BOOK III TITLE V.

PRESCRIPTION
CHAPTER 1 GENERAL PROVISIONS WHAT
IS PRESCRIPTION?

Prescription is a mode of acquiring (or losing) ownership and other real rights thru the lapse of time in the manner and under the conditions laid down by law (Article 1106). WHAT
ARE THE DIFFERENT CONCEPTS OF PRESCRIPTION?

Prescription is a legal term used to refer to a. b. Acquisitive prescription -- the acquisition of right by the lapse of time under the conditions laid down by law ( Article 1106, par. 1), which may be ordinary or extra-ordinary. xtinctive prescription (or statute of limitation or limitation of actions)!whereby rights and actions are lost by the lapse of time (Articles 1106, par. 2 and 1139 ). "his refers to the time frame within which an action should be filed in court from the time the cause of action has accrued, failing in which, the action is deemed barred by the lapse of the prescribed time. WHAT
IS THE DIFFERENCE BETWEEN THE TWO CONCEPTS?

a. Acquisitive prescription is a mode of acquiring ownership while extinctive prescription is a way of extinguishing a cause of action for failure to file it within the required period. b. #n acquisitive prescription, a party becomes the owner of a property by prescription while the previous owner loses the property. #n extinctive prescription, if a party is barred to file an action because of prescription, the opposite party, on the other hand, is liberated from the obligation or liability. c. Acquisitive prescription applies to civil cases while extinctive prescription is applicable to all $inds of action whether civil or criminal. "here are, however, exceptions wherein the action, by mandate of the law, does not prescribe li$e an action to demand a right of way (Article 1143)% action to abate nuisance (Article 1143)% action to declare the invalidity of a void contract (Article

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1410). 0Vide Morales vs. Court of First Instance of Misa is !ccidental, ".#. $o. %&'22(), Ma* 29, 19)0, 9( +C#A )(2.1 WHAT IS LACHES? 2aches is unreasonable delay in the bringing of a cause of action before the courts of 3ustice. #t is failure or neglect, for an unreasonable and unexplained length of time, to do that which, by exercising due diligence, could or should have been done earlier% it is negligence or omission to assert a right within a reasonable time, warranting a presumption that the party entitled thereto either has abandoned it or declined to assert it. "he principle of laches is a creation of equity. #t is applied, not really to penali4e neglect or sleeping upon one5s right, but rather to avoid recogni4ing a right when to do so would result in a clearly inequitable situation. WHAT
ARE THE REQUISITES OF LACHES?

"he following are the requisites of laches6 a. ,onduct on the part of the defendant, or of one under whom he claims, giving rise to the situation of which complaint is made and for which the complaint see$s a remedy% b. .elay in asserting the complainant5s rights, the complainant having had $nowledge or notice of the defendant5s conduct and having been afforded an opportunity to institute a suit% c. 2ac$ of $nowledge or notice on the part of the defendant that the complainant would assert the right which he bases his suit% and d. #n3ury or pre3udice to the defendant in the event relief is accorded to the complainant, or the suit is not held barred (A,ra-a vs. #ecto&.asten, ".#. $o. %&16(41, /anuar* 1962). HOW
IS PRESCRIPTION DISTINGUISHED FROM LACHES?

a. Prescription is concerned with the fact of delay while laches is concerned with the effect of delay% b. Prescription is a matter of time while laches is principally a question of the inequity of permitting a claim to be enforced, this inequity being founded on some change in the condition of the property or the relations of the parties. c. Prescription is statutory% laches is not. d. 2aches applies in equity, whereas prescription applies at law.

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e. Prescription is based on a fixed time% laches is not ( $ielson 0 Co., Inc. vs. %epanto Minin1 Co., ".#. $o. %&21601, 2ece ,er 1(, 1966, 1) +C#A 1040). WHAT ARE THE BASIC REQUIREMENTS OF PRESCRIPTION AS A MODE OF ACQUISITION? As a mode of acquisition, prescription requires the following essential elements6 a. "here must be actual possession of a property, which is susceptible of prescription% b. Possession must be in the concept of an owner and not that of a mere holder (Article 111))% c. Possession must be public or open (Article 111))% d. Possession must be peaceful (Article 111))% e. Possession must be continuous and not interrupted ( Article 111))% f. Possession must be averse, that is, exclusive and not merely tolerated% and g. Possession must satisfy the full period required by law ( Articles 11323 11343 113().
ARE THE PERSONS CAPACITATED TO ACQUIRE PROPERTY BY PRESCRIPTION?

WHO

8nder Article ''9), the following may acquire property by prescription6 a. Persons who can acquire property rights through the other modes of acquiring ownership. :hen a person is capable of becoming an owner under Article )'&, generally such a person has full civil capacity and does not suffer from disqualification. b. ;inors or other incapacitated persons, either personally or through their parents, guardians or legal representatives. ;inors and incapacitated persons may acquire property by prescription personally if they have discernment. "his means the presence of an intention to appropriate the property to become their own. "his intention is an essential ingredient of possession < the principal element of prescription.

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>owever, if the minor or incapacitated person has no discernment, he can become an owner by prescription only through representatives. WHO
ARE THE PERSONS AGAINST WHOM PRESCRIPTION MAY RUN?

Acquisitive and extinctive prescriptions run against certain persons6 (');inors and other incapacitated persons who have parents, guardians or other legal representatives% (&)Absentees who have administrators, either appointed by them before their disappearance, or appointed by the courts% (7)Persons living abroad, who have managers or administrators% (=)?uridical persons, except the /tate and its subdivisions (Article 110)). (@)Prescription, acquisitive and extinctive, runs in favor of, or against a married woman (Article 1110). "his presupposes a situation where the parties involved are a married woman and another person not her husband. Prescription may be in favor of or against the married woman. Persons who are disqualified from administering their property have a right to claim damages from their legal representatives whose negligence has been the cause of prescription.
PRESCRIPTION RUN BETWEEN HUSBAND AND WIFE OR BETWEEN PARENTS AND CHILDREN OR BETWEEN GUARDIAN AND WARD?

MAY

Prescription does not run between husband and wife, even though there be a separation of property agreed upon in the marriage settlements or by 3udicial decree. *either does prescription run between parents and children, during the minority or insanity of the latter, and between guardian and ward during the continuance of the guardianship (Article 1109). *ote that the prescription contemplated here is acquisitive and not extinctive. "hus, in the filing of actions against each other, extinctive prescription is applicable. EXAMPLES:

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2egal separation must be filed within five (@) years from the occurrence of the ground for legal separation (Article '(, FC4% Aenerally, action for annulment of marriage by a spouse against the other must be filed within five (@) years (Article 4(, FC)% Alienation made by the husband without the wife5s consent provided that the marriage was celebrated under the ,ivil ,ode (Article 1(3, CC). WHAT IS THE EFFECT OR A CO-OWNER?
OF PRESCRIPTION OBTAINED BY A CO-PROPRIETOR

Prescription obtained by a co-proprietor or a co-owner shall benefit the others (Article 1111). "hus, if a co-owner obtained a property by prescription which property incidentally must be related to the property held in common, the prescription benefits them all. MAY
PRESCRIPTION RUN AGAINST CO-OWNERS?

Prescription does not run against co-owners except when a coowner made a definite repudiation of the co-ownership disclosed to the other co-owners (Article 494). WHO
CAN RENOUNCE PRESCRIPTION ALREADY OBTAINED?

Persons with capacity to alienate property may renounce prescription already obtained, but not the right to prescribe in the future (Article 1112, par. 1). "he renouncing must not pre3udice the rights of others (Article 6). WHEN
IS THERE TACIT RENUNCIATION?

Prescription is deemed to have been tacitly renounced when the renunciation results from acts which imply the abandonment of the right acquired (Article 1112, par. 2). WHAT
THINGS MAY BE SUB ECT OF PRESCRIPTION?

All things which are within the commerce of men are susceptible of prescription, unless otherwise provided. Property of the /tate or any of its subdivisions not patrimonial in character shall not be the ob3ect of prescription (Article 1113). EXAMPLES
OF EXCEPTION:

a. ;ovables possessed through a crime can never be acquired by prescription by the offender (Article 1133)%

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b. 2ands covered by "orrens "itle% c. "hose outside the commerce of men (Article 1133)% d. Properties of spouses, parents and children, wards and guardians, under the restrictions imposed by law (Article 1109). WHAT ARE THE RIGHTS OF CREDITORS AND ALL OTHER PERSONS INTERESTED IN MAKING THE PRESCRIPTION EFFECTIVE? ,reditors and all other persons interested in ma$ing the prescription effective may avail themselves thereof notwithstanding the express or tacit renunciation by the debtor or proprietor ( Article 1114). "hus, where a current creditor of a corporation which had obtained prescription of its debts, may interpose and plead prescription to stop the corporation from paying prescribed debts to the pre3udice of the said creditor. "his complements Article ( of the ,ivil ,ode. WHAT IS THE RULE IN CASE OF CONFLICT BETWEEN THE PROVISIONS ON PRESCRIPTION AND SPECIFIC PROVISIONS IN THE SAME CODE! OR IN SPECIFIC LAWS? "he provisions of the present "itle are understood to be without pre3udice to what in this ,ode or in special laws is established with respect to specific cases of prescription (Article 111'). "hus, specific provisions on prescription separately found in the ,ode and in special laws shall prevail over the general provisions on prescription provided under "itle B of the ,ode. WHAT
ARE THE TRANSITIONAL RULES FOR PRESCRIPTION?

Prescription already running before the effectivity of this ,ode shall be governed by laws previously in force% but if since the time this ,ode too$ effect the entire period herein required for prescription should elapse, the present ,ode shall be applicable, even though by the former laws a longer period might be required (Article 1116). "hus6 a. #f the period for prescription began and ended under the old laws, said old laws govern. b. #f the period for prescription began under the new ,ivil ,ode, the new ,ivil ,ode governs.

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c. #f the period began under the old law, and continues under the new ,ivil ,ode, the old law applies. EXCEPTION: #n this third rule, it is the new ,ivil ,ode that will apply, provided two conditions are present6 a. "he new ,ivil ,ode requires a shorter period% and b. "his shorter period has already elapsed since August 79, 'C@9. NOTE: #t is more than fifty years since the new ,ivil ,ode became effective. "he transitional rules may no longer find application today, although the same were applied before in several cases. CHAPTER " PRESCRIPTION WHAT
OF

OWNERSHIP

AND

OTHER REAL RIGHTS

ARE THE KINDS OF ACQUISITIVE PRESCRIPTION?

Acquisitive prescription of dominion and other real rights may be ordinary or extraordinary 5Article 111(4. WHAT
ARE ORDINARY AND EXTRA-ORDINARY PRESCRIPTIONS?

Prescription where there is good faith is called ordinary prescription% whereas prescription where there is bad faith is called extra-ordinary prescription. Prescription may arise even if the possessor is in bad faith. >owever, when the possessor is in bad faith, the period required for the actual possession is much longer to the case of a possessor in good faith. WHAT
ARE THE ADDITIONAL REQUISITES IN ORDINARY PRESCRIPTION?

Aside from the basic requirements of acquisitive prescription already stated, if prescription is ordinary, the additional requisites are6 a. Aood faith (Article 112)), and b. ?ust title (Article 1129)

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*ote that the title for prescription must be true and valid ( Article 1130)% and for the purposes of prescription, 3ust title must be proved% it is never presumed (Article 1131). WHEN IS A POSSESSOR CONSIDERED IN GOOD FAITH? A possessor is considered in good faith, if he is not aware of the existence of any flaw or defect in his title or mode of acquisition which invalidates it (Article '26 in relation to Article 112)). Aood faith consists in the reasonable belief that the person from whom he received the thing was the owner thereof, and could transmit his ownership (Article 112(). "he related Articles which must be considered in the determination of good faith in prescription of ownership are the following6 a. Article '26 -- >e is deemed a possessor in good faith who is not aware that there exists in his title or mode of acquisition any flaw which invalidates it. >e is deemed a possessor in bad faith who possesses in any case contrary to the foregoing. ;ista$e upon a doubtful or difficult question of law may be the basis of good faith. b. Article '2( -- Aood faith is always presumed, and upon him who alleges bad faith on the part of a possessor rests the burden of proof. c. Article '2) -- Possession acquired in good faith does not lose this character except in the case and from the moment facts exist which show that the possessor is not unaware that he possesses the thing improperly or wrongfully. d. Article '29 -- #t is presumed that possession continues to be en3oyed in the same character in which it was acquired, until the contrary is proved. WHAT
IS MEANT BY

# UST

TITLE$?

?ust title means that the possessor obtained the possession of the property through one of the modes recogni4ed by law for acquiring ownership (as enumerated under Article (12) but the transferor or grantor was not the owner of the property or he has no power to transmit the right (Article 1129). "he 3ust title is intended to transmit ownership and could have actually transmitted ownership had the transferor or grantor been the true owner of the property. "his $ind of

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possession arising from a 3ust title can ripen into ownership if the other elements of prescription are present. WHAT ARE PRESCRIPTION?
THE CHARACTERISTICS OF POSSESSION NEEDED FOR

Possession has to be in the concept of an owner, public, peaceful and uninterrupted 5Article 111)4. a. Possession in the ,+*, P" +E A* +:* F means the possessor is exercising the attributes of ownership over the property. >e does not recogni4e any ownership over the property except his own. b. Possession of a property is considered P8G2#, when the employment thereof is visible to all, especially to the very person against whom possession is being asserted. "he possession must be publicly $nown to the community. c. Possession is P A, E82 when it is acquired without force or intimidation, and such character is maintained all throughout the period fixed by law. d. Possession is 8*#*" FF8P" . +F ,+*"#*8+8/ when the possessor has not stopped exercising the rights of an owner over the property during the time fixed by law. >owever, if the right is exercisable at intervals, and the right is so exercised, there is still continuity in the possession of the property. xample6 >arvesting of seasonal fruits from fruit bearing trees. e. "he possession must be A.B F/ . "hus, mere possession with 3uridical title, such as by a lessee, mortgagee, usufructuary, trustee, or agent does not hold the proper adversely and in the concept of an owner, unless the 3uridical relationship is first expressly repudiated and such repudiation has been communicated to the other party. f. "he acts of possessory character must not be executed in virtue of 2#, */ +F GH ; F "+2 FA*, of the owner because the acts shall not be available for the purposes of possession ( Article 1119). HOW
IS POSSESSION INTERRUPTED FOR PURPOSES OF PRESCRIPTION?

Possession is interrupted for the purposes of prescription, naturally or civilly 5Article 11204. WHEN
IS POSSESSION INTERRUPTED?

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a. b.

Possession is naturally interrupted when through any cause it should cease for more than one year (Article 1121, par. 1). ,ivil interruption is produced by 3udicial summons to the possessor (Article 1123), except6 a) #f it should be void for lac$ of legal solemnities% b) #f the plaintiff should desist from the complaint or should allow the proceedings to lapse% c) #f the possessor should be absolved from the complaint (Article 1124). Any express or tacit recognition which the possessor may ma$e of the ownerIs right also interrupts possession (Article 112').
ARE THE CONSEQUENCES OF INTERRUPTION?

c.

WHAT

a. "he old possession is not revived if a new possession should be exercised by the same adverse claimant (Article 1121, par. 24. b. #f the natural interruption is for only one year or less, the time elapsed shall be counted in favor of the prescription ( Article 1122). AGAINST A TITLE RECORDED IN THE REGISTRY OF PROPERTY! MAY ORDINARY PRESCRIPTION OF OWNERSHIP OR REAL RIGHTS TAKE PLACE TO THE PRE UDICE OF A THIRD PERSON? Against a title recorded in the Fegistry of Property, ordinary prescription of ownership or real rights shall not ta$e place to the pre3udice of a third person, except in virtue of another title also recorded% and the time shall begin to run from the recording of the latter. As to lands registered under the 2and Fegistration Act, the provisions of that special law shall govern 5Article 11264. WHAT
IS THE PERIOD OF PRESCRIPTION OF MOVABLES?

a. "he ownership of movables prescribes through uninterrupted possession for E+8F H AF/ #* A++. EA#">. b. "he ownership of personal property also prescribes through uninterrupted possession for #A>" H AF/, :#">+8" * . +E A*H +"> F ,+*.#"#+*.

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c. :ith regard to the right of the owner to recover personal property lost or of which he has been illegally deprived, as well as with respect to movables acquired in a public sale, fair, or mar$et, or from a merchantIs store the provisions of Articles ''9 ' and 1'0' & of this ,ode shall be observed (Article 1132). d. ;ovables possessed through a crime can never be acquired through prescription by the offender (Article 1133). WHAT
IS THE PRESCRIPTIVE PERIOD FOR IMMOVABLE?

a. +wnership and other real rights over immovable property are acquired by ordinary prescription through possession of " * H AF/ (Article 1134). b. +wnership and other real rights over immovables also prescribe through uninterrupted adverse possession thereof for ">#F"H H AF/, without need of title or of good faith (Article 113().
IS THE RULE WHEN THERE IS DISCREPANCY IN THE AREA POSSESSED AND IN THE AREA EXPRESSED IN THE TITLEJ

WHAT

#n case the adverse claimant possesses by mista$e an area greater, or less, than that expressed in his title, prescription shall be based on the possession 5Article 113'4. WHAT IS PRESCRIPTION?
THE EFFECT OF POSSESSION IN WAR TIME ON

Article @@C. "he possession of movable property acquired in good faith is equivalent to a title. *evertheless, one who has lost any movable or has been unlawfully deprived thereof, may recover it from the person in possession of the same. #f the possessor of a movable lost or which the owner has been unlawfully deprived, has acquired it in good faith at a public sale, the owner cannot obtain its return without reimbursing the price paid therefor.
1 2

ARTICLE 1505. Subject to the provisions of this Tit e! "here #oo$s are so $ b% a person "ho is not the o"ner thereof! an$ "ho $oes not se the& un$er authorit% or "ith the consent of the o"ner! the bu%er ac'uires no better tit e to the #oo$s than the se er ha$! un ess the o"ner of the #oo$s is b% his con$uct prec u$e$ fro& $en%in# the se er(s authorit% to se . )othin# in this Tit e! ho"ever! sha affect* +1) The provisions of an% factors( acts! recor$in# a"s! or an% other provision of a" enab in# the apparent o"ner of #oo$s to $ispose of the& as if he "ere the true o"ner thereof, +2) The va i$it% of an% contract of sa e un$er statutor% po"er of sa e or un$er the or$er of a court of co&petent juris$iction, +-) .urchases &a$e in a &erchant(s store! or in fairs! or &ar/ets! in accor$ance "ith the Co$e of Co&&erce an$ specia a"s. +n) casia

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Possession in wartime, when the civil courts are not open, shall not be counted in favor of the adverse claimant 5Article 11364. WHAT ARE THE RULES IN THE COMPUTATION OF TIME NECESSARY FOR PRESCRIPTION? #n the computation of time necessary for prescription the following rules shall be observed6 (') :hen the possession of the present possessor is 3ust a continuation of the possession of the predecessor in interest - "he present possessor may complete the period necessary for prescription by tac$ing his possession to that of his grantor or predecessor in interest% (&) :hen the character of the possession of the possessor has changed from good faith to bad faith - #t is presumed that the present possessor who was also the possessor at a previous time, has continued to be in possession during the intervening time, unless there is proof to the contrary% (7) "he first day shall be excluded and the last day included 5Article 113)4. WHAT
IS MEANT BY TACKING OF POSSESSIONS OF TWO OR MORE POSSESSORS?

"ac$ing of possession is the lin$ing of the possession of the present possessor to the possession of the immediate past possessor of an identical property for the purpose of completing the period needed for the prescription. "he condition for the tac$ing of possession is that privity must exist between the present possessor and the predecessor in interest. #n brief, the present possessor got his possession from the predecessor in interest. ,onsequently, a mere usurper cannot invo$e the possession of the previous possessor. "here is no privity of interest where the present possessor came into possession of the disputed land by virtue of a void and fictitious sale (#ui6 vs. CA, (9 +C#A '2'). "ac$ing is not allowed if the predecessor in interest has not satisfied the requirements of prescription. +therwise, there can be no continuity in the nature of the possession.

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IS THE RULE TO FOLLOW WHEN THE CHARACTER OF THE POSSESSION OF THE PREDECESSOR IS DIFFERENT FROM THAT OF THE PRESENT POSSESSOR?

WHAT

"he law does not provide any solution to such $ind of contingency. "hus, sound 3udgment must be resorted to, thus6 a. #f the predecessor was in good faith but the successor is in bad faith, should there be any tac$ing of possessionJ "here are different views. /ome writers say there must be no tac$ing. +thers say, the good faith of the predecessor should not be set at naught. "he second is the better view. "he computation of the periods to be tac$ed should be proportionate, that is, in the proportion of what the period of possession in good faith bears to the period of extraordinary prescription. /o it is in the proportion of &6' as regards movables and 76' for immovables. b. #f the possession of the predecessor was in bad faith and the possession of the successor is in good faith, should there be tac$ing of possessionJ Possession of the predecessor in bad faith cannot be counted and added to that of the present possessor. >ere, the possession of the predecessor cannot be considered ordinary prescription because such requires good faith all throughout the period fixed by law. >owever, for purposes of extraordinary prescription, the possession in bad faith of the predecessor can be tac$ed to the possession in bad faith of the successor. "here is no prohibition to this. CHAPTER % PRESCRIPTION OF ACTIONS HOW
DO ACTIONS PRESCRIBE?

Actions prescribe by the mere lapse of time fixed by law 5Article 11394. WHEN
DO ACTIONS PRESCRIBE? "+

'. A,"#+*/

,+B F

;+BAG2

/6

Actions to recover movables shall prescribe #A>" H AF/ from the time the possession thereof is lost, unless the possessor

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has acquired the ownership by prescription for a less period, according to Articles ''7&, and without pre3udice to the provisions of articles @@C, '@9@, and ''77 (Article 1140), thus6 '. "he ownership of movables prescribes through uninterrupted possession for E+8F H AF/ #* A++. EA#">. &. "he ownership of personal property also prescribes through uninterrupted possession for #A>" H AF/, :#">+8" * . +E A*H +"> F ,+*.#"#+*. 7. :ith regard to the right of the owner to recover personal property lost or of which he has been illegally deprived, as well as with respect to movables acquired in a public sale, fair, or mar$et, or from a merchantIs store the provisions of Articles @@C and '@9@ of this ,ode shall be observed (Article 1132). =. ;ovables possessed through a crime can never be acquired through prescription by the offender ( Article 1133). &. F
A2

A,"#+*/

+B F #;;+BAG2 /6

Feal actions over immovables prescribe after ">#F"H H AF/. "his provision is without pre3udice to what is established for the acquisition of ownership and other real rights by prescription (Article 1141). 7. ;+F"AAA A,"#+*6 A mortgage action prescribes after =. A,"#+*/ 8P+* A :F#"" * ,+*"FA,"% 8P+* 2A:% 8P+* A ?8.A; *"6 "hey must be brought within " right of action accrues (Article 1144).
" * H AF/

(Article 1142).
A" .

A*

+G2#AA"#+* ,F

GH

* H AF/

from the time the

@. A,"#+*/ 8P+* A* +FA2 ,+*"FA,"% A,"#+*/ 8P+* A K8A/#-,+*"FA," 6 "hey must be commenced within /#L H AF/ (Article 114'). (. A,"#+*/ 8P+* A* #*?8FH A K8A/#-. 2#,"6
"+ ">

F#A>"/

+E ">

P2A#*"#EE% A,"#+*/ 8P+*

"hey must be instituted within

E+8F H AF/.

>owever, when the action arises from or out of any act, activity, or conduct of any public officer involving the exercise of

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powers or authority arising from ;artial 2aw including the arrest, detention andMor trial of the plaintiff, the same must be brought within +* (') H AF. (Article 1146 as a ended ,* 72 $o. 1('', 2ec. 24, 19)0.) ). E+F,#G2
*"FH A*.

"A#* F%

E+F .
+*

EA;A"#+*6 H AF

"hey must be filed within

(Article 114().

NOTE: "he limitations of action mentioned in Articles ''=9 to ''=&, and ''== to ''=) are without pre3udice to those specified in other parts of this ,ode, in the ,ode of ,ommerce, and in special laws (Article 114)). "he phrase Nwithout pre3udiceO means that, in proper cases, the prescriptive period in this chapter may be availed of notwithstanding other special provisions in other parts of the ,ivil ,ode, in the ,ode of ,ommerce and in special laws. "hus, even though the claim falls under the prescriptive period provided for in the 2abor ,ode because of illegal and unlawful dismissal, the case may still fall within the ambit of Nin3ury to the rights of the plaintiff (Vir1ilio Callanta vs. Carnation 7-i., Inc., ".#. $o. %&(061', !cto,er 2), 19)6, 14' +C#A 2)6). WHAT RIGHTS ARE NOT EXTINGUISHED BY PRESCRIPTION? "he following rights, among others specified elsewhere in this ,ode, are not extinguished by prescription6 (') "o demand a right of way, regulated in Article (=C% (&) "o bring an action to abate a public or private nuisance ( Article 1143). OTHERS: (')An action to declare a contract null and void% (&)An action to quite title initiated by the person having possession of the property% (7)An action to partition a property among co-heirs% (=):hen the trust is merely an implied one, unless expressly repudiated by the trustee.
IS THE PRESCRIPTIVE PERIOD FOR FILING ACTIONS WHOSE PERIODS ARE NOT FIXED BY THE CIVIL CODE AND OTHER LAWS?

WHAT

All other actions whose periods are not fixed in this ,ode or in other laws must be brought within five years from the time the right of action accrues (Article1149).

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EXAMPLES: a. Action to impugn the recognition of a natural child (Article 296 Civil Code)% b. Action to impugn the legitimation of a child ( Article 2(', Civil Code)% c. Action to reduce inofficious donations (to be counted from the death of the donor) (Vide Article ((2, Civil Code). FROM a.
WHAT TIME SHALL THE PERIOD OF PRESCRIPTION BE COUNTED?

b.

c.

d.

e.

f.

"he time for prescription for all $inds of actions, when there is no special provision which ordains otherwise, shall be counted from the day they may be brought (Article 11'0). "he time for the prescription of actions which have for their ob3ect the enforcement of obligations to pay principal with interest or annuity runs from the last payment of the annuity or of the interest ( Article 11'1). "he period for prescription of actions to demand the fulfillment of obligation declared by a 3udgment commences from the time the 3udgment became final (Article 11'2). "he period for prescription of actions to demand accounting runs from the day the persons who should render the same cease in their functions ( Article 11'3). "he period for the action arising from the result of the accounting runs from the date when said result was recogni4ed by agreement of the interested parties (Article 11'3, 2nd par.). "he period during which the obligee was prevented by a fortuitous event from enforcing his right is not rec$oned against him (Article 11'4).
IS PRESCRIPTION OF ACTIONS INTERRUPTED UNDER THE

WHEN CODE?

CIVIL

"he prescription of actions is interrupted when6 a. "hey are filed before the court% or b. :hen there is a written extra3udicial demand by the creditors, and when there is any written ac$nowledgment of the debt by the debtor 5Article 11''4.

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BOOK IV OBLIGATIONS AND CONTRACTS

LAW

,onstitution 2egislative nactment xecutive #ssuance #nternational 2aw /upreme ,ourt .ecisions AF"#,2 D. ?udicial decisions applying or interpreting the laws or the ,onstitution shall form part of the legal system of the Philippines.

##.

EFFECTIVITY
A.

AND INTERPRETATION OF

LAWS

EE ,"#B#"H

AF"#,2 &. 2aws shall ta$e effect after fifteen days following the completion of their publication in the +fficial Aa4ette, unless it is otherwise provided. :hile law may provide for the date of its effectivity, the requirement of publication may not be dispensed with. (8anada vs. 8uvera) AF"#,2 7. #gnorance of the law excuses no one from compliance therewith. AF"#,2 =. 2aws shall have no retroactive effect, unless the contrary is provided. AF"#,2 @. Acts executed against the provisions of mandatory or prohibitory laws shall be void, except when the law itself authori4es their validity.

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AF"#,2 ). 2aws are repealed only by subsequent ones, and their violation or non-observance shall not be excused by disuse, or custom or practice to the contrary. AF"#,2 '=. Penal laws and those of public security and safety shall be obligatory upon all who live or so3ourn in Philippine territory, sub3ect to the principles of international law and treaty stipulations. AF"#,2 '(. Feal property as well as personal property is sub3ect to the law of the country where it is situated.
B.

#*"

FPF "A"#+*

AF"#,2 '9. #n case of doubt in the interpretation or application of laws, it is presumed that the lawma$ing body intended right and 3ustice to prevail. AF"#,2 ). :hen the courts declare a law to be inconsistent with the ,onstitution, the former shall be void and the latter shall govern. Administrative or executive acts, orders and regulations shall be valid only when they are not contrary to the laws or the ,onstitution. ###. KINDS
A.

OF

LAWS

*A2

"hose which prescribe imprisonment as a penalty in case of violation. G. ,ivil "hose which govern relations between persons. ,. ,+;;
F,#A2

"hose which deal with transactions entered into by persons. .. F

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"hose which prescribe the procedure to be followed in order to see$ remedies in law. #B. CONCEPT A. PERSONS
F/+*/

OF

*A"8FA2 P

AF"#,2 =9. Girth determines personality% but the conceived child shall be considered born for all purposes that are favorable to it, provided it be born later with the conditions specified in the following articles. AF"#,2 ='. Eor all civil purposes, the foetus is considered born if it is alive at the time it is completely delivered from the mother5s womb. >owever, if the foetus had an intra-uterine life of less than seven months, it is not deemed born if it dies within twenty-four hours after its complete delivery from the maternal womb. G. AF"#,2 =&. ,ivil personality is extinguished by death. ?8F#.#,A2 P F/+*/ AF"#,2
(1) (2)

==. "he following are 3uridical persons6

(3)

"he /tate and its political subdivisions% +ther corporations, institutions and entities for public interest or purpose, created by law% their personality begins as soon as they have been constituted according to law% ,orporations, partnerships and associations for private interest or purpose to which the law grants a 3uridical personality, separate and distinct from that of each share-holder, partner or member.

AF"#,2 =(. ?uridical persons may acquire and possess property of all $inds as well as incur obligations and bring civil or criminal actions, in conformity with the laws and regulations of their organi4ation. AF"#,2 =). 8pon the dissolution of corporations, institutions and other entities for public interest or purpose mentioned in *o. & of Article ==, their property and other assets shall be disposed of in pursuance of law or the charter creating them. #f nothing has been specified on this point, the property and other assets shall be applied to

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similar purposes for the benefit of the region, province, city or municipality which during the existence of the institution benefits from the same. B. CAPACITY
A.

?8F#.#,A2

,APA,#"H

AF"#,2 7). ?uridical capacity, which is the fitness to be the sub3ect of legal relations, is inherent in every natural person and is lost only through death. G. ,APA,#"H
"+ A,"

AF"#,2 7). ,apacity to act, which is the power to do acts with legal effect, is acquired and may be lost. AF"#,2 7D. ;inority, insanity, or imbecility, the state of being a deaf-mute, prodigality and civil interdiction are mere restrictions on capacity to act, and do not exempt the incapacitated person from certain obligations, as when the latter arise from his acts or from property relations, such as easements. AF"#,2 7C. "he following circumstances, among others, modify or limit capacity to act6 age, insanity, imbecility, the state of being a deaf-mute, penalty, prodigality, family relations, alienage, absence, insolvency and trusteeship.
VI.

HUMAN RELATIONS AF"#,2 'C. very person must, in the exercise of his rights and in the performance of his duties, act with 3ustice, give everyone his due, and observe honesty and good faith. AF"#,2 &9. very person who, contrary to law, willfully or negligently causes damage to another, shall indemnify the latter for the same. AF"#,2 &'. Any person who willfully causes loss or in3ury to another in a manner that is contrary to morals, good customs or public policy shall compensate the latter for the damage.

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AF"#,2 &&. very person who through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without 3ust or legal ground, shall return the same to him. AF"#,2 &7. ven when an act or event causing damage to another5s property was not due to the fault or negligence of the defendant, the latter shall be liable for indemnity if through the act or event he was benefited. AF"#,2 &(. very person shall respect the dignity, personality, privacy and peace of mind of his neighbors and other persons. AF"#,2 &). Any person suffering material or moral loss because a public servant or employee refuses or neglects, without 3ust cause, to perform his official duty may file an action for damages and other relief against the latter, without pre3udice to any disciplinary administrative action that may be ta$en. AF"#,2 &D. 8nfair competition in agricultural, commercial or industrial enterprises or in labor through the use of force, intimidation, deceit, machination or any other un3ust, oppressive or highhanded method shall give rise to a right of action by the person who thereby suffers damage. AF"#,2 &C. :hen the accused in a criminal prosecution is acquitted on the ground that his guilt has not been proved beyond reasonable doubt, a civil action for damages for the same act or omission may be instituted. /uch action requires only a preponderance of evidence. AF"#,2 79. :hen a separate civil action is brought to demand civil liability arising from a criminal offense, and no criminal proceedings are instituted during the pendency of the civil case, a preponderance of evidence shall li$ewise be sufficient to prove the act complained of. AF"#,2 7'. :hen the civil action is based on an obligation not arising from the act or omission complained of as a felony, such civil action may proceed independently

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of the criminal proceedings and regardless of the result of the latter. CHAPTER 1 GENERAL PROVISIONS WHAT
IS AN OBLIGATION?

An obligation is a 3uridical necessity to give, to do or not to do (Article 11'6). WHAT a.

b. c.

d.

An active sub3ect $nown as the obligee or creditor < he is the possessor of a right in whose favor the obligation is constituted and who can demand the fulfillment of the obligation% A passive sub3ect $nown as the obligor or the creditor from whom the obligation is 3uridically demanded < he who has the duty of giving, doing or not doing% "he fact, prestation or service which constitutes the ob3ect or sub3ect matter of the obligation and may consist of giving a thing, doing or not doing a certain act. "he law spea$s of an obligation as a 3uridical necessity to comply with a prestation. "here is N3uridical necessityO for non-compliance can result in 3uridical or legal sanction. "he efficient cause or the vinculu or 3uridical tie which binds the parties to the obligation, and which may arise either from bilateral or unilateral acts of persons < this is the reason why the obligation exists.

E&'()*+: A promises to paint G5s picture as a result of an agreement. >ere A is the obligor% G is the obligee% the painting of G5s picture is the ob3ect or prestation% and the agreement is contract which is the efficient cause. WHAT
ARE THE SOURCES OF OBLIGATIONS?

