is no notice given, we abide by the same rule. Once there is knowledge of the assignment, he can no longer invoke any compensation that may take place after the knowledge of the assignment. As we have said, there is no need to get the consent of the debtor, but if the creditor gets the consent, the debtor should grab the opportunity to make reservation with regard to his right to invoke compensation. Why is it important to preserve the right to compensation? Because compensation is a sure thing in terms of payment. If the debtor will let go of the compensation, he has to wait for payment, on which there is no certainty.
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Neither can compensation be set up against a creditor who has a claim for support due by gratuitous title, without prejudice to the provisions of paragraph 2 of article 301.
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If the assignment is made without the knowledge of the debtor, he may set up the compensation of all credits prior to the same and also later ones until he had knowledge of the assignment.
ARTICLE 1287. Compensation shall not be proper when one of the debts arises from a depositum or from the obligations of a depositary or of a bailee in commodatum.
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If the creditor communicated the cession to him but the debtor did not consent thereto, the latter may set up the compensation of debts previous to the cession, but not of subsequent ones.
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the time he gave his consent, that he reserved his right to the compensation.
ARTICLE 1286. Compensation takes place by operation of law, even though the debts may be payable at different places, but there shall be an indemnity for expenses of
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SECTION 6 - Novation
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ARTICLE 1291. Obligations may be modified by: (1) Changing their object or principal conditions; (2) Substituting the person of the debtor; (3) Subrogating a third person in the rights of the creditor . o What is novation? The substitution or alteration of an obligation by a subsequent one that cancels or modifies the preceding one. o It is a juridical act with a dual function of extinguishing an old obligation and the creation of a new obligation that will replace the old obligation. o Novation is a peculiar means of extinguishing an obligation, because, we extinguish an old obligation by creating a new one. o The purpose of novation is extinguishment. However, the wording in our law does not appear to limit the effects of novation to extinguishment. If we pay attention to the wording of Art.1291, the law says, “Obligations may be modified.” This itself is an acknowledgment that we can have a novation although the purpose is not really extinguishment but mere modification. o Kinds of novation: (1) Real or objective, where there is a change in the obligation itself as to its cause, object or principal conditions; (2) Personal or subjective, where the change is in the parties; (3) Mixed, where there is a change of both the object and the parties in the obligation. o Personal or subjective, there is a change in the person of either the creditor or debtor. If there is a change in the person of the creditor (active), we call it subrogation. If there is a change in the person of the debtor (passive), it is either expromission or delegacion. o Requisites: (1) An old valid obligation; (2) A new valid obligation; (3) Substantial difference between the old and new obligation; (4) Capacity of the parties; and
(5) Animus novandi. The first requisite is that there must be a prior obligation which must not be invalid. It may be voidable, rescissible, natural obligation, what we cannot have is an invalid or void obligation as a subject of novation, why not? If there is no valid prior obligation, then there is nothing to extinguish or more specifically to novate because an old obligation is an inexistent obligation. Real or Objective Novation: This change in the principal condition of the object of the obligation is more relevant if our novation is implied. For lawyers, they will just make the novation expressly. The problem would be when there is no such express stipulation. When we need to infer from the circumstances that there was an intention to novate. That's why in this case, we need to look at the changes in the principal condition of the contract. The only thing we need to know is that the essence of the contract must change so that the new contract should be essentially incompatible with the old contract. This should be our standard. Example: In a construction of a house, this will take months before it is completed. In the course of the construction, the owner will come up with ideas that will be deviating from the original design. At first, the owner wants one car garage. After two months, the owner wants a two-car garage. At first, the owner does not want a balcony. After several months, he wants a balcony. Would these changes amount to the extinguishment of the original contract? Such that the contractor can now charge the owner, no longer based on the original agreement but on quantum meruit, which would be higher than what was agreed upon. Will the contractor be justified? In a decided case, the Supreme Court said, “No, because essentially, it is the same contract. In making those additions and deletions, the owner is simply modifying/amending the contract. Is the owner entitled to do that (amend/modify)? Yes. But in introducing those modifications, did the owner intend to extinguish the original contract? No, so it goes to the intention as reflected by the circumstances. If we could still recognize our contract (the one originally agreed upon), then there is no novation that is effected. In obligations involving sums of money, the Supreme Court said that any extension of the period or any restructuring of the loan or any change in the rate of interest, does NOT amount to a novation. In one case, there was a loan that was secured by a chattel mortgage. The bank and the company entered into a subsequent agreement, where the company provided for an additional security, a real estate mortgage. The bank tried to foreclose the chattel mortgage. The company objected saying that the obligation has been extinguished because of the execution of the real estate mortgage. The Supreme Court said, "No, there is no incompatibility between
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requisites for legal compensation may not be present. To correct the absence of such requisites, we may have the parties agreeing to effect a conventional compensation. Facultative compensation is a specie of conventional compensation. Why is it a specie? Because it is also by agreement of the parties only this time that we recognize that the option to call the compensation applies to only one party. Which party is this? The party entitled to resist the compensation. It may happen that one obligation is already due and demandable while the other is still subject to a period. But the period is for the benefit of the debtor. If that person so chooses, he can simply waive the period to make way for the compensation to take place.
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having a chattel mortgage to secure the obligation and
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If we have a judgment of credit that has been affirmed by the court and instead of asking for a writ of execution, the creditor entered into an agreement with the debtor, where the debtor acknowledged the indebtedness and provides for a mortgage to secure the same, the creditor will not be stopped from asking for that writ of execution because that old obligation (judgment credit) has not been extinguished by novation. There is only an added security. Such principle also applies to novation through substitution of debtors. If we get another debtor but we did not free the old debtor, then that means no novation is effected. For novation to take place, in the substitution of the old debtor, the old debtor must be freed from liability by the creditor. It all boils down to intention. In the absence of express stipulation, we need to look at the circumstances surrounding the obligations. What will be our standard? There should be incompatibility between the old and the new obligation, they must not be able to stand up together.
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ARTICLE 1293. Novation which consists in substituting a new debtor in the place of the original one, may be made even without the knowledge or against the will of the latter, but not without the consent of the creditor. Payment by the new debtor gives him the rights mentioned in articles 1236 and 1237.
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ARTICLE 1294. If the substitution is without the knowledge or against the will of the debtor, the new debtor's insolvency or non-fulfillment of the obligation shall not give rise to any liability on the part of the original debtor. ARTICLE 1295. The insolvency of the new debtor, who has been proposed by the original debtor and accepted by the creditor, shall not revive the action of the latter against the original obligor, except when said insolvency was already existing and of public knowledge, or known to the debtor, when he delegated his debt.
ARTICLE 1296. When the principal obligation is extinguished in consequence of a novation, accessory obligations may subsist only insofar as they may benefit third persons who did not give their consent. ARTICLE 1297. If the new obligation is void, the original one shall subsist, unless the parties intended that the former relation should be extinguished in any event. ARTICLE 1298. The novation is void if the original obligation was void, except when annulment may be claimed only by the debtor, or when ratification validates acts which are voidable. o
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Another significance of the mode of substitution of the debtor would be on the point of liability of the insolvency of the new debtor. If we would read Arts.1294 and 1295, we will get the impression that Art.1294 pertains to all instances of expromission just because Art.1295 appears to be pertaining to delegacion. The problem with Art.1294 is that it equates expromision, apparently, with all instances whether it’s tacit approval or consent on the part of the debtor,
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which we said earlier that it is not always the case. There would be no problem, except if we would imply in Art.1295 that the debtor who actually volunteers a third person has less liability for that third person’s insolvency. Compared to a debtor who did not volunteer the third person but may have merely tacitly given his approval to the assumption by the third person of his indebtedness. Why do we say this? Because in Art.1295, the law says that there would be no revival of the obligation of the original debtor in case of the insolvency of the new debtor except if when said insolvency was already existing and of public knowledge, or known to the debtor when he delegated his debt. General Rule: No liability anymore. Exceptions: (1) When said insolvency was already existing and of public knowledge; (2) When said insolvency was known to the debtor, when he delegated his debt. Compare this to Art.1294 which says that if it is by expromission, then the old debtor will be liable for his own obligation, but what did the old debtor do in expromission? He was not the one who chose the new debtor. Why should he be more liable as compared to the debtor who volunteered, who had presented the new debtor to the creditor? The better interpretation here according to prominent authorities would be to exempt an old debtor for any liability in case of non-payment by the new debtor in all cases of expromision regardless of whether or not he gave his tacit approval to the substitution. In expromission, the old debtor will not be liable at all for the insolvency of the new debtor.
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at the same time having an additional real estate mortgage to secure the same obligation. What we have is simply an additional security.”
