Oblicon 1163-1171

Ek Lee Steel Works v Manila Castor Oil (Castor Oil Plant) 1169 reciprocal obligation. Castor was not obligated to pay since Ek Lee has not yet finished construction (May 16 1988 letter specified a new deadline and the schedule of payment, therefore ek lee cannot claim the remaining 200k since they had not finished the construction) Telefast v. Castro (moms funeral) 1170 Telefast is liable for the damages suffered by the Castro family due to their gross negligence in failure to deliver the letter sent by Sofia and for not informing her that the letter was not delivered. Cathay Pacific v. Vasquez (forcible upgrading to first class) There was a breach of contract of carriage when Cathay upgraded the seats of the spouses Vasquez without their consent. Regardless of their good intent to provide better accommodations for the latter, they should not have done so without their permission or worse against their will. However, the court found there was no bad faith in the upgrading of seats and thus there could be no award of moral or exemplary damages. Only nominal damages and attorneys fees were awarded. RCPI v. Rodriguez (WOOORLLLD ASSSOOOCIAATION OF LAWWWWWW STUDENNNNTSSS!!!) 1170 RCPI reneged on its obligation to deliver the letter to Taha and to inform Rodriguez about the non-delivery, thus making it liable for damages. RCPI cannot wash its hands clean of its obligation by passing on the liability to GLOBE for it is its duty to establish a system to ensure that GLOBE delivers their letters to recipients and to inform their clients in case they do not.

Oblicon 11/18/10
Difference Personal v. Real Right? Personal enforceable against person (you owe me money) Real over a thing against the whole world (I own this pen)

Determinate v. Generic (Black Beauty the Horse v. Any Horse) Determinate must deliver the exact same thing, nothing else even of greater value 1163 (diligence) only applies to determinate objects not generic. Generic things do not perish (you are not obliged to take care of all the horses in the world) Diligence of a good father ordinary diligence, standard normal state of diligence 1164 when obligation arises, creditor has personal right over all accessions and accessories of the object (cow and its calf delivered after stipulated delivery of object) When does obligation to deliver arise in case of contracts? Upon perfection of contract. Exception: When stipulated in the contract. When obligation arises creditor has personal right, when delivered has real right. Ownership is not transferred by mere agreement only upon delivery. Rights of creditor in determinate object: 1. Compel for specific performance 2. File for damages Obligation of debtor 1. Perform specific performance 2. Take care of thing with diligence of good father 3. Deliver all accessions and accessories (1166) 4. Be liable for damages 1165 when there is delay, debtor is liable for object even in occasion of fortuitous event. Why? Had the debtor complied with the obligation to deliver and had not delayed then there would have been no loss due to fortuitous event.

Note that if there is no demand then there is no delay (1169) therefore debtor is not liable for loss of object if creditor did not demand. Likewise, debtor is liable for loss even due to fortuitous event if he has promised to delivered same thing to 2 persons who have no similar interests. It is inherently impossible to comply with both obligations thus debtor had already made himself liable since he cannot perform both obligations to both creditors. Generic class or genus Right of creditor 1. Ask for performance 2. Ask for compliance at expense of debtor (no matter the cost it will be charged to debtor) 3. To recover damages Obligation of debtor 1. Deliver thing of neither superior or inferior quality 2. Liable for damage 1167 Cannot compel person to DO. Violates constitutional right of liberty. Remedy is to ask another person to do what the debtor is obligated to do at the expense of said debtor. Also creditor can have it decreed what has been done poorly be undone. Case: Chaves v. Gonzales (Typewriter) 1167 Gonzales is liable for expenses incurred by Chaves when he sought to have typewriter repaired by another due to his failure to comply with their contract to repair after payment was made by Chaves and repeated demands for him to comply with their contract. Case: Tanguilig v. CA (Windmill)

1167 Tanguilig is obligated to repair defective windmill as per the stipulations in their contract subject to the actions available to Herce should the former fail to do so (execution at Tanguiligs expense, action for damages). Cannot claim that it was due to caso fortuito since windmill is precisely built in windy place. DUH!
1169 In reciprocal obligations, neither party incurs in delay if the other does

not comply or is not ready to comply in a proper manner with what is incumbent upon him. Tanguilig refused to continue construction of windmill,

Herce refused to pay balance of 15k, both have not complied with their obligations therefore there is no delay.
1168 Not possible to have delay in obligation not to do. Remedies: a) undo what has been done (not always possible), b) file for damages. 1169 There is no demand if there is no delay Except: a. When stipulated in contract that delay shall not be incurred for failure of delivery or demand of creditor OR that demand is not necessary for delay to be incurred. (must be specifically stipulated in contract) b. When time is a consideration for entering contract (delivery of wedding gown) c. When it is impossible for debtor to comply thus demand becomes useless (when creditor witnesses destruction of object, it is futile to demand that the same be delivered) 3 kinds of delay a. Mora solvendi (delay of debtor to comply with obligation) b. Mora accepiendi (delay of the creditor in accepting) c. Compensatio Morae (delay of both parties in reciprocal obligations).

In reciprocal obligations, Demand is not necessary for there to be a delay. Once one party performs his obligation, delay by the other already begins.

What is a reciprocal obligation? Both parties are debtors and creditors of each other. Obligations are conditioned upon each other

Exception: when both parties agree upon a different date of complying with their obligations. (Ill give you my horse now and you pay me after 1 month). Thereby first paragraph of article 1169 applies, no demand no delay. 1170 Ways of breaching contract that can cause action for damages

a. Fraud (1171) b. Negligence (1172) c. Delay (1169) d. Contravention of tenor so long as you do not comply with obligation there is contravention (cases: Telefast v. CA, RCPI v. Rodriguez) Fraud v. Negligence Fraud intent to not comply with obligation. Why is waiver of future fraud not allowed? Because otherwise there wouldnt really be an obligation but a mere shell since debtor is free to not comply with obligations. Negligence omission of diligence which is required by the nature of the obligation and corresponds with the circumstance of the persons, time and place. There is no intent to not comply. Eastern Shipping (Vitug Rule): Rules for computing interest of loans, forbearance, damage in cases of breach of contract: 1. Follow stipulation in contract 2. If not stipulated: a. For loan or forbearance 12% per annum b. If not - 6% from demand (judicial or extrajudicial). After final judgment 12% since damages has taken the form of loan 11/23/10

1172-1178
3rd Way of breaching obligation Negligence omission of diligence which is required by the nature of the obligation and corresponds with the circumstance of the persons, time and place. There is no intent to not comply. Cangco v. Manila Railroad Co. (doctrinal case of determining standard for negligence) Would a reasonable man under the same circumstances do the same thing? Rakes v. Atlantic Gulf and Pacific Co.

There was a company rule that forbade workers to walk beside the railroad cart to prevent injury. Rakes did so anyway thus he got served. Is the company liable for damages? Yes since the event would have happened anyway regardless of the acts of Rakes. But damages should be reduced since Rakes was also negligent thereby contributing to his own injury. Proximate cause - The cause which in natural and continuous sequence such thing would not occur if proper care was use. Diligence required is dependent on the nature of the obligation. Normally only ordinary diligence is required while in other cases (e.g. carriers, medical practitioners) extraordinary diligence is mandated. 1174 Caso Fortuito When is an event unforeseeable? When it is not known when it will occur. To be exempted, the FE must be the SOLE cause of non fulfillment of obligation. There should be no negligence on his part. Necessito v. Paras a manufacturer is considered as the agent of carrier thus a defense blaming the manufacturer for defective parts is invalid. Cases: Republic v. Luzon Stevedoring (Nagtahan Bridge binangga ng barko!) 1172 - Res ipsa loquitur (the thing speaks for itself) inference that may arise by merely observing what is apparent and undeniable. It is a presumption of negligence on the party who exercise exclusive control and management over the thing, cause or object of an obligation for under the normal course of things the damage would not have occurred were it not for the existence of such negligence. It would be clear that if there was fault or negligence then it would have been on the part of he who exercises control or management over the thing. The Nagtahan bridge was an immovable and stationary object and provided adequate openings for passage including appellants water craft. The unusual event of the latters boat ramming onto the bridge raises the presumption of negligence on their part which they have failed to overcome. Neither was it caso fortuito for the event was not unforeseeable nor inevitable. In fact the appellee foresaw the possibility of danger and took it upon themselves to take extra precautions. It therefore assumed the risk, and cannot shed responsibility merely because the precautions it adopted turned out to be insufficient.

Africa v. Caltex (tangke ng gassumabog!) 1172 - In case of non-contractual negligence, or culpa aquiliana (quasi-delict), the burden of proof is on the plaintiff to establish that the proximate cause of his injury was the negligence of the defendant, it is also a recognized principle that "where the thing which caused injury, without fault of the injured person, is under the exclusive control of the defendant and the injury is such as in the ordinary course of things does not occur if he having such control use proper care, it affords reasonable evidence, in the absence of the explanation, that the injury arose from defendant's want of care." The gas station was owned and operated by the defendant and its employees. Under the normal course of things, gas trucks and tanks do not normally get set on fire if those managing them exercise care and caution. It is therefore fair to assume that the incident happened because of want of care and diligence. Fabre v. CA (Ilocos fieldtrip) Driver and Owner may be held liable jointly and severally for damages resulting from culpa-aquilana or quasi-delict on the occasion of an accident where there is apparent negligence on their parts. In case of damages arising from breach of contract (culpa-contractual) only the Owner may be made liable since a contract of carriage is between the owner and the passenger. In a scenario wherein 2 passenger vehicles collide with each other causing injury to passengers, they may hold solidarilly liable both drivers and both owners of the vehicles. The choice is up to the plaintiff whether to proceed on culpa-contractual or culpaaquilana so long as he does not recover twice from the same injury. Metro Manila Transit Corp v. CA (Bus-jeep accident) Whether or not the diligence of a good father of a family has been observed by petitioner is a matter of proof which under the circumstances in the case at bar has not been clearly established. It is not felt by the Court that there is enough evidence on record as would overturn the presumption of negligence, and for failure to submit all evidence within its control, assuming the putative existence thereof, petitioner MMTC must suffer the consequences of its own inaction and indifference. MMTC failed to produce proof that it exercised diligence in selecting its drivers. It relied on generalities but did not produce the required document to establish that their bus driver indeed pass the required examinations and that he follows the rules and regulations imposed by them.

MIAA v. ALA Industries (Fortuitous Xmas) The Christmas season is NOT a fortuitous event that would exempt petitioner from complying with his obligation to pay his outstanding debt to respondent. A fortuitous event is one that cannot be foreseen, or though foreseen, is inevitable. Characteristics: a. Cause of the event or failure to fulfill obligation must be independent of the will of the obligor b. Impossible to foresee, or if foreseen, impossible to avoid c. Occurrence renders it impossible for obligor to fulfill his obligation d. Obligor is free from any participation in the aggravation of the resulting injury to the creditor None of such elements appears in this case: a. Processing claims through accounting and auditing in govt is not unforeseeable nor unexpected. It is entirely dependent on human will. b. Christmas is a regularly occurring event. It is foreseeable and has nothing to do with processing claims. c. Christmas did not render it impossible to fulfill the obligation d. Petitioner is not free from any participation in the delay And even if the event was fortuitous, negligence on the part of the petitioner negates his claim for exemption. The event must be the sole cause of the nonfulfillment of the obligation, independent of all human faculties. Tugade v. CA (Faulty breaks, Holden car) La Mallorca case is controlling. Accident caused either by defects in the automobile or else through the negligence of its driver is not caso fortuito. For there to be a valid claim of caso fortuito all of the elements must be present thereby attributing such an accident to an act of God or adverse road conditions which could not be foreseen. Vasquez v. CA (Klaring) While a typhoon is an act of God and under normal circumstances a caso fortuito, in this case it was foreseeable and avoidable. The captain and his crew were made aware of the existence of such a typhoon along their destination and were kept posted on a 6 hour basis while they were hopping from island to island. They took a

calculated risk when they decided to venture forth despite the knowledge that they were already within the storms vicinity. Thus it was not only their own safety that the captain and his crew were risking but those of the ships passengers and cargo. Having taken such a risk, they and their proprietors are liable for the resulting death of the passengers and cannot claim exemption due to a fortuitous event. Bacolod-Murcia v. CA (hacienda Helvetia railroad) Is the termination of a right of way contract between petitioner and landowners a fortuitous event that would exempt the former from liability for breach of contract? No. The termination of the contract of lease had an expiration date thus it was foreseeable and inevitable. The petitioners, by renewing their contracts to the sugar cane planters took a calculated risk when it assumed that the land owners will renew their contracts to allow their train to pass through their lands. Thus when one of the land owners refused to renew his contract with the petitioner, resulting in the paralysis of the entire transport system thereby making the latter unable to comply with his obligations to third parties, they are liable and cannot claim exemption due to fortuitous event. Adequate measures should have been adopted by BMMC to forestall such paralyzation but the records show none. All its efforts were geared toward the outcome of the court litigation but provided no solutions to the transport problem early enough in case of an adverse decision. PHILCOMSAT v. GLOBE (RP-US treaty force majeure) Can parties in a contract define and identify events (termination of RP-US treaty) that are to be considered as force majeure, the occurrence of which would validate the termination of the contract and thereby relieving a party from its obligations? Yes. Article 1174 provides that parties may provide otherwise in a stipulation. It also speaks of fortuitous events that are FORESEEABLE but INEVITABLE. The contract stipulations do not expand the scope of the law for the conditions or enumerations of events in their contracts are all acts that although foreseeable but are beyond the control of the parties. Furthermore, under 1159, a contract is a meeting of minds which has the force of law between the parties. They are free to stipulate conditions therein provided they are not contrary to law, morals, good customs, public order or public policy. Difference between Bacolod-Murcia and PHILCOMSAT: Bacolod-Murcia cannot fulfill obligation because of own fault or negligence. There was a calculated risk when B-M entered into contract with parties despite non-assurance that contracts will be renewed with rail companies. It was not a fortuitous event.

