Professional Documents
Culture Documents
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De La Salle University
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College of Law
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OBLIGATIONS AND
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CONTRACTS
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OBLIGATIONS
AND
CONTRACTS
De La Salle University
TABLE OF CONTENTS
I.
OBLIGATIONS
page/s
Contracts
Chapter 1: General Provisions.....................................................................................58-67
Chapter 2: Essential Requisites...................................................................................67-78
Chapter 3: Formal Contracts..............................................................78-80
Chapter 4: Reformation of Instruments................................................................80-84
Chapter 5: Interpretation of Contracts..................................................................84-90
Chapter 6: Rescissible Contracts..............................................................90-97
Chapter 7: Voidable Contracts.............................................................97-111
Chapter 8: Unenforceable Contracts.......................................................................111-119
Chapter 9: Void and Inexistent Contracts................................................................119-126
III.
Natural Obligations....................................................................................127-128
IV.
Estoppel..................................................................................128-138
V.
Trusts
Chapter 1: General Provisions...........................................................138-140
Chapter 2: Express Trust.........................................................................................140-144
Chapter 3: Implied Trust.............................................................144-150
OBLIGATIONS
AND
CONTRACTS
De La Salle University
ADVISER
Atty. Chato Olivas-Gallo
AUTHORS
Ang, Victor Reynaldo
De Leon, Dino
Mendoza, Othello II
Gador, Ken
Reonal, Reannah
Guinto, Aleli
Rico, Danilo II
Calugay, Katrina
Haulo, Oilie
Celles, Leandro
Chua, Chantal
Sucgang, Justin
OBLIGATIONS
AND
CONTRACTS
De La Salle University
Acknowledgment
The authors of this reviewer would like to thank, our professor in Obligations and
Contracts, Atty. Chato Olivas-Gallo, for her guidance and unending support in the making of this
reviewer. Her notes on the subject discussed in class are also part of this reviewer.
The authors would also like to acknowledge the book in Obligations and Contracts written
by Atty. Ernesto Pineda. Most of the information used in this reviewer was from Atty. Pinedas
book.
The authors would also like to thank De La Salle University- College of Law, for
challenging its students to be better and to pursue excellence.
Lastly, full credit goes to the thirty-one (31) students who did their part to make this
reviewer possible.
OBLIGATIONS
AND
CONTRACTS
De La Salle University
CHAPTER
1:
GENERAL
PROVISIONS OF OBLIGATIONS
Art. 1156. An obligation is a juridical
necessity to give to do or not to do. (n)
Art. 1157. Obligations arise from:
(1) Law;
(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punished by law;
and
(5) Quasi-delicts. (1089a)
Art. 1158. Obligations derived from law
are not presumed. Only those expressly
determined in this Code or in special
laws are demandable
and shall be regulated by the precepts of
the law which establishes them; and as
to what has not been foreseen by the
provisions of this Book. (1090)
Art. 1159. Obligations arising from
contracts have the force of law between
the contracting parties and should be
complied with in good faith. (1091a)
Art. 1160. Obligations derived from
quasicontracts shall be subject to the
provisions of Chapter 1 Title XVII of this
Book. (n)
Art. 1161. Civil obligations arising from
criminal offenses shall be governed by
the penal laws subject to the provisions
of Article 2177 and of the pertinent
provisions of Chapter 2 Preliminary Title
on Human Relations and of Title XVIII of
this Book regulating damages. (1092a)
Art. 1162. Obligations derived from quasi
delicts shall be governed by the
provisions of Chapter 2 Title XVII of this
Book and by special laws. (1093a)
Elements of Obligation:
1) Active Subject the one who is
demanding the performance of
the obligation. Also called the
creditor or obligee.
2) Passive Subject the one
bound to perform the prestation
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OBLIGATIONS
AND
CONTRACTS
De La Salle University
(i) As
to the character
responsibility or liability
1. Joint obligation
2. Solidary obligation
of
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De La Salle University
OBLIGATIONS
AND
CONTRACTS
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De La Salle University
OBLIGATIONS
AND
CONTRACTS
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De La Salle University
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
OBLIGATIONS
AND
CONTRACTS
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De La Salle University
regulated by the courts, according to the
circumstances.
Art. 1173 Diligence
The fault or negligence of the obligor
consists in the omission of that diligence
which is required by the nature of the
obligation and corresponds with the
circumstances of the persons, of the time
and of the place. When negligence shows
bad faith, the provisions of Articles 1171 and
2201, paragraph 2, shall apply.
If the law or contract does not state the
diligence which is to be observed in the
performance, that which is expected of a
good father of a family shall be required.
Art. 1174 Fortuitous Event
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.
Art. 1175 Usurious Transactions
Usurious transactions shall be governed by
special laws.
Art. 1176 Interest and installments
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.
Art. 1177 Accion subrogatoria
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.
Art. 1178 Transmissibility of rights
Subject to the laws, all rights acquired in
virtue of an obligation are transmissible, if
there has been no stipulation to the contrary.
OBLIGATIONS
AND
CONTRACTS
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De La Salle University
of the cases expressly mentioned in the law
or those in which the obligation so declares."
(Art. 1105.)
By placing the money in the bank and
mixing it with his personal funds De la Pea
did not thereby assume an obligation
different from that under which he would
have lain if such deposit had not been
made, nor did he thereby make himself
liable to repay the money at all hazards. If
the had been forcibly taken from his pocket
or from his house by the military forces of
one of the combatants during a state of war,
it is clear that under the provisions of the
Civil Code he would have been exempt from
responsibility. The fact that he placed the
trust fund in the bank in his personal
account does not add to his responsibility.
Such deposit did not make him a debtor who
must respond at all hazards.
Classes of Delivery or Tradition:
1. Real or Actual Traditioncontemplates the actual delivery
of the thing from the hand of the
grantor to the hand of the
grantee.
2. Constructive
Traditionthe
delivery of the thing is not actual
but representative or symbolical
in essence. Kindsa. TradicionSymbolicadelivery
of
certain
symbols
or
things
representing the thing
being delivered such as
keys or titles.
b. Tradicion Instrumentaldelivery
of
the
instrument
or
conveyance
to
the
grantee by the grantor.
c. Tradicion Longa Manupointing of the thing
(movable
property)
within sight.
d. TradicionBrevi
Manugrantees continuation
of his possession over
the thing delivered but
now under a title of
ownership.
OBLIGATIONS
AND
CONTRACTS
e. TradicionConstitutumPo
ssessorium- consists in
the owners continuous
possession
of
the
property he had sold to
another person.
f. Tradicion by Operation
of Law- delivery of the
thing by operation of
law.
g. QuasiTradiciondelivery of incorporeal
property.
Personal and Real Right: (Hector S. de
Leon, The Law on Obligations and
Contracts)
1. Personal Right- is the right or
power of a person (creditor) to
demand from another (debtor),
as a definite passive subject,
the fulfillment of the latters
obligation to give, to do, or not
to do.
2. Real Right- is the right or
interest of a person over a
specific thing, without a definite
passive subject against whom
the right may be personally
enforced.
Determinate or specific thing- something
which is susceptible of particular designation
or specification.
Indeterminate or generic thing- something
which is not particularized or specified but
has reference only to a class or genus.
Remedies of Creditor when Debtor fails
to deliver a determinate thing:
a) Complaint for specific performancean action to compel the fulfillment of
the
obligation.
This
action
presupposes that it is based on a
contractual relationship between
contracting parties.
b) Complaint for rescission of the
obligation- is an action to rescind
under Art. 1380.
c) Complaint for resolution- an action
for cancellation under Art. 1191.
d) Complaint for damages- an action to
claim for compensation of damages
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De La Salle University
suffered, either in addition to the first
three actions or independently.
Kinds of Delay:
(a) Ordinary Delay- the mere failure to
perform an obligation at the
appointed time.
(b) Extraordinary Delay or Legal Delaydelay which is tantamount to nonfulfillment of the obligation and
arises after an extrajudicial or
judicial demand had been made
upon the debtor. The debtor is said
to be in default now.
Remedies of the Creditor:
SITUATION
Failure of debtor to
fulfil the obligation
Poor performance
REMEDY
The same be done
by
the
creditor
himself or by another
person but at the
expense
of
the
debtor
The
creditor
or
another may execute
the obligation at the
expense
of
the
debtor
Undo the act at the
expense
of
the
creditor
OBLIGATIONS
AND
CONTRACTS
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OBLIGATIONS
AND
CONTRACTS
De La Salle University
default it was the plaintiff, Rufina Causing,
rather than the defendant, Bencer. In article
1100 of the Civil Code it is declared that in
mutual obligations neither party shall be
deemed to be in default if the other does not
fulfill, or offer to fulfill his own obligation, and
that from the time one person obligated
fulfills his obligation the default begins for
the other party. We find that the contract
contemplated a conveyance of the entire
interest in the land; and the plaintiff clearly
obligated herself to that extent. She was
therefore not in a position to compel the
defendant to pay until she could offer to him
a deed sufficient to pass the whole legal
estate; and for the same reason, she cannot
now be permitted to rescind the contract on
the ground that the defendant has
heretofore failed to pay the purchase price.
Fraud- Intentional evasion of the faithful
performance of the obligation
Negligence/Fault- omission of the diligence
required by the nature of obligation and
commensurate with the demands of the
subsisting circumstances of time, place,
condition of persons involved
Delay- this is the default or tardiness in the
performance of the obligation after it has
become due and demandable. Also called
mora
Violation of terms of contract- the act of
contravening the tenor or terms or
conditions of the contract; also called
volatio
Reference
Article
Time
of
existence
Effect
FRAUD IN
EXECUTION
1338
FRAUD
IN
PERFROMANCE
1170 and 1171
Exists ahead
of
the
contractual
obligation
between the
parties and
can only be
found
in
contracts
and wills
Nullity
Already
in
existence;
performance of
an
obligation
already
in
existence
Gives rise to
damages
and
recission
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De La Salle University
truck and to proceed to As office, a lightning
struck his vehicle. Within a matter of
seconds, the truck bursts into flames as the
gas tank exploded due to the heavy amount
of electricity caused by the lightning. B could
no longer save the vehicle nor the bundles
of paper inside, much less to deliver them to
A. B is still liable even if the nonperformance of the obligation was due to an
act of God, because of the express
stipulation found in his contract with A.
2)
When the nature of the obligation
requires the assumption of risk.
A and B entered into a contract where B
undertakes to deliver meat products, such
as poultry, pork, and beef, to As canteen. In
delivering such products, B uses his delivery
truck which was equipped with built in
freezer that is so cold that a bottle of water
placed inside would turn into ice with less
than a minute. Because of this, B is
confident that the meat products to be
delivered would not perish in transit. On the
date of one of his deliveries to A, it was
reported that the country would be
experiencing its hottest day of the year,
even to a point that people can cook a 2
inch thick steak under the heat of the sun.
Because of such, the built in freezer of the
delivery truck could not sustain the
necessary temperature to keep the meat
products from perishing. The result is that
the meat products reached As canteen with
a rotten state and no longer edible. B is
liable even if the cause of his failure to
comply with his obligation was due to
natures wrath because meet products are
perishable, and the nature of such obligation
requires the assumption of risks.
3)
OBLIGATIONS
AND
CONTRACTS
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De La Salle University
shook the broken car door open and thus
the 3 boxes of chocolates fell and was
destroyed.
B is liable for the destroyed chocolates
despite the fact that an earthquake
happened causing the boxes to fall, because
he acted negligently when he placed the
boxes in the passenger sit when he had full
knowledge that the car door on that side
was broken.
8) An act of God cannot be invoked to
protect a person who has failed to take
steps to forestall the possible adverse
consequence of that loss- when the effect is
found to be partly the result of the person's
participation, whether by active intervention,
neglect or failure to act, the whole
occurrence is humanized and removed from
the rules applicable to the acts of God.
On February 7, 2001, P and R had a verbal
agreement to lease to R the van of P for two
weeks in consideration of a P5,000
payment. R, while driving P's van on the
highway, noticed that the car's hood was
smoking but R still continued to drive to his
destination which was still 500 meters away.
Before he could even reach his destination
the engine exploded and caused a fire. R is
liable for the damage in the car because he
should have stopped when he saw the
smoke from the hood.
OBLIGATIONS
AND
CONTRACTS
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OBLIGATIONS
AND
CONTRACTS
De La Salle University
Actions or Remedies Available to the
Creditor for protection of interest:
and
Conditional
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De La Salle University
OBLIGATIONS
AND
CONTRACTS
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De La Salle University
OBLIGATIONS
AND
CONTRACTS
1) When it is pure;
2) When it is subject to a resolutory
condition;
3) When it is subject to a resolutory
period.
Traditional Classifications of conditions:
1) Suspensive- fulfillment of condition
results in acquisition of rights arising
out of the obligation
2) Resolutoryfulfillment
of
the
condition results in extinguishment
of rights arising out of obligation
3) Potestative- fulfillment of the
condition depends on the will of a
party to the obligation
4) Casual- fulfillment of the condition
depends on chance and/or the will
of third person
5) Mixed- fulfillment of condition
depends partly on the will of a party
to the obligation and partly chance
and/or will of a third person
6) Possible- condition is capable of
real action according to nature, law,
public policy, or good customs
7) Impossible- condition is not capable
of realization according to nature,
law, public policy, or good customs
8) Positive- involves performance of an
act
9) Negative- involves the omission of
an act
10) Divisible- susceptible of a partial
performance or realization
11) Indivisible- not susceptible of partial
performance or realization
12) Conjunctive- There are several
conditions which must all be
realized
13) Alternative- there are several
conditions, but only one must be
realized
14) Expresscondition
is
sated
expressly
15) Implied- condition is tacit
Effects of suspensive, resolutory,
potestative, mixed, casual condition
(Article 1181-1182)
1) Suspensive Condition
Obligation shall only be effective
upon the fulfillment of the condition,
upon constitution of obligation,
before fulfillment, oblige acquired a
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De La Salle University
mere hope of expectancy, protected
by law.
a. Before
fulfillmentdemandability
and
the
acquisition of the rights
arising from the obligation is
suspended. Obligation of
obligor to comply with the
prestation
is
held
in
suspense until fulfillment of
condition. Anything paid by
mistake during such time
may be recovered.
b. After
the
fulfillment-the
obligation
arises
or
becomes effective; obligor
can be compelled to comply
with what is incumbent upon
him.
2) Resolutory condition
Obligation becomes demandable
immediately after its constitution and
rights are immediately vested in the
obligee, but such rights are always
subject to the threat or danger of
extinction. Principle of retroactivity
applies (Article 1190)
a. Before
fulfillment-right
recognized in Art. 1188. N
case of a suspensive
condition should likewise be
available in obligations with
a resolutory condition.
b. After
fulfillment-whatever
may have been paid or
delivered by one or both of
the
parties
upon
the
constitution of the obligation
shall have to be returned
upon the fulfillment of the
condition. There is a return
to the status quo. Aside
from the actual things
received, the fruits or the
interests thereon should
also be returned after
deducting the expenses
made for their production,
gathering and preservation.
When condition is not
fulfilled,
rights
are
consolidated
and
they
become absolute.
3) Potestative condition
OBLIGATIONS
AND
CONTRACTS
a. When
it
depends
exclusively upon the will of
the creditor-condition and
obligation is valid
b. When
it
depends
exclusively upon the will of
debtor in case of a
suspensive condition, it is
void; illusory
c. When
it
depends
exclusively upon the will of
debtor in case of a
resolutory condition-it is
valid; not illusory
Noted: If the obligation is a preexisting one, and does not
depend for its existence upon
the fulfillment by the debtor of
the potestative condition, only
the condition is void leaving
unaffected the obligation itself.
(valid)
4) Both Mixed and Casual conditionthe obligation and condition shall
take effect
Effects of impossible conditions
(Art. 1183)
1) Voids both obligation and
condition
2) If condition is negative, it is
disregarded
and
obligation
becomes pure
3) Only affected obligation is void
4) Only the specific condition is
void
5) It is considered as not imposed
Effects of positive and negative
condition
In
positive
condition,
obligation is extinguished as
soon as the time expires or
it becomes obvious that the
event will not take place
In negative condition, the
obligation is effective from
the moment the time
indicated has lapsed or if it
has become evident that the
event
cannot
occur,
although indicated time has
not yet lapsed.
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De La Salle University
OBLIGATIONS
AND
CONTRACTS
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De La Salle University
acceptance
thereof.
It
was
an unqualified acceptance of the fourth item
of his bid, which item constituted a complete
offer or proposal on the part of petitioner
herein. The effect of said acceptance was to
perfect a contract, upon notice of the award
to petitioner herein.
As regards the second argument,
petitioner's bid did not specify its duration. It
enclosed therewith a bond for ten per
centum (10%) of the amount of said bid, in
compliance with paragraph 10 of the
instruction
to
bidders.
Although
the bond itself stated that it expired on June
15, 1952, this does not mean that
the bid lapsed on the same date. The bond
merely guaranteed the performance of
a principal obligation of petitioner herein.
Needless say, this principal obligation may
stand without said bond, which is
merely accessory thereto, although the latter
cannot exist without the former. Moreover,
the bond was given for the benefit, not of
petitioner, but of respondent, so that the
latter could legally waive said benefit.
Referring now to the third argument,
paragraph 10 of the aforementioned
instruction to bidders, imposed upon them
the obligation to execute the corresponding
documents "within five (5) days after notice
of the acceptance of his bid." Paragraph 15
of said instruction to bidders, further
provided:
The contract shall be made and executed in
quadruplicate and shall be accompanied by
a bond or bonds given by the contractor with
two or more good and sufficient sureties or
with a surety company, satisfactory to the
Manager, Industrial Department, RFC in a
penal sum equal to twenty (20) per cent of
the full contract price of the work,
conditioned for the faithful performance of
the contract according to its tenor and effect
and the satisfaction of obligation for
materials used and labor employed upon the
same.
The obligation to give the performance bond
mentioned in this paragraph, as well as to
execute the instrument incorporating the
construction contract, within five (5) days
from notice of acceptance of the bid, as
OBLIGATIONS
AND
CONTRACTS
Page 17
OBLIGATIONS
AND
CONTRACTS
De La Salle University
obligations. In either case, the existence of
the contractual relation between the parties
did not depend upon the posting the
performance bond. Although, the latter was
essential to the birth of some of the rights
stipulated in favor of petitioner herein, those
of respondent were not conditioned upon the
giving of said performance bond.
Reynaldo Labayen, et. al. v. Talisay-Silay
Milling Co., Inc.
G.R. No. L-29298 December 15, 1928
Digest by: Minrado Batonghinog, Jr.
Facts: Labayen,
the
plaintiff,
owns
Hacienda Dos Hermanos. He entered into a
contract with the defendant, Talisay-Silay
Milling Co., Inc. for the grinding of the
plaintiffs sugar cane. The contract was
subject to a condition, that in order for the
defendant company to proceed with the
grinding of the sugar canes, it must first be
allowed to construct a permanent railroad for
the transportation of the sugar canes. The
railroad construction of the company did not
reach Hacienda Dos Hermanos. According
to the defendant, it could construct a railroad
to the plaintiffs hacienda but it would be
very dangerous. The plaintiff sued the
company for damages resulting from a
breach of their contract to grind the formers
sugar cane. After the re-hearing of the case,
the defendant company was absolved and
the plaintiff was condemned to pay damages
to the defendant.
Issue: Is the defendant company liable for
damages for non-compliance with his
obligation to grind sugar, if such obligation is
burdened with a condition performance of
which would result to undesirable harm?
Held: No. SC affirmed the decision of the
lower court.
Ratio: SC ruled that one cannot obligate
himself to do something which is dangerous
and harmful to life and property. The general
contract entered into by the plaintiff and
defendant was intended to be limited to
haciendas susceptible of having a
permanent railroad for the operation of the
defendant company. According to the Court,
not to allow an exception would be against
public policy by forcing the performance of
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OBLIGATIONS
AND
CONTRACTS
De La Salle University
for rescission or specific
performance with damages;
without debtors fault, it is
extinguished;
without
debtors fault, impairment to
be borne by creditor.
c. Improvement-by nature or
time, inure to the benefit of
the creditor; at the debtors
expense, debtor shall have
no right other than that
granted to a usufructuary.
Rescission
of
obligations in general
reciprocal
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De La Salle University
(1129a)
Obligations with a term or period are
demandable only when the day fixed for
their performance arrives
Classifications of periods:
1. Ex die- with a suspensive effect; it
becomes effective only upon the
arrival of a certain day
2. In diem- with a resolutory effect;
obligation will subsist up to a certain
day
3. Legal - granted by law
4. Voluntary - stipulated by parties
5. Judicial - fixed by courts
6. Definite - date/time is known
beforehand
Requisites
1. It must be future,
2. Certain (sure to come but may be
extended)
3. Possible, legally and physically
Term/Period and Condition Distinguished
Basis
Period
Condition
Time
Always refers Can refer to
to the future
an unknown
past event
Fulfillment
Sure
to May or may
happen at an not happen
exact
date being
an
known
from uncertain
the start or at event
an
indefinite
time, but is
sure to arrive
Influence
Affects
only May cause
on
the the obligations the arising
obligation
demandability
or cessation
or
of
the
performance
obligation
OBLIGATIONS
AND
CONTRACTS
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De La Salle University
requirements of the statute as to contents
and signature and, as such, they constitute
sufficient proof to evidence the agreement in
question.