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If the law requires that the old obligation be valid, how do we explain the tenor of Art.1298 which seems to imply that you can actually have an old obligation that is void so long as it falls under the two exceptions provided in Art.1298? Art.1298 speaks about an obligation which is voidable, not void. And a voidable obligation is a valid obligation. It is valid until it is annulled. Until when can you ask for the novation of a voidable old obligation? Before it is annulled, because once it is
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If the only difference between the old and the new obligation is the suppression of the condition, then we do not have a novation, we simply have a modification. The parties can do that (suppress the condition). Agreements are subject to amendments or modification. However, there is one instance where the law goes out of its way to specifically require that the new obligation should be subject to the same condition. And this is when the old obligation is subject to a suspensive condition. The law says that the new obligation should be subject to the same condition. And this rule is made to apply not just in the case of an obligation subject to a suspensive condition but also to one subject to a resolutory condition. If we are going to novate this, then the law says, that the new obligation must be subject to a resolutory condition as well. Why does the law make such requirement? Novation is premised on the efficacy of the prior obligation. That is why it is one of the requirements that we must have a prior valid obligation. Otherwise, logic tells us that there is nothing to extinguish by novation. If our prior obligation is subject to a suspensive condition, we all know that the obligation does not exist until the condition is fulfilled. And if we will have a new obligation that is not subject to the same condition, it may happen that we already have the new obligation but our prior obligation has not yet come to life so to speak, pending the fulfillment of the condition. Does it make it invalid or wrong if we subject them to different conditions? No, do not be misled into thinking that novation will become impossible or the novation in this case will be invalid. But it will be inconvenient. It is much more convenient if we subject them to the same condition because the moment the condition is fulfilled, that is the same moment that our prior obligation will come to life. Simultaneous to its birth, is also its extinguishment because of the concurrent work of the new obligation. Instantaneous, the prior obligation will be created upon the happening of the condition and at the same time it will be extinguished. No need for us to reckon the period or the term when the prior obligation existed. No need for us to account to any intervening gaps of time between the creation of the prior obligation and its extinguishment. Same principle if the prior obligation is subject to a resolutory condition. If it is resolutory in character that means it will only exist to a certain period of time, then it may be extinguished in some point by the fulfillment of the resolutory condition. And if that happens, we no longer have any obligation. It has been extinguished. Again for convenience, it is easier for us to reckon the effects of the novation if we subject it to the same condition. But as we know, life is not simple. We may encounter clients who do not want things to be done simply. They may insist on different conditions. Is that invalid? No. Does that prevent novation? No, because the law itself provides for a qualification, “unless the parties stipulate
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annulled, it is set aside and there is no obligation that can be the subject of novation. When do we apply the exceptions provided for in Art.1298? The law had to provide for these exceptions because we have a voidable obligation and there is a period to ask for an annulment. Basically, it’s four years. Within that four-year period, a lot of things can happen. If we ask for novation, what will be our assurance that there would be no annulment that will take place after we ask for novation? We have to place some kind of cut-off period. Some kind of assurance that the obligation will no longer be allowed and therefore there will be no cloud of doubt on the novation that we have effected. And this will take place if the obligation has been ratified because the effect of ratification on a voidable obligation is that it cleanses the obligation from all of its defects. Ratification is a bar to annulment. Another instance in Art. 1298 is if the ground for annulment is one which can only be invoked by the debtor and the novation is effected with the consent of the debtor. So by consenting, he is in effect ratifying the voidable obligation; which again clears the way for a valid novation of the obligation. So the exceptions are: (1) When annulment may be claimed only by the debtor; and (2) When ratification validates acts which are voidable. It is also required that the second obligation be valid. It should not be void. What happens if the new obligation is void? Do we have a novation? There will be no novation and the old obligation will subsist unless the parties intended that the former relation should be extinguished in any event. How do we determine if there is animus novandi or intention to novate? It may be express or implied. Express, when the parties so state in the new obligation; and Implied if it can be implied from the fact that the old and new obligations are on every point incompatible with each other. Still on the relationship between the old obligation and new obligation, is it a requirement that the new obligation take on the same nature as the old obligation? So if the old obligation was pure and we want to novate it, are we required to make the new obligation pure as well? No requirement. However, the law specifies if the original obligation was subject to a suspensive or resolutory condition, the new obligation shall be under the same condition, unless it is otherwise stipulated. The law says that the new obligation does not have to take the nature or character of the old obligation. So it is possible that we have an old obligation that is pure and the new obligation will be subject to a condition or period. However, if our old obligation is once subject to a condition and the new obligation is the same obligation, only this time, without a condition, we do not have a novation.
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Expromission is when a third person, distinct from the creditor and debtor spontaneously assumes the obligation of the debtor, relieving him of the same, with the creditor accepting the change without any intervention on the part of the original debtor. The act of the third person in volunteering to substitute for the debtor may either be with or without the consent or approval of the debtor. Do not make the mistake of equating expromision with lack of consent on the part of the debtor. It is possible that there is tacit consent or approval even in expromission. Delegacion is that which takes place when the old debtor presents a third person who will assume the obligation, relieving the debtor of the same, and with the change being accepted by the creditor. In delegacion, this is obviously with the consent and with the knowledge of the debtor because after all he is the one who presents the third person to the creditor as his substitute. Is it significant that the substitution of the debtor is thru expromission or delegacion? Yes. It becomes significant in so far as the rights of the third person are concerned. Depending on whether or not, it is with the consent or without the consent of the debtor. This comes back to the rule on payment made by a third person. If the third person pays and the payment is accepted by the creditor, then his right against the debtor will all depend on whether or not there was consent on the part of the debtor regarding the payment that he made. If there was consent, then he is not just entitled to a reimbursement of what he has paid but he is further entitled to be subrogated to the rights of the creditor. If it is without the consent, then only right is to be reimbursed not for what has been paid but only to the extent that his payment may have benefited the debtor.
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otherwise." So the parties are allowed to stipulate otherwise. Example: The first condition is passing the bar exams. The new obligation was made subject to a different condition: birds falling down from the sky. For those who are cynical, the probability of birds falling down from the sky will be greater than the probability of passing the bar. What do we do now? How will we determine when novation takes place? We look into the conditions, are they incompatible? No, there is no incompatibility between passing the bar and having birds falling down from the sky. What this implies is that, we need both conditions to be fulfilled before we can say that novation has been effected. We have to wait. That is the downside because passing the bar is to take place next year. But when there will be another instance of birds falling down the sky? Another ten (10), twenty (20) years? So in the meantime, we have this period of time, where the obligation is in limbo, because we are awaiting for the effectivity or for the birth of the new obligation that will extinguish the prior obligation. What if the conditions are not just different but downright incompatible: Let’s say the first condition is passing the bar. The new obligation’s condition is failing the bar. Obviously, these are incompatible. In this case, authorities believe that it becomes very clear that there is an intention to suppress the prior obligation. Such that we will only wait for the fulfillment of the condition attaching the second obligation. Recap: For convenience, it is better that both obligations (prior and new) are subject with the same condition. But if we want to complicate our lives, we can have different conditions. It is inconvenient, but the same is legally possible. In this instance, we need to look at the incompatibility of the conditions: (1) If both conditions are compatible (they can stand together), then the requirement is that both must be fulfilled; (2) If the conditions are incompatible, then we take that as a clear intention to suppress the prior obligation and we just have to await for the fulfillment of the condition attaching to the new obligation. Kinds of novation: (1) Real or objective, where there is a change in the obligation itself as to its cause, object or principal conditions; (2) Personal or subjective, where the change is in the parties; (3) Mixed, where there is a change of both the object and the parties in the obligation. Personal or subjective novation may either be passive or active: (1) Passive for the debtor, which in turn may be classified into expromision, and delegacion; (2) Active for the creditor.
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ARTICLE 1299. If the original obligation was subject to a suspensive or resolutory condition, the new obligation shall be under the same condition, unless it is otherwise stipulated. ARTICLE 1300. Subrogation of a third person in the rights of the creditor is either legal or conventional. The former is not presumed, except in cases expressly mentioned in this Code; the latter must be clearly established in order that it may take effect. o
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Subrogation is very similar to assignment of credit. It has the same effect which is the substitution of a third for the old creditor. So where do we draw the line? When is a substitution a mere assignment and when is it an actual subrogation? Subrogation is much more complicated to carry out. After all, it brings about the extinguishment, supposedly, of an old obligation and then the creation of a new obligation. Subrogation requires the consent of all the parties (third person, creditor, and debtor); whereas in Assignment, we do not need the consent of the debtor but the
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Legal subrogation cannot be presumed, but in Art.1302, we are given exceptions to this rule. Art.1302 enumerates the instances where legal subrogation may be presumed to exist.
ARTICLE 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them. ARTICLE 1309. The determination of the performance may be left to a third person, whose decision shall not be binding until it has been made known to both contracting parties. ARTICLE 1310. The determination shall not be obligatory if it is evidently inequitable. In such case, the courts shall decide what is equitable under the circumstances.
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ARTICLE 1307. Innominate contracts shall be regulated by the stipulations of the parties, by the provisions of Titles I and II of this Book, by the rules governing the most analogous nominate contracts, and by the customs of the place.
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ARTICLE 1302. It is presumed that there is legal subrogation: (1) When a creditor pays another creditor who is preferred, even without the debtor's knowledge; (2) When a third person, not interested in the obligation, pays with the express or tacit approval of the debtor; (3) When, even without the knowledge of the debtor, a person interested in the fulfillment of the obligation pays, without prejudice to the effects of confusion as to the latter's share.
ARTICLE 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy.
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ARTICLE 1301. Conventional subrogation of a third person requires the consent of the original parties and of the third person.
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ARTICLE 1303. Subrogation transfers to the person subrogated the credit with all the rights thereto appertaining, either against the debtor or against third persons, be they guarantors or possessors of mortgages, subject to stipulation in a conventional subrogation.
ARTICLE 1304. A creditor, to whom partial payment has been made, may exercise his right for the remainder, and he shall be preferred to the person who has been subrogated in his place in virtue of the partial payment of the same credit.
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ARTICLE 1305. A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service.
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The definition in the law has been criticized for being limited in its focus. It emphasizes the role of the obligor and not much in the role of the obligee. The definition is also limited to only one kind of contract-consensual. A juridical convention manifested in legal form, by virtue of which, one or more persons bind themselves in favor of another, or others, or reciprocally to the fulfillment of
If a contract is entered into by the parties whereby one of them is given the power to terminate the contract by simply giving notice to the other contracting party, would this be violative of the characteristic of mutuality of contracts? No. It has been defined that mutuality of contracts will be limited only to matters pertaining to creation as well as the performance of the obligation under the contract. By having agreed to let the other party have the power to terminate the contract presupposes that there is already mutuality. “Kaya lang
naman tayo nagkaroon ng ganung stipulation because the parties came to an agreement.” So that in enforcing
TITLE II: Contracts CHAPTER 1: General Provisions
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a prestation to give, to do, or not to do. (Sanchez Roman). What are the characteristics of contracts? (1) Autonomy of the will of the parties; (2) Obligatory force; (3) Mutuality of contracts; (4) Relativity of contracts.
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debtor must be given a notice. The assignment takes effect only upon notification. But consent is not required for the validity of the assignment. The notice to him is only for the purpose of giving effect to the assignment. Subrogation would cleanse the old obligation of whatever defects it may have because it is extinguished and replaced by a new obligation. In assignment, it does not have that effect (as provided above) because essentially we are just transferring the same bundle of rights and obligations under the contract to a third person. So the third person takes it as is. Same defenses, vices, all these will still be present. And any vice or defect may still be invoked against the creditor by the debtor.
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that stipulation allowing one of the parties to terminate the contract is giving effect to what has been agreed upon. Relate the rule on mutuality to the potestative condition. How can potestative condition be violative of the rule on mutuality of contracts? Potestative condition is dependent upon the will of one of the parties. If the condition is purely potestative and suspensive, it is void, because the determination of the effectivity is on the debtor who is less interested in the fulfillment of the obligation. Would there be exceptions to this characteristic of mutuality of contracts? Yes. The law recognizes that a third person may be given a power to determine the performance of the contract. It is likewise provided that such determination will not be given effect in case it is inequitable or unjust.