+bligations arise from6 (') (&) (7) (=) 2aw (obligations le9 le1e)% ,ontracts (obligations e9 contractu)% Kuasi-contracts (obligations e9&:uasi contractu)% Acts or omissions punished by law (obligations e9 delicto)% and

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(@)

;uasi&delicts (obligations e9 :uasi delicto) (Article 11'(). RULES : +bligations derived from law are not presumed. +nly those expressly determined in this ,ode or in special laws are demandable, and shall be regulated by the precepts of the law which establishes them% and as to what has not been foreseen, by the provisions of this Goo$ (Article 11')). +bligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith (Article 11'9). +bligations derived from quasi-contracts shall be sub3ect to the provisions of ,hapter ', "itle LB##, of this Goo$ (Article 1160). ,ivil obligations arising from criminal offenses shall be governed by the penal laws, sub3ect to the provisions of article &')), and of the pertinent provisions of ,hapter &, Preliminary "itle, on >uman Felations, and of "itle LB### of this Goo$, regulating damages (Article 1161). +bligations derived from :uasi&delicts shall be governed by the provisions of ,hapter &, "itle LB## of this Goo$, and by special laws (Article 1162). CHAPTER " AND EFFECT OF OBLIGATIONS

NATURE

WHAT IS THE DEGREE OF DILIGENCE REQUIRED OF A PERSON IN THE PERFORMANCE OF AN OBLIGATION? very person obliged to give something is also obliged to ta$e care of it with the proper diligence of a good father of a family, unless the law or the stipulation of the parties requires another standard of care (Article 1163). *otes6 "his article involves the prestation Nto giveO. "he word NsomethingO connotes a determinate ob3ect which is definite, $nown, and has already been distinctly decided and particularly specified as the matter to be given from among the same things belonging to the same $ind. xample6 #f the ob3ect is a computer, it does not involve any $ind of computer but a very particular computer such as the computer with serial number )))).

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#n case of a contrary stipulation of the parties, such stipulation should not be one contemplating a relinquishment or waiver of the most ordinary diligence. An example where the law requires another standard of care is that which involves common carriers. Article ')77 provides that common carries are bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers. Article ')@@ provides that common carriers is bound to carry the passengers safely as far as human care and foresight can provide, using the utmost diligence of very cautious persons, with due regard for all circumstances.
IS THE DILIGENCE NEEDED IN THE PERFORMANCE OF ONE,S

WHAT OBLIGATION?

"he diligence needed is that which is required by the nature of the obligation and corresponds with the circumstances of the persons, of the time and of the place. "his is diligence of a good father of a family. #f the law or contract does not state the diligence which is to be observed in the performance, that which is expected of a good father of a family shall be required (Article 11(3). >owever, if the law or contract provides for a different standard of care, said law or stipulation must prevail ( Article 1163) provided that it should not be one contemplating a relinquishment or waiver of the most ordinary diligence IN OBLIGATIONS TO GIVE! WHEN DOES THE CREDITOR ACQUIRE A RIGHT TO THE THING WHICH CONSTITUTES THE OB ECT OF THE OBLIGATIONS AS WELL AS TO THE FRUITS THEREOF? "he creditor has a right to the fruits of the thing from the time the obligation to deliver it arises. >owever, he shall acquire no real right over it until the same has been delivered to him (Article 1164). "hus, we must distinguish between the time when the creditor acquires a personal right to the thing and the fruits thereof, and the time when he acquires a real right thereto. After the right to deliver the ob3ect of the prestation has arisen in favor of the creditor but prior to the delivery of the same, there is no real right enforceable or binding against the whole world over the ob3ect and its fruits in favor of the person to whom the same should be given. "he acquisition of a real right means that such right can be enforceable against the whole world and will pre3udice anybody

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claiming the same ob3ect of the prestation. "he real right only occurs when the thing or ob3ect of the prestation is delivered to the creditor. #n obligations arising from contracts, the obligation to deliver arises from the moment of the perfection of the contract, unless there is a stipulation to the contrary. Erom this it is clear that before the delivery of the thing and the fruits thereof, the creditor has merely a personal right against the debtor < a right to as$ for the delivery of the thing and the fruits. +nce the thing and the fruits are delivered, then he acquires a real right over them, a right which is enforceable against the whole world. EXAMPLE: +n Eebruary ', &99@, A buys a mango orchard from L to be delivered on ;arch ', &99@. +n the latter date, A shall have the right to the fruits of the mango orchard. #f the property is delivered only on April ', &99@, A can nevertheless as$ that the fruits accruing since ;arch ', &99@ be li$ewise delivered to him. L cannot resist by saying that he is entitle to the fruits before the actual delivery on April ', &99@. #f, however, L sells the fruits on ;arch &9, &99@ to G who does not $now the previous sale to A and who immediately ta$es possession of the fruits, G shall have a better right over the said fruits. ,onsidering that there is no delivery of the property to A on ;arch &9, &99@, A has no real right over the said property at that time binding upon the whole world. A5s remedy is to see$ damages from L in connection with the fruits. #f however, the mango orchard has already been delivered, A has a real right binding upon the whole world. #f L sells to G the fruits after the delivery to A, A can recover from G who in turn can see$ damages from L. WHEN
DOES THE OBLIGATION TO DELIVER ARISE?

#t depends - #f there is no term or condition, then from the perfection of the contract. #f there is a term or condition, then from the moment the term arrives or the condition happens.
OBLIGATIONS TO GIVE! WHAT ARE THE DIFFERENT RIGHTS WHICH ARE AVAILABLE TO THE CREDITOR?

IN

:e must distinguish between the rights which are available to the creditor when the obligation is determinate and those which are available to him when the obligation is indeterminate or generic.

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'. :hen what is to be delivered is a determinate thing (in the sense that the ob3ect thereof is particularly designated or physically segregated from all others of the same class), the rights of the creditor are6 a. "he creditor may compel specific performance (compel the debtor to ma$e the delivery (Article 116')% and b. "o recover damages in case of breach of the obligation (Article 11(0). &. #f the thing is indeterminate or generic, the rights of the creditor are6 a. "o as$ for performance of the obligation (Article 1246)% b. "o as$ that the obligation be complied with at the expense of the debtor (Article 116', par. 2)% and c. "o recover damages in case of breach of the obligation (Article 11(0).
IS THE EFFECT OF FORTUITOUS EVENT IF THE OBLIGOR DELAYS! OR HAS PROMISED TO DELIVER THE SAME THING TO TWO OR MORE PERSONS WHO DO NOT HAVE THE SAME INTEREST?

WHAT

#f the obligor delays, or has promised to deliver the same thing to two or more persons who do not have the same interest, he shall be responsible for any fortuitous event until he has effected the delivery (Article 116'). IN OBLIGATION TO GIVE! WHAT ARE THE DIFFERENT DUTIES OR OBLIGATIONS WHICH ARE IMPOSED UPON THE DEBTOR OR OBLIGOR? a. #f the obligation is determinate, the duties which are imposed upon the debtor are the following6 a. "o deliver the thing which he has obligated himself to give% b. "o ta$e care of the thing with the proper diligence of a good father of a family (Article 1163)% c. "o deliver all its accessions and accessories, even though they may not have been mentioned. (Article 1166). d. "o pay damages in case of breach of the obligation (Article 11(0).

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b. #f the obligation is indeterminate or generic, the duties which are imposed are6 a. "o deliver a thing that which must be neither of superior nor inferior quality (Article 1246)% b. "o pay damages in case of breach of the obligation (Article 11(0). IN OBLIGATIONS TO DO OR NOT TO DO! WHAT ARE THE DIFFERENT RIGHTS WHICH ARE AVAILABLE TO THE CREDITOR? '. #n obligations to do6 a) #f a person obliged to do something fails to do it, the same shall be executed at his cost. b) "his same rule shall be observed if he does it in contravention of the tenor of the obligation. c) Eurthermore, it may be decreed that what has been poorly done be undone (Article 116(). &. #n obligations not to do6 a. :hen the obligation consists in not doing, and the obligor does what has been forbidden him, it shall also be undone at his expense (Article 116)). IN OBLIGATIONS TO GIVE OR TO DO! WHEN DOES THE OBLIGOR DEEMED TO HAVE INCURRED IN DELAY? "hose obliged to deliver or to do something incur in delay from the time the obligee 3udicially or extra3udicially demands from them the fulfillment of their obligation >owever, the demand by the creditor shall not be necessary in order that delay may exist6 (') :hen the obligation or the law expressly so declare% or (&) :hen from the nature and the circumstances of the obligation it appears that the designation of the time when the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the contract% or (7) :hen demand would be useless, as when the obligor has rendered it beyond his power to perform. #n 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. Erom the moment one of the parties fulfills his obligation, delay by the other begins (Article 1169 par. 1).

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WHAT

IS MORA SOLVENDI; MORA ACCIPIENDI; MORA MORAE?

.elay or default committed by the debtor is $nown as ora solvendi. "he delay is called ora solvendi e9 re when the obligation is an obligation to give and ora solvendi e9 persona when the obligation is an obligation to do. .elay or default committed by the creditor to accept the delivery of the thing which is the ob3ect of the obligation is $nown as ora accipiendi. Co pensation orae occurs when in a reciprocal obligation, both parties are in default (here, it is as if neither is in default). *ote6 .elay in the performance of the obligation must either be malicious or negligent. >ence, if the delay was only due to inadvertence without any malice or negligence, the obligor will not be held liable under Article '')9. WHAT
ARE THE REQUISITES FOR MORA SOLOVENDI?

a) "he obligation must be due, enforceable, and already liquidated or determinate in amount% b) "here must be non-performance% c) "here must be demand, unless the demand is not required% and $) "he demand must be for the obligation that is due. *ote6 "here is no ora solvendi in negative obligations (one cannot be late in not doing or giving). "here is no ora also in natural obligations. WHAT
ARE THE EFFECTS OF MORA SOLVENDI?

'. #f the debtor is in default, he may be liable for interest or damages% &. >e may have to bear the ris$ of loss% 7. >e is liable for a fortuitous event (although damages may be mitigated if he can prove that even if he had not been in default, loss would have occulted 3ust the same 0Article 221'1) WHEN
IS THE OBLIGOR DEEMED TO BE IN DEFAULT?

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Eor an obligation to become due, there must generally be a demand. .efault generally begins from the moment the creditor demand the performance of the obligation. :ithout such demand, 3udicial or extra-3udicial, the effects of default will not arise. ,ommencement of a suit is a sufficient demand. ,onsequently, an obligor is liable for damages for the delay not from the time the ob3ect of the prestation is to be delivered but from the time of extra-3udicial or 3udicial demand. *ote that Article ''(C is applicable only when the obligation is to do something other than the payment of money. #n obligations for the payment of money, Article &&9C shall apply which provides that6 N#f the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the absence of stipulation, the legal interest, which is six per cent per annum.O >ence, in obligation for the payment of sum of money, the interest replaces the damages. WHAT ARE THE GROUNDS FOR LIABILITY IN THE PERFORMANCE OF OBLIGATIONS? "hose who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages (Article 11(0). Fesponsibility arising from fraud is demandable in all obligations. Any waiver of an action for future fraud is void (Article 11(1). Fesponsibility arising from negligence in the performance of every $ind of obligation is also demandable, but such liability may be regulated by the courts, according to the circumstances (Article 11(2).
DOES THE PHRASE #IN ANY MANNER CONTRAVENE THE TENOR$ OF THE OBLIGATION AS STATED UNDER ARTICLE 11-. COVER?

WHAT

#t includes any illicit act or omission which impairs the strict and faithful fulfillment of the obligation and every $ind of defective performance (Arrieta vs. $ational #ice and Corn Corp., 10 +C#A (93 Ma1at vs. Medialdea, %&3(120, April 20, 19)34). WHAT
IS MEANT BY FRAUD OR DOLO?

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Eraud or dolo consists in the conscious and intentional proposition to evade the normal fulfillment of an obligation. #t is bad faith in the performance of an obligation oftentimes referred as malice. #n contracts it is deceit which if substantial ( dolo causante) may result in annulment of contract. WHAT
ARE THE KINDS OF FRAUD?

'. Eraud in obtaining consent (may be casual or merely incidental)% &. Eraud in performing a contract, which may either be6 A. ,asual fraud or dolo causante < Eraud in the performance of a pre-existing obligation% G. #ncidental fraud or dolo incidente < Eraud in the perfection of contract. WHAT FRAUD?
ARE DISTINCTIONS BETWEEN INCIDIENTAL FRAUD AND CAUSAL

'. "he first is present only during the performance of a pre-existing obligation, whereas the second is present only at the time of the birth of the obligation% &. "he first is employed for the purpose of evading the normal fulfillment of an obligation, whereas the second is employed for the purpose of securing the consent of the other party to enter into the contract% 7. "he first results in the non-fulfillment or breach of the obligation, whereas the second, if it is the reason for the other party upon whom it is employed for entering into the contract, results in the vitiation of his consent% =. 2olo causante or causal fraud in Article '77D are those deceptions or misrepresentations of a serious character employed by one party and without which the other party would not have entered into the contract. 2olo incidente or incidental fraud in Article '7== are those which are not serious in character and without which the other party would still have entered into the contract% @. 2olo causante determines or is the essential cause of the consent% while dolo incidente refers only to some particular or accident of the obligation% (. "he effects of dolo causante are the nullity of the contract and the indemnification of damages% dolo incidente obliges the person employing it to pay damages. ). "he first gives rise to a right of the creditor or obligee to recover damages from the debtor or obligor, whereas the second gives rise to a right of the innocent party to as$ for the annulment of

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the contract if the fraud is casual (dolo causante) or to recover damages if it is incidental (dolo incidente) (Vide Articles 11(0, 11(1, 133) 0 1344).
WHAT IS NEGLIGENCE OR CULPA?

#t is the omission of the diligence which is required by the nature of the obligation and corresponds with the circumstances of the persons, of the time and of the place. :hen negligence shows bad faith, the provisions of Articles '')' and &&9', par. &, may apply. #f the law or contract does not state the diligence which is to be observed in the performance, that which is expected of a good father of a family shall be required (Article 11(3). HOW
IS FRAUD DISTINGUISHED FROM NEGLIGENCE?

a) #n fraud, there is deliberate intention to cause damage or pre3udice% while in negligence, although voluntary (not done through force), still there is no deliberate intention to cause damage% b) 2iability arising from fraud cannot be mitigated or reduced by the courts% while liability due to negligence may be reduced in certain cases% c) :aiver of an action to enforce liability die to future fraud is void% while waiver of an action to enforce liability due to future negligence may in a certain sense be allowed% however, gross negligence can never be excused in advance for this would be contrary to public policy% but simple negligence may in certain cases be excused or mitigated. WHAT
IS THE TEST OF NELIGENCE?

"he test by which we can determine the existence of negligence in a particular case may be stated as follows6 .id the defendant in doing the alleged negligent act use the reasonable care and caution which an ordinarily prudent person would have used in the same situationJ #f not, then he is guilty of negligence. "he law here in effect adopts the standard supposed to be supplied by the imaginary conduct of the discreet pater fa ilias of the Foman law. "he existence of negligence in a given case is not determined by reference to the personal 3udgment of the actor in the situation before him. "he law considers what would be rec$less, blameworthy, or negligent in the man of ordinary intelligence and prudence and determines liability by that (7icart vs. + it-, 3( 7-il. )09).

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WHAT

IS THE GENERAL RULE FOR FORTUITOUS EVENT?

*o person shall be responsible for those events which could not be foreseen, or which, though foreseen, were inevitable (Article 11(4). EXCEPTIONS: '. #n cases expressly specified by the law < example, those found in Articles @@&, par. &% ''(@, par. 7, '')9% '&(D% 'C=&% 'C)C% &'=)% &'=D% &'@C (,ivil ,ode)% and 'C(, par. ( (Eamily ,ode).7
AF"#,2 @@& (Par. &). A possessor in bad faith shall be liable for deterioration or loss in every case, even if caused by a fortuitous event. AF"#,2 ''(@ (Par. 7). #f the obligor delays, or has promised to deliver the same thing to two or more persons who do not have the same interest, he shall be responsible for any fortuitous event until he has effected the delivery. AF"#,2 '')9. "hose who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages. ("he obligor shall be liable for damages and he cannot escape liability ($a<pil vs. CA, 144 +C#A '96). AF"#,2 '&(D. :hen the debt of a thing certain and determinate proceeds from a criminal offense, the debtor shall not be exempted from the payment of its price, whatever may be the cause for the loss, unless the thing having been offered by him to the person who should receive it, the latter refused without 3ustification to accept it. AF"#,2 'C=&. "he bailee is liable for the loss of the thing, even if it should be through a fortuitous event6 (') #f he devotes the thing to any purpose different from that for which it has been loaned% cd i (&) #f he $eeps it longer than the period stipulated, or after the accomplishment of the use for which the commodatum has been constituted% (7) #f the thing loaned has been delivered with appraisal of its value, unless there is a stipulation exempting the bailee from responsibility in case of a fortuitous event% (=) #f he lends or leases the thing to a third person, who is not a member of his household% (@) #f, being able to save either the thing borrowed or his own thing, he chose to save the latter. AF"#,2 'C)C. "he depositary is liable for the loss of the thing through a fortuitous event6 (') #f it is so stipulated% (&) #f he uses the thing without the depositorIs permission% (7) #f he delays its return% (=) #f he allows others to use it, even though he himself may have been authori4ed to use the same. AF"#,2 &'=). "he officious manager shall be liable for any fortuitous event6 (') #f he underta$es ris$y operations which the owner was not accustomed to embar$ upon% (&) #f he has preferred his own interest to that of the owner% (7) #f he fails to return the property or business after demand by the owner% (=) #f he assumed the management in bad faith.
-

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&. :hen it is otherwise declared by stipulation < thus, if the contracting parties expressly agree that the debtor can be held liable even in case of fortuitous events, such an agreement shall be binding. 7. :hen the nature of the obligation requires the assumption of ris$ < "his is an aspect of what is $nown as the doctrine of assumption of ris$. As applied to obligations, it refers to a situation in which the obligor or debtor, with full $nowledge of the ris$, voluntarily enters into some obligatory relation with the creditor. #t is based on the principle of violenti non fit in=uria < no wrong is done to one who consents. "his is illustrated by obligations arising from insurance contracts and wor$men5s compensation acts. WHAT
IS A FORTUITOUS EVENT?

A fortuitous event is an event which cannot be foreseen, or which though foreseen, is inevitable. WHAT
ARE THE REQUISITES OF FORTUITOUS EVENT?

'. "he cause of the breach of the obligation must be independent of the will of the debtor% &. "he even must either be unforseeable or unavoidable% 7. "he event must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner% and =. "he debtor must be free from any participation in, or aggravation of, the in3ury to the creditor.
AF"#,2 &'=D. xcept when the management was assumed to save the property or business from imminent danger, the officious manager shall be liable for fortuitous events6 (') #f he is manifestly unfit to carry on the management% (&) #f by his intervention he prevented a more competent person from ta$ing up the management. AF"#,2 &'@C. :hoever in bad faith accepts an undue payment, shall pay legal interest if a sum of money is involved, or shall be liable for fruits received or which should have been received if the thing produces fruits. AF"#,2 '&C. 8pon the dissolution of the con3ugal partnership regime, the following procedure shall apply6 x x x (() 8nless the owner has been indemnified from whatever source, the loss or deterioration of movables used for the benefit of the family, belonging to either spouse, even due to fortuitous event, shall be paid to said spouse from the con3ugal funds, if any.

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IS

THERE A DIFFERENCE BETWEEN FORTUITOUS EVENTS AND FORCE

MA EURE?

+rdinarily, the terms Nfortuitous eventO and Nforce a=eureO are used interchangeably. "here is, however, a technical difference. N Force a=eureO is a term that is applicable only to those fortuitous events which are dependent upon human intervention, such as wars, stri$es, riots, etc., while Nfortuitous eventO is the general term that is applicable regardless of whether the event is independent of or dependent upon human intervention. NOTE that when the ob3ect of the prestation is generic (li$e payment of a sum of money as a consequence of a loan contract), the debtor cannot avail of the benefit of a fortuitous event. DOES THE CIVIL CODE PROHIBIT USURIOUS TRANSACTIONS? Article '')@ provides that usurious transactions shall be governed by special laws. "he article in itself does not prohibit usurious contracts. >owever, it specifically provides that it shall be governed by special laws. A special law may prohibit usurious interest, allow it, or merely put a ceiling as to what can be the highest interest that can be legally imposed. X IS INDEBTED TO Y IN THE AMOUNT OF P/.! .....! PAYABLE IN TEN MONTHLY INSTALLMENBTS AND WITH INTEREST AT %.0 PER ANNUM. WHAT IS THE EFFECT IF Y WOULD BE RECEIVING PAYMENT OF THE PRINCIPAL WITHYOUT RECEIVING FIRST THE INTEREST? "he receipt of the principal by the creditor, without reservation with respect to the interest, shall give rise to the presumption that said interest has been paid (Article 11(6, par. 1). WHAT IS THE EFFECT IF THE OBLIGATION IS PAYABLE FROM ANUARY "..1 TO OCTOBER "..1 AND X DID NOT PAY THE INSTALLMENT FOR UNE "..1 BUT WHEN HE PAID IN ULY "..1! Y ISSUED A RECEIPT FOR ULY "..1? "here is a presumption that the ?une &99= installment has already been paid. "he receipt of a later installment of a debt without reservation as to prior installments, shall li$ewise raise the presumption that such installments have been paid (Article 11(6). NOTE that the presumption here is only pri a facie. "he presumption can be rebutted by strong evidence to the contrary. "he burden of proof to show that the interestMinstallment has not been paid shifts to the creditor.

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WHAT ARE THE RIGHTS AND REMEDIES WHICH ARE AVAILABLE TO THE CREDITOR IN ORDER TO PROTECT HIS RIGHTS AGAINST THE DEBTOR? a) xact payment% b) Pursue the property in possession of the debtor to satisfy their claims (generally through levying by attachments and execution upon all the property of the debtor, except such as are exempt by law from execution), c) xercise all the rights and bring all the actions of the latter for the same purpose, save those which are inherent in his person ( accion su,ro1atoria)% $) #mpugn the acts which the debtor may have done to defraud them (accion pauliana) (Article 11((). NOTES: "he third and the fourth remedies are merely subsidiary to the second. "he above-cited rights are not absolute as the creditor cannot bring those which are inherent in the person of the obligor. Article'7D' (') which provides that a contract entered into by the debtor is rescissible if it were made in fraud of creditors when the latter cannot in any manner collect the claim due is another remedy. WHAT
IS THE RULE AS TO TRANSMISSIBILITY OF RIGHTS?

All rights acquired in virtue of an obligation are transmissible (Article 11()). EXCEPTIONS: a) #f there has been no stipulation to the contrary. b) #f the law provides otherwise. c) #f the obligation is purely personal. CHAPTER % DIFFERENT KINDS OF OBLIGATIONS PURE SECTION 1 CONDITIONAL OBLIGATIONS

AND

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THE

WHAT ARE CIVIL CODE?

THE DIFFERENT CLASSES OF OBLIGATIONS ACCORDING TO

"he following is the primary classification of obligations under the ,ivil ,ode6 a) Pure, conditional, and with a term (Articles 11(93 11(9 > 11923 1193 & 119))% b) Alternative and facultative (Articles 1199 > 1206)% c) ?oint and solidary (Articles 120( > 1222)% $) .ivisible and indivisible (Articles 1223 > 122')% and e) :ith and without a penal clause (Articles 1226 > 1230). "here are however other classifications of a secondary character which can be gathered from scattered provisions of the ,ode, such as6 a) b) c) $) e) f) #) h) i) *atural and civil (Articles 11'63 1424)% 2egal, conventional and penal (Articles 11') > 1162)% Feal and personal (Articles 11'63 1163 > 116))% .eterminative and generic (Articles 1163 > 1166)% Positive and negative (Articles 1163 > 116))% Accessory and principal (Articles 1166, 1230)% 8nilateral and bilateral (Article 1191)% /ingle and multiple (Articles 11993 1206)% and #ndividual and collective (Article 120()% WHAT
IS MEANT BY PURE OBLIGATION?

very obligation whose performance does not depend upon a future or uncertain event, or upon a past event un$nown to the parties, is demandable at once. very obligation which contains a resolutory condition shall also be demandable, without pre3udice to the effects of the happening of the event (Article 11(9). >ere, there are no conditions imposed, except if they are resolutory. WHAT CONDITIONS?
IS THE MOST DISTINCTIVE CHARACTERISTIC OF PURE

"he most distinctive characteristic of a pure obligation is its demandability. "his quality, however, must not be understood in such a way as to lead to absurd interpretations which would literally require the obligor or debtor to comply immediately with his obligation. A

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distinction must be made between (') immediate demadability of the obligation% and (&) its performance or fulfillment by the obligor or debtor. Although the obligee or creditor can demand the performance of the obligation immediately, the quality of immediate demandability is not infringed or violated when a reasonable period is granted for performance. WHAT
ARE CONDITIONAL OBLIGATIONS?

,onditional obligations are those where the acquisition of a right or the extinguishment or loss of those already acquired shall depend upon the happening of an even which constitutes the condition. :hat characteri4es a conditional obligation is the fact that its efficacy or obligatory force is subordinated to the happening of a future or uncertain event. WHAT
ARE THE KINDS OF CONDITIONAL OBLIGATIONS?

a) F /+28"+FH ,+*.#"#+* - is one which is demandable at once, but the happening of an event would extinguish the obligation. "his is because once the condition is established and ac$nowledged, the right immediately exists and therefore the obligation concomitant to the right can be demanded at once. >owever, once the future or uncertain event happens which constitutes the condition, it operates to discharge the obligation. "he obligation is resolved or extinguished by operation of law (but such resolution can be made effective at some later date if the parties so stipulate in their contract, such as when the parties stipulate that resolution becomes effective only from the date of written notice thereof is sent) b) /8/P */#B ,+*.#"#+* - is one where the happening of an event gives rise to an obligation. A suspensive obligation is not demandable at once. #t can be demanded only upon the happening of the future or un$nown event or a past event un$nown to the parties, which constitutes the condition. >appening of a suspensive condition gives rise to the performance of the obligation. #f the condition does not ta$e place, the parties would stand as if the conditional obligation had never existed. c) P+" /"A"#B < depends upon the will of the debtor. "his is also called EA,82"A"#B condition. $) ,A/8A2 < depends on chance or ha4ard or the will of a third person e) ;#L . < depends partly on the will of one of the parties and partly on chance or the will of a third person. f) ,+*?8*,"#B < if all the conditions must be performed. #) A2" F*A"#B < if only a few of the condition have to be performed.

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WHAT

IS AN OBLIGATION WITH A TERM OR PERIOD?

"hat which necessarily must come whether the parties $now when it will happen or not.
AND B ENTERED INTO A CONTRACT OF LOAN! PROVIDING THAT B SHALL PAY WHEN HIS MEANS PERMIT HIM TO DO SO. WHAT KIND OF OBLIGATION IS THIS? WHAT IS THE REMEDY OF A IN CASE OF NON-PAYMENT BY B?

:hen the debtor binds himself to pay when his means permit him to do so, the obligation shall be deemed to be one with a period, sub3ect to the provisions of article ''C) (Article 11)0). According to Article ''C), if the obligation does not fix a period, but from its nature and the circumstances it can be inferred that a period was intended, the courts may fix the duration thereof. "he courts shall also fix the duration of the period when it depends upon the will of the debtor. #n every case, the courts shall determine such period as may under the circumstances have been probably contemplated by the parties. +nce fixed by the courts, the period cannot be changed by them. DISTINGUISH BETWEEN RESOLUTORY CONDITIONS.
THE EFFECTS OF SUSPENSIVE AND

#n conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event which constitutes the condition ( Article 11)1). "hus, a resolutory condition affects the obligation to which it is attached in a manner which is diametrically opposed to that of a suspensive condition. #f the suspensive condition is fulfilled, the obligation arises or becomes effective% if the resolutory condition is fulfilled, the obligation is extinguished. #f the first is not fulfilled, no 3uridical relation is created% if the second is not fulfilled, the 3uridical relation is consolidated. #n other words, in the first, rights are not yet acquired, but there is a hope or expectancy that they will soon be acquired% in the second, rights are already acquired, but sub3ect to the threat of extinction.

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A suspensive condition is also called a condition precedent while a resolutory condition is also $nown as a condition subsequent. A condition precedent is an act or event, other than a lapse of time, which must exist or occur before a duty to perform a promised performance arises. #f the condition does not occur and is not excused, the promised performance need not be rendered. A condition subsequent is an event, the existence of which, by agreement of the parties, operates to discharge a duty of performance that has arisen. #n case a contract involves a reciprocal obligation, the obligation of one is a resolutory condition of the obligation of the other, the nonfulfillment of which entitles the other party to rescind the contract. GIVE THE EFFECTS OF POTESTATIVE! CASUAL AND MIXED CONDITIONS UPON OBLIGATION. Article ''D& provides that when the fulfillment of the condition depends upon the sole will of the debtor, the conditional obligation shall be void. #f it depends upon chance or upon the will of a third person, the obligation shall ta$e effect in conformity with the provisions of this ,ode. "he phrase Nwhen fulfillment of a conditionO connotes a suspensive character of the prestation. "here is the expectation of the existence or accomplishment of a duty to give or to render some service in the future. "hus6 a) #f the condition is potestative in the sense that fulfillment of the condition depends upon the sole will of the debtor, the conditional obligation shall be void (Article 11)2). "his happens when the birth of the contract depends upon the sole will of the debtor. >ence, according to Article '79D, this is li$ewise prohibited and may ma$e the whole contract invalid. >owever, if the potestative condition is imposed not on the birth of the obligation but on its fulfillment, only the condition is avoided, leaving unaffected the obligation itself. b) #f the condition is potestative in the sense that its fulfillment depends upon the will of the creditor, the conditional obligation shall be valid. "his is because the provision of the first sentence of Article ''D& extends only to conditions which are potestative to the obligor or debtor. Gesides, the creditor is naturally interested in the fulfillment of the condition since it is only such fulfillment that the obligation arises or becomes effective. c) #f the condition is casual in the sense that its fulfillment depends partly upon chance or upon the will of a third person, the obligation shall ta$e effect (Article 11)2).

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$) #f the condition is mixed in the sense that its fulfillment depends partly upon the will of a party to the obligation and partly upon chance andMor will of a third person, the obligation shall be valid.
THE EVENT THAT THE CONDITION IS DECLARED VOID BUT THE OBLIGATION IS STILL VALID! SHOULD THE OBLIGATION BE DECLARED PURE AND UNCONDITIONAL?

IN

*o, because in converting it into a pure and demandable obligation, an arrangement might be enforced which is not within the contemplation of the parties. >ence, the best solution is to consider the parties as having intended a period within which the valid obligation is to be complied with such that the creditor should as$ the court to fix a period for compliance (7atente vs. ! e1a, 93 7-il. 21)). SUPPOSE THAT THE DEBTOR EXECUTED A PROMISSORY NOTE PROMISSING TO PAY HIS OBLIGATION TO THE CREDITOR AS SOON AS HE HAS RECEIVED FUNDS FROM THE SALE OF HIS PROPERTY IN A CERTAIN PLACE! IS THE CONDITION POTESTATIVE OR MIXED? "he condition is mixed because its fulfillment depends not only upon the will of the debtor but also upon the concurrence of other factors, such as the acceptability of the price and other conditions of the sale as well as the presence of the buyer, ready, able and willing to purchase the property.
THAT IN THE ABOVE PROBLEM! THE DEBTOR PROMISED TO PAY HIS OBLIGATION AS SOON AS HE HAS RECEIVED THE FUNDS DERIVED FROM THE SALE OF THE PROPERTY IF HE FINALLY DECIDES TO SELL IT! WILL THAT MAKE ANY DIFFERENCE IN YOUR ANSWER?

SUPPOSE

Hes, in such case, the condition is potestative with respect to the debtor because its fulfillment would then depend upon his will. ,onsequently, the condition is void. "he validity of the obligation is, of course, not affected, because the rule stated in Article ''D& to the effect that when the fulfillment of the condition depends upon the sole will of the debtor, the conditional obligation itself shall be void, is applicable only when the obligation shall depend for its perfection upon the fulfillment of the condition and not when the obligation is a preexisting one. WHAT ARE THE EXCEPTIONS TO ARTICLE 112" 3CONDITIONAL OBLIGATIONS DEPENDING UPON THE SOLE WILL OF THE DEBTOR ARE VOID4? a) "he rule is applicable only to a suspensive condition. >ence, if the condition is resolutory and potestative, the obligation is valid even if

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the fulfillment of the condition is made to depend upon the sole will of the debtor. "his is because the position of the debtor when the condition is resolutory is exactly the same as the position of the creditor when the condition is suspensive. b) "he rule that even the obligation itself shall be void is applicable only to an obligation which depends for its perfection upon the fulfillment of the potestative condition and not to a pre-existing obligation. xample, if the debtor binds himself to pay a previous indebtedness as soon as he decides to sell his house, although the condition is void because of its potestative character, the obligation itself is not affected since it refers to a pre-existing indebtedness. "hus, when the potestative condition is imposed on the fulfillment of the obligation, the condition alone is voided but not the obligation. c) A condition at once facultative and resolutory is valid though the condition is made to depend upon the will of the obligor. $) A resolutory condition that depends upon the will of a third person is not void. SUMMARY: a) #f potestative (facultative) on the part of the debtor6 #f also suspensive < both the condition and the obligations are void. #f also resolutory < valid. b) #f potestative on the part of the creditor < valid. c) #f casual < valid. $) #f mixed < valid. WHAT IS THE EFFECT IF IN AN OBLIGTION! IMPOSSIBLE CONDITIONS! ETC. ARE IMPOSED? #mpossible conditions, those contrary to good customs or public policy and those prohibited by law shall annul the obligation which depends upon them. #f the obligation is divisible, that part thereof which is not affected by the impossible or unlawful condition shall be valid. "he condition not to do an impossible thing shall be considered as not having been agreed upon (Article 11)3). NOTE: #t is very clear from the law that it is not only the condition which is annulled but the whole obligation itself. "hus, an obligation to give money as a loan only if it snows in the Philippines destroys the efficacy of the prestation. "he condition annuls the prestation. "his is

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also true if the condition is against good customs, public policy or is prohibited by law. Also, an impossible thing can never be done. >ence, to ma$e as a condition the doing of an impossible thing is a useless stipulation which should not be considered as not having been agreed upon. "he whole obligation which involves an impossible condition can be annulled. SUMMARY: '. #f the condition is to do an impossible or illegal thing < both condition and the obligation are void% &. #f the condition is not to do the impossible (negative) < obligation is valid but the condition is disregarded. 7. #f the condition is not to do an illegal thing (negative) < both condition and the obligation are valid.
OBLIGATIONS WITH POSITIVE OBLIGATION DEEMED EXTINGUISHED?

IN

CONDITIONS!

WHEN

DOES

THE

"he condition that some event happen at a determinate time shall extinguish the obligation as soon as the time expires or if it has become indubitable that the event will not ta$e place (Article 11)4). #f the period is not fixed in the contract, the court, considering the parties5 intentions, should determine what period was really intended (Vide Article 11)', par. 2). IN OBLIGATIONS WITH NEGATIVE OBLIGATION DEEMED EFFECTIVE?
CONDITIONS! WHEN DOES THE

"he condition that some event will not happen at a determinate time shall render the obligation effective from the moment the time indicated has elapsed, or if it has become evident that the event cannot occur. #f no time has been fixed, the condition shall be deemed fulfilled at such time as may have probably been contemplated, bearing in mind the nature of the obligation (Article 11)'). WHAT IS THE EFFECT WHEN THE DEBTOR VOLUNTARILY PREVENTS THE FULFILLMENT OF THE CONDITION? "he condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment (Article 11)6).

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"his is $nown as constructive (or presumed) fulfillment. "his generally applies only to suspensive condition.
ARE THE REQUISITES FULFILLMENT WILL ARISE?