PHILCOMSAT contract stipulation defined the cancellation of treaty as force majeure that warranted cancellation of contract. Co v. CA (Kotseng Nissankinarnap!) Is the carnapping of a car a fortuitous event that may exempt the obligor from paying damages for its loss? No. Burden of proof in claiming FE he who alleges it. Respondent who merely furnished a police report of an alleged carnapping failed to establish that indeed a carnapping took place. Neither does it prove that there was no fault or negligence on his part. Assuming arguendo that carnapping was duly established as a fortuitous event, the respondent can still be held liable under article 1165 since he was already in delay for failure to comply with the delivery of the car 3 days prior to its alleged carnapping. The agreement of the petitioner to the rescheduled delivery cannot be construed as a waiver of the right to demand since the car was unusable and it left petitioner to other option but to leave it there. Also he can be held liable under article 1174 since running a carshop normally entails the risk of carnapping. It is also common for owners of carshops to have insurance in such cases and thus it would violate the principle of unjust enrichment if such an owner can recover from insurance yet is not obligated to pay the customer who suffered the loss. Austria v. CA (kuwintas na diamanteninakaw!!) In a claim of exemption due to the fortuitous event of ROBBERY, is it necessary to prove by final conviction that the robbery actually occurred? In other words, if the culprits are unknown or have not yet been sentenced by final judgment, is the claim of exemption by reason of fortuitous event void? To avail of the exemption granted in the law, it is not necessary that the persons responsible for the occurrence should be found or punished; it would only be sufficient to establish that the enforceable event, the robbery in this case, did take place without any concurrent fault on the debtor's part, and this can be done by preponderant evidence. It is also necessary that the debtor is free from concurrent or contributory fault or negligence. Difference between Co and Austria Austria fortuitous event must be proven and that there was no negligence on part of the obligor. Preponderance of evidence would suffice to establish that FE actually occurred. Here Austria presented witnesses that attested to

the fact that a robbery actually occurred and thus was exempted from liability Co fortuitous event was not sufficiently proven. Car shop owner merely presented police report on an alleged robbery. Furthermore, there was delay on his part and a calculated risk involved in his business. He cannot claim exemption due to fortuitous event. Southeastern College v. CA (Bubong pinalipad ni Saling!) In culpa aquilana, person claiming damages for the negligence of another has the burden of proving the existence of such fault or negligence causative of his injury or loss. Evidence must be affirmatively established by competent evidence, not merely presumptions and conclusions of fact. Respondents merely relied on a report submitted by a team who conducted mere ocular inspections. No report was submitted of an investigation of the real cause behind the unroofing nor to prove that the buildings structure and composition was defective. Typhoon Saling which is undoubtedly a fortuitous event and it not being proven that there has been negligence on the part of the petitioner damages may not be granted to private respondent. Saludaga v. FEU (Law studentbinaril ng sekyu!) A contract is established when a student enrolls in a university. The former is obligated to follow the rules and regulations established by the university while the latter is obligated to provide an environment conducive to learning and to ensure the safety of its students while within the premises thereof. In culpa contractual, the mere proof of the existence of the contract and the failure of its compliance justify, prima facie, a corresponding right of relief. FEU has the burden of proof to discharge the presumption of negligence which they have failed to do considering the lack of evidence of efforts to ensure that the guards they employ are competent and qualified. Thus FEU is liable for the breach of contract resulting in their negligent employment of the security guard who shot Saludaga. Difference between Southeastern and Saludaga. Southeastern Culpa aquilana. He who claims damage due to the negligence of another has the burden of proof to prove such negligence.

Saludaga Culpa contractual. Proof of the existence of a contract and its breach or non-fulfillment is sufficient prima facie evidence to warrant recovery. Burden of proof to discharge the accusation lies on the party accused of negligence. Manila Trading v. Medina (resibo kinain nganay!!!) 1176 raises presumptions that may be overturned by competent evidence 1. Receipt of principal by creditor assumes that interest has been paid 2. Receipt of a latter payment of an installment presumes that previous installments had been paid (receipt must clearly indicate that it is for a specific installment (for the month of May)) In this case the claim by Medina of payment of the installments prior to the January 1957 raises the presumption that prior installments were paid. This might be true if such receipts recited that they were issued for the installments corresponding to the month of January, 1957; but nowhere does that fact appear. And even if such recital had been made, the resulting presumption would only be prima facie, and the evidence before us is clear that the payments made do not correspond to the installments falling due on the dates of the genuine receipts. Sicam v. Jorge (Sanglaan..nilimas!) Similar to the Co case, the owners of a pawnshop are liable for loss of the items pawned to them. For a claim of fortuitous event to be successful in such a case it must be proven by he who alleges it that the loss is a result of a fortuitous event and that there was not fault or negligence on their part. In other words he must prove that: a. The non-fulfillment of the obligations or loss of an object is due to an event independent of human will b. The event must be unforeseeable or if foreseeable is inevitable c. The occurrence of such must render it impossible for the debtor to fulfill his obligations in an ordinary manner d. The obligor is free from any participation in the aggravation of the injuries of the creditor It is clear from the testimony of Sicam himself that indeed he foresaw the possibility of robbery and that he thought of ways to prevent such but did not proceed to do so. Likewise there was negligence on his part when no measures were taken to safeguard their pawnshop by closing the vault during open hours or employing welltrained and competent guards.

Neither can Sicam disclaim liability by hiding behind the corporate veil for such can be pierced if it is established for the purposes of defrauding or misleading others. The name of the pawnshop misled their customers into believing that Sicam was the owner and not merely a stock holder of the corporation. 1175 Usury Law is still in suspended animation. Parties may agree on any amount of interest. 1177 Rights of creditor: exhaust, be subrogated, impugn.

11/25/10

1179-1188
Condition v. Period Condition future and uncertain fact or event which an obligation may be subordinated or made to depend (getting a certain grade, passing an exam, winning a bet etc) Term future and certain event that would surely come to pass though not always known when (death) Can a past event constitute a condition? Yes. When the past event is unknown to all and it may or may not be proven. (Prove that Hitler was a homosexual and Ill give you 10,000,000,000 Yen)

Pure v. Conditional Pure immediately demandable without condition. Although must not be construed as to lead to absurd situations, there must be a grace period. Conditional relies on a future and uncertain event

Suspensive v. Resolutory Suspensive birth of obligation is suspended until fulfillment of obligation. If condition is not fulfilled there is no obligation. Resolutory rights would be extinguished upon fulfillment of condition.

Potestative, Casual, Mixed

Potestative dependent on the will of one of the parties Casual dependent on 3rd party, event or chance Mixed dependent on one of the parties and 3rd party or chance

Potestative suspensive condition dependent on will of debtor is void. Why? It is merely an illusory condition since there is no juridical necessity 1182 does not apply to pre-existing obligations.

Simple potestative Valid. Presupposes not only manifestation of will but also realization of an act. (When I sell my house I will give you the first offer) Right of first refusal. Purely potestative void; 1182 1187 remedy for obligations without a definite period. Let the courts decide Impossible conditions void condition and void obligations attached to it; reveals intent to be bound. Illusory obligation. Exception: Gratuitous donations, testamentary disposition etc. Condition is disregarded but disposition is still valid. Why? Due to generosity or liberality of donor. Impossibility or possibility of condition is determined upon the moment of constitution of obligation. 1184-1185 positive and negative conditions Positive - something will happen. Effective upon happening. Negative something will not happen. Effective upon elapsing of time that event did not or impossible to occur. 1186: Constructive fulfillment when debtor intended and prevented fulfillment of condition, condition is constructively fulfilled. Except: When no intent or for other legal means (prevented by prosecution likeRAPE! People v. Suarez) 1187 Retroactive effect of conditions upon moment of constitution of condition. Why? Because it is not an element of obligation. Tempered by compensation. Reciprocal deemed mutually compensated. Unilateral must deliver fruits etc. Cases:

Lim v. CA (stubborn occupant) The condition for as long as the defendant needed the premises and can meet and pay said increases is void since it is a purely potestative suspensive condition subject to the sole will of the lessee. Suspensive renewal of the lease, which gives rise to a new lease, depends upon said condition. Potestative leaves effectivity and enjoyment of leasehold rights solely to will of lessee. Right to occupy or rent is dependent solely on will of lessee to fulfill suspensive condition, it is therefore void. (1182) Rustan and Pulp & Paper Mills, INC v. IAC (Pulp Delivery) There is an illusory resumption of deliveries inasmuch as the prerogative suggests a condition solely on the will of petitioners. Petitioners have the sole discretion to stop or resume delivery entirely up to their ascertainment and with whatever excuse they could come up with. While true that a potestative resolutory obligation dependent upon the will of the obligor may be valid, this only refers to the birth of a non-existing obligation and not that of a pre-existing one. Existing obligations (Contract of Sale) I buy wood (Rustan), you sell to me (wood) Potestative condition ( referring to existing obligation) I can stop and resume buying wood from you whenever I want (void condition but obligation still exists) Security Bank v. CA (mutual agreement) Petitioner bank, by inserting the clause on mutual agreement for payment costs in case of escalation of expenses for construction, is in effect a condition dependent on petitioner banks sole will since private respondent would naturally and logically consent to such an agreement. (Syempre tatanggapin nung constructor yung pera, sya nga yung nanghihingi ng compensation for escalation of costs e!) Art 1182 renders as void conditional obligations solely dependent on the will of the debtor but this only applies to obligations dependent on the fulfillment of an obligation and not on pre-existing ones. In the case of the latter the condition shall be void but the obligation would still be valid. Existing obligation for SB to pay escalation costs.

Void condition- SB will pay increase in construction cost only when they agree to do so Romero v. CA (Squatters) Contract of Sale between the parties has already been perfected thereby giving birth to obligations on both parties, on Romero to pay the total amount and for Ong to deliver the lot with the squatters already removed from its premises. Ong cannot rescind on the contract for her own failure to fulfill her own conditional obligation for the birth of the obligation did not depend on her ability to comply with the said removal of the squatters but was on the perfection of the contract itself. Her inability fulfill the suspensive condition merely gives the buyer the right to either rescind the agreement or to waive the condition altogether and accept the property as it was. This right cannot be exercised by the seller. The condition therefore was mixed for it did not depend on the will of the vendor alone but upon third persons (squatters etc) and in a mixed condition an obligor is deemed to have fulfilled his part of the obligation if he has done all that within his power to fulfill it even if it has not been fulfilled in reality (Smith, Bell and Co. vs. Sotelo Matti), which in this case she had not that even gives the rise to a question of whether or not she acted in bad faith for non-compliance with the condition. Republic v. Holy Trinity (expropriation interest) Does the interest accruing from a bank deposit for an expropriation action belong to the obligee? Yes. Art 1187 states that effects of a conditional obligation to give, once condition has been fulfilled, shall retroact to the day if the constitution of the obligation. Hence, when HTRDC complied with the conditions, the effects of the constructive delivery retroacted to the actual date of the deposit of the amount in the expropriation account. 11/30/10 1188 1st paragraph for creditor - Remedies not limited to judicial action File injunction, registration of contract

2nd par Not only amount paid by mistake but also the fruits, interests (1195) why? Because 1195 allows it for suspensive periods, it would be absurd not to allow it for suspensive conditions.