[T]he clause on which defendant relies for
the enforcement of its right to buy the
property, is not a term, but a condition.
Considering the first alternative, that is, until
defendant shall have obtained a loan from
the National City Bank of New York, it is
clear that the granting of such loans is not
definite and cannot be held to come within
the terms "day certain" provided for in the
Civil code, for it may or it may not happen.
And if we consider that the period given was
until such time as defendant could raise
money from other sources, we also find it to
be indefinite and contingent and so it is also
a condition and not a term within the
meaning of the law. In any event it is
apparent that the fulfillment of the condition
contained in this second alternative is made
to depend upon the defendant's exclusive
will, and viewed in this light, we are of the
opinion that plaintiff's obligation to sell did
not arise, for, under Article 1115 of the old
Civil Code, "when the fulfillment of the
condition depends upon the exclusive will of
the debtor the conditional obligation shall be
void."
La Compaia General de Tabacos de
Filipina v. Vicente Araza
GR No. 3019-February 9, 1907
Digest by: Bon Jeffrey Caluag
Facts: Araza (the defendant) has a debt of
8000 pesos to Compania General which is
payable by installment (500 pesos on the
30th of June, 1901, and the remainder at the
rate of 100 pesos a month, payable on the
30th day of each month). Defendant failed
to pay the installment only paying 400
pesos. Thus, Compania General Instituted
this action seeking the foreclosure of the
mortgage for 8,000 pesos (the entire amount
of mortgage). The defendant alleges that the
document, which was the basis of the
plaintiff's claim was executed by error on his
part and through fraud on the part of the
plaintiff.
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CONTRACTS
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Benefit of the Period
As a general rule, it is for the benefit of both
the obligor and oblige, unless it can be
proved that it was established in favor of one
of tem
If the period was for the benefit of:
Creditor- may demand the fulfillment of the
obligation at any time but the obligor cannot
compel him to accept payment before the
expiration of period
Debtor- cannot be compelled to perform
obligation prematurely, but he can do so if
he desires
Instances when the court may fix the
period:
1. If the obligation does not fix a period,
but from its nature circumstances it can
be inferred that a period was intended;
2. If the duration of the period depends
upon the will of the debtor; and
3. Ife the debtor binds himself when his
means permit him to do so (Art. 1180)
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AND
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Section 3: Alternative Obligation
Art. 1199. A person alternatively bound
by different prestations shall completely
perform one of them.
The creditor cannot be compelled to
receive part of one and part of the other
undertaking. (1131)
Art. 1200. The right of choice belongs to
the debtor, unless it has been expressly
granted to the creditor.
The debtor shall have no right to choose
those prestations which are impossible,
unlawful or which could not have been
the object of the obligation. (1132)
Art. 1201. The choice shall produce no
effect except from the time it has been
communicated. (1133)
Art. 1202. The debtor shall lose the right
of choice when among the prestations
whereby he is alternatively bound, only
one is practicable. (1134)
Art. 1203. If through the creditor's acts
the debtor cannot make a choice
according to the terms of the obligation,
the latter may rescind the contract with
damages. (n)
Art. 1204. The creditor shall have a right
to indemnity for damages when, through
the fault of the debtor, all the things
which are alternatively the object of the
obligation have been lost, or the
compliance of the obligation has become
impossible.
The indemnity shall be fixed taking as a
basis the value of the last thing which
disappeared, or that of the service which
last became impossible.
Damages other than the value of the last
thing or service may also be awarded.
(1135a)
Art. 1205. When the choice has been
expressly given to the creditor, the
obligation shall cease to be alternative
OBLIGATIONS
AND
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one of them is sufficient to extinguish the
obligation
Rights of Choice in belongs to the debtor,
except when it was expressly granted to
creditor.
Agoncillo and Mario v. Javier
G.R. No. L-12611, August 7, 1918
Digested by: Katrina Calugay
Facts: Anastasio, Jose and Florencio (all
surnamed Alano) executed a document in
favor of Da. Marcela Mario, containing
among others; a.) That as the testamentary
heirs, they will be the one to pay Rev.
Anastasio Cruz debt to Mario amounting to
P2,730.50. b.) A mortgage of the property
bequeathed to them by Cruz is entered to
secure the payment of the debt c.) In case of
insolvency, the right of ownership and
possession of the lot will be transferred to
Mario d.) If the value of the property is
insufficient to cover the total amount of
indebtedness, Anastasio shall mortgage his
four parcels of land to secure the balance.
Since then, no part of the debt was paid
except for the P200 paid by Anastasio.
Eventually, Anastasio died intestate. Notices
were published, informing the creditors to
present their claims against his estate. No
claims were presented until the period for
presentation expired.
A year after, Mario requested for the
proceedings reopening, claiming that she is
a creditor of Anastasio. She also claims that
the contract entered between them is that of
a loan with a stipulation that in case the
debtors fail to settle the debt, the properties
will be conveyed in her favor. The Alanos on
the other hand, contend that any cause of
action which Mario has against Anastasios
estate has been barred by her failure to
present her claim within the required period
and that the document does not constitute a
valid mortgage.
Issue: Can Mario
properties in dispute?
validly
claim
the
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event that the debtors fail to pay the money,
it is subject to a suspensive condition, and
the prescription of the obligation whose nonperformance constitutes the condition
effectively prevents the condition from taking
place.
The choice shall produce effect only upon
communication of the choice of the other
party. There is no special form for the
communication notification.
Once
the
debtors
choice
is
communicated,
the
creditors
concurrence is not required.
Once choice is made it can no longer be
renounced and parties are bound by it
When choice is rendered impossible through
the creditors fault, the debtor MAY bring an
action to rescind the contract with damages
Alternative obligations are converted to
simple obligations when:
1. the person who has a right of choice has
communicated his choice.
2. only one prestation is practicable
Legarda v. Miailhe
G.R. No. L-3435, April 28, 1951
Digested by: Katrina Calugay
Facts: On February 17, 1926, William Burke
(original defendant-mortgagee who was later
substituted by Victoria Miailhe) and Clara
Tambunting de Legarda (plaintiff-mortgagor)
entered into a contract of mortgage
amounting to Php75,000.
Because of
Burkes liberality, the mortgage was
renewed from time to time until March 16,
1940. In this mortgage renewal, Burke was
given the option to demand the payment of
the Php70,000 balance either in Philippine
or English currency and that this option has
to be exercised on February 17, 1943.
However before the obligations
maturity, Legarda deposited in court a
certified check representing Japanese
Military notes worth Php75,920.83 to satisfy
the princial and the interests due her. Burke
refused to receive the payment because it is
not in the currency agreed upon by them.
Legarda filed a complaint alleging
Burkes unjustified refusal to accept her
payment. Burke in his answer said that the
obligation has not yet become due and that
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AND
CONTRACTS
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Military notes was a valid tender because it
was the only currency permissible at the
time, and the same was made in
accordance with the agreement because
payment in Japanese Military notes during
the occupation is tantamount to payment in
the Philippine currency. (Haw Pia vs. China
Banking Corporation, 45 Off. Gaz., Supp.[9]
229; Phil. Trust vs. Araneta, 46 Off. Gaz.,
4254; Allison D. Gibbs vs. Eulogio
Rodriguez, 47 Off. Gaz., 186.) But the
consignation of the sum of P75,920.83 in
Japanese currency made by the plaintiffs
with clerk of court does not have any legal
effect because it was made in certified
check, "does not meet the requirements of a
legal tender."
OBLIGATIONS
AND
CONTRACTS
Loss of Objects
Section 4: Joint and Solidary Obligations
A. If the choice belongs to the debtor:
Through fortuitous Event
Total loss - debtor is released
from the obligation
Partial loss- deliver that which
he shall choose from among the
remainder
2. Through the debtors fault
Total loss - creditor shall have a
right to indemnity for damages
based on the value of the last
thing which disappeared or
service
which
become
impossible
Partial loss - deliver that which
he shall choose from among the
remainder without damages
1.
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Effect of
Prestation
Loss
or
Impossibility
of
Divisible
and
Indivisible
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2. Quantitative
division
obligation
to
be
Indivisible Obligations
Non-susceptibility of an obligation to partial
performance
Test of Divisibility: Whether the prestation
is susceptible of partial compliance or not
Kinds of Division of Things
1. Qualitative
division
Kinds of Indivisibility
1. Legal indivisibility provided by law
2. Conventional indivisibility agreed
upon by the contracting parties
3. Natural indivisibility nature of the
object or subject matter of the
obligation
-
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In obligations not to do, it depends upon the
character of the prestation in each particular
case
General Rule: Creditor cannot be
compelled partially to receive the prestation
in which the obligation consists; neither may
the debtor be required to make partial
payments
Exceptions:
1. When the obligation expressly
stipulates the contrary
2. When the different prestations
constituting the objects of the
obligation are subject to different
terms and conditions
3. When the obligation is in part
liquidated and in part unliquidated
Note: When there is plurality of debtors and
creditors, the effect of divisible/indivisible
character of the obligation depends on
whether the obligation is joint or solidary.
If solidary Arts. 1211 to Art. 1222
appwwdsly
If joint divisible Art. 1208 is
applicable
If joint indivisible Art. 1209 and
1224 apply
Section 6: Obligations with a Penal
Clause
Art. 1226. In obligations with a penal
clause, the penalty shall substitute the
indemnity for damages and the payment
of interests in case of noncompliance, if
there is no stipulation to the contrary.
Nevertheless, damages shall be paid if
the obligor refuses to pay the penalty or
is guilty of fraud in the fulfillment of the
obligation.
The penalty may be enforced only when
it is demandable in accordance with the
provisions of this Code. (1152a)
Art. 1227. The debtor cannot exempt
himself from the performance of the
obligation by paying the penalty, save in
the case where this right has been
expressly reserved for him. Neither can
the creditor demand the fulfillment of the
obligation and the satisfaction of the
and
Penal Clause
Constitutes an obligation
May
become
demandable
upon
default
of
the
unperformed obligation
and sometimes jointly
with it
Condition
Condition
Does not constitute
an obligation
Never demandable
Purpose of Penalty:
1. Funcion coercitiva o de garantia to
insure the performance of the
obligation;
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2. Funcion liquidatoria to liquidate
the amount of damages to be
awarded in case of breach of the
principal obligation (compensatory)
3. Funcion estrictamente penal in
certain exceptional cases, to punish
the obligor in case of breach of the
principal obligation (punitive). Does
not resolve the question of damages
Enforceability of Penalty
Penalty as a stipulation in a contract is
demandable only if there is a breach of the
obligation and it is not contrary to law,
morals, good customs, public order or public
policy.
Siy v CA
(138 SCRA 536)
Digested by: Leandro Celles
Facts: The spouse Valdez, the respondents,
owns a house and lot in Makati. They then
entered a contract of sale with Virgilio Siy,
the petitioner, the problem stemmed
from their subsequent agreements. Initially
they agreed that a contract of deed of sale
shall be executed upon the approval of their
SSS loan. It is also agreed that a payment of
P50 monthly for the rental of the property
and P30 per day of delay.
Since the property was mortgaged to the
GSIS they were asked to execute a Deed of
Sale with Assumption of Mortgage stating
that the petitioner has paid the for the
improvements incurred in the property and
the balance to be paid upon approval of the
SSS loan which they did.
The spouses Valdez then evidently chose to
rescind the contract because Ignacio was
unable to pay neither the initial payment nor
the balance to be paid from the SSS loan
within the period agreed upon.
Issues:
1. Is Ignacio liable to pay for damages for
the failure to fulfill payment of the land?
2. Did the court correctly impose the penalty
to be paid?
Held: 1. Yes. Ignacios failure to pay within
the period provided for in the contract is a
clear breach of contract and entitles the
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Exception: Unless the right has been
clearly granted to him.
If creditor has chose fulfilment of the
principal obligation and performance
thereof became impossible without
his fault, he may still demand
satisfaction of the penalty.
If there was fault on the part of
debtor, creditor may demand not
only satisfaction of penalty but also
the payment of damages.
Proof of Actual Damages
The rule that proof of actual damages is not
necessary is applicable only to the general
rule stated in Art. 1226 and not to the
exceptions.
Penalty is exactly identical with what is
known as liquidated damages under Art.
2226.
When Penalty May Be Reduced
1. If the principal obligation has been
partly complied with;
2. If the principal obligation has been
irregularly complied with; and
3. If the penalty is iniquitous or
unconscionable even if there has
been no performance.
Effect of Nullity of Obligation or Penalty
- If principal obligation is void - penal
clause shall also be void because
the penalty is merely an accessory
obligation
- If penal clause is void, principal
obligation is not affected.
CHAPTER 4: Modes of
Extinguishing Obligations
Art. 1231. Obligations are extinguished:
(1) By payment or performance:
(2) By the loss of the thing due:
(3) By the condonation
remission of the debt;
or
(5) By compensation;
(6) By novation.
Other causes of extinguishment of
obligations,
such
as
annulment,
rescission, fulfillment of a resolutory
condition, and prescription, are governed
elsewhere in this Code. (1156a)
A.
B.
C.
D.
E.
F.
G.
H.
I.
J.
Payment/performance
Loss of the thing due
Condonation or remission of debt
Confusion or merger
Compensation
Novation
Annulment
Rescission
Fulfilment of a resolutory condition
Prescription
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(1169a)
Art. 1249. The payment of debts in money
shall be made in the currency stipulated,
and if it is not possible to deliver such
currency, then in the currency which is
legal tender in the Philippines.
The delivery of promissory notes payable
to order, or bills of exchange or other
mercantile documents shall produce the
effect of payment only when they have
been cashed, or when through the fault
of the creditor they have been impaired.
In the meantime, the action derived from
the original obligation shall be held in the
abeyance. (1170)
Art. 1250. In case an extraordinary
inflation or deflation of the currency
stipulated should supervene, the value of
the currency at the time of the
establishment of the obligation shall be
the basis of payment, unless there is an
agreement to the contrary. (n)
Art. 1251. Payment shall be made in the
place designated in the obligation.
There being no express stipulation and if
the undertaking is to deliver a
determinate thing, the payment shall be
made wherever the thing might be at the
moment the obligation was constituted.
In any other case the place of payment
shall be the domicile of the debtor.
If the debtor changes his domicile in bad
faith or after he has incurred in delay, the
additional expenses shall be borne by
him.
These provisions are without prejudice to
venue under the Rules of Court. (1171a)
OBLIGATIONS
AND
CONTRACTS
SUBSECTION 1. - Application of
Payments
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AND
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CONTRACTS
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time when payment is due and not
when the obligation was constituted
Effect of payment to unauthorized
persons in obligation to give:
General Rule: Not valid, even though made
in good faith.
Payment made to the
Creditor and Third Person
Incapacitated
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the payment made to a third person, even
through error and in good faith, shall not
release the debtor of the obligation to pay
and will not deprive the creditor of his right
to demand payment. If it becomes
impossible to recover what was unduly paid,
any loss resulting therefrom shall be borne
by the deceived debtor, who is the only one
responsible for his own acts unless there is
a stipulation to the contrary or unless the
creditor himself is responsible for the
wrongful payment."
Payment made to the creditor by the
debtor after the latter has been judicially
ordered to retain the debt
- not valid
- unless
otherwise
stipulated,
extrajudicial expenses required by
the payment shall be for the account
of the debtor (Art. 1247).
General rule: creditor shall be paid only what
has been stipulated
Dation in payment
- alieanation by the debtor of a
particular property in favour of his
creditor, with the latters consent, for
the satisfaction of the formers
money obligation to the latter, with
the effect of extinguishing the said
money obligation
- form of novation
- shall be govered by law of sales
- elements of dation in payment
1) existence of a money
obligation
2) alienation to the creditor of
a property by the debtor
with the consent of the
former
3) satisfaction of the money
obligation of the debtor
When obligation is to deliver an
indetereminate or generic thing, the quality
is not stated
- only the ordinary kind or category of
said thing should be delivered
Extrajudicial expenses for payment
account of debtor
Judicial cost rules of court shall govern
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Applies ONLY
obligations
to
contractual
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There must be a declaration of such
extraordinary inflation or deflation by the
Bangko Sentral. Without such declaration,
the creditors cannot demand an increase,
and debtors a decrease, of what is due to or
from them (Ramos v. CA, GR No. 119872,
July 7, 1997 and Mobil Oil Phils. V. CA, GR
No. 103072, August 20, 1993).
Place of Payment
1. Place stipulated by the parties.
2. If there is no stipulation and the
obligation is to deliver a determinate
thing, payment shall be made at the
place where the thing might be at
the time the obligation was
constituted.
3. In any other case, the payment shall
be made at the domicile of the
debtor.
Note: If the debtor changes his domicile in
bad faith or after he has incurred in delay,
the additional expenses shall be borne by
him.
Art. 1251 governs unilateral obligations.
Reciprocal obligations are governed by
special rules.
Application of Payment Designation of
the debt to which the payment must be
applied when the debtor has several
obligations of the same kind in favour of the
same creditor.
Requisites:
1. There must be only one debtor
and only one creditor;
2. There must be two or more
debts of the same kind;
3. All the debts must be due
except if there is stipulation to
the contrary OR application of
payment is made by the party
for whose benefit the term has
been constituted (Art. 1196 and
Art. 1792); and
4. Amount paid by the debtor is
insufficient to cover the total
amount of all the debts.
-
or
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the purchase price of the parcel of land,
which is the sum of P5,000.00, and in the
surety bond, the Luzon Surety Co., Inc.
undertook "to pay the amount of P5,000.00
representing balance of the purchase price
of a parcel of land. . . ." The appellee did not
protest nor object when it accepted the
payment of P5,000.00 because it knew that
that was the complete amount undertaken
by the surety as appearing in the contract.
The liability of a surety is not extended, by
implication, beyond the terms of his contract.
It is for the same reason that the appellee
cannot apply a part of the P5,000.00 as
payment for the accrued interest."
"Appellants are relying on Article 1253 of the
Civil Code, but the rules contained in
Articles 1252 to 1254 of the Civil Code apply
to a person owing several debts of the same
kind of a single creditor. They cannot be
made applicable to a person whose
obligation as a mere surety is both
contingent and singular; his liability is
confined to such obligation, and he is
entitled to have all payments made applied
exclusively to said application and to no
other. Besides, Article 1253 of the Civil
Code is merely directory, and not
mandatory. We cannot now say that there
was a waiver or condonation on the interest
due."
2.
"The rule is settled that novation
by presumption has never been favored. To
be sustained, it needs to be established that
the old and new contracts are incompatible
in all points, or that the will to novate
appears by express agreement of the
parties or in acts of similar import."
"An obligation to pay a sum of money is not
novated, in a new instrument wherein the
old is ratified, by changing only the terms of
payment and adding other obligations not
incompatible with the old one, or wherein the
old contract is merely supplemented by the
new one. The mere fact that the creditor
receives a guaranty or accepts payments
from a third person who has agreed to
assume the obligation, when there is no
agreement that the first debtor shall be
released from responsibility does not
constitute a novation, and the creditor can
still enforce the obligation against the
in
Debtor
not
necessarily
in
state of financial
difficulty
Thing delivered is
considered
as
by
Payment
by
Cession
Plurality
of
creditors
Debtor must be
partially
or
relatively
insolvent
Universality
of
property of debtor
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equivalent
performance.
of
Extinguishes
obligation to the
extent of the value
of
the
thing
delivered
as
agreed
upon,
proved or implied
from the conduct
of the creditor
Does not involve
all properties of
debtor
Creditor becomes
owner of property
of debtor
is what is ceded.
Merely releases
debtor for net
proceeds
of
things ceded or
assigned, unless
there is contrary
intention
Involves all
properties of
debtor
Creditor does
become
owner
the
the
not
the
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the creditor is not interested or
unknown or is not absent, the
result is a litigation. If during the
trial, the plaintiff-debtor is able
to establish that all the
requisites of consignation has
been
complied
with,
the
obligation is extinguished.
Torcuator v Bernabe
(459 SCRA 439)
Digested by: Chantal Chua
Facts: Spouses Salvador bought a parcel of
land in Ayala Alabang Village, Muntinlupa,
Metro Manila. The sale is subject to the
following conditions: (a) that the lot-buyer
shall deposit with Ayala Corporation a cash
bond (about P17,000.00 for the Salvadors)
which shall be refunded to him if he builds a
residence thereon within two (2) years of
purchase, otherwise the deposit shall be
forfeited; (b) architectural plans for any
improvement shall be approved by Ayala
Corporation; and (c) no lot may be resold by
the buyer unless a residential house has
been
constructed
thereon
(Ayala
Corporation keeps the Torrens title in their
(sic) possession.)"