WHAT

IN

ORDER

THAT

CONSTRUCTIVE

'. #t must be made by the obligor% &. #t must be voluntarily made% and 7. #t must actually prevent the performance of the condition. WHEN DO THE EFFECTS OF THE FULFILLMENT OF A CONDITION IN AN OBLIGATION TO GIVE RETROACT? WHAT ARE THE EXCEPTIONS? :hen a suspensive condition ta$es effect, the obligation becomes effective. "he effects of a conditional obligation to give, once the condition has been fulfilled, shall retroact to the day of the constitution of the obligation. "his rule is applicable only to suspensive conditions because the efficacy of the obligation is merely suspended or held in abeyance until the condition is fulfilled. "his is not applicable to resolutory conditions because the fulfillment of the event extinguishes the obligation% hence, retroactivity is not relevant. "here is no retroactivity as to6 a) Eruits or interests in reciprocal and unilateral obligations (unless there is contrary stipulation)% b) Period of prescription. c) "his principle of retroactivity applies only to consensual contracts. #n real contracts, there is immediate delivery. #n consensual ones, delivery may be made on another day.
ARRE THE RULES IF THE OBLIGATION 314 IMPOSES RECIPROCAL OBLIGATIONS5 3"4 IF THE OBLIGATION IS UNILATERAL5 3%4 IN OBLIGATIONS TO DO AND NOT TO DO?

WHAT

a) :hen the obligation imposes reciprocal prestations upon the parties, the fruits and interests during the pendency of the condition shall be deemed to have been mutually compensated. b) #f the obligation is unilateral, the debtor shall appropriate the fruits and interests received, unless from the nature and circumstances of the obligation it should be inferred that the intention of the person constituting the same was different.

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c) #n obligations to do and not to do, the courts shall determine, in each case, the retroactive effect of the condition that has been complied with (Article 11)(). Eruits here refer to natural, industrial, and civil fruits (li$e rent) (Vide Article 442). WHAT IS THE RIGHT OF THE CREDITOR BEFORE THE FULFILLMENT OF THE CONDITIONS? "he creditor may, before the fulfillment of the condition, bring the appropriate actions for the preservation of his right (Article 11)), par. 1). NAppropriate actionO here means to sue in court. +ther appropriate actions that may be underta$en by the creditor6 '. As$ for security if the debtor is about to be insolvent% &. As$ the court to prevent alienation or concealment pendente conditionae. *ote that the law says NpreservationO, not preference over the creditor.
THE HAPPENING OF A SUSPENSIVE CONDITION! WHAT IS THE RIGHT OF THE DEBTOR IF HE PAYS BY MISTAKE?

BEFORE

"he debtor may recover what during the same time he has paid by mista$e in case of a suspensive condition (Article 11)), par. 2). IF
PAYMENT WAS NOT MADE BY MISTAKE! CAN THERE BE RECOVERY?

#t depends. #f the condition is fulfilled, there can be no recovery because of the principle of retroactivity. #f the condition is not fulfilled, there should be a recovery (unless a pure donation was intended). SUPPOSE CONDITION! BUT
THAT AN OBLIGATION IS SUB ECT TO A SUSPENSIVE BEFORE THE FULFILLMENT OF THE CONDITION THE OB ET OF THE OBLIGATION WAS LOST! OR IT HAS DETERIORATED! OR IMPROVEMENTS WERE MADE THEREON! WHAT IS THE EFFECT OF SUCH LOSS! OR DETERIORATION! OR IMPROVEMENTS IF THE CONDITION IS FINALLY FULFILLED?

:hen the conditions have been imposed with the intention of suspending the efficacy of an obligation to give, the following rules

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shall be observed in case of improvement, loss or deterioration of the thing during the pendency of the condition6 (') #f the thing is lost without the fault of the debtor, the obligation shall be extinguished% (&) #f the thing is lost through the fault of the debtor, he shall be obliged to pay damages% (7) :hen the thing deteriorates without the fault of the debtor, the impairment is to be borne by the creditor% (=) #f it deteriorates through the fault of the debtor, the creditor may choose between the rescission of the obligation and its fulfillment, with indemnity for damages in either case% (@) #f the thing is improved by its nature, or by time, the improvement shall inure to the benefit of the creditor% (() #f it is improved at the expense of the debtor, he shall have no other right than that granted to the usufructuary (Article 11)9). NOTES6 a) "his article applies only if the suspensive condition is fulfilled and the ob3ect is specific (generic). b) "he option (rescission or demand fulfillment) is given to the creditor, regardless of the degree of deterioration caused by the debtor. c) #mprovement belongs to the creditor because once the condition is fulfilled, the effects of the conditional obligation shall retroact to the day of the constitution of the obligation. $) #mprovement at the expense of the debtor, right of creditor li$e a usufructuary < A usufruct gives a right to en3oy the property of another with the obligation of preserving its form and substance unless the title constituting it or the law provides otherwise ( Article '62). WHAT IS THE MEANING OF ARTICLE? #LOSS$
AS CONTEMPLATED IN THE

#t is understood that the thing is lost when it perishes, or goes out of commerce, or disappears in such a way that its existence is un$nown or it cannot be recovered (Article 11)9, par. 2).
THE ABOVE RULES ALSO APPLICABLE IF THE CONDITION IS RESOLUTORY?

ARE

Hes, Article ''C9 provides that in case of the loss, deterioration or improvement of the thing, the provisions which, with respect to the debtor, are laid down in the preceding article ( Article 11)9) shall be

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applied to the party who is bound to return. "hus, while the resolutory condition has not yet been fulfilled and the (thing) prestation is destroyed with the fault of the obligor, the obligation to return is extinguished. #f the thing is lost through the fault of the debtor, he shall be liable for damages. #f the thing deteriorates without the fault of the obligor, the impairment is to be borne by the creditor. #f the thing deteriorates through the fault of the obligor, the creditor may choose between the rescission of the obligation and its fulfillment, with indemnity for damages in either case. #f the thing is improved by nature, or by time, the improvement shall inure to the benefit of the creditor. 2astly, if the thing improves at the expense of the debtor, he shall have no other right than that granted to the usufructuary. >owever, in applying these rules, the NdebtorO is the person obliged to return the ob3ect of the obligation in case of fulfillment of the condition, while the NcreditorO is the person to whom the thing or ob3ect must be returned. WHAT FULFILLED?
ARE THE EFFECTS WHEN A RESOLUTORY CONDITION IS

a) "he obligation is extinguished (Article 11)1). b) "he parties, upon the fulfillment of said conditions, shall return to each other what they have received (Article 1190). c) "he fruits or the interest thereon should also be returned after deducting the expenses made for their production, gathering, and preservation (Article 443). $) #n case of the loss, deterioration or improvement of the thing, the provisions which, with respect to the debtor, are laid down in the preceding article shall be applied to the party who is bound to return (Article 1190). e) As for obligations to do and not to do, the provisions of the second paragraph of article ''D) (the courts shall determine, in each case, the retroactive effect of the condition that has been complied with) shall be observed as regards the effect of the extinguishment of the obligation (Article 1190). WHAT
IS MEANT BY RECIPROCAL OBLIGATIONS?

Feciprocal obligations are those which are created or established at the same time, out if the same cause, and which result in mutual relationship of creditor and debtor between the parties. Feciprocal obligations are those which arise from the same cause and in which each party is both a debtor and a creditor of the other,

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such that the obligation one is dependent upon the other ( Areola vs. CA, 236 +C#A 643). WHAT IS THE EFFECT IF ONE OF THE OBLIGORS IN RECIPROCAL OBLIGATIONS SHOULD NOT COMPLY WITH WHAT IS INCUMBENT UPON HIM? "he power to rescind (more properly to resolve) obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. "he court shall decree the rescission claimed, unless there be 3ust cause authori4ing the fixing of a period ( Article 1191). "his means that the implied power to rescind can only be enforced through court action, in the absence of stipulation to the contrary. "he decision of the court is the revocatory act of rescission. #n reciprocal obligations, the obligation of one is a resolutory condition of the obligation of the other, the non-fulfillment if which entitles the other to rescind the contract. Fescission or resolution here is predicated on the breach of faith by any of the parties to a contract that violates the reciprocity between them. CHOICES
OF THE IN URED PARTY:

"he in3ured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. >e may also see$ rescission, even after he has chosen fulfillment, if the latter should become impossible ( Article 1191). "he options are alternative and not con3unctive. "his is understood to be without pre3udice to the rights of third persons who have acquired the thing, in accordance with articles '7D@ and '7DD and the ;ortgage 2aw (Article 1191, par. 2). WHAT ARE THE CHARACTERISTICS OF THE RIGHT TO RESCIND OR RESOLVE UNDER ARTICLE 1161? '. #t exists only in reciprocal obligations% &. #t can be demanded only if the plaintiff is ready, willing and able to comply with his own obligation and the other party is not. 7. "he right to rescind is not absolute% thus6 a. #t must be based on a serious or substantial breach of an obligation as to defeat the ob3ect of the parties in ma$ing the agreement. A mere casual breach does not 3ustify rescission of the contract. xample, if time is not of the essence in the agreement, a slight delay on the part of the

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obligor in the performance of his obligation is not sufficient ground for the resolution of the agreement ( 8an vs. CA, 21 +C#A 2)4). b. #f there is 3ust cause for fixing the period within which the debtor can comply, the court will not decree rescission% c. #f the property is already in the hands of an innocent third party who has lawful possession of the same. =. "he right to rescind needs 3udicial approval in certain cases as when there has already been delivery of the ob3ect% @. "he right to rescind is implied (presumed) to exist and, therefore, need not be expressly stipulated upon% (. "he right to rescind may be waived. NOTES: a) "he article entitles the in3ured party to payment of damages, regardless of whether he demands fulfillment or rescission of the obligation (Areola vs. CA, 236 +C#A 643). b) #n case a valid rescission is made, it creates an obligation to return the things which were the ob3ect of the contract. "hus, rescission can only be made when the one who demands rescission can return whatever he or she may be obliged to restore.
THAT THERE IS A RESERVATION OF THE RIGHT TO RESCIND IN CASE OF BREACH OF THE OBLIGATIONS! IS THERE A NEED TO ASK FOR UDICIAL INTERVENTION IN THE RECISSION OF THE CONTRACT?

SUPPOSE

*o, 3udicial intervention is not necessary for the purpose of obtaining a 3udicial declaration rescinding a contract where there is a reserved right to rescind (%una vs. A,ri1o, /anuar* 1), 1990). WHAT
IS THE EFFECT IF BOTH PARTIES HAVE COMMITTED A BREACH?

#n case both parties have committed a breach of the obligation, the liability of the first infractor shall be equitably tempered by the courts. #f it cannot be determined which of the parties first violated the contract, the same shall be deemed extinguished, and each shall bear his own damages (Article 1192). "his means that if the violation can be traced to the parties and both of them committed the beach, the article penali4es the first violator only, if in fact or by evidence, such first violator can be determined. "he subsequent violator will not be held liable. >owever, the liability of the first violator shall be equitably tempered by the court as the in3ury to the other party-violator might not have been so

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great had it not for the subsequent infraction of such other partyviolator. "he law however states that if it cannot be determined which of the parties first violated the contract, the obligation shall be deemed extinguished, and each shall bear his own damages. SECTION " OBLIGATIONS DEFINE
WITH A

PERIOD

OBLIGATIONS WITH A TERM OR PERIOD.

+bligations with a term or period may be defined as those whose demandability or extinguishment are sub3ect to the expiration of a term or period. WHAT
IS MEANT BY A TERM OR PERIOD?

A term or a period is an interval (or length) of time, which, exerting an influence of an obligation as a consequence of a 3uridical act, either suspends its demandability or produces its extinguishment. #f it gives rise to the effectivity of the obligation, it is a suspensive period. #f it extinguishes, it is a resolutory one. WHAT
ARE ITS REQUISITES?

a. Euturity% b. ,ertainty% c. Physical and legal possibility. DISTINGUISH

"erm and condition may be distinguished form each other in the following ways6 '. A/ "+ F K8#/#" / < :hereas a term or period refers to an interval of time which is future and certain, a condition refers to a fact or event which is future and uncertain. &. A/ "+ E82E#22; *" < :hereas a term or period is an interval of time which must necessarily come, although it may not be $nown when, a condition is a future and uncertain fact or event which may or may not happen. 7. A/ "+ #*E28 *, +* +G2#AA"#+* < :hereas a term or period merely exerts an influence upon the time of the demandability or extinguishment of an obligation, a condition exerts an influence upon the very existence of the obligation itself. A condition

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causes an obligation to arise or to cease, but a period merely fixes the time or the efficaciousness of an obligation. =. A/ "+ F "F+A,"#B#"H +E EE ,"/ < :hereas a term or period does not have any retroactive effects unless there is an agreement to the contrary, a condition has retroactive effects. @. A/ "+ "> EE ," +E :#22 +E . G"+F < :hen a term or period is left exclusively to the will of the debtor, the existence of the obligation is not affected, but when a condition is left exclusively to the will of the debtor, the very existence of the obligation is affected. GIVE
AND DEFINE THE DIFFERENT KINDS OF TERMS OR PERIODS. */#B +F F /+28"+FH

'. /8/P

A. /uspensive period(e9 die) - when the obligation becomes demandable only upon the arrival of a day certain% G. Fesolutory period (in die ) - when the obligation is demandable at once, although terminated upon the arrival of a day certain. &. 2
AA2, ,+*B *"#+*A2 +F ?8.#,#A2

A. 2egal period < when it is granted by law% G. ,onventional period < when it is stipulated by the parties% ,. ?udicial period < when it is fixed by the court 7. . E#*#" +F #*. E#*#" < Article ''C7 states that a day certain is understood to be that which must necessarily come, although it may not be $nown when. "hus, a period is definite when a date or time is $nown beforehand, and indefinite when it can only be determined by an event which must necessarily come to pass, although it may not be $nown when WHAT
IS A DAY CERTAIN?

A day certain is understood to be that which must necessarily come, although it may not be $nown when (Article 1193, par. 3). IN OBLIGATIONS WITH A PERIOD OR TERM! WHEN DOES THE PERIOD OF PRESCRIPTION BEGIN? "he period of prescription commences from the time the term in the obligation arises, for it is only from that date that it is due and demandable.

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THE HAPPENING OF A FUTURE EVENT IS FIXED BY THE PARTIES FOR THE FULFILLEMTN OR EXTINGUISHMENT OF AN OBLIGAGTION! WHAT IS THE NATURE OF THE OBLIGATION?

IF

#t depends < #f the event will necessarily come, although the date or time when it will come may be uncertain, the event constitutes a day certain% hence, the obligation is with a term ( Article 1193, par. 3). >owever, if the uncertainty consists in whether the day will come or not, the event constitutes a condition% hence, the obligation is conditional (Article 1193, par. 4). STATE THE RULES IN CASE OF LOSS! DETERIORATION! OR IMPROVEMENT OF THE THING BEFORE THE ARRIVAL OF THE TERM OR PERIOD. #n case of loss, deterioration or improvement of the thing before the arrival of the day certain, the rules in Article ''DC shall be observed (Article 1194). "hus6 (') #f the thing is lost without the fault of the debtor, the obligation shall be extinguished% (&) #f the thing is lost through the fault of the debtor, he shall be obliged to pay damages% (7) :hen the thing deteriorates without the fault of the debtor, the impairment is to be borne by the creditor% (=) #f it deteriorates through the fault of the debtor, the creditor may choose between the rescission of the obligation and its fulfillment, with indemnity for damages in either case% (@) #f the thing is improved by its nature, or by time, the improvement shall inure to the benefit of the creditor% (() #f it is improved at the expense of the debtor, he shall have no other right than that granted to the usufructuary (Article 11)9). WHAT IS THE REMEDY OF THE DEBTOR WHO PAID OR DELIVERED BEFORE THE ARRIVAL OF THE PERIOD? Anything paid or delivered before the arrival of the period, the obligor being unaware of the period or believing that the obligation has become due and demandable, may be recovered, with the fruits and interests (Article 119'). IN OBLIGATIONS WITH A TERM OR PERIOD! FOR WHOSE BENEFIT IS THE TERM OR PERIOD?

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:henever in an obligation a period is designated, it is presumed to have been established for the benefit of both the creditor and the debtor, unless from the tenor of the same or other circumstances it should appear that the period has been established in favor of one or of the other (Article 1196). ,onsequently, the creditor cannot demand the performance of the obligation before the expiration of the designated period% neither can the creditor compel the debtor to perform the obligation before the expiration of such period. "his rule, however, is not absolute. #f it can be proved either that the tenor of the obligation or from other circumstances that the period has been established for the benefit of either the creditor or the debtor, the general rule is no longer applicable. >owever, the benefit of the period may be waived by the person in whose favor it was constituted.
THE CONTRACT DOES NOT PROVIDED FOR A PERIOD! CAN THE CREDITOR DEMAND ITS FULFILLMENT?

IF

*o, because an action for the court to fix the period has yet to be filed. #n the meantime, no one can as$ for the fulfillment of the obligation after the court has fixed the period for its compliance ( Vda de ?n1son vs. %ope6, %&101)0, Marc- 10, 19'4). WITHIN FILED?
WHAT PERIOD SHOULD THE ACTION TO FIX THE PERIOD BE

#t must be filed within ten ('9) years, otherwise, it would prescribe ("on6ale6 vs. /ose, 66 7-il. 369).
ARE THE DIFFERENT INSTANCES UNDER THE CIVIL CODE WHERE THE COURTS ARE EMPOWERED TO FIX THE DURATION OF A TERM OR PERIOD?

WHAT

a. #f the obligation does not fix a period, but from its nature and the circumstances it can be inferred that a period was intended, the courts may fix the duration thereof (Article 119(, par. 1). b. "he courts shall also fix the duration of the period when it depends upon the will of the debtor (Article 119(, par. 2). #n every case, the courts shall determine such period as may under the circumstances have been probably contemplated by the parties. +nce fixed by the courts, the period cannot be changed by them (Article 119(, par. 3).

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c. #f the debtor binds himself to pay when his means permit him to do so (Article 11)0). /trictly spea$ing, however, this case properly falls within the purview of the second, because in such a case the power to determine when the obligation will be fulfilled is in effect left exclusively to the will of the debtor. NOTE: Article ''C) involves a two-step process. "he court must first determine that the obligation does not fix a period (or that the period is made to depend upon the will of the debtor), but from the nature and the circumstances it can be inferred that a period was intended. "his preliminary point settled, the court must then proceed to the second step, and decide what period was probably contemplated by the parties. /o that, ultimately, the court cannot fix a period merely because in its opinion it is or should be reasonable, but must set the time that the parties are shown to have intended ("re1orio Araneta, Inc. vs. 7-il. +u1ar @states 2evelop ent Co., %td., 20 +C#A 330). WHAT ARE THE DIFFERENT INSTANCES UNDER THE CIVIL CODE WHEN THE DEBTOR SHALL LOSE EVERY RIGHT TO MAKE USE OF THE TERM OR PERIOD? "he debtor shall lose every right to ma$e use of the period6 (') :hen after the obligation has been contracted, he becomes insolvent, unless he gives a guaranty or security for the debt% 0#nsolvency here need not be 3udicially declared.1 (&) :hen he does not furnish to the creditor the guaranties or securities which he has promised% (7) :hen by his own acts he has impaired said guaranties or securities after their establishment, and when through a fortuitous event they disappear, unless he immediately gives new ones equally satisfactory% 0*ote that the debtor loses the benefit of a period even if the loss is through a fortuitous event.1 (=) :hen the debtor violates any underta$ing, in consideration of which the creditor agreed to the period% (@) :hen the debtor attempts to abscond (Article 119)). >+: " F;/ +F P F#+./ AF ,+;P8" .6 :hen the laws spea$ of years, months, days or nights, it shall be understood that years are of three hundred sixty-five days each% months, of thirty days% days, of twenty-four hours% and nights from sunset to sunrise.

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#f months are designated by their name, they shall be computed by the number of days which they respectively have. #n computing a period, the first day shall be excluded, and the last day included (Article 13). SECTION % ALTERNATIVE OBLIGATIONS DEFINE
ALTERNATITIVE AND FACULTATIVE OBLIGATIONS.

Alternative obligations refer to those 3uridical relations which comprehend several ob3ects or prestations which are due, but the payment or performance of one of them would be sufficient. Eacultative obligations refer to those 3uridical relations where only one ob3ect or prestation has been agreed upon by the parties to the obligation, but the obligor may deliver or render another in substitution. NOTES: 8nder the ,ivil ,ode, there are only three prestations namely, (') to give% (&) to do% and (7) not to do. /trictly spea$ing therefore, when the ,ode spea$s of different prestations, it refers only to these three prestations. >ence, technically spea$ing, a person who is bound to give either a house, a car or a truc$ has only one prestation which is Nto giveO. Gut a person who is obliged to either deliver a house or to paint a picture has two prestations, namely, Nto giveO and Nto doO. #t appears however that the phrase Ndifferent prestationsO in the law refers to both the strict sense and the looses sense of the word NprestationO. DISTINGUISH
ALTERNATIVE FROM FACULTATIVE OBLIGATIONS.

A. A/ "+ +G? ,"/ .8 < #n facultative obligations only one ob3ect is due, whereas in alternative obligations several ob3ects are due% G. A/ "+ ,+;P2#A*, < Eacultative obligations may be complied by the delivery of another ob3ect or performance of another prestation in substitution of that which is due, whereas alternative obligations may be complied with by the delivery of one of the ob3ects or by the performance of one of the prestations which is alternatively due%

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,. A/ "+ "> F#A>" +E ,>+#, < #n the first, the right of choice pertains only to the debtor, whereas in the second, the right of choice may pertain even to the creditor or to a third person% .. A/ "+ EE ," +E E+F"8#"+8/ 2+// - #n the first, the loss or impossibility of the ob3ect or prestation which is due without any fault of the debtor is sufficient to extinguish the obligation, whereas in the second, the loss or impossibility of all the ob3ects or prrestations which are due without the fault of the debtor is necessary to extinguish the obligation% . A/ "+ EE ," ,82PAG2 2+// < #n the first, the culpable loss of the ob3ect which the debtor may deliver in substitution before the substitution is effected does not give rise to any liability on the part of the debtor% in the second, the culpable loss of any of the ob3ects which are alternatively due before the choice is made may give rise to a liability on the part of the debtor. WHAT
IS THE RULE IF THE OBLIGATION IS ALTERNATIVE?

A person alternatively bound by different prestations shall completely perform one of them. "he creditor cannot be compelled to receive part of one and part of the other underta$ing (Article 1199). Partial performance of the different prestations cannot be considered fulfillment of the obligation and therefore cannot be done unless the creditor accepts such partial performance as complete performance. >ence, if the obligor can either give a house and a car or paint two murals for the satisfaction of his obligation, he cannot give the car and one mural. "he obligation will not be satisfied through partial fulfillment of several prestations. IN ALTERNATIVE OBLIGATIONS! WHO HAS THE RIGHT TO CHOOSE OR SELECT THE OB ECT TO BE DELIVERED OR THE PRESTATION TO BE PERFORMED AMONG THOSE WHICH ARE ALTERNATIVELY DUE? #n alternative obligations the right to choose or select belongs to the debtor. EXCEPTIONS: a) :hen the right has been expressly granted to the creditor ( Article 1200)% and

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b) :hen it has been expressly granted to a third person. "he right of choice belongs to the debtor because he is the passive sub3ect in an obligation. >e, not the creditor, is the only obliged to give, to do or not to do. Any doubt as to whom the choice was given must always be interpreted in favor of the debtor. +nly an express grant of choice can a creditor have the right to choose which prestation is to be performed.
IS THE LIMITATION ON DEBTOR,S CHOICE CHOICE HAS BEEN GRANTED TO HIM4?

WHAT

3IF

THE RIGHT OF

"he debtor shall have no right to choose those prestations which are impossible, unlawful or which could not have been the ob3ect of the obligation (Article 1200). WHEN
ARE THE PARTIES BOUND BY THE CHOICE OF SELECTION?

"he choice shall produce no effect except from the time it has been communicated (Article 1201). "hus the parties are bound by the choice or selection from the very moment that it has been communicated by the party who has the right to ma$e it to the other party. WHEN
DOES THE DEBTOR LOSE THE RIGHT OF CHOICE?

"he debtor shall lose the right of choice when among the prestations whereby he is alternatively bound, only one is practicable (Article 1202). *ote that the law uses the word NpracticableO. Practicable means capable of being done, or simply feasible ( 8-e $eA %e9icon Be,sterCs 2ictionar* of t-e @n1lis- %an1ua1e, 19)( @dition, 7a1e ()( ). >owever, prestations that are not Npracticable may also include lawful and possible prestations but, because of some special attendant circumstances which do not necessarily ma$e them unlawful or impossible, they can be done. 0>ence, if the debtor has the following alternatives6 to $iss a highly contagious leper, to sing a song, or not to pay taxes, it is clear that the last alternative is not only impracticable but also unlawful. "he first alternative, although not unlawful and not impossible, is nevertheless practicable. #n this case therefore, the debtor loses his right of choice because only one prestation is practicable which is to sing.1

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IS THE RULE WHEN THE DEBTOR CANNOT CHOOSE BECAUSE OF THE CREDITOR,S ACTS?

WHAT

#f through the creditorIs acts the debtor cannot ma$e a choice according to the terms of the obligation, the latter may rescind the contract with damages (Article 1203). IN OBLIGATIONS WHERE THERE ARE THREE OR MORE OB ECTS WHICH ARE ALTERNATIVELY DUE! IF ONE! OR MORE! OR ALL OF THE OB ECTS ARE LOST OR DESTROYED! WHAT ARE THE EFFECTS OF SUCH LOSS OR
DESTRUCTION UPON THE OBLIGATION AS UPON THE LIABILITY OF THE DEBTOR?

#t depends6
A.

#E

F#A>" +E ,>+#,

G 2+*A/ "+ ">

. G"+F

<

#f the loss is due to a fortuitous event6 a) #f two or more ob3ects remain, the obligation subsists retaining its alternative character% b) #f only one remains, the obligation subsists, but it ceases to be alternative. c) #f none remains, the obligation is extinguished. #n all these cases, the debtor cannot be held liable for damages, applying the provisions of Articles '')=, '&(& and '&((.

#f the loss is due to the fault of the debtor6 a) #f two or more ob3ects remain, the obligation subsists retaining its alternative character. "he debtor in such a case cannot be held liable for damages because he can still comply with his obligation. b) #f only one remains, the obligation subsists, but it ceases to be alternative. "he debtor in such a case cannot be held liable for damages because he can still comply with his obligation. c) #f none remains, the obligation is converted into an obligation to indemnify for damages. "he indemnity shall consist of the last ob3ect to be lost plus or that service which last become impossible, consequential damages (Article 1204). ,onsequential damages are damages other than the value of the last thing or service.

G.

#E

">

F#A>" G 2+*A/ "+ ">

,F .#"+F

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#f the loss is due to a fortuitous event, the effects are the same as where the right belongs to the debtor. #f the loss is due to the fault of the debtor6 a) #f two or more ob3ects remain, the obligation subsists retaining its alternative character. #f the creditor chooses any of those remaining, the debtor cannot be held liable for damages% however, if he chooses any of those which are lost, the debtor is liable for the value of the ob3ect plus damages. b) #f only one remains, the obligation subsists, but it ceases to be alternative. #n other words, it has become a simple obligation to deliver the remaining ob3ect or to indemnify for damages depending upon the discretion of the creditor. #f the latter chooses the ob3ect remaining, the debtor cannot be held liable for damages% however, if he chooses any of those which were lost, the debtor is liable for the value of the ob3ect plus damages. c) #f none remains, the obligation is converted into an obligation to indemnify for damages. "he indemnity shall consist of the price of the ob3ect chosen by the creditor plus consequential damages (Article 120').

NOTES: *ote that the debtor will not be liable in any way for reducing the alternatives from three to two alternatives, provided what remains are lawful, practicable, possible or consistent with the ob3ect of the obligation. 2i$ewise, the debtor will not be liable for converting his alternative obligation to a simple one where there is only one lawful and possible prestation. "he debtor may even cause the loss of one of the things, or render one of the services impossible. Gut when the debtor is responsible for losing or rendering impossible all his alternative prestations, the creditor is entitled to damages. IN

FACULTATIVE OBLIGATIONS! IF THE SUBSTITUTE IS LOST OR DESTROYED THROUGH THE FAULT OF THE DEBTOR! IS HE LIABLE FOR DAMAGES?

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#f the loss or destruction too$ place AE" F the substitution has been made, undoubtedly, the debtor is liable for damages for the reason that once the substitution is effected by the debtor by duly notifying the creditor of such fact, the obligation is converted into a simple one with the substitute as the ob3ect of the obligation. #f the loss or destruction too$ place G E+F the substitution could be effected, it is believed that the debtor cannot be held liable. #t does not affect the principal obligation and hence the debtor will not be liable. SECTION 1 SOLIDARY OBLIGATIONS

OINT AND

DEFINE OINT AND SOLIDARY OBLIGATIONS.

:hen there is concurrence of two or more creditors or of two or more debtors in one and the same obligation, such obligation may either be 3oint (o,li1acion anco unada) or solidary (obligacion solidaria). A ?+#*" +G2#AA"#+* is an obligation where there is a concurrence of several creditors, or several debtors, or of several creditors and debtors, by virtue of which each of the creditors has a right to demand, while each of the debtors is bound to render, compliance with his PF+P+F"#+*A" part of the prestation. A /+2#.AFH +G2#AA"#+* is an obligation where there is a concurrence of several creditors, or of several debtors, or of several creditors and debtors, by virtue of which each of the creditors has a right to demand, while each of the debtors is bound to render the *"#F compliance with the prestation which constitutes the ob3ect of the obligation.
THERE IS A CONCURRENCE OF SEVERAL CREDITORS! OR OF SEVERAL DEBTORS! OR OF SEVERAL CREDITORS AND DEBTORS IN ONE AND THE SAME OBLIGATION WHAT IS THE NATURE OF THE OBLIGATION IS IT OINT OR SOLIDARY?

WHERE

As a general rule, the obligation is ?+#*". Article '&9) provides that6 "he concurrence of two or more creditors or of two or more debtors in one and the same obligation does not imply that each one of the former has a right to demand, or that each one of the latter is bound to render, entire compliance with the prestation.

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WHAT

ARE THE CONSEQUENCES OF A OINT OBLIGATION?

#f from the law, or the nature or the wording of the obligations to which the preceding article refers the contrary does not appear < a) "he credit or debt shall be presumed to be divided into as many shares as there are creditors or debtors, b) "he credits or debts being considered distinct from one another, sub3ect to the Fules of ,ourt governing the multiplicity of suits (Article 120)). WHEN
IS AN OBLIGATION SOLIDARY?

"here is a solidary liability only6 '. :hen the obligation expressly so states% or &. :hen the law requires solidarity% or 7. :hen the nature of the obligation requires solidarity (Article 120(). WHAT
ARE SOLIDARITY? THE OBLIGATIONS WHERE THE LAW REQUIRES

'. #f two or more heirs ta$e possession of the estate, they shall be solidarily liable for the loss or destruction of a thing devised or bequeathed, even though only one of them should have been negligent (Article 92(). &. All partners are liable solidarily with the partnership for everything chargeable to the partnership under articles 'D&& and 'D&7 (Article 1)24). 7. ven when the agent has exceeded his authority, the principal is solidarily liable with the agent if the former allowed the latter to act as though he had full powers (Article 1911). =. #f two or more persons have appointed an agent for a common transaction or underta$ing, they shall be solidarily liable to the agent for all the consequences of the agency (Article 191'). @. :hen there are two or more bailees to whom a thing is loaned in the same contract, they are liable solidarily (194'). (. "he responsibility of two or more officious managers shall be solidary, unless the management was assumed to save the thing or business from imminent danger (Article 2146, par. 2). ). "he responsibility of two or more payees, when there has been payment of what is not due, is solidary (Article 21'(). D. "he responsibility of two or more persons who are liable for quasi-delict is solidary (Article 2194).

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C. /everal and subsidiary liability of principals, accomplices and accessories of a felony. WHAT
ARE THE DIFFERENT KINDS OF SOLIDARITY?

'. A,"#B (among the creditors) < A tie or vinculum among several creditors of one and the same obligation by virtue of which each of them, in relation to his co-creditors, possesses the character of creditor only with respect to his share in the obligation, but in relation to the common debtor or debtors, represents all of the other creditors. "he most fundamental effect of active solidarity is the creation of a relationship of mutual agency among the solidary creditors by virtue of which each creditor is empowered to exercise against the debtor or debtors not only the rights which corresponds to him, but also all the rights which correspond to the other creditors, with the consequent obligation to render an account of his acts to such creditors. &. PA//#B (among the debtors) < A ties of vinculum among several debtors of one and the same obligation by virtue of which each of the, in relation the common creditor or creditors, represents all of the other debtors, and in relation to his co-debtors, possesses the character of debtor only with respect to his share in the obligation. >ere, each solidary debtor, insofar as the creditor or creditors are concerned, is the debtor of the entire amount% however, with respect to his co-debtors, he is the debtor only to the extent of his share of the obligation. >ence, the most fundamental effect of solidarity among the debtors is the liability of each debtor for the payment of the entire obligation, with the consequent right to demand reimbursement from the others for their corresponding shares once payment has been made. 7. ;ixed (among the creditors and the debtors at the same time). WHAT '.
ARE THE CHARACTERISTICS OF OINT DIVISIBLE OBLIGATIONS?

ach creditor can demand only for the payment of his proportionate share of the credit, while each of the debtor can be held liable only for the payment of his proportionate share of the debt (Articles 120(3 120)). &. A 3oint creditor cannot act in representation of the other creditors, while a 3oint debtor cannot be compelled to answer for the acts or liability of the other debtors.

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7. "he demand for the fulfillment made by the creditor upon one of the debtors does not place the other debtors in default. =. "he interruption of the prescriptive period with respect to one debtor does not affect the rights of others. @. "he defense of one debtor is not a valid defense of the others. WHAT
IS AN INDIVISIBLE OINT OBLIGATION?

#t is an obligation in which the ob3ect is indivisible but the tie between the parties is 3oint who are merely proportionately liable. "he indivisibility of an obligation does not necessarily give rise to solidarity. *or does solidarity of itself imply indivisibility (Article 1210). STATE THE RULES IN AN INDIVISIBLE OINT OBLIGATION. '. "he right of the creditors may be pre3udiced only by their collective acts, &. "he debt can be enforced only by proceeding against all the debtors (demand must be made on all of them), 7. #f one of the latter should be insolvent, the others shall not be liable for his share (Article 1209). =. #f there be 3oint creditors, delivery must be made to all, unless one is specifically authori4ed by the others. @. ach 3oint creditor is allowed to renounce his proportionate credit. WHAT
#*.#B#/#G2 ARE THE CHARACTERISTICS WHICH DISTINGUISH OBLIGATION FROM A OINT .#B#/#G2 OBLIGATION? A OINT

Although in a 3oint indivisible obligation, the creditor cannot act in representation of the others and the debtor cannot be compelled to answer for the acts or liability of the others because of its 3oint character, yet, a 3oint #*.#B#/#G2 obligation is distinguishable from a 3oint .#B#/#G2 obligation because of the presence of the following characteristics6 '. #f there are two or more debtors, compliance with the obligation requires the concurrence of all of them, although each for his own share. ,onsequently, the obligation can be enforced only be proceeding against all of the debtors (Article 1209). &. #f there are two or more creditors, the concurrence of all of them, although each for his own share, is also necessary for the enforcement of the obligation. "his is because the obligation is 3oint, and therefore, a creditor cannot act in representation of the others, and it is also indivisible, and therefore, not susceptible of partial fulfillment.