1189-1192
1189 as for useful improvements, debtor has right to remove such without damaging the property. He may also offset the value with whatever possible damage on the property. Goes out of commerce legally impossible to transfer or acquire the thing. 1189 assumes that condition is fulfilled, otherwise does not apply. 1190 upon fulfillment of condition obligation ceases to exist. What does not exist does not produce any effects. Return all fruits etc (Tolentino: for convenience, must be deemed mutually compensated) 1191 5 stars! Reciprocal obligations conditioned upon each other, each are debtor and creditor of the other. Not all circumstances where 2 parties are C and D of each other means they are reciprocal (Songcuan v. IAC) Breach must be substantial (Roque v. Lapuz), not merely casual (Angeles v. Calasanz) Notice must be given (Palay) ALWAYS Implied authorization courts shall declare rescission Expressed extra-judicial rescission. If other party does not agree, he may contest before the courts and will decide WON rescission is proper. Only damages compatible to idea of rescission may be recovered. If stipulated, arbitration must be given preference before rescission.

Laperal v. Solid Homes (Bobong Solidhomes) Contract Solidhomes would improve Laperal and FGCC lands into first class subdivision in exchange for ownership of 45% of lands. Stipulations: a. Upon non-compliance of Solid with the terms of conditions, they shall lose entitlement to any refund or advances and all improvements of any nature will belong to FGCC without obligation to pay b. All sales by Solid to third parties shall be forfeited in favor of FGCC

c. FGCC does not have to surrender owners duplicate copies of titles of lands. Solid was unable to continue its obligation to improve said land because of its inability to comply with requirement to surrender duplicate owners titles (because FGCC refused to do so as per contract stipulation. FGCC rescinded contract. SC: Rescission carries with it corresponding obligation for restitution. Mutual restitution is required for cases involving rescission based on 1191. Mutual restitution is required to bring back the parties to their original situation prior to the inception of the contract. Pangilinan v. CA (3 months default) Does a contract stipulation, providing for the automatic extrajudicial rescission of a contract, need be made of notice to the defaulter for it to be made effective? No There is nothing in this law which prohibits the parties from entering into an agreement that a violation of the terms of the contract would cause its cancellation even without court intervention. The rationale for the foregoing is that in contracts providing for automatic revocation, judicial intervention is necessary not for purposes of obtaining a judicial declaration rescinding a contract already deemed rescinded by virtue of an agreement providing for rescission even without judicial intervention, but in order to determine whether or not the rescission was proper. As per the contracts stipulations, the failure of petitioners to pay installments for 3 consecutive months gave the right of respondent to extrajudicially rescind the contract. Court declaration was not for rescission but merely to determine WON the rescission already done was proper. Note: Contract to sell is different from contract of sale. The former is a positive suspensive condition wherein transfer of the title will only be effected upon full payment of amount. The latter is a resolutory condition wherein the land will be returned to the owner if the buyer fails to pay the amount. Central Bank v. CA (mutual default) 1192 - provides that in case both parties have committed a breach of their reciprocal obligations, the liability of the first infractor shall be equitably tempered by the courts. Sulpicio Tolentino obtained a loan for 80,000. ISB issued 17,000 which Tolentino received. Thereafter, bank was unable to pay remaining 63k due to ISBs insolvency. Can ISB enforce foreclosure against Tolentinos property for the latters non-payment of 17k?

Both parties entered into reciprocal contract, ISB obligated to give 80,000 and Tolentino to pay the same amount within stipulated time. Inability of Bank to pay the whole amount gave right to Tolentino to rescind or file for specific performance however Tolentinos was also unable to comply with his obligation. Under 1192 both parties committed breach and the court may temper the liability of the first infractor. Thus liability of ISB in not furnishing entire loan is offset by Tolentinos liability for damages in the form of penalties and surcharges. However interest is not offset since Tolentino has derived benefits while in possession of the amount in question. Songcuan v. IAC (not a reciprocal obligation) Alviar sold land to Songcuan with right to repurchase within 10 years. Contract stipulated that upon exercise of right to repurchase, Alviars are obliged to lease area occupied by Songcuan to him for 25 years. 3 years later, house resided by Songcuan was razed by fire which prompted him to build new structure which he occupied. Alviars exercised right to redeem but denied Songcuan continued use of property arguing that what they were obliged to rent to him was already destroyed and that he constructed the building without their permission. Songcuan argued that he was rescinding the right of Alviars to repurchase for breaching reciprocal obligation to lease to him (1191). In other words, he argued that Alviars were obligated to lease the place to him and he was obligated to grant them right to repurchase. For having fulfilled his obligation, he claimed that he had the right to rescind for the Alviars failure to fulfill their obligation. SC ruled that the obligations were not reciprocal and thus Songcuan had no right to rescind. The obligation to lease to Songcuan arises only after exercising the right to repurchase and Songcuans obligation to redeem the property to the Alviars is not dependent on their obligation to lease to him. Here the proper action for breach was for specific performance (to allow him to lease) and not for rescission. Barredo v. Leano (SSS, APEX) Barredo spouses claim that the payment of the SSS, APEX debts were necessary conditions for the sale of their property (delay of which would give right to the spouses to rescind the contract of sale) Court held that such payments were mere collateral and the contract of sale was perfected upon the payment of 200k not of the debts. Contract stipulated that the Leano spouses would ASSUME the debts but nowhere did it mention that it was a

main obligation of the contract. Absent such stipulation, the Court cannot expand the terms of the contract as to construe what clearly is not there. But assuming arguendo that such was indeed a valid argument, the Court held that mere minor delays in the performance of an obligation is not sufficient ground to permit rescission. For non-compliance to warrant rescission, such must be aimed to defeat the very object of the parties in entering the contract. Angeles v. Calasanz (Discount!) Calansanz sold house to Angeles. Angeles defaulted upon payment of 90% of sum for 5 months saying theyve already fully paid the full amount as stipulated. Minor breach in obligations does not permit rescission especially when most of the obligations had already been fulfilled and mere deficiencies have been incurred by one party even if such may be stipulated in the contract. Furthermore, when Calasanz had previously allowed late payments by Angeles, they were already estopped from exercising their right to rescind. Roque v. Lapuz (Rockville subdivision) Contract to Sell ownership and rights over property is not transferred until full payment (positive suspensive condition). For failure to pay, vendor may extrajudicially terminate the operation of the contract, refuse conveyance and retain the sums or installments received. No obligation to sell arises and vendor repossesses the property object of the contract. Non-compliance is not a breach, casual or serious but simply an event that prevented the obligation of the vendor to convey the title from acquiring binding force. Contract of Sale ownership or right over property is extinguished for failure to pay. The decision also stressed that there can be no rescission or resolution of an obligation as yet non-existent, because the suspensive condition did not happen thus petitioner Roque was never obligated to sell his land to Lapuz since the latter had not complied with the suspensive condition. Is Roque entitled to a judicial determination of a period to which he may comply with his obligation? No There was a substantial breach of contract when he merely paid 4 out of the 120 installments they had agreed on. There was evident bad faith in his continued refusal to pay even a single centavo to Roque.

Palay Inc. v. Clave (notice of rescission) The act of a party in treating a contract as cancelled should be made known to the other. Even if stipulated in contract that a buyer waives his right to be notified for rescission upon failure to pay his dues, there is still the need to notify him of such lest the rescission be void. Ayson-Simon v. Adamos (Generosa wins!) The injured party in a reciprocal obligation may demand for fulfillment of the contract or should it be impossible, for rescission. Demand for fulfillment, if demanded first, does not bar an action for rescission should the former fail. Bacolod-Murcia v. CA (breach by BM) BM had breached its contract with Gatuslao to transport and mill his sugarcane. Under 1191, Gatuslao had the option to demand fulfillment or rescission with damages in both actions. Gatuslao demanded rescission and so it is rescinded. Romero v. CA (squatters reloaded) Rescission may only be demanded by injured party. Ong, for not complying with her obligation to evict the squatters cannot demand rescission. It is petitioners prerogative whether to ask for performance or rescission with damages in both cases. Clearly here, Romero has opted performance of the contract. Ang v. CA (intsik takaw pera) Non-compliance or slight delay with stipulation (to clear out squatters) does not warrant rescission. It must be for substantive breach, in this case when Ang after having agreed to sell the land at 1.6m then changed his mind to 2.3m had substantively breached their contract prompting respondents to exercise their right to rescind. The effect of rescission is to restore both parties to their status prior to the contract as if it never were, thus petitioners are liable to refund the 50k down payment. Tan v. CA (intsik ayaw lugi, gusto refund kase takaw pera) Absent a contract stipulation empowering parties to rescind a contract upon breach by another, judicial determination of rescission is mandated. Parties cannot for themselves determine justification for rescission if it is not expressed in the contract. (Mixed conditions) The rule in this jurisdiction is that where the fulfillment of the condition (in a conditional obligation) does not depend on the will of the obligor, but

on that of a third person, the obligor's part of the contract is complied with, if he does all that is in his power and it then becomes incumbent upon the other contracting party to comply with the terms of the contract Cordero v.FSMDC In contract to sell, no obligation arises on part of the seller since it is suspended by condition of full payment by the buyer. Rescission is thus not the proper action and 1191 does not apply. Non-payment is not a breach of contract but merely a circumstance that prevents the seller from conveying title to the purchaser rendering the contract to sell ineffective and without force and effect. Proper action is to cancel contract without damages however since 1191 does not apply. Petitioner may however retain the initial downpayment in accordance with Maceda Law.

12/2/10 1193-1198 Boromeo v. CA Contract stipulated that debtor may pay his indebtedness even after the lapse of ten years CA interpreted such as waiver of prescription which is void and thus absolved defendant of his liabilities, since the indebtedness has already prescribed without him filing a legal action within 10 years. SC reversed ruling and gave effect to the intent of the parties construing the provision as to exclude the first 10 years in counting the time of prescription and thus giving creditor 10 years after the initial 10 years stipulated to file an action which they did. SC also ruled that although generally in obligations arising from a period which depends upon the debtor (such as a stipulation to pay when the debtor has money, or when his means allow it) creditor must first file an action for the court to fix a period (1198) and only upon such a time may he ask the court to compel creditor for specific performance. However, when it can be deduced that such an action would be a mere formality since no better evidence will be introduced other than that already presented and the purpose therefore was merely to delay, the action for specific performance and for the fixing of a period may therefore be combined in the same case. Central Philippine University v. CA

A donation which may be revoked upon non-fulfillment of conditions stipulated by the donor is a resolutory condition in the sense that rights are immediately acquired by the donee upon perfection of the donation subject to extinguishment for noncompliance. When no period is stipulated by the donor but from the tenor of the contract a period has been intended, the courts may fix a period for compliance with the condition. However, this general rule cannot be applied in certain cases, such as the one at bar, since an unreasonable time of 50 years has already elapsed without CPU complying with the conditions in the donation. For the court to fix a period would be a mere technicality and formality which would serve no purpose but to delay. Gaite v. Fonacier Gaite agreed to sell his right over iron mines and iron ore (24,000 tons) to Fonacier which the latter agreed to pay by 10k and 65k upon the sale of said iron ore and was reinforced by a bond from him and a surety company. After 1 year, the bond by surety company expired and Gaite remained unpaid thus prompting him to demand for performance. Fonacier raised the defense that the obligation to pay the 65k was dependent on the condition that the iron ore be actually sold. Since it was not, Gaite cannot yet demand for performance. According to him it was a suspensive condition. Court ruled that it was not a suspensive condition but merely a suspensive term. Gaite entered into the contract knowing that he will indeed be paid within a certain period although such may be undetermined yet. To say that the actual sale of the iron ore is a suspensive condition would make payment to Gaite uncertain which he obviously did not intend as proven by the sureties he demanded from not only Fonacier but the surety company. The expiration of the bond from the surety company without Fonacier renewing it, serves as to remove the right of the debtor to avail of the period and authorize Gaite to demand specific performance. 1198 states such: "ART. 1198. The debtor shall lose every right to make use of the period: (1) . . . (2) When he does not furnish to the creditor the guaranties or securities which he has promised.

(3) When by his own acts he has impaired said guaranties or securities after their establishment, and when through fortuitous event they disappear, unless he immediately gives new ones equally satisfactory. Clearly when the bond expired the debtor already forfeited his right to avail of the period unless he furnishes the creditor with another guaranty or surety. It is by his own acts which has impaired said security thus forfeiting the period.

12/14/10 1198-1222 Facultative, Alternative, Joint, Solidary Obligations Alternative v. Facultative Alternative more than one object is due but can be fulfilled by delivering any. NO duty on debtor to communicate choice, it can be made simultaneously with the delivery. 1204 why based on last object? Because prior to loss of the last object it was still possible to comply with obligation. One object of obligation simple, loss of object due to debtor makes him liable. Facultative only one object of obligation but may be substituted with another. Loss of principal object even by CF extinguishes obligation. Debtor has sole choice. He may deliver substitute even if principal exists.

Joint v. Solidary Assumption is joint. Solidarity only exists if there is express stipulation, required by law or nature of contract. Joint debtors liable only for proportion of his debt. Creditor may enforce only his proportion. No mutual representation, cannot act on behalf of others. Solidary mutual agency. Creditors can act on behalf of others. Debtors may be held liable for entire amount. Use of word I indicates solidary.