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The law itself provides for an exception or for those instances when the contract will only bind the parties and not bind their heirs or assigns. These exceptions pertain to the exclusion of heirs and assigns from being bound by the contract. When these exceptions apply, then only the parties will be bound by the contract that they entered into. But relativity of contract, as a concept, means that the parties, their heirs and assigns are bound by the contract. So when we speak of exceptions to the principle of relativity of contracts, we do not refer to those instances involving intransmissible rights. What are the exceptions to the principle of relativity of contracts? (1) Stipulation pour atrui; (2) Contracts creating real rights; (3) Contractual interference; (4) Whenever a contract is entered into to defraud a creditor or accion pauliana. Requisites of Stipulation Pour Atrui: (1) That the contracting parties must have clearly and deliberately conferred a favor upon the third person; (2) That there should be no compensation for the stipulation in favor of the third person; (3) That the stipulation in favor of the 3rd person should not be the entire contract but merely a part thereof; (4) That neither of the contracting parties bear the legal representation or authorization of the 3rd person, that is, there is no agency; (5) That the 3rd person communicated his acceptance to the obligor before its revocation by the original parties. There must be a contract between the parties. The contract must confer a direct benefit in favor of a 3rd person. The benefit must NOT be incidental only; it must be a direct benefit. There must be acceptance that must be communicated before the stipulation is revoked by the parties. When we say that the acceptance must be communicated, how should be the acceptance be made? It can be express or implied. How can we have an implied acceptance of a favorable stipulation? It can be implied from the fact that the party-
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If a contract should contain some stipulation in favor of a third person, he may demand its fulfillment provided he communicated his acceptance to the obligor before its revocation. A mere incidental benefit or interest of a person is not sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a third person.
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beneficiary brings a suit to enforce the right made in his favor. Example of Stipulation Pour Atrui: Insurance contract. The insured named someone else as his beneficiary. The contract is between the insured and the insurance company, but the benefit is for a 3rd person. Real rights are rights which follow the property affected by them wherever they go. Any possessor of a property affected by real rights would also be bound by these real rights even though they were not parties to the transaction giving to the real rights. Example: Mortgage. If the property is mortgaged and such property is sold from one person to another, the present possessor cannot complain if the mortgaged property is foreclosed and was deprived of its possession. He cannot invoke relativity of contracts to defeat the mortgage because this is an exception. It is an exception because a contract of mortgage creates real rights. Take note on how the law qualifies the rule by referring to the applicability of the mortgage law and the land registration law. To put it simply, it only means that to bind 3rd persons, we also have to observe the rules pertaining to the Torrrens system. And what is that rule? The 3rd person can rely on what appears and what does not appear on the Torrens title. So to be bound on a real right affecting registered property, the real right must also be recorded in the title of the property; otherwise, it will not bind 3rd persons.
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ARTICLE 1311. Contracts take effect only between the parties, their assigns and heirs, except in case where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by provision of law. The heir is not liable beyond the value of the property he received from the decedent.
ARTICLE 1312. In contracts creating real rights, third persons who come into possession of the object of the contract are bound thereby, subject to the provisions of the Mortgage Law and the Land Registration Laws. ARTICLE 1313. Creditors are protected in cases of contracts intended to defraud them. ARTICLE 1314. Any third person who induces another to violate his contract shall be liable for damages to the other contracting party. o
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What are the requisites of contractual interference? (1) The existence of a valid contract; (2) Knowledge by the 3rd person of the existence of the said contract; (3) Interference by the person in the contractual relation without legal justification. Example: Kapamilya vs. Kapatid - exclusive artist of which studio. Let’s say, Sharon Cuneta. She made a switch from Channel 2 to Channel 5. Assuming that Sharon Cuneta has a contract with Channel 2, if Channel 5 went out of its way to induce Sharon Cuneta to disregard her contract with Channel 2 and enter into a contract with them, then that will be contractual interference because Channel 5 persuaded this party (Sharon Cuneta) to the contract to disregard her existing contract with the other party. The elements are all present. The element of knowledge of the other party is
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ARTICLE 1317. No one may contract in the name of another without being authorized by the latter, or unless he has by law a right to represent him. A contract entered into in the name of another by one who has no authority or legal representation, or who has acted beyond his powers, shall be unenforceable, unless it is ratified, expressly or impliedly, by the person on whose behalf it has been executed, before it is revoked by the other contracting party.
CHAPTER 2: Essential Requisites of Contracts General Provisions
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Is there a contractual interference? Yes. Would there be liability for damages? Yes, because in this case, Ms. Velasco is motivated not by the "furtherance of her own business interest,” but to get back at her former talent, Mr. Ang." Stages in the life of a contract: (1) Preparation, conception or generation – the period from the start of negotiations till the moment just before the agreement of the parties; (2) Perfection or Birth of the contract – the precise moment when the parties come into agreement on the terms of the contract; and (3) Consummation or death – the date when the contract is fully executed, that is, when the terms agreed upon in the contract are completely fulfilled or formed. When does the perfection take place? Basically, there is a meeting of the minds – those contracts are consensual. There is acceptance. There is a meeting of the offer and acceptance.
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What are Real Contracts? Those which, in addition to the consent, require the delivery of a thing by one of the parties to the other. What are Formal Contracts? Those contracts which must comply with the certain formalities prescribed by law, for its enforceability. Example: Contract of Donation of Real Property. Innominate Contracts – contracts which have no designated name.
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ARTICLE 1316. Real contracts, such as deposit, pledge and commodatum, are not perfected until the delivery of the object of the obligation.
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essential because if there is no knowledge, then there is no interference to speak of. The 3rd element is what we need to determine whether it exists – that there be no legal justification for the interference. What will be the motive of Channel 5 in pirating Sharon Cuneta? To further their business interest. The Court has already ruled that if that is the motivation for effecting the contractual interference to further the business interest, then the party is guilty of contractual interference, but he may NOT be liable for damages because furthering your own interest is considered as a legally-justified reason. When will there be liability for damages? If the interferer is motivated by bad faith. Example: Ms. Velasco was the manager of Mr. Ang. Mr. Ang left Ms. Velasco, he did not renew his contract with Ms. Velasco. Then Mr. Ang and Ms. Reyes-Vega entered into a management contract with her. What Ms. Velasco did is, “sinulsulan nya si Ms. Reyes-Vega, to drop
ARTICLE 1315. Contracts are perfected by mere consent, and from that moment the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law. o
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Obligatory Force – 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. This is usually expressed with a statement, “that the contract constitutes the law between the parties.” They are bound on what they have stipulated and they cannot renege on what they have agreed to simply because they have changed their minds.
ARTICLE 1318. There is no contract unless the following requisites concur: (1) Consent of the contracting parties; (2) Object certain which is the subject matter of the contract; (3) Cause of the obligation which is established. o
Elements of a Contract: (1) Essential Elements – those without which there can be no contract; (2) Natural elements – those which are part of the contract without need for the parties to stipulate upon them; and (3) Accidental Elements – those elements which the parties must stipulate upon. If they fail to stipulate upon them, then it will not exist in the contract. Example: conditions, periods. SECTION 1: Consent
ARTICLE 1319. Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes a counter-offer. Acceptance made by letter or telegram does not bind the offerer except from the time it came to his knowledge. The contract, in such a case, is presumed to have been entered into in the place where the offer was made.
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This refers to the meeting of the minds between the parties. The meeting of offer and acceptance. We are supposed to be adhering to Cognition Theory when it comes to consent. What is cognition theory? Cognition means that the acceptance only becomes binding upon knowledge of the person who has made the offer. So that means, if the acceptance is made by a letter, then the acceptance will not bind the offeror until the letter reaches him. What is the significance? Until he is bound by the acceptance, he can still withdraw the offer. What happens if consent is accepted by with qualification? It means that the negotiations are still ongoing. Only when there is absolute and unqualified acceptance of the offer, then we can say that there is consent.
ARTICLE 1320. An acceptance may be express or implied. ARTICLE 1321. The person making the offer may fix the time, place, and manner of acceptance, all of which must be complied with.
(1) It should be intelligent, that is, the same is not vitiated by error or mistake; (2) It should be free and voluntary, that is, not vitiated by violence, intimidation or undue influence; (3) It should be spontaneous, that is, not vitiated by fraud; and (4) It should be real, that is, the consent is not simulated or given as a joke. ARTICLE 1328. Contracts entered into during a lucid interval are valid. Contracts agreed to in a state of drunkenness or during a hypnotic spell are voidable. ARTICLE 1329. The incapacity declared in article 1327 is subject to the modifications determined by law, and is understood to be without prejudice to special disqualifications established in the laws. ARTICLE 1330. A contract where consent is given through mistake, violence, intimidation, undue influence, or fraud is voidable. o
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ARTICLE 1323. An offer becomes ineffective upon the death, civil interdiction, insanity, or insolvency of either party before acceptance is conveyed.
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ARTICLE 1324. When the offerer has allowed the offeree a certain period to accept, the offer may be withdrawn at any time before acceptance by communicating such withdrawal, except when the option is founded upon a consideration, as something paid or promised. ARTICLE 1325. Unless it appears otherwise, business advertisements of things for sale are not definite offers, but mere invitations to make an offer.
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ARTICLE 1326. Advertisements for bidders are simply invitations to make proposals, and the advertiser is not bound to accept the highest or lowest bidder, unless the contrary appears. ARTICLE 1327.The following cannot give consent to a contract: (1) Unemancipated minors; (2) Insane or demented persons, and deaf-mutes who do not know how to write. o
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Would it still be correct to use the term unemancipated minor? Not anymore, right now emancipation equals capacity to act. Being emancipated means that you already have capacity to act. And being emancipated means that you are no longer a minor. What will be the effect of the status of the contract if one of the parties happens to be incapacitated? Voidable. Characteristics of consent:
It may also happen that there is capacity to act but a vice of consent affects the contract reducing it to a voidable status. What are these vices of consent? What is the difference between reluctant consent and vitiated consent? (1) Reluctant Consent – consent against your better judgment. But it is still consent nonetheless. It will still be valid consent. (2) Vitiated Consent – defective consent for lack of voluntariness. You would not have given your consent were it not for the vices of consent present.
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ARTICLE 1322. An offer made through an agent is accepted from the time acceptance is communicated to him.