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IN A OINT INDIVISIBLE OBLIGATION! WHAT IS THE EFFECT IF ANYONE OF THE DEBTORS SHOULD FAIL TO COMPLY WITH HIS UNDERTAKING? #f anyone of the debtors in a 3oint indivisible obligation should fail to comply with underta$ing, the obligation is converted into one of indemnity for damages. >owever, the debtors who may have been ready to comply with what is incumbent upon him shall not contribute to the indemnity beyond the corresponding portion of the price of the thing or the value of the service in which the obligation consists. +n the other hand, the debtor who failed or refused to comply with his underta$ing shall pay not only his share of such or value, but also al of the damages suffered by the creditor or creditors as a result of the non-fulfillment of the obligation (Article 1224). DISTINGUISH
BETWEEN SOLIDARITY AND INDIVISIBILITY.

'. A/ "+ *A"8F < /olidarity refers to the legal tie or vinculum, and consequently, to the parties of the obligation, whereas indivisibility refers to the prestation which constitutes the ob3ect of the obligation. &. A/ "+ F K8#/#" / < Plurality of sub3ects is indispensable in solidarity, whereas it is not required in indivisibility. 7. A/ "+ EE ," +E GF A,> < #n solidarity, when the obligation is converted into one of indemnity for damages because of breach, the solidary character of the obligation remains, whereas in indivisibility, the indivisible character of the obligation is terminated. CAN SOLIDARITY EXIST ALTHOUGH THE CREDITORS AND DEBTORS MAY NOT BE BOUND IN THE SAME MANNER AND BY THE SAME PERIODS AND CONDITIONS? /olidarity may exist although the creditors and the debtors may not be bound in the same manner and by the same periods and conditions (Article 1211). WHAT a)
ARE THE RULES IN SOLIDARY OBLIGATIONS?

ach one of the solidary creditors may do whatever may be useful to the others, but not anything which may be pre3udicial to the latter (Article 1212). b) A solidary creditor cannot assign his rights without the consent of the others (Article 1213). IN
SOLIDARY OBLIGATIONS! TO WHOM MUST THE DEBTOR PAY?

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"he debtor may pay any one of the solidary creditors% but if any demand, 3udicial or extra3udicial, has been made by one of them, payment should be made to him (Article 1214). WHAT IS THE EFFECT OF NOVATION! COMPENSATION! CONFUSION OR REMISSION OF DEBT MADE BY A SOLIDARY CREDITOR? *ovation, compensation, confusion or remission of the debt, made by any of the solidary creditors or with any of the solidary debtors, shall extinguish the obligation, without pre3udice to the provisions of Article '&'C. "he creditor who may have executed any of these acts, as well as he who collects the debt, shall be liable to the others for the share in the obligation corresponding to them (Article 121'). IN
SOLIDARY PROCEED? OBLIGATION! AGAINST WHOM MAY THE CREDITOR

"he creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. "he demand made against one of them shall not be an obstacle to those which may subsequently be directed against the others, so long as the debt has not been fully collected (Article 1216). WHAT
IS THE EFFECT OF PAYMENT MADE BY ONE OF THE SOLIDARY DEBTORS?

Payment made by one of the solidary debtors extinguishes the obligation. #f two or more solidary debtors offer to pay, the creditor may choose which offer to accept (Article 121(). WHAT
IS THE RIGHT OF THE SOLIDARY DEBTOR WHO PAID?

>e who made the payment may claim from his co-debtors only the share which corresponds to each, with the interest for the payment already made. #f the payment is made before the debt is due, no interest for the intervening period may be demanded ( Article 121(, par. 2).
THE RULE IF ONE OF THE SOLIDARY DEBTORS CANNOT PAY HIS SHARE TO THE DEBTOR WHO PAID.

STATE

:hen one of the solidary debtors cannot, because of his insolvency, reimburse his share to the debtor paying the obligation,

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such share shall be borne by all his co-debtors, in proportion to the debt of each (Article 121(, par. 3). HOWEVER: Payment by a solidary debtor shall not entitle him to reimbursement from his co-debtors if such payment is made after the obligation has prescribed or become illegal (Article 121)). WHAT IS THE EFFECT OF REMISSION OF A SOLIDARY OBLIGATION EFFECTED BY A SOLIDARY CREDITOR 314 UPON THE OBLIGATION ITSELF! 3"4 UPON THE RELATIONSHIP OF THE CREDITORS THEMSELVES! AND 3%4 UPON THE RELATIONSHIP OF THE DEBTORS THEMSELVES? '. 8P+* "> +G2#AA"#+* < #f the remission is total, the entire obligation is extinguished% if it is partial, the obligation is extinguished in that part or aspect to which the remission refers (Article 121'). &. 8P+* "> /+2#.AFH ,F .#"+F < "he solidary creditor responsible for the remission shall be liable to the other solidary creditors for the shares in the obligation corresponding to them (I,id). 7. 8P+* "> /+2#.AFH . G"+F/ < As far as the solidary debtors are concerned, the effects of remission may be summari4ed as follows6 a. "he remission made by the creditor of the share which affects one of the solidary debtors does not release the latter from his responsibility towards the co-debtors, in case the debt had been totally paid by anyone of them before the remission was effected (Article 1219). b. "he remission of the whole obligation, obtained by one of the solidary debtor, does not entitle him to reimbursement from his co-debtors (Article 1220). WHAT
IS THE EFFECT OF THE LOSS OF THE THING DUE?

#f the thing has been lost or if the prestation has become impossible without the fault of the solidary debtors, the obligation shall be extinguished. #f there was fault on the part of any one of them, all shall be responsible to the creditor, for the price and the payment of damages and interest, without pre3udice to their action against the guilty or negligent debtor

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#f through a fortuitous event, the thing is lost or the performance has become impossible after one of the solidary debtors has incurred in delay through the 3udicial or extra3udicial demand upon him by the creditor, the provisions of the preceding paragraph shall apply ( Article 1221).
ARE THE DEFENSES WHICH ARE AVAILABLE TO A SOLIDARY DEBTOR IF THE CREDITOR PROCEEDS AGAINST HIM ALONE FOR THE PAYMENT OF THE ENTIRE OBLIGATION?

WHAT

A solidary debtor may, in actions filed by the creditor, avail himself of all defenses which are derived from the nature of the obligation and of those which are personal to him, or pertain to his own share. :ith respect to those which personally belong to the others, he may avail himself thereof only as regards that part of the debt for which the latter are responsible (Article 1222). SECTION / AND INDIVISIBLE OBLIGATIONS

DIVISIBLE DEFINE

DIVISIBLE AND INDIVISIBLE OBLIGATIONS.

.ivisible obligations are those which have as their ob3ect a prestation which is susceptible of partial performance without the essence of the obligation being changed. #ndivisible obligations are those which have as their ob3ect a prestation which is not susceptible of partial performance, because otherwise the essence of the obligation will be changed. WHEN
IS A THING DIVISBLE OR INDIVISIBLE?

A thing is divisible when, if separated into parts, its essence is not changed or its value is not decreased disproportionately, because each of the parts into which it is divided are homogeneous and analogous to each other as well as to the thing itself. A thing is indivisible when, if separated into parts, its essence is changed or its value is decreased disproportionately. DISTINGUISH
BETWEEN INDIVISIBILITY FROM SOLIDARITY.

/+2#.AF#"H #*.#B#/#G#2#"H '. Fefers to the tie between the '. Fefers to the nature of the parties. obligation.

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&. *eeds at least two debtors or &. ;ay exist even if there is only creditors. one debtor and only one creditor. 7. "he fault of one is the fault of 7. "he fault if one is not the fault the bothers. of the others. GIVE
AND DEFINE THE DIFFERENT KINDS OF DIVISION.

"he division of a thing may be6

K8A*"#"A"#B < when the thing can be materially divided into parts and such parts are homogeneous to each other, such as when the parts are separated from each other as in the case of movables, or when the limits of the parts are fixed by metes and bounds as in the case of movables. "his depends on quantity. G. K8A2#"A"#B < when the thing can be materially divided, but the parts are not homogenous to each other, such as in the partition of an inheritance. "his depends on quality, irrespective of quantity. ,. #. A2 +F #*" 2 ,"8A2 +F ;+FA2 < when the thing can only be separated into ideal or undivided parts, not material parts, as in the case of ownership. "his exists only in the mind and not in physical reality. GIVE
THE DIFFERENT KINDS OR CLASSES OF INDIVISIBLITY.

#ndivisibility may be6

,+*B *"#+*A2 - #ndivisible by common agreement% *A"8FA2 +F AG/+28" < indivisible by the nature of the ob3ect of underta$ing% and ,. 2 AA2 < indivisible as provided by law. DISTINGUISH
DIVISIBILITY OF OBLIGATION. BETWEEN THE DIVISIBILITY OF AN OBLIGATION AND THE THE THING WHICH CONSTITUTES THE OB ECT OF THE

"he divisibility of an obligation refers to the P FE+F;A*, of the prestation which constitutes the ob3ect of the obligation, whereas the divisibility of the thing which constitutes the ob3ect if the obligation refers to the PF /"A"#+* itself. IF THE THING WHICH CONSTITUTES THE OB ECT OF THE OBLIGATION TO GIVE IS DIVISIBLE! DOES IT NECESSARILY FOLLOW THAT THE OBLIGATION IS ALSO DIVISIBLE? SUPPOSE THAT THE THING IS INDIVISIBLE! DOES IT NECESSARILY FOLLOW THAT THE OBLIGATION TO GIVE IS ALSO INDIVISIBLE?

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#f the thing which constitutes the ob3ect of an obligation to give is by its nature divisible, the general rule is that the obligation is also divisible since it is evidently susceptible of partial compliance. "his rule is sub3ect to the following exceptions6 a. "hat the obligation is indivisible by express provision of law% and b. "hat it is indivisible by intention of the parties ( Article 122'). #f the thing which constitutes the ob3ect of the obligation to give is by its very nature indivisible, the obligation is also indivisible since it is evident that it is not susceptible of partial compliance. "his rule is absolute in character. "he nature and effect of obligations are very much different from and do not affect the divisibility or indivisibility of the things that are the ob3ect of obligations in which there is only one debtor and only one creditor (Article 1223). WHAT
IS A OINT INDIVISIBLE OBLIGATION?

#t is an obligation where the ob3ect or prestation is indivisible but the parties are bound 3ointly. xample6 A and G are 3ointly bound to give a specific car to ,. WHAT IS THE EFFECT OF NON-COMPLIANCE OF A OBLIGATION?
OINT INDIVISIBLE

A 3oint indivisible obligation gives rise to indemnity for damages from the time anyone of the debtors does not comply with his underta$ing. "he debtors who may have been ready to fulfill their promises shall not contribute to the indemnity beyond the corresponding portion of the price of the thing or of the value of the service in which the obligation consists (Article 1224). WHAT OBLIGATIONS ARE DEEMED INDIVISIBLE? a. +bligations to give definite things% b. "hose which are not susceptible of partial performance (Article 122', par. 14% c. "hose so provided by law% d. "hose things which, though physically divisible, are intended by the parties to be indivisible ( Article 122', par. 3).

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WHAT

OBLIGATIONS ARE DEEMED DIVISIBLE?

:hen the obligation has for its ob3ect6 a. "he execution of a certain number of days of wor$% b. "he accomplishment of wor$ by metrical units% c. Analogous things which by their nature are susceptible of partial performance (Article 122', par. 2)% d. :hen the purpose of the obligation is to pay a certain amount in installment. IN OBLIGATIONS NOT TO DO! INDIVISIBILITY THEREOF DETERMINED?
HOW IS THE DIVISIBILITY OR

#n obligations not to do, divisibility or indivisibility shall be determined by the character of the prestation in each particular case (Article 122', par. 4). WHAT CONTRACT?
IS THE EFFECT OF ILLEGALITY OF THE TERMS OF A DIVISIBLE

#n case of a divisible contract, if the illegal terms can be separated from the legal ones, the latter may be enforced ( Article 1420). SECTION 7 OBLIGATIONS WITH A PENAL CLAUSE DEFINE
OBLIGATIONS WITH A PENAL CLAUSE.

An obligation with a penal clause is one with an accessory underta$ing by virtue of which the obligor assumes a greater liability in case of breach of the obligation. WHAT
IS MEANT BY PENAL CLAUSE OR PENALTY?

A penal clause is an accessory obligation attached to a principal obligation by virtue of which the obligor is bound to pay a stipulated indemnity or to perform an agreed prestation for the purpose of insuring the performance of the principal obligation. #t is a coercive means to obtain from the debtor compliance of the obligation. IN OBLIGATIONS WITH A PENAL CLAUSE! WHEN SHALL THE PENALTY BE CONSIDERED AS A SUBSTITUTE FOR DAMAGES OR INTERESTS? WHAT ARE THE EXCEPTIONS?

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As a general rule, in obligations with a penal clause, the penalty shall substitute the indemnity for damages and the payment of interests in case of noncompliance (Article 1226, par. 1). #n such a case, proof of actual damages suffered by the creditor is not necessary in order that the penalty may be demanded (Article 122)). "here are three L, P"#+*/ to the rule that a penalty clause shall not be a substitute for the payment of interest and damages6 '. #f there is no stipulation to the contrary% &. :hen the obligor is sued for refusal to pay the agreed penalty% and 7. :hen the obligor is guilty of fraud in the fulfillment of the obligation (Article 1226, par. 1). #n all of these cases, it is evident that the purpose of the penalty is to punish the obligor. ,onsequently, the obligee can recover from him not only the penalty, but also the damages resulting from the breach of the principal obligation. MAY ANY PENALTY BE DEMANDABLE? *o. "he penalty may be enforced only when it is demandable in accordance with the provisions of the ,ivil ,ode ( Article 1226, par. 2), and one which states that the penalty may be reduced if it is iniquitous or unconscionable (Article 1229). WHAT
ARE THE PURPOSES OF A PENAL CLAUSE IN AN OBLIGATION?

A penal clause has three purposes6 a. Funcion coercitiva o de 1arantia > to insure the performance of the obligation% b. Funcion li:uidatoria > to liquidate the amount of damages to be awarded to the in3ured party in case of breach of the principal obligation% and c. Funcion estricta ente penal < in certain exceptional cases, to punish the obligor in case of breach of the principal obligation. "he second is compensatory, while the third is punitive in character% the first, on the other hand, is the general purpose regardless of whether the penalty is compensatory or punitive. WHAT
ARE THE DIFFERENT KINDS OF PENALTIES?

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Penalty may be classified as follows6

A/

"+ +F#A#*6

a) 2egal < when it is constituted by law. b) ,onventional < when it is constituted by agreement of the parties.
G.

A/

"+ P8FP+/

a) ,ompensatory < when it is established for the purpose of indemnifying the damages suffered by the obligee or creditor in case of breach of the obligation. b) Punitive < when it is established for the purpose of punishing the obligor or debtor in case of breach of the obligation.
,.

A/

"+

EE ,"6

a) /ubsidiary < when only the penalty may be demanded in case of breach of the obligation. b) ?oint < when the in3ured party may demand the enforcement of both the penalty and the principal obligation. IS THERE ANY DIFFERENCE BETWEEN THE PENALTY IN OBLIGATIONS WITH A PENAL CLAUSE AND LIQUIDATED DAMAGES? As a general rule, there is none. #n other words, the penalty in its compensatory aspect is exactly the same as the liquidated damages defined in Article &&&( of the ,ivil ,ode. #n both cases, proof of actual damages suffered by the creditor is unnecessary. >owever, the penalty in its punitive aspect is different from liquidated damages. "hus, when there is a stipulation that the creditor can recover damages in addition to the penalty, or when the debtor is sued for refusal to pay the penalty, or when the debtor is guilty of fraud, it is clear that in such cases the creditor can recover not only the agreed penalty but also damages suffered by him. #mposition of the liquidated damages for breach of contract, such as in a building contract, bars any award for additional damages at large for the same breach ($avarro vs. Mallari, 4' 7-il. 242). CAN THE DEBTOR SUBSTITUTE THE PENALTY FOR THE PRINCIPAL OBLIGATION?

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*o. "he debtor cannot exempt himself from the performance of the obligation by paying the penalty. >e can only do so if the right has been expressly reserved for him (Article 122(4. "his is so because the payment of the penalty is merely an accessory obligation. #t is not the principal obligation. CAN THE CREDITOR DEMAND BOTH FULFILLMENT AND THE PENALTY AT THE SAME TIME? *o. "he creditor cannot demand the fulfillment of the obligation and the satisfaction of the penalty at the same time. >e can only do so if the right has been clearly granted him. >owever, if after the creditor has decided to require the fulfillment of the obligation, the performance thereof should become impossible without his fault, the penalty may be enforced (Article 122(). WHAT ARE THE DIFFERENT CASES UNDER THE CIVIL CODE WHERE COURTS MAY REDUCE THE PENALTY WHICH IS ATTACHED TO AN OBLIGATION? A contract is a source of obligation. #t is the law between the parties, hence, neither the law nor the courts will extricate a party from an unwise or undesirable contract he or she entered into with all the required formalities and with full awareness of its consequences. +ne exception to this rule, however is the matter of penalties. ,ourts may reduce the penalty attached to an obligation6 '. :hen the principal obligation has been partly complied with by the debtor. &. :hen the principal obligation has been irregularly complied with by the debtor. 7. :hen the penalty is iniquitous or unconscionable, even if there has been no performance (Article 1229). A penalty clause is construed against the one enforcing it. #f it is so unconscionable that its enforcement, in effect, constitutes an undue deprivation or confiscation of the property of the obligor, the courts can stri$e it down as an invalid one.
ARE THE RULES IN CASE THE PRINCIPAL OBLIGATION OR THE PENAL CLAUSE IS VOID?

WHAT

'. "he nullity of the penal clause does not carry with it that of the principal obligation.

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&. "he nullity of the principal obligation carries with it that of the penal clause (Article 1230). "he penal clause, being merely an accessory obligation, does not invalidate the principal obligation in the event that such penalty clause is void or without effect. Geing merely accessory to enforce the main obligation, such penal clause could never exist if the main obligation does not exist. >ence, the nullity of the principal obligation carries with it that of the penal clause. SUMMARY
ON RULES IN OBLIGATIONS WITH A PENAL CLAUSE:

'. "he penalty shall substitute the indemnity for damages and the payment of interests in case of noncompliance ( Article 1226, par. 1), L, P" if there is no stipulation to the contrary% when the obligor is sued for refusal to pay the agreed penalty% and when the obligor is guilty of fraud in the fulfillment of the obligation (Article 1226, par. 1). &. "he debtor cannot exempt himself from the performance of the obligation by paying the penalty, save in the case where this right has been expressly reserved for him. *either can the creditor demand the fulfillment of the obligation and the satisfaction of the penalty at the same time, unless this right has been clearly granted him. >owever, if after the creditor has decided to require the fulfillment of the obligation, the performance thereof should become impossible without his fault, the penalty may be enforced (Article 122(). 7. Proof of actual damages suffered by the creditor is not necessary in order that the penalty may be demanded (Article 122)). CHAPTER 1 EXTINGUISHMENT OF OBLIGATIONS GENERAL PROVISIONS WHAT
ARE THE DIFFERENT MODES OF EXTINGUISHING OBLIGATIONS?

+bligations are extinguished6 (') (&) (7) (=) (@) (() Gy Gy Gy Gy Gy Gy payment or performance% the loss of the thing due% the condonation or remission of the debt% the confusion or merger of the rights of creditor and debtor% compensation% novation.

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+ther causes of extinguishment of obligations, such as annulment, rescission, fulfillment of a resolutory condition, and prescription, are governed elsewhere in this ,ode (Article 1231).
ARE THE CAUSES OF EXTINGUISHMENT CLASSIFIED ACCORDING TO THE CIVIL CODE?

HOW

OF

OBLIGATIONS

+F.#*AF#2H a) b) c) $) e) f)

GH6

Payment of performance 2oss of the thing due ,ondonation or remission of the debt or waiver ,onfusion or merger of the rights of creditor and debtor ,ompensation *ovation (Article 1231) +">
F ,A8/ / #*

AF"#,2 '&7'

G8" A+B F* . GH +"> F ,>AP" F/6

a) b) c) $)

Annulment Fescission Eulfillment of resolutory condition Prescription /"#22

a) b) c) $) e) f) #)

.eath of a party in case the obligation is personal Fesolutory term ,hange in civil status ,ompromises ;utual dissent #mpossibility of fulfillment Eortuitous event SECTION 1 PAYMENT OR PERFORMANCE DEFINE
PAYMENT.

Payment is a mode of extinguishing obligations which consists not only the delivery of money but also the performance, in any other manner, of an obligation (Article 1232). P
A THIRD PERSON PAYS AN OBLIGATION! WHAT ARE THE RIGHTS WHICH ARE AVAILABLE TO HIM?

IF

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#f a third person pays the obligation with the $nowledge and consent of the debtor, there are two rights which are available to him6 a. >e can recover from the debtor the entire amount which he has paid (Article 1236, par. 2)% b. >e is subrogated to all of the rights of the creditor ( Article 1302, $o. 2). >owever, if the payment is made without the $nowledge or against the will of the debtor, there is only one right which is available to him6 a. >e can recover only insofar as the payment has been beneficial to the said debtor (Article 1236, par. 2). WHAT
ARE THE REQUISITES FOR A VALID PAYMENT?

A debt shall not be understood to have been paid unless the thing or service in which the obligation consists has been completely delivered or rendered, as the case may be (Article 1233). WHAT IS THE EFFECT OF SUBSTANTIAL PERFORMANCE IN GOOD FAITH? #f the obligation has been substantially performed in good faith, the obligor may recover as though there had been a strict and complete fulfillment, less damages suffered by the obligee ( Article 1234).
IS THE EFFECT IF THE OBLIGEE ACCEPTS KNOWING ITS INCOMPLETENESS OR IRREGULARITY?

WHAT

PERFORMANCE

:hen the obligee accepts the performance, $nowing its incompleteness or irregularity, and without expressing any protest or ob3ection, the obligation is deemed fully complied with (Article 123'). "here is waiver and estoppel here. IF THERE IS DEFAULT IN THE PERFORMANCE OF ONE,S OBLIGATION! WHAT IS THE EFFECT OF THE ACCEPTANCE OF DELAYED PAYMENT? Fescission is impliedly waived. Eailure to exercise the right of rescission after the debtor defaulted constitutes a waiver of such right. "he continued acceptance of payments after the default places the debtor in estoppel.

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A THIRD PERSON COMPEL THE CREDITOR TO ACCEPT PAYMENT OR PERFORMANCE OF AN OBLIGATION?

MAY

*o, as a general rule because there is no privity of contract between the third person and a party to a contract. "his rule is, however sub3ect to the following exceptions6 a. :hen it is made by a third person who has an interest in the fulfillment of the obligation ( Article 1236). "hus, a guarantor or a co-debtor can compel the creditor to accept payment or performance, since in this case, the payor is not a stranger to the obligation. b. :hen there is a stipulation to the contrary ( Article 1236). #n this case, the creditor waives his right to refuse to deal with strangers to the obligation.
IS THE EFFECT IF A THIRD PERSON PAYS ON BEHALF OF THE DEBTOR WITHOUT HIS KNOWLEDGE OR AGAINST HIS CONSENT?

WHAT

:hoever pays on behalf of the debtor without the $nowledge or against the will of the latter, cannot compel the creditor to subrogate him in his rights, such as those arising from a mortgage, guaranty, or penalty (Article 123(). WHAT
IS SUBROGATION?

/ubrogation means the act of putting somebody into the shoes of the creditor, hence, enabling the former to exercise all the rights and actions that could have been exercised by the latter. /ubrogation transfers to the person subrogated the credit with all the rights thereto appertaining, either against the debtor or against third persons, be they guarantors or possessors of mortgages, sub3ect to stipulation in a conventional subrogation (Article 1303). HOW
IS SUBROGATION DISTINGUISHED FORM REIMBURSEMENT?

a) #n subrogation, recourse can be had to the mortgage or guaranty or pledge% in reimbursement, there is no such recourse. b) #n subrogation, the debt is extinguished in one sense, but a new creditor, with exactly the same rights as the old one, appears on the scene. #n reimbursement, the new creditor has different rights, so it is as if there has been an extinguishment of the obligation.

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c) #n subrogation, there is something more than a personal action for recovery% in reimbursement, there is only a personal action to recover to the amount. *ote however, that in both reimbursement and subrogation, there can be recovery of what the stranger has paid (Article 1236). WHEN
IS PAYMENT BY A STRANGER DEEMED A DONATION?

Payment made by a third person who does not intend to be reimbursed by the debtor is deemed to be a donation, which requires the debtorIs consent. Gut the payment is in any case valid as to the creditor who has accepted it (Article 123)). WHAT PERSON?
IS THE EFFECT OF PAYMENT MADE BY AN INCAPACITATED

#n obligations to give, payment made by one who does not have the free disposal of the thing due and capacity to alienate it shall not be valid, without pre3udice to the provisions of article '=&) under the "itle on Q*atural +bligationsQ (Article 1239)% thus6 #f a person has no capacity to give6 a) Payment is not valid if accepted% b) ,reditor cannot be compelled to accept it% c) "he remedy of consignation is not proper. xception as provided for in Article '=&)6 :hen a minor below eighteen and twenty-one years of age, who has entered into a contract without the consent of the parents or guardian voluntarily pays a sum of money or delivers a fungible thing in fulfillment of the obligation, there shall be no right to recover the same from the obligee who has spent or consumed it in good faith. TO
WHOM MUST PAYMENT BE MADE?

Payment shall be made, as a general rule, to6 a) "he person in whose favor the obligation has been constituted, or b) >is successor in interest, or c) Any person authori4ed to receive it (Article 1240).

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IS THE EFFECT IF PAYMENT IS MADE TO A PERSON OTHER THAN THOSE ENUMERATED IN ARTICLE 1"1.?

WHAT

"he payment shall not be valid% except6 a) Payment made to a third person provided that it has redounded to the benefit of the creditor% b) Payment made to the possessor of the credit provided that it was made in good faith (Articles 1241, par. 2, and 1242).
IS THE EFFECT OF PAYMENT MADE TO INCAPACITATED TO MANAGE OR ADMINISTER HIS PROPERTY?

WHAT

PERSON

Payment to a person who is incapacitated to administer his property shall be valid only6 a) #f he has $ept the thing delivered, or b) #nsofar as the payment has been beneficial to him ( Article 1241, par. 1).
IS THE EFFECT OF PAYMENT MADE TO AN UNAUTHORI8ED THIRD PERSON?

WHAT

Payment made to a third person shall be valid insofar as it has redounded to the benefit of the creditor (Article 1241, par 2). MUST THE BENEFIT TO THE CREDITOR BE PROVEN? /uch benefit to the creditor need not be proved in the following cases6 (') #f after the payment, the third person acquires the creditorIs rights% (&) #f the creditor ratifies the payment to the third person% (7) #f by the creditorIs conduct, the debtor has been led to believe that the third person had authority to receive the payment ( Article 1241).
IS THE EFFECT OF PAYMENT MADE TO THE CREDITOR BY THE DEBTOR AFTER THE LATTER HAS BEEN UDICIALLY ORDERED TO RETAIN THE DEBT?

WHAT

Payment made to the creditor by the debtor after the latter has been 3udicially ordered to retain the debt shall not be valid ( Article 1243). "he 3udicial order in this case may have been prompted by an order of attachment, in3unction or garnishment

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CAN A DEBTOR OF A THING COMPEL THE CREDITOR TO RECEIVE A DIFFERENT ONE? "he debtor of a thing cannot compel the creditor to receive a different one, although the latter may be of the same value as, or more valuable than that which is due (Article 1244, par. 1). #n obligations to do or not to do, an act or forbearance cannot be substituted by another act or forbearance against the obligeeIs will (Article 1244, par 2).
WHAT CIRCUMSTANCES MAY A DEBTOR COMPEL THE CREDITOR TO ACCEPT A THING DIFFERRENT FROM THAT WHICH WAS AGREED UPON?

UNDER

a) :hen the obligation is a facultative obligation. >ere, one prestation has been agreed upon% but the obligor may render another in substitution of the same (Article 1206). b) :hen there is another contract entered into between the parties resulting in dacion en pa1o or novation% c) :hen there is a waiver made by the creditor as when he accepted a thing other than what was agreed upon. "his constitutes estoppel. WHAT
IS DATION IN PAYMENT?

.ation in payment, whereby property is alienated to the creditor in satisfaction of a debt in money, shall be governed by the law of sales (Article 124') #t is a mode of extinguishing an obligation whereby the debtor alienates in favor of the creditor, property for the satisfaction of monetary debt. WHAT
ARE THE REQUISITES FOR A VALID DATION IN PAYMENT?

a) ,onsent of the creditor (for sales presupposes consent of both parties) b) #t must not be pre3udicial to the other creditor% c) "he debtor must not have been declared insolvent by 3udicial decree.
MUST BE DELIVERED IN OBLIGATIONS TO GIVE INDETERMINATE OR GENERIC THINGS?

WHAT

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:hen the obligation consists in the delivery of an indeterminate or generic thing, whose quality and circumstances have not been stated, the creditor cannot demand a thing of superior quality. *either can the debtor deliver a thing of inferior quality. "he purpose of the obligation and other circumstances shall be ta$en into consideration (Article 1246). WHO PAYS FOR THE EXTRA UDICIAL EXPENSES REQUIRED BY THE PAYMENT? "he extra3udicial expenses required by the payment shall be for the account of the debtor. :ith regard to 3udicial costs, the Fules of ,ourt shall govern. xception6 :hen there is stipulation to the contrary ( Article 124(). MAY A CREDITOR BE COMPELLED TO PRESTATIONS CONSTITUTING THE OBLIGATION?
PARTIALLY RCEIVE THE

"he creditor cannot be compelled partially to receive the prestations in which the obligation consists. *either may the debtor be required to ma$e partial payments (Article 124)).
L, P"#+*/6

a) :hen there is stipulation to this effect% b) :hen the different prestations are sub3ect to different conditions or different terms% c) :hen the debt is in part liquidated and in part unliquidated, performance of the liquidated part may be insisted upon either by the debtor or creditor% d) :hen a 3oint debtor pays his share or the creditor demands the same% e) :hen a solidary debtor pays only the part demandable because the rest are not yet demandable on account of their being sub3ect to different terms and conditions% f) #n case of compensation, when one debt is larger than the other, it follows that a balance is left% g) :hen wor$ is to be done by parts. WHAT
IS MEANT BY LEGAL TENDER?

2egal tender, within the meaning of Article '&=C, refers to such currency which may be used for the payment of all debts, whether public or private.

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#t is that which a debtor may compel a creditor to accept in payment of the debt whether private or public. IN MADE?
MONETARY OBLIGATIONS! IN WHAT CURRENCY SHALL PAYMENT BE

"he payment of debts in money shall be made in the currency stipulated, and if it is not possible to deliver such currency, then in the currency which is legal tender in the Philippines (Article 1249). "his has been modified by FA @&C which provides that obligations incurred after ?une '(, 'C@9, which are for the purpose of payment a foreign currency or an amount of Philippine money to be measured by gold or foreign currency, shall be null, void and of no effect. >owever, in such a case, only the stipulation with respect to the currency is void. "he creditor can still demand payment in Philippine legal tender measured at the exchange rate prevailing not at the time of payment, but at the time of contracting or incurring the dent. FA @&C has in turn been amended by FA ='99, which too$ effect on ?une 'C(= which provides that in import-export and other international ban$ing, financial investment and industrial transactions, the parties5 agreement a to currency in which an obligation will be paid is binding. CAN A MONETARY OBLIGATION BE PAID WITH PROMISSORY NOTES PAYABLE TO ORDER! OR BILLS OF EXCHANGE! OR OTHER MERCANTILE DOCUMENTS? As a general rule, no, except6 a) :hen they have been cashed or, b) :hen through the fault of the creditor they have been impaired, as when the chec$ its lost its value. c) :hen the creditor is in estoppel or he had previously promised he would accept a chec$. #n the meantime, the action derived from the original obligation shall be held in abeyance (Article 1249, par. 2). A chec$, even a manager5s chec$, is not a legal tender, therefore the creditor cannot be compelled to accept payment through this means.

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CASE AN EXTRAORDINARY INFLATION OR DEFLATION OF THE PHILIPPINE CURRENCY SHOULD SUPERVENE! WHAT VALUE WILL BE THE BASIS OF PAYMENT?

IN

#n case an extraordinary inflation or deflation of the currency stipulated should supervene, the value of the currency at the time of the establishment of the obligation shall be the basis of payment, unless there is an agreement to the contrary (Article 12'0). *ote that this article has no more application today. "he article spea$s of the inflation or deflation of the currency stipulated, meaning the currency other than Philippine legal tender as allowed by Article '&=C. Gut since today, no foreign currency can be stipulated under FA @&C, it follows that literally construed, Article '&@9 cannot be made used of for the present. Gy analogy or extension, it may be possible to include the extraordinary inflation or deflation of the Philippine currency. WHERE F82
/6 MUST PAYMENT BE MADE?

a) Payment shall be made in the place designated in the obligation. b) "here being no express stipulation and if the underta$ing is to deliver a determinate thing, the payment shall be made wherever the thing might be at the moment the obligation was constituted. c) #n any other case the place of payment shall be the domicile of the debtor. d) #f the debtor changes his domicile in bad faith or after he has incurred in delay, the additional expenses shall be borne by him. e) "hese provisions are without pre3udice to venue under the Fules of ,ourt (Article 12'1). SUBSECTION 1 A))*9:';9<= <> P'?(+=;@ SPECIAL FORMS OF PAYMENT?

WHAT

ARE THE

a. Application (or NimputationO) of payment (Article 12'2) b. 2ation in payment (Nad3udication en pagoO or datio in solutum) (Article 124') c. Assignment in favor of creditors (NcessionO) 5Article 12''4 d. "ender of payment or consignation (Articles 12'6&1261) DEFINE
APPLICATION OF PAYMENT.

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Application of payment is the designation of the debt to which the payment must be applied when the debtor has several obligation of the same $ind in favor of the same creditor. #t is the phrase applied to show which debt, out of two or more debts owing the same creditor, is being paid. WHAT a. b. c. d. e.
ARE THE REQUISITES OF APPLICATION OF PAYMENT?

"here must be two or more debts% "here must only one debtor and only one creditor% "here must be two or more debts of the same $ind% All of the debts must be due% and "he amount paid by the debtor must not be sufficient to cover the total amount of all the debts.
OF

WHAT ARE THE EXCEPTIONS TO THE RULE THAT IN APPLICATION PAYMENT! THER MUST BE ONLY ONE DEBTOR AND ONLY ONE CREDITOR?