01/04/11 Divisible, Indivisible Obligations

Divisible capable of partial performance. If object is indivisible, obligation is indivisible. If object is divisible, not necessarily depends on will of parties. Divisible 1. Certain number days of work 2. Work by metrical units 3. Analogous things which are susceptible to partial performance. Partial Performance exceptions: 1. Contrary stipulation 2. Partially liquidated and unliquidated Obligations with a Penal Clause 1. Purposes a. Ensure compliance b. Liquidate damages. Compensation by way of damages due to breach. Proof of actual damages is not necessary to collect penalty. No more damages or interest can be collected. i. Except when a. contrary stipulation b. refusal to pay penalty c. fraud c. Punish the debtor for non-compliance Makati Dev Corp v. Empire Insurance MDC sold to Andal lot with a special condition on deed of sale that provides: "[T]he VENDEE/S shall commence the construction and complete at least 50% of his/her/their/its residence on the property within two (2) years from March 31, 1959 to the satisfaction of the VENDOR and, in the event of his/her/their/its failure to do so, the bond which the VENDEE/S has delivered to the VENDOR in the sum of P11,123.00 and evidenced by a cash bond receipt dated April 10, 1959 will be forfeited in favor of the VENDOR by the mere fact of failure of the VENDEE/S to comply with this special condition." Andal sold to Juan Carlos the land and the latter was unable to build his house on the stipulated date thus prompting MDC to file an action for recovery of the bond. Lower Court reduced Andals liability for breach from 12,000 to 1,500 noting that there was only a little delay since Carlos was able to build 50% of his house on April 1961, a month after the deadline. In certain instances a mitigation of the obligor's liability is allowed. Considering that a house had been built shortly after the period stipulated, the substantial, if tardy, performance of the obligation, having in view the purpose of the penal clause, fully justified the trial court in reducing the penalty. Medel v. CA

We find the interest at 5.5% per month, or 66% per annum, stipulated upon by the parties in the promissory note iniquitous or unconscionable, and, hence, contrary to morals ("contra bonos mores"), if not against the law. 20 The stipulation is void. 21 The courts shall reduce equitably liquidated damages, whether intended as an indemnity or a penalty if they are iniquitous or unconscionable. 22 Consequently, the Court of Appeals erred in upholding the stipulation of the parties. Rather, we agree with the trial court that, under the circumstances, interest at 12% per annum, and an additional 1% a month penalty charge as liquidated damages may be more reasonable. Arrofo v. Quino The Court of Appeals ordered Quio to pay 7% interest per month on the P15,000 loan from Renato, computed from 11 April 1990. This amounts to 84% interest per annum, which is unconscionable. This Court deems it equitable to reduce this interest rate to 18% per annum. Ruiz v. CA SC declares 3% monthly interest or 36% per annum unconscionable. 1% surcharge on the principal loan for every month of default is valid. This surcharge or penalty stipulated in a loan agreement in case of default partakes of the nature of liquidated damages under Art. 2227 of the New Civil Code, and is separate and distinct from interest payment. Also referred to as a penalty clause, it is expressly recognized by law. It is an accessory undertaking to assume greater liability on the part of an obligor in case of breach of an obligation. The obligor would then be bound to pay the stipulated amount of indemnity without the necessity of proof on the existence and on the measure of damages caused by the breach. 1/6/11 How obligations are extinguished: 1231 Extinguishment of Obligations (Payment) Payment refers not just to merely delivery of money but also to normal voluntary fulfillment of obligation. Payment must be complete: Exception: 1234 (substantial performance) 1235 (estoppels, knowingly accepting incomplete or irregularity without protest) Creditor may refuse payment done by third parties.

Who may pay: 1. Debtor 2. Person interested Who may accept: 1. Creditor 2. Successor in interest 3. Any person authorized Diesel Construction v. UPSI (Construction Substantial performance) Diesel undertook to construct 14th and 16th floors of UPSI building, due to differences in between the two, Diesel declared the project as finished and left. It was found that Diesel completed 97.56% of the project thus the Court applied Article 1234 of the CC since Diesel substantially performed the obligation in good faith less the damages suffered by the oblige. DBP v. CA (Appropriating without foreclosure) Cuba loaned money from DBP attaching as surety her fishpond lands. Unable to pay, DBP appropriated the land for itself without any judicial or extrajudicial foreclosure proceedings. Instead of taking ownership of the questioned real rights upon default by CUBA, DBP should have foreclosed the mortgage, as has been stipulated in condition no. 22 of the deed of assignment. But, as admitted by DBP, there was no such foreclosure. DBP's act of appropriating CUBA's leasehold rights was violative of Article 2088 of the Civil Code, which forbids a credit or from appropriating, or disposing of, the thing given as security for the payment of a debt. Roman Catholic Bishops v. IAC (checks not legal tender) Robes-Francisco Realty bought land from the RCB payable in 4 years with a stipulation that should the buyer fail to pay the amount within the stipulated period, all previous payments shall be forfeited and the land reconveyed. Buyer offered to pay the remaining amount with a check which the vendor refused and thus reconveyed the property and appropriating the paid amounts as forfeit. Court held that checks are not legal tender and may be validly refused by the creditor (1249).

Filipino Pipe and Foundry Corp v. NAWASA (Inflation must be extraordinary and unforeseeable) FPFC seeks adjustment of amount to be paid by NAWASA due to extraordinary inflation as indicated in 1250. Extraordinary inflation exists when "there is a decrease or increase in the purchasing power of the Philippine currency which is unusual or beyond the common fluctuation in the value of said currency, and such decrease or increase could not have been reasonably foreseen or was manifestly beyond the contemplation of the parties at the time of the establishment of the obligation. While appellant's voluminous records and statistics proved that there has been a decline in the purchasing power of the Philippine peso, this downward fall of the currency cannot be considered "extraordinary." It is simply a universal trend that has not spared our country. Mobile Oil Philippines v. CA An agreement is needed for the effects of an extraordinary inflation to be taken into account to alter the value of the currency at the time of the establishment of the obligation which, as a rule, is always the determinative element, to be varied by agreement that would find reason only in the supervention of extraordinary inflation or deflation. 1250 may not be invoked nor applied without a proper declaration of extraordinary inflation or deflation of currency by the competent authorities. In the case at bar, the obligation of the petitioner, if any, is based on law since the same calls for the application of the Civil Code provisions on damages. Moreover, there has been no official pronouncement or declaration of the existence of extraordinary inflation or deflation. Velasco v. MERALCO 1250 is inapplicable to cases arising from a tort and not from a contract. Damages awarded to a party cannot be increased based on higher costs of living or inflation. Serra v. CA Finally, we agree with the courts a quo that there is no basis, legal or factual, in adjusting the amount of the rent. The contract is the law between the parties and if there is indeed reason to adjust the rent, the parties could by themselves negotiate for the amendment of the contract. Neither could we consider the decline of the purchasing power of the Philippine peso from 1983 to the time of the commencement of the present case in 1985, to be so great as to result in an

extraordinary inflation. Extraordinary inflation exists when there in an unimaginable increase or decrease of the purchasing power of the Philippine currency, or fluctuation in the value of pesos manifestly beyond the contemplation of the parties at the time of the establishment of the obligation.

1/18/11 Application of Payment Requisites: 1. One debtor, one creditor 2. Several debts of the same kind (money) 3. All debts must be due 4. Amount paid insufficient to cover all debts Right of choice: Debtor, must exercise so at time of payment. If did not specify to which debt must be paid: creditor may propose with a receipt. If creditor and debtor cannot agree 1254, applies to most onerous. How to determine most onerous, SC decided cases and jurisprudence. 1/20/11 Tender of Payment and Consignation Mere tender does not extinguish obligation, must be followed by consignation. Mere tender however is sufficient to preserve a right (repurchase). How to tender payment: give exactly what is due. Check is not valid if creditor refuses. The law requires tender before consignation except: 1. When the creditor is unknown or cannot be found 2. When the creditor has lost his capacity to accept payment 3. Creditor refuses to issue receipt 4. 2 or more persons claim right to collect 5. Title of obligation is lost

Roman Catholic Bishops v. IAC Is the ability of the debtor to fulfill his obligation ipso facto proof of tender of payment? A finding that the private respondent had sufficient available funds on or before the grace period for the payment of its obligation does not constitute proof of tender of payment by the latter for its obligation within the said period. Tender of payment involves a positive and unconditional act by the obligor of offering legal tender currency as payment to the obligee for the former's obligation and demanding that the latter accept the same. Thus, tender of payment cannot be presumed by a mere inference from surrounding circumstances. Tender of payment presupposes not only that the obligor is able, ready, and willing, but more so, in the act of performing his obligation. Just because you can pay does not mean you actually did. There must be valid tender of payment. Quino v. CA It must be stressed however that in making a repurchase it is not sufficient that a person offering to redeem merely manifest his desire to purchase; this statement of intention must be accompanied by an actual and simultaneous tender of payment which constitutes the legal use or exercise of the right to repurchase. And the tender of payment must be for the full amount of the repurchase price, otherwise the offer to redeem will be held ineffectual. Rural Bank v. CA SC relaxed strict rules on consignation by declaring as valid consignation without previous notice of tender of payment by respondent Castro to petitioner Bank since under the circumstances, it was logical to infer that an offer for tender of payment would have been indeed futile. The consignation without tender of payment does not fall under the exceptions of 1256. The Court ruled based on equity. Ercillo v. CA The law (1258) requires that for consignation to be valid, deposit of the amount due should be with the proper judicial authorities (courts) not with banks or police etc. Francisco v. Bautista

Civil code provisions on tender of payment and consignation applies only to obligations rising from contractual relations and not to tender of payment of a judgment. In case of refusal of a tender of the amount due on a judgment, the court may direct the money to be paid in court and when this is done, order satisfaction of the judgment to be entered. Rayos v. Reyes In order that consignation may be effective the debtor must show that (a) there was a debt due; (b) the consignation of the obligation had been made because the creditor to whom a valid tender of payment was made refused to accept it; (c) previous notice of the consignation had been given to the person interested in the performance of the obligation; (d) the amount due was placed at the disposal of the court; and, (e) after the consignation had been made the person interested was notified thereof. In the instant case, petitioners failed, first, to offer a valid and unconditional tender of payment; second, to notify respondents of the intention to deposit the amount with the court; and third, to show the acceptance by the creditor of the amount deposited as full settlement of the obligation, or in the alternative, a declaration by the court of the validity of the consignation. The failure of petitioners to comply with any of these requirements rendered the consignation ineffective. 1. Tender of payment was conditional on waiver of Reyes of the 2 year redemption period. 2. Petitioners did not give notice to respondents of their deposit of amount with the CFI. 3. Deposit of amount was not approved by the Court.

1/25/2011 1262-1274 Loss of the Thing, Condonation or Remission JBL v. Tolentino In reciprocal obligation: If determinate object is loss through caso fortuito, what happens to creditors obligation? JBL subsists except in 3 exceptions, (sale, lease, piece of work) Tolentino - articles cited are not exceptions but are proof of general rule

1271 par 2. Read Tolentino Transpacific v. CA Art. 1271. The delivery of a private document evidencing a credit, made voluntarily by the creditor to the debtor, implies the renunciation of the action which the former had against the latter. Does the document pertained to in the said article refer only to the original? SC held: A duplicate copy of the original may be admitted in evidence when the original is in the possession of the party against whom the evidence is offered, and the latter fails to produce it after reasonable notice The presumption created by the Art. 1271 of the Civil Code is not conclusive but merely prima facie. The Court in the case at bar found that sufficient evidence was able to overcome this presumption and came to the conclusion that petitioner has not yet paid the interests on the principal despite the duplicate copies labeled as paid. Osmena v. SSS SSS a stockholder of Equitable PCI Bank entered into agreement with Banco de Oro, wherein SSS would publicly auction their stocks of EPCIB but granting to BDO the right to match a winning bid. Senator Osmena et al, filed petition against said agreement as it would discourage potential bidders since any bid they might offer can be potentially overturned by BDO, this would militate against the very purpose of public bidding and would be disadvantageous to SSS. However, succeeding events had rendered the case obsolete. The merger between BDO and EPCIB and the subsequent exchange of the stocks SSS holds with equivalent BDO-EPCIB stocks have in effect extinguished the obligation stated in the letter of agreement since the stocks have actually been lost without the fault of the debtor. Furthermore as stated in 1267, when the service (sale of stock with right to match to BDO) has become so difficult as manifestly beyond the contemplation of the parties, total or partial release from a prestation and from the counter-prestation is allowed. In the case at bar, should SSS even decide to sell the stocks they have in BDOEPCIB, a right to match the highest bid cannot be availed of since it is incompatible with a tender offer. In that case BDO would be merely buying its own stocks from its own stockholder. No bidding is involved in the process.