The Salvadors soon sold the parcel of land
to the Bernabes. They also executed a
special power of attorney authorizing the
Bernabes to construct a residential house on
the said land and to transfer the title of said
property in their names. The Bernabes,
however, contracted to sell the same parcel
of land to the Torcuators. In view of the third
condition of the Ayala Alabang, the parties
agreed to cause the sale between the
Salvadors and the Bernabes cancelled, (in
favor of (a) a new deed of sale from the
Salvadors directly to the Torcuators; (b) a
new Irrevocable Special Power of Attorney
executed by the Salvadors to the Torcuators
in order for the latter to build a house on the
land in question; and (c) an Irrevocable
Special Power of Attorney from the
Salvadors to the Bernabes authorizing the
latter to sell, transfer and convey, with power
of substitution, the subject lot. However, the
deed of sale was never consummated nor
was payment ever effected. Thus, the
Torcuators commenced the instant action
against the Bernabes and Salvadors for
Specific Performance or Rescission with
Damages.
consignation
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their
shares
obligation
of
their
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1. Law provides otherwise
2. Stipulation
3. Nature of the obligation requires
assumption of risk
4. Obligation to deliver a specific thing
arises from a crime
5. Loss is partly due to the fault of the
debtor
6. Occurs after the debtor incurred in
delay
7. Debt proceeds from a criminal
offense
8. Liability of a bailee, depositary,
officious manager
9. Acceptance in bad faith of undue
payment
10. Obligor to deliver the same thing to
two or more persons with different
interest
11. Obligation to deliver a generic thing
Partial loss
General rule: Partial loss does not
extinguish the obligation.
Exception: It is of great importance that is
almost equivalent to a total loss or
destruction.
Rule if the thing is in debtors
possession (NCC 1265)
General rule: Presumption of fault of debtor,
unless there is a proof to the contrary.
Exception: Earthquake, flood, storm or other
natural calamity.
Impossibility
of
performance
in
obligation to do (NCC 1266)- When the
obligation becomes legally or physically
impossible without the fault of the debtor,
obligor is released from the obligation.
Natural
Impossibility
Consist of the nature
of the thing to be
done and not the
inability of the party
to do so.
Impossibility
in
Fact
In the absence of the
objects
inherent
impossibility,
improbable or out of
the power of the
obligor.
Does not render the
contract void.
OBLIGATIONS
AND
CONTRACTS
Relative impossibility
Doctrine of Unforeseen Events (NCC 1267)When the service has become so difficult as
Contract is void
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loss by fortuitous event) should not be
confused with consignation (payment of the
obligation).
Requisites:
1. Gratuitous
2. Accepted by the obligor
3. Obligation is demandable
4. Parties have the legal capacity
5. Not inofficious
6. Must comply with the forms of
donation (NCC 748-749)
Note: Whether express or implied, the extent
of remission or condonation shall be
governed by the rules regarding inofficious
donation.
Abandonment of a credit- If the debtor
does not accept the remission but does not
pay, and the creditor does not enforce the
payment, the abandonment will result in the
prescription of the credit. The debtor
received the gain not by remission but by
prescription.
Note: Remission is never presumed, it must
be established by clear, strong, and
convincing evidence.
Dismissal of complaint against one, in case
of several debtors, has the effect of
condonation to that person.
Delivery of a private document- If the
creditor voluntarily delivers the private
document evidencing the credit to the
debtor, there is a presumption that he
renounces the right of action against the
latter for the collection of the said credit
(NCC 1271). When such private document
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De La Salle University
is found in possession of the debtor, it shall
be presumed that the creditor delivered it
voluntarily, unless the contrary is proved
(NCC 1272).
Note: Limited only to private documents
(promissory note), and not to public
documents evidencing credits because a
Notary Public also has a copy of that.
Velasco vs. Masa
G.R. No. L-3717 March 5, 1908
Digested by: Bryan Oneal Cua
Facts: On December 2, 1902, Felix Velasco
filed a complaint to have Martin Masa pay
the amount of P2,804 that the latter owed
him with interest of 12% per annum from 71-1899 until such has been paid. Petitioner
says that it was agreed upon by him and
Masa that the said loan was to be paid on
the same date of the following year and that
such was put into a private instrument that
was duly signed by the debtor. Now,
Velasco claims that Masa taking advantage
of the prevailing situation of the revolution in
their area coerced and tricked Velascos
wife into giving him possession of the said
private instrument while he was in jail in
Antique. He later filed his claim before the
provost court for the robbery of the said
document, but, as said court considered that
it had no jurisdiction in the premises, the
plaintiff presented an information to the
Court of First Instance, a certified copy of
whose decision is annexed; and that
between the plaintiff and the defendant
interest at the rate of 12 per cent had been
agreed upon, which was to be added to the
principal at the end of the year if the
defendant was unable to pay the same. For
his defense, Masa claims that such an
instrument was not for the said amount but
for only P1,000, also he says that the
instrument bearing the agreement was
voluntarily given to him by Velascos wife
through a certain Luis Ocsea and that such
was done as per the instructions of Felix
himself. The Lower court rendered the
decision favouring Masa, hence the current
appeal.
Issue: Given that the return of the Private
Instrument bearing the agreement between
the two parties was voluntary; does this
extinguish the obligation to pay by the
OBLIGATIONS
AND
CONTRACTS
an
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AND
CONTRACTS
De La Salle University
only to the accessory obligation, the
principal obligation subsists (NCC 1273).
Section 4. - Confusion or Merger of
Rights
Art. 1275. The obligation is extinguished
from the time the characters of creditor
and debtor are merged in the same
person. (1192a)
Art. 1276. Merger which takes place in
the person of the principal debtor or
creditor
benefits
the
guarantors.
Confusion which takes place in the
person of any of the latter does not
extinguish the obligation. (1193)
or subsidiary debtor
(i.e. guarantor)
of
principal
obligation,
only
substitution
of
creditor or debtor
Principal obligation
is extinguished up to
the share which
corresponds to him
Entire obligation is
extinguished. But the
debtor
in
whom
confusion took place
may
claim
reimbursement from
co-debtors for their
corresponding
shares.
Section 5. Compensation
Art. 1278. Compensation shall take place
when two persons, in their own right, are
creditors and debtors of each other.
(1195)
CONFUSION
- The merger of the characters of the
creditor and the debtor in one and
the same person by virtue of which
the obligation is extinguished.
- This is because the person
becomes both a creditor and debtor
to himself, and it is nonsensical for a
person to push and pursue a claim
against his own self.
Requisites:
1. Merger in the same person
2. Who is also the principal debtor and
creditor
3. Complete and definite meeting of all
qualities of creditor and debtor in the
obligation or in the part affected by
the merger
Effects of confusion/merger (NCC 12761277)
Instance
Takes place in the
person of either the
principal creditor or
debtor
Subsidiary creditor
Extent
of
Extinguishment
Entire obligation
No
extinguishment
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OBLIGATIONS
AND
CONTRACTS
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OBLIGATIONS
AND
CONTRACTS
De La Salle University
communicated in due time to the
debtor
6. Must not be prohibited by law
Kinds of obligations:
A. As to cause
1. Legal- by operation of law (NCC
1286/1289)
2. Conventional or Voluntary- the
parties are mutual debtors and
creditors (NCC 1282)
3. Judicial- takes place by a
judgment of the court when
there is a counterclaim (NCC
1283)
4. Facultative- when it is claimed
by one of the parties who has
the right to object to it but
waives his objection
B. As to effect
1. Total- debts to be compensated
are equal in amount
2. Partial- debts are not equal in
amount
Compensation
Two persons, who in
their own right, are
creditors
and
debtors of each
other
There must be at
least two obligations
Confusion
Only one person in
whom the qualities
of
debtor
and
creditor are merged
Compensation
Takes
effect
by
operation of law
Capacity to give and
acquire
is
not
necessary
Permits
partial
extinguishment
of
obligation
Payment
Takes effect by act
of the parties
Capacity to give and
act is essential
Compensation
Two debts must
consist in money or
if fungibles, same
kind and quality
Both debts must be
liquidated
Need not be pleaded
since it takes effect
by operation of law
Counterclaim
Not necessary
Complete
and
indivisible
extinguishment only
Not necessary
Must be pleaded to
be effective
Rights
of
guarantor
to
set-up
compensation (NCC 1280)- The guarantor,
in case of payment of debt is demanded
from him, may set up compensation, not
only from what the creditor owes him, but
also for what the creditor owes the principal
debtor.
Rules in case of rescissible or voidable
debts (NCC 1284)- These may be
compensated against each other before they
are judicially rescinded or avoided.
Effects of assignment of rights (NCC
1285):
Consent/Knowledge
of Debtor
With
consent
of
debtor
Without knowledge
Effects
Debtor cannot setup
compensation
unless he reserved
his
right
to
compensation
Debtor may set-up
compensation prior
to the assignment
but
not
subsequently ones
May
set-up
compensation of all
credits which he
may have against
the assignor and
which may have
become
demandable, before
he was notified of
the assignment
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De La Salle University
4. Arising from criminal offenses
5. Obligations in favour of the
government (e.g. taxes, fees, duties,
etc.)
Facultative compensation- that which can
be set up only at the option of the creditor
when legal compensation cannot take place
because of want of some legal requisites for
the benefit of the creditor. The latter can
renounce his right to oppose the
compensation and he himself can set it up. It
differs from conventional compensation
because it is unilateral while the latter
depends upon the agreement of both parties
(Tolentino).
SECTION 6. Novation
Art. 1291. Obligations may be modified
by:
(1) Changing their object or
principal conditions;
(2) Substituting the person of the
debtor;
(3) Subrogating a third person in
the rights of the creditor. (1203)
Art. 1292. In order that an obligation may
be extinguished by another which
substitute the same, it is imperative that
it be so declared in unequivocal terms, or
that the old and the new obligations be
on every point incompatible with each
other. (1204)
Art. 1293. Novation which consists in
substituting a new debtor in the place of
the original one, may be made even
without the knowledge or against the will
of the latter, but not without the consent
of the creditor. Payment by the new
debtor gives him the rights mentioned in
Articles 1236 and 1237. (1205a)
Art. 1294. If the substitution is without
the knowledge or against the will of the
debtor, the new debtor's insolvency or
non-fulfillment of the obligations shall
not give rise to any liability on the part of
the original debtor. (n)
Art. 1295. The insolvency of the new
debtor, who has been proposed by the
OBLIGATIONS
AND
CONTRACTS
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De La Salle University
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.
(1210a)
Art. 1303. Subrogation transfers to the
persons subrogated the credit with all
the rights thereto appertaining, either
against the debtor or against third
person,
be
they
guarantors
or
possessors of mortgages, subject to
stipulation
in
a
conventional
subrogation. (1212a)
Art. 1304. A creditor, to whom partial
payment has been made, may exercise
his right for the remainder, and he shall
be preferred to the person who has been
subrogated in his place in virtue of the
partial payment of the same credit.
(1213)
NOVATION
- It is the substitution or change of an
obligation by another, resulting in its
extinguishment or modification,
either by changing its object or
principal
conditions,
or
by
substituting another in place of the
debtor, or by subrogating a third
person in the rights of the creditor.
- 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 (NCC 1291)
Requisites:
1. Previous valid obligation
2. Capacity of the contracting parties
to the new contract
3. Intent to novate (animus novandi)
4. Substantial difference between the
old and new obligation (especially
for implied novation)
5. Validity of the new obligation
Two-fold purpose:
1. Extinguish original obligation
OBLIGATIONS
AND
CONTRACTS
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De La Salle University
Facts: There were two deals: (1) In 1979,
Delta Motors Corporation applied for a loan
from respondent State Investment House
Inc. SIHI agreed, and Delta eventually owed
SIHI P24,010,269.32, (2) Meanwhile, CBLI
bought 35 buses from Delta and issued 16
promissory notes. CBLI defaulted, there
was a need to restructure payment
schemes. There was a new agreement (1st
compromise) entered into: (1) daily
remittance instead of monthly remittance, (2)
In case of default of CBLI, Delta Motors will
take over management and operation of
CBLI, (3) Increased the interest rate and
added
a
documentation
fee
and
restructuring fee. CBLI continued having
trouble meeting its obligations to Delta. This
prompted Delta to threaten CBLI with the
enforcement of the management takeover
clause. Court granted the petition on
account of the fraudulent disposition of CBLI
of its assets. Because CBLI defaulted on its
payments, Delta also had difficulty paying
SIHI. Eventually, Delta assigned 5 of the 15
promissory notes of CBLI to SIHI which had
a total value of P16,152,819.80 inclusive of
interest at 14% per annum. SIHI demanded
CBLI to remit the payments due on the five
promissory notes directly to it. Thereafter,
Delta and CBLI entered into a compromise
agreement (2nd Compromise) wherein CBLI
agreed that Delta would exercise its right to
extrajudicially foreclose on the chattel
mortgages over the 35 bus units. Following
this, CBLI vehemently refused to pay SIHI
the value of the five promissory notes,
contending that the 1st and 2nd compromise
agreements were in full settlement of all its
obligations to Delta including its obligations
under
the
promissory
notes.
SIHI
subsequently filed a case to collect the
amount of the 5 promissory notes.
Issues:
(1) Did the 1st Compromise novate the five
promissory notes Delta assigned to SIHI?
(2) Did the 2nd compromise agreement
supersede and/or discharge the subject five
promissory notes?
Held: No. Novation which may be effected
either expressly or impliedly. Obviously,
theres no express novation:
In this case, the attendant facts do not
make out a case of novation. The
compromise Delta and CBLI executed,
OBLIGATIONS
AND
CONTRACTS
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De La Salle University
Novation of a criminal liability:
- Novation may be allowed to avoid
criminal liability as long as it occurs
prior to the filing of a criminal action.
- But it is not a ground prescribed by
the Revised Penal Code for the
extinguishment of a criminal liability.
Objective Novation (NCC 1291, par. 1)According to Castan, objective novation is
effected by:
1. Changing the cause
2. Changing the object
3. Changing the principal or essential
conditions
Requisites of objective novation:
1. New obligation expressly declared
that the old is extinguished, or
2. New obligation is on every point
incompatible with the old one
Note: A change in the interest rate is merely
collateral agreement between the creditor
and principal debtor that did not affect the
surety. The agreement to pay the additional
interest was an additional burden upon the
debtor only. It did not, in anyway, affect the
original contract. Thus, despite the
compounding of the interest, the liability of
the surety remains only up to the original
compounded interest.
The grant of a 45-day credit extension does
not novate the contract as it merely modifies
the contract by extending the time for
payment.
The obligation to pay a sum of money is not
novated by an instrument that expressly
recognizes the old changes only the terms
of the payment, adds other obligations not
incompatible with the old ones or the new
contract merely supplements the old
contract.
If a subsequent contract is designed to
novate a previous contract and not all
parties to the original contract consented to
or are made parties in the subsequent
contract, there can be no novation.
Novation by substitution of debtors (NCC
1293)- A subjective/personal novation
consists in the substitution of a new debtor
in place of the original debtor.
OBLIGATIONS
AND
CONTRACTS
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De La Salle University
OBLIGATIONS
AND
CONTRACTS
i. Reimbursement
from the original
debtor only insofar
as the payment has
been beneficial to
such debtor
ii. No subrogation
2. Delegacion- Since substitution was
effected with the consent of all
parties, the new debtor can demand
reimbursement from the original
debtor of the entire amount which
he has paid as well as compel the
creditor to subrogate him to all of his
rights
Page 57
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AND
CONTRACTS
De La Salle University
previous valid and
effective obligation
would be lacking
b. If
the
conditions
are
incompatible- the effect is to
extinguish the old obligation
so that the new obligation
remains
and
whose
demandability/effectivity
depend
upon
the
fulfilment/non-fulfillment of
the condition affecting it
Novation by subrogation
- A personal novation effected by
rd
subrogating a 3 person in the
rights of the creditor
Forms of novation by subrogation:
1. Conventional- takes place by
agreement of the original creditor,
the third person substituting the
original creditor, and the debtor
(NCC 1301)
2. Legal- takes place by operation of
law
Conventional
Subrogation
Governed by NCC
1300-1304
Debtors consent is
required
Has the effect of
extinguishing
the
obligation
and
giving rise to a new
one
Defects/vices in the
old obligation are
cured
Effects arises from
the moment of
novation/subrogatio
n
Assignment
Rights
Governed by
1624-1627
Not required
of
NCC
TITLE II CONTRACTS
CHAPTER 1
GENERAL PROVISIONS
Art. 1305. A contract is a meeting of
minds between two persons whereby one
binds himself, with respect to the other,
to give something or to render some
service. (1254a)
Art. 1306. The contracting parties may
establish such stipulations, clauses,
terms and conditions as they may deem
convenient, provided they are not
contrary to law, morals, good customs,
public order, or public policy. (1255a)
Art. 1307. Innominate contracts shall be
regulated by the stipulations of the
parties, by the provisions of Titles I and II
of this Book, by the rules governing the
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AND
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De La Salle University
I.
Meaning
A. The definition given by the article is
inaccurate. (1) a contract cannot be
confined to only two persons
because a party to a contract may
be more than two, as when there
are five sellers and five buyers; (2)
the definition only partakes of one of
the parties performing an obligation
in a contract, but there are contracts
requiring the fulfillment of reciprocal
obligations, such as contracts of
sale; (3) the definition only pertains
to the object of a contract as to
give and to do, it failed to include
a negative prestation which is not
to do.
B. The suggested definition a
contract is a meeting of the minds
between two or more parties, where
one party binds himself with respect
to the other, or where both binds
themselves reciprocally in favor of
one another, to fulfill a prestation to
give, to do, or not to do.
II.
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AND
CONTRACTS
De La Salle University
A. There are 3 stages in a contract:
a. Conception or Generation
this is where the parties
being their initial negotiation
for the formation of a
contract
b. Perfection or Birth here is
where the meeting of the
minds of the parties occur,
with respect to the object,
cause or consideration and
other terms and conditions
of the contract
c. Consummation
or
Fulfillment this is the last
stage, where the parties
perform their obligations
under
the
perfected
contract, which has the
effect of terminating the
contract
III. Classification of Contracts
A. According to their names
a. Nominate a contract given
a particular name or
denomination by law
b. Innominate not given a
particular name and not
regulated
by
special
provisions of law; discussed
fully under Art. 1307
B. According to their subject matter
a. Contracts covering things
contracts like sale, pledge,
deposit
b. Contracts covering services
contract such as that of
carriage, agency, deposit
c. Contracts
covering
transmissible
rights
or
credits contracts such as
usufruct and assignment of
credit
C. According to their formation or
perfection
a. Consensual perfected by
mere consent
b. Real contracts which
require delivery to be
perfected
c. Formal contracts which
require compliance with
formalities required by law
to be perfected
D. According to their cause
E.
F.
G.
H.
I.
a. Onerous
contracts
providing
exchange
of
valuable considerations
b. Gratuitouscontracts where
one receives something
without
giving
any
equivalent of compensation
c. Remunerative where one
party gives something in
consideration of a previous
or past deed.
According to the viniculum produced
of the party or parties obligated
a. Unilateral only one party
is bound to fulfill an
obligation
b. Bilateral both parties have
bound
themselves
reciprocally
According to the certainty of
fulfillment
a. Commutative contracts
where
the
parties
contemplate the assured
fulfillment of the terms and
conditions of the contract
b. Aleatory fulfillment of the
contracts depends on the
happening of an event,
which may or may not
come.
According
to
completion
of
performance
a. Executed those already
completed when entered
into
b. Executor the prestations
promised by the parties are
yet to be fulfilled at some
future time
According to the dependence of one
contract to another
a. Principal those that can
exist themselves alone
b. Accessory those which
cannot exist without a
principal contract
c. Preparatory those entered
into for the creation of
another contract
According to the number of persons
actually participating in the contract
a. Ordinary those where two
or
more
parties
are
represented by different
persons
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De La Salle University
J.
K.
L.
M.
N.
b. Auto-contracts
those
where two opposite parties
are represented by one and
the same person
According to the dignity accorded by
law
a. Institutional
those
contracts
given special
dignity by law
b. Ordinary those which are
not institutional
According to the freedom of bargain
a. Ordinary where both
parties are placed on equal
footing in negotiating
b. Contracts of adhesion
where a contract has
already
been
drafted
already by one of the
parties and the other is left
with only the choice whether
to accept or not to accept
According to the evidence need to
prove their existence
a. Contracts covered by the
Statute of Frauds those
which are required to be
written
b. Contracts which can be
proved by oral or parol
evidence those contracts
such as a lease for a period
of less than one year, or of
a sale where there was
already full or partial
payment
According to the personalities of the
parties
a. Personal those contracts
where the person of the
parties is essential
b. Impersonal
those
contracts where the person
of the parties are not
essential
According to the manner the
consent is given
a. Express where the
consent of the parties are
expressly given in writing or
verbally
b. Implied opposite of
express; deducible from the
acts of the parties
c. Presumed
contracts
where consent was not
Basic
Legal
Principles
Governing Contracts
Freedom to stipulate this will be
explained thoroughly in Art. 1306
Obligatory force of contracts
obligations arising from contracts
have the force of law between the
parties and should be complied with
in good faith
Mutuality of contracts this will be
explained thoroughly in Art. 1308
Relativity of contracts this will be
explained thoroughly in Art. 1311
Perfection by mere consent of
contracts this will be explained
thoroughly in Art. 1315
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De La Salle University
UCPB v. Spouses Beluso
G.R. No. 159912, August 17, 2007
Digested by: Dino De Leon
Facts: The UCPB granted the spouses
Beluso a Promissory Note Line under a
Credit Agreement. The spouses Beluso
constituted other than their promissory
notes, a real estate mortgage over parcels
of land as additional security for the
obligation. In any case, UCPB applied
interest rates on the different promissory
notes ranging from 18% to 34%. The
spouses, however, failed to make any
payment of their obligations with the bank.
Spouses Beluso filed a petition for the
annulment, accounting and damages
against UCPB.
Issue: Is UCPB authorized to unilaterally fix
the interest rates?