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ARTICLE 1331. In order that mistake may invalidate consent, it should refer to the substance of the thing which is the object of the contract, or to those conditions which have principally moved one or both parties to enter into the contract. Mistake as to the identity or qualifications of one of the parties will vitiate consent only when such identity or qualifications have been the principal cause of the contract. A simple mistake of account shall give rise to its correction. ARTICLE 1332. When one of the parties is unable to read, or if the contract is in a language not understood by him, and mistake or fraud is alleged, the person enforcing the contract must show that the terms thereof have been fully explained to the former. ARTICLE 1333. There is no mistake if the party alleging it knew the doubt, contingency or risk affecting the object of the contract. ARTICLE 1334. Mutual error as to the legal effect of an agreement when the real purpose of the parties is frustrated, may vitiate consent. ARTICLE 1335. There is violence when in order to wrest
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A threat to enforce one's claim through competent authority, if the claim is just or legal, does not vitiate consent. ARTICLE 1336. Violence or intimidation shall annul the obligation, although it may have been employed by a third person who did not take part in the contract. ARTICLE 1337. There is undue influence when a person takes improper advantage of his power over the will of another, depriving the latter of a reasonable freedom of choice. The following circumstances shall be considered: the confidential, family, spiritual and other relations between the parties, or the fact that the person alleged to have been unduly influenced was suffering from mental weakness, or was ignorant or in financial distress.
No contract may be entered into upon future inheritance except in cases expressly authorized by law. All services which are not contrary to law, morals, good customs, public order or public policy may likewise be the object of a contract. o
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ARTICLE 1339. Failure to disclose facts, when there is a duty to reveal them, as when the parties are bound by confidential relations, constitutes fraud.
ARTICLE 1349. The object of every contract must be determinate as to its kind. The fact that the quantity is not determinate shall not be an obstacle to the existence of the contract, provided it is possible to determine the same, without the need of a new contract between the parties. o
ARTICLE 1340. The usual exaggerations in trade, when the other party had an opportunity to know the facts, are not in themselves fraudulent. o
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ARTICLE 1341. A mere expression of an opinion does not signify fraud, unless made by an expert and the other party has relied on the former's special knowledge. ARTICLE 1342. Misrepresentation by a third person does not vitiate consent, unless such misrepresentation has created substantial mistake and the same is mutual. ARTICLE 1343. Misrepresentation made in good faith is not fraudulent but may constitute error. ARTICLE 1344.In order that fraud may make a contract voidable, it should be serious and should not have been employed by both contracting parties. Incidental fraud only obliges the person employing it to pay damages. ARTICLE 1345. Simulation of a contract may be absolute or relative. The former takes place when the parties do not intend to be bound at all; the latter, when the parties conceal their true agreement. ARTICLE 1346. An absolutely simulated or fictitious contract
What can be used as Object of the contract? Any object that is within the commerce of man, must not be impossible and it must be determinate as to its kind, if not determinate then at least determinable
ARTICLE 1348.Impossible things or services cannot be the object of contracts.
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ARTICLE 1338. There is fraud when, through insidious words or machinations of one of the contracting parties, the other is induced to enter into a contract which, without them, he would not have agreed to.
ARTICLE 1347. All things which are not outside the commerce of men, including future things, may be the object of a contract. All rights which are not intransmissible may also be the object of contracts.
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To determine the degree of intimidation, the age, sex and condition of the person shall be borne in mind
SECTION 2: Object of Contracts
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There is intimidation when one of the contracting parties is compelled by a reasonable and well-grounded fear of an imminent and grave evil upon his person or property, or upon the person or property of his spouse, descendants or ascendants, to give his consent.
is void. A relative simulation, when it does not prejudice a third person and is not intended for any purpose contrary to law, morals, good customs, public order or public policy binds the parties to their real agreement.
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consent, serious or irresistible force is employed.
Why is it required that the object should be determinate or at least be determinable? The heart of every contract whether it is consensual, real or formal would be the meeting of the minds between the parties. How can the parties have this meeting of the minds if they have no idea what the object is? That is why the object is determinate or at least determinable, meaning to say that it can be determine without a need for a new contract. SECTION 3: Cause of Contracts
ARTICLE 1350. In onerous contracts the cause is understood to be, for each contracting party, the prestation or promise of a thing or service by the other; in remuneratory ones, the service or benefit which is remunerated; and in contracts of pure beneficence, the mere liberality of the benefactor. o o
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Cause or consideration. Would cause be the same as motive? No. If the party is impelled by an evil or ill-motive, would that invalidate the contract? No, usually, it has no bearing on the validity of the contract for as long as there is a legitimate consideration supporting the contract. Example: Mr. Ang is a real estate agent, he fancies Ms. Albania. Ms. Albania, in turn, does not fancy Mr. Ang.
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ARTICLE 1351. The particular motives of the parties in entering into a contract are different from the cause thereof.
ARTICLE 1354. Although the cause is not stated in the contract, it is presumed that it exists and is lawful, unless the debtor proves the contrary.
CHAPTER 3: Form of Contracts
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ARTICLE 1355. Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a contract, unless there has been fraud, mistake or undue influence.
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ARTICLE 1356. Contracts shall be obligatory, in whatever form they may have been entered into, provided all the essential requisites for their validity are present. However, when the law requires that a contract be in some form in order that it may be valid or enforceable, or that a contract be proved in a certain way, that requirement is absolute and indispensable. In such cases, the right of the parties stated in the following article cannot be exercised o
Example of a contract that is required to be in writing to be valid: Pre- nuptial agreement.
ARTICLE 1357. If the law requires a document or other special form, as in the acts and contracts enumerated in the following article, the contracting parties may compel each other to observe that form, once the contract has been perfected. This right may be exercised simultaneously with the action upon the contract. o
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ARTICLE 1353. The statement of a false cause in contracts shall render them void, if it should not be proved that they were founded upon another cause which is true and lawful.
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ARTICLE 1352. Contracts without cause, or with unlawful cause, produce no effect whatever. The cause is unlawful if it is contrary to law, morals, good customs, public order or public policy.
In what form a contract should be to be valid? General rule: contracts are valid in any form. Exception: If the law prescribes a specific form either for validity or enforceability or manner of proof. In these cases, the proper form must be observed. If the form is required for validity, enforceability or as a manner of proof, we cannot avail of the right under Art.
1357 and bring an action to compel the other party to reduce the contract in the required form. Pre-nuptial agreements must be in writing, under the Family Code to be valid but under the civil code to be enforceable. If we have a husband and wife and who had, prior to their marriage, entered to an agreement whereby they agreed that they will be governed by separation of property regime; and they have observed the rules on separation of property regime throughout their marriage. Can the husband, later on, insist that the wife execute an agreement with him embodying the separation of property regime in writing by invoking Art. 1357? He cannot because the requirement that it should be in writing is essential to make the agreement valid. That right under Art. 1357 will not be available to the husband. If we have an oral contract of sale involving real property, this we said, unenforceable. Can we also bring an action to compel the other party to reduce the agreement into writing? No, because the form is required to make the contract enforceable. But if the contract of sale is already in writing, but only in a private instrument, and we need it to have it in a public instrument to be able to register it to the Registry of Deeds, can we now compel the other party to reduce the contract in a public instrument under Art. 1357? Yes, because we have already a valid and enforceable contract. There is compliance with the required form. Having it reduced in a public instrument is only required for convenience, so that we may be able to register it to the Registry of Deeds. The right to Art 1357 would be available.
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Mr. Ang is married. Let’s say that Mr. Ang is really determined to make Ms. Albania fall for him, so what he did is he agreed to sell a condo unit to Ms. Albania at a reduced price. The discount is so big that he is suffering a loss to the transaction. But he wants to push thru to the transaction because it is a part of his plan to make Ms. Albania his mistress. There is no question that the motive is evil or illicit. But we cannot deny the fact that what we have here is a valid contract of sale that is supported by a legitimate consideration which is the reduced price for the condominium unit.
ARTICLE 1358.The following must appear in a public document: (1) Acts and contracts which have for their object the creation, transmission, modification or extinguishment of real rights over immovable property; sales of real property or of an interest therein are governed by articles 1403, No. 2, and 1405; (2) The cession, repudiation or renunciation of hereditary rights or of those of the conjugal partnership of gains; (3) The power to administer property, or any other power which has for its object an act appearing or which should appear in a public document, or should prejudice a third person; (4) The cession of actions or rights proceeding from an act appearing in a public document. All other contracts where the amount involved exceeds five hundred pesos must appear in writing, even a private one. But sales of goods, chattels or things in action are governed by articles 1403, No. 2 and 1405. o
In addition, Art. 1358 also enumerates other contracts which are required to be in a public instrument, not for validity, enforceability or even for proof but simply for convenience. So the right given under Art. 1357 would be applicable to all these contracts under Art. 1358.
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ARTICLE 1359. When, there having been a meeting of the minds of the parties to a contract, their true intention is not expressed in the instrument purporting to embody the agreement, by reason of mistake, fraud, inequitable conduct or accident, one of the parties may ask for the reformation of the instrument to the end that such true intention may be expressed.
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ARTICLE 1364. When through the ignorance, lack of skill, negligence or bad faith on the part of the person drafting the instrument or of the clerk or typist, the instrument does not express the true intention of the parties, the courts may order that the instrument be reformed.
ARTICLE 1360. The principles of the general law on the reformation of instruments are hereby adopted insofar as they are not in conflict with the provisions of this Code. ARTICLE 1361. When a mutual mistake of the parties causes the failure of the instrument to disclose their real agreement, said instrument may be reformed. ARTICLE 1362. If one party was mistaken and the other acted fraudulently or inequitably in such a way that the instrument does not show their true intention, the former may ask for the reformation of the instrument. ARTICLE 1363. When one party was mistaken and the other knew or believed that the instrument did not state their real agreement, but concealed that fact from the former, the instrument may be reformed.
What about accident? How do we picture in the accident as giving rise to an action for reformation of instrument? It can be when the instrument is drafted by a third person, that mechanical act of drafting that was delegated to the secretary or assistant. And such secretary was not able to follow instructions correctly, instead of writing a contract of lease, she types a contract of sale and then the parties did not bother to read the contract they signed. So here, we can see that reformation of instrument was caused by an accident or due to the negligence or ignorance of the party who actually drafted the instrument. What is peculiar is that the law singles out an instance where the parties instead of executing a contract of loan with right of mortgage, executed a contract of sale with right of repurchase. And the law declared that here, the reformation would instrument would be proper. Why is reformation of instrument proper? Because essentially, by saying that reformation of instrument is proper here, the law is recognizing that this is not the true intention of the parties. It was not the agreement of the parties to have a contract of sale with right of repurchase that instead their true intention was to have a contract of loan with right of mortgage. Why does the creditor prefer a contract of sale over a contract of loan? Because in a contract of sale with right of repurchase, he immediately acquires ownership over the security without going to the process of foreclosure, observing the redemption period, asking for consolidation of title. So, if the debtor was able to pay, then the creditor will just transfer it again.