"he case of a solidary debtor who may have obligations other than the solidary obligation in favor of the creditor to whom payment is made is sometimes given as an exception. Although there is no question that such a debtor can designate the debt to which the payment must be applied, yet, this doe not constitute an exception because of the principle of mutual agency existing among the solidary debtors. A real exception is the one given in Article ')C&. 8nder this article, if a debtor is indebted to a partnership and also to the managing partner at the same time and both debts are already demandable, such debtor, if he pays, may apply the payment to his debt to the managing partner, provided that such debt is more onerous to him. >ere, actually there are two creditors since the personality of the partnership is separate and distinct from that of the partners. TO WHOM DOES THE RIGHT TO MAKE AN APPLICATION OF PAYMENT BELONG? As a general rule, the right to ma$e an application of payment belongs to the debtor. (/imilar to a case where the obligation is sub3ect to an alternative obligation or prestation, the choice as to which debt the payment is to be applied is given to the debtor. Eor this purpose, the debtor must ma$e a declaration as to which debt should the payment be applied.) >owever, if he does not avail himself of this right, the creditor may wrest the initiative from him by giving to him a receipt designating the debt to which the payment shall be applied.

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Gut even this does not really constitute an exception, because the debtor may either accept or re3ect the application (Article 12'2). "he rule on application of payment by the debtor must conform to the general rules on payment provided for from Articles '&7& up to '&@'. "hus if the debtor ma$es a declaration as to the particular debt (from among a number of debts) to which his payment is to be applied, the creditor can validly refuse such declaration or application if the payment is to be applied to a debt which will only partially pay the particular indebtedness. "his is so because according to Article '&77, payment must, as a general rule, be always completely delivered or rendered, and, according to Article '&=D, the creditor cannot be compelled partially to receive the prestation in which the obligation consists. "he debtor must apply the payment to an indebtedness which, through such application, shall be completely extinguished. IF
THE DEBTS ARE NOT YET DUE! MAY THERE BE APPLICATION OF PAYMENT?

Hes, but only6 a. #f the parties so stipulate, or b. :hen the application of payment is made by the party (which may either be the debtor or the creditor) for whose benefit the term has been constituted (Article 12'2). H<A 9@ '))*9:';9<= ('B+? a. "he debtor ma$es the designation (Article 12'2, par. 1) b. #f not, the creditor ma$es it, by so stating in the receipt that he issues (Article 12'1, par. 2) c. #f neither the debtor nor the creditor has made the application, or if the application is not valid, then application is made by operation of law (Articles 12'3, 12'4) WHAT IS THE RULE IF THE DEBTOR ACCEPTS FROM THE CREDITOR A RECEIPT IN WHICH AN APPLICATION OF PAYMENT IS MADE? "he law provides that if the debtor accepts from the creditor a receipt in which an application of payment is made, the former cannot complain of the same, unless there is a cause for invalidating the contract (Article 12'2, par. 2). #t must be noted that the debtor must not only merely receive the receipt but he must accept the receipt. "hus, if A is indebted to G for P', 999, P&, 999 and PC99, and A pays G P@99 without mentioning

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as to which debt the P@99 will be applied and if G is agreeable to any partial payment, and issues a receipt indicating that the P@99 shall be applied to the P', 999 debt, and A readily accepts the said receipt, A cannot later complain that the P@99 should have been applied to the P&, 999 debt unless there exists a cause to invalidate the contract in connection with the indebtedness in the amount of P', 999. "his is based on the doctrine of estoppel. >owever, if the indebtedness has been obtained through fraud or intimidation which is a cause to annul the contract, the debtor is not estopped from questioning the application. ONCE
AN APPLICATION OF PAYMENTS IS MADE! MAY IT BE REVOKED?

*o, unless both parties agree. ven if both parties agree, however, still the revocation or change in the application will not be allowed if third persons would be pre3udiced. WHAT
IS THE RULE OF THE DEBT PRODUCES INTEREST?

#f the debt produces interest, payment of the principal shall not be deemed to have been made until the interests have been covered (Article 12'3). "his article is merely directory, and not mandatory. Although interest attaches to the principal, the payment of both principal and interest, in effect, constitutes two payment by the debtor. #n fact according to the law, the receipt of the principal by the creditor without reservation with respect to the interest, shall give rise to the presumption that the interest has been paid (Article 11(6).
IS MEANT BY LEGAL APPLICATION OF PAYMENT? 3WHAT IS THE RULE IF THE PAYMENT CANNOT BE APPLIED IN ACCORDANCE WITH THE PRECEDING RULES! OR IF APPLICATION CAN NOT BE INFERRED FROM OTHER CIRCUMSTANCES?4

WHAT

a. "he debt which is most onerous to the debtor, among those due, shall be deemed to have been satisfied. b. #f the debts due are of the same nature and burden, the payment shall be applied to all of them proportionately (Article 12'4). EXAMPLES: a. :here there are various debts which are due and they were incurred at different dates, the oldest are more onerous. b. :hen one bears interest and the other does not, the former is more onerous.

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c. :here one is secured and the other is not, the former is more onerous. d. :here the debtor is bound as principal in one and as guarantor or surety in another, the former is more onerous. e. :here the debtor is bound as a solidary debtor in one and as the sole debtor in another, the former is more onerous. SUBSECTION " P'?(+=; C? C+@@9<= BY CESSION?

WHAT

IS PAYMENT

,ession or assignment may be defined as a special form of payment whereby the debtor abandons all of his property for the benefit of his creditors in order that from the proceeds thereof the latter may obtain payment of their creditors. Article '&@@ provides6 "he debtor may cede or assign his property to his creditors in payment of his debts. "his cession, unless there is stipulation to the contrary, shall only release the debtor from responsibility for the net proceeds of the thing assigned. "he agreements which, on the effect of the cession, are made between the debtor and his creditors shall be governed by special laws. WHAT
ARE ITS REQUSITES?

#n order that the debtor can avail himself of this form of payment, it is essential that6 a. "here must be plurality of debts% b. "here must be more than one creditor% c. "here must be complete or partial or relative insolvency of the debtor% d. "here is abandonment of all debtor5s property not exempt from execution (unless exemption is validly waived by the debtor) in favor of creditors% and e. #t must be accepted by the creditor. WHAT
ARE THE DIFFERENT KINDS OF PAYMENT BY CESSION?

Payment by cession may either be contractual (voluntary) or 3udicial. "he cession referred to in Article '&@@ is contractual, while the cession which is regulated by the #nsolvency 2aw, and which may be voluntary or involuntary, is 3udicial.

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WHAT

ARE THE EFFECTS OF VOLUNTARY ASSIGNMENT?

'. "he creditors do not become the owners% they are merely assignees with authority to sell (#f ownership is transferred, this becomes a datio in solutu ). &. "he debtor is released up to the amount of the net proceeds of the sale, unless there is a stipulation to the contrary (Article 12'', 2nd sentence). "he balance remains collectible. 7. ,reditors will collect credits in the order of preference agreed upon, or in default of agreement, in the order ordinarily established by law. DISTINGUISH CESSION.
BETWEEN DATION IN PAYMENT AND PAYMENT BY

'. As to nu ,er of parties6 :hereas in dacion en pa1o there may be only one creditor, in payment by cession plurality of creditor is essential% &. As to financial condition6 :hereas in dacion en pa1o the debtor is not necessarily in a state of financial difficulty, in payment by cession the debtor is in a state of partial or relative insolvency. 7. As to o,=ect6 :hereas in dacion en pa1o what is delivered by the debtor is merely a thing to be considered as the equivalent of the performance of the obligation, in payment by cession what is ceded by the debtor is the universality of all his property. =. As to effect6 :hereas in dacion en pa1o the payment extinguishes the obligation to the extent of the value of the thing delivered either as agreed upon or as may be proved, unless the silence of the parties signifies that they consider the delivery of the thing as the equivalent of the performance of the obligation, in payment by cession the effect is merely to release the debtor for the net proceeds of the things ceded or assigned, unless there is a contrary intention. OTHER
DISTINCTIONS:

DACION EN PAGO .oes not affect all the properties

.oes not require plurality creditors +nly specific or concerned Fequires the consent if all the creditor5s consent is required creditors ;ay ta$e place during the Fequires full or partial insolvency

CESSION #n general, affects all the properties of the debtor of Fequires more than one creditor

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solvency of the debtor "ransfers ownership upon delivery "his is really an act of novation

.oes not transfer ownership *ot an act of novation

SUBSECTION % T+=B+D <> P'?(+=; '=B C<=@9E=';9<= DEFINE

"ender of payment consists in the manifestation made by the debtor to the creditor of his decision to comply immediately with his obligation. #t is the act of offering the creditor what is due him together with a demand that the creditor accept the same. ,onsignation, on the other hand, refers to the deposit of the ob3ect of the obligation in a competent court in accordance with the rules prescribed by law after refusal or inability of the creditor to accept the tender of payment. #t generally requires a prior tender of payment. DISTINGUISH
BETWEEN TENDER OF PAYMENT AND CONSIGNATION.

'. "ender of payment is the antecedent of consignation% in other words, while the first is the preparatory act, the second is the principal act which will produce the effects of payment. "he priority of tender of payment is the attempt to ma$e a private settlement before proceeding to the solemnities of consignation. &. "ender of payment is by its very nature extra3udicial in character, while consignation is 3udicial. STATE THE RATIONALE FOR CONSIGNATION. "he rationale for consignation is to avoid the performance of an obligation becoming more onerous to the debtor by reason of causes imputable to him. P WHAT
ARE THE SPECIAL REQUISITES OF CONSIGNATION?

#n order that consignation shall produce the effects of payment, it is not only essential that it must conform with all of the requisites of payment, but it is also essential that certain special requirements prescribed by law must be complied with. "he debtor must show6 '. "hat the debt is due% &. "hat there must be prior tender, unless tender is excused% 7. "he consignation has been made either because the creditor to whom tender of payment was made refused to accept the payment without 3ust cause, or because any of the causes

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stated by law for effective consignation without previous tender of payment exists (Article 12'6)% =. "hat previous notice of the consignation had been given to the persons interested in the fulfillment of the obligation ( Article 12'6)% @. "hat the thing or amount due had been placed at the disposal of 3udicial authority (Article 12'), par. 1) accompanied by proof that tender had been duly made, unless tender is excused% (. "hat after the consignation had been made, the persons interested in the fulfillment of the obligation had been notified thereof (Article 12'), par. 2). WHAT
IS THE EFFECT OF TENDER WITHOUT CONSIGNATION?

"ender of payment without consignation does not extinguish the debt% consignation must follow. WHAT ARE THE EXCEPTIONS TO THE RULE THAT BEFORE CONSIGNATION SHALL PRODUCE THE EFFECTS OF PAYMENT! IT IS ESSENTIAL THAT THERE MUST BE A PREVIOUS TENDER OF PAYMENT? ,onsignation alone shall produce the same effect in the following cases6 (') :hen the creditor is absent or un$nown, or does not appear at the place of payment% (&) :hen he is incapacitated to receive the payment at the time it is due% (7) :hen, without 3ust cause, he refuses to give a receipt% (=) :hen two or more persons claim the same right to collect% (@) :hen the title of the obligation has been lost (Article 12'6).
MUST THE SPECIAL REQUISTES OF A VALID AND EFFECTIVE CONSIGNATION BE PROVED?

WHEN

8nder the law, after the consignation has been made, it is required that the debtor shall notify the creditor and all of the persons interested in the fulfillment of the obligation of such fact ( Article 12')). #t is at this stage that three possible situations may arise6 '. "he creditor may accept the ting or amount deposited. #n such a case, the question of payment is settled altogether. "he question as to whether the consignation is valid or not becomes moot. &. "he creditor may refuse to accept the thing or amount deposited. #n such as case, the debtor shall then bring an action against him in order to compel him to accept said thing or amount. #n order

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that such action shall prosper, all of the requisites of a valid and effective consignation must be proved. 7. "he creditor may neither accept nor impugn the consignation because he is not interested, or he is not $nown, or he is absent. #n such a case, the debtor shall then file a motion in court as$ing for the cancellation of the obligation ( Article 1260). #n order that such motion shall be granted, all of the requisites of a valid and effective consignation must be proved. WHO
BEARS THE EXPENSES OF CONSIGNATION?

"he expenses of consignation, when properly made, shall be charged against the creditor (Article 12'9). WHAT
ARE THE EFFECTS OF CONSIGNATION DULY MADE?

'. +nce the consignation has been duly made, the debtor may as$ the 3udge to order the cancellation of the obligation (Article 1260). &. "he running of interest is suspended. WHEN
MAY THE DEBTOR WITHDRAW THE THING OR SUM CONSIGNED?

As a matter of right6 Gefore the creditor has accepted the consignation, or before a 3udicial declaration that the consignation has been properly made, the debtor may withdraw the thing or the sum deposited, allowing the obligation to remain in force (Article 1260). As a matter of privilege6 #f, the consignation having been made, the creditor should authori4e the debtor to withdraw the same, he shall lose every preference which he may have over the thing. "he co-debtors, guarantors and sureties shall be released (Article 1261). SECTION " L<@@ <> ;F+ TF9=E DG+ DEFINE
LOSS OF THE THING DUE.

#n its strict sense, Nloss of the thing dueO means that the thing which constitutes the ob3ect of the obligation perishes or goes out of commerce of man, or disappears in such a way that its existence is un$nown or it cannot be recovered (Article 11)9, par. 2).

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#n its broad sense, it means impossibility of compliance with the obligation through any cause. #n other words, it is synonymous with what other codes term Nimpossibility of performance.O "his is the sense in which it is understood in Articles '&(& to '&(C. "he courts shall determine whether, under the circumstances, the partial loss of the ob3ect of the obligation is so important as to extinguish the obligation (Article 1264).
REQUISITES MUST CONCUR IN ORDER THAT AN OBLIGATION SHALL BE EXTINGUISHED BY THE LOSS OR DESTRUCTION OF THE THING DUE?

WHAT

a) "he thing which is lost is determinate% b) "he thing is lost without any fault of the debtor. #f the thing is lost through the fault of the debtor, the obligation is transformed into an obligation to indemnify the oblige or creditor for damages% c) "he thing is lost before the debtor has incurred in delay ( Article 1262). WHAT
ARE THE EXCEPTIONS TO THE RULE ABOVE?

'. :hen by law, the obligor is liable for fortuitous events, (Article 1262, par. 2). &. :hen by stipulation, the obligor is liable for fortuitous events, (Article 1262, par. 2). 7. :hen the nature of the obligation requires the assumption of ris$ (Article 1262, par. 2 0 11(4). =. :hen the loss of the thing is due to the fault of the debtor (Article 1262, par.1) @. :hen the loss of the thing occurs after the debtor has incurred in delay (Article 1262, par. 1 0 Article 116', par. 3). (. :hen the debtor promised to deliver the same thing to two or more persons who do not have the same interest ( Article 116', par. 3). ). :hen the obligation is generic (Article 1263)% except when the generic thing is delimited, or when the generic thing has already been segregated or set aside.. D. :hen the debt of a certain and determinate thing proceeds from a criminal offense, unless the thing having been offered by him to the person who should receive it, the latter refused without 3ustification to accept it. (Article 126)).

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IS THE PRESUMPTION POSSESSION OF THE DEBTOR?

WHAT

IF

THE

THING

IS

LOST

IN

THE

:henever the thing is lost in the possession of the debtor, it shall be presumed that the loss was due to his fault, unless there is proof to the contrary, and without pre3udice to the provisions of article ''(@. "his presumption does not apply in case of earthqua$e, flood, storm or other natural calamity (Article 126'). IN OBLIGATIONS TO DO! WHAT IS THE EFFECT IF THE PRESTATION WHICH CONSTITUTES THE OB ECT OF THE OBLIGATION BECOMES LEGALLY OR PHYSICALLY IMPOSSIBLE? "he debtor in obligations to do shall also be released when the prestation becomes legally or physically impossible without the fault of the obligor (Article 1266)% provided that such impossibility was not due to his fault and that it too$ place before he has incurred in delay. CAN
THE SAME RULE BE APPLIED TO OBLIGATIONS NOT TO DO?

#n rare or exceptional cases, the same rule applies to obligations not to do, such as when the obligor is compelled to do that which he had obligated himself to refrain from performing or doing. #n such cases, his obligation is extinguished applying the same principle invo$ed in Article '&((. WHAT IS THE EFFECT PARTIES, CONTEMPLATION?
OF DIFFICULTY OF THE SERVICE BEYOND THE

:hen the service has become so difficult as to be manifestly beyond the contemplation of the parties, the obligor may also be released therefrom, in whole or in part (Article 126(). WHAT IS THE RIGHT OF THE CREDITOR WHEN THE OBLIGATION HAS BEEN EXTINGUISHED BECAUSE OF THE LOSS OF THE THING? "he obligation having been extinguished by the loss of the thing, the creditor shall have all the rights of action which the debtor may have against third persons by reason of the loss (Article 1269). SECTION % C<=B<=';9<= <D R+(9@@9<= <> ;F+ D+C; DEFINE
CONDONATION OR REMISSION.

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Femission is an act of liberality by virtue of which the oblige, without receiving any price or equivalent, renounces the enforcement of the obligation, as a result of which it is extinguished in its entirety or in that part or aspect of the same to which the remission refers. #t is the gratuitous abandonment by the creditor of his right. WHAT REQUISITES MUST CONCUR IN ORDER THAT AN OBLIGATION SHALL BE EXTINGUISHED BY REMISSION? #n order that there will be a remission or condonation which will result in the total or partial extinguishment of the obligation, it is essential that the following requisites must concur6 a) "he condonation or remission must be essentially gratuitous% b) "here must be acceptance by the obligor. #t may be made expressly or impliedly% and c) "he obligation must be demandable. WHAT
RULES GOVERN REMISSION AND CONDONATION?

+ne and the other $ind shall be sub3ect to the rules which govern inofficious donations. xpress condonation shall, furthermore, comply with the forms of donation. (Article '&)9) WHAT
ARE THE DIFFERENT KINDS OF REMISSION?

Femission or condonation may be classified as follows6 '. A/ "+ E+F; < #t may be express or implied. #t is express when it is made in accordance with the formalities prescribed by law for donations. #t is implied when, although it is not made in accordance with the formality prescribed by law for donations, it can be deduced from the acts of the obligee or creditor. &. A/ "+ L" *" < #t may be total or partial. #t is total when the entire obligation is extinguished. #t is partial when it refers to the principal or accessory obligation or to an aspect thereof which affects the debtor, as for instance solidarity. 7. A/ "+ ,+*/"#"8"#+* < #t may be inter vivos or ortis causa. "he first refers to that which is constituted by agreement of the obligee and the obligor, in which case it parta$es of a donation inter vivos (/ee Article )&@, et. se:.)% the second, on the other hand, refers to that which is constituted of the nature of a donation ortis causa (/ee Articles C7@, C7( and C7)). WHAT
ARE EXAMPLES OF IMPLIED REMISSION?

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'. "he 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. #f in order to nullify this waiver it should be claimed to be inofficious, the debtor and his heirs may uphold it by proving that the delivery of the document was made in virtue of payment of the debt. (Article '&)') &. :henever the private document in which the debt appears is found in the possession of the debtor, it shall be presumed that the creditor delivered it voluntarily, unless the contrary is proved. (Article '&)&) 7. #t is presumed that the accessory obligation of pledge has been remitted when the thing pledged, after its delivery to the creditor, is found in the possession of the debtor, or of a third person who owns the thing. (Article '&)=) WHAT
IS THE EFFECT OF RENUNCIATION OF THE PRINCIPAL DEBT?

"he renunciation of the principal debt shall extinguish the accessory obligations% but the waiver of the latter shall leave the former in force. (Article '&)7) SECTION 1 C<=>G@9<= <D M+DE+D <> R9EF;@ CONFUSION.

DEFINE

,onfusion may be defined as the merger of the characters of creditor and debtor in the same person by virtue of which the obligation is extinguished (Article '&)@). #t is the meeting in the same person of the qualities of creditor and debtor with respect to one and the same obligation.
REQUISITES MUST CONCUR IN ORDER THAT AN OBLIGATION SHALL BE EXTINGUISHED BY CONFUSION?

WHAT

#n order that there will be a confusion of rights which will result in the extinguishment of the obligation, it is essential that the following requisites must concur6 '. "he merger of the characters of creditor and debtor must be in the same person (Article '&)@)%

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&. #t must be placed in the person of either the principal creditor or the principal debtor (Article '&)()% and 7. #t must be complete or definite. "he requisite that the merger of rights of creditor and debtor must be complete and definite does not mean that the extinguishment of the obligation should be complete or total in character% it merely means that whether the merger refers to the entire obligation or only a part thereof, it must be of such a character that there will be a complete and definite meeting of all the qualities of creditor and debtor in the obligation or in the part or aspect thereof which is affected by the merger. WHAT IS THE EFFECT OF MERGER IN THE PRINCIPAL DEBTOR OR CREDITOR? WHAT IS THE EFFECT OF CONFUSION IN THE PERSON OF THE GUARANTORS? ;erger which ta$es place in the person of the principal debtor or creditor benefits the guarantors. ,onfusion which ta$es place in the person of any of the latter does not extinguish the obligation. (Article '&)() WHAT
IS THE EFFECT OF CONFUSION IN A OINT OBLIGATION?

,onfusion does not extinguish a 3oint obligation except as regards the share corresponding to the creditor or debtor in whom the two characters concur. (Article '&))) SECTION / C<()+=@';9<= COMPENSATION.

DEFINE

,ompensation is a mode of extinguishing in their concurrent amount those obligations of persons who in their own right are creditors and debtors of each other. #t is a figurative operation of weighing two obligations simultaneously in order to extinguish them to the extent in which the amount of one is covered by the amount of the other. WHAT REQUISITES MUST CONCUR IN ORDER THAT AN OBLIGATION SHALK BE EXTINGUISHED BY COMPENSATION? "he essential requisites of compensation are6 '. "here must be & parties who, in their own right, are principal creditors and principal debtors of each other (Articles '&)D, '&)C, *o. ')%

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&. Goth debts must consist in money, or if the things due are fungibles (consumables), they must be of the same $ind and quality (Article '&)C, *o. &)% 7. Goth debts must be due (Article '&)C, *o. 7)% =. Goth debts must be liquidated and demandable (Article '&)C, *o. =)% @. "here must be no retention or controversy commenced by third persons over either of the debts and communicated in due time to the debtor (Article '&)C, *o. @)% (. "he compensation must not be prohibited by law (Articles '&D), '&DD). GIVE
EXAMPLES OF COMPENSATION PROHIBITED BY LAW.

"he compensation of the following are prohibited6 '. .ebts arising from a depositu (except ban$ deposits, which are by law considered as loans to the ban$) (Articles '&D), 'CD9). &. .ebts arising from the obligation of a depositar* (Article '&D)) 7. .ebts arising from the obligations of a ,ailee in co odatu (Article '&D)). =. .ebts arising from a claim for future support due by gratuitous title (Article '&D)). @. .ebts consisting in civil liability from a penal offense (Article '&DD). (. .amages suffered by a partnership thru the fault of a partner cannot be compensated with profits and benefits which he may have earned for the partnership by his industry (Article ')C=). WHAT
ARE THE DIFFERENT KINDS OF COMPENSATION?

,ompensation may be classified into6 A/ "+ ,A8/ 6 '. 2 AA2 < when it ta$es effect by operation of law from the moment all of the requisites prescribed by law are present. "his is the fixed type which is regulated by Articles '&)D and '&)C. &. B+28*"AFH < when the parties who are mutually creditors and debtors agree to compensate their respective obligations, even though all of the requisites for compensation may not then be present. 7. ?8.#,#A2 < when it ta$es effect by 3udicial decree. "his occurs, for instance, where one of the parties to a suit over an obligation

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has a claim for damages against the other and the former sets it off by proving his right to said damages and the amount thereof (Article '&D7). A/
"+ EE ,"6

'. "+"A2 < when the debts to be compensated are equal in amount (Article '&D')% &. PAF"#A2 < when the debts to be compensated are not equal in amount (ibid). HOW IS COMPENSATION DISTINGUISHED FROM PAYMENT! CONFUSION AND COUNTERCLAIM? ,ompensation may be distinguished from payment in the following ways6 '. "he requisites prescribed by law for compensation are different from those prescribed by law for payment, &. ,ompensation ta$es effect by operation of law, whereas payment ta$es effect by act of the parties. 7. ,apacity to give and acquire is not necessary in compensation, but it is essential in payment. =. ,ompensation is, as a rule, partial, whereas payment is, as a rule, complete and indivisible. ,ompensation may be distinguished form confusion in the following ways6 '. As to number of persons, in compensation there must be two persons who, in their own right, are creditors and debtors of each other% whereas in confusion there is only one person in whom is merged the qualities of creditor and debtor. &. As to number of obligations, in compensation there must be at least &% whereas in confusion there is only one. ,ompensation may be distinguished from set-off or counterclaim in the following ways6 '. ,ompensation requires that the & debts must consist in money, or if the things due are fungibles, they must be of the same $ind and quality% but in counter-claim this is not necessary. &. ,ompensation, as a general rule, requires that the debts must be liquidated, but counter-claim does not. 7. ,ompensation need not be pleaded, whereas a counter-claim must be pleaded to be effectual.

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MAY

A GUARANTOR SET UP COMPENSATION WITH RESPECT TO PRINCIPAL DEBT?

*otwithstanding the provisions of the preceding article, the guarantor may set up compensation as regards what the creditor may owe the principal debtor (Article '&D9). "his is an exception to Article '&)C, par. ', because a guarantor is subsidiarily liable, nor principally bound. WHEN
IS THERE CONVENTIONAL OR VOLUNTARY CO()+=@';9<=?

:hen the parties may agree upon the compensation of debts which are not yet due (Article '&D&). >ere the requisites mentioned in Article '&)C do not apply. WHEN
IS THERE UDICIAL COMPENSATION OR SET-OFF?

#f one of the parties to a suit over an obligation has a claim for damages against the other, the former may set it off by proving his right to said damages and the amount thereof. (Article '&D7) Pleading and proof of the counter-claim must be made. All the requisites mentioned in Article '&)C must be present except that at the time of pleading, the claim need not yet be liquidated. "he liquidation (or fixing of the proper sum) must be made in the proceedings.
THERE BE COMPENSATION RESCISSIBLE OR ANNULABLE?

MAY

IF

ONE

OR

BOTH

DEBTS

ARE

:hen one or both debts are rescissible or voidable, they may be compensated against each other before they are 3udicially rescinded or avoided (Article '&D=). "his is so because these debts are valid until rescinded or voided, hence compensation is allowed. WHAT
IS THE EFFECT OF ASSIGNMENT ON COMPENSATION OF DEBTS?

'. "he debtor who has consented to the assignment of rights made by a creditor in favor of a third person, cannot set up against the assignee the compensation which would pertain to him against the assignor, unless the assignor was notified by the debtor at the time he gave his consent, that he reserved his right to the compensation.

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&. #f the creditor communicated the cession to him but the debtor did not consent thereto, the latter may set up the compensation of debts previous to the cession, but not of subsequent ones. 7. #f the assignment is made without the $nowledge of the debtor, he may set up the compensation of all credits prior to the same and also later ones until he had $nowledge of the assignment. (Article '&D@) WHEN
IS THERE COMPENSATION BY OPERATION OF LAW?

,ompensation ta$es place by operation of law, even though the debts may be payable at different places, but there shall be an indemnity for expenses of exchange or transportation to the place of payment. (Article '&D() "his ta$es place when all the requisites mentioned in article '&)C are present, compensation ta$es effect by operation of law, and extinguishes both debts to the concurrent amount, even though the creditors and debtors are not aware of the compensation. (Article '&C9) WHAT RULE SHOULD BE APPLIED IF A PERSON SHOULD HAVE AGAINST HIM SEVERAL DEBTS WHICH ARE SUSCEPTIBLE OF COMPENSATION? #f a person should have against him several debts which are susceptible of compensation, the rules on the application of payments shall apply to the order of the compensation. (Article '&DC) SECTION 7 N<H';9<= DEFINE
NOVATION.

*ovation is the substitution or change of an obligation by another, resulting in its extinguishment or modification, either by6 '. ,hanging its ob3ect or principal conditions, or &. Gy substituting another in place of the debtor, or 7. Gy subrogating a third person in the rights of the creditor (Article '&C'). #t is one of the modes of extinguishing obligations through the creation of a new one effected by the change or substitution of an obligatory relation by another with the intention of substantially extinguishing or modifying the same.

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WHAT

ARE THE KINDS OF NOVATION?

*ovation may be classified into6 '. A/

< it may be6

a) +b3ective or real < when it refers to the change either in the cause, ob3ect of principal conditions of the obligation (Article '&C', *o. ')% b) /ub3ective or personal < when the substitution of another in the person of the debtor or to the subrogation of a third person in the rights of the creditor (Article '&C', *os. & and 7). -inds6 a. Passive < when there is substitution of the debtor. b. Active < when there is subrogation in the rights of the creditor. c. ;ixed < when there is combination of ob3ective and sub3ective novation. &. A/
"+ #"/ E+F;

< it may be6

a)

xpress < when it is declared in unequivocal terms that the obligation is extinguished by a new one which substitutes the same. b) "acit < when the old and the new obligations are incompatible with each other on every point (Article '&C&). 7. A/ "+ #"/ L" *" +F EE ," < it may be total or partial, depending upon whether there is an absolute extinguishment of the old obligation or merely a modification. WHAT REQUISITES MUST CONCUR IN ORDER THAT AN OBLIGATIN SHALL BE EXTINGUISHED OR MODIFIED BY NOVATION? #n order that an obligation may be extinguished by another which substitute the same, there are four requisites6 a. A previous valid obligation% b. Agreement of the parties to the new obligation% c. xtinguishment of the old obligation% and d. Balidity of the new obligation (8iu +iuco vs. Da,ana, 4' 7-il. (0().

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CAN AN OBLIGATION BE IMPLIEDLY EXTINGUISHED BY ANOTHER WHICH SUBSITUTE THE SAME?

WHEN

#n order that an obligation may be extinguished by another which substitutes the same, it is imperative that it be so declared in unequivocal terms, or that the old and the new obligations be on every point incompatible with each other. (Article '&C&) "he test of incompatibility between the old and the new obligations is to determine whether or not both of them can stand together, each having its own independent existence. #f they can stand together, there is no incompatibility% consequently, there is no novation. #f they cannot stand together, there is incompatibility% consequently, there is novation (Eor=a vs. Mariano, 66 7-il. 933 "uerrero vs. Court of Appeals, 29 +C#A (913 Millar vs. Court of appeals, 3) +C#A 642). SUPPOSE THAT IN A SECOND AND NEW CONTRACT! THE DEBTOR ACKNOWLEDGES OR RATIFIES THE OLD CONTRACT! IS THERE NOVATION? "here is no novation. #t is clear that the first contract and the second contract can stand together% and consequently, there can be no incompatibility between them ( #a os vs. "i,,on, 6( 7-il. 3(13 7adilla vs. %ev* Der anos, Inc., 69 7-il. 6)13 7a,lo vs. +apun1an, (1 7-il. 14'3 Ma1dalena @state, Inc. vs. #odri1ue6, 1) +C#A 96(3 Millar vs. Court of Appeals, supra). SUPPOSE THAT IN THE SECOND AND NEW CONTRACT! THERE IS A POSTPONEMENT OF THE DATE OF PAYMENT OR AN EXTENSION OF THE PERIOD OF PAYMENT! IS THERE A NOVATION? "here is no novation because in such cases there is no clear case of incompatibility between the & obligations% neither is there a change in the obligatory relation between the parties which will alter the essence of the old obligation (Fnc-austi 0 Co., vs. Fulo, 34 7-il. 9()3 7ascual vs. %acsa ana, 100 7-il. 3)13 %a 8onden a, Inc. vs. Alto +uret* 0 Insurance Co., 101 7-il. )(9).
THAT IN A SECOND AND NEW CONTRACT! THERE IS ANOTHER METHOD OF PAYMENT AGREED UPON! OR THERE IS AN ADDITIONAL SECURITY! IS THERE A NOVATION?

SUPPOSE

"here is no novation. #t is clear that the two contracts can stand together% and consequently, there can be no incompatibility between them (Gapanta vs. 2e #otaec-e, 21 7-il. 1'43 Ean< of t-e 7.I. vs. Derrid1e, 4( 7-il. '(3 Millar vs. Court of Appeals, supra).

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SUPPOSE THAT IN A SECOND AND NEW CONTRACT! A SURETY BOND IS FILED! OR A THIRD PERSON ASSUMES PAYMENT OF THE OBLIGATION AND THE CREDITOR ACCEPTS PARTIAL PAYMENTS FORM SUCH THIRD PERSON! IS THERE A NOVATION? "here is no novation so long as there is no agreement that the first debtor shall be released from responsibility. "his is so even when a surety bond is filed, for the simple reason that such bond is not a new and separate contract but merely an accessory of the original contract. #n such a case, the third person who has assumed payment of the obligation merely becomes a co-debtor or surety. #f there is no agreement as to solidarity, the first and second debtors are considered obligated 3ointly (2un1o vs. %opena, 6 +C#A 100(3 Ma1dalena @state, Inc. vs. #odri1ue6, supra).
ARE THE " FORMS OF NOVATION BY SUBSTITUTION OF THE PERSON OF THE DEBTOR? DEFINE THEM AND GIVE THEIR ESSENTIAL REQUISITES.

WHAT

"here are & forms of novation by substitution6 a. @9pro ision < #f the substitution of debtors is effected with the consent of the creditor at the instance of the new debtor even without the $nowledge or against the will of the debtor. "here are two $inds of substitution by e9pro ision6 a) /ubstitution with the $nowledge and consent of the old debtor% and b) /ubstitution without the $nowledge or against the will of the old debtor. b. 2ele1acion < #f the substitution of debtors is effected with the consent of the creditor at the instance of the old debtor with the concurrence of the new debtor. #n other words, dele1acion refers to the substitution of debtors effected when the original debtors offers and the creditor accepts a third person who consents to the substitution. F
K8#/#" / +E @H7#!MI+I!$6

a. "he initiative for the substitution must emanate from the new debtor% and b. "here must be consent of the creditor to the substitution. F K8#/#" / +E 2@%@"ACI!$6

Page '97 of '() *otes on Prescription, +bligations and ,ontracts -.P. .ela /erna

a) "he initiative for the substitution must emanate from the old debtor% b) ,onsent of the debtor% and c) Acceptance by the creditor. IN EXPROMISION! SUPPOSE THAT THE NEW DEBTOR EVENTUALLY PAID THE OBLIGATION WHEN IT BECAME DUE AND DEMANDABLE! WHAT ARE THE RIGHTS WHICH ARE AVAILABLE TO HIM? According to Article '&C7, payment by the new debtor gives him the right mentioned in Article '&7( and '&7). ,onsequently < a) #f the substitution was effected with the $nowledge and consent of the original debtor% and consequently, payment is made by the new debtor with or without the $nowledge and consent of the original debtor, the new debtor cannot demand reimbursement form the original debtor the entire amount which he has paid and, at the same time, be subrogated to all the rights of the creditor (Article '&7(, '&7), '79&, '797) b) #f the substitution was effected without the $nowledge and consent of the original debtor, and consequently, payment is made by the new debtor again without the $nowledge and consent of the original debtor% the new debtor can demand reimbursement from the original debtor only insofar as the payment has been beneficial to such debtor% but he cannot be subrogated to the rights of the creditor. >owever, if payment is made with the $nowledge and consent of the original debtor, although the substitution had been effected without his $nowledge and consent, the new debtor can still demand reimbursement from the original debtor of the entire amount which he has paid and, at the same time, be subrogated to all the rights of the creditor (Articles '&7(, '&7), '79&, '797). IN DELEGACION! SUPPOSE THAT THE NEW DEBTOR EVENTUALLY PAID THE OBLIGATION WHEN IT BECAME DUE AND DEMANDABLE! WHAT ARE THE RIGHTS WHICH ARE AVAILABLE TO HIM? According to Article '&C7, payment by the new debtor gives him the rights mentioned in Articles '&7( and '&7). ,onsequently, since the substitution was effected with the consent of all the parties, the new debtor (dele1ado) can demand reimbursement from the original debtor (dele1ante) of the entire amount which he has paid (Article '&7() as well as compel the creditor ( dele1atorio) to subrogate him in all of his rights (Articles '79& and '797).