Held:No. A promissory note which grants
the creditor the power to unilaterally fix the
interest rate means that the promissory note
does not contain a clear statement in writing
of the finance charge. Such provision is
illegal not only because it violates
the provisions of the Civil Code on mutuality
of contracts but also because it violates the
Truth in Lending Law.
Ratio: Art. 1308. The contract must bind
both contracting parties; its validity or
compliance cannot be left to the will of one
of them.
We applied this provision in Philippine
National Bank v. Court of Appeals, where
we held:
In order that obligations arising from
contracts may have the force of law between
the parties, there must be mutuality between
the parties based on their essential equality.
A contract containing a condition which
makes its fulfillment dependent exclusively
upon the uncontrolled will of one of the
contracting parties, is void (Garcia vs. Rita
Legarda, Inc., 21 SCRA 555). Hence, even
assuming that the P1.8 million loan
agreement between the PNB and the private
respondent gave the PNB a license
(although in fact there was none) to increase
the interest rate at will during the term of the
loan, that license would have been null and
OBLIGATIONS
AND
CONTRACTS
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skill, taste, ability, experience, judgment,
discretion, integrity, or other personal
qualification of one or both parties the
agreement is of a personal nature, and
terminates on the death of the party who is
required to render such service.
EXCEPTIONS:
1) Parties only (by stipulation);
2) Affects/ involves/ binds third persons
Second
exception
is
further
subdivided into: (D-A-R-D-I)
Stipulation Pour Autrui
Requisites are (S-I-P-A-C)
(Art.
1311);
Stipulation
Incidental NOT!
Part
Agent NOT!
Conferred clearly
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De La Salle University
Pertinent provisions that is applicable as to
this case:
Art. 1749. A stipulation that the common
carrier's liability is limited to the value of the
goods appearing in the bill of lading, unless
the shipper or owner declares a greater
value, is binding.
Art. 1750. A contract fixing the sum that may
be recovered by the owner or shipper for the
loss, destruction, or deterioration of the
goods is valid, if it is reasonable and just
under the circumstances, and has been
freely and fairly agreed upon.
Pursuant to the afore-quoted provisions of
law, it is required that the stipulation limiting
the common carrier's liability for loss must
be "reasonable and just under the
circumstances, and has been freely and
fairly agreed upon."
The above stipulations are reasonable and
just. In the bill of lading, the carrier made it
clear that its liability would only be up to One
Hundred Thousand (Y100,000.00) Yen.
However, the shipper, Maruman Trading,
had the option to declare a higher valuation
if the value of its cargo was higher than the
limited liability of the carrier. Considering
that the shipper did not declare a higher
valuation, it had itself to blame for not
complying with the stipulations.
2. In Sea-Land Service, Inc. vs. Intermediate
Appellate Court (supra), it was held that
even if the consignee was not a signatory to
the contract of carriage between the shipper
and the carrier, the consignee can still be
bound by the contract.
OBLIGATIONS
AND
CONTRACTS
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De La Salle University
OBLIGATIONS
AND
CONTRACTS
Issues:
1. In a merger, does the surviving corporation
have a right to enforce a contract entered
into
by
the
absorbed
company subsequent to the date of the
merger agreement, but prior to the issuance
of a certificate of merger by the Securities
and Exchange Commission?
2. Is the promissory note a contract pouratrui?
Held: 1. The fact that the promissory note
was executed after the effectivity date of the
merger does not militate against petitioner.
The agreement itself clearly provides
that all contracts irrespective of the date
of execution entered into in the name of
CBTC shall be understood as pertaining to
the surviving bank, herein petitioner. Since,
in contrast to the earlier aforequoted
provision, the latter clause no longer
specifically refers only to contracts existing
at the time of the merger, no distinction
should be made. The clause must have
been deliberately included in the agreement
in order to protect the interests of the
combining banks; specifically, to avoid
giving the merger agreement a farcical
interpretation aimed at evading fulfillment of
a due obligation. Thus, although the subject
promissory note names CBTC as the payee,
the reference to CBTC in the note shall be
construed, under the very provisions of the
merger agreement, as a reference to
petitioner bank, "as if such reference [was a]
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direct reference to" the latter "for all intents
and purposes."
Stipulation Pour Autrui is one in favor of a
third person who may demand its fulfillment,
provided he communicated his acceptance
to the obligor before its revocation. An
incidental benefit or interest, which another
person gains, is not sufficient. The
contracting parties must have clearly and
deliberately conferred a favor upon a third
person.
The following
contract:
are requisites
for
such
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Article 1316 refers to the perfection of real
contracts, which has the same requisites as
that of a consensual contract, only, it is
necessary for the object of the obligation to
be delivered in order for the contract to be
perfected.
The enumeration in the article is not
complete as it failed to include contract of
carriage and loans or mutuum which are
also real contracts, and therefore require
delivery in order to be perfected.
Delivery is required in order for the other
party to exercise his duties under the
contract.
contract
CHAPTER 2
ESSENTIAL REQUISITES
GENERAL PROVISIONS
Art. 1318. There is no contract unless the
following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the
subject matter of the contract;
(3) Cause of the obligation
which is established. (1261)
SECTION 1. - Consent
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force is employed.
There is intimidation when one of the
contracting parties is compelled by a
reasonable and well-grounded fear of an
imminent and grave evil upon his person
or property, or upon the person or
property of his spouse, descendants or
ascendants, to give his consent.
To determine the degree of intimidation,
the age, sex and condition of the person
shall be borne in mind.
A threat to enforce one's claim through
competent authority, if the claim is just
or legal, does not vitiate consent. (1267a)
Art. 1336. Violence or intimidation shall
annul the obligation, although it may
have been employed by a third person
who did not take part in the contract.
(1268)
Art. 1337. There is undue influence when
a person takes improper advantage of his
power over the will of another, depriving
the latter of a reasonable freedom of
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. (n)
Art. 1338. There is fraud when, through
insidious words or machinations of one
of the contracting parties, the other is
induced to enter into a contract which,
without them, he would not have agreed
to. (1269)
Art. 1339. Failure to disclose facts, when
there is a duty to reveal them, as when
the parties are bound by confidential
relations, constitutes fraud. (n)
Art. 1340. The usual exaggerations in
trade, when the other party had an
opportunity to know the facts, are not in
themselves fraudulent. (n)
Art. 1341. A mere expression of an
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B. Object
C. Cause
C. W. ROSENSTOCK, as administrator of
the estate of H. W. ELSER v.,EDWIN
BURKE.
G.R. No. 20732
Digested by: Jose Joven Paulo Espinosa
Facts: The defendant Edwin Burke owned a
motor yacht, known as Bronzewing. H. W.
Elser, at the beginning of the year 1922,
began negotiations with the defendant for
the purchase thereof. The plaintiff proposed
to the defendant to make a voyage on board
the yacht to make an advantageous sale.
But as the yacht needed some repairs to
make it seaworthy for this voyage, and as,
on the other hand, the defendant said that
he had no funds to make said repairs, the
plaintiff paid almost all their amount. It has
been stipulated that the plaintiff was not to
pay anything for the use of the yacht. The
cost of those repairs was P6,972.21, which
was already paid by the plaintiff, plus
P1,730.84 due to the Cooper Company
which still remains unpaid, plus P832.93,
due to the plaintiff, which also remains
unpaid.
The plaintiff never accepted the offer of the
defendant for the purchase of the yacht
contained in the letter of option of February
12, 1922. The defendant, after an interview
with Mr. Avery held on the same day,
answered the plaintiff that he had arrived at
an agreement with Mr. Avery about the sale
of the yacht to the plaintiff for P80,000
payable as follows: P5,000 each month
during the first six months and P10,000
thereafter until full payment of the price, the
yacht to be mortgaged to secure payment
thereof.
On the 5th of the same month of April the
plaintiff sent the defendant another letter,
telling him that in view of the attitude of Mr.
Avery as to the loan of P20,000 in
connection with the installation of a new
engine in the yacht, it was impossible for
him to take charge of the boat and he made
delivery thereof to the defendant. On the 8th
of the same month of April the defendant
answered the plaintiff that as he had
accepted, with the consent of the Asia
Banking Corporation, through Mr. Avery, the
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these repairs, leaving their extent entirely to
the discretion of the plaintiff.
Batagan v. Cojuangco
GR No.: L-224 May 31, 1974
Digested by: Ken Gador
Facts: Cojuangco bought the property of
Batagan and she is willing to resell it to
Batagan for the same amount in which it
was purchased at the auction sale, that is,
for P1,508.28, provided that it be on cash.
Subsequently, Batagan lawyer sent
Cojuangco a letter with three postal money
orders for P800, stating that he was
remitting that amount in behalf of his client.
Cojuangco rejected the amount given by
Batagans lawyer. She said that she had
not had any agreement. Batagans lawyer
then sent to Cojuangcos lawyer the same
money orders, but it was also rejected.
Issue: Is there a concurrence of the minds
of the parties on the object and cause, which
will constitute a contract?
Held: No. There is a difference between the
amount agreed by the parties and the
amount actually paid. If there is a reduction
of the price agreed upon, the offeror must
first assent to the modification. In this case
Rationale:
The
substantial
variance
between the amount in the offer and the
amount tendered not only made the
purported acceptance inoperative but "put
an end to the negotiations without forming a
contract unless the party making the offer
agreed to the suggested modification." (17
C.J.S., 383.) Otherwise, as the trial judge
aptly observed, "promisors would be tied to
their promises indefinitely and would not be
able to dispose of the property involved" in
the promise or offer. In addition, the
promisor would be placed in a position
where he would always lose without
anything to gain. The promisee could wait
until judgment is rendered and accepted the
offer of compromise if the judgment
happened to be more onerous to him.
OBLIGATIONS
AND
CONTRACTS
Laudico v. Arias
GR No. 16530 March 31, 1922
Digested by: Ken Gador
Facts: Arias on his behalf and of his coowners wrote a letter to Laudico offering to
lease their building to Arias. Subsequently,
Laudico sent a letter to Arias stating that he
accepts the offer. One of the agreements
agreed upon by the parties is that Arias can
withdraw the offer any time before the
acceptance. The moment that Laudico sent
the acceptance letter, Arias already sent his
letter of withdrawal. When Arias sent the
letter of withdrawal, he had not yet received
the letter of acceptance.
Issue: Whether or not the contract of lease
was perfected?
Held: No, Acceptance made by letter or
telegram does not bind the offerer except
from the time it came to his knowledge.
Rationale: Under article 1262, paragraph 2,
of the Civil Code, an acceptance by letter
does not have any effect until it comes to the
knowledge of the offerer. Therefore, before
he learns of the acceptance, the latter is not
yet bound by it and can still withdraw the
offer. Consequently, when Mr. Arias wrote
Mr. Laudico, withdrawing the offer, he had
the right to do so, inasmuch as he had not
yet receive notice of the acceptance. And
when the notice of the acceptance was
received by Mr. Arias, it no longer had any
effect, as the offer was not then in existence,
the same having already been withdrawn.
There was no meeting of the minds, through
offer and acceptance, which is the essence
of the contract. While there was an offer,
there was no acceptance, and when the
latter was made and could have a binding
effect, the offer was then lacking. Though
both the offer and the acceptance existed,
they did not meet to give birth to a contract.
II. Consent (Art. 1319)
A. Offer
a.
Offeror can control offer
Place, Manner, Time of
acceptance (Art. 1321)
b.
Offer through agent is
valid (Art. 1322)
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c.
d.
Sanchez v. Rigos
No. L-25494, June 14, 1972
Digested by: Aleli Guinto
Facts: Nicolas Sanchez and SeverinaRigos
executed an instrument entitled Option to
Purchase wherein Mrs. Rigos agreed,
promised and committed to sell to Mr.
Sanchez a parcel of land for the amount of
P1,510 within two years from the date of the
instrument, with the understanding that the
said option shall be deemed terminated and
elapsed if Mr. Sanchez shall fail to exercise
his right to buy the property within the
stipulated period.
Mrs. Rigos agreed and committed to sell
and Mr. Sanchez agreed and committed to
buy. But there is nothing in the contract to
indicate that her agreement, promise and
undertaking is supported by a consideration
distinct from the price stipulated for the sale
of the land.
Mr. Sanchez has made several tenders of
payment in the said amount within the
period before any withdrawal from the
contract has been made by Mrs. Rigos, but
were rejected nevertheless.
Issue: Can an accepted unilateral promise
to sell without consideration distinct from the
price be withdrawn arbitrarily?
Held: No. An accepted promise to sell is an
offer to sell when accepted becomes a
contract of sale.
Ratio: "Since there may be no valid contract
without a cause or consideration, the
promisor is not bound by his promise and
may, accordingly, withdraw it. Pending
notice of its withdrawal, his accepted
promise partakes, however, of the nature of
an offer to sell which, if accepted, results in
a perfected contract of sale."
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acts the offer and the acceptance could
in such event generate a contract."
C.
Nature of contract
Object
Mistake
Tan v. Mandap
GR No. 150925, May 27, 2004
Digested by: Aleli Guinto
Facts: Dioniso Mandap, Sr., 64 years old
and has long been suffering from diabetes,
was legally separated with his wife and lived
with DioritaDojoles. He was totally blind and
crippled when he sold his properties to
Dojoles sister Elenita and her husband
Crispulo Vasquez, which later on were sold
to spouses James and Florence Tan. The
children of Dionisio with his legal wife filed
an action for nullification of sale and
cancellation of titles, alleging that the sale by
their father was fictitious, without any
consideration and the consent of their father
was vitiated due to his physical infirmities.
Issues: 1. Was the sale
DionisioMandap, Sr. and the
spouses valid?
5. Was the sale between the
spouses and the Tan
valid?
between
Vasquez
Vasquez
spouses
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Held:
1. Yes, there is false representation. The
acts and statements prior to the agreement
are essential and relevant to the case. His
own letter and testimonies showed that he
Woodhouse made the representation. The
first draft of the agreement that the counsel
of Woodhouse prepared expressly states
that Woodhouse had the exclusive
franchise. From the statements and the
manager is ready and willing to allow the
capitalist to use the exclusive franchise
and In the event of the dissolution or
termination of the partnership the
franchise from Mission Dry Corporation shall
be reassigned to the Manager , it can be
seen that the conclusion that Halili believed
or was made to believe that Woodhouse
was the grantee of an exclusive franchise.
2.
No, because the false representation
was only an incidental fraud (doloincidente)
distinguished
to
causal
fraud
(dolocausante). The Court has held that in
order that fraud may vitiate consent, it must
be the causal (dolocausante), not merely the
incidental (doloincidente), inducement to the
making of the contract. By pretending that
he had the exclusive franchise and
promising to transfer it to defendant, he
obtained the consent of Halili to give the 30
per cent profit. This is the doloincidente
because it was used to get the Halilis
consent to a bigger share in the profits, an
incidental matter in the agreement.
Ratio: We now come to the legal aspect of
the false representation. Does it amount to a
fraud that would vitiate the contract? It must
be noted that fraud is manifested in
illimitable number of degrees or gradations,
from the innocent praises of a salesman
about the excellence of his wares to those
malicious machinations and representations
that the law punishes as a crime. In
consequence, article 1270 of the Spanish
Civil Code distinguishes two kinds of (civil)
fraud, the causal fraud, which may be a
ground for the annulment of a contract, and
the incidental deceit, which only renders the
party who employs it liable for damages.
This Court had held that in order that fraud
may vitiate consent, it must be the causal
(dolocausante), not merely the incidental
(dolocausante), inducement to the making of
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CONTRACTS
Songco v. Sellner
G.R. No. 11513
December 4, 1917
Digested by: Ana Victoria Hernandez
Ratio:
The defendant had
ample
opportunity to appraise herself of the
condition of the land which she purchased,
and the plaintiff did nothing to prevent her
from making such investigation as she
deemed fit, and as was said in Songco vs.
Sellner, supra, when the purchaser
proceeds to make investigations by himself,
and the vendor does nothing to prevent such
investigation from being as complete as the
former might wish, the purchaser cannot
later allege that the vendor made false
representations to him. (National Cash
Register Co. vs. Townsend, 137 N. C., 652;
70 L. R. A., 349; Williamson vs. Holt, 147 N.
C., 515.) The same doctrine has been
sustained by the courts of the United States
in the following cases, among others:
Misrepresentation by a vendor of real
property with reference to its area are not
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the purchaser undertakes to make an
investigation of his own, and the seller does
nothing to prevent his investigation from
being as full as he chooses to make it, the
purchaser cannot afterwards allege that the
seller made misrepresentations.
We think the court below committed no
error in refusing to award damages upon
this ground, as such damages were remote
and speculative.
Hill v. Veloso
G.R. No. 9421
July 24, 1915
Digested by: Ana Victoria Hernandez
Facts:
On
December
30,
1910,
MaximinaVeloso, wife of Manuel TioCuana,
and Domingo Franco executed and signed a
document which stated that they are
acknowledging that they have received
goods from La Cooperative Filipino. They
promised to pay jointly and severally to
Michael & Co., S. en C. the sum of 6,319
with interest on such part of said principal as
may remain unpaid at the end of each
month at the rate of 1 and per cent until
the principal have been completely paid.
A promissory note was then indorsed to L.L
Hill on January 1911. 2,000 have been paid
already and Hill brought an action to recover
the remaining 4,319.33. Defendants answer
alleged that Franco (deceased) suggested
to them the necessity to execute in Atty.
Leverings behalf a document in which it
should be set forth that the defendants
would pay the said lawyer in his capacity as
guardian to the minor children of a certain
Ricablanca. They also said that sometime in
1910 Franco made them sign a blank paper
and they complied with the belief that it was
for their obligation to pay Atty. Levering.
They also alleged that they never had any
transaction with Michael & Co., S. en C and
did not receive any kind of goods. The CFI
Cebu absolved Velasco, thus Hill appealed.
Issue: Should Velasco pay what was stated
in the promissory note?
Kinds
a) Onerous (Art. 1350) - the prestation
or promise of a thing or service by
the other
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b) Remunerative (Art. 1350) - the
service or benefit which is
remunerated
c) Gratuitous (Art. 1350) - the mere
liberality of the benefactor
Motives not equal to cause (Art. 1351)
Ineffective (Art. 1352)
False cause (Art. 1353) if the statement is
false, its void
Presumption (Art. 1354)
a) Lawful
b) Existing
Lesion/ inadequacy (Art. 1355)
a) Not invalid
b) Unless FMU (fraud, mistake, undue
influence)
OBLIGATIONS
AND
CONTRACTS
CHAPTER 3
FORM OF CONTRACTS
Art. 1356. Contracts shall be obligatory,
in whatever form they may have been
entered into, provided all the essential
requisites for their validity are present.
However, when the law requires that a
contract be in some form in order that it
may be valid or enforceable, or that a
contract be proved in a certain way, that
requirement
is
absolute
and
indispensable. In such cases, the right of
the parties stated in the following article
cannot be exercised. (1278a)
Art. 1357. If the law requires a document
or other special form, as in the acts and
contracts enumerated in the following
article, the contracting parties may
compel each other to observe that form,
once the contract has been perfected.
This
right
may
be
exercised
simultaneously with the action upon the
contract. (1279a)
Art. 1358. The following must appear in a
public document:
(1) Acts and contracts which have for
their
object
the
creation,
transmission, modification or
extinguishment of real rights over
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Issue: Has the action to compel the private
respondents to execute the deed of sale
prescribed?
b.
cession,
repudiation,
renunciation
of
hereditary rights/CPG
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e. all other documents where
amount involved is in excess of 500
( must be written even private
documents).
Kinds of formalities required by law:
A. Those required for the validity of
contracts:
a. Contracts which must appear in
writing
Art 748
Donation of
movable or personal property
whose value exceeds 500 pesos
Art 1874
Sale
of
piece of land through an agent
Art 1956
Agreements
regarding payment of interest in
contracts of loan
Art 2134
Contract of
antichresis amount of principal of
the interest
b.
c.
Art 749
Donation of
immovable
Art 1771 and 1773 Partnership
where immovable property or
real rights are contributed to the
common funds
Art 1358
See nos. 1, 3 , 4 of
the said article
Contracts
which
must
registered
Art 2140: Chattel Mortgage
Cattle Registration act sale or
transfer of large cattel
OBLIGATIONS
AND
CONTRACTS
CHAPTER 4:
REFORMATION OF
INSTRUMENTS
Art. 1359. When, there having been a
meeting of the minds of the parties to a
contract, their true intention is not
expressed in the instrument purporting
to embody the agreement, by reason of
mistake, fraud, inequitable conduct or
accident, one of the parties may ask for
the reformation of the instrument to the
end that such true intention may be
expressed.
If mistake, fraud, inequitable conduct, or
accident has prevented a meeting of the
minds of the parties, the proper remedy
is not reformation of the instrument but
annulment of the contract.
Art. 1360. The principles of the general
law on the reformation of instruments are
hereby adopted insofar as they are not in
conflict with the provisions of this Code.
Art. 1361. When a mutual mistake of the
parties causes the failure of the
instrument to disclose their real
agreement, said instrument may be
reformed.
Art. 1362. If one party was mistaken and
the
other
acted
fraudulently
or
inequitably in such a way that the
instrument does not show their true
intention, the former may ask for the
reformation of the instrument.
Art. 1363. When one party was mistaken
and the other knew or believed that the
instrument did not state their real
agreement, but concealed that fact from
the former, the instrument may be
reformed.