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What is reformation of instrument? It is a remedy in equity by means of which a written instrument is made or construed so as to express or conform to the real intention of the parties when some error or mistake has been committed. It simply means that we are correcting the instrument or document to reflect the true intention between the parties. Requisites: (1) There must be a meeting of the minds between the parties; (2) The instrument does not express the true intention of the parties; (3) The failure to express the true intention is due to mistake, fraud, inequitable conduct, accident or relative simulation; and (4) There must be clear and convincing proof of the causes of the failure to express the true intention of the parties. There must be meeting of the minds between the parties, because if the mistake, fraud, inequitable conduct, or accident prevented a meeting of the minds to take place between the parties, then we have no cause action for reformation of instrument. Because reformation of the instrument presupposes the existence of an agreement. There is an agreement but they only failed to reflect what the agreement is.
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If mistake, fraud, inequitable conduct, or accident has prevented a meeting of the minds of the parties, the proper remedy is not reformation of the instrument but annulment of the contract.
When can mistake be a ground for reformation of instrument? Is it required that the mistake always be mutual? Supposing that there is mistake, but the mistake is only on the part of one of the contracting parties? Reformation is still available even if the mistake is not mutual for as long as the mistake of one of the contracting parties is coupled with and brought about by fraud on the part of the other party or inequitable conduct. It may happen that the contracting party knows that the other contracting party is mistaken with regard to the nature of the agreement. And yet he does not do anything, he even conceals the mistake.
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CHAPTER 4: Reformation of Instruments
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ARTICLE 1365. If two parties agree upon the mortgage or pledge of real or personal property, but the instrument states that the property is sold absolutely or with a right of repurchase, reformation of the instrument is proper. ARTICLE 1366.There shall be no reformation in the following cases:
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(1) Simple donations inter vivos wherein no condition is imposed; (2) Wills; (3) When the real agreement is void. ARTICLE 1367. When one of the parties has brought an action to enforce the instrument, he cannot subsequently ask for its reformation.
contract, the least transmission of rights and interests shall prevail. If the contract is onerous, the doubt shall be settled in favor of the greatest reciprocity of interests. If the doubts are cast upon the principal object of the contract in such a way that it cannot be known what may have been the intention or will of the parties, the contract shall be null and void.
ARTICLE 1368. Reformation may be ordered at the instance of either party or his successors in interest, if the mistake was mutual; otherwise, upon petition of the injured party, or his heirs and assigns.
ARTICLE 1379. The principles of interpretation stated in Rule 123 of the Rules of Court shall likewise be observed in the construction of contracts.
ARTICLE 1369. The procedure for the reformation of instrument shall be governed by rules of court to be promulgated by the Supreme Court.
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ARTICLE 1371. In order to judge the intention of the contracting parties, their contemporaneous and subsequent acts shall be principally considered.
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ARTICLE 1372. However general the terms of a contract may be, they shall not be understood to comprehend things that are distinct and cases that are different from those upon which the parties intended to agree.
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ARTICLE 1373. If some stipulation of any contract should admit of several meanings, it shall be understood as bearing that import which is most adequate to render it effectual. ARTICLE 1374. The various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense which may result from all of them taken jointly. ARTICLE 1375. Words which may have different significations shall be understood in that which is most in keeping with the nature and object of the contract. ARTICLE 1376. The usage or custom of the place shall be borne in mind in the interpretation of the ambiguities of a contract, and shall fill the omission of stipulations which are ordinarily established. ARTICLE 1377. The interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity. ARTICLE 1378. When it is absolutely impossible to settle doubts by the rules established in the preceding articles, and the doubts refer to incidental circumstances of a gratuitous
Different classes of defective contracts: (1) Rescissible contracts (2) Voidable contracts (3) Unenforceable contracts (4) Void Contracts Rescissible Contracts are valid contracts. It can be enforced and we can sue on this contract until they are rescinded. The grounds for rescission do not really have any bearing on their validity because the grounds for rescission usually stem from the presence of damage either to the contracting parties or to a third person who is interested in the obligation or the object of the contract.
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CHAPTER 6: Rescissible Contracts
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ARTICLE 1370. If the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control.
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CHAPTER 5: Interpretation of Contracts
No need to discuss these because these are almost the same in the rules of statutory construction or even the rules in interpretation of wills. The overriding consideration is to give effect to the intention of the parties.
ARTICLE 1380. Contracts validly agreed upon may be rescinded in the cases established by law. ARTICLE 1381.The following contracts are rescissible: (1) Those which are entered into by guardians whenever the wards whom they represent suffer lesion by more than one-fourth of the value of the things which are the object thereof; (2) Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the preceding number; (3) Those undertaken in fraud of creditors when the latter cannot in any other manner collect the claims due them; (4) Those which refer to things under litigation if they have been entered into by the defendant without the knowledge and approval of the litigants or of competent judicial authority; (5) All other contracts specially declared by law to be subject to rescission o
In the first two (2) grounds for rescission, is there any absolute defense that may be used to defeat an action for rescission? If there is court approval then it cannot be set aside on the ground of lesion or damage.
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Item no. 3 of Art. 1381 refers to ‘accion pauliana.’ Art. 1191 states the period when a contract can be rescinded. Is this an instance where rescission as contemplated in Art. 1381 is made applicable? Art. 1191 is not an instance where rescission as contemplated in Art. 1381 is applicable because rescission under Art. 1191 is based on breach of contract.
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ARTICLE 1382. Payments made in a state of insolvency for obligations to whose fulfillment the debtor could not be compelled at the time they were effected, are also rescissible. o
ARTICLE 1384.Rescission shall be only to the extent necessary to cover the damages caused.
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ARTICLE 1386.Rescission referred to in Nos. 1 and 2 of article 1381 shall not take place with respect to contracts approved by the courts. ARTICLE 1387. All contracts by virtue of which the debtor alienates property by gratuitous title are presumed to have been entered into in fraud of creditors, when the donor did not reserve sufficient property to pay all debts contracted before the donation.
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When we ask for rescission, is it always to the full extent of the obligation? No. Only to the extent of the damage incurred. What does the phrase “only to the extent of the damage incurred” mean? It means that rescission shall be done only to the extent that is allowed for the aggrieved party to recover the damage to him. Only to the extent required to effect recovery of damage on the part of the aggrieved party. Insofar as the first two (2) grounds are concerned, we did mention of an absolute defense against an action for rescission. But as a general rule or generally speaking, there are other defenses that may be availed of against an action for rescission. What are these defenses? (1) Ratification; (2) Prescription; (3) If the party asking for rescission is no longer in the position to give back what he received under the contract by reason of loss or when the thing subject of the contract is in the hands of a third person acting in good faith.
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ARTICLE 1383. The action for rescission is subsidiary; it cannot be instituted except when the party suffering damage has no other legal means to obtain reparation for the same.
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When we say payments made in a state of insolvency are subject to rescission, how do we understand the term insolvency? Insolvency-in-fact. We do not need a judicial declaration that a person is insolvent. When is there insolvency as a matter of fact? If the person’s liability is more than his assets.
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Why would the loss of the thing subject of the contract to be rescinded on account of the fault of the plaintiff prevent rescission? Art. 1385, par. 1. Why would the law say that? Because the law requires that there be mutual restitution; so that if the party asking for rescission is no longer in the position to give back what he received under the contract, then he cannot ask for rescission. Aside from losing of the thing, another instance when the thing subject of the contract can longer be returned is when it is in the hands of a third person who did not act in bad faith. Example: A, in order to defraud his creditors, transferred his land to another. The transferee is not aware of the debt in favor of B. the transferee acquired the property in good faith.
ARTICLE 1385.Rescission creates the obligation to return the things which were the object of the contract, together with their fruits, and the price with its interest; consequently, it can be carried out only when he who demands rescission can return whatever he may be obliged to restore. Neither shall rescission take place when the things which are the object of the contract are legally in the possession of third persons who did not act in bad faith.
Alienations by onerous title are also presumed fraudulent when made by persons against whom some judgment has been rendered in any instance or some writ of attachment has been issued. The decision or attachment need not refer to the property alienated, and need not have been obtained by the party seeking the rescission. In addition to these presumptions, the design to defraud creditors may be proved in any other manner recognized by the law of evidence.
ARTICLE 1388. Whoever acquires in bad faith the things alienated in fraud of creditors, shall indemnify the latter for damages suffered by them on account of the alienation, whenever, due to any cause, it should be impossible for him to return them. If there are two or more alienations, the first acquirer shall be liable first, and so on successively. ARTICLE 1389.The action to claim rescission must be commenced within four years. For persons under guardianship and for absentees, the period of four years shall not begin until the termination of the former's incapacity, or until the domicile of the latter is known. o
In all other cases, when do we say that the action has accrued? The four-year period shall be reckoned from the time of the execution of the contract.
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A rescissible contract can only be assailed in a direct action. It cannot be collaterally attacked.
ARTICLE 1390.The following contracts are voidable or annullable, even though there may have been no damage to the contracting parties: (1) Those where one of the parties is incapable of giving consent to a contract; (2) Those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud.
ARTICLE 1393.Ratification may be effected expressly or tacitly. It is understood that there is a tacit ratification if, with knowledge of the reason which renders the contract voidable and such reason having ceased, the person who has a right to invoke it should execute an act which necessarily implies an intention to waive his right. o
These contracts are binding, unless they are annulled by a proper action in court. They are susceptible of ratification.
And when the action refers to contracts entered into by minors or other incapacitated persons, from the time the guardianship ceases.
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What is a voidable contract? A defective contract that is valid until annulled. And the significance of that statement “valid until annulled” is that it produces legal effects until it is annulled. Are their defenses for an action of annulment? (1) Ratification; and (2) Prescription. Is ratification the same with confirmation? Under the NCC, there is no more difference between ratification and confirmation. But is there any technical difference between ratification and confirmation? Confirmation is the act of purging the voidable contract of its defect through the renunciation of the action of nullity made by the person who can invoke the vice or defect of said contract; whereas Ratification is the act of curing the defect of contracts celebrated in the name and for the account of another without authority or in excess of authority by the approval thereof. Technically, which should be applied to voidable contracts? Confirmation, but now our law no longer makes distinction between confirmation and ratification.