Philippine National Construction Corp v. CA Petitioner entered into lease contract with private respondent for the use of their land stipulating that an advance payment for the first year would be payable upon approval of the Ministry of Human Settlements. Petitioner after only a month of the contract decided to abandon said agreement claiming that it can no longer continue using the land due to financial and technical constraints. It also ascribed to the change in political climate which made the prestation too difficult to fulfill thus seeking the extinguishment of the obligation. Court rejected such contentions. The petitioners in citing 1266 erred since said article applies only to obligations TO DO and not TO GIVE. The payment of lease is an obligation to give thereby petitioners cannot take shelter under said provision claiming that the prestation has become legally or physically impossible. Furthermore, petitioners should not be allowed to take advantage of their own acts to relieve them of their obligation since by voluntarily not using the land for the remainder of the two years granted to them they had become estopped for the liability towards the private respondents since they were deprived of the use of their land for said period. Lastly, petitioners can neither take refuge under 1267 ascribing to the EDSA revolt and the drastic change in the political climate that rendered their obligation too difficult to fulfill. They were fully aware of said conditions when they entered into the contract in 1985. They must be presumed to have assumed the risks of unfavorable developments. Naga Telecom v. CA Naga Telecom entered into agreement with CASURECO wherein the former would provide 10 telephone units to the latter free of charge in exchange for the use of the electric posts of CASURECO in the city of Naga. 10 years thereafter, CASURECO filed petition in Court, seeking the reformation of the contract for it has become unfair and iniquitous to them (weight of telephone lines, damage to the posts, escalation of costs). Court ruled that 1267 is applicable in light of the one-sidedness of the contract which has rendered the service to be complied with by CASURECO as too difficult since the change in circumstances could not have been foreseen as compared to the state of things upon the perfection of the contract. Equity demands a certain economic equilibrum between the prestation and the counter-prestation, and does not permit the unlimited impoverishment of one party for the benefit of the other by the excessive rigidity of the principle of the obligatory force of contracts. Otherwise Naga would be unjustly enriched at the expense of CASURECO.

1/27/2011 Confusion and Compensation 1275: Confusion merging of the rights of a creditor and debtor over the same obligation into one person. 1276: Merger between debtor and creditor extinguishes obligation. Merger of guarantor into either does not, it merely changes the character of the guarantor either as a principal debtor or creditor. 1277: joint confusion does not extinguish entire obligation only the proportion which was merged. Solidary it is extinguished without prejudice of rights between sol creditors and debtors Chittick v. CA Pending a case for a sum of money between former spouses Chittick, Mrs. Chittick died leaving behind their common children as heirs. Upon a motion for substitution, said children were not informed thereof and when in fact they had known they had vehemently opposed to continue the suit against their father. Since the Chittick children as heirs of respondent-creditor are also the heirs of petitioner-debtor, the obligation sued upon had been extinguished by the merger in their persons of the character of creditor and debtor of the same obligation. 1278: Compensation mode of extinguishing obligation of concurring amounts between persons who are mutually debtors and creditors of each other. Kinds of compensation 1. Legal takes effect by operation of law 1278, 1279 2. Voluntary 1282, occurs by agreement of both parties even though requisites of 1279 may not be present 3. Judicial by judicial decree As to effect 1. Total equal amount compensated 2. Partial unequal amount compensated Can compensation occur when one of the parties is incapacitated? Yes. Consent is not a requisite for legal compensation Legal Compensation takes place automatically. (See cases)

Requisites of Legal Compensation: 1279 1. Both parties are principal debtors and creditors of each other a. Exception 1280 guarantor may setup compensation of what creditor owes him and what creditor may owe the debtor 2. Obligation is composed of a sum of money or are consumables of the same kind and /or quality 3. Both obligations are liquidated and demandable 4. Both are due 5. Neither is subject to retention or controversy commenced by third persons Consumable things which cannot be used in a manner appropriate to their nature without being consumed (pencil, paper, etc) Fungible things of the same kind which in payment may be substituted for each other Retention application of the credit of one of the parties to the satisfaction of the claims of a third person Controversy third person claims to be the creditor 1285 The effect of assignment of rights or credit on compensation shall depend on whether compensation has taken place before or after the assignment was done. If compensation has already taken place prior to the assignment, the assignee can no longer collect from the debtor the amount which has already been compensated unless the debtor consented to the assignment in which case such consent shall be deemed to be a waiver of the compensation that has already taken place. The remedy for the assignee in case he can no longer collect is to file a case for damages against the assignor on the ground of fraud. If compensation has not yet taken place, then the effects of such assignment will depend on whether it was done with the knowledge and consent, with knowledge but without consent or without knowledge of the debtor. If the assignment was with the knowledge and consent of the debtor then the latter cannot set up compensation unless he expressly reserves the right. If it is done with the knowledge but without the consent of the debtor then the latter may setup compensation for debts incurred prior to the assignment but not to subsequent ones.

If done without the knowledge of the debtor, the latter may setup compensation for all the debts incurred prior to such notification. Compensations prohibited by law: 1. Commodatum contract of good neighbors, person lends a fungible object gratuitously 2. Depositum deposit something for safekeeping. Depositor may setup compensation, depository may not. Different from bank, deposit in bank is contract of loan. 3. Gratuitous title 4. From criminal offenses offender cannot setup compensation, offended party may 5. Obligations in favor of government taxes, expropriations etc PNB MADECOR v. Uy PNEI owed Uy 8M+ pesos. PNEI owed MADECOR 8M but MADECOR also owed PNEI 7m. Applying compensation, MADECOR claimed that PNEI still owed them 900k. Uy however claims that MADECOR owes PNEI not merely the principal but also the interest to the amount of 75M, thereby leaving PNEI an amount of 67M which would be able to satisfy PNEIs debt to Uy. CA ruled that there can be no valid compensation since the 5th requisite is not attendant- that there should be no retention or controversy commenced by third persons over the subject of the compensation. SC ruled that what is missing is the 3rd requisite and not the 5th. The amounts are not yet due and demandable hence cannot be the subject of compensation. As shown by the letters between PNEI and MADECOR, what was stated was that payment will be due upon notice. Since no notice was given, the debts were not yet due and cannot be compensated. Said 5th requisite refers to notice of such controversies or actions filed prior to the possible legal compensation. Since notice of attachment was only given by the issuance of the subpoena duces tecum in 1995 and the obligations could have been subjected to compensation in March 1994, way before the notice. Nisce v. EPCI Natividad Nisce deposited $20,500 to PCIB. Thereafter, she requested the transfer of 20,000 to PCI Capital in HongKong, a separate juridical entity. She later acquired several loans from PCI mortgaging some real estate properties as surety.

Unable to pay, PCIB foreclosed said properties and mortgaged them. Nisce argued that there should be legal compensation of the 20k dollar accounts and the interest thereon to setoff their indebtedness to the bank. Compensation takes effect by operation of law when all the requisites mentioned in Article 1279 of the New Civil Code are present and extinguishes both debts to the concurrent amount even though the creditors and debtors are not aware of the compensation. Legal compensation operates even against the will of the interested parties and even without their consent. Such compensation takes place ipso jure; its effects arise on the very day on which all requisites concur. Court ruled that for there to be valid compensation, both parties must be the principal creditors and debtors of each other. PCI Capital and PCIB are different entities regardless of their being parent corporations. Stockholders have a separate legal personality from the corporation, thus Nisce was not the creditor of PCIB but of PCIC. UPMC v. CA Takeoff loans acquired by UPMC to build sugar refinery Operational loans acquired by UPMC to operate corporation SC: Only takeoff loans had been condoned by Government PNB loaned money for takeoff and operations of UPMC. Subsequently, it required said Corp to open a bank account with said bank where amounts deposited therein may be applied by PNB as payment for said loans. This according to the court is a conventional compensation (1282) as opposed to legal compensation (1278). Although the requisites for legal compensation are all present as between PNB and UPMC, nothing prevented them from entering into a conventional compensation. Thus upon the assignment of all the rights of PNB over UPMC to APT, this came along with the conventional compensation. Thus the argument that - the 1st requisite of being mutually bound as principal debtors of creditors of each other does not exist between APT and UPMC - cannot be sustained since the case is that of a conventional not legal compensation. APT thus had the right to apply as payment the deposits therein (but only to operational loans which were not condoned). Francia v. CA A person cannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater than the tax being collected. The collection of a tax cannot await the results of a lawsuit against the government.

The government and a taxpayer are not mutually creditors and debtors. A claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off. 02/01/11 Novation Novation refers to the substitution or change of an obligation resulting into either its extinguishment or modification by changing its object or principal condition, substituting another in place of the debtor or subrogation of another into the rights of the creditor. Differs from other modes of extinguishment because it is accompanied by the birth of a new obligation o Objective when it refers to the change in subject or principal condition Subjective refers to change in the person of the debtor or creditor Mixed combination of the two Total - extinguishes old obligation in its totality Partial mere modification Extinctive extinguishment of old obligation Modificatory old obligation subsists so long as compatible with amendments Express unequivocally extinguishes old obligation in express terms Implied old and new obligations are incompatible with each other in all points Novation is never presumed. Implied novation is generally disfavored.

o o o o o o

o o

Requisites: o o o o An existing obligation Agreement between parties to a new contract Extinguishment of old obligation Validity of new obligation

Expromission third person initiates to creditor the substitution of the original debtor. Consent of original debtor not necessary Delegacion original debtor initiates to creditor substitution by a third person. Consent of third person, creditor and orig debtor necessary.

1296 does not apply to subrogation of creditor. Cases Garcia v. Llamas Garcia and De Jesus loaned 400k from Llamas executed by a promissory note wherein they were bound jointly and severally. Having defaulted on the payment, Llamas filed action for recovery. Garcia argued that upon acceptance of the check, the obligation was novated thereby relieving him from said agreement since he was merely an accommodation party and not a principal debtor. The act of Llamas in accepting the check from De Jesus novated the contract by changing the object (promissory note check) and the debtor (Garcia & De Jesus De Jesus). Court held that such contention has no merit. Novation may be expressed or implied. It is express when it declares in unequivocal terms that the obligation is extinguished. It is implied when the two obligations cannot stand together on all points. In the case at hand there was no express novation and there neither was an implied one since the check and the promissory note can stand together. There was also no substitution of debtors since in expromission and delegacion, there must be the acceptance of the creditor and a clear waiver of his right to pursue the original debtor. There was no such express waiver of such right. Mercantile Insurance Co. v. CA Petitioner was a guarantor of a deed of conditional sale which upon default of the principal debtor it was obligated to pay 63k. Upon default of the original debtor and demand from creditor, REPACOM, it raised the contention that a prior court order released them from its obligation and that the acquiring of a new guarantor (Eagle Incorporated) substituted them thereby novating the contract. Court held that the order merely suspended and decreased the amount to be paid by Mercantile but did not release them from obligation. The acquirement of a new guarantor was merely an additional security upon the loan. Novation is never presumed. In order to be validly released from an obligation by the substitution of a third person, there must be a clear and express waiver by the creditor of his right to

execute the obligation against the debtor. Without such, a third person merely becomes a co-debtor or co-surety. Young v. CA On November 7, 1961 Young entered into contract of lease with spouses Rodriguez which terminated after 21 years with a right of the latter to buy the premises at an agreed price. On December 18, 1961 the very same contract was again executed by the same parties except that Antolin Hariol substituted Miguela Rodriguez as signatory. Two days prior to the expiration of the first contract (November 5, 1961), the heirs of Rodriguez and Antolin filed action for specific performance to compel Young to sell to them the theater. Young argued that action was premature since the contract was novated by the December 18 contract, therefore there was still a month before the right to repurchase becomes executable. Court held that a careful examination of the text of the two contracts will show that the only change introduced in the second contract was the substitution by Antolin A. Jariol of his wife Miguela as signatory for the estate of Humiliano Rodriguez. There was no express declaration in the second contract that it was novating the first. There was clearly no implied novation for lack of an essential change in the object, cause, or principal conditions of the obligation. At most, the substitution of a signatory in the second contract can be considered only an accidental modification which, according to Tolentino, "does not extinguish an existing obligation. When the changes refer to secondary agreements, and not to the object or principal conditions of the contract, there is no novation; such changes will produce modifications of incidental facts, but will not extinguish the original obligation." 3 Ajax Marketing v. CA Petitioners loaned from Metrobank 3 separate amounts mortgaging the same property in Paco Manila as guaranty. Upon the incorporation of petitioner, the three loans were consolidated into one with an aggregate amount of 1m. Upon foreclosure of said property, petitioners contend that the consolidation of the loans and the incorporation of Ajax had novated the contract in the way that the object (loan) was changed and so were the original debtors released from their obligation since Ajax was now the party liable and no longer its incorporators. Such contentions are untenable. The consolidation of the three loans, contrary to petitioners' contention, did not release the mortgaged real estate property from any

liability because the mortgage annotations at the back of TCT No. 105233, in fact, all remained uncancelled, thus indicating the continuing subsistence of the real estate mortgages. Neither can it be validly contended that there was a change or substitution in the persons of either the creditor (Metrobank) or more specifically the debtors (petitioners) upon the consolidation of the loans in PN No. BDS 3605. The bare fact of petitioners' conversion from a partnership to a corporation, without sufficient evidence, either testimonial or documentary, that they were expressly released from their obligations, did not make petitioner AJAX, with its new corporate personality, a third person or new debtor within the context of a subjective novation. If at all, petitioner AJAX only became a co-debtor or surety. Without express release of the debtor from the obligation, any third party who may thereafter assume the obligation shall be considered merely as codebtor or surety. Novation arising from a purported change in the person of the debtor must be clear and express because, to repeat, it is never presumed. Clearly then, from the aforediscussed points, neither objective nor subjective novation occurred here. Spses Florante and Bautista v. Pilar Devt Corp Petitioners loaned from respondent 100k+ with an interest of 12% per annum with a PN signed on December 22, 1978.Upon failure to pay, petitioners signed another PN with interest of 21% per annum. Petitioner contends that the interest they should pay must only be 12% since the original obligation subsists and the second is merely a modification thereof. Court however rule that there was an Express Novation indicated in the second PN thereby cancelling the old obligation and creating the new. 21% interest is the valid payment to be made.