Art. 1364. When through the ignorance,
lack of skill, negligence or bad faith on
the part of the person drafting the
instrument or of the clerk or typist, the
instrument does not express the true
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loan he obtained after all for his own
exclusive benefit).
ACCORDINGLY, judgment is hereby
rendered setting aside the dismissal order of
June 10, 1974 and remanding the case to
respondent court for trial and adjudication on
the merits. Without pronouncement as to
costs. SO ORDERED.
OBLIGATIONS
AND
CONTRACTS
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lots Nos. 136, 137, and the house on lot 132
to Henry E. Teck for the sum of P13,500 at
any time within four years from date. Note
that neither one of the documents was
placed on record with the register of deeds.
July, 1925- Edward Carr was referred to
Ong Chua by a certain Atty. Moore to
purchase the lots in question since he is
interested in acquiring coconut lands. Ong
Chua stated to Moore that he consented to
sell the properties to Carr on the condition
that the sale should be subject to the rights
and for the reconveyance to the Teck
spouses and that said rights were to be
respected by the vendee.
July, 1926- Teck offered to repurchase the
property in question thereupon demanded of
Carr the reconveyance of the property. Carr,
however, refused to do so, claiming that he
had an absolute title to said property. It was
then that Ong Chua learned that no rights of
the spouses were mentioned in the deed.
Issue: Is Ong Chua entitled to the property,
which in turn will be reconveyed to Teck and
Lim?
Held: Yes. Reformation will be given "where
there is a mistake on one side and fraud or
unfair dealing on the other" (Devlin)
Ratio: Ong Chua was unfamiliar with the
English language in which the deed was
written, and it was natural for him to believe
in the actions of Carr, with whom he has
previous business relations with. Carrs
conduct constitutes fraud and was
calculated to obtain an unfair advantage
over the plaintiff when he harassed Moore to
give him the deed prematurely.
Reasons for
instruments:
reformation
of
Requisites:
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B. Unilateral
Requirements:
a. One party was mistaken
b. One party acted fraudulently or
inequitably
c. Concealment of the knowledge
that the agreement did not state
their real intention
d. Party in good faith may ask for
reformation
C. Mistake of third persons due to
negligence, ignorance, lack of skill, bad
faith of drafter, clerk or typist.
D. Those specified by law in order to avoid
frustration of true intent (see articles
1361, 1363 and 1364).
IV.
OBLIGATIONS
AND
CONTRACTS
control.
If the words appear to be contrary to the
evident intention of the parties, the latter
shall prevail over the former. (1281)
Art. 1371. In order to judge the intention
of
the
contracting
parties,
their
contemporaneous and subsequent acts
shall be principally considered. (1282)
Art. 1372. However general the terms of a
contract may be, they shall not be
understood to comprehend things that
are distinct and cases that are different
from those upon which the parties
intended to agree. (1283)
Art. 1373. If some stipulation of any
contract should admit of several
meanings, it shall be understood as
bearing that import which is most
adequate to render it effectual. (1284)
Art. 1374. The various stipulations of a
contract shall be interpreted together,
attributing to the doubtful ones that
sense which may result from all of them
taken jointly. (1285)
Art. 1375. Words which may have
different
significations
shall
be
understood in that which is most in
keeping with the nature and object of the
contract. (1286)
CHAPTER 5
INTERPRETATION OF
CONTRACTS
Art. 1370. If the terms of a contract are
clear and leave no doubt upon the
intention of the contracting parties, the
literal meaning of its stipulations shall
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Primacy of Intention
I.
OBLIGATIONS
AND
CONTRACTS
Bundalian vs. CA
G.R. No. L-55739 June 22, 1984
Digested by: Paula Betina Lucero
Facts: July 1, 1975- petitioners purchased 3
parcels of land (3,328 sq.m) for P499,200.00
located at San Juan, Rizal from Deceased
Agapita Sarao Vda. de Virata
July 2, 1975- the petitioners sold to the
private respondents the said parcels of land
for the same amount of P499,200.00,
subject to terms and conditions. The said
contract was denominated as Deed of Sale
with Right to Repurchase. One of the terms
and conditions was that the repurchase
price would escalate month after month,
depending on when repurchase would be
effected.
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It was also stipulated in the same contract
that the vendor shall have the right to
possess, use, and build on, the property
during the period pending redemption.
August 26, 1976- the petitioners filed in a
petition before the CFI of Rizal to declare
the Deed of Sale with Right to Repurchase
and the portion in the deed regarding
accelerated repurchase price be declared
null and void for being usurious.
August 27, 1976- the private respondents, in
turn, filed a petition for the consolidation of
ownership on the ground that "more than a
year has elapsed since the execution of the
Deed of Sale with Right to Repurchase by
the vendor.Respondents argue that the
vendor has lost all his rights to avail himself
of the right to consolidate ownership of the
property subject of the Deed of Sale.
(Art.1607 in relation to Art. 1616, NCC)
Issue: May the deed of sale with right to
repurchase be counted as equitable
mortgage?
Held: Yes, it is considered as equitable
mortgage. Its purpose is to secure the return
of the money invested with substantial profit
or interest, a common characteristic of
loans.
Ratio: The contract was one of "loan
guaranteed by a mortgage" rather than a
conditional
sale
because
of
the
acknowledgement of the vendor to retain
possession of the land. Indeed, there can be
no question that petitioner Jose R.
Bundalian remained legally in possession of
the subject property. The increase per
month in the alleged redemption price is
shows that the transaction was really
intended by the parties to be a mortgage.
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contract. Also, making interest charges
relied upon established custom and usage
should be alleged as a separate defense.
Ratio: If a custom be general in character,
and therefore presumed to be known by the
parties, the rule is that such custom may be
proved without being specially pleaded. This
is particularly true when a general custom is
offered in evidence to throw light upon a
contract, the terms of which are obscure,
and which is dependent upon evidence of
such general custom to make it plain. If, on
the other hand, the custom be local in
character, the party who proposes to rely
upon it should aver it in his pleadings, and a
local custom or usage applying to a special
or particular class of business may not be
proven to explain even the ambiguous terms
of a contract, unless the existence of such
custom or usage is pleaded. . . .
The application which the plaintiff signed in
the nature of a "request for foreign credit"
was accepted by the defendant, and in legal
effect it became the written contract
between the parties, and it is in writing, and
nothing whatever is said about the payment
of interest to the defendant. If it had been
the purpose and intent of the defendant to
collect and receive the interest in question, it
should have been specified and provided for
in the contract, and if in the making of such
interest charges the defendant relied upon
an established usage and custom, it should
have alleged that fact as a further and
separate defense, and the existence of them
would then become a question of fact.
It is contended that the plaintiff, having paid
the interest charges to the defendant, has
ratified the payment, and for such reason he
is now estopped to recover the money. That
would be true if he had paid such charges
with a full knowledge of all the facts.
Party who draws up a contract where there
are obscure terms shall not be favored in the
interpretation
Drafters must take extra care with the choice
of words or terms.
OBLIGATIONS
AND
CONTRACTS
Page 88
OBLIGATIONS
AND
CONTRACTS
De La Salle University
Issue: How should paragraph 4 of the terms
be construed?
Held: The expression "roadway of the
street" does not contemplate that the
roadway should cover the width of the entire
street. It does not take into account the part
of the street which is or might be assigned
for pedestrian use. It cannot be insisted that
the street is incomplete within the meaning
of the contract. Derham Brothers is bound
by the qualifications of their offer.
Ratio: A contracting party is bound by that
interpretation of an ambiguous provision
which he knows the other party has
adopted; and on the other hand, if it was a
counterproposal, Derham Brothers accepted
it by taking possession of the property in
pursuance of said proposal.
Page 89
OBLIGATIONS
AND
CONTRACTS
De La Salle University
In construction of an instrument,
intention of the parties is to be pursued
the
CHAPTER 6
RESCISSIBLE CONTRACTS
Art. 1380. Contracts validly agreed upon
may be rescinded in the cases
established by law. (1290)
Art. 1381. The following contracts are
rescissible:
(1) Those which are entered into by
guardians whenever the wards
whom they represent suffer
lesion by more than one-fourth of
the value of the things which are
the object thereof; (2) Those
agreed upon in representation of
absentees, if the latter suffer the
lesion stated in the preceding
number; (3) Those undertaken
in fraud of creditors when the
latter cannot in any other manner
collect the claims due them; (4)
Those which refer to things under
litigation if they have been
entered into by the defendant
without the knowledge and
approval of the litigants or of
competent judicial authority; (5)
All other contracts specially
declared by law to be subject to
rescission. (1291a)
Art. 1382. Payments made in a state of
insolvency for obligations to whose
fulfillment the debtor could not be
compelled at the time they were effected,
are also rescissible. (1292)
Page 90
De La Salle University
OBLIGATIONS
AND
CONTRACTS
E. It is susceptible of convalidation
only by prescription. Ratification
proper does not apply.
Distinction between Rescission in Article
1191 and Rescission Proper in Article
1381
Basis
Rescission
Rescission
in Art. 1191
Proper in Art.
1381
1. Nature
It
is
a It
is
a
principal
subsidiary
action
remedy.
retaliatory in
character
2.
The
only There are five
Ground/s
ground
is grounds
to
for
nonrescind
a
rescission performance rescissible
of
ones contract
obligation/s
enumerated in
or what is Art.
1381.
incumbent
Nonperformanc
upon him.
e by the other
party is not
important.
3.
It
applies It appeals to
Applicabilt only
to both unilateral
y
reciprocal
and reciprocal
obligations.
obligations.
4. Person Only a party Even
third
who can to
the person who is
institute
contract
prejudiced by
the action
may
the
contract
demand
may
demand
fulfilment or the rescission
seek
the of the contract.
rescission
(cancellation
)
of
the
contract.
5. Fixing Court may Court
cannot
of a period fix a period grant extension
or
grant of
time
for
extension of fulfilment of the
time for the obligation.
fulfilment of
the
obligation.
6.
Its purpose Its purpose is to
Purpose
it to cancel seek reparation
the contract. for the damage
or
injury
caused,
thus
allowing partial
rescission of a
Page 91
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AND
CONTRACTS
De La Salle University
contract.
Rescission by Mutual Consent is
rescission proper Art. 1381
not
Page 92
OBLIGATIONS
AND
CONTRACTS
De La Salle University
K. The third person who
received
the
property
conveyed, if it is by onerous
title, has been accomplice in
the fraud.
Accion Pauliana is incapable of
pecuniary
estimation,
Jurisdiction is with the Regional
Trial Court the court of general
jurisdiction.
Basis
1. Nature
2. Purpose
3. Possibility
of
satisfaction
of claim
4. Creditors
who
can
pursue the
case
Accion
Pauliana
There is a
true alteration
of property
To set aside
a
contract
validly
entered into
Satisfaction
of plaintiffs
claim is not
possible
except
through the
rescission.
Only
creditors prior
to
the
alienation
may file the
case
Action
to
Declare Nullity
of Absolutely
Simulated
Contract
There is
no
alienation
of
property but only
pretension
of
alienation
To declare the
inexistence
of
the
absolutely
simulated
contract which
prejudices
the
rights of a third
person and/or is
intended
contrary to law,
morals,
good
customs, public
order or public
policy.
Non-satisfaction
of
plaintiffs
claim
is
not
required
All
creditors,
whether before
or
after
the
simulation may
file the action.
the
the
the
the
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De La Salle University
Extent of Rescission
I.
The primary purpose of rescission is
reparation for the damage or injury
suffered either by a contracting
party or by a third person.
II.
Partial Rescission is allowed
Applicability of Mutual Restitution
I.
It can be carried out only when he
who demands rescission can return
whatever he may be obliged to
restore.
II.
Not applicable in cases where
creditors
are
rescinding
the
fraudulent contracts executed by
their debtors in favour of other
persons.
III.
In case the complaining party
cannot return whatever he may
have obliged to restore his case
may be dismissed.
IV.
If the property has already been
alienated in favour of a third person,
such as by way of sale, and he is in
good faith, the transfer of property to
him shall be respected.
V.
But if the transferee in good faith
received the thing gratuitously from
the debtor he is obliged to return it
VI.
Only the particular creditor/s who
instituted the action shall will be
benefited by the rescission allowed
by the court.
OBLIGATIONS
AND
CONTRACTS
Page 94
De La Salle University
Fraud
A. Is deception.
B. It consists of any means or ways,
usually through insidious words or
machinations perpetrated by one of
the contracting parties, by reason
which , the other party is persuaded
to enter into a contract.
I.
OBLIGATIONS
AND
CONTRACTS
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Note: The design to defraud creditors may
be proved in any other manner recognized
by law on evidence.
Alpuerto v. Perez Pastor and Roa
GR NO. 12794, October 14, 1918
Digested by: Reannah Reonal
Facts: Three parcels of property formerly
belonged to Juan Llenos and two of the
parties in this case are interested with such
property. The plaintiff, Alpuerto, is the one in
possession of the properties under a
contract of sale with pacto de recto. The
defendant, Perez, on the other hand, is the
purchaser at a public sale under an
execution directed at Llenos.
The plaintiff asks the court to make a
declaration that the plaintiff is the owner of
the land in full and absolute dominion and
prays that the sale of property to defendant
be declared null and void. As for the
defendant, he claims that the transaction by
which the plaintiff claims to have acquired
title is simulated and that the supposed
conveyance was effected for the purpose of
defrauding the defendant as the creditor.
The plaintiff then submitted a document
which purports to be a contract of sale with
the privilege of repurchase. It has been
executed on July 3, 1912 but it was not
acknowledge under a notary until December
3, 1914. However, it was noted by the court
that at the time of the said sale there was
already a long litigation being made
(pending for two years) regarding the action
of defendant to sought or recover money
from Juan Llenos and that Alpuerto being
the son in law have knowledge of it from the
beginning
Issue: Who is the rightful owner of the land?
Held: the defendant Perez. The sale to the
plaintiff is considered void because of the
suspicious circumstances attending the
alleged transaction which raised the
presumption of fraud, even part from the
presumption expressed in Article 1297 of the
Civil Code and that the purchaser did not
satisfactorily proved that he was a purchaser
in good faith. The secrecy of the purported
sale and the relationship of kinship existing
OBLIGATIONS
AND
CONTRACTS
as
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AND
CONTRACTS
De La Salle University
Badges of Fraud
To determine whether or not a
certain conveyance is fraudulent, it
must be proven that it prejudiced the
right of creditors.
Circumstances showing badges or marks
of fraud:
I.
Consideration
paid
for
the
conveyance is inadequate.
II.
Transfer made by a debtor after suit
has been filed and while it is
pending against him
III.
Sale on credit made by an insolvent
debtor
IV.
The presence of evidence of large
indebtedness
or
complete
insolvency of the debtor
V.
Transfer of all or nearly all of the
debtors property especially when
insolvent or financially embarrassed
VI.
Transfer is made between father
and son and any of the above
circumstances is present.
VII.
The failure of the buyer to take
exclusive possession of all the
property he had purchased from the
seller.
A transferee in bad faith will be liable to
return the property to the creditor who had
successfully institute a complaint for
rescission.
If restitution is not possible, the transferee in
bad faith will be liable to pay indemnity to
the suing creditor for damages the latter
suffered by reason of alienation.
If the first transferee is in bad faith, the
liability of the second transferee will now
depend upon his good faith or bad faith.
Prescriptive Period
Prescriptive period within to file
rescissory action is four years.
Notes:
A. The liability of the transferee in bad
faith is solidary with that of the
transferring debtor as both of them
are guilty of fraud.
B. They may also be criminally liable
for fraudulent insolvencyany
person who shall abscond with his
property to the prejudice of his
creditors.
CHAPTER 7
VOIDABLE CONTRACTS
Art. 1390. The following contracts are
voidable or annullable, even though there
may have been no damage to the
contracting parties:
(1) Those where one of the parties is
incapable of giving consent to a
contract; (2) Those where the
consent is vitiated by mistake,
violence, intimidation, undue
influence or fraud.
These contracts are binding, unless they
are annulled by a proper action in court.
They are susceptible of ratification. (n)
Art. 1391. The action for annulment shall
be brought within four years.
This period shall begin:
In cases of intimidation, violence or
undue influence, from the time
the defect of the consent ceases.
In case of mistake or fraud, from
the time of the discovery of the
same.
And when the action refers to contracts
entered into by minors or other
incapacitated persons, from the time the
guardianship ceases. (1301a)
Art. 1392. Ratification extinguishes the
action to annul a voidable contract.
(1309a)
Art. 1393. Ratification may be effected
expressly or tacitly. It is understood that
there is a tacit ratification if, with
knowledge of the reason which renders
the contract voidable and such reason
having ceased, the person who has a
right to invoke it should execute an act
which necessarily implies an intention to
waive his right. (1311a)
Art. 1394. Ratification may be effected by
the guardian of the incapacitated person.
(n)
Art. 1395. Ratification does not require
the conformity of the contracting party
who has no right to bring the action for
annulment. (1312)
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OBLIGATIONS
AND
CONTRACTS
De La Salle University
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OBLIGATIONS
AND
CONTRACTS
De La Salle University
Voidable Contracts Distinguished from
Void Contracts
Basis
Voidable
Void
Contracts
Contracts
1. Nature of Consent of Consent
is
defect
one of the absent or is
parties
is lacking.
vitiated.
Presence of
other defects
will
also
render
a
contract void
(Art. 1409).
2. Effectivity
Effective
Ineffective
and binding because
it
until
does
not
annulled.
exist
in
contemplatio
n of the law.
3.
Susceptible
Not
Susceptibility of
susceptible
to
consolidatio to
consolidation n
by consolidation
ratification
by ratification
or
by or
by
prescription. prescription
(Art. 1409).
4.
Action
for Action
or
Prescriptibilit annulment
defense
y of action prescribes.
based on its
for its
inexistence
or absolute
nullity does
not prescribe
(Art. 1410).
5. Waiver of Defect may Right to set
defect
be waived.
up
the
defense
of
illegality
cannot
be
waived (Art.
1409,
last
par.).
Basis
1. Nature of
defect
Voidable
Contract
Defect
is
intrinsic.
There is a
vice
of
consent
which
vitiates
consent.
2. Effect of
damage or
prejudice
Whether
there
is
damage or
not, contract
is voidable.
3. Basis of
defect
Annulability
of
the
contract
is
based
on
law.
Public
interest
predominate
s.
It
is
susceptible
to
ratification.
It
is
a
sanction.
4.
Predominanc
e of public
interest
5.
Susceptibility
to ratification
6. Sanction
7. Persons
who
can
assail
contract
8. Nature of
action
pursuable
Only parties
to
the
contract can
assail it.
Action is a
principal
action.
Rescissible
Contract
Defect
is
external. It
consists in
damage or
prejudice
suffered by
one of the
contracting
parties or a
third person
like
a
creditor.
If there is no
damage or
prejudice,
contract
cannot
be
rescissible.
Rescissibility
of
the
contract
is
based
on
equity.
Private
interest
predominate
s.
Not
susceptible
to
ratification.
It is not a
sanction but
a remedy.
Third
persons who
are affected
my assail it.
Action
is
subsidiary.
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De La Salle University
For an accurate denomination of the
complaint and proper allegations of ultimate
facts therein, the differences of the avoid
remedies or actions must be strictly
considered.
Defenses
The defendant may put up the
defense of annulability or relative
nullity of a voidable contract and the
absolute nullity of a void or
inexistent contracts.
In the better case, the action or
defense for the declaration of the
inexistence of the contract does not
prescribe (Art. 1410).
Applicability of Article 1391
L. Applies only to the parties in
the contract
M. It does not apply to third
persons when the law
allows them to question the
validity
of
a
contract
(Guinoo vs. CA, 97 Phil,
235).
Prescription of Action for Annulment
Actions prescribe by the mere lapse
of time fixed by law (Art. 1139).
One of the grounds for extinguishing
obligations (Art. 1231).
Failure to pursue an action within
the period prescribed by law will
have the effect of extinguishing the
action.
After the action has prescribed, the
contract could no longer be set
aside
When the contract is voidable at
most, the four-year prescriptive
period under Article 1391 applies
Time of Reckoning of the Four-Year
Period
Depends on the kind of defect vitiating the
consent:
If the vice consists in (a)
intimidation, (b) violence or (c)
undue influence, the reckoning
begins from the cessation of such
vice.
If it consists in (a) mistake or (b)
fraud, the reckoning beings from the
discovery thereof.
If it consists in the incapacity of the
contracting party (like minority or
OBLIGATIONS
AND
CONTRACTS
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De La Salle University
into the contract in the name of
another
without
the
latters
authorization
o The concept specifically
refers
to
unforceable
contracts (Arts. 1405 and
1407).
Coverage of the Term Ratification Made
Broader
Ratification now covers both the
ideas
of
confirmation
and
acknowledgment
It may be defined as the validation
of a transaction otherwise without
validity or partly valid
Requisites of Ratification
The contract is a voidable one (Art.
1390)
The confirmation is made by the
injured contracting party.
The confirming party has full
knowledge of the vice or defect of
the contract.
The cause of voidability should have
already ceased or disappeared at
the time of the ratification
o Otherwise, if the cause of
voidability is still present,
the act of confirmation
would also suffer from the
very vice or defect it is
attempting to cure
Note: These requisites will be applicable to
the ratification of unenforceable contracts
except that the ratifying person need not be
the one who had directly participated in the
act which is the object of the ratification.