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ARTICLE 1391.The action for annulment shall be brought within four years. This period shall begin: (1) In cases of intimidation, violence or undue influence, from the time the defect of the consent ceases. (2) In case of mistake or fraud, from the time of the discovery of the same.
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Even when there is a remainder of the prescriptive period, the annulment may not be available anymore if there has been ratification. The right to ask for annulment prescribes in four (4) years. But even before the period lapses, the right to ask
When is there tacit ratification? There is a tacit ratification if, with knowledge of the reason which renders the contract voidable and such reason having ceased, the person who has a right to invoke it should execute an “act” which necessarily implies an intention to waive his right. What will be the nature of this “act” which will give this necessary implication that he is no longer pursuing the annulment of the action of the contract? Should it be akin to the party giving his consent to the contract? Should it be indicative that he is consenting to the contract? That he is accepting the contract? Yes. Minors can enter into a contract provided that they are represented by their parents or legal guardians. Example of an act of ratification: The minors, on their own, entered into a contract of loan. Upon reaching the age of majority and without asking for annulment, they still paid of the loan. Even though that there is still some balance in the prescriptive period, they can no longer ask for annulment because they have already ratified the contract. In a contract of marriage, where the husband is afflicted with AIDS, the wife knew about it before marrying the Husband. Can she still ask for the annulment of the marriage? No, there is no ratification but prescription. Why not ratification? Because the ground is affliction of sexually-transmitted disease, and not concealment thereof; and the action for annulment on such ground is only subject to the defense of prescription. The prescriptive period is five (5) years. For as long as the 5year period has not lapsed, the action for annulment cannot be barred by any act that may be akin to ratification because it is not subject to ratification. Who can ratify? Who may effect for ratification? Only the party whose consent is vitiated or only the party who is suffering from incapacity. The action for annulment cannot be availed of by the capacitated party or by the party whose consent was not vitiated.
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CHAPTER 7: Voidable Contracts
for annulment can longer be available if there has been ratification.
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ARTICLE 1394.Ratification may be effected by the guardian of the incapacitated person. ARTICLE 1395.Ratification does not require the conformity of the contracting party who has no right to bring the action for annulment. ARTICLE 1396.Ratification cleanses the contract from all its defects from the moment it was constituted.
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ARTICLE 1398. An obligation having been annulled, the contracting parties shall restore to each other the things which have been the subject matter of the contract, with their fruits, and the price with its interest, except in cases provided by law. In obligations to render service, the value thereof shall be the basis for damages. o
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Basically, only parties to the contract may ask for annulment. Would there be any exception to this rule? Would there be an instance when an exception may be made such that a 3rd person who is not a party to the contract may seek its annulment? Jurisprudence provided an exception: If a person is prejudiced in his rights with respect to one of the contracting parties and he can positively show that the detriment that will result to him from the contract in which he had no intervention, then he can seek the annulment of the contract. (Teves vs. People’s Homesite and Housing Corp. G.R. No. L-21498. June 27, 1968). In the abovementioned case, there was this woman who has been occupying a parcel of land for the longest time with her husband. Her husband is some kind of government official who perished with President Magsaysay in the plane crash. After her husband’s demise, she applied to be awarded for this parcel of land that they have been occupying with People’s Homesite and Housing Corporation. Her application has rd been pending. But there was this 3 person (Santos) who was able to scratch the application. It was alleged that there was connivance between Santos and the corporation as it was not made known to the woman that there was an application that was also filed by Santos. When this woman found out that the award was made in favor of Santos, she sought to have the contract set aside. She filed an action for annulment. Santos invoked as a defense of no cause of action for annulment because she was not a party to the contract between Santos and the corporation. Probably, the Supreme Court acted in equity. This is an exceptional instance. Had she been a creditor, her remedy is accion pauliana. Going back to the general rule, the question is who between the parties is given the right to ask for annulment? If the ground is incapacity, then the right to ask for annulment belongs to the person who is incapacitated. If the ground is intimidation, violence, or undue influence, fraud, or mistake, then the person who employs the vices affecting consent cannot ask for annulment. In line with the provision of Art. 1397, the law clearly excludes the party who employed vices of consent from having the right to ask for annulment. But is it still possible for both of the contracting parties to have the right to ask for annulment if the ground is any of the vices of consent? There are instances that consent may be vitiated without the fault of either parties. When it comes to fraud, it should be employed by the other party; but when it comes to force – force may be
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employed by a third person. And this person may or may not be acting under the directive of anyone of the parties. If he is acting under any directive by one of the parties, then that is the same as that party employing the force or violence himself. But if the 3rd person is acting independently, then we can say that the parties are innocent of the employment of the vice of consent. In which case, if we would adhere to Art. 1397, both of them should be allowed to ask for annulment. Art. 1397 says that it is only the person who employs the vice of consent who is not allowed from asking for annulment. Another instance: if there is mutual mistake that arises from the misrepresentation of another person or on account of a question of law.
Example: Supposing that A and B entered into a contract of lease for one (1) year. It was paid for one (1) year. The contract is voidable. And then after six (6) months that B is occupying the apartment, A sought annulment. The annulment is granted. Can A still give back the rentals from the time that B is occupying the apartment? No, the lessor has the right to retain the amount of rentals for six (6) months that the lessee was occupying the apartment because of the principle of unjust enrichment. Can voidable contracts be collaterally attacked? If we are going to attack it by way of defense, we cannot. If we want to attack it collaterally, then we must allege it as a counterclaim in the action. Just like in rescission, if we ask for annulment there should be a readiness to effect mutual restitution. However, unlike rescission, annulment can only be availed of by a party in the contract; it cannot be availed of by a 3rd person.
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ARTICLE 1397. The action for the annulment of contracts may be instituted by all who are thereby obliged principally or subsidiarily. However, persons who are capable cannot allege the incapacity of those with whom they contracted; nor can those who exerted intimidation, violence, or undue influence, or employed fraud, or caused mistake base their action upon these flaws of the contract.
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ARTICLE 1399. When the defect of the contract consists in the incapacity of one of the parties, the incapacitated person is not obliged to make any restitution except insofar as he has been benefited by the thing or price received by him. ARTICLE 1400. Whenever the person obliged by the decree of annulment to return the thing cannot do so because it has been lost through his fault, he shall return the fruits received and the value of the thing at the time of the loss, with interest from the same date. ARTICLE 1401. The action for annulment of contracts shall be extinguished when the thing which is the object thereof is lost through the fraud or fault of the person who has a right to institute the proceedings.
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If the right of action is based upon the incapacity of any one of the contracting parties, the loss of the thing shall not be an obstacle to the success of the action, unless said loss took place through the fraud or fault of the plaintiff.
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ARTICLE 1402. As long as one of the contracting parties does not restore what in virtue of the decree of annulment he is bound to return, the other cannot be compelled to comply with what is incumbent upon him. . CHAPTER 8: Unenforceable Contracts o
What are unenforceable contracts? Those contracts by reason of defects provided for by law do not give rise to any action to enforce the same until and after they are ratified according to law.
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(1) Those entered into in the name of another person by one who has been given no authority or legal representation, or who has acted beyond his powers; (2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases an agreement hereafter made shall be unenforceable by action, unless the same, or some note or memorandum, thereof, be in writing, and subscribed by the party charged, or by his agent; evidence, therefore, of the agreement cannot be received without the writing, or a secondary evidence of its contents: a) An agreement that by its terms is not to be performed within a year from the making thereof; b) A special promise to answer for the debt, default, or miscarriage of another; c) An agreement made in consideration of marriage, other than a mutual promise to marry; d) An agreement for the sale of goods, chattels or things in action, at a price not less than five hundred pesos, unless the buyer accepts and receives part of such goods and chattels, or the evidence, or some of them, of such things in action, or pay at the time some part of the purchase money; but when a sale is made by auction and entry is made by the auctioneer in his sales book, at the time of the sale, of the amount and kind of property sold, terms of sale, price, names of the purchasers and person on whose account the sale is made, it is a sufficient memorandum; e) An agreement for the leasing for a longer period than one year, or for the sale of real property or of an interest therein; f) A representation as to the credit of a third person.
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ARTICLE 1403.The following contracts are unenforceable, unless they are ratified:
(3) Those where both parties are incapable of giving consent to a contract. o
Three (3) kinds or classes of Unenforceable Contracts: (1) Contracts where both parties are incapacitated; (2) Contracts entered into in the name of another without authority or in excess of authority; (3) Contracts embodied in the Statute of Frauds.
What is the status of an unenforceable contract? Valid but because of the defect affecting the contract, it is a contract which cannot be enforced in court. Unauthorized contracts (Art. 1403, par. 1) - Can you enter into a contract in the name of another person in your own instance? No. And should you enter into a contract in the name of A and without A knowing about it; and the contract which was entered into is a contract to sell on behalf of A to C; and then C went to A to demand the object of sale. When we speak of unenforceability in this case (unauthorized contract), we refer to unenforceability as against the party supposed to be represented. Example: Mr. Villanueva is the representative of the students of UST because he was once the president of the student council. He entered into a contract with a contractor to make uniforms for the entire student population and he represented himself as acting under the authority of all the students. The fact is there is no such authority because the students did not authorize him to do that. The contractor cannot run after the students for the payment of the uniforms because the contract will be unenforceable as against the students. However, as against Mr. Villanueva, the contract will be enforceable because he will be treated as the principal party in the contract. The thing is, if the students decide to ratify and confirm the actions of Mr. Villanueva as having authorized by them, then the contract would now be cured of its defect and it will now be enforced as against the students because of the ratification. Statue of Frauds (Art. 1403, par. 2) - Statute of Frauds is descriptive of a law which requires certain classes of contracts to be in writing. It is a list of contracts which must be undertaken in accordance with the provision or requirements imposed by law, failing which, it cannot be enforced. The purpose for this requirement is to prevent fraud, it is not meant to perpetuate fraud. If a contract falls under the statute of frauds, then the contract must comply with certain forms. What is this form required by the Statute of Frauds? It should be in writing. When we say that it should be in writing, must be it in a formal written document? Is that what the statute of frauds requires? No. What do we understand by the term written instrument? The law says that it must be in writing, but not necessarily in a formal document or instrument, on the contract itself or some note or memorandum thereof be in writing. It would be ideal if we would have it in a formal instrument. But then again the law does not impose that requirement. It can be in a simple letter sent by one of the parties to the other and the same letter being given back, but this time around with the approval or consent of the other party. That can be a written testament of the transaction and that is sufficient. It does not have to be contained in one instrument or in one writing, it can be in a series of letters or series of notes.