2/3/11 Contracts UP vs. Philab There was an implied-in-fact contract of sale entered into between Philab and FEMF. Philab delivered the furniture to UP and FEMF paid for it, it was not between UP and Philab therefore there is no cause of action for Philab against UP who never paid a single centavo for the furniture. A contract implied in fact is one implied from facts and circumstances showing a mutual intention to contract. It arises where the intention of the parties is not

expressed, but an agreement in fact creating an obligation. It is a contract, the existence and terms of which are manifested by conduct and not by direct or explicit words between parties but is to be deduced from conduct of the parties, language used, or things done by them, or other pertinent circumstances attending the transaction. An implied-in-fact contract will not arise unless the meeting of minds is indicated by some intelligent conduct, act or sign. Limketkai Sons Milling Inc vs. CA BPI through its broker and VP agreed with Limketkai to sell the land at 1k per square meter. Thereafter when they were about to pay, BPI refused payment claiming through its agent Albano that he no longer had authority to sell it. Later the land was sold to National Bookstore. A contract undergoes three stages: 1. Preparation where the negotiations, bargaining occur which ends at the moment of agreement between the parties 2. Perfection the moment when the parties come to agree on the terms of the contract 3. Consummation fulfillment of the terms Was there a perfected contract between petitioners and BPI? Yes, the contract was perfected when the two parties agreed to the price of 1k per sq meter. Stockbroker Revilla and VP Aromin had the authority to bind BPI since they were recognized and delegated as such. Aromin agreed that he would inquire WON BPI would agree to accept payment in terms but should it refuse, Limketkai must pay in cash. Limketakai v. CA Resolution Original decision is reversed. There was no perfected contract since there was no meeting of the minds. Evidence show that there were repeated offers by petitioner to buy the land at 1,000 per sqm to which BPI repeatedly denied. Even when the petitioners negotiated with Aromin, there was no meeting of the minds because they sought payment in terms to which BPI must consent first before there can be a perfected contract. A contract of sale is perfected upon a meeting of the minds on the object and terms of payment. Petitioners terms where different from those established by BPI (1k v 1.1 k, cash or installment). Tiu v. Platinum

Tiu was VP for Platinum, she stopped going to work and was immediately hired by Premium Plans as VP. Contract with Platinum prohibits Tiu from engaging in similar business for a period of 2 years after separation from Platinum. Court held that the stipulation was valid because it was limited as to time and place and it affords necessary protection for the parties. Tiu being a VP was privy to the business and marketing strategies of Platinum and to allow her to engage immediately thereafter with a rival company would be disadvantageous to Platinum. Avon v. Luna Respondent was a sales agent of Avon. Contract stipulates that Supervisor may sell only products exclusively from Avon. This covers even non-competing products. Exclusivity clauses are void because they are contrary to public policy. They have a tendency to foreclose existing competitors or new entrants from competition. A court, in order to declare a contract void as against public policy, must find that the contract as to the consideration or thing to be done, has a tendency to injure the public, is against the public good, or contravenes some established interests of society, or is inconsistent with sound policy and good morals, or tends clearly to undermine the security of individual rights, whether of personal liability or of private property. Public Policy laws that in certain respects affect the interest of the society. Termination clauses are valid if practiced in good faith. Leal v. IAC Santiago sold to Leal 3 parcels of land with a condition that the latter may not sell the lands to any third persons except Santiago. The stipulation is void as it is contrary to public policy. It is tantamount to a perpetual restriction on the right of ownership Ortigas v. Feati Bank Vendor Ortigas stipulated in contract of sale that buildings erected on sold land must only be used for residential purposes as part of its beautification and development plan. Government declared lands along EDSA as commercial or industrial lands. The valid exercise of police power prevails over contract stipulations. General welfare of the public prevails over individual contractual interests. Trias v. Araneta

Trias bought land from Araneta with a condition that no factory shall be built there. She argues that it is contrary to public policy since it restricts her right over the property she bought. While the courts have manifested some disfavor of covenants restricting the use of property, they have generally sustained them where reasonable, and not contrary to public policy. Restrictions limiting buildings to residences has been sustained. PNB v. Tan Florendo v. CA Escalation clauses are valid stipulations in commercial contracts to maintain fiscal stability and to retain the value of money in long term contracts. However, the said escalation clause further provides that the increased interest rate "shall only take effect on the date of effectivity of (the) increase/decrease" authorized by the CB rule, regulation or circular. Without such CB issuance, any proposed increased rate will never become effective. Resignation of the debtor from the bank is not one of the grounds for increase of interest. To leave the escalation of interest entirely up to the will of one party is in violation of the mutuality of contracts.

02/08/11 1311-1317 Contracts are binding only between contracting parties Contract of lease is transmissible to heirs (rights and obligations). Exceptions: 1311, 1312, 1313, 1314 Pour autrui. Kinds: a)Gratuitous b)fulfillment of obligation by a party to 3rd party Uy v. Leonard not all stipulations in a contract benefiting 3rd persons is pour aurtui 1314 there must be no legal justification or reason

Paluwagan ng Bayan v. King Atty. Aragones entered into compromise agreement with petitioners and signed on behalf of all the respondents without their consent. This violates 1317.

Sevilla v. Sevilla Grandma Sevilla donated to her son of the land in question inter vivos. She then executed deed of partition over said property. Court held that such a contract of partition is void ab initio as it was no longer Grandma who owns the land but Leopoldo. Escueta v. Lim Lim paid to Rubio 100k as downpayment for the property in question. Thereafter, Rubio refused to accept further payment and sold the land to Escueta. Rubio claims that Virginia Lim who sold the land to petitioner had no authority to do so therefore there was no contract of sale. Court however held that the contract was not void but merely unenforceable and 1317 applies. This means that although Virginia may not have had the authority to sell the land but the acceptance of Rubio of the 100k is an implied ratification of the contract. Gozun v. Mercado Gozun entered into contract with Mercado for the printing of campaign materials. Thereafter, Lilian Soriano, cousin of Mercado, allegedly went to Gozun to ask for cash advance of 260k to which she signed a note. Gozun files an action for recovery of said amount against Mercado on the theory that she was authorized by the latter to borrow the money. However, the note failed to show for what reason and in what capacity did Soriano received the money. Under Article 1317 of the New Civil Code, a person cannot be bound by contracts he did not authorize to be entered into his behalf. Uy v. CA Petitioners are seller-agents for 8 parcels of land. 3 were canceled thereby prompting petitioners to file a case for damages. Court held that said lawyers who were mere seller-agents were not real parties in interest of the contract between the land owners and the NHA. 1311 states that a contract takes effect only between parties, their assigns and heirs. 2nd paragraph refers to pour autrui. Petitioners are neither any of these. Concepcion v. Sta. Ana A forced heir who is entitled to a legitime may sue for the annulment of the contract if it was to defraud him, the heir is in the same chair as a defrauded creditor.

In this case however, petitioner who is a mere brother of the deceased cannot assail the transaction entered into by the latter and claim that it was intended to defraud him as he is not actually an heir of the deceased. Uy v. Leonard There was merely an incidental benefit to third persons and not a stipulation pour autrui. Such a stipulation must be clearly and expressly declared with the intent of granting unto a third person such benefit. 2/10/11 Consent 1318: Common essential requisites of a contract a. Consent b. Object c. Cause These are present in ALL contracts, the absence of any would make a contract nonexisting. 1319 Consent concurrence of wills between the parties regarding the object and the cause which shall constitute the contract. Acceptance must be absolute, compatible in all points. No qualification. Withdrawal: withdrawal is effective immediately. It can be made anytime before he gains knowledge of the acceptance by the offeree. Requisites of consent: a. Manifested by concurrence of offer and the acceptance b. Both parties possess legal capacity c. Consent given intelligently, freely, spontaneously and real. Moment of perfection theories a. Manifestation moment when acceptance is made or declared. (Ok I accept) b. Expedition from moment offeree transmits acceptance to offeror (Mailing letter Ok I accept)

c. Reception moment offerror receives acceptance letter even though not yet read or absent from place where mail was recieved(You got mail!) d. Cognition moment when acceptance comes to the knowledge of offeror (Oh, he accepted, whoopee) Presumption however of Constructive Knowledge when offeror receives letter of acceptance it is assumed that he has read the contents thereof. This however does not apply when he is incapacitated to accept such as when he is ill or in another place where the letter was delivered. But if he having received the letter and merely refuses to open it because he has changed his mind then he is still bound by the acceptance of the offeree. 2/15/11 1324 v. 1479 (Rigos Natino) 1324 refers to principal contract and the option agreement Option preparatory contract. Cannot be withdrawn if it is founded on a separate consideration. Sanchez v. Rigos Rigos promised to sell the land to Sanchez if the latter should exercise the option to buy within two years which will be terminated upon such period if he would not exercise it. After several tenders of payments made by Sanchez within said period, Rigos refused claiming that there was no binding contract yet since there was no consideration yet and he may withdraw the offer within that period. Court held that such an offer when not made with a consideration can be withdrawn anytime but once accepted by the offeree (before its withdrawal is made known to the latter) then it is the same as a perfected contract since there already is a meeting of the minds. Natino v. IAC Bank gave Natino 2 years to redeem the foreclosed property. After lapse of period Bank took over ownership of said property but Natino contended that they were granted an additional 2 years to redeem by the bank and they did pay after said extension through consignation. Court held that the records are bereft of any evidences of the granting of such extension within the initial 2 years and any efforts by Natino were only made after the lapse of said period.

There was no tender of payment to the sheriff either which would allow them to redeem the property. In fact if such a redemption was made then there would be no need to ask for an extension. As for the promise made by Mrs. Brodeth on behalf of the bank that Natino may buy the property when he has the money such is not binding upon the bank not only because it was not ratified by the Board of Directors but because it was not supported by a consideration distinct from the re-purchase price. Note: Applied 1479 not 1324. Conflict? Guzman v. Bonnevie Right of first refusal Reynoso leased property to Bonnevies with ROFR in the event that they should sell said property. Reynoso claims that she sent a letter to the defendants and gave them 1 month to exercise the right to buy the property for 600k. Defendants claim that they never received such a letter. Later property was sold to Guzmans at 400k. Court held that there was no evidence to show that such a letter was indeed sent and that the sale to the Guzmans should have been under the same terms and conditions given to the Bonnevies (600k v 400k). Third party was in bad faith, he knew of the lease contract and that property was under litigation. Contract can be rescinded Ang Yu Asuncion v. CA Vitug: A ROFR is founded neither on a contract nor on an option but on the scattered Civil Code provisions on human relations. It is not a contract because there is no legal vinculum that ties the parties yet nor is it an option as there is no certainty on both the object and the cause or consideration of the envisioned contract. In a right of first refusal, while the object might be made determinate, the exercise of the right, however, would be dependent not only on the grantor's eventual intention to enter into a binding juridical relation with another but also on terms, including the price, that obviously are yet to be later firmed up. The remedy for the violation of said ROFR therefore is not to compel for specific performance because of the lack of consensuality (no contract has yet been formed between vendor and holder of ROFR) nor a writ of execution (there is nothing to execute). The violation of such however would warrant a recovery for damages (should be aired out in proper forum). Equatorial v. Mayfair Theater ROFR v. Option contract