Forms of Ratification
Express takes place when the
desire of the innocent party to
convalidate the contract, or his
waiver or renunciation of his right to
annul the contract is clearly
manifested verbally or formally in
writing.
Tacit or Implied takes places
when the innocent party will full
knowledge of the vice which renders
the contract voidable, and the same
having ceased already, he executed
act/s or displayed a conduct which
necessarily implies his intention to
OBLIGATIONS
AND
CONTRACTS
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AND
CONTRACTS
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De La Salle University
instituted only be persons who are parties
bound either principally or subsidiarilly by
the contract. The petitioners must be
persons with interest in the contract.
Ratio: "Considering the question from the
point of view of the civil law, the view taken
by the code, we must limit ourselves to
classifiying as void all acts done contrary to
the express prohibition of the statute. Now
then: As the code does not recognize such
nullity by the mere operation of law, the
nullity of the acts hereinbefore referred to
must be asserted by the person having the
necessary legal capacity to do so and
decreed by a competent court." (Manresa,
Spanish Civil Code, vol. 10, p. 108.)
Manresa, Spanish Civil Code, vol. 8, p. 737
commenting on Art. Art. 1302 (now Art.
1397) of the Civil Code: "Two different
requisites are required to confer the
necessary capacity for the exercise of such
action. With each of the said requisites the
two paragraphs of this section deal
separately. The first requisite is that the
plaintiff must have an interest in the
contract. The second is that the victim and
not the party responsible for the defect is the
person who must assert the same."
Meaning Of Principal and Subsidiary
Liability
A. The liability of the principal party is
principal liability and that of a
subsidiary party is subsidiary liability.
B. Illustration: The principal debtor is
principally bound to the creditor while
the guarantor is only subsidiarily
bound.
C. The guarantor becomes liable only if
the debtor has no property to answer
for his obligation and only after all
proper remedies against the debtor had
been resorted to but failed (See Art.
2058).
Contract Between Capacitated And
Incapacitated Persons.A. Where the contract is between a
person who has full civil capacity
and one who has no capacity to give
consent to a contract such as a
minor or an insane per- son, the
former cannot invoke the incapacity
of the latter to set aside the contract
OBLIGATIONS
AND
CONTRACTS
Page 103
De La Salle University
vs. Zobel (104 Phil. 769) the
Supreme Court changed its
stand and reiterated its ruling in
the Mercado case (37 Phil.
215).
f.
OBLIGATIONS
AND
CONTRACTS
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De La Salle University
notwithstanding the sale of the lots to DBP,
Lots 2 and 4, which form part of said 159
lots, were still sold by PHHC to the spouses
Honesto and Elisa Nicandro, for which, on
November 6, 1958, 2 deeds of sale were
issued to them by PHHC. Upon learning of
PHHCs previous transaction with DBP, the
spouses filed a complaint against DBP and
the PHHC before the Court of First Instance
Rizal (CFI), to rescind the sale of Lots 2
and 4 by PHHC in favor of DBP. After trial,
the CFI held that the sale of Lots 2 and 4, to
DBP is null and void, for being in violation of
Section 13 of the DBP Charter. On appeal
by DBP, the Court of Appeals (CA) affirmed
the decision of the CFI. Still not contented,
DBP appealed the decision of the CA before
the Supreme Court.
Issue: Do the spouses possess the legal
personality to question the legality of the
sale?
Held: Yes. It cannot be denied that the
spouses stand to be prejudiced by reason of
their payment in full of the purchase price for
the same lots which had been sold to DBP
by virtue of the transaction in question.
Ratio: The general rule is that the action for
the annulment of contracts can only be
maintained by those who are bound either
principally or subsidiarily by virtue thereof.
There is, however, an exception to the rule.
The (Supreme) Court in Teves v. People's
Homesite and Housing Corporation (23
SCRA 1141) held that "a person who is not
obliged principally or subsidiarily in a
contract may exercise an action for nullity of
the contract if he is prejudiced in his rights
with respect to one of the contracting
parties, and can show the detriment which
could positively result to him from the
contract in which he had no intervention."
I.
Applicability
A. The Article applies only if the contract had been consummated.
B. If the contract has not been
performed yet, it is understood,
there
is
no
obligation
to
restore as nothing had been
received by the parties.
II.
OBLIGATIONS
AND
CONTRACTS
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De La Salle University
Ratio: Communal things that cannot be
sold because they are by their very nature
outside of commerce are those for public
use, such as the plazas, streets, common
lands, rivers, fountains, etc.
ANDREA DUMASUG, plaintiff -appellee, vs.
FELIX MODELO, defendant-appellant.
G.R. No. L-10462 March 16, 1916
Digested by: Maria Patricia Salas
Facts: Dumusug filed a complaint to CFI
praying that the sale sale of her carabao and
2 parcels of land to defendant Modelo be
nullified because her consent was obtained
in fraud. Modelo made her believe that the
document was only an acknowledgment of
Dumusug's loan from Modelo for P101 for
the work Modelo had done in connection
with 2 actions brought by Dumusug to
recover her land. Dumusug found out that
she was defrauded 3 months after she
signed such document when Modelo,
against her will got her properties by
intimidation and force. She also stated that
she
only
signed
one
contract.
Modelo'sdefense is that Dumusug owed her
P333 because he was the one who paid for
the expense of Dumusug's travel to Cebu
twice as well as the witness brought by
Dumusug to Cebu.
Issue: Is the document presented by
Modelo showing the sale of Dumusug's
carabao and parcels of land valid?
Held: No, because the statements of
MOdelo are incredible. First, Modelo said he
also paid for the travel expenses of the
witness of Dumusug but this is not possible
since the case where he helped Dumusug
reached only at the filing of the demurer,
meaning the suit was scarcely commenced.
The only expense she could have incurred
were attorney's fees of P80 and her travel to
Cebu twice for one day each.
Ratio: It is, then, perfectly evident that the
document Exhibit 1, by means of which
defendant made himself the owner of the
properties in question is not the instrument
of debt which Andrea Dumasug had signed,
and if it is the same one its contents were
not duly and faithfully explained to plaintiff in
the act of its execution. In either case, the
consent said to have been given by Andrea
Dumasug in said document Exhibit 1 is null
OBLIGATIONS
AND
CONTRACTS
Page 106
OBLIGATIONS
AND
CONTRACTS
De La Salle University
Held: Yes
Ratio: General doctrine that guardianship is
a trust of the highest order, and the trustee
cannot be allowed to have any inducement
to neglect his wards interest and in line with
the courts suspicion whenever the guardian
acquires the wards property 1 we have no
hesitation to declare that in this case, in the
eyes of the law, Socorro Roldan took by
purchase her wards parcels thru Dr.
Ramos, and that Article 1459 of the Civil
Code applies.
She acted it may be true without malice;
there may have been no previous
agreement between her and Dr. Ramos to
the effect that the latter would buy the lands
for her.
The temptation which naturally besets a
guardian so circumstanced, necessitates the
annulment of the transaction, even if no
actual collusion is proved (so hard to prove)
between such guardian and the intermediate
purchaser. This would uphold a sound
principle of equity and justice from both the
legal and equitable standpoints these three
sales should not be sustained: the first two
for violation of article 1459 of the Civil
Code; and the third because Socorro
Roldan could pass no title to Emilio Cruz.
The annulment carries with is (Article 1303
Civil Code) the obligation of Socorro Roldan
to return the 17 parcels together with their
fruits and the duty of the minor, through his
guardian to repay P14,700 with legal
interest.
Strangers Are Not Covered By The
Article.A. Strangers to the contract cannot
avail themselves of the benefit of
mutual restitution under the Article
(Govern- ment of P.l. vs. Wagner,
54 Phil. 132).
B. Innocent third parties, who are not
privies to the con- tract cannot be
obliged to restore (Cagayan Valley
Tobacco Co. vs. Molina Martell, 41
Phil. 294).
Article Speaks Of Annulment
"Obligation" And Not Of "Contract."-
Of
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AND
CONTRACTS
De La Salle University
a. The rent is not a consideration
for the land. but for the use
and
enjoyment
thereof;
hence, even if the land is
restored to the lessor, the
lessee had already received
the benefit from the past use
and enjoyment thereof
C. Damages May Be Imposed Upon
The Party Guilty Of The Act/ s
Which Constitute The Reason And
Cause For The Annulment Of The
Contract.a. It is but just and fair that the
party guilty of the vices of
consent like fraud (which is
presumed to be deliberate)
which constitute the reasons for
the void ability of the contract,
be penalizedwith damages as
indemnity for the injuries
suffered
by
the
innocent party.
b. Articles 19, 20 and 21 of the
Code justify the imposition of
reasonable damages
Meaning Of "Except In Cases Provided
By Law."_
A. With the annulment of the contract,
there must be restoration of things
received with their fruits, and the
price with interest-except in cases
provided by law.
B. Insofar as fruits are concerned, the
rules on possession must be
applied, particularly, Articles 544
and 549.
Rule Of Compensation Is Applicable.
If the contracting parties have
reciprocal prestations which consist
of sum of money or fungible thing of
same kind compensation will take
place by operation of law to the
concurrent amount (Art. 1290).
Incapacitated OrDisadvantaged Person Is
Generally
Favored
By
Law;
No
Restoration
Is
Required
Of
Him; Exclusive Exception.A. Article24 of the Code provides: Art.
24. In all contractual, property or
other relations, when one of the
parties is at a disadvantage on
account of his moral dependence,
B.
C.
D.
E.
ignorance,
indigence,
mental
weakness, tender age or other
handicap, the courts must be
vigilant for his protection (New Civil
Code).
This is anchored on the doctrine of
parenspatriae:
'The doctrine refers to the
inherent power and authority of
the state to provide protection of
the person and property of a
sovereign
power
of
guardianship
over
persons
under disability.
Thus, the state is considered the
parenspatliae of minors
Exception: However, to balance
things, where the minor had
received something by virtue of
a contract, which is voidable
solely and exclusively because
of his incapacity, he must make
a restoration insofar as he has
been benefited by the thing or
price received by him. If he did
not benefit, he has no duty to
make restoration.
The observation of the Supreme
Court in UySoo Urn vs. Tan
Unchuan, 38 Phil. 552, stressed the
strong
tendency
of
modern
decisions regarding the limit on the
ex-emption of infancy to the
principle upon which the disability
proceeds.
If the nullity of the contract,
however, is due to other reasons the
general rule of mutual restitution in
Article 1398 shall apply.
Illustrations:
1. Two minors, together with
their
mother.
borrowed
money during the Japanese
occupation
from
Villa
Abrille.
The money was
used for the support
of the minors.
While the promissory
note signed by the
minors promising to
pay P10,000.00 in
Philippine currency 2
years
after
the
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cessation of
the
hostilities x xx.
is
voidable
and
annulled
by
the
Court. the minors
were required to
return the money
they received from
the Villa Abrille as
they profited by the
use thereof.
2. If the incapacitated person
has still in his possession
the property he received by
itself is a benefit, which
obliges him to return the
same and not squander it.
If he does not return
or he squanders,
that is tantamount to
implied ratification of
the
defective
contract.
In which case, the
contract will then be
cleansed of all its
defects from the
moment
of
its
constitution (UySoo
Lim
vs.
Tan
Unchuan, 38 Phil.
552).
Rule With Respect To The Capacitated
Party.A. Whether or not the capacitated party
has benefited from what he received
from a minor, he must return the
same
B. Except:
a. when he received the thing from
the minor in the performance of
the latter's natural obligation,
and what had been received
had been spent or consumed in
good faith (Art. 1427).112
b. The reason is that the minor
cannot recover what he had
paid in fulfillment of a natural
obligation (Art. 1423).
Effect When Thing Was Lost Through
The Fault Of Defendant-Obligor.A. The Article will not apply if the thing
ordered to be returned which is
determinatewas
Consequences:
If the thing is lost due to a
fortuitous event, the debtor is not
liable
to
make
restitution
because he cannot restore the
thing which no longer exists.
II. Neither can he be compelled to
substitute the lost thing with its
value because he is not liable for
the loss.
III. To compel him to do so will be
unfair.
IV. Since the party debtor was still
legally considered as the owner of
the thing at the time of the loss, he
must suffer the consequences but
he will not be required to make
restitution.
V. Corollarily, the creditor cannot be
compelled to make restitution
because the debtor could not fulfill
what is incumbent upon him.
VI. Ultimately, Art. 1402 shall apply.
VII. There is no other way of
reconciling the different related
Articles.
a. The rule is different if the thing
was lost through the fault of
the obligor.
b. In which case, he is obliged to
return the fruits received;
return the value of the
thing at the time of loss;
and
to pay 6% interest per
annum on the value of
the thing (Art. 2209).
B.
Illustration:
c. A contract was entered into
between Dumasug and Modelo.
d. The contract was annulled.
e. The subject matter or object of
the contract is a plow carabao
which died while in the
possession of Modelo.
f. The Court held: "With respect to
the plow carabao that died while
in defendant's possession, the
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value of which is P120.00,
defendant is obliged pursuant to
the provision of Art. 1307 (now
Art. 1400) to pay and deliver to
plaintiff the value of said animal,
with interest as an indemnity for
the detriment caused to its
owner."
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.
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. (1314a)
I.
A.
B.
C.
D.
E.
OBLIGATIONS
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CONTRACTS
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the other to comply what is
incumbent upon the latter.
To require so is obviously unfair.
CHAPTER 8
UNEFORCEABLE CONTRACTS
Art. 1403. The following contracts are
unenforceable, unless they are ratified:
1. Those entered into in the name of
another person by one who has
been given no authority or legal
representation, or who has acted
beyond his powers;
2. Those that do not comply with
the Statute of Frauds as set forth
in this number. In the following
cases an agreement hereafter
made shall be unenforceable by
action, unless the same, or some
note or memorandum, thereof, be
in writing, and subscribed by the
party charged, or by his agent;
evidence,
therefore,
of
the
agreement cannot be received
without
the writing, or a
secondary
evidence
of
its
contents:
a. An agreement that by its
terms is not to be
performed within a year
from the making thereof;
b. A special promise to
answer for the debt,
default, or miscarriage of
another;
c. An agreement made in
consideration of marriage,
other than a mutual
promise to marry;
d. An agreement for the sale
of goods, chattels or
things in action, at a price
not less than five hundred
pesos, unless the buyer
accept and receive part of
such goods and chattels,
or the evidences, or some
of them, of such things in
action or pay at the time
some part of the purchase
money; but when a sale is
made by auction and
entry is made by the
OBLIGATIONS
AND
CONTRACTS
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---------Introduction
---------Unenforceable
Contracts
are
those
contracts which cannot be enforced by
action or complaint in court, unless they
have been ratified by the party or parties
who did not give their consent thereto. They
are midway between void and voidable
contracts.
Kinds of Unenforceable Contracts:
(1) Those entered into in the name
of another person by one who
has no authority or who acted
beyond his powers;
(2) Those who do not comply with
the Statute of Frauds; and
(3) Those where both parties are
incapable of giving consent to a
contract.
Distinctions/Differences
In the first kind, there is
lack of consent on the
part of the person in
whose name the contract
was entered into;
In the second kind, there
is
no
written
proof
whatever by which the
contract may be proved;
and
In the third kind, while
there is consent, the
same
is
absolutely
vitiated because both
parties are incapable of
giving their consent to the
contract.
Similarities
They cannot be
enforced
or
pursued in court;
They
can
be
ratified,
which
means, they can
be
convalidated
and
become
enforceable
in
court; and
They cannot be
attacked
or
assailed by third
persons.
The
remedy of the third
person is against
the agent who
acted
without
authority or acted
beyond
his
authority.
Unauthorized Contracts
Old Civil Code
New Civil Code
They
were They
are
now
considered special grouped
together
void contracts which with those contracts
could be ratified. that do not comply
They are different with the Statute of
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to prove the total or partial payment or
performance.
It is a rule of exclusion it is not concerned
with the weight of the evidence but only with
its admissibility.
Rosencor Dev. Corp. v. Inquing
G.R. No. 140479 March 8, 2001
Digested by: Kimberly Rae Sison
Facts: Paterno Inquing, Irene Guillermo and
Frederico Bantugan are the lessees since
1971 of a two-story residential apartment
owned by spouses Faustino and Cresencia
Tiangco. The lease was not covered by any
contract. The lessees were verbally granted
by the lessors the pre-emptive right to
purchase the property if ever they decide to
sell the same. Upon the death of the
spouses Tiangcos, the heirs also verbally
promised to the lessees the same preemptive right. In June 1990, the lessees
received a letter from Atty. Aguila
demanding that they vacate the premises so
that the demolition of the building be
undertaken. They also received from
Eufrocina de Leon, representative of the
heirs, a letter offering to sell them the
property
they
were
leasing
for
P2,000,000.00. The lessees offered to buy
the property for P1,000,000.00, however, no
answer was given. In November 1990, Rene
Joaquin (Rosencor) came to the leased
apartment introducing himself as the new
owner. The lessees then asked De Leon
why she had disregarded the pre-emptive
right she and the late Tiangco spouses
promised to them. They also learned that
the property was sold to Joaquin/Rosencor
for only P726,000, and that the offer of De
Leon to sell them the property came only
after the sale with Rosencor has been
consummated. They then offered to
reimburse De Leon of the P726,000.00 and
an additional P274,000.00 to complete their
P1,000,000.00 offer. When the offer was
refused, they filed the present action.
Issue: Does a right of first refusal have to
be in writing in accordance with the Statute
of Frauds in order to be enforceable?
Held: No. A right of first refusal is not among
those which are enumerated in the list of
contracts covered by the Statute of Frauds.
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AND
CONTRACTS
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Testimonial evidence is
admissible to prove a
mutual
promise
to
marry in an action for
actual damages based
on the breach of the
promise.
(4) An agreement for the sale of
goods, chattels, or things in
action, at a price less than
P500.00.
The writing, note or
memorandum must be
signed by the person
charged or by his
representative.
The signature of the
seller is dispensed with,
if the sale was effected
at an auction sale.
The law did not say
public
auction
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OBLIGATIONS
AND
CONTRACTS
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OBLIGATIONS
AND
CONTRACTS
through
his efforts, a
compromise
agreement between these parties was
approved by the court. In other words, the
agreement in question has already been
partially consummated, and is no longer
merely executory. And it is likewise a
fundamental
principle
governing
the
application of the Statute that the contract in
dispute should be purely executory on the
part of both parties thereto.
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The article applies only when the contract
involved is both valid and enforceable.
When both contracting parties to the
purported contract are not capacitated to
give consent, the contract is unenforceable
however, it may be ratified:
(1) If ratification is only on the side
of one of the contracting parties,
that is, by the parent or
guardian, the contract is
transformed into a voidable
contract on the part of the party
who did not ratify.
(2) If ratification is made by both
sides, that is, by the parents or
guardians, the contract is
validated from its inception.
As the defense of the Statute of Frauds is
personal to the availing party in the contract,
it cannot be set up as a defense by
strangers to the transaction.
CHAPTER 9
VOID AND INEXISTENT
CONTRACTS
Art. 1409. The following contracts are
inexistent and void from the beginning:
1. Those whose cause, object or
purpose is contrary to law,
morals, good customs, public
order or public policy;
2. Those which are absolutely
simulated or fictitious;
3. Those whose cause or object did
not exist at the time of the
transaction;
4. Those whose object is outside
the commerce of men;
5. Those which contemplate an
impossible service;
6. Those where the intention of the
parties relative to the principal
object of the contract cannot be
ascertained;
7. Those expressly prohibited or
declared void by law.
These contracts cannot be ratified.
Neither can the right to set up the
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AND
CONTRACTS
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-A month later, the petitioners went back to
their aunts to have them sign a contract.
Taking advantage of their lack of education
(the Dela Cruz sisters were spinsters and
just earned their livelihood as embroiderers),
they were made to believe that such
document, typewritten in english, was just
for the acknowledgment of their debt.
-After the lapse of four years, petitioners
asked their aunts to vacate the land subject
to litigation (located in Manuyo, Las Pinas)
claiming that she and her husband were the
new owners. After verifying with the Registry
of Deeds, the aunts were surprised that
what they have signed was actually a deed
of sale.
Their
land
title
was
cancelled and the ownership was
transferred to their nephews.
Want of consideration.
The Deed of Absolute Sale (Exh.
"1") mentions a consideration of
P2,000.00. Three years after the
alleged sale, the same property was
mortgaged by defendant spouses
with the Cavite Development Bank
for P40,000.00. Clearly enough, the
gross
inadequacy
and
unconsciounableness [sic] of the
consideration deters the Court from
subscribing to defendants' theory
that plaintiffs sold the property to
them. It is more reasonable to
assume that the amount of
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49018). Such a qualification is not found in
her agreement with her sister.
-Because of that impossibility, the Armadas
could rescind extrajudicially the deed of
exchange (Art. 1191 Civil Code; 4 Tolentino,
civil Code, 1973 Ed., pp. 171-172). If Mrs.
Marin should sue the Armadas, her action
would be barred under the rule of exceptio
non adimpleti contractus (plaintiff is not
entitled to sue because he has not
performed his part of the agreement).