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unenforceable, so that if you decide to suddenly quit, can you be forced by the company to pay damages? Can the company go to court to sue you for breach of contract? They can, but they will not able to prove their claims because you will object to the introduction of parole evidence. Supposing that you have been fully paid by the production company for your services for shooting the trilogy, would that change things? Yes, because complete performance on the part of either party within the one-year period will take the agreement out of the coverage of Statute of Frauds; and therefore, it is now enforceable. Parole evidence may now be presented to prove existence of the contract. No less than complete performance on the part of the other party within the one year period is required. A special promise to answer for the debt, default, or miscarriage of another; (Art. 1403, par. 2 b): - For this special promise to fall under the Statute of Frauds, how should it be characterized? Should it be an independent promise or should it be a collateral promise? It should be a collateral promise. How is a collateral promise different from an independent promise? To determine whether the promise is collateral or independent, we go by the words used. Example: Independent promise: “I will pay for any damage that A may cause you.” Collateral promise: “I will pay for any damage that A may
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Example: In a class room, there is negotiation for a sale of a real property. One classmate will put in a note that he wants to buy a property, and then he will crumple the note and give it to the other. The other classmate will write on the note asking for how much, and then he will pass it again. The process goes on, there are exchanges of notes. They don’t have the entire document of a Deed of Sale but if we would make use of those notes, we can see that the parties were able to put down their agreement in writing. And this will be sufficient to take the contract out of the coverage of the Statute of Frauds. In the absence of compliance that there should be a written testament of the contract, does it mean that the contract is invalid? The contract is still valid but we are not allowed to enforce it in court. Does it mean that there is a bar against us in court that in the first instance, we cannot file an action to enforce the contract? No, the problem will arise at the time when we present evidence, when we try to prove the contract by parole evidence. Will all be lost if nothing is in writing to evidence the contract? The effect of non-compliance with the Statute of Frauds is that we are not supposed to be able to prove the contract thru Parole evidence. Parole evidence means oral testimony. Not being allowed to prove it by oral testimony is tantamount to not being able to pursue our claim at all. Contracts that are covered by the Statute of Frauds: An agreement that by its terms is not to be performed within a year from the making thereof; (Art. 1403, par. 2a): We reckon the one-year period from the making of the agreement; from the perfection of the agreement. What does the law mean when it says that it should be one wherein performance is not supposed to take place within one year from the making of the agreement? What does the law mean that performance should not be in one year? Does it speak of the beginning of the performance such that the performance is deferred and the deferment exceeds one year? Yes. Supposing that there will be performance within one year but it will not be completed until after one year, i.e. the performance of the contract itself exceeds one year. Is it covered by the Statute of Frauds? Yes. It covers all contracts where the obligation cannot be completely performed within one-year from the time of the making of the contract. How do we know that it cannot be performed within one year? This can be stipulated upon by the parties, in which case, there would be no problem. But in the absence of stipulation, it is possible for us to determine whether or not there will be performance within the one year period, we do this by assessing the nature of the obligation. Example: Your services were engaged to direct the Lord of the Rings Trilogy. It is an obligation that cannot be fulfilled within a period of one (1) year. You agreed; but then the agreement is not in writing. This is
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cause you, if she fails to pay you.” In the example of collateral promise, it shows that the promise is simply subsidiary or collateral in nature because it is conditioned on the failure of A to pay the other. In the example of independent promise, the promissory is disregarding whether or not A will pay because you are taking on the responsibility in all. What is the effect of making this collateral promise? If you would assign a specific contract to this collateral, what would be that contract? Contract of Guaranty/Surety. An agreement made in consideration of marriage, other than a mutual promise to marry; (Art. 1403, par. 2 c): When you promise to give something out of liberality to people who intend to marry in consideration of their impending marriage, what are you doing exactly? Are making already a donation propter nuptias? Not yet. What are you doing? You are making a promise that you will make a donation propter nuptias in their favor should they get married in the future. This will be an example of an agreement in consideration of marriage. The main consideration should be the marriage; it should not be an incident. What about ante-nuptial agreement, is it covered by the statute of frauds? Yes. Ante-nuptial agreements are required to be in writing to be valid under the Family Code. Before the Family Code (New Civil Code), antenuptial agreements would be valid even if they are not in writing. They are simply unenforceable. But in the
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payment and it is taken out of the coverage of the Statute of Frauds. In the above example, the reason why it is taken out of the coverage of Statute of Frauds is because it involves the sale of realty. That is why partial performance will be sufficient. However, if their ground as to why the sale or contract is covered by the Statute of Frauds is because, it is a contract which requires performance to be completed for more than or within a period of one year, we modify the rule a bit. We do NOT simply accept partial performance on either side; there must be complete performance within a period of one year on the part of either party. In the same way, when we discussed the rule that there should be some kind of a note or memorandum in writing of the contract, in all other cases covered by the Statute of Frauds, a simple note or memorandum evidencing the transaction of the parties would be acceptable. However, by jurisprudence, if you are dealing or trying to prove a sale or lease of real property for more than one year, it comes with the coverage by the Statute of Frauds; then if that is the reason why it is covered by the Statute of Fraud, then your note or memorandum, aside from being subscribed by the parties, must also contain a description of the property plus the price for which it is being sold. How can we get out of this defect (means of curing the defect brought about by non-compliance with the Statute of Frauds)? Prove that there is Partial Performance. If there is partial performance then we can allege that the contract of sale that was entered into involving chattels, goods or choses in actions at a price not less than five hundred pesos would no longer be governed by the Statute of Frauds and would now be enforceable; also by Ratification for failure to object to the oral evidence of the sale. Those where both parties are incapable of giving consent to a contract. (Art. 1403, par. 3): - If only one of the parties is incapacitated, the contract is considered voidable. Voidable contracts, just like unenforceable contracts, are subject to ratification. What happens if one of the parties is able to ratify the contract or if the contract is ratified by the legal guardian of one of these parties, what happens to the contract? It becomes voidable.
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advent of the Family Code (Art. 77), it is not enough that there should an agreement in whatever form; to be valid, the ante-nuptial agreement must now be in writing; otherwise, it will be void. Let us compare the effects. We have an ante-nuptial agreement for separation of property. The parties have abided by what they have agreed upon. Everything has been separate, separate income, separate expenses etc. Let’s say the husband has died, the settlement of his estate is now in question. When there is now a supposed division of his estate, can the wife claim the half as her share of the supposed conjugal partnership that has been created between them? Under the Civil Code – the Wife cannot say that ½ is automatically hers as her share in the conjugal partnership because the ante-nuptial agreement, though valid, is unenforceable. And being merely unenforceable, it is subject to ratification. And the same was ratified by abiding by the agreement, i.e. they received benefits under the agreement. She benefited because she also got to keep whatever she own as her own. There is ratification. The entire estate of the husband has to be treated as his separate property. Under the Family Code – although the parties have complied with their agreement, the agreement is void. The wife can claim the ½ as her share because the contract is void and therefore by default they are governed by the absolute community of property and she is entitled to ½ just as her share in the community property; and on top of her share in the community property, she still gets to inherit from the husband’s share in the community property. What is the effect of non-compliance with the Statute of Frauds? It cannot be enforced in court. When we say “it cannot be enforced in court,” what exactly does it mean? In reality, it does not really preclude the parties from going to court. There is really a contract between the parties. It is a valid contract. So there being a contract, the parties are bound. But it is unenforceable in a sense because since they do not have any written documentation of the contract, they only have to rely on parole evidence. Neither of the parties can introduce parole evidence, but this must be objected to other party. If he fails to object to the introduction of parole evidence, the party is now allowed in a sense to enforce. “In a sense” because you are able to prove the existence of the contract on the basis of parole evidence which is previously inadmissible parole evidence. But failure on the part of the opposing counsel to object on the introduction of parole evidence is not the only way by which you can get around the effect of noncompliance with the Statute of Frauds. Another way to get the contract out of the coverage of the Statute of Frauds is if there has been partial execution. Example: A sold a parcel of land to B for PhP 1M. B has already paid half of the amount. B, in this case, has already partially performed his obligation by the partial
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ARTICLE 1404. Unauthorized contracts are governed by article 1317 and the principles of agency in Title X of this Book. ARTICLE 1405. Contracts infringing the Statute of Frauds, referred to in No. 2 of article 1403, are ratified by the failure to object to the presentation of oral evidence to prove the same, or by the acceptance of benefits under them. ARTICLE 1406. When a contract is enforceable under the Statute of Frauds, and a public document is necessary for its
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registration in the Registry of Deeds, the parties may avail themselves of the right under Article 1357. ARTICLE 1407. In a contract where both parties are incapable of giving consent, express or implied ratification by the parent, or guardian, as the case may be, of one of the contracting parties shall give the contract the same effect as if only one of them were incapacitated. If ratification is made by the parents or guardians, as the case may be, of both contracting parties, the contract shall be validated from the inception.
(5) Those which contemplate an impossible service; (6) Those where the intention of the parties relative to the principal object of the contract cannot be ascertained; (7) Those expressly prohibited or declared void by law. These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived. o
ARTICLE 1408.Unenforceable contracts cannot be assailed by third persons. o CHAPTER 9: Void or Inexistent Contracts
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Is there a difference between a void and an inexistent contract? Void contracts: when we have a void contract, we have a contract where all the essential requisites are present, only the purpose or the cause is something which is prohibited by law, morals, or public policy. Or in some cases, the contract itself is declared to be null and void by the law. Inexistent Contract is one where one of the essential requisites of a contract is lacking. Example: Judge who entered into a contract with a law office while he is actively serving as a judge. In that case, it can be declared by law as void because it is contrary to public policy. An incumbent judge must not enter into private practice. Example: Sale of illegal drugs, there is consent, consideration and cause, but the cause is illegal, so the contract is void. Example: Contract which involves future inheritance because the law itself declared the contract null and void. Example: Under the Family Code, if there is a sale of conjugal or community property without the consent of the other spouse, then the sale is considered to be null and void. Example: A and B entered in a contract of sale. It is indicated in the Deed of Sale that a purchase price was paid when in truth and in fact, there was no consideration paid. This is an absolutely simulated contract; an inexistent contract. If a contract is a relatively-simulated contract, then there may still have some cause or consideration; only that it is not declared out in the open.