Option You can buy this property at this price within this period. May be withdrawn by offeror any time before exercise of the offeree of such an option to buy, unless the option is founded on a separate consideration. This is separate and distinct from the actual contract and if ever there is a payment in order to be granted this option such must be understood as separate from the payment of the main contract, otherwise it would be an implied acceptance or a downpayment thereof. ROFR When I decide to sell this property, I am obligated to give you the first offer. Price is not yet determined, a right is hereby granted to the offeree to buy before anyone else does. What is granted is the first crack or opportunity to buy the property which is logical since offeree has an interest or investment in it. Court abandons Vitug rule established in Ang Yu that in the violation of a ROFR the remedy available to the aggrieved party is merely that of damages. Contrary to Ang Yu, although a ROFR is not a contract by itself but merely belonging to a class of preparatory juridical relations, such was actually stipulated IN A CONTRACT and must therefore be enforced according to the law on contracts and not merely on general concepts of human relations. Specific performance and/or rescission are therefore applicable. Vices of Consent a. Mistake must refer substance of the thing which is the object of the contract, or to the conditions which have principally moved the parties. a. Mistake in Identity/Qualifications will vitiate consent if such were primary considerations for entering contract b. Mistake in Account can easily be corrected, no need for voidability c. If party claiming mistake is unable to read or in language not intelligible to him then burden of proof in other party to show that he has explained contract to him d. No mistake if party knew of the doubt, contingency or risk affecting contract e. Mutual error as to legal effect may vitiate consent (mistake of law) b. Violence serious or irresistible force is employed. c. Intimidation reasonable and well grounded fear of an evil to befall ones person, family or property

a. In both V and I, Must consider age sex, condition of the person involved b. Threat of legal action to enforce lawful or just claim does not vitiate consent d. Fraud insidious words or machinations of one party is employed to induce them to enter into the contract. a. Failure to disclose facts when there is a duty to reveal them is fraud (parties bound by confidential relations) b. Exaggerations in trade is not fraud when one has opportunity to ascertain the facts c. Expression of opinion is not fraud unless such person is an expert and contracting party relied on his expertise d. Misrepresentation by third person does not vitiate consent unless such has created mutual substantial mistake. (if one party conspires with 3rd person to defraud the other, then consent is vitiated) e. Misrepresentation made in good faith is not fraudulent but may constitute error (mistake) f. Fraud must be SERIOUS and not employed by both parties (pari delicto) g. Incidental fraud damages only, not vitiated e. Undue Influence another persons will supplants the contracting party rendering him unable to exercise free or reasonable choice. Simulation of Contracts May be absolute or relative Absolute contracting parties mutually enter into a contract knowing it to be false and without intention of being bound to its terms. It is void. Relative parties enter into a contract with a different intent than that shown at its face or that the true agreement is different from its appearance. It binds the parties unless it is contrary to law, morals etc and does not prejudice a third person. 2/22/11 Object and Cause of Contracts

1347 all things may be the object of contracts Except: 1. Those outside of the commerce of men a. Ill buy your virginity for 100 pesos 2. Intransmissible rights (personal rights) a. Vote for Erap and ill give you 100 pesos (you cannot sell your right) 3. Future inheritance (except those authorized by law) a. Ill sell you my dads car because he will give it to me anyway when he dies. 4. Services contrary to law, morals, good customs, public policy and order. a. Lingam massage, prostitution, lap dance 5. Impossible things (1348) a. Ill sell you an alien spaceship for $100,000,000 6. Things that are not possible of determination as to their kind (1349) quantity is not a bar for the validity of the object so long as it is possible of determination. a. Ill give you something for 100 pesos. Future Things may be the object of a contract so long that is can subsequently exist in the future. 2 kinds 1. Conditional will give rise to the obligation as soon as it exists in the future. Otherwise, no obligation. (if you pass the bar Ill give you 1m) 2. Aleatory Will give rise to obligation regardless whether the object exists in the future or not. The debtor accepts the risk. (Ill give you 1m for the harvest in your farm knowing the risk that there might be a typhoon that might destroy your crops) Problem: 1. Ill pay you 100k for the future harvest of mangoes in your lot on 2010 is there a valid obligation? Yes.

Suppose that no mangoes were harvested due to an epidemic, is there still an obligation to pay 100k? No, there is no object. Blas v. Santos Blas was married to Marta Cruz and had 3 children. Marta Cruz died and Blas married Maxima Santos without liquidating the properties of the first marriage. Thereafter Blas died and stated in his will that of his estate would go to Santos. Maxima certified that she understood such in a notarized document and promised that she will give half of the inheritance she received from Blas to the children by the 1st marriage. The children of Blas are now enforcing the promise against the estate of Maxima, she however contends that the agreement is void since it does not have a sufficient cause and because it pertains to a future inheritance which if void. What the law prohibits is entering on an agreement on a undeterminable future inheritance. Here the object was determinable and existing at the time the agreement was entered into. (What the children were contesting was THEIR inheritance from their father Blas which was already existing when Marta signed the notarized document) Cause it is the direct, immediate and most proximate reason that justifies the creation of an obligation through the will of the contracting parties. It is the main WHY that moves the parties to enter into the contract. Motive v. Cause Motive are indirect, remote, personal reason and which may vary from person to person and does not affect the legality of a contract. Cause direct, juridical reason that impelled the parties to enter into the contract. The legality or illegality of which would affect the contracts validity. When does the motive affect the validity of a contract? When it pre-determines the cause or that the contract is merely a means to attain the motive of the contracting parties. (Phil Banking Corp v. Lui She) 1. Liguez motive is to have woman cohabit with him in exchange for a donation of land. Cause is not liberality of donor, it is actually onerous and motive is achieved through the contract. 2. Rodriguez selling of land from parent to child then child to other parent. Motive is to circumvent prohibition of selling between spouses.

3. Phil Banking lease of 99 years to alien with option to purchase within 50 years if he is naturalized. Motive is to circumvent constitutional prohibition against aliens owning Phil Land. A mere promise is sufficient cause for a contract. (1350) A purely moral obligation not founded on any civil obligation is not sufficient cause. A moral obligation however based on a civil obligation that has already prescribed is a valid cause. 2/24/11 Forms, Reformation and Interpretation of Contracts Cases: BF Corp v. CA BF undertook to build SPI mall in EDSA. Due to disagreements and failure to complete the project BF sued for damages and payment. SPI however raised the defense that prior to any court proceeding, both parties must first subject themselves to arbitration as stipulated in the Arbitration Clause. BF denies the validity of said arbitration clause because it was not contained in the main contract and was not signed by the parties. Court held that the Articles of Agreement which was signed by both parties is enough proof to make valid the Arbitration Clause. A contract is not limited to only one document but may be executed in several documents containing stipulations referring to the main so long as both parties agree to the validity of such in the main document. A contract need not be contained in a single writing. It may be collected from several different writings which do not conflict with each other and which, when connected, show the parties, subject matter, terms and consideration, as in contracts entered into by correspondence. Tanguilig v. CA Tanguilig obliged himself to build a Windmill system on Herces farm. He now demands the payment of the remainder of 15k. Herce claims that he has paid the 15k to SPGMI for the construction of a deepwell system which he claims is a part of the contract between Tanguilig and himself (which the latter did not comply with). Court held that the deepwell is not part of the contract between Tanguilig and Herce and the latter should bear his own expenses and pay the remainder of 15k to the

former. In the construction of contract stipulations, the intention of the parties shall be accorded primordial consideration and in case of doubt their contemporaneous and subsequent acts shall be principally considered. The facts belie the claim of Herce in claiming that the deepwell was part of the price paid for the windmill. Otherwise it would have been so stipulated in the contract. It would also be incredulous for Tanguilig to bear this expense and for SPGMI to accept this obligation on a mere statement by Tangulig without entering into a contract with the former. So why should Herce pay SPGMI himself if it was included in the contract? It should have been Tanguilig to have done so. Central Phil University v. CA Finally, since the questioned deed of donation herein is basically a gratuitous one, doubts referring to incidental circumstances of a gratuitous contract should be resolved in favor of the least transmission of rights and interest. 10 Records are clear and facts are undisputed that since the execution of the deed of donation up to the time of filing of the instant action, petitioner has failed to comply with its obligation for an unreasonable length of time. Hence, it is only just and equitable now to declare the subject donation already ineffective and, for all purposes, revoked so that petitioner as donee should now return the donated property to the heirs of the donor, private respondents herein by means of reconveyance. 3/1/11 Forms of Contracts Spiritual rule of contracts Generally all contracts are valid in whatever form. Exception: those required by law which must be in a certain form (writing). Contracts which must be in writing: 1. Donation of movables > 5000 2. Sale of land through an agent (authority of agent) 3. Agreements for payment of interests 4. Antichresis Public Document: 1. Donation of immovables 2. Partnerships involving immovable properties in common fund Registered: 1. Chattel Mortgage

2. Sale of Large Cattle Effect of non-compliance with 1358: Does not affect validity or enforceability. Contract is valid but parties may compel other party to comply for the convenience of the contracting parties or for the efficacy of the contract. Reformation When there has been a meeting of the minds but it is not reflected on the contract (fraud, mistake, inequitable conduct) then it may be reformed. When there has been no meeting of minds, the contract should be annulled. Interpretation 1. If it is clear, then there is no room for interpretation. 2. If there is doubt intention 3. Determine intention though contemporaneous acts. 4. Harmonize provisions of a contract 5. If all else fail, resolve doubt in favor of least transmission of rights. If gratuitous in favor of greatest reciprocity of interests. Ambiguity should not benefit person who caused the ambiguity. Rescissible 1. Entered by guardians when it suffers lesion or damage of 1/4 of value 2. Representative of absentees with lesion or damage 3. In fraud of creditors 4. Property under litigation 5. Entered by insolvents 6. All others On 1 and 2, if approved by courts it cannot be rescinded even if it causes damage to ward or absentee. Guardians can only execute acts of administration without court authority, but if acts of ownership without court authority then it is unenforceable. In fraud of creditors: How to determine intent to defraud. Through circumstances and acts (Badges of Fraud)

o o o o o

Cause for Conveyance is inadequate Transfer of object by debtor pending suit Sale by insolvent creditor Evidence of large indebtedness or complete insolvency Transfer of all or nearly all of property when debtor is insolvent or greatly financially embarrassed Transfer between father and son when any of the above is present Failure of vendee to take exclusive possession of property.

o o

1385 applies even in 1191 (there will be mutual restitution) Rescission is subsidiary, must exhaust all others. When third person is a buyer in good faith, there can be no restitution, only damages against defrauder.

3/3/2011 Voidable contracts Vitiated Consent (fraud, mistake, undue influence, violence, intimidation) Incapacitated (minority, insanity etc)

Voidable contracts are valid until annulled. 1391 Prescription Within 4 years after intimidation, violence, undue influence ceases 4 years after discovery of mistake or fraud 4 years after termination of guardianship

In case of Fraud or Mistake: Registration of real property begins the period of prescription because it is notice to the whole world. (Carantes v. CA) Jurado: prescription only refers to right of action, as for defense it does not prescribe (such as minority). So a defendant may raise the defense of minority even after the lapse of 4 years from termination of guardianship. Navarro: nahh, it all prescribes after 4 years. Why not seek annulment after reaching age of majority? That is presumption that minor has waived action.

Tacit or implied ratification when the offended party does an act which necessarily implies of the ratification of the contract. Requisites Contract is voidable Cause of defect has ceased Such defect is known to the offended party Offended party is the one who ratifies

Who may institute Requisites Plaintiff must have an interest in the contract Plaintiff must be the one suffering incapacity or vitiation.

General rule: Only one suffering vitiation or incapacity may institute action for annulment. Exception: If third party can prove that such contract is in violation of his right and its execution would cause such a violation then he may institute such an action. (Teves v. PHHA) Restitution General Rule: Once annulment has been decreed both parties are obligated to mutually restitute what they received from one another. Exception: in case of incapacitated, only in so far as he is benefitted. Is the incapacitated person obliged to return the object received? Yes If the object can no longer be returned because it is lost due to the plaintiffs own fault (squandering, selling, destroying) then he can no longer sue for annulment since there is an implied ratification. If defendant cannot return the thing due to own fault he must pay the value of the thing + interest. Caso fortuito: Plaintiff cannot return: Can still sue since it was not his fault. Must return the value without interest.