Distinctions
Between
Rescissible Contracts
Void
Basis
Rescissible
Contracts
The defect is
in its effects,
which
is
either
against one
of
the
parties or a
3 rd person
It is based
on
equity
and is more
a matter of
private
interest
Contracts
remains
valid if no
action
is
filed.
It
produces
legal effects
Action
to
rescind
contract
prescribes
within
4
years
1. Nature
defect
of
2.
Interest
served
3.
Consequences
when
no
action is filed
4. Prescription
Void
Contracts
The defect
is inherent
in
the
contract
itself
Nullity is a
matter of
law
and
public
interest
There are
no
legal
effects
even if no
actiion
is
filed to set
it aside
Action
to
declare its
nullity does
not
prescribe
1. Cause of
defect
Void
Contracts
Absence of
essential
element/s of
a contract
3.
Ratification
4.
Against
whom
can
nullity be set
up
and
2. Effect
Voidable
Contracts
Consent is
vitiated
or
there
is
incapacity to
give consent
5.
Prescription
It has no
effect even if
not set aside
because it is
non-existent
It cannot be
ratified
Its nullity can
be set up
against any
person
asserting
right arising
from it, and
his
successors
in
interest
not protected
by law
Action
to
declare
nullity
of
contract
does
not
prescribe
Distinctions
Between
Unenforceable Contracts
Basis
1. Status
2.
Ratification
3.
Attack
rd
by
3
persons
4. Causes
Void
Contracts
There is no
contact at
all
It is not
subject to
ratification
It can be
assailed by
3rd persons
whose
interests
are directly
affected
Causes of
nullity are
those
enumerated
in
article
1409
It is a valid
contract until
it
is
set
aside
It can be
ratified
Its
nullity
can be set
up
only
against
a
party thereto
Action
to
annul
contract
prescribes
within
4
years.
Void
and
Unenforceable
Contracts
There
is
a
contract
but
which cannot
be enforced
It is subject to
ratification
It cannot be
rd
assailed by 3
persons
Cause
of
unenforceability
are
enumerated in
Article 1403
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Defense that a contract is null and void can
be put up anytime
A void contract remains void when even if
no court has declared its inecxistentce or
illegality. However, there are certain
contracts the nullity of which is apparent on
their faces. And considering that there is a
presumption of regularity of contracts, it is
the better part of prudence that the
interested party should go to court first to
avoid inconvenience or to avoid taking the
law into his own hands when the other party
refuses to restore what he had received out
of the void contract.
Laches is the failure or neglect, for an
unreasonable length of time, to do that
which by exercising due diligence could or
should have been done earlier; it is
negligence or omission to assert a right
within a reasonable time, waranting a
presumption that the party entitled to assert
it either has abandoned it or declined to
assert it.
The prevailing doctrine that the right to have
declared void ab initio may be barred by
laches although not barred by prescription is
MWSS v. CA
Mertopolitan Waterworks and Sewerage
System (MWSS) vs CA
G.R. No. 126000 Oct 7 1998
Digested by: Michael Vincent Uy
Facts: Petitioner MWSS leased around 128
hectares of its land to respondent CHGCCI
for 25 years and renewable for another 15
years and allowing the latter to exercise a
right of first refusal should the subject
property be made open for sale.
Pursuant to Letter of Instruction No. 440
issued on July 29 1976 by then Pres.
Marcos directed petitioner MWSS to
negotiate the cancellation of the MWSSCHGCCI lease agreement for the disposition
of the subject property. Upon being informed
that petitioner MWSS and respondent
CHGCCI had already agreed in principle on
the purchase of the subject property,
President expressed his approval of the
sale. The Board of Trustees of petitioner
MWSS then passed a Resolution 36-83
,approving the sale of the subject propert in
favor of respondent SILHOUETTE, as
assignee of respondent CHGCCI at the
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fraud" are voidable or annullable . These are
not void as
Concepts of Voidable Contracts. Voidable
or anullable contracts are existent, valid, and
binding, although they can be annulled
because of want of capacity or vitiated
consent of the one of the parties, but before
annulment, they are effective and obligatory
between parties. Hence, it is valid until it is
set aside and its validity may be assailed
only in an action for that purpose. They can
be confirmed or ratified.
As the contracts were voidable at the most,
the four year prescriptive period under Art.
1391 of the New Civil Code will apply. This
article provides that the prescriptive period
shall begin in the cases of intimidation,
violence or undue influence, from the time
the defect of the consent ceases", and "in
case of mistake or fraud, from the time of
the discovery of the same time".
Hypothetically admitting that President
Marcos unduly influenced the sale, the
prescriptive period to annul the same would
have begun on February 26, 1986 which this
Court takes judicial notice of as the date
President Marcos was deposed. Prescription
would have set in by February 26, 1990 or
more than three years before petitioner
MWSS' complaint was failed.
However, if petitioner MWSS' consent was
vitiated by fraud, then the prescriptive period
commenced upon discovery. Discovery
commenced from the date of the execution
of the sale documents as petitioner was
party thereto. At the least, discovery is
deemed to have taken place on the date of
registration of the deeds with the register of
Deeds as registration is constructive notice
to the world. Given these two principles on
discovery,
the
prescriptive
period
commenced in 1983 as petitioner MWSS
actually knew of the sale, or, in 1984 when
the agreements were registered and titles
thereafter were issued to respondent
SILHOUTTE. At the latest, the action would
have prescribed by 1988, or about five years
before the complaint was instituted.
OBLIGATIONS
AND
CONTRACTS
Elements of Laches:
1. Conduct on the part of the
defendant or one under whom he
claims, giving rise to the situation
complained of
2. Delay in aserting complaints right
after he had knowledge of the
defendants conduct and after he
has an opportunity to sue
3. Lack of knowledge or notice on the
part of the defendant that the
complaint would assert the right on
which he bases his suit
4. Injury or prejudiced to the defendant
in the event relief is accorded to the
complainant.
Unlike
estoppel,
laches as an equitable defense
usually bars only the equitbale
enforcement of a right but not the
right itself. It is an affirmative
defense and the burden of proving it
rests on the defendant.
The doctrine of laches is inapplicable when
the claim was filed within the prescriptive
period set forth under the law.
If a contract is void because of the nullity of
the cause or object and it happens that the
transaction constitutes a criminal offense,
both parties are in pari delicto, they shall
have no cause of action against each other.
To make Article 1411 applicable the
following requisites must be present:
1. The contract entered into by the
contracting parties is null and void
and nullity arises from the illegality
of the cause or object of the
contract. Illegality of motives is
different
2. The transaction agreed in the
contract constitutes a crime
3. The contracting parties are in part
delicto, that is, the fault of one party
is more or less equal or equivalent
to the fault of the other party.
The consequences of pari delicto in Article
1411:
1. The parties shall have no action
against each other
2. Both parties shall be prosecuted
criminally for their crime
3. The things or price of the contract
may be confiscated by the State in
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the present action commenced on May 6
1963 was already barred by prescription
The lower court ruled in favor of the plaintiff
that not only there had been a violation of
the court by defendants failure to pay the
taxes on the land but also the lease of the
property was prohibited under Sec. 8 of RA
477.
Defendants instituted an appeal reiterating
the claim that the cause of action in this
case is barred by prescription.
Issue: Has the plaintiffs cause of action
already prescribed?
Held:
No,
the
cause
of
action
imprescriptible because it violates the law
which is RA 477.
Ratio: For the purpose of resolving this
issue of prescription raised by appellants,
there is no need for the distinction. Whether
the case was filed to rescind or to annul the
lease would not improve appellants'
position, which we find to be untenable. For
while it is true that the original lease
agreement (Exhibit C) was executed on 25
February 1958, whereas the case was
instituted on 6 May 1963, or more than 4
years thereafter, yet it also appears that the
contracts of lease (Exhibits D, E, F and G)
subsequently entered into by the parties
uniformly contain the following provisions, to
wit:
NOW, THEREFORE, in consideration of the
herein premises and the amount of ONE
THOUSAND PESOS, Philippine Currency,
paid by the Lessee to the Lessor, the Lessor
extends and grants in favor of the lessee
extension of two (2) more years of the lease
contract they entered which extension shall
take effect on 2 April 1961 and terminates
on 2 April 1963;
The parties also agree to incorporate as part
of this amended and extended lease
contract all the stipulations, namely,
numbers 1 to 5 of the contract of lease they
entered in 25 February 1958. (Exhibit D);
with the only difference that in Exhibit E, the
consideration was P400.00 and the contract
(to extend the lease period) was to "take
effect on 2 April 1963 and terminates on 2
April 1964"; Exhibit F, executed on 29 July
1960, was for P600.00, to "take effect on 2
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The rule of divisibility or seperability cant
apply in 2 situations:
1. When the contract by its nature
requires indivisibility
2. When the parties intended the
contract to be entire or indivisible.
In cae of doubt on whether the terms of a
contract are indivisible or divisible, the same
will be presumed as divisible.
Under the principle of relativity of contracts
only the parties, their assigns and heirs are
bound. The reason is that such contracts do
not determine the rights and obligations of
rd
3 persons who are not privies thereto.
rd
They cant produce any effects insofar as 3
persons are conscerned. However, there are
exceptions to the rule. Article 1421 clearly
rd
implies that 3 persons may be allowed to
put up the defense of illegality of contracts if
their interests are directly affected. If not,
they cannot invoke the illegality of a
contract.
Article 1422 speaks of 2 contracts. The first
one is illegal or unlawful. This illegal contract
is superseded by another contract between
the same parties. As the latter contract is the
direct result of the illegal contract, it is also
void and inexistent.
Spouses ANTONIO and LUZVIMINDA
GUIANG v Court of Appeals and Gilda
Corpuz
G.R. No. 125172 June 26, 1998
Digested by: Victor Reynaldo Ang
Facts: Judie and Gilda Corpuz were legally
married on December 24, 1968. While his
wife was away and without her consent,
Judie Corpuz sold half of their conjugal
peoperty specifically their residence and the
lot on which it stood. The Guiangs who
bought the property from Judie Corpuz then
entered into a compromise agreement with
Gilda Corpuz with the help of the Barangay
office.
Issue: Is the sale merely voidable? If so, is
the compromise valid?
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TITLE III
NATURAL OBLIGATIONS
Art. 1423. Obligations are civil or natural.
Civil obligations give a right of action to
compel their performance. Natural
obligations, not being based on positive
law but on equity and natural law, do not
grant a right of action to enforce their
performance,
but
after
voluntary
fulfillment by the obligor, they authorize
the retention of what has been delivered
or rendered by reason thereof. Some
natural obligations are set forth in the
following articles.
Art. 1424. When a right to sue upon a
civil obligation has lapsed by extinctive
prescription, the obligor who voluntarily
performs the contract cannot recover
what he has delivered or the value of the
service he has rendered.
Art. 1425. When without the knowledge
or against the will of the debtor, a third
person pays a debt which the obligor is
not legally bound to pay because the
action thereon has prescribed, but the
debtor later voluntarily reimburses the
third person, the obligor cannot recover
what he has paid.
Art. 1426. When a minor between
eighteen and twenty-one years of age
who has entered into a contract without
the consent of the parent or guardian,
after the annulment of the contract
voluntarily returns the whole thing or
price received, notwithstanding the fact
the he has not been benefited thereby,
there is no right to demand the thing or
price thus returned.
Art. 1427. When a minor between
eighteen and twenty-one years of age,
who has entered into a contract without
the consent of the parent or guardian,
voluntarily pays a sum of money or
delivers a fungible thing in fulfillment of
the obligation, there shall be no right to
recover the same from the obligee who
has spent or consumed it in good faith.
(1160A)
Art. 1428. When, after an action to
Basis:
-
No juridical tie
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intervening
causes
they
are
unenforceable
in
courts
Voluntary fulfillment
by the debtor is legal
fulfillment
with legal effect
Performance is pure
act
of
liberality
which comes from
blood, affection or
benevolence
Arise
from
law,
contracts,
quasicontracts,
delicts
and quasi-delicts
Cannot be enforced
in court because
obligee has no right
of action to compel
its performance
Enforceable
in
courts
because
oblige has right of
action to compel
performance
TITLE IV
ESTOPPEL
Art.
1431.
Through
estoppel
an
admission or representation is rendered
conclusive upon the person making it,
and cannot be denied or disproved as
against the person relying thereon.
Art. 1432. The principles of estoppel are
hereby adopted insofar as they are not in
conflict with the provisions of this Code,
the Code of Commerce, the Rules of
Court and special laws.
Art. 1433. Estoppel may be in pais or by
deed.
Art. 1434. When a person who is not the
owner of a thing sells or alienates and
delivers it, and later the seller or grantor
acquires title thereto, such title passes
by operation of law to the buyer or
grantee.
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(1)
Facts:
TEFASCO,
a
domestic
corporation, engaged in the business of
providing port and terminal facilities,
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deed
(technical
Called
collateral estoppels by
judgment
1. Estoppel in pais (equitable
estoppel)
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payment for the use as road way, of a part
of his land by the defendant City.
The City of Davao, thru its Special Counsel,
answering the complaint interposed the
affirmative defense of prescription of action,
pursuant to See. 43, No. 3, of Act No. 190,
limiting the filing of the action to four (4)
years.
On same date, plaintiff filed a motion to
declare defendant in default and that the
period to file answer expired on October 3,
1955, whereas the same was actually filed
on October 7, 1955.
The defendant City of Davao, thru the City
Attorney A. L. Noel, filed a "Petition for
Relief from Judgment", alleging for the first
time, that the trial court acquired no
jurisdiction over the defendant City of
Davao, because it was not the City
Engineer, but the City Mayor, who is under
the law (Charter of the City of Davao), the
right official to represent the City, and who
should have been served with summons
(Comm. Act No. 51); that after defendant
was declared in default, the plaintiffs filed an
Amended Complaint, without serving copy
thereof to the defendant; and that the
Republic of the Philippines should have
been included as a party, the subject matter
of the complaint being a national highway.
The petition was opposed by plaintiffs,
claiming that the court validly acquired
jurisdiction over the defendant City of
Davao, the City Engineer being an alter
ego of the City Mayor and that Special
Counsel Medialdea of the defendant entered
his appearance
On December 16, 1958, the lower court
entered an Order believing that it has not
acquired jurisdiction since it was the City
Mayor who must duly served with summons
not the City Engineer.
Issues: Whether or not the court has lost
jurisdiction because the defendant has been
erroneously represented?
Held:NO, The appearance of the City
Attorney for and in behalf of the City of
Davao constituted a voluntary appearance,
TITLE V
TRUSTS
CHAPTER 1
GENERAL PROVISIONS
Art. 1440. A person who establishes a
trust is called the trustor; one in whom
confidence is reposed as regards
property for the benefit of another person
is known as the trustee; and the person
for whose benefit the trust has been
created is referred to as the beneficiary.
Art. 1441. Trusts are either express or
implied. Express trusts are created by
the intention of the trustor or of the
parties. Implied trusts come into being by
operation of law.
Art. 1442. The principles of the general
law of trusts, insofar as they are not in
conflict with this Code, the Code of
Commerce, the Rules of Court and
special laws are hereby adopted.
Trust is a fiduciary relationship created by
agreement or by law where the trustor of the
property has the equitable title while the
legal title is vested in another (trustee)
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repudiated
Trust is the legal relationship between one
having an equitable ownership in property
and another person owning the legal title to
such property, the equitable ownership of
the former entitling him to the performance
of certain duties and the exercise of certain
powers by the latter. Trust relationship may
be express or implied.
The legal title is usually in the name of the
trustee while the equitable title is in the
name of the beneficiary.
The parties in a trust are:
1. trustor who establishes the trust
2. trustee the one in whom the
confidence is reposed as regards
the property for the benefit of
another person
3. beneficiary is the person for whose
benefit the trust is created
*the beneficiary may be the trustor himself,
in which case, only two persons will be
involved.
2. Manner
of Creation
Trust
1. Origin
It can arise
either
by
virtue of a
contract
or
by
legal
provision
The object of
a trust is
always
a
specific
property,
whether real
or personal,
including an
undivided
interest
therein as in
co-ownership
or choses in
action
It is either
express
or
implied.
It
continues to
exist unless
2. Object
3. Form
Stipulation
Pour Autrui
It can arise
only by virtue
of a contract
and never by
operation of
law
The object of
a stipulation
pour
atrui
could either
be
specific
property
or
other things
It is always
express, and
must
be
accepted by
rd
the
3
person
before
the
grant
stipulated in
his favor is
mutually
revoked by
the parties
3.
Proof
needed
when
immovable
or interest
therein is
involved
4.
Prescriptio
n of action
Express
Trust
Created by
the intention
of the trustor
or of the
parties
Created by
the
direct
and positive
acts of the
parties,
by
some writing,
deed, or by
words, either
expressly or
impliedly,
envincing an
intention to
create a trust
If
the
express trust
involves an
immovable
property,
it
cannot
be
proved
by
parol
evidence
It
is
impresciptibl
e unless the
trust
has
been
repudiated
Implied Trust
Created
arises
operation
law
or
by
of
It is merely
deducible
from
the
nature of the
transaction
It
can
be
proved
by
parol evidence
It
is
prescriptable.
After 10 years
from
registration of
the title, the
action
is
barred.
Exception:
When
the
plaintiff
or
person
enforcing the
trust
is
in
possession of
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5.
Acquisition
by
prescriptio
n
Property
cannot
be
acquired by
prescription
because the
possession
of the trustee
is
not
adverse
the property,
action
is
imprescriptible
.
Property can
be
acquired
by
prescription.
CHAPTER 2
EXPRESS TRUST
Art. 1443. No express trusts concerning
an immovable or any interest therein may
be proved by parol evidence.
Art. 1444. No particular words are
required for the creation of an express
trust, it being sufficient that a trust is
clearly intended.
Art. 1445. No trust shall fail because the
trustee
appointed
declines
the
designation, unless the contrary should
appear in the instrument constituting the
trust.
Art. 1446. Acceptance by the beneficiary
is necessary. Nevertheless, if the trust
imposes no onerous condition upon the
beneficiary, his acceptance shall be
presumed, if there is no proof to the
contrary.
Definition: Our Civil Code defines an
express trust as one created by the intention
of the trustor or of the parties, and an
implied trust as one that comes into being by
operation of law. Express trusts are those
created by the direct and positive acts of the
parties, by some writing or deed or will or by
words evidencing an intention to create a
trust. On the other hand, implied trusts are
those which, without being expressed, are
deducible from the nature of the transaction
by operation of law as matters of equity, in
dependently of the particular intention of the
parties. Thus, if the intention to establish a
trust is clear, the trust is express; if the intent
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(a) the sum of P120,000 paid by the
insurance companies as indemnity for the
loss of the helicopter and the death of Capt.
Hernandez and Lt. Imperial; and (b) the sum
of P103,347.82 representing consequential
and moral damages which it had incurred as
a result of the loss of the helicopter and the
death of the officers. The CFI, acting on a
Motion to Dismiss submitted by Heald
Lumber, ordered PAL to amend its
complaint on the ground that in its first
cause of action, the real parties in interest
are the insurance companies concerned so
that PAL should either delete this allegation
or bring in the insurance companies as
parties plaintiff. Aggrieved, PAL appealed
the decision before the Supreme Court.
Issue: Is PAL the real party in interest with
respect to the claim for P120,000.00?
Held: No. Under Article 2207 of the Civil
Code, if a property is insured and the owner
receives the indemnity from the insurer, the
insurer is deemed subrogated to the rights
of the insured against the wrongdoer and if
the amount paid by the insurer does not fully
cover the loss, then the aggrieved party is
the one entitled to recover the deficiency.
Ratio: It is insisted that despite the
subrogation of the insurer to the rights of the
insured, the latter can still bring the action in
its name because the subrogation vests in
the latter the character of a trustee charged
with the duty to pay to the insurer so much
of the recovery as corresponds to the
amount it had received as a partial
indemnity. This cannot be true in this
jurisdiction, for before a person can sue for
the benefit of another under a trusteeship,
he must be "a trustee of an express trust"
(Section 3, Rule 3, Rules of Court). Thus,
under this provision, "in order that a trustee
may sue or be sued alone, it is essential that
his trust should be express, that is, a trust
created by the direct and positive acts of the
parties, by some writing, deed, or will or by
proceedings in court. The provision does not
apply in cases of implied trust, that is, a trust
which may be inferred merely from the acts
of the parties or from other circumstances"
(Moran, Comments on the Rules of Court,
Vol. I, 1952 Ed., p. 35).
Extinguishment of an Express Trust
1.
2.
3.
4.
5.
6.
7.
8.
9.
Amerol v. Bagumbaran
No. L-33261, September 30, 1987
Digested by: Katrina Calugay
Facts: Liwalug Datomanong (erroneously
surnamed Amerol in this case) seeks to
recover possession or reconveyance of the
land known as Lot No. 524, alleging that
Molok Bagumbaran obtained his free patent
through fraud. According to him, he was the
one who first filed an application for free
patent (September 1953) and despite
Bagumbarans knowledge of his application,
he later applied for the same on December
1954. It was Bagumbarans application that
was given due course thus Free Patent No.
V-19050 was issued to him on August 1955
by
authority
of
President
Ramon
Magsaysay.
Bagumbaran answered by alleging that he
has been in good faith in applying for the
free patent. He also said that even if
Datomanongs claims are true, his action to
order the reconveyance of the land has
already prescribed, the prescription being
four years from the time of the issuance of
the Original Certificate of Title in
Bagumbarans name.