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EXPROMISION! IF THE NEW DEBTOR IS UNABLE TO PAY THE OBLIGAION BY REASON OF INSOLVENCY! CAN THE CREDITOR THEN PROCEED AGAINST THE OLD DEBTOR FOR PAYMENT?

IN

According to Article '&C=, if the substitution was effected without the $nowledge or against the will of the original debtor, the new debtor5s insolvency or non-fulfillment of the obligation shall not revive the original debtor5s liability to the creditor. "hus, if the substitution was effected with the $nowledge and consent of the original debtor, the new debtor5s insolvency or non-fulfillment of the obligation shall revive the original debtor5s liability to the creditor.
DELEGACION! IF THE NEW DEBTOR IS UNABLE TO PAY THE OBLIGATION BY REASON OF INSOLVENCY! CAN THE CREDITOR THEN PROCEED AGAINST THE OLD DEBTOR FOR PAYMENT?

IN

#f the substitution was effected by dele1acion, according to Article '&C@, the right of action of the creditor can no longer be revived except in the following cases6 a) :hen the insolvency of the new debtor ( dele1ado) was already existing and of public $nowledge at the time when the original debtor (dele1ante) delegated his debt% b) :hen such insolvency was already existing and $nown to the original debtor (dele1ante) when he delegated his debt. P8FP+/
+E "> ":+ L, P"#+*/6

"he purpose of the two exceptions is to prevent the commission of fraud. :ith regard to the first exception, the condition of the insolvency of the dele1ado was of public $nowledge and should exist at the time the delegation was made, because if it were otherwise, the dele1ante cannot then be held responsible since he himself was not aware of it. WHAT
IS THE EFFECT OF NOVATION ON ACCESSORY OBLIGATION?

:hen the principal obligation is extinguished in consequence of a novation, accessory obligations may subsist only insofar as they may benefit third persons who did not give their consent. (Article '&C() "his Article applies to extinctive novation. #f the novation is merely modificatory, the rules as to guarantors who did not consent are as follows6

Page '9@ of '() *otes on Prescription, +bligations and ,ontracts -.P. .ela /erna

a. #f the modified obligation is more onerous, they are liable only for the original obligation% b. #f the modified obligation is now less onerous, the guarantors and sureties are still responsible.
WHAT IS THE EFFECT OF NOVATION IF 314 THE NEW OBLIGATION IS VOID OR 3"4 IF THE OLD OBLIGATION WAS VOID! OR 3%4 IF THE ORIGINAL OBLIGATION WAS CONDITIONAL?

a) #f the new obligation is void, the original one shall subsist, unless the parties intended that the former relation should be extinguished in any may be agreed upon. (Article '&C)) b) "he novation is void if the original obligation was void, except when annulment may be claimed only by the debtor, or when ratification validates acts which are voidable. (Article '&CD) c) #f the original obligation was sub3ect to a suspensive or resolutory condition, the new obligation shall be under the same condition, unless it is otherwise stipulated. (Article '&CC)
DEFINE SUBROGATION.

/ubrogation (extinctive and sub3ective novation by change of the creditor) is the transfer to a third person of all the rights appertaining to the creditor, including the right to proceed against guarantors, or possessors of mortgages, sub3ect to any legal provision or any modification that may be agreed upon. WHAT ARE THE " FORMS OF NOVATION BY SUBROGATING A THIRD PERSON IN THE RIGHTS OF THE CREDITOR?
A)

,+*B *"#+*A2 /8GF+AA"#+* < that which ta$es place by the agreement of the original creditor, the third person substituting the original creditor and the debtor (Articles '799 and '79'). G) 2 AA2 /8GF+AA"#+* < that which ta$es place by operation of law (Articles '799 and '79&).
BETWEEN ASSIGNMENT OF RIGHTS. A)

DISTINGUISH

CONVENTIONAL

SUBROGATION

AND

A/ "+ "> Fules :>#,> A+B F* < ,onventional subrogation is governed by Articles '799 to '79=, whereas assignment of rights is governed by Articles '(&= to '(&). G) A/ "+ "> * , //#"H +E . G"+F5/ ,+*/ *" < #n conventional subrogation, the debtor5s consent is required, whereas in assignment of rights it is not.

Page '9( of '() *otes on Prescription, +bligations and ,ontracts -.P. .ela /erna

,)

A/ "+ EE ," 8P+* "> +G2#AA"#+* < ,onventional subrogation has the effect of extinguishing the obligation and giving rise to a new one, whereas assignment of rights has the effect of transmitting the rights of the creditor to another person without modifying or extinguishing the obligation. .) A/ "+ EE ," 8P+* B#, / < #n conventional subrogation, defects or vices in the original obligation are cured, whereas in assignment of rights they are not. ) A/ "+ "> "#; +E EE ,"#B#"H < #n conventional subrogation, the effect arises from the moment of novation or subrogation, whereas in assignment of rights the effect, as far as the debtor is concerned, arises from the moment of notification. WHAT ARE THE DIFFERENT EXCEPTIONS TO THE RULE THAT LEGAL SUBROGATION CANNOT BE PRESUMED? a) :hen a creditor pays another creditor who is preferred even without the debtor5s $nowledge% b) :hen a third person, not interested in the obligation, pays with the express or tacit approval of the debtor% and c) :hen, even without the $nowledge of the debtor, a person interested in the fulfillment of the obligation pays, without pre3udice to the effects of confusion as to the latter5s share (Article '79&) WHAT
IS THE EFFECT OF SUBROGATION?

#f the subrogation is total, it transfers to the person subrogated the credit with all the rights thereto appertaining either against the debtor or, against third persons, be they guarantors or possessors of mortgages, sub3ect to stipulation in a conventional subrogation. #f the subrogation is partial, the same rule is applicable, but the creditor to whom partial payment has been made may exercise his right for the remainder. #n other words, both the right of the subrogee and the right of the creditor shall co-exist. #n case of conflict between the &, however, the right of the latter shall be preferred (Article '79=).

TITLE II CONTRACTS

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CHAPTER 1 GENERAL PROVISIONS DEFINE

A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service (Article 130'). A contract is defined as a 3uridical convention manifested in legal form, by virtue of which one or more persons bind themselves in favor of another or others, or reciprocally, to the fulfillment of a prestation to give, to do, or not to do ( /ardine 2avies vs. CA, ".#. $o. 12066, /une 19, 2000). #n its broadest sense, a contract has li$ewise been defined as an agreement whereby at least one of the parties acquires a right, either in re or in persona , in relation to some person, thing, act or forbearance. DISTINGUISH
A CONTRACT FROM AN OBLIGATION.

,ontract is the cause, whereas obligation is the effect. "here are five sources of obligations, one of which is contract. ,onsequently, there can be an obligation without a contract, but there can be no contract without a resultant obligation. WHAT
ARE THE ELEMENTS OF A CONTRACT?

"he elements of a contract may be classified as follows6

< "he essential elements are those without which there can be no contract. "he elements are, in turn, subdivided into6
// *"#A2

a) ,ommon < those which are present in all contracts, such as consent, ob3ect certain and cause. b) /pecial < those which are present only in certain contracts, such as delivery in real contracts or form in solemn ones. c) xtraordinary < those which are peculiar to a specific contract, such as the price in a contract of sale.
G.

*A"8FA2 - "he natural elements are those which are derived from the nature of the contract and ordinarily accompany the same. "hey are presumed by law, although they can be excluded by the contracting parties if they so desire. "hus, warranty against

Page '9D of '() *otes on Prescription, +bligations and ,ontracts -.P. .ela /erna

eviction is implied in a contract of sale, although the contracting parties may increase, diminish or even suppress it.
,.

A,,#. *"A2 < "he accidental elements are those which exist only when the parties expressly provided for them for the purpose of limiting or modifying the normal effects of the contract. "hey are called accidental because they may be present or absent, depending upon whether or not the parties have agreed upon them. xamples of these are conditions, terms and modes.
ARE THE CLASSIFICATIONS OF CONTRACTS? "+ P FE ,"#+* +F E+F;A"#+*6

WHAT
A.

A,,+F.#*A

a) ,onsensual < perfected by mere consent% example < sale b) Feal < perfected by delivery% examples < depositum, pledge, commodatum c) Eormal or solemn < those were special formalities are essential before the contract may be perfected% example < donation inter vivos of real property requires for its validity a public instrument.
G.

A,,+F.#*A

"+ ,A8/

+F

K8#BA2 *" +E ">

BA28

+E PF /"A"#+*/6

a) +nerous < when there is an interchange of equivalent valuable consideration b) Aratuitous or lucrative < this is free, this one party receives no equivalent prestation c) Femunerative < one where one prestation is given for a benefit or service that had been rendered previously. ,. A,,+F.#*A "+ #;P+F"A*, +E +* 8P+* A*+"> F6 a) Principal < the contract may stand alone by itself% example, sale, lease b) Accessory < this depends for its existence upon another contract% example, mortgage where the principal contract is one of loan. c) Preparatory < here, the parties do not consider the contract as an end by itself, but as a means thru which future transaction or contracts may be made% examples, agency, partnership
..

A,,+F.#*A

"+ ">

PAF"# / +G2#AA" .6

a) 8nilateral < where only one of the parties has an obligation% example, commodatum

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b) Gilateral < where both parties are required to render reciprocal prestations% example, sale . A,,+F.#*A
"+ "> #F . /#A*A"#+*6

a) *ominate < where the contract is given a particular or special name li$e commodatum, partnership, agency, sale, deposit b) #nnominate < those which are not given any special name% they lac$ individuality and are not regulated by special provisions of law. "hese contracts shall be regulated by the stipulation of the parties% by the general principles of obligations and contracts, by the rules governing the most analogous nominate contracts, and by the customs of the place. xample6 ') 2u ut des - # give that you give. &) 2u ut facias > # give that you do. 7) Facio ut facias < # do that you do.
E.

A,,+F.#*A

"+ ">

F#/- +E E82E#22; *"6

a) ,ommulative < where the parties contemplate a real fulfillment% therefore, equivalent values are given, li$e sale, lease b) Aleatory < where the fulfillment is dependent upon chance, thus the values may vary because of the ris$ or chance, li$e an insurance contract.
A.

A,,+F.#*A a)

"+ ">

"#;

+E P FE+F;A*,

+F E82E#22; *"6

xecuted < one completed at the time the contract is entered into, that is, the obligations are complied with at this time% example, a sale of property which has already been delivered and which has already been paid for. b) xecutory < one where the prestations are to be complied with at some future time% example, a perfected sale where the property has not yet been delivered and where the price has not yet been given
>.

A,,+F.#*A

"+ /8G? ," ;A"" F6

a) ,ontracts involving things (li$e sale) b) ,ontracts involving rights and credits (li$e usufruct or assignment of credits)

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c) ,ontracts involving services (li$e agency, contract of common carrier)

A,,+F.#*A

"+ +G2#AA"#+*/ #;P+/ . A*. F AAF. . GH ">

2A:6

a) +rdinary < li$e sale b) #nstitutional < li$e contract of

;AFF#AA

A,,+F.#*A

"+ ">

B#. *,

E+F #"/ PF++E6

a) "hose requiring merely oral or parol evidence b) "hose requiring written proof (li$e contracts enumerated under the /tatute of Erauds)
-.

A,,+F.#*A

"+ "> *8;G F +E P F/+*/ A,"8A22H A*. P>H/#,A22H *" F#*A #*"+ "> ,+*"FA,"6

a) +rdinary < where two parties are represented by different persons, li$e sale b) Auto-contracts < where only one person represents two opposite parties but in different capacities
2.

A,,+F.#*A

"+ "> *8;G F +E P F/+*/ :>+ PAF"#,#PA" . #* "> .FAE"#*A +E "> ,+*"FA,"6

a) +rdinary < li$e an ordinary sale b) ,ontract of adhesion < li$e one prepared by a real estate company for the sale of real estate% or one prepared by an insurance company where the buyer or the person interested in being insured signifies his consent by signing the contract ;. A,,+F.#*A "+ "> *A"8F +E "> ,+*"FA,"6 a) Personal b) #mpersonal WHAT CONTRACT?
A) ARE THE DIFFERENT PHASESI STAGES IN THE LIFE OF A

PF PAFA"#+* +F A * FA"#+* < where the parties are progressing with their negotiations% they have not yet arrived to any definite agreement, although there may have been a preliminary offer and bargaining. *egotiation covers the period from the time the prospective contracting parties indicate interest in the contract to the time the contract is concluded (perfected).

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G)

P FE ,"#+* +F G#F"> < where the parties have at long last came to a definite agreement, the elements of definite sub3ect matter and valid cause have been accepted by mutual consent. "he perfection ta$es place upon the concurrence of the essential elements thereof. ,) ,+*/8;;A"#+* < where the terms of the contract are performed, and the contract may be said to have been fully executed. "he stage of consummation begins when the parties perform their respective underta$ings under the contract culminating in the extinguishment thereof. WHAT
A) ARE THE BASIC PRINCIPLES OR CHARACTERISTICS OF A CONTRACT?

G)

,) .)

EF .+; "+ /"#P82A" +F A8"+*+;H +E ,+*"FA,"/ < the contracting parties are free to enter into a contract and to establish such stipulations, clauses, terms and conditions as they may deem convenient provided they are not contrary to law, morals, good customs, public order, or public policy +G2#AA"+FH E+F, +F ,>AFA," F +E ,+*"FA,"/ A*. ,+;P2#A*, #* A++. EA#"> < once the contract has been perfected, it shall be of obligatory force upon both of the contracting parties P FE ,"#+* GH ; F ,+*/ *" as a rule G+"> PAF"# / AF ;8"8A22H G+8*. +F ;8"8A22H +E ,+*"FA,"/ < the essential equality of the contracting parties whereby the contract must bind both of them F 2A"#B#"H < generally, it is binding only between the parties, their assigns and heirs. WHAT

ARE THE LIMITATIONS UPON THE RIGHT OF THE CONTRACTING PARTIES TO ESTABLISH SUCH STIPULATIONS! CLAUSES! TERMS! AND CONDITIOS AS THEY MAY DEEM CONVENIENT?

"he contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy (Article 1306). "his is the principle of freedom to stipulate or autonomous nature of contracts. Ereedom to stipulate terms and conditions is the essence if the contractual system provided such stipulations are not contrary to law, morals, good customs, public order, or public policy. "his freedom also prohibits a party from coercing or intimidating or unduly influencing another to enter into a contract. WHAT LAWS GOVERN CONTRACTS?

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#t is a rule that only laws existing at the time of the execution of a contract are applicable thereto and that later statutes do not govern contracts unless the latter is specifically intended to have a retroactive effect. A later law which enlarges, abridges or in any manner changes the intent of the parties to the contract necessarily impairs the contract itself and cannot be given retroactive effect without violating the constitutional prohibition against impairment of contracts. >owever, non-impairment of contracts or vested rights clauses will have to yield to the superior and legitimate exercise by the /tate of police power. WHAT ARE THE KINDS OF INNOMINATE CONTRACTS AND HOW ARE THEY REGULATED? ') 2u ut des - # give that you give. &) 2u ut facias > # give that you do. 7) Facio ut facias < # do that you do #nnominate contracts shall be regulated by6 ') "he stipulations of the parties, &) "he provisions of "itles # and ## of this Goo$, 7) "he rules governing the most analogous nominate contracts, and =) "he customs of the place (Article 130(). WHAT
IS MEANT BY MUTUALITY OF CONTRACTS?

"he mutuality of contracts refers to the position of essential equality which must be occupied by both of the contracting parties in relation of the contract. "he contract must bind both contracting parties% its validity or compliance cannot be left to the will of one of them (Article 130)). CAN THE DETERMINATION OF THE PERFORMANCE BE LEFT TO A THIRD PERSON? "he determination of the performance may be left to a third person, whose decision shall not be binding until it has been made $nown to both contracting parties (Article 1309).
WHEN IS THE DECISION OF THE THIRD PERSON BINDING?

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"he determination shall not be obligatory if it is evidently inequitable. #n such case, the courts shall decide what is equitable under the circumstances (Article 1310). WHAT
IS MEANT BY RELATIVITY OF CONTRACTS?

Felativity of contracts refers to the principle of the civil law that a contract can only bind the parties who had entered into it or their successors who have assumed their personality or their 3udicial position, and that, as a consequence, such contract can neither favor or pre3udice a third person, in conformity with the axiom res inter alios acta aliis nocet prodest (the act, declaration, or omission of another, cannot affect another, except as otherwise provided by law or agreement) 0Vide /ection &@, Fule '79, Fules of vidence1. "hus Article '7'' declares that Ncontracts ta$e effect only between the parties, their assigns and heirs.O WHAT ARE THE EXCEPTIONS TO THE PRINCIPLE OF 3WHERE A CONTRACT MAY EITHER FAVOR OR PRE UDICE A THIRD
RELATIVITY PERSON4?

a) :here the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by provision of law. "he heir is not liable beyond the value of the property he received from the decedent (Article 1311). b) +tipulation 7our Autrui > where a contract contains a beneficial stipulation in favor of a third person provided he communicated his acceptance to the obligor before its revocation. ( Article 1311, par. 2). c) #n contracts creating real rights where third persons come into possession of the ob3ect of the contract, sub3ect to the provisions of the ;ortgage 2aw and the 2and Fegistration 2aws ( Article 1312). d) :here the contract is entered into in order to defraud a third person, in which case, creditors are protected in cases of contracts intended to defraud them (Article 1313). e) :here the third person induces a contracting party to violate his contract. "he third person who induces another to violate his contract shall be liable for damages to the other contracting party (Article 1314). "his is called "+F" #*" FE F *, . f) :here, in some cases, third persons may be adversely affected by a contract where they did not participate (Articles 21'0, 21'1). g) :here the law authori4es the creditor to sue on a contract entered into by his debtor (Accion 2irecta).

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IS MEANT BY STIPULATION POUR AUTRUI? WHAT REQUISITES MUST CONCUR IN ORDER THAT SUCH A STIPULATION MAY BE ENFORCED?

WHAT

A stipulation pour autrui is a stipulation in a contract, clearly and deliberately conferred by the contracting parties as a favor upon a third person who must accept it. Gefore such a stipulation may be enforced, it is necessary that the following requisites must concur6 a) b) c) d) "hat it must be for the benefit or interest of the third person% "he stipulation must be a part, not the whole of the contract% "hat such benefit or interest must not be merely incidental% "hat the contracting parties should have clearly and deliberately conferred such benefit or interest upon the third person% e) "hat neither of the contracting parties bears the legal representation or authori4ation of the third party% and f) "hat the third person should have communicated his acceptance or interest to the obligor before its revocation ( Article 1311, par. 2). #t is not, however necessary that such third person be always named in the contract. WHAT
ARE THE REQUISITES FOR TORT INTERFERENCE?

a) xistence of a valid contract% b) -nowledge on the part of the third person of the existence of contract% and c) "he interference of the third person is without legal 3ustification or excuse. HOW
ARE CONTRACTS PERFECTED?

.istinguish6 a) #f the contract is consensual (,onsensuality of ,ontracts) < ,ontracts are perfected by mere consent, and from that moment the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in $eeping with good faith, usage and law (Article 131'). b) #f the contract is real-

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Feal contracts, such as deposit, pledge and commodatum, are not perfected until the delivery of the ob3ect of the obligation (Article 1316).
A PERSON CONTRACT IN THE NAME OF ANOTHER? THE EFFECTS?

MAY

WHAT

ARE

*o one may contract in the name of another, except when '. >e has been authori4ed or &. 8nless he has by law a right to represent him, or 7. 8nless it is ratified, expressly or impliedly, by the person on whose behalf it has been executed, before it is revo$ed by the other contracting party (Article 131(). A contract entered into in the name of another by one who has no authority or legal representation, or who has acted beyond his powers, shall be unenforceable (Article 131(, par 2.). CHAPTER " ESSENTIAL REQUISITES OF CONTRACTS GENERAL PROVISIONS WHAT
ARE THE ESSENTIAL REQUISITES OF A CONTRACT?

"here is no contract unless the following requisites concur6 (') (&) (7) ,onsent of the contracting parties% +b3ect certain which is the sub3ect matter of the contract% ,ause of the obligation which is established (Article 131)).

"his applies to consensual contracts. #f the contract is real, a fourth requisite < delivery < is required, if the contract is formal or solemn, there must be compliance with the formalities required by law. :hen the law uses the word NconcurO, it means that all the three (7) requisites must be present. "he absence of one requisite negates the existence of a contract. SECTION 1 CONSENT

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WHAT

IS MEANT BY CONSENT?

As applied to contracts, consent signifies the concurrence of the wills of the contracting parties with respect to the ob3ect and the cause which shall constitute the contract. #t is the concurrence of the will of the offerer and the acceptor as to the thing and the cause which constitute a contract. An offer is a manifestation of a willingness to enter into a bargain so made as to 3ustify another person in understanding that his assent to that bargain is invited and will conclude it. #t is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract (Article 1319).
WHAT ARE THE REQUISITES OF CONSENT?

#n order that there is consent, the following elements must concur6 '. "he consent must be manifested by the concurrence of the offer and the acceptance (Articles 1319&1326). &. "he contracting parties must possess the necessary legal capacity (Articles 132(&1329) 7. "he consent must be intelligent, free, spontaneous and real (Articles 1330&1346). "he first is expressly stated in the ,ode% the second and third are implied. WHEN
ARE CONTRACTS PERFECTED?

#n general, contracts are perfected from the moment there is a manifestation of the concurrence between the offer and the acceptance with respect to the ob3ect and the cause which shall constitute the contract (Article 1319, par. 1). >owever, if the acceptance is made by letter or telegram, we must distinguish. According to Article '7'C, par. &, the contract is perfected from the moment that the offeror has $nowledge of such acceptance. "he said article provides that NAcceptance made by letter or telegram does not bind the offerer except from the time it came to his $nowledge. "he contract, in such a case, is presumed to have been entered into in the place where the offer was made.

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An acceptance may be express or implied (Article 1320). WHAT ARE THE DIFFERENT THEORIES AS APPLIED TO PERFECTION OF CONTRACTS? "here are actually four different theories which have been advanced in order to pin-point the exact moment when a contract is perfected if the acceptance by the offeree is made by a letter or telegram. "hey are6 '. ;A*#E /"A"#+* "> +FH < the contract is perfected from the moment the acceptance is declared or made. "his is the theory which is followed by the ,ode of ,ommerce. &. LP .#"#+* "> +FH < the contract is perfected from the moment the offeree transmits the notification of acceptance to the offeror, as when the letter is placed in the mailbox. "his is the theory which is followed by the ma3ority if American courts. 7. F , P"#+* "> +FH < the contract is perfected the moment that the notification of acceptance is in the hand of the offeror in such a manner that he can under conditions, procure the $nowledge of its contents, even if he is not able actually to acquire such $nowledge by reason of absence, sic$ness or some other cause. "his is the theory which is followed by the Aerman ,ivil ,ode. =. ,+A*#"#+* "> +FH < the contract is perfected from the moment the acceptance comes to the $nowledge of the offeror. "his is the theory followed in the Philippines as provided by Article '7'C of the ,ivil ,ode. #X SENT A LETTER TO Y AND OFFERED HIS HOUSE AND LOT FOR SALE. TWO DAYS AFTER RECEIPT! Y SENT X A LETTER ACCEPTING THE OFFER! BUT WHEN THE LETTER OF ACCEPTANCE REACHED X,S RESIDENCE! HE WAS ALREADY DEAD. WAS THERE A MEETING OF THE MINDS?$ *one. Acceptance made by a letter does not bind the offerer except from the time it came to his $nowledge ( Article 1319). /ince L was already dead when the letter of acceptance reached his residence, he could not have $nown the said acceptance. #SUPPOSE THE ACCEPTANCE WAS COMMUNICATED TO THE AGENT OF WHO WAS ALIVE AT THE TIME HIS AGENT CAME TO KNOW OF SUCH ACCEPTANCE! IS THERE A BINDING CONTRACT?$ X

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Hes, because the act of the agent or $nowledge acquired by the agent duly authori4ed is also the act of the principal, provided tat he acted within the scope of his authority. IF THERE IS AN OFFER AND THERE IS CONDITIONS! IS THERE A PERFECTED CONTRACT?
AN ACCEPTANCE WITH

*one, because an offer must be clear and definite while an acceptance must be unconditional in order that their concurrence can give rise to a perfected contract. #f there are conditions imposed, there is no meeting of the minds, as the same is a mere counter-offer. WHAT
ARE THE THINGS THAT MAY BE FIXED BY THE OFFEROR?

"he person ma$ing the offer may fix the time, place, and manner of acceptance, all of which must be complied with (Article 1321). WHEN
IS THERE ACCEPTANCE WHEN OFFER IS MADE THRU AN AGENT?

An offer made through an agent is accepted from the time acceptance is communicated to him (Article 1322). WHEN
DOES AN OFFER BECOME INEFFECTIVE?

An offer becomes ineffective upon the death, civil interdiction, insanity, or insolvency of either party before acceptance is conveyed (Article 1323) "he phrase Nbefore acceptance is conveyedO means before acceptance has come to the actual $nowledge of the offeror. WHAT
IS THE NATURE AND CONCEPT OF A CONTRACT OF ADHESION?

A contract of adhesion is one where its terms are prepared by only one party while the other party merely affixes his signature signifying his adhesion thereto. /uch contracts are not void in themselves. "hey are binding as ordinary contracts. >owever, contracts of adhesion are construed against the party preparing such contracts. WHAT
IS AN OPTION?

#t is a contract granting a person the privilege to buy or not to buy certain ob3ects at anytime within the agreed period at a fixed price. "he contract of option is a separate and distinct contract from

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the contract which the parties may enter into upon the consummation of the contract. "herefore, an option must have its own cause or consideration, a cause distinct from the selling price itself. WHAT IS THE RULE ON OPTIONS? :hen the offerer has allowed the offeree a certain period to accept, the offer may be withdrawn at any time before acceptance by communicating such withdrawal, except when the option is founded upon a consideration, as something paid or promised (Article 1324). "hus, we must distinguish between the effect of an option which is without a consideration and one which is founded upon a consideration upon the right of the offeror to withdraw his offer or proposal. #f the option is without any consideration, the offeror may withdraw his offer by communicating such withdrawal to the offeree at any time before acceptance% if it is founded upon a consideration, the offeror can not withdraw his offer. 8pon the expiration of the option period and the person given such option does not manifest his or her acceptance, the offeror may offer the intended contract to somebody else. .#/"#*A8#/>
. EF+; AF* /" ;+* H6

+ption money in an option contract must be differentiated from an earnest money. arnest money is considered part of the price in a contract of sale and can be proof of perfection of the contract. >owever, it is not the giving of the earnest money per se but the proof of the concurrence of all the essential elements of the contract of sale which establishes the existence of a perfected sale.
IS THE RULE WITH RESPECT TO BUSINESS ADVERTISEMENTS AND ADVERTISEMENTS FOR BIDDERS?

WHAT

a) 8nless it appears otherwise, business advertisements of things for sale are not definite offers, but mere invitations to ma$e an offer (Article 132'). b) Advertisements for bidders are simply invitations to ma$e proposals, and the advertiser is not bound to accept the highest or lowest bidder, unless the contrary appears (Article 1326). WHO
ARE INCAPACITATED TO GIVE THEIR CONSENT?

"he following cannot give consent to a contract6 a) 8nemancipated minors%

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b) #nsane or demented persons, and deaf-mutes who do not $now how to write (Article 132() % c) .eaf-mutes who do not $now how to write% d) ;arried women of age in cases specified by law% e) Persons suffering from civil interdiction% and f) #ncompetents under guardianship (#ules 93&94, #ules of Court). "he incapacity declared in article '7&) is sub3ect to the modifications determined by law, and is understood to be without pre3udice to special disqualifications established in the laws ( Article 1329). 8nder the Eamily ,ode, emancipation ta$es place by the attainment of the age of ma3ority and, unless otherwise provided, ma3ority commences at the age of eighteen years. WHAT ARE THE EXCEPTIONS TO THE RULE THAT A CONTRACT ENTERED INTO BY AN UNEMANCIAPTED MINOR WITHOUT THE CONSENT OF HIS PARENTS OR GUARDIAN IS VOIDABLE? a) :here the contract is entered into by a minor who misrepresents his age, applying the doctrine of estoppel% b) :here the contract involves the sale and delivery of necessaries to the minor (Article 14)9, par. 2)% c) :here it involves a natural obligation and such obligation is voluntarily fulfilled by the minor (Articles 1426 and 142()%
WHAT IS THE STATUS OF A CONTRACT ENTERED INTO DURING LUCID INTERVALS! IN A STATE OF DRUNKENESS OR DURING HYPNOTIC SPELLS! OR WHEN CONSENT WAS GIVEN THROUGH MISTAKE! VIOLENCE! INTIMIDATION! UNDUE INFLUENCE OR FRAUD?

,ontracts entered into during a lucid interval are valid. ,ontracts agreed to in a state of drun$enness or during a hypnotic spell are voidable (Article 132)). 2ucid interval is that period of time when an insane person acts with reasonable understanding, comprehension and discernment with respect to what he is doing. ,ontracts entered into a state of drun$enness may li$ewise be annullable. >owever, the intoxication must be of such character as to perpetuate undue advantage over the drun$en person. A contract where consent is given through mista$e, violence, intimidation, undue influence, or fraud is voidable (Article 1330) WHAT
ARE THE VICES OF CONSENT?

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A)

B#, / +E "> :22 - mista$e, violence, intimidation, undue influence, or fraud (Article 1330) G) B#, / +E . ,2AFA"#+* < comprehends all forms of simulated contracts. WHAT CONSENT?
ARE THE REQUISITES IN ORDER THAT MISTAKE MAY INVALIDATE

#n order that mista$e may invalidate consent, it should refer to6 a) "he substance of the thing which is the ob3ect of the contract, or b) "hose conditions which have principally moved one or both parties to enter into the contract. DEFINE
MISTAKE OF FACT AND MISTAKE OF LAW.

"here is mista$e of fact when one or both of the contracting parties believe that a fact exists when in reality it does not, or that such fact does not exist when in reality it does. +n the other hand, there is a mista$e of law when one or both of the contracting parties arrive at an erroneous conclusion regarding the interpretation of a question of law or the legal effects of a certain act or transaction.
OF THESE MISTAKES CAN VITIATE CONSENT RENDERING THE CONTRACT VOIDABLE?

WHICH

As a general rule, it is only a mista$e of fact which will vitiate consent, thus rendering the contract voidable% a mista$e of law, on the other hand, does not render the contract voidable because of the well$nown principle that ignorance of the law does not excuse anyone from compliance therewith.
WHAT MISTAKES OF FACT WILL RENDER A CONTRACT VOIDABLE? A)

;#/"A- A/ refer to6

"+ ">

+G? ," +E ">

,+*"FA,"

(@rror in re) < "his may

') ;ista$e as to the identity of the thing, or &) ;ista$e as to the substance of the thing, or 7) ;ista$e as to the condition of the thing, provided such condition has principally moved one or both of the parties to enter into the contract% or =) ;ista$e as to the quantity of the thing, provided that the extent or dimension of the thing was one of the principal

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reasons of one or both of the parties for entering into the contract.
G)

;#/"A-

A/ "+ P F/+*6

') ;ista$e as to the identity or qualifications of one of the parties will vitiate consent only when such identity or qualifications have been the principal cause of the contract. &) A simple mista$e of account shall give rise to its correction (Article 1331). WHAT
IS THE RULE IN CASE OF INABILITY TO READ OR UNDERSTAND?

:hen one of the parties is unable to read, or if the contract is in a language not understood by him, and mista$e or fraud is alleged, the person enforcing the contract must show that the terms thereof have been fully explained to the former (Article 1332). WHAT
IS THE EFFECT OF KNOWLEDGE OF DOUBT OR RISK?

"here is no mista$e if the party alleging it $new the doubt, contingency or ris$ affecting the ob3ect of the contract ( Article 1333). #t does not therefore vitiate consent. IS THERE ANY EXCEPTION TO THE RULE THAT A MISTAKE OF LAW CANNOT VITIATE CONSENT RENDERING THE CONTRACT VOIDABLE? ;ista$e of law as a rule will not vitiate consentJ "here is however an exception to this rule. According to Article '77=, mutual error as to the legal effect of an agreement when the real purpose of the parties is frustrated, may vitiate consent. "hree requisites are therefore necessary6 a) "he mista$e or error must be with respect to the legal effect of an agreement% b) "he mista$e or error must be mutual% and c) "he real purpose of the parties must be frustrated. WHAT
IS MEANT BY VIOLENCE AND INTIMIDATION?

"here is violence when in order to wrest consent, serious or irresistible force is employed.

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"here is intimidation when one of the contracting parties is compelled by a reasonable and well-grounded fear of an imminent and grave evil upon his person or property, or upon the person or property of his spouse, descendants or ascendants, to give his consent. "o determine the degree of intimidation, the age, sex and condition of the person shall be borne in mind. A threat to enforce oneIs claim through competent authority, if the claim is 3ust or legal, does not vitiate consent (Article 133').
ARE THE REQUISITES OF VIOLENCE AND INTIMIDATION WHICH WILL RENDER THE CONTRACT VOIDABLE?

WHAT

#n order that consent is vitiated through violence, it is essential that the following requisites must concur6 a) "he force employed to wrest consent must be serious and irresistible% and b) #t must be the determining cause for the party upon whom it is employed in entering into the contract. #ntimidation, on the other hand, requires the concurrence of the following requisites6 a) +ne of the contracting parties is compelled to give his consent by a reasonable and well-grounded fear of evil% b) "he evil must be imminent and grave% c) 8pon his person, property, or upon the person or property of his spouse, descendants, or ascendants. d) "he evil must be un3ust, an actionable wrong% and e) "he evil must be the determining cause for the party upon whom it is employed in entering into the contract. DISTINGUISH
BETWEEN VIOLENCE AND INTIMIDATION.

a) :hile violence is external, intimidation is internal b) :hile violence prevents the expression of the will substituting it with a material act dictated by another, intimidation influences the operation of the will, inhibiting it in such a way that the expression thereof is apparently that of a person who has freely given his consent. c) Biolence is physical compulsion, while intimidation is moral compulsion.
IS THE EFFECT IF VIOLENCE OR INTIMIDATION WAS EMPLOYED BY THIRD PERSON?