Defendant: Must pay value of the thing at the time of the loss without interest. 1401: Fraud by plaintiff shall extinguish the action for annulment whether he is capacitated or not. Can an incapacitated person be guilty of fraud or fault? So if A sells a car to B who is a lunatic and B (while still insane) drives the car into a wall which causes its destruction, B can no longer sue for the annulment of the contract. Doesnt matter WON he is sane or not when object is loss. Teves v. Peoples Homesite A contract can be assailed for annulment by a third person if it is prejudicial to his rights and is contrary to public policy. Dean Navarro: This has already been settled by SC as a valid exception. Unenforceable contracts: cannot be enforced unless ratified. Vs. Rescissible Rescissible are valid but may be invalidated if they cause damage to another. Unenforceable do not have any effect unless they are ratified. Vs. Voidable Voidable contracts are valid until annulled by the one suffering vitiation or incapacitated. Unenforceable cannot be enforced without ratification. 3 kinds of unenforceable contracts 1. Those entered into in the name of another without authority. (1317) 2. Statute of Frauds (must be in writing for them to be enforced). Purpose is to prevent frauds and not to enforce them. Writing is an evidence. a. Agreements for performance after 1 year (must be in writing because terms might be forgotten after 1 year) b. Payment of debt of another. Only collateral falls within SOF i. Original Promise I will pay all his debts. Does not fall within State of Frauds, need not be in writing for it to be enforceable. ii. Collateral If he cannot pay then I will pay for him. Must be in writing as according to SOF. A guarantee shall be in writing.

c. Agreements made in consideration of marriage. (donation propter nuptias) i. Does not include mutual promise to marry. Breaking promise to marry is no longer punishable and was intentionally removed from the code by Congress because it will allow innocent men to become the victims of unscrupulous females. (Hermossisima v. CA) d. Sale of goods, chattels or things in action not less than 500 pesos i. If the price is exactly 500 pesos then it is covered ii. If there are two or more items worth less than 500 then ascertain WON contract refers to all items or individually. If all items then it is covered by SOF, if individually then there are several contracts worth less than 500, they are not covered. iii. Things in action incorporeal things (credit) e. Agreement of lease on property for more than 1 year or for the sale of real property or an interest therein. i. SC further required that such be in a public document ii. Donation of property for payment of services rendered is not covered f. Representation of credit of another i. Backers cannot be held liable for damages unless in writing. 3. Those where both contracting parties are incapacitated SOF only applies to purely executory contracts. Those which are partially or totally fulfilled are not within the purview of SOF because there is already a ratification of the contract. If one party claims that he has performed his part of the contract, he is allowed to prove his compliance thru oral evidence. If a contract is unenforceable because of SOF it can be ratified by: Failure to object the presentation of oral evidence. o Oral evidence can only be presented if there has already been partial performance.

Acceptance of the benefits from the contract

Inigo v. Maloto Inigo the niece of Maloto paid 10k for the sale of the latters lot thereafter she began constructing improvements thereon. She however failed to execute the Deed of Sale due to Malotos death. The heirs of Maloto contends that sale is unenforceable since it is not in accordance with the Statute of Frauds. Court ruled that SOF only applies to purely executory contracts and not to those which are partially or fully consummated. Here there already was a consideration of 10k even if there was no Deed of Sale. 3/8/11 Void or Inexistent Void vs inexistent Void all elements are present. One, or some or all is contrary to law, morals, etc 1409: a. Contrary to law, morals etc (1) b. Object is outside commerce of men (4). Thing cannot be lawfully acquired by another c. Impossible service (5) d. Intention cannot be ascertained. Malabong kontrata (6) e. Expressly prohibited by law (7) Inexistent one or some is totally absent 1409: a. Absolutely fictitious or simulated (2) b. Cause or object did not exist during perfection of contract (law however allows object to be future thing. This is allowed if ever the thing actually comes into existence ex fruits from a farm etc) (3) Civilists: those that spring from void contract, those where offer and acceptance does not meet. Void contract does not produce any legal effect however must be taken in light of in pari delicto rule. In pari delicto the law will leave the parties where they are (both are equally guilty)

Void contract cannot be ratified. Right to defense of void contract cannot be waived. Action or defense does not prescribe. (except when laches set in) Fraud in securing parties consent v. Fraud to secure the signature - First is voidable, second is void because there is no consent nor causa. (Castillo vs. Galvan - Jurado) Rodriguez v. Rodriguez (Fishponds) illustrates in pari delicto and estoppels by laches. Tried to circumvent prohibition on transfers between spouses by selling to daughter and daughter reselling to the CPG. Exceptions to in pari delicto: a. Agreeing to work for longer hours than that provided by law b. Payment of usurious interests (CB however has removed ceiling rates on interests) a. Lender can however recover principal and also the LEGAL interest from the time of demand, even the legal interest on the legal interest, and attorneys fees. c. 1416, not illegal per se but prohibited by law. (Phil banking corp vs. Lui She, it was the Filipino who was petitioning recovery of land in line with public policy) If however the foreigner is trying to recover, then he is not exempted. d. ETC Natural Obligations Estoppel a person who has acceded or admitted cannot raise the defense to assail his own acts blah blah blah Remember estoppel by laches (sitting on ones rights) 1. Act by defendant giving rise to situation of which complaint arises 2. Delay in assailing the complainants rights when he already had opportunity to assert his rights 3. Lack of knowledge on defendant that complainant would assert his right 4. Damage or injury to defendant if action is not barred by laches Usually applies to void contracts. Depends on circumstances surrounding the case, there is no definite period.

1434 when a person who is not the owner sells the thing and delivers it to another by selling it. If ever the original owner transfers it to the second person, ownership automatically passes to the buyer. 1436 lessee or bailee is estopped from claiming ownership over the land. Aguinaldo v. Esteban Petitioner was apparently tricked into affixing his thumb mark onto the document believing it was one of mortgage when the defendants intended it to be of sale. Furthermore, the payment of 50 centavos everyday came from the property of Aguinaldo after they have acquired possession of it. Clearly the contract is void and the defendants were ordered to reconvey the property to Aguinaldo. Aznar v. Agusto Son of one of the respondents sold the land to petitioners without their consent. 30 years later they were ejected from the land prompting them to petition for the nullity of the contract for being entered into without their consent. Petitioners contend that the action has already prescribed and the respondents were guilty of estoppels by laches. Court held that respondents being illiterate farmers cannot be said to have sat on their rights when they filed the case merely 8 months from their ejectment. They did not know that the land was sold to petitioners and could not have been expected to file the case on time. Action on void contracts does not prescribe.

THE END

Final Exam DAW!

1. What is the statute of frauds? Give example each

Is a rule of substantive law that requires that the contracts falling under said Statute of Frauds be in writing. Non compliance with the statute of frauds will render them unenforceable. a. A contract which shall not be fulfilled within 1 year from perfection. i. I will sell my car to you exactly 2 years from now. b. A special promise to answer for the debt, miscarriage or default of another i. Must be collateral and not original If he cannot pay for his debt then I will c. Agreements entered into in consideration of marriage except mutual promises to marry. i. I will give you this house and lot if you marry my daughter d. Sale of goods, chattels or things in action not less than 500 pesos i. Ill sell you my cellphone worth 1,000 e. Lease of real property for more than 1 year or sale of real property or any interest therein i. Sale of land, must be in public instrument f. Representation of credit of another. i. Lend him the money, I assure you he has the money to pay you back. 2. What is the effect of Assignment of credit in legal compensation? a. The effect of the assignment of credit to another shall depend on whether or not the compensation has occurred before or after the assignment i. If there already was legal compensation prior to the assignment, the debtor will only be liable to the assignee for the sum that has not yet been compensated unless he waives his right to the previous compensation that has

already occurred. The remedy then for the assignee is for damages against the assignor on grounds of fraud. ii. If the compensation occurs after the assignment, we distinguish: 1. If the assignment was with the knowledge and consent of the debtor, the assignee may collect the total amount from the debtor, the latter cannot setup compensation as between him and the assignor unless he expressly reserves his right to do so. 2. If the assignment was with the knowledge but without the consent of the debtor, he may setup compensation as to debts prior to the assignment but not to subsequent ones.
3. If the assignment was without the knowledge of the

debtor, then he may setup compensation as regards to all credits which he may have against the assignor prior to the notification of such assignment.
3. Employees in ABC company were under pension plan, before they can

avail of it, ABC Company renewed pension plan imposing additional requirements that can no longer be complied with by the employees. Employees are now demanding that they avail of previous pension plan because ABC made it impossible for them to comply with the previous pension requirements. ABC contended that they have not even complied with the requirements of the old pension plan. Decide
a. Since it was through the acts of ABC company that rendered it

impossible for the employees to fulfill the conditions for the availment of the retirement benefits, said conditions are deemed to be constructively fulfilled in accordance with article 1186 of the Civil Code. Otherwise, to allow ABC to determine for itself the validity or conditions of the contract without the consent of the employees would violate the mutuality of contracts. 4. Selmo an illiterate was induced by Banjo into signing his thumbmark into a document which he thought was a simple authorization when it was actually a deed of sale which was registered by Banjo. After 14 years, Banjo decided to eject Selmo using the registered DOS.

Banjo contends that since the consent of Selmo was vitiated, the action for annulment has already prescribed since it was already 14 years since it was registered. As a second defense he claims that Selmo is estopped by laches for sitting on his rights for 14 years. a. The contract is not voidable but void. The fraud employed by Banjo to obtain the thumbmark of Selmo rendered both consent and consideration inexistent resulting into no contract at all. Since the contract is void, the action for its annulment is imprescribtable and the defense of its void character cannot be waived. The contention that laches has already set in is untenable. There was no conduct by the defendant Selmo that would give rise for Banjo to enforce his right, precisely because he has no right in the first place. Certainly, he cannot be made to benefit out of his own fraudulent acts, one comes into equity with clean hands.
5. Spouses Simon and Carla owned a piece of land. Carla executed a

deed of sale in favor of Dolfo without the consent of Simon. Thereafter, Dolfo filed for the ejectment of the spouses but the latter contended since it was not notarized that the deed of sale is unenforceable for not complying with the statute of frauds. Is the contention correct? What then is the remedy for Dolfo?
a. The family code provides that any alienation or encumbrance

over real property by a spouse without the written consent of the other would be void ab initio. Furthermore, the Civil Code provides that in sale of real property through an agent, the authority of said agent should be made in writing otherwise the sale would be void. There being no written document from the other spouse, either as consent of the Carlo or the authorization as an agent, the sale to Dolfo was void ab initio. Having said document notarized would likewise be futile since a void document cannot be cured of its void character not even by notarization or ratification. The only action left for Dolfo is to have the document declared void and for him to recover what he has already paid with damages. 6. Julia sold to Robert her H and L. After acquiring said house, Robert found out that it was the site of a gruesome massacre over a year ago. He now wants to annul the contract and recover the money he has

paid for it on the ground of fraud since Julia did not inform him of the said massacre, otherwise he wouldnt have bought the house. Will the action prosper? a. There is no ground for the annulment of the contract as all the essential elements are present consent, object and cause. The object was the house, the cause was for Julia the payment of money and for Robert the promise to deliver the title over the house, the consent was freely given and was not vitiated by fraud, intimidation, violence, undue influence or mistake. The fact that Robert was unaware of the massacre is not the mistake contemplated by the civil code for the annulment of a contract. At most it was merely incidental and in fact, Robert had the opportunity to survey the said property and find out for himself the conditions thereof. Furthermore, Julia had no duty to disclose the said massacre to Robert since they were not under any confidential relationship. Neither was there anything illegal about the attending cause, not even of the motive that could predetermine the cause for entering into the contract. The sale was valid.
7. Selmo sent a letter to Dante, offering to sell his H and L on Jan 1 2011.

The letter reached Dante on Jan 2 and he accepted thereto, sending his acceptance letter on the same date. When the acceptance letter of Dante reached Selmos residence on January 3, the latter was in Cebu. While in Cebu, Selmo changed his mind and decided to withdraw the offer by sending another letter to Dante on January 4. Dante however refuses the withdrawal, saying that the contract was already perfected when his letter of acceptance reached Selmos residence on January 3. Is his contention correct?
a. No, there was no meeting of the offer and the acceptance.

Applying the cognition theory which is adhered to in the Philippines, a contract is perfected when the acceptance of the offer has come into the knowledge of the offeror. Since Selmo was in Cebu when the letter arrived at his residence, the rule on constructive knowledge does not apply since the letter was not in his possession and there was no way for him to know of its contents. Because of this lack of knowledge, he was still perfectly allowed to withdraw his offer and since a withdrawal is effective immediately and was done before he gained knowledge of the

acceptance, there was no meeting of the acceptance and the offer therefore there was no perfected contract.
8. Antonia, a widow suffering from ovarian cancer, sold to Jobert (17 yrs)

her house and lot for 500k. Upon her death, her heirs instituted an action against Jobert, citing the latters incapacity to contract due to minority when the sale was effected, Antonias incapacity to give consent because of her ovarian cancer and that the sale suffered lesion because the said property was actually worth 3 million pesos. Will the action prosper?
a. The inadequacy of the consideration is a badge of fraud that may

warrant rescission. If it can be proven that the intent of Antonia is to defraud the heirs of their legitime then an action for rescission may prosper b. The heirs cannot cite Joberts incapacity to annul the contract, such an action belongs solely to Jobert. c. Ovarian cancer is not synonymous to incapacity. Presumption is that every person is of sound mind to give consent, heirs must prove their mother did not understand the nature of the contract when it was entered into for an action for annulment to prosper. 9. Differentiate Right of First Refusal from Option to Buy/Sell.