The lower court found fraud on the part of
Bagumbaran. However, it still ruled in his
favor on the ground of prescription.
Issue: Can Datomanong have the land
reconveyed to his favor?
Held: Yes. From the facts presented by the
parties, the court found out that indeed,
Bagumbaran obtained the patent and the
Original Certificate of Title through fraud. He
misrepresented himself to be the actual
possessor of the property when in fact he is
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fully aware that Datomanong is in actual
possession of the property and has been
introducting several improvements when he
filed his application.
An implied trust is created whenever a
property is acquired through mistake or
fraud, as in this case. By the fraudulent act
of Bagumbaran, he is deemed to hold the
title of the property in trust and for the
benefit of Datomanong.
Also, despite the issuance of a Torrens
Certificate of Title to Bagumbaran, the same
can still be cancelled and the property can
still be reconveyed to the rightful owner. The
prescription period is not four years, but ten
years as provided in the law. Since the
period between 1955 (the date of iissucance
of the Original Certificate of title) and 1964
(the date when an action for reconveyance
was filed) is less than ten years, the action
has not prescribed yet.
The court ordered the reconveyance of the
Original Certificate of Title in favor of
Datomanong.
Ratio: In this case, the land in question was
patented and titled in respondent's name by
and through his false pretenses. Molok
Bagumbaran fraudulently misrepresented
that he was the occupant and actual
possessor of the land in question when he
was not because it was Liwalug
Datomanong.
Bagumbaran
falsely
pretended that there was no prior applicant
for a free patent over the land but there was
Liwalug Datomanong. By such fraudulent
acts, Molok Bagumbaran is deemed to hold
the title of the property in trust and for the
benefit of petitioner Liwalug Datomanong.
Notwithstanding the irrevocability of the
Torrens title already issued in the name of
respondent, he, even being already the
registered owner under the Torrens system,
may still be compelled under the law to
reconvey the subject property to Liwalug
Datomanong. After all, the Torrens system
was not designed to shield and protect one
who
had
committed
fraud
or
misrepresentation and thus holds title in bad
faith. Further, contrary to the erroneous
claim of the respondent, 9 reconveyance
does not work to set aside and put under
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trustee of an implied trust for the benefit of
the person from whom the property comes."
CHAPTER 3
IMPLIED TRUST
Art. 1447. The enumeration of the
following cases of implied trust does not
exclude others established by the
general law of trust, but the limitation laid
down in Article
1442 shall be applicable.
Art. 1448. There is an implied trust when
property is sold, and the legal estate is
granted to one party but the price is paid
by another for the purpose of having the
beneficial interest of the property. The
former is the trustee, while the latter is
the beneficiary. However, if the person to
whom the title is conveyed is a child,
legitimate or illegitimate, of the one
paying the price of the sale, no trust is
implied by law, it being disputably
presumed that there is a gift in favor of
the child.
Art. 1449. There is also an implied trust
when a donation is made to a person but
it appears that although the legal estate
is transmitted to the donee, he
nevertheless is either to have no
beneficial interest or only a part thereof.
Art. 1450. If the price of a sale of property
is loaned or paid by one person for the
benefit of another and the conveyance is
made to the lender or payor to secure the
payment of the debt, a trust arises by
operation of law in favor of the person to
whom the money is loaned or for whom
its is paid. The latter may redeem the
property and compel a conveyance
thereof to him.
Art. 1451. When land passes by
succession to any person and he causes
the legal title to be put in the name of
another, a trust is established by
implication of law for the benefit of the
true owner.
Art. 1452. If two or more persons agree to
purchase property and by common
consent the legal title is taken in the
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When a disqualified alien purchased land in
the Philippines and placed the property in
the name of a dummy to circumvent the law,
NO TRUST IS CREATED.
Albert F. Kiel vs. Estate of PS Sabert
G.R. No. L-3717
Digested by: Bryan ONeal Cua
Facts: Petitioner in the case is asking the
court to secure from the estate of the
deceased P20,000 resulting from a legal
right granted to him by the CFI and
escalated to this court. In 1907, Kiel and
Milfeil commenced to work on public lands
known as Parang Plantaion Company in the
province of Cotobato, having taken over the
interest of Milfeil, Kiel by the 1910s had P.S.
Sabert enter in to an agreement to provide
capital for the endeavor with him as the
manager. Such was that the true intention of
the partners was to acquire the property in
Saberts name as Kiel was a german and
hence incapable of owning the land himself.
From 1910 -1917, the duo worked on the
development of the land until the War broke
out and Kiel was sent back to Germany. On
August 16, 1919, five persons, including P.
S. Sabert, organized the Nituan Plantation
Company, with a subscribed capital of
P40,000. On April 10, 1922, P. S. Sabert
transferred all of his rights in two parcels of
land situated in the municipality of Parang,
Province of Cotabato, embraced within his
homestead application No. 21045 and his
purchase
application No. 1048, in
consideration of the sum of P1, to the Nituan
Plantation Company. A letter dated 6-6-1918
from Sabert addressed to Kiel contained the
intentions of the former to settle what he
apparently owes to the partnership with the
latter, but before any settlement between the
two can be reached Sabert died.
Issue: Does a trust form from the
partnership of Kiel and Sabert over the
land?
Held: No; however he is entitled to his share
of the value of the improvements made upon
such land, such belonging to the partnership
they had.
Ratio: The court explains that in this case
no trust can arise in the ownership of the
land in question. Kiel being an alien is
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is
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2) Such consideration must be furnished
by the alleged beneficiary.
Note: The burden of proving the evidence of
a trust is on the party asserting its existence.
The elements must be satisfied.
Thomson v. CA
G.R. No. 116631
Digested by: Dino De Leon
Facts:
Petitioner
Marsh
Thomson
(Thomson) was the Executive VicePresident and, later on, the Management
Consultant of private respondent, the
American Chamber of Commerce of the
Philippines, Inc. (AmCham) for over ten
years, 1979-1989.
While petitioner was still working with private
respondent, his superior, A. Lewis Burridge,
retired as AmCham's President. Before
Burridge decided to return to his home
country, he wanted to transfer his
proprietary share in the Manila Polo Club
(MPC) to petitioner. However, through the
intercession of Burridge, private respondent
paid for the share but had it listed in
petitioner's name.
When petitioner's contract of employment
was up for renewal in 1989, he notified
private respondent that he would no longer
be available as Executive Vice President
after September 30, 1989. Still, the private
respondent asked the petitioner to stay on
for another six (6) months.
Petitioner indicated his acceptance of the
consultancy arrangement with a counterproposal in his letter dated October 8, 1989,
indicating among others, Retention of the
Polo Club share, subject to my reimbursing
the purchase price to the Chamber, or one
hundred ten thousand pesos (P110,000.00).
AMCHAM rejected the counter proposal of
Thomson. On April 5, 1990, private
respondent, through counsel sent a letter to
the petitioner demanding the return and
delivery of the MPC share which "it
(AmCham) owns and placed in your
(Thomson's) name."
Failing to get a favorable response, private
respondent filed on May 15, 1990, a
complaint against petitioner praying, inter
alia, that the Makati Regional Trial Court
render judgment ordering Thomson "to
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MPC share. Applicable here is the rule that
a trust arises in favor of one who pays the
purchase money of property in the name of
another, because of the presumption that he
who pays for a thing intends a beneficial
interest therein for himself.
Although petitioner initiated the acquisition
of the share, evidence on record shows that
private respondent acquired said share with
its funds. Petitioner did not pay for said
share, although he later wanted to, but
according to his own terms, particularly the
price thereof.
While private respondent paid the purchase
price for the share, petitioner was given
legal title thereto. Thus, a resulting trust is
presumed as a matter of law. The burden
then shifted to the transferee to show
otherwise, that it was just a loan. Such
resulting trust could have been rebutted by
proof of a contrary intention by a showing
that, in fact, no trust was intended. Petitioner
could have negated the trust agreement by
contrary,
consistent
and
convincing
evidence on rebuttal. However, on the
witness stand, petitioner failed to do so
persuasively.
Turning now to the other issue, the petitioner
contends that the Articles of Incorporation
and By-laws of Manila Polo Club prohibit
corporate membership. However, private
respondent does not insist nor intend to
transfer the club membership in its name but
rather to its designated nominee. Therefore,
there is no violation of the MPC by-laws.
Castro v. Castro
G.R. No. 36199.
Digested by: Othello Mendoza, II
Facts: A parcel of land formerly belonged to
the deceased Mariano. His daughter
Maximiana is married to Vicente Castro.
They produced six children: Jose (the
eldest), Vicente, Manuel, Consolacion,
Maria and Pedro. Vicente (Maximiana's son)
is already dead but was survived by his four
minor children. Mariano's heirs divided the
land. The subject land in this case has been
assigned to Maximiana. She was aided by
Jose in bringing portions of the property
back into a state of cultivation.
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De Jesus v. De Jesus
GR No. L-16553
Digested by: Ken Gador
Facts: Melecio de Jesus died. His wife, Ines
Alejandrino, became the administratrix of his
estate. She later on filed an inventory of
Melecio's estate. Subsequently, Melecio's
sister, Eusebia, filed a verified claim against
the estate for Php 7,585.84. Instead, Ines,
Eusebia and Cirilio entered into a stipulation
of facts wherein Ines recognized that
Eusebia and Cirilio are co-owners of
Melecio's certain property, and that said
property was registered in the sole name of
Melecio only in trust for all the co-owners.
Due to the stipulation of facts, Eusebia
waived her claim. Both agreements were
approved
by
the
probate
court.
Subsequently, Ines was replaced by her
son, Leon, in the administration of Melecio's
estate. Both mother and son, subsequently,
filed a petition in the lower court, seeking to
annul the stipulations entered into by Ines,
Eusebia and Cirilio. The grounds upon by
the mother and son relied on were: 1. lack of
jurisdiction from the probate court, 2. Lack of
the requisite notices to all the interested
parties, specifically the heirs of Melecio.
Eusebia and Cirilio moved to dismiss the
complaint. The lower court ruled against the
mother and son.
Issue: Does the probate court have
jurisdiction to approve the agreement?
Held: Yes, the probate court has jurisdiction
Ratio: The probate court has jurisdiction to
act on and approve the stipulation in
question, not only as an incident to its power
to exclude any property from the inventory of
the estate of Melecio, but under Section 9,
Rule 90 of the Rules of Court. Said provision
permits the probate court, whenever the
deceased in his lifetime held real property in
trust of another person, to authorize the
executor or administrator to deed such
property to the person or persons for whose
age and benefit it was so held.
There being no controversy between the
former administratrix (Ines) and the
defendants, that the latter and Melecio owns
the property in question as co-owners and
that it was registered in Melecio's name only
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The legal title of the holder of the registered
title is not questions; it is admitted that the
members of the association voluntarily
obtained the inscription in the name of Cho
Jan Ling, they have no right to have it
cancelled, but they maintain and we think
that they rightly maintain that he holds it
under an obligation, both expressed and
implied, to deal with it exclusively for the
benefit of the members of the association
and subject to their will.
There is also an implied trust when property
conveyed to a person is committed to hold
or transfer it to another.
When there is an absolute conveyance of
property to secure the performance of an
obligation and once the obligation is fulfilled,
the grantor may demand reconveyance of
the property to himself. (Like a sale of
repurchase).
Escobar vs. Locsin
G.R. No. 48309
Digested by: Martin Angelo Millete
Facts: Eusebia Escobar is the owner of a lot
in Nueva Ecija. She acquired the said lot
from Pablo Ringor in 1914 by way of
donation propter nuptias. Being illiterate, she
sought the help of one Domingo Sumangil to
help her claim the lot in question in the
cadastral proceedings. However, Sumangil
claimed the lot for himself. Due to the
breach of trust committed, Ramon Locsin,
the special administrator of the estate of
Juana Ringor to which the lot in question is
a part of, assigned the land to Sumangils
estate. In lieu of such, Escobar files a
petition before the Supreme Court, asking
for the reconveyance of the lot in question.
Issue: May Sumangil be ordered to convey
the land to Escobar?
Held: Yes, Sumangil may be ordered to
convey the lot to Escobar. Clearly, he
committed a breach of trust reposed unto
him by Escobar, who was illiterate and
sought his help in the cadastral proceedings.
Ratio: A trust such as that which was
created between the plaintiff and Domingo
Sumangil is sacred and inviolable. The
Courts have therefore shielded fiduciary
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showing that the title to the land is in the
defendant. The proper procedure in such a
case, so long as the rights of innocent third
persons have not intervened, is to compel a
conveyance to the rightful owner. This ought
and can be done under the issues raised
and the proof presented in the case at bar.
If the property is acquired through mistake
or fraud, the one who acquired it is
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B. AB Corp. entered into a contract with XY Corp. whereby the former agreed to
construct the research and laboratory facilities of the latter. Under the terms of the
contract, AB Corp. agreed to complete the facility in 18 months, at the total contract
price of P10 million. XY Corp. paid 50% of the total contract price, the balance to be
paid upon completion of the work. The work stated immediately, but AB Corp. later
experienced work slippage because of labor unrest in his company. AB Corp.s
employees claimed that they are not being paid on time; hence, the work slowdown.
As of the 17th month, work was only 45% completed. AB Corp. asked for extension
of time, claiming that its labor problems is a case of fortuitous event, but this was
denied by XY Corp. When it became certain that the contruction could not be finished
on time, XY Corp. sent written notice cancelling the contract, and requiring AB Corp.
to immediately vacate the premises.
a. Can the labor unrest be considered a fortuitous event? (1%)
b. Can XY Corp. unilaterrally and immediately cancel the contract? (2%)
c. Must AB Corp. return the 50% downpayment? (2%)
2007
A. What are obligations without an agreement? Give five examples of situations giving
rise to this type of obligations?
B. A deposit made in compliance with a legal obligation is:
a.
b.
c.
d.
e.
an extrajudicial deposit;
a voluntary deposit;
a necessary deposit;
a deposit with a warehouseman;
letters a and b.
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DEVLAND had failed to develop the subdivision in accordance with the approved
plans and specifications within the time frame in the plan. He thus wrote a letter to
DEVLAND informing it that he was stopping payment. Consequently, DEVLAND
cancelled the sale and wrote Bernie, informing him that his payments are forfeited in
its favor.
a) Was the action of DEVLAND proper? Explain. (2%)
b) Discuss the rights of Bernie under the circumstances. (2%)
c) Supposing DEVLAND had fully developed the subdivision but Bernie failed
to pay further installments after 4 years due to business reverses. Discuss
the rights and obligations of the parties. (2%)
C. Under a written contract dated December 1, 1989, Victor leased his land to Joel for a
period of five (5) years at a monthly rental of P1,000.00, to be increased to P1,200.00
and P1,500.00 on the third and fifth year, respectively. On January 1, 1991, Joel
subleased the land to Conrad for a period of two (2) years at a monthly rental of
P1,500.00. On December 31, 1992, Joel assigned the lease to his compadre, Ernie,
who acted on the belief that Joel was the rightful owner and possessor of the said lot.
Joel has been faithfully paying the stipulated rentals to Victor. When Victor learned
on May 15, 1992 about the sublease and assignment, he sued Joel, Conrad and
Ernie for rescission of the contract of lease and for damages.
a) Will the action prosper? If so, against whom? Explain. (2%)
b) In case of rescission, discuss the rights and obligations of the parties.
(2%)
D. Before he left for Riyadh to work as a mechanic, Pedro left his Adventure van with
Tito, with the understanding that the latter could use it for one year for his personal
or family use while Pedro works in Riyadh. He did not tell Tito that the brakes of the
van were faulty. Tito had the van tuned up and the brakes repaired. He spent a total
amount of P15,000.00. After using the vehicle for two weeks, Tito discovered that it
consumed too much fuel. To make up for the expenses, he leased it to Annabelle.
Two months later, Pedro returned to the Philippines and asked Tito to return the van.
Unfortunately, while being driven by Tito, the van was accidentally damaged by a
cargo truck without his fault.
a) Who shall bear the P15,000.00 spent for the repair of the van? Explain.
(2%)
b) Who shall bear the costs for the van's fuel, oil and other materials while it
was with Tito? Explain. (2%)
c) Does Pedro have the right to retrieve the van even before the lapse of
one year? Explain. (2%)
d) Who shall bear the expenses for the accidental damage caused by the
cargo truck, granting that the truck driver and truck owner are insolvent?
Explain. (2%)
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BIBLIOGRAPHY
Pineda, E. (2000). Civil Code of the Philippines: Obligations and Contracts (9th edition). Quezon
City: Central.
Tolentino, A. (1990). Obligations and Contracts (Book IV). Quezon City: Central.
Cases
Abaya v. Enriquez, 101 Phil. 1210
Agoncillo v. Javier, 30 Phil. 124
Alpuerto v. Perez Pastor, 38 Phil. 785
Amerol v.Bagumbaran, 154 SCRA 397
Andreas v. BPI, 47 Phil. 795
Associated Bank v. CA, 291 SCRA 513
Azarraga v. G ay, 52 Phil. 599
Batangan v. Cojuangco, 78 Phil. 481
Berg v. M agdalena Estate, 92 Phil. 110
Bishop ofJaro v. De La Pena, 26 Phil.144
Braganza v.De Villa Abrille, 105 Phil.456
Bundalian v. CA, 129 SCRA 645
Cabaliw v.Sadorra, 64 SCRA 310
California Bus v.State Investment, 418 SCRA 297
Camacho v. M un. of Baliw ag, 28 Phil. 466
Cannu v.Galang, 459 SCRA 80
Castro v. Castro, 57 Phil. 675
CFSharp& Co.v. Northwest,381SCRA314
China Bankinhg v.CA, 327 SCRA 378
Compania G eneral v. Araza, 7 Phil. 455
Cosmic Lumber v. M anaois, 106 Phil. 1015
Cristobal v. G omez, 50 Phil. 810
Cruzv.JM TuasonandCo.,Inc.,76SCRA543
DBP v.CA, 96 SCRA 342
De Jesus v.De Jesus, 113 Phil.528
Dumasug v. M odelo, 34 Phil. 252
Escobar v. Locsin, 74 Phil. 86
Everett Steamship v. CA, 297 SCRA 496
Fieldmans Ins.v. Vda.de Songco, 25 SCRA 70
Francel Realty v. Sycip, 469 SCRA 431
German & Co.v.Donaldson, 1 Phil.63
Goldenrod v.CA, 299 SCRA 141
Government v.Derham Bros., 36 Phil.960
Grace Park Eng.v.Dimaporo, 107 SCRA 266
Guiang v. CA, 291 SCRA 383
Gutierrez v. Gutierrez, 56 Phil. 177
H ernaez v. H ernaez, 32 Phil. 214
Hill v. Veloso, 31 Phil.160
Jayme v. Alampay, 62 SCRA 131
Kauffman v.PNB, 42 Phil.182
Kiel v. Estate of PS Sabert, 46 Phil. 193
Labayan v. Talisay, 52 Phil. 440
Lambert v. Fox, 26 Phil. 588
Laudico v. Arias, 43 Phil. 270
Legarda v. Miailhe, 88 Phil. 637
Llacer v. M unoz, 12 Phil. 328
Magdalena Estates v.Rodriguez, 18 SCRA 967
De La Salle University
Manila Lodge v. CA, 73 SCRA 162
Marin v. Adil, 130 SCRA 406
Marquez v.CA, 300 SCRA 655
Medel v.CA, 299 SCRA 481
Metromedia v. Pastoria, 465 SCRA 335
Muller v.Muller, 500 SCRA 65
Mun.ofCavite v. Rojas, 30 Phil.602
MWSS vs CA, 297 SCRA 287
Nilo v. Romero, 1 SCRA 926
Ong Chua v. Carr, 53 Phil. 975
PAL v. H eald Lumber, 101 Phil. 1031
Panganiban v. Cuevas, 7 Phil. 477
Pedrano v. Heirs ofBenedicto Pedrano, 539 SCRA 401
Phil.Trust Co. v.Roldan, 99 Phil.393
Ras v. Sua, 25 SCRA 153
Republic v.Grijaldo, 15 SCRA 681
Rios v. Palma, 49 Phil. 7
Rivera v.Del Rosario, 419 SCRA 626
Rongavilla v. CA, 294 SCRA 289
Rosencor Dev.Corp.v.Inquing, 354 SCRA 119
Rosenstock v. Burke, 46 Phil.217
Sanchezv.Rigos, 45 SCRA 368
Sing Juco v. Sunyantung, 43 Phil. 589
Siy v.CA, 138 SCRA 536
SMBv. Law Union& RockIns.,40Phil.674
Songco v. Sellner, 37 Phil. 254
Stabilization Inc.v.Relloraza, 97 Phil.153
Tan v. Mandap, 429 SCRA 712
Terminal Facilities v. Philippine Ports Authority, 378 SCRA 82
Thomson v. CA, 298 SCRA 280
Torcuador v.Bernabe, 459 SCRA 439
UCPB v.Buluso, 530 SCRA 567
Uy Aloc v. Cho Jan Ling, 19 Phil. 202
Valencia v. RFC, 103 Phil.444
Vda. de Espiritu v.CFIofCavite, 47 SCRA 354
Velasco v. M esa, 10 Phil. 279
Velez v.Ramas, 40 Phil.787
Wolfson v. Estate of M artinez, 20 Phil. 340
Woodhouse v.Halili, 93 Phil.526
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