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ARTICLE 1409.The following contracts are inexistent and void from the beginning: (1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy; (2) Those which are absolutely simulated or fictitious; (3) Those whose cause or object did not exist at the time of the transaction; (4) Those whose object is outside the commerce of men;
Those which are absolutely simulated or fictitious (Art. 1409, par. 2): Absolute Simulation - the parties do not intend to be bound at all. Relative Simulation - not automatically void unless it causes prejudice to a third person or it is contrary to law, morals or public policy. Why would two (2) people enter into a simulated contract if they do not intend to be bound? In order to defeat the rights of another person. Example: If you are the lawyer and you are approached by the debtor who is facing a number of creditors. What will you advise him if you are NOT a Thomasian lawyer? Enter into simulated contracts. Make it appear that you have disposed of this property where in fact, the other party into the agreement is in connivance with you. You will make it appear that you have sold this property to him but in truth and in fact, the debtor is still the owner. You are not bound by this contract of sale. But the same will help the debtor to insulate this property from his creditors. What is the status of that contract? It is absolutely simulated, therefore it is void. Compare this to a situation where in order to defeat the rights of the creditor, the debtor will enter into a contract with another. It is an honest to goodness contract but the other person knew that the debtor is disposing his property because he wanted to defeat the right of his creditor. And he also knows that he is selling the property at a much lower price. There is really a contract. Is it a relatively simulated contract? No. It is a valid contract. But since it is affected by fraud, that contract may be set aside because it is rescissible thru accion pauliana. Compare the two (2) situations: The remedy of the 3rd person in the second situation is rescission thru accion pauliana because there is really a contract between the debtor and the third person. On the first situation, there is no contract at all. The creditor can also attack that contract, but NOT on the ground that it is rescissible because of fraud; but on the ground that it is void because it is absolutely simulated. What about relative simulation? There is really a contract but the true nature of the contract is hidden by another contract which is the one made public. Why would the parties enter into a relative simulated contract? They hide it because either what they are doing is bad or it may not be bad, but it can hurt people who are close to them.
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ARTICLE 1410.The action or defense for the declaration of the inexistence of a contract does not prescribe. ARTICLE 1411. When the nullity proceeds from the illegality of the cause or object of the contract, and the act constitutes a criminal offense, both parties being in pari delicto, they shall have no action against each other, and both shall be prosecuted. Moreover, the provisions of the Penal Code relative to the disposal of effects or instruments of a crime shall be applicable to the things or the price of the contract. This rule shall be applicable when only one of the parties is guilty; but the innocent one may claim what he has given, and shall not be bound to comply with his promise.
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What is the rule of pari delicto? If the contract is void, then the parties cannot go to court and enforce upon the contract against each other. That presupposes that the contract has NOT yet been executed. What if the contract has been executed either on both parties or one of the parties? Can there be recovery? We only make a distinction or qualification as to who cannot recover from whom if fault is only on the part of one of the parties. To what kind of contract does the pari delicto rule apply? Void contracts, NOT to inexistent contracts. Why do we say that it only applies to void contracts? Because Art. 1411 specifically says, “When the nullity
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Example: If a person is in already in the twilight of his years and he has a mistress who is still young and who is not known to his family or wife, and he is worried about his mistress. Can he give her something in his last will? No. So what he may want to do is to execute some kind of a Deed of Sale in her favor, but she does not have any money of her own. So he will not be receiving material consideration. What he is really intending to do is to make a donation to the mistress. What is this contract? A relatively simulated contract because it is made to appear that there is a Deed of Sale, but in reality what he is effecting is a donation in favor of the mistress. The law says that the contract would be valid provided that the contract is not contrary to law. In this case, the Contract of Sale must be set aside as it was entered into without consideration. Now, the issue is whether or not the parties are bound by the real contract, which in this case is a donation that is prohibited by law. In this case, the real transaction would also be null and void. Compare this into a situation where we have a mother who feels sorry for one (1) of her three (3) children. But of course, she does not want her two (2) children to think that the 3rd one is more special. What she will do is to execute a Deed of Sale giving the 3rd child most of her properties but in reality there is really no consideration for the sale. What she really intends to do is donate her properties. Is donating a property to her child wrong? No, but she only has to answer to possible inofficiousness of the donation. In this case, unlike the first one where the real contract was also declared null and void, we can possibly give effect to the donation subject only to consideration of inofficiousness. If we would look at the list in Art. 1409, we can pin-point which contract is void or which contract is inexistent. Article 1409, items (2), (3) and (6) are inexistent contracts: (2) Those which are absolutely simulated or fictitious; (3) Those whose cause or object did not exist at the time of the transaction; (6) Those where the intention of the parties relative to the principal object of the contract cannot be ascertained; While Article 1409, items (1), (4), (5) and (7) are void contracts: (1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy; (4) Those whose object is outside the commerce of men; (5) Those which contemplate an impossible service; (7) Those expressly prohibited or declared void by law. Why is it important for us to know when a contract is simply void or when a contract is simply inexistent? The remedy would still be the same whether the contract is void or inexistent, either we invoke the nullity as a defense or go to court and ask for a declaration of nullity of the contract. The distinctions become material in action in relation to the rule on pari delicto.
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proceeds from the illegality of the cause or object of the contract and the act constitutes a criminal offense, both parties being in pari delicto, they shall have no action against each other, and both shall be prosecuted.” What is the rule if there is fault on the part of both parties? They may NOT recover what they have given and they cannot compel each other to perform. The law will leave them where they are. If it so happens that the illegality of the cause or object amounts to a criminal offense, then the parties would furthermore be subject to a criminal prosecution and the proceeds of the contract will be confiscated in accordance with our law on the crime involved. Example: A agrees to pay B if the latter will kill C. If A fails to pay B and the latter has already killed C, B cannot ask assistance from the court. If C was not yet killed by B, but A has already paid B, the same rule applies. The pari delicto rule will prevent them from being able to sue each other on the contract, what is more that they will be liable criminally because in this case the illegality of the cause amounts to a criminal offense. It is possible that only one of the parties is at fault. What is the rule? If only one of the parties is at fault, we make a distinction as to what stage the contract is in. If it is executed already, or if it is still in the executory stage. Example: Pari delicto where only one of the parties is at fault: In case the buyer did not know that the object subject of the sale is stolen. The sale is void. The Antifencing law is violated, but the buyer may recover from the seller the amount that the former paid to the latter because the buyer did not know that the object of sale
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ARTICLE 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the following rules shall be observed: (1) When the fault is on the part of both contracting parties, neither may recover what he has given by virtue of the contract, or demand the performance of the other's undertaking; (2) When only one of the contracting parties is at fault, he cannot recover what he has given by reason of the contract, or ask for the fulfillment of what has been promised him. The other, who is not at fault, may demand the return of what he has given without any obligation to comply with his promise.
ARTICLE 1419. When the law sets, or authorizes the setting of a minimum wage for laborers, and a contract is agreed upon by which a laborer accepts a lower wage, he shall be entitled to recover the deficiency. . o The law itself also provides for clear examples where the exceptions to the pari delicto rule are observed. Articles 1413-1419 are instances where the other party, the one usually the intended to be protected by the law which declares the contract void, is allowed to recover whatever he has given. o Take note that in cases where one of the parties is incapacitated when he enters into a void contract, the law also extends him special protection by allowing him to recover what he has paid. o A void contract would arise from: (1) Absence of any of the essential requisites. Take note, ABSENCE not mere defect; (2) If there is no observance of the proper formalities; (3) If there is impossibility in the object or in the prestation that have been agreed upon; and (4) If there is any violation of the characteristics of a contract like there is no mutuality. o A void contract, just like in a void marriage, is legally inexistent. It is never susceptible of ratification. o The right to question a null and void contract either by action by direct attack or by way of defense by collateral attack, never prescribes. If you are a party to a null and void contract, you can actually just opt to not do anything, just wait for the other party to enforce the contract and then raise the nullity of the contract as a defense. o The nullity of a contract may also be assailed by a third person who happens to be damaged by the contract. o Example: Oral pre-nuptial agreement, no amount of ratification will cure the defect. o Pari Delicto Rule: Parties to a void contract will have no remedy in the law. The law will leave them where they are; but take note that this is specifically limited to contracts which are null and void on account of the illegality of its cause or object. o If the fault lies with both of the parties, then both of them will not be afforded relief. If fault lies with only one of them, then he will be afforded relief, in that he can recover whatever that has been given and he will not even be compelled to comply with what he has promised. There will be complication if the nullity makes the prestation a criminal act.
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is a stolen item. The buyer, in this case, is not at fault. He may recover because the contract was already executed. But if the contract is still in the executory stage, the rule is simply that they will not have any action against each other. The seller cannot compel the buyer to deliver the money to him in exchange of the delivery of the stolen goods. At the same way, the buyer cannot compel the seller who is at fault to deliver that property stolen, in exchange for payment. But if it happens that the buyer has already paid, the pari delicto rule will not operate to protect the seller because the buyer, since he is not at fault will be allowed to recover what he has paid. The pari delicto rule will NOT operate against him (buyer).
ARTICLE 1413. Interest paid in excess of the interest allowed by the usury laws may be recovered by the debtor, with interest thereon from the date of the payment.
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ARTICLE 1414. When money is paid or property delivered for an illegal purpose, the contract may be repudiated by one of the parties before the purpose has been accomplished, or before any damage has been caused to a third person. In such case, the courts may, if the public interest will thus be subserved, allow the party repudiating the contract to recover the money or property.
ARTICLE 1415. Where one of the parties to an illegal contract is incapable of giving consent, the courts may, if the interest of justice so demands allow recovery of money or property delivered by the incapacitated person. ARTICLE 1416. When the agreement is not illegal per se but is merely prohibited, and the prohibition by the law is designed for the protection of the plaintiff, he may, if public policy is thereby enhanced, recover what he has paid or delivered. ARTICLE 1417. When the price of any article or commodity is determined by statute, or by authority of law, any person paying any amount in excess of the maximum price allowed may recover such excess. ARTICLE 1418. When the law fixes, or authorizes the fixing of the maximum number of hours of labor, and a contract is entered into whereby a laborer undertakes to work longer than the maximum thus fixed, he may demand additional
ARTICLE 1420. In case of a divisible contract, if the illegal terms can be separated from the legal ones, the latter may be enforced. ARTICLE 1421. The defense of illegality of contract is not available to third persons whose interests are not directly affected.
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ARTICLE 1422. A contract which is the direct result of a previous illegal contract, is also void and inexistent.
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