WHAT

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Biolence or intimidation shall annul the obligation, although it may have been employed by a third person who did not ta$e part in the contract (Article 1336). WHAT IS MEANT BY UNDUE INFLUENCE? "here is undue influence when a person ta$es improper advantage of his power over the will of another, depriving the latter of a reasonable freedom of choice. "he following circumstances shall be considered6 a. the confidential, family, spiritual and other relations between the parties, or b. the fact that the person alleged to have been unduly influenced was suffering from mental wea$ness, or was ignorant or in financial distress (Article 133(). WHAT CONSENT?
ARE THE REQUISITES FOR UNDUE INFLUENCE TO VITIATE

a) #mproper advantage b) Power of the will of another c) .eprivation of the latter5s will of a reasonable freedom of choice WHAT
IS MEANT BY FRAUD?

"here is fraud when, through insidious words or machinations of one of the contracting parties, the other is induced to enter into a contract which, without them, he would not have agreed to ( Article 133)). WHAT
ARE THE DIFFERENT CLASSES OF CIVIL FRAUD?

,ivil fraud may be classified as6

EFA8. #* "> P FE ,"#+* 0+F , 2 GFA"#+*1 +E "> ,+*"FA," (Article 133), et se:.) < Eraud which is employed by a party to the contract in securing the consent of the other party. "his may either be6 14 2!%! CA?+A$8@ +F ,A8/A2 EFA8. < refers to those deceptions or misrepresentations of a serious character employed by one party without which the other party would not have entered into the contract.

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24 2!%! I$CI2@$8@ +F #*,#. *"A2 EFA8. < Fefers to those incidental deceptions and misrepresentations employed by one party without which the other party would still have entered into the contract.
G.

EFA8. #* "> P FE+F;A*, +E "> +G2#AA"#+* (Article 11(0) < Eraud which is employed by the obligor in the performance of an existing obligation JDOLO
CAUSANTEK WHICH WILL

WHAT ARE THE REQUISITES OF FRAUD RENDER A CONTRACT VOIDABLE?

#n order that the consent of a party to a contract is vitiated by fraud thus rendering such contract voidable, it is essential that the following requisites must concur6 a) Eraud or insidious words or machinations must be employed by one of the contracting parties% b) "he fraud or insidious words or machinations must be serious% c) "here must be deliberate intent to deceive or to induce% d) "he fraud or insidious words or machinations must induce the other party to enter into the contract, that is, the other party must have relied on the untrue statement and must himself not be guilty of negligence in ascertaining the truth% and e) "he fraud should not have been employed by both of the contracting parties or by third persons. DISTINGUISH
BETWEEN DOLO CAUSANTE AND DOLO INCIDENTE.

2olo causante 5Article 133)4 and 2olo incidente 5Article 13444 may be distinguished from each other in the following ways6 a) "he first refers to a fraud which is serious in character, whereas the second is not serious% b) "he first is the cause which induces the party upon whom it is employed in entering into the contract, whereas the second is not the cause% c) "he effect of the first is to render the contract voidable, whereas the effect of the second is to render the party who employed it liable for damages. DOES FAILURE TO DISCLOSE FACTS TO THE OTHER PARTY! EXAGGERATION IN TRADE! EXPRESSION OF AN OPINION CONSTITUTE FRAUD WHICH WILL RENDER A CONTRACT VOIDABLE?

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Eailure to disclose facts, when there is a duty to reveal them, as when the parties are bound by confidential relations, constitutes fraud (Article 1339). "he usual exaggerations in trade, when the other party had an opportunity to $now the facts, are not in themselves fraudulent (Article 1340). A mere expression of an opinion does not signify fraud, unless made by an expert and the other party has relied on the formerIs special $nowledge (Article 1341). WHAT IS THE EFFECT IF THERE IS MISREPRESENTATION BY THIRD PERSON? ;isrepresentation by a third person does not vitiate consent, unless6 a) /uch misrepresentation has created substantial mista$e and b) /uch misrepresentation is mutual (Article 1342). WHAT
IS THE EFFECT OF MISREPRESENTATION MADE IN GOOD FAITH?

;isrepresentation made in good faith is not fraudulent but may constitute error (Article 1343). WHEN SHALL FRAUD MAKE A CONTRACT VOIDABLE? FRAUD TO VITIATE CONSENTK JREQUISITES
FOR

#n order that fraud may ma$e a contract voidable6 a) Eraud should be serious, and b) Eraud should not have been employed by both contracting parties 0the parties must not be in pari delicto1 (Article 1344). "his refers to causal fraud. #f the fraud is merely incidental fraud, it only obliges the person employing it to pay damages. WHAT
IS MEANT BY SIMULATION OF CONTRACTS?

/imulation of a contract which is referred to as Nvices of declarationO is the process of intentionally deceiving others by producing the appearance of a contract that really does not exist (absolute simulation) or which is different from the true agreement (relative simulation). /imulation is absolute when the parties do not intend to be bound at all, as when a debtor simulates the sale of his properties to a friend in order to prevent their possible attachment by

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creditors% while simulation is relative when the parties conceal their true agreement, as when a person conceals donation by simulating a sale of the property to the beneficiary for a certain consideration (Article 134'). WHAT
ARE THE REQUISITES FOR SIMULATION?

a) An outward declaration of will different from the will of the parties% b) "he false appearance must have been intended by mutual agreement% c) "he purpose is to deceive third persons.
WHAT ARE THE EFFECTS OF SIMULATION?

An absolutely simulated or fictitious contract is void. A relative simulation, when it does not pre3udice a third person and is not intended for any purpose contrary to law, morals, good customs, public order or public policy binds the parties to their real agreement ( Article 1346). SECTION " OB ECT OF CONTRACTS WHAT
IS MEANT BY OB ECT OF CONTRACTS?

"he ob3ect of a contract may be defined as the thing, right or service which is the sub3ect matter of the obligation which is created or established. WHAT REQUISITES MUST CONCUR IN ORDER THAT A THING! RIGHT OR SERVICE MAY BE THE OB ECT OF CONTRACTS? As a general rule, all things, rights or services may be the ob3ect of contracts. #t is however, essential that the following requisites must concur6 a) "he ob3ect should be within the commerce of men% in other words, it should be susceptible of appropriation and transmissible from one person to another% b) "he ob3ect should be real and possible% in other words, it should exist at the moment of the celebration of the contract, or at least, it can exist subsequently or in the future%

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c) "he ob3ect should be licit% in other words, it should not be contrary to law, morals, good customs, public order or public policy% d) "he ob3ect must be transmissible% e) "he ob3ect should be determinate, or at least, possible of determination, as to its $ind. "he fact that the quantity is not determinate shall not be an obstacle to the existence of the contract, provided it is possible to determine the same, without the need of a new contract between the parties (Article 1349). WHAT
THINGS! CONTRACTS? RIGHTS OR SERVICES CANNOT BE THE OB ECT OF

a) "hings which are outside the commerce of men, including future things% b) Fights which are intransmissible% c) Euture inheritance except in cases expressly authori4ed by law% d) /ervices which are contrary to law, morals, good customs, public order or public policy (Article 134()% e) #mpossible things or services (Article 134))% f) +b3ects which are not determinate as to their $ind (Article 1349). #f the parties enter into a contract with respect to the above contracts, the contract is void or inexistent. SECTION % CAUSE OF CONTRACTS WHAT
IS MEANT BY CAUSE OF CONTRACTS?

#n general, cause is the why of the contract or the essential reason which moves the contracting parties to enter into the contract. #n other words, it is the immediate, direct or proximate reason which explains and 3ustifies the creation of an obligation through the will of the contracting parties. #n particular6 a) #n onerous contracts the cause is understood to be, for each contracting party, the prestation or promise of a thing or service by the other% b) #n remuneratory ones, the service or benefit which is remunerated% and c) #n contracts of pure beneficence, the mere liberality of the benefactor (Article 13'0).

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DISTINGUISH

CAUSE AND CONSIDERATION.

#n this 3urisdiction, cause and consideration are used interchangeably. After all, causa is merely the civil law term, while consideration is the common law term. >owever, causa in civil law 3urisdictions is broader in scope than consideration in Anglo-American 3urisdictions. ;any agreements which cannot be supported in AngloAmerican law for want of consideration can be enforced under the broader doctrine of causa.
DISTINGUISH THE CAUSE FROM THE OB ECT OF CONTRACTS.

"he cause must not be confused with the ob3ect of the contract. +f course, there can be no question about the difference between the two cases of remuneratory and gratuitous contracts% thus, in the first, the cause is the service or benefit which is remunerated, while the ob3ect is the thing which is given in remuneration, and in the second the cause is the liberality of the donor or benefactor. #n onerous contracts, however, there is a tendency to confuse one with the other. *evertheless, it is clear that the cause, for each contracting party, is the prestation or promise of a thing or service by the other, while the ob3ect of the contract, on the other hand, is the thing or service itself. "hus, in a contract of sale, the cause as far as the vendor is concerned is the acquisition of the purchase price, and as far as the vendee is concerned, it is the acquisition of the thing, or stated in a different way, the cause of the obligation of the vendor is the obligation of the vendee and the cause of the obligation of the vendee is the obligation of the vendor, while the ob3ect of the contract, on the other hand, is the thing which is sold and the price which is paid 0,astan5s and ;anresa5s view1. DISTINGUISH THE CAUSE OF A CONTRACT FROM THE MOTIVES OF THE PARTIES IN ENTERING INTO A CONTRACT. "he particular motives of the parties in entering into a contract are different from the cause thereof (Article 13'1). "he differences between the two are as follows6 a) :hereas the cause is the direct or most proximate reason of the contract, the motives are the indirect or remote reasons%

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b) :hereas the cause is the ob3ective or 3uridical reason of a contract, the motives are the psychological or purely personal reasons% c) :hereas the cause is always the same, the motives may differ for each contracting party. d) "he motive may be un$nown to the other, the cause is always $nown. e) "he presence of motive cannot cure absence of cause. IS THERE ANY EXCEPTION TO THE RULE THAT THE PARTICULAR MOTIVES OF THE PARTIES IN ENTERING INTO A CONTRACT ARE DIFFERENT FROM THE CAUSE THEREOF? "here is an exception to the rule and that is when the contract is conditioned upon the attainment of the motive of either contracting parties. #n other words, the motive may be regarded as causa when it predetermines the purpose of the contract.
REQUISITES MUST CONCUR IN ORDER THAT THERE WILL BE A SUFFICIENT CAUSE UPON WHICH A CONTRACT MAY BE FOUNDED?

WHAT

#n order that there will be a sufficient cause upon which a contract may be founded, it is essential that the following requisites must concur6 a) "he cause should be in existence (it must be present)% b) "he cause should be licit or lawful% and c) "he cause should be true. "hus, contracts without cause, or with unlawful cause, produce no effect whatsoever. "he cause is unlawful if it is contrary to law, morals, good customs, public order or public policy ( Article 13'2). "he same is true if the cause stated in the contract is false, unless it is proven that they were founded upon another cause which is true and lawful (Article 13'3). WHAT
IS THE PRESUMPTION AS TO CAUSE?

Although the cause is not stated in the contract, it is presumed that it exists and is lawful, unless the debtor proves the contrary (Article 13'4). WHAT
IS LESION?

#t is inadequacy of cause, li$e insufficient price for a thing sold.

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WHAT

ARE THE RULES ON LESION?

As a general rule, lesion or inadequacy of price does not invalidate a contract. 2esion, however, may be evidence of the presence of fraud, mista$e or undue influence. xceptions (when lesion may invalidate the contract)6 a) :hen together with lesion, there is fraud, mista$e or undue influence (Article 13''). b) #n cases expressly provided for by law (Articles 13)14 and 109)') CHAPTER % FORM OF CONTRACTS
A RULE! WHAT IS THE FORM OF A CONTRACT IN ORDER THAT IT WILL BE OF OBLIGATORY FORCE?

AS

,ontracts shall be obligatory, in whatever form they may have been entered into, provided all the essential requisites for their validity are present (Article 13'6). :e have therefore retained the Nspiritual systemO of the /panish ,ivil ,ode by virtue of which the law loo$s more at the spirit rather than at the form of contracts. >ence, under our legal system, the form in which a contract is executed has no effect, as a general rule, upon its obligatory force, provided all of the essential requisites for its validity are present. >owever, this principle merely applies to ,+*/ */8A2 ,+*"FA,"/. #n E+F;A2 ,+*"FA,"/, certain form is required while a F A2 ,+*"FA," requires delivery in addition to the essential requisites of a contract. WHAT
ARE THE EXCEPTIONS TO THE ABOVE RULE?

:hen Article '7@( spea$s of contracts as being obligatory regardless of the form in which they may have been entered into, it
0

AF"#,2 '7D'. "he following contracts are rescissible6 (') "hose which are entered into by guardians whenever the wards whom they represent suffer lesion by more than one-fourth of the value of the things which are the ob3ect thereof% (&) "hose agreed upon in representation of absentees, if the latter suffer the lesion stated in the preceding number%
5

AF"#,2 '9CD. A partition, 3udicial or extra-3udicial, may also be rescinded on account of lesion, when any one of the co-heirs received things whose value is less, by at least one-fourth, than the share to which he is entitled, considering the value of the things at the time they were ad3udicated. ('9)=a) aisa dc

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does not include those contracts for which the law prescribes form either for validity or for enforceability. "here are therefore exceptions to the general rule6 '. :hen the law requires that a contract be in some form in order that it may be valid or enforceable, or &. "hat a contract be proved in certain way. #n such instances, the requirement is absolute and indispensable and the right of the parties stated in the following article cannot be exercised (Article 13'6).
ARE THE DIFFERENT KINDS OF PRESCRIBED BY LAW FOR CERTAIN CONTRACTS?

WHAT

FORMALITIES

WHICH

ARE

Article '7@D enumerates certain $inds of contracts which must appear either in a public instrument or in a private document. "he purpose of the requirement, however, is not to validate or to enforce the contract, but to insure its efficacy% in other words, the form required is neither for validity or enforceability but for ,+*B *# *, of the contracting parties. >ence, the forms required by law for the execution of certain contracts may be divided into6 '. "hose which are merely for ,+*B *# *, (governed by Articles '7@( to '7@D)% &. "hose which are necessary for the BA2#.#"H of the contracts (governed by scattered provisions of the ,ivil ,ode and by special laws)% and 7. "hose which are necessary for the *E+F, AG#2#"H of the contract (governed by the /tatute of Erauds). WHAT IS THE RIGHT OF THE CONTRACTING PARTIES IF THE LAW REQUIRES A DOCUMENT OR OTHER SPECIAL FORM? #f the law requires a document or other special form, as in the acts and contracts enumerated in the following article, the contracting parties may compel each other to observe that form, once the contract has been perfected. "his right may be exercised simultaneously with the action upon the contract (Article 13'(). "his article is applicable only when form is needed only for ,+*B *# *, , not for validity or enforceability. #n other words, before the contracting parties may be compelled to execute the needed form, it is essential that the contract be P FE ," . (valid) (Article 13'() and *E+F, AG2 under the /tatute of Erauds (Article 13'6).

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"he right to compel under Article '7@) cannot be exercised if the law requires that a contract be in some form in order that it may be BA2#. and *E+F, AG2 , because Article '7@( provides that that requirement is AG/+28" and #*.#/P */AG2 . WHAT ARE THE FORMALITIES WHICH CONVENIENCE OF THE CONTRACTING PARTIES?
ARE MERELY FOR THE

"he following must appear in a public document6 (') Acts and contracts which have for their ob3ect the creation, transmission, modification or extinguishment of real rights over immovable property% sales of real property or of an interest therein are governed by articles '=97, *o. &, and '=9@% (&) "he cession, repudiation or renunciation of hereditary rights or of those of the con3ugal partnership of gains% (7) "he power to administer property, or any other power which has for its ob3ect an act appearing or which should appear in a public document, or should pre3udice a third person% (=) "he cession of actions or rights proceeding from an act appearing in a public document (Article 13')). All other contracts where the amount involved exceeds five hundred pesos must appear in writing, even a private one. Gut sales of goods, chattels or things in action are governed by articles '=97, *o. & and '=9@ (Article 13')). *ote that the necessity for the public document in the contracts enumerated above is only for ,+*B *# , , not for BA2#.#"H or *E+F, AG#2#"H. Eormal requirements are for the benefit or third parties. *oncompliance therewith does not adversely affect the validity of the contract or the contractual rights and obligations of the parties thereunder (Fule vs. CA, ".#. $o. 112212, Marc- 2, 199))
ARE THE FORMALITIES VALIDITY OF CONTRACTS?

WHAT

WHICH

ARE

NECESSARY

FOR

THE

"hese contracts may be classified as follows6 '. "hose which must appear in writing% &. "hose which must appear in a public document% and 7. "hose which must be registered. ,+*"FA,"/
:>#,> ;8/" APP AF #* :F#"#*A6

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'. .onations of personal property whose value exceeds five thousand pesos. According to Article )=D, the donation and the acceptance shall be made in writing% otherwise, it shall be void. &. /ale of piece of land or any interest therein by an agent. According to Article 'D)=, if the authority of the agent is not in writing, the sale is void. 7. Antichresis. According to Article &'7=, in contracts of antichresis, the amount of the principal and of the interest shall be specified in writing% otherwise, the contract shall be void. =. Agreements regarding payment of interest in contracts of loan. According to Article 'C@(, no interest shall be due unless it has been expressly stipulated in writing. "he validity of the contract of loan, however, is not affected. ,+*"FA,"/
:>#,> ;8/" APP AF #* A P8G2#, .+,8; *"6

'. .onations of immovable property. According to Article ')=C, the donation must be made in a public document. "he acceptance, on the other hand, may be made in the same deed of donation or in a separate public document. #f the acceptance is made in a separate public document, the donor shall be notified in authentic form and such fact shall be noted in both instruments. *oncompliance with any of these formalities shall render the donation void. &. Partnerships where immovable property or real rights are contributed to the common fund. According to Articles '))' and '))7, in a contract of partnership where immovable property or real rights are contributed to the common fund, it is necessary that the contract must appear in a public instrument and that there must be an inventory of the immovable property and real rights, signed by the partners, and attached to the public instrument% otherwise, the contract is void. ,+*"FA,"/
:>#,> ;8/" G F A#/" F .6

'. ,hattel mortgages. According to Article &'=9, by a chattel mortgage, personal property is recorded in the ,hattel ;ortgage Fegister as a security for the performance of an obligation. #f the movable, instead of being recorded, is delivered to the creditor or a third person, the contract is a pledge and not a chattel mortgage. &. /ales or transfers of large cattle. According to the ,attle Fegistration Act, no sale or transfer of large cattle shall be valid unless it is duly registered and a certificate of transfer is secured. CHAPTER 1

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REFORMATION WHAT IS THE CIVIL CODE?

OF INSTRUMENTS

3N4

DOCTRINE OF REFORMATION OF INSTRUMENTS UNDER

THE

:hen the true intention is not expressed in the instrument purporting to embody the agreement, by reason of mista$e, fraud, inequitable conduct or accident, one of the parties may as$ for the reformation of the instrument to the end that such true intention may be expressed (Article 13'9).
REQUISITES MUST CONCUR IN ORDER THAT AN INSTRUMENT MAY BE REFORMED?

WHAT

'. "here must be meeting of the minds of the parties% &. "heir true intention is not expressed in the instrument% and 7. /uch failure to express their true intention is due to mista$e, fraud, inequitable conduct or accident. =. "here must be convincing proof thereof% @. #t must be brought within the proper prescriptive period% (. "he document must not refer to a simple unconditional donation inter vivos, or to wills, or to a contract where the real agreement is void (Article 1366). #f mista$e, fraud, inequitable conduct, or accident has prevented a meeting of the minds of the parties, the proper remedy is not reformation of the instrument but annulment of the contract ( Article 13'9). WHAT ANNULMENT?
ARE THE DISTINCTIONS BETWEEN REFORMATION AND

"he most fundamental distinctions between an action for reformation of an instrument and an action for the annulment of a contract are6 '. :hereas the first presupposes a perfectly valid contract in which there has already been a meeting of the minds of the contracting parties, the second is based on a defective contract in which there has been no meeting of the minds because the consent of one of the contracting parties has been vitiated. &. Feformation does not invalidate a contract% annulment invalidates a contract.

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IS THE RULE IN CASE OF CONFLICT BETWEEN THE AND THE PRINCIPLES OF GENERAL LAW ON REFORMATION?

WHAT

CIVIL CODE

"he principles of the general law on the reformation of instruments are hereby adopted insofar as they are not in conflict with the provisions of this ,ode (Article 1360). WHAT
ARE THE INSTANCES IN WHICH REFORMATION MAY BE ASKED?

'. :hen a mutual mista$e of the parties causes the failure of the instrument to disclose their real agreement, said instrument may be reformed (Article 1361). &. #f one party was mista$en and the other acted fraudulently or inequitably in such a way that the instrument does not show their true intention, the former may as$ for the reformation of the instrument (Article 1362). 7. :hen one party was mista$en and the other $new or believed that the instrument did not state their real agreement, but concealed that fact from the former, the instrument may be reformed (Article 1363). =. :hen through the ignorance, lac$ of s$ill, negligence or bad faith on the part of the person drafting the instrument or of the cler$ or typist, the instrument does not express the true intention of the parties, the courts may order that the instrument be reformed (Article 1364). @. #f two parties agree upon the mortgage or pledge of real or personal property, but the instrument states that the property is sold absolutely or with a right of repurchase, reformation of the instrument is proper (Article 136'). WHAT
INSTRUMENTS CANNOT BE REFORMED?

"here shall be no reformation in the following cases6 (') (&) (7) /imple donations inter vivos wherein no condition is imposed% :ills% :hen the real agreement is void (Article 1366). WHAT

IS THE EFFECT ON REFORMATION IF ONE OF THE PARTIES HAS BROUGHT AN ACTION TO ENFORCE THE INSTRUMENT?

:hen one of the parties has brought an action to enforce the instrument, he cannot subsequently as$ for its reformation ( Article 136().

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WHO

ARE THE PERSONS WHO MAY ASK FOR REFORMATION OF

INSTRUMENT?

Feformation may be ordered at the instance of either party or his successors-in-interest, if the mista$e was mutual% otherwise, upon petition of the in3ured party, or his heirs and assigns (Article 136)). "he procedure for the reformation of instrument shall be governed by rules of court to be promulgated by the /upreme ,ourt (Article 1369). CHAPTER / INTERPRETATION OF CONTRACTS RULES: '. #f the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control. #f the words appear to be contrary to the evident intention of the parties, the latter shall prevail over the former (Article 13(0). &. #n order to 3udge the intention of the contracting parties, their contemporaneous and subsequent acts shall be principally considered (Article 13(1). 7. >owever general the terms of a contract may be, they shall not be understood to comprehend things that are distinct and cases that are different from those upon which the parties intended to agree (Article 13(2). =. #f some stipulation of any contract should admit of several meanings, it shall be understood as bearing that import which is most adequate to render it effectual (Article 13(3). @. "he various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense which may result from all of them ta$en 3ointly (Article 13(4). (. :ords which may have different significations shall be understood in that which is most in $eeping with the nature and ob3ect of the contract (Article 13('). ). "he usage or custom of the place shall be borne in mind in the interpretation of the ambiguities of a contract, and shall fill the omission of stipulations which are ordinarily established (Article 13(6). D. "he interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity (Article 13((). C. :hen it is absolutely impossible to settle doubts by the rules established in the preceding articles, and the doubts refer to

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incidental circumstances of a gratuitous contract, the least transmission of rights and interests shall prevail. #f the contract is onerous, the doubt shall be settled in favor of the greatest reciprocity of interests. #f the doubts are cast upon the principal ob3ect of the contract in such a way that it cannot be $nown what may have been the intention or will of the parties, the contract shall be null and void (Article 13()). '9. "he principles of interpretation stated in Fule '&7 of the Fules of ,ourt shall li$ewise be observed in the construction of contracts (Article 13(9). DEFECTIVE CONTRACTS WHAT
ARE THE FOUR KINDS OF DEFECTIVE CONTRACTS?

'. Fescissible < valid until rescinded% there is a sort of extrinsic defect consisting of economic damage or lesion. &. Boidable < valid until annulled, unless there has been ratification. "he defect is more or less intrinsic, as in the case of vitiated consent. 7. 8nenforceable < cannot be sued upon or enforced, unless it is ratified. #n a way, it may be considered a validable transaction, that is, it has no effect now, but it may be effective upon ratification. =. Boid < has no effect at all, it cannot be ratified or validated. "he contracts provided above are in the decreasing order as to their effectiveness. CHAPTER 7 RESCISSIBLE CONTRACTS DEFINE
RESCISSIBLE CONTRACTS.

A rescissible contract is a contract which is valid because it contains all of the essential requisites prescribed by law, but which is defective because of the in3ury or damage to either of the contracting parties or to third persons, as a consequence of which it may be rescinded by means of a proper action for rescission. DEFINE
RESCISSION.

Fescission is a remedy granted by law to the contracting parties, and even to third persons, to secure the reparation of damages caused to them by a contract, even if the same should be valid, by means of

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the restoration of things to their condition prior to the celebration of the contract. DISTINGUISH RESCISSION OF CONTRACTS RESOLUTION OF RECIPROCAL OBLIGATIONS.
FROM RESCISSION OR

Fescission of rescissible contracts must not be confused with the rescission or resolution of reciprocal obligation under Article ''C' of the ,ivil ,ode. Although there are similarities both with respect to validity and effects, they are distinguished from each other in the following waysO '. A/ "+ PAF"H :>+ ;AH #*/"#"8" A,"#+*6 #n rescission the action may be instituted not only by a party to the contract but even by third persons, whereas in resolution the action may be instituted only by a party to the contract. &. A/ "+ ,A8/ /6 #n rescission there are several causes or grounds such as lesion, fraud and others expressly specified by law, whereas in resolution the only ground is failure of one of the contracting parties to comply with what is incumbent upon him. 7. A/ "+ P+: F +E "> ,+8F"/6 #n rescission there is no power of the courts to grant extension of time for performance of the obligation so long as there is a ground for rescission, whereas in resolution the law expressly declares that courts shall have a discretionary power to grant an extension for performance provided that there is 3ust cause =. A/ "+ ,+*"FA,"/ :>#,> ;AH G F /,#*. . +F F /+2B .6 #n rescission, any contract, whether unilateral or reciprocal, may be rescinded% whereas in resolution only reciprocal contracts may be resolved. WHAT
CONTRACTS ARE RESCISSIBLE?

"he following contracts are rescissible6 (') "hose which are entered into by guardians whenever the wards whom they represent suffer lesion by more than one-fourth of the value of the things which are the ob3ect thereof% (&) "hose agreed upon in representation of absentees, if the latter suffer the lesion stated in the preceding number% (7) "hose underta$en in fraud of creditors when the latter cannot in any other manner collect the claims due them% (=) "hose which refer to things under litigation if they have been entered into by the defendant without the $nowledge and approval of the litigants or of competent 3udicial authority% (@) All other contracts specially declared by law to be sub3ect to rescission. (Article '7D')

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(() Payments made in a state of insolvency for obligations to whose fulfillment the debtor could not be compelled at the time they were effected, are also rescissible. (Article '7D&)
REQUISITES MUST CONCUR BEFORE A CONTRACT MAY BE RESCINDED ON THE GROUND OF LESION?

WHAT

:hether the contract is entered into by a guardian in behalf of his ward or by a legal representative in behalf of an absentee, before it can be rescinded on the ground of lesion, it is indispensable that the following requisites must concur6 a. "he contract must be entered into by the guardian in behalf of his ward or by the legal representative in behalf of an absentee (Article '7D', *os. ' and &)% b. "he ward or absentee suffered lesion of more than onefourth of the value of the property which is the ob3ect of the contract (ibid)% c. "he contract must be entered without 3udicial approval (Article '7D() d. "here must be no legal means for obtaining reparation for the lesion (Article '7D@, par. ')% e. "he person bringing the action must be able to return whatever he may be obliged to restore (Article '7D@, par. ')% and f. "he ob3ect of the contract must not be legally in the possession of a third person who did not act in bad faith (Article '7D@, par. ') WHAT REQUISITES MUST CONCUR BEFORE A CONTRACT ENTERED INTO IN FRAUD OF CREDITORS CAN BE RESCINDED? Gefore a contract can be rescinded on the ground that it has been entered into in fraud of creditors, it is indispensable that the following requisites must concur6 a. "here must be a credit existing prior to the celebration of the contract% b. "here must be fraud, or at least the intent to commit fraud, to the pre3udice of the creditor see$ing rescission% c. "he creditor cannot in any other legal manner collect his credit% and d. "he ob3ect of the contract must not be legally in the possession of a third person who did not act in bad faith.

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ARE THE PERSONS WHO MAY INSTITUTE AN ACTION FOR THE RESCISSION OF A RESCISSIBLE CONTRACT?

WHO

"he action for rescission may be instituted by the following6 a. "he person who is pre3udiced, such as the person suffering the lesion in rescissory actions based on lesion, the creditor who is defrauded in rescissory actions based on fraud, and other persons authori4ed to exercise the same in other rescissory actions% b. "heir representatives% c. "heir heirs% and d. "heir creditors by virtue of the subrogatory action defined in Article '')). IN RESCISSORY ACTIONS BASED ON FRAUD! IT IS ESSENTIAL THAT FRAUD OR THE INTENT TO DEFRAUD MUST BE PROVED. HOW CAN THIS BE DONE? /uch fraud or the intent to defraud may be either presumed in accordance with Article '7D) or duly proved in accordance with the ordinary rules of evidence. "he law presumes that there is fraud of creditors in the following cases6 a. Alienation of property by gratuitous if the donor did not reserve sufficient property to pay all debts contracted before the alienation. b. Alienations of property by onerous title if made by persons against whom some 3udgment has been rendered in any instance or some writ of attachment has been issued. "he decision or attachment need not refer to the property alienated, and need not have been obtained by the party see$ing the rescission. (Article '7D)) WHAT
IS THE EXTENT OF RESCISSION?

Fescission shall be only to the extent necessary to cover the damages caused. (Article '7D=) WHAT ARE GRANTED?
THE OBLIGATIONS OF THE PLAINTIFF IN CASE RESCISSION

IS

Fescission creates the obligation to return the things which were the ob3ect of the contract, together with their fruits, and the price with its interest% consequently, it can be carried out only when he who

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demands rescission can return whatever he may be obliged to restore. (Article '7D@) WHAT DEMANDED?
ARE THE INSTANCES WHEN RESCISSION CANNOT BE

a. :hen the plaintiff who demands rescission cannot anymore return the thing% b. :hen the things which are the ob3ect of the contract are legally in the possession of third persons who did not act in bad faith. #n this case, indemnity for damages may be demanded from the person causing the loss. (Article '7D@) c. Fescission referred to in *os. ' and & of Article '7D' with respect to contracts approved by the courts. (Article '7D() WHAT IS THE LIABLITY OF ONE WHO ACQUIRES IN BAD FAITH THE THINGS ALIENATED IN FRAUD OF CREDITORS? :hoever acquires in bad faith the things alienated in fraud of creditors, shall indemnify the latter for damages suffered by them on account of the alienation, whenever, due to any cause, it should be impossible for him to return them. #f there are two or more alienations, the first acquirer shall be liable first, and so on successively. (Article '7DD) WHAT
IS THE PRESCRIPTIVE PERIOD OF RESCISSION?

"he action to claim rescission must be commenced within four years. Eor persons under guardianship and for absentees, the period of four years shall not begin until the termination of the formerIs incapacity, or until the domicile of the latter is $nown. (Article '7DC) CHAPTER VOIDABLE CONTRACTS DEFINE
VOIDABLE CONTRACTS.

Boidable contracts are those in which all of the essential elements for validity are present, but the element of consent is vitiated either by lac$ of legal capacity of one of the contracting parties, or by mista$e, violence, intimidation, undue influence, or fraud.

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DISTINGUISH

VOIDABLE CONTRACTS FROM RESCISSIBLE CONTRACTS.

Boidable and rescissible contracts may be distinguished from each other in the following ways6 a. #n a voidable contract, the defect is instrinsic because it consists of a vice which vitiates consent, whereas in a rescissible contract the defect is external because it consists of damage or pre3udice either to one of the contracting parties or to a third person (Articles '7D', '7C9)% b. #n the former, the contract is voidable even if there is not damage or pre3udice, whereas in the latter, the contract is not rescissibloe if there is not damage or pre3udice% c. #n the former, the annulability of the contract is based on law, whereas in the latter the rescissibility of the contract is based on equity. >ence, annulment is not only a remedy but a sanction, whereas rescission is a mere remedy. Public interest, therefore, predominates in the first, whereas private interest predominates in the second% d. "he causes of annulment are different from the causes of rescission% e. "he former is susceptible of ratification, whereas the latter is not (Articles '7D', '7C9)% and f. Annulment may be invo$ed only by a contracting party, whereas rescission may be invo$ed either by a contracting party or by a third person who is pre3udiced. WHAT
CONTRACTS ARE VOIDABLE?

"he following contracts are voidable or annullable, even though there may have been no damage to the contracting parties6 (') "hose where one of the parties is incapable of giving consent to a contract% (&) "hose where the consent is vitiated by mista$e, violence, intimidation, undue influence or fraud. "hese contracts are binding, unless they are annulled by a proper action in court. "hey are susceptible of ratification. (Article '7C9) WHAT CONTRACT?
IS THE PRESCRIPTIVE PERIOD OF ANNULING A VOIDABLE

"he action for annulment shall be brought within four years. (Article '7C')

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"his period shall begin6 a. #n cases of intimidation, violence or undue influence, from the time the defect of the consent ceases. b. #n case of mista$e or fraud, from the time of the discovery of the same. c. And when the action refers to contracts entered into by minors or other incapacitated persons, from the time the guardianship ceases. HOW
MAY A VOIDABLE CONTRACT BE CONVALIDATED?

"here are 7 ways or modes of convalidating a voidable contract. "hey are6 a. Gy prescription of the action for annulment (Article '7C')% b. Gy ratification or confirmation (Articles '7C&-'7C()% and c. Gy the loss of the thing which is the ob3ect of the contract through the fraud or fault of the person who is entitled to institute the action for the annulment of the contract (Article '=9') WHAT IS MEANT BY RATIFICATION OF VOIDABLE CONTRACTS? WHAT ARE ITS REQUISITES? Fatification, or confirmation as it is $nown in the /panish ,ivil ,ode, is defined as the act or means by virtue of which efficacy is given to a contract which suffers from a vice of curable nullity. Fatification or confirmation requires the concurrence of the following requisites6 a. "he contract should be tainted with a vice which is susceptible of being cured (the contract must be a voidable one)% b. "he confirmation should be effected by the person who is entitled to do so under the law% c. #t should be effected with $nowledge of the reason which renders the contract voidable% and d. "he reason which renders the contract voidable should have already disappeared. e. "he person ratifying must be the in3ured party. HOW
MAY RATIFICATION BE MADE?

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Fatification may be effected expressly or tacitly. "here is an express ratification if, with $nowledge of the reason which renders the contract voidable and such reason having ceased, the person who has a right to invo$e it should expressly declare his renunciation of his right to annul the contract. +n the other hand, there is a tacit ratification if, with $nowledge of the reason which renders the contract voidable and such reason having ceased, the person who has a right to invo$e it should execute an act which necessarily implies an intention to waive his right. (Article '7C7) WHO
MAY EFFECT THE RATIFICATION?

Fatification may be effected by the guardian of the incapacitated person. (Article '7C=) Fatification does not require the conformity of the contracting party who has no right to bring the action for annulment. (Article '7C@) WHAT
IS THE EFFECT OF RATIFICATION?

a. Fatification cleanses the contract from all its defects from the moment it was constituted. (Article '7C() "here is retroactive effect of ratification, thus, once ratification has ta$en place, annulment based on the original defects cannot prosper. b. "he action to annul is extinguished (Article '7C&), thus the contract becomes a completely valid one. WHO CONTRACT?
MAY INSTITUTE AN ACTION FOR ANNULMENT OF A VOIDABLE

"he action for the annulment of contracts may be instituted by all who are thereby obliged principally or subsidiarily. >owever, persons who are capable cannot allege the incapacity of those with whom they contracted% nor can those who exerted intimidation, violence, or undue influence, or employed fraud, or caused mista$e base their action upon these flaws of the contract. (Article '7C)) "here are therefore & different requisites in order that a person may institute the action for the annulment of a voidable contract6 a. "he plaintiff must have an interest in the contract in the sense that he is obliged thereby either principally or subsidiarily% and

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b. "he victim and not the party responsible for the vice or defect must be the one who must assert the same. IF A PERSON IS NOT OBLIGED PRINCIPALLY OR SUBSIDIARILY UNDER A CONTRACT! WOULD IT BE POSSIBLE FOR HIM TO INSTITUTE AN ACTION FOR THE ANNULMENT OF THE CONTRACT? As a rule, a contract cannot be assailed by one who is not a party thereto. >owever, the /upreme ,ourt in several cases has held that a person, who is not a party obliged principally or subsidiarily under a contract, may bring an action for annulment of the contract if he is pre3udiced in his rights with respect to one of the contracting parties, and can show detriment which would positively result to him from the contract in which he has no intervention ( +in1son vs. Isa,lea +aA ill, )) +C#A 623, citin1 8eves vs. 7eopleCs Do esite and Dousin1 Corp, 23 +C#A 1114 and 2e +antos vs. Cit* of Manila, 4' +C#A 409). WHAT ARE THE OBLIGATIONS OF THE CONTRACTING PARTIES AFTER AN OBLIGATION IS ANNULED? WHAT ARE THE EFFECTS OF ANNULMENT? a. #f the contract has not yet been complied with, the parties are excused from their obligation. b. #f the contract has already been performed, the contracting parties shall restore to each other the things which have been the sub3ect matter of the contract, with their fruits, and the price with its interest, except in cases provided by law. c. #n obligations to render service, the value thereof shall be the basis for damages. (Article '7CD)
ARE THE INSTANCES WHERE THERE IS NO OBLIGATION TO MAKE ANY RESTITUTION?

WHAT

:hen the defect of the contract consists in the incapacity of one of the parties, the incapacitated person is not obliged to ma$e any restitution except insofar as he has been benefited by the thing or price received by him. ('7CC) WHAT THING?
IS THE LIABILITY OF THE OBLIGOR IF HE CANNOT RETURN THE

:henever the person obliged by the decree of annulment to return the thing can not do so because it has been lost through his fault, he shall return the fruits received and the value of the thing at the time of the loss, with interest from the same date. (Article '=99)

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IS THE EFFECT ON THE RIGHT TO ANNUL IF THE THING WHICH IS THE OB ECT OF THE CONTRACT IS LOST?

WHAT

"he action for annulment of contracts shall be extinguished when the thing which is the ob3ect thereof is lost through the fraud or fault of the person who has a right to institute the proceedings. #f the right of action is based upon the incapacity of any one of the contracting parties, the loss of the thing shall not be an obstacle to the success of the action, unless said loss too$ place through the fraud or fault of the plaintiff. (Article '=9') WHEN
MUST THE THING BE RETURNED?

As long as one of the contracting parties does not restore what in virtue of the decree of annulment he is bound to return, the other cannot be compelled to comply with what is incumbent upon him. (Article '=9&) CHAPTER 2 UNENFORCEABLE CONTRACTS 3N4 DEFINE
UNENFORCEABLE CONTRACTS.

8nenforceable contracts are those which cannot be enforced by a proper action in court, unless ratified. WHAT
ARE THE KINDS OF UNENFORCEABLE CONTRACT?

a. "hose entered into without or in excess of authority (unauthori4ed contracts)% b. "hose that do not comply with the /tatute of Erauds% c. "hose where both of the contracting parties do not possess the required legal capacity. DISTINGUISH UNENFORCEABLE CONTRACTS FROM OTHER DEFECTIVE CONTRACTS. #n general, unenforceable contract may be distinguished from the other defective contracts in the following ways6
A.

EF+; F /,#//#G2 ,+*"FA,"/ < First, unenforceable contracts cannot be enforced by a proper action in court, whereas rescissible contracts are valid and enforceable unless they are rescinded. +econd, the former cannot be assailed by third

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persons, whereas the latter may be assailed by third persons who are pre3udiced. G. EF+; Boidable contracts < unenforceable contracts cannot be enforced by a proper action in court, whereas voidable contracts are binding and enforceable unless they are annulled by a proper action in court. ,. EF+; B+#. ,+*"FA,"/ < "here are some unenforceable contracts which are valid and, therefore, may produce effects, although they cannot be enforced by a proper action in court% void or inexistent contracts, on the other hand, do not produce, as a general rule, any effect whatsoever. >ence, unenforceable contracts are susceptible of ratification, whereas void contracts are not. WHAT
CONTRACTS ARE UNENFORCEABLE?

"he following contracts are unenforceable, unless they are ratified6 (') "hose entered into in the name of another person by one who has been given no authority or legal representation, or who has acted beyond his powers% (&) "hose that do not comply with the /tatute of Erauds as set forth in this number. #n the following cases an agreement hereafter made shall be unenforceable by action, unless the same, or some note or memorandum, thereof, be in writing, and subscribed by the party charged, or by his agent% evidence, therefore, of the agreement cannot be received without the writing, or a secondary evidence of its contents6 (a) An agreement that by its terms is not to be performed within a year from the ma$ing thereof% (b) A special promise to answer for the debt, default, or miscarriage of another% (c) An agreement made in consideration of marriage, other than a mutual promise to marry% (d) An agreement for the sale of goods, chattels or things in action, at a price not less than five hundred pesos, unless the buyer accept and receive part of such goods and chattels, or the evidences, or some of them, of such things in action, or pay at the time some part of the purchase money% but when a sale is made by auction and entry is made by the auctioneer in his sales boo$, at the time of the sale, of the amount and $ind of property sold, terms of sale, price, names of the purchasers and person on whose account the sale is made, it is a sufficient memorandum%

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(e) An agreement for the leasing for a longer period than one year, or for the sale of real property or of an interest therein% (f) A representation as to the credit of a third person. (7) HOW "hose where both parties are incapable of giving consent to a contract (Article '=97). STATUTE
OF

MAY CONTRACTS INFRINGING THE RATIFIED?

FRAUDS

BE

,ontracts infringing the /tatute of Erauds may be ratified either6 a. by the failure to ob3ect to the presentation of oral evidence to prove the same, or b. by the acceptance of benefits under them (Article '=9@).
FROM EACH OTHER #CONFIRMATION$! AND #RECOGNITION$ 3OR #ACKNOWLEDGMENT$4.

DISTINGUISH

#RATIFICATION$!

Fatification is curing the defect of lac$ of authority in an authori4ed contract (entered into by another) (Articles '7'), '=9@). 8nder the present ,ode, the term ratification is used to designate the act of validating any $ind of defective contract. ,onfirmation is curing a defect of a voidable contract (Article '7C(). #t tends to cure a vice of nullity and ratification is for the purpose of giving authority to a person who previously acted in the name of another without authority (%una vs. %inatoc, (4 7-il. 1'). Fecognition or ac$nowledgment, on the other hand, is merely to cure a defect of proof (Article '=9@). #n recognition, there is no vice to be remedied, such as fraud, violence, or mista$e, so that the case is distinguished from confirmation. #n Fecognition, the person on behalf of another is duly authori4ed to do so, so the situation is different from ratification (I,id). 8nder the new ,ivil ,ode, all three terms are now uniformly called FA"#E#,A"#+*. WHAT IS THE REMEDY OF A PARTY WHEN THE CONTRACT IS UNENFORCEABLE AND A PUBLIC DOCUMENT IS NECESSARY FOR ITS REGISTRATION? :hen a contract is enforceable under the /tatute of Erauds, and a public document is necessary for its registration in the Fegistry of

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.eeds, the parties may avail themselves of the right under Article '7@) (Article '=9(). WHAT IS THE EFFECT IF BOTH PARTIES ARE INCAPACITATED! AND THE GUARDIAN OF ONE OF THEM RATIFIES THE CONTRACT? #n a contract where both parties are incapable of giving consent, express or implied ratification by the parent, or guardian, as the case may be, of one of the contracting parties shall give the contract the same effect as if only one of them were incapacitated (Article '=9)). WHAT CONTRACT?
IS THE EFFECT IF BOTH PARENTS OR GUARDIANS RATIFY THE

#f ratification is made by the parents or guardians, as the case may be, of both contracting parties, the contract shall be validated from the inception (Article '=9), par. &). WHO
CAN ASSAIL UNENFORCEABLE CONTRACTS?

#t is only the parties who can assail an unenforceable contract. #t cannot be assailed by third persons (Article '=9D). VOID DEFINE CHAPTER 6 INEXISTENT CONTRACTS

OR

VOID AND INEXISTENT CONTRACTS.

#n general, void and inexistent contracts may be defined as those which lac$ absolutely either in fact or in law one or some or all of those elements which are essential for its validity. #n particular, void contracts are contracts where all of the requisites prescribed by law for contracts are present, but the cause, ob3ect or purpose is contrary to law, morals, good customs, public order or public policy, or they are prohibited by law, or they are decalred by law to be void. #nexistent contracts, on the other hand, are those contracts which lac$ absolutely one or some or all of thoser requisites which are essential for validity. DISTINGUISH
BETWEEN VOID AND INEXISTENT CONTRACTS.

Boid and inexistent contracts may be distinguished from each other in the following ways 6

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a) Boid contracts refer to those where all of the the requisites of a contract are present but the cause, ob3ect or purpose is contrary to law, morals, good customs, public order or public policy, or the contract itself is prohibited or declared by law to be void % inexistent contracts, on the other hand, refer to those where one or some or all of those requisites which are essential for validity are absolutely lac$ing (%i1ue6 vs. Court of Appeals, 102 7-il. '((). b) "he principle of in paru delicto is applicable in the first, but not in the second. ,onsequently, the first may produce effects (Articles '='', '='&), but the second does not produce any effect whatsoever. WHAT
ARE THE CHARACTERISTICS OF VOID CONTRACTS

a. "he right to set up the defense of illegality cannot be waived (Article '=9C), and may be considered on appeal even if not raised in the trial court. b. "he action or defense for their declaration as inexistent does not prescribe (Article '='9) c. "he defense of illegality of contracts is not available to third persos whose interests are not directly affected (Article '='&) d. ,annot give rise to a contract % thus Ra contract which is the direct result of a previous illegal contract is also void and inexistent (Article '=&&) e. Aenerally produces no effect. f. "hey cannot be ratified (Article '=9C).
VOID AND INEXISTENT CONTRACTS FROM THE OTHER DEFECTIVE CONTRACTS.

DISTINGUISH

A B+#. +F #* L#/" *" ,+*"FA," ;AH F /,#//#G2 ,+*"FA," #* "> E+22+:#*A :AH/ 6

.#/"#*A8#/> .

EF+;

a. A void or inexistent contract produces, as a rule, no effect even if it is not set aside by a direct action, whereas a rescissible contract is valid unless it is rescinded (Articles '7D9, '=9C). b. "he defect of the former consists in absolute lac$ in fact or in law of one or some or all of the essentail elements of a contract, whereas the defect of the latter consists in lesion or damage to one of the contracting parties or to third persons. c. #n the former, the nullity or inexistence of the contract is based on the law, whereas, in the latter its rescissible character is based on equity. >ence, an actin for declaration of absolute nullity or inexistence is not only a remedy but a sanction, whereas an action for rescission is a mere remedy. Public

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interest, therefore, predominates in the first, whereas private interest predominates in the second. d. "he action for the declaration of the nullity or inexistence of a contract is imprescriptible, whereas the action for the rescission of a contract is prescriptible (Articles '7DC, '='9) e. "he nullity or inexistence of a contract cannot as a rule be assailed by third persons, whereas the rescissible character of a contract may be assailed by third persons (Articles '7D', '7D&, '=9C)
B+#. ,+*"FA," ;AH G E+22+:#*A :AH/6

.#/"#*A8#/> . EF+; A B+#.AG2

,+*"FA," #*

">

a. A void or inexistent contract produces, as a general rule, no effect even if it is not set aside by a direct action, whereas a voidable contract is binding unless it is annulled (Articles '7C9, '=9C) b. "he causes for the inexistence or absolute nullity of the former are different from the causes for the annulability or relative nullity of the latter (I,id). c. "he former is not susceptible of ratification, whereas the latter is susceptible of ratification. d. "he action for the declaration of the nullity or inexistence of a contract is imprescriptible, whereas the action for the annulment of a contract is prescriptible (Articles '7C', ''=9) e. "he defense of inexistence or absolute nullity is available to third persons whose interests are directly affected, whereas the defense of annulability is not available to third persons (Articles '7C), '=&') A B+#. ,+*"FA," ;AH G .#/"#*A8#/> . EF+; A* 8* *E+F, AG2 ,+*"FA," #* "> E+22+:#*A :AH/6 a. #n a void or inexistent contract, there is in law or in reality no contract at all, whereas in an unenforceable contract, there is actually a contract which cannot be enforced by a court action unless ratified (Articles '=97, '=9C). b. "he causes for the inexistence or absolute nullity of the former are different from the causes for the unenforceability of the latter (I,id). c. "he former is not susceptible of ratification, while the latter is susceptible of ratification (Articles '=9=, '=9@, '=9), '=9C). d. "he former can be assailed by third persons whose interests are directly affected, whereas the latter cannot be assailed by third persons (Articles '=9D, '=&'). WHAT
CONTRACTS ARE VOID OR INEXISTENT

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"he following contracts are inexistent and void from the beginning6 (') "hose whose cause, ob3ect or purpose is contrary to law, morals, good customs, public order or public policy% (&) "hose which are absolutely simulated or fictitious% (7) "hose whose cause or ob3ect did not exist at the time of the transaction% (=) "hose whose ob3ect is outside the commerce of men% (@) "hose which contemplate an impossible service% (() "hose where the intention of the parties relative to the principal ob3ect of the contract cannot be ascertained% ()) "hose expressly prohibited or declared void by law. (Article '=9C) "hese contracts cannot be ratified. *either can the right to set up the defense of illegality be waived. #n addition, we can also include6 a. "hose which are direct results of previous illegal contract (Article '=&&)% b. "hose where there is no concurrence between offer and acceptance with regard to the ob3ect and the cause of the contract% and c. "hose which do not comply with the required form where such form is essential for validity. WHAT
IS THE PRINCIPLE OF IN PARI DELICTO?

:hen the defect of a void contract consists in the illegality of the cause or ob3ect of the contract, and both parties are at fault or in pari delicto, the law refuses them every remedy and leaves them where they are. "his rule, which is embodied in Articles '='' and '='&, is what is commonly $nown as the principle of in pari delicto. #t is a rule which is expressed in the maxims6 I@9 dolo alo non oritur actionJ and IIn pari delicto potior est condition defendentisJ. "he law will not aid either party to an illegal agreement% it leaves then where they are. WHAT IS THE EFFECT IF BOTH PARTIES TO AN ILEGAL CONTRACT ARE IN PARI DELICTO? :hen the nullity proceeds from the illegality of the cause or ob3ect of the contract, and the act constitutes a criminal offense, both parties being in pari delicto6

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a. "hey shall have no action against each other, and b. Goth shall be prosecuted. c. ;oreover, the provisions of the Penal ,ode relative to the disposal of effects or instruments of a crime shall be applicable to the things or the price of the contract. "his rule shall be applicable when only one of the parties is guilty% but the innocent one may claim what he has given, and shall not be bound to comply with his promise. (Article '='') WHAT
ARE THE EXCEPTIONS TO THE PRINCIPLE OF IN PARI DELICTO?

"he exceptions to the principle of in pari delicto are the following6 a. Payment of usurious interest. #n such a case, the law allows the debtor to recover the interest paid in excess of that allowed by the usury laws, with interest thereon from the date of payment (Article '='7). b. Payment of money or delivery of property for an illegal purpose, where the party who paid or delivered repudiates the contract before the purpose has been accomplished, or before any damage has been caused to a third person. #n such a case, the courts may allow such party to recover what he ahs paid or delivered, if the public interest will thus be subserved (Article '='=). c. Payment of money or delivery of property by an incapacitated person. #n such a care, the courts may allow such person to recover what he ahs paid or delivered, if the interest of 3ustice so demands (Article '='@). d. Agreement or contract which is not illegal per se but is merely prohibited by law, and the prohibition is designed to the protection of the plaintiff. #n such a case, such plaintiff, if public policy is thereby enhanced, may recover what he has paid or delivered (Article '='(). e. Payment of any amount in excess of the maximum price of any article or commodity fixed by law. #n such a case, the buyer may recover the excess (Article '=')). f. ,ontract whereby a laborer underta$es to wor$ longer than the maximum number of hours fixed by law. #n such a case, the laborer may demand for overtime pay (Article '='D). g. ,ontract whereby a laborer accepts a wage lower than the minimum wage fixed by law. #n such case, the laborer may demand for the deficiency (Article '='C).

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IS THE RULE IF THE ACT IN WHICH THE UNLAWFUL OR FORBIDDEN CAUSE CONSISTS DOES NOT CONSTITUTE A CRIMINAL OFFENSE?

WHAT

#f the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the following rules shall be observed6 (') :hen the fault is on the part of both contracting parties, neither may recover what he has given by virtue of the contract, or demand the performance of the otherIs underta$ing% (&) :hen only one of the contracting parties is at fault, he cannot recover what he has given by reason of the contract, or as$ for the fulfillment of what has been promised him. "he other, who is not at fault, may demand the return of what he has given without any obligation to comply his promise. (Article '='&) WHAT IS THE RULE IF THE CONTRACT IS DIVISIBLE AND THE ILLEGAL TERMS CAN BE SEPARATED FROM THE LEGAL ONES? #n case of a divisible contract, if the illegal terms can be separated from the legal ones, the latter may be enforced (Article '=&9). WHO
CAN RAISE THE DEFENSE OF ILLEGALITY OF A CONTRACT?

"he defense of illegality of contract is not available to third persons whose interests are not directly affected (Article '=&'). TITLE III NATURAL OBLIGATIONS WHAT
ARE THE KINDS OF OBLIGATIONS?

DEFINE

EACH.

+bligations are civil or natural. ,ivil obligations give a right of action to compel their performance. *atural obligations, not being based on positive law but on equity and natural law, do not grant a right of action to enforce their performance, but after voluntary fulfillment by the obligor, they authori4e the retention of what has been delivered or rendered by reason thereof (Article '=&7). DEFINE
VOLUNTARY FULFILLMENT.

Boluntary fulfillment means that the debtor complied with the same even if he $new that he could not have been legally forced to do

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so. #n the case of partial voluntary fulfillment, the balance cannot be recovered, since on said balance, there has not been created a legal obligation. HOW
OBLIGATION? IS UNDUE PAYMENT DISTINGUISHED FROM NATURAL

#f a debt that has prescribed is paid not $nowing it has prescribed, the payor can recover on the ground of undue payment. Gut if it is paid $nowing that it has prescribed already, the payor cannot recover for this would be a case of a natural obligation. IS
THERE A URIDICAL TIE IN MORAL OBLIGATIONS?

:hile there is a 3uridical tie in natural obligations, there is none in moral obligations. GIVE
EXAMPLES OF NATURAL OBLIGATIONS.

'. :hen a right to sue upon a civil obligation has lapsed by extinctive prescription, the obligor who voluntarily performs the contract cannot recover what he has delivered or the value of the service he has rendered (Article '=&=). &. :hen without the $nowledge or against the will of the debtor, a third person pays a debt which the obligor is not legally bound to pay because the action thereon has prescribed, but the debtor later voluntarily reimburses the third person, the obligor cannot recover what he has paid (Article '=&@). 7. :hen a minor between eighteen and twenty-one years of age who has entered into a contract without the consent of the parent or guardian, after the annulment of the contract voluntarily returns the whole thing or price received, notwithstanding the fact that he has not been benefited thereby, there is no right to demand the thing or price thus returned (Article '=&(). =. :hen a minor between eighteen and twenty-one years of age, who has entered into a contract without the consent of the parent or guardian, voluntarily pays a sum of money or delivers a fungible thing in fulfillment of the obligation, there shall be no right to recover the same from the obligee who has spent or consumed it in good faith (Article '=&)). @. :hen, after an action to enforce a civil obligation has failed the defendant voluntarily performs the obligation, he cannot demand the return of what he has delivered or the payment of the value of the service he has rendered (Article '=&D).

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(. :hen a testate or intestate heir voluntarily pays a debt of the decedent exceeding the value of the property which he received by will or by the law of intestacy from the estate of the deceased, the payment is valid and cannot be rescinded by the payer (Article '=&C). ). :hen a will is declared void because it has not been executed in accordance with the formalities required by law, but one of the intestate heirs, after the settlement of the debts of the deceased, pays a legacy in compliance with a clause in the defective will, the payment is effective and irrevocable (Article '=7C). TITLE IV ESTOPPEL 3N4 WHAT
IS ESTOPPEL?

"hrough estoppel an admission or representation is rendered conclusive upon the person ma$ing it, and cannot be denied or disproved as against the person relying thereon. (Article '=7') #t is a condition or state by virtue of which an admission or representation is rendered conclusive upon the person ma$ing it, and cannot be denied or disproved as against the person relying thereon. WHAT
ARE THE KINDS OF ESTO))+L?

stoppel may be6 a. stopple in pais (by conduct or equitable estoppel)% "his may be estoppel6 a) b) c) d) e) b. by by by by by conduct or acceptance of benefits% representation or concealment% silence% omission% laches.

stoppel by deed (technical estoppel (Article '=77)% "his may be estoppel6 a) by deed proper (written instrument may also be in the form of a bond or mortage% b) by 3udgment as a court record.

c.

stoppe by laches (8i=a

vs. +i,on1-ano*, 23 +C#A 29).

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DEFINE a.

EACH KIND OF ESTOPPEL.

stoppel in pais or by conduct is that which arises when one by his acts, representations or admissions, or by his silence when he ought to spea$ out, intentionally or through culpable negligence, induces another to believe that certain facts to exist and such other rightfully relies and acts on such belief, as a consequence of which he would be pre3udiced if the former is permitted to deny the existence of such facts. b. stoppel by deed is a type of technical estoppel by virtue of which a party to a deed and his privies are precluded from asserting as against the other party and his privies any right or title in derogation of the deed, or from denying any material fact asserted therein. +n the other hand, estopel by record is a type of technical estoppel by virtue of which a party and his privies are precluded from denying the truth of matters set forth in a record, whether 3udicial or legislative. c. 2aches, in general sense, is failure or neglect, for an unreasonable and unexplained length of time, to do that which, by exercising due diligence, could or should have been done earlier% it is negligence or omission to assert a right within reasonable time, warranting a presumption that the party entitled to assert it either has abandoned it or declined to assert it (8i=a vs. +i,on1-ano*, supra3 Deirs of %aca en vs. Deirs of %aruan, 6' +C#A 60'). #t is therefore, a type of equitable estoppel which arises when a party, $nowing his rights as against another, ta$es no step or delays in enforcing them until the condition of the latter, who has no $nowledge or notive that the former would assert such rights, has become so changed that he cannot, without in3ury or pre3udice, be restored to his former state. WHAT
IS THE BASIS OF THE DOCTRINE OF LACHES?

"he doctrine of laches or of Nstale demandsO is based on public policy which requires, for the peace of society, the discouragement of stale claims and, unli$e the statute of limitations, is not a mere question of time but is principally a question of the inequity or unfairness of permitting a right or claim to be enforced or asserted (8i=a vs. +i,on1-ano*, supra). WHAT
ARE THE ESSENTIAL ELEMENTS OF LACHES?

"he four (=) essential elements of laches are6

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a. ,onduct on the part of the defendant, or of one under whom he claims, giving rise to the situation of which the complaint see$s a remedy% b. .elay in asserting the complainant5s rights, the complainant having had $nowledge or notice of the defendant5s conduct and having been afforded an opportunity to institute a suit% c. 2ac$ of $nowledge or notice on the part of the defendant that the complainant would assert the right on which he bases his suit% and d. #n3ury or pre3udice to the defendant in the event relief is accorded to the complainant, or the suit is not held barred (Mi1uel vs. Catalino, 26 +C#A 234 and cases cited t-erein). DISTINGUISH
BETWEEN LACHES AND PRESCRIPTION.

"he defense of laches applies independently of prescription. 2aches is different from the statute of limitations in that6 a) Prescription is concerned with the fact of delay, whereas laches is concerned with the effect of delay. b) Prescription is a matter of time% laches is principally a question of inequity of permitting a claim to be enforced, this inequity being founded on some change in the condition of the property or the relation of the parties. c) Prescription is statutory% laches is not. $) 2aches applies in equity% whereas prescription applies at law. e) Prescription is based on fixed time, laches is not. ( f) :hile prescription is unavailing against a holder of a valid certificate of title, the equitable doctrine of laches may be applied against the plaintiffs for failure to assert their ownership for such an unreasonable length of time against its occupant. ) WHAT
IS MEANT BY ESTOPPEL BY SILENCE?

stoppel by silence or inaction refers to a type of estoppel in pais which arises when a party, who has a right and opportunity to spea$ or act as well as a duty to do so under the circumstanc=es, intentionally or through culpable negligence, induces another to believe certain facts to exist and such other relies and acts on such belief, as a
*ielson S ,o., #nc. v. 2epanto ,onsolidated ;ining ,o., 'D /,FA '9=9, .ecember '), 'C((, per Taldivar, ?. /ee also >eirs of Gatiog 2acamen v. >eirs of 2aruan, (@ /,FA (9@, (9C, ?uly 7', 'C)@% Fadio ,ommunication of the Philippines, #nc. v. *2F,, &&7 /,FA (@(% ?une &@, 'CC7% ?imene4 v. Eernande4, 'D= /,FA 'C9, 'C(, April (, 'CC9% /antiago v. ,ourt of Appeals, &)D /,FA CD, August &', 'CC), per >ermosisima, ?r. ?. 2 Fepublic vs. ,ourt of Appeals, &9= /,FA '(9 0'CC'1.
1

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consequence of which he would be pre3udiced if the former is permitted to deny the existence of such facts. +n the other hand, estoppel by acceptance of benefits refers to a type of estoppel in pais which arises when a party, by accepting benefits derived from a certain act or transaction, intentionally or through culpable negligence, induces another to believe certain facts to exist and such other relies and acts on such belief, as a consequence of which he would be pre3udiced if the former is permitted to deny the existence of such facts. GIVE
AN EXAMPLE OF ESTOPPEL BY SILENCE.

:hen in a contract between third persons concerning immovable property, one of them is misled by a person with respect to the ownership or real right over the real estate, the latter is precluded from asserting his legal title or interest therein, provided all these requisites are present6 (') "here must be fraudulent representation or wrongful concealment of facts $nown to the party estopped% (&) "he party precluded must intend that the other should act upon the facts as misrepresented% (7) "he party misled must have been unaware of the true facts% and (=) "he party defrauded must have acted in accordance with the misrepresentation. (Article '=7)) +ne who has allowed another to assume apparent ownership of personal property for the purpose of ma$ing any transfer of it, cannot, if he received the sum for which a pledge has been constituted, set up his own title to defeat the pledge of the property, made by the other to a pledgee who received the same in good faith and for value. (Article '=7D) WHAT
IS MEANT BY ESTOPPEL BY UDGMENT?

stoppel by 3udgment is merely a type of estoppel by record. #t may be defined as the preclusion of a party to a case from denying the facts ad3udicated by a court of competent 3urisdiction. "his type of estoppel must not be confused with res =udicata. stoppel by 3udgment bars the parties from raising any question that might have been put in issue and decided in a previous litigation, whereas res =udicata ma$es a 3udgment conclusive between the same parties as to the matter directly ad3udged ( 7-il. $atCl. Ean< vs. Earret o, @& Phil. D'D% *A;AF,+ vs. ;acadaeg, @& +ff. Aa4. 'D&).

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WHAT IS THE EFFECT IF A PERSON WHO IS NOT THE OWNER OF A THING SELLS OR ALIENATES AND DELIVERS IT AND LATER THE SELLER OR GRANTOR ACQUIRES TITLE THERETO? :hen a person who is not the owner of a thing sells or alienates and delivers it, and later the seller or grantor acquires title thereto, such title passes by operation of law to the buyer or grantee (Article '=7=).
IS THE EFFECT IF A PERSON IN REPRESENTATION OF ANOTHER SELLS OR ALIENATES A THING VIZ A VIS THE BUYER OR GRANTEE?

WHAT

#f a person in representation of another sells or alienates a thing, the former cannot subsequently set up his own title as against the buyer or grantee (Article '=7@). CAN A LESSEE OR BAILEE ASSERT TITLE TO THE THING LEASED OR RECEIVED? A lessee or a bailee is estopped from asserting title to the thing leased or received, as against the lessor or bailor (Article '=7(). WHO
ARE THE PERSONS BOUND BY ESTOPPEL?

stoppel is effective only as between the parties thereto or their successors-in-interest (Article '=7C). TITLE V TRUSTS 3N4 CHAPTER 1 GENERAL PROVISIONS DEFINE
TRUST.

"rust may be defined as the legal relationship between one person having an equitable ownership over a certain property and another having the legal title thereto. WHO
ARE THE PARTIES TO A TRUST?

A person who establishes a trust is called the trustor (or settler)% one in whom confidence is reposed as regards the property for the benefit of another person is $nown as the trustee (he holds the property in trust for the benefit of another)% and the person for whose

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benefit the trust has been created is referred to as the beneficiary or cestui :ue trust (Article '==9). "he trustor may at the same time be the beneficiary. GIVE
AND DEFINE THE DIFFERENT KIND OF TRUSTS.

"rusts are either express or implied.

are created by the intention of the trustor or of

the parties. #;P2# . "F8/"/ come into being by operation of law (Article '=='). "hey are those which, without being expressed, are deducible from the nature of the transaction as atters of intent, or which are superinduced on the transaction by operation of laA as atters of e:uit*, independently of the particular intention of the parties. "hey are ordinarily subdivided into resulting and constructive trusts. #mplied trusts may be resulting or constructive. A F /82"#*A "F8/" (bare or passive trust), in its more restricted sense, is a trust raised by implication of law and presumed always to have been contemplated by the parties, the intention as to which is to be found in the nature of the transaction, but not expressed in the deed or instrument of conveyance. A ,+*/"F8,"#B "F8/", in its more restricted sense, as contradistinguished from a resulting trust, is a trust not created by words, either expressly or impliedly evincing a direct intention to create a trust, but by the construction of equity in order to satisfy the demands of 3ustice. #f a person obtains legal title to property by fraud or concealment, courts of equity will impress upon the title a so-called constructive trust in favor of the defrauded party ( #a os vs. #a os, 61 +C#A 2)4). A constructive trust is not, therefore, a trust in the technical sense (Article '=@(). DISTINGUISH
BETWEEN EXPRESS TRUST AND IMPLIED TRUST.

xpress trust and implied trust may be distinguished from each other in the following ways6 xpress trust is one created by the intention of the trustor or of the parties, while an implied trust is one that comes into being by operation of law. b) xpress trusts are those created by the direct and positive acts of the parties, by some writing, or deed, or will, or by words evidencing an intention to create a trust. +n the other hand, implied trusts are a)

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those which, without being expressed, are deducible from the nature of the transaction by operation of law as matters of equity, independently of the particular intention of the parties. c) "hus, if intent to establish a trust is clear, the trust is express% if the intent to establish a trust is to be ta$en from the circumstances or other matters indicative of such intent, then the trust is implied (Cua*con1 vs. Cua*con1, 21 +C#A 1192). $) *o express trust concerning an immovable or any interest therein may be proved by parol evidence (Article '==7), while the existence of an implied trust may be proved by parol evidence. e) 2aches and prescription do not constitute a bar to enforce an express trust, at least while the trustee does not openly repudiate the trust, and ma$e $nown such repudiation to the beneficiary, while laches and prescription may constitute a bar to enforce an implied trust, and no repudiation is required unless there is a concealment of the facts giving rise to the trust ( Fa,ian vs. Fa,ian, 21 +C#A 213). WHAT
ARE THE CHARACTERISTICS OF TRUST?

a. #t is a fiduciary relationship. b. #t is created by law or by agreement. c. #t is one where the legal title is held by one, and the equitable title or beneficial title is held by another. HOW
IS TRUST DISTINGUISHED FROM STIPULATION POUR AUTRUI?

a. A trust may exist because of a legal provision or because of an agreement% a stipulation pour autrui can arise only in the case of contracts. b. A trust refers to specific property% a stipulation pour autrui refers to specific property or to other things. CHAPTER " EXPRESS TRUSTS WHAT
ARE THE FORMALITIES OF EXPRESS TRUSTS?

*o express trusts concerning an immovable or any interest therein may be proved by parol evidence (Article '==7). "herefore6 a. "he requirement that the express trust be in writing is only for enforceability, not for validity between the parties. >ence, this Article may by analogy be included under the /tatute of Erauds. b. Gy implication, for a trust over personal property, an oral agreement is valid and enforceable between the parties.

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c. Fegarding third persons, the trust must be in a public instrument and registered in the Fegistry of Property, if it concerns real property. HOW
IS AN EXPRESS TRUST CREATED?

*o particular words are required for the creation of an express trust, it being sufficient that a trust is clearly intended (Article '===). An express trust is therefore created6 a. Gy conveyance to the trustee by an act inter vivos or ortis causa (as in a will). b. Gy admission of the trustee that he holds the property only as trustee. WHAT IS THE EFFECT OF THE EXPRESS TRUST IF THE TRUSTEE APPOINTED DECLINES THE DESIGNATION? *o trust shall fail because the trustee appointed declines the designation, unless the contrary should appear in the instrument constituting the trust. (Article '==@) WHAT
IS REQUIRED IN ORDER TO CREATE AN EXPRESS TRUST?

Acceptance by the beneficiary is necessary. *evertheless, if the trust imposes no onerous condition upon the beneficiary, his acceptance shall be presumed, if there is no proof to the contrary. (Article '==() HOW a. b. c. d. e. f. g. h.
ARE EXPRESS TRUSTS ENDED?

;utual agreement by all the parties xpiration of the term Eulfillment of the resolutory condition Fescission or annulment (as in contracts) 2oss of the sub3ect matter of the trust +rder of the court ;erger Accomplishment of the purpose of the trust CHAPTER % IMPLIED TRUSTS

WHAT ARE EXAMPLES OF RESULTING TRUSTS? a) "here is an implied trust when property is sold, and the legal estate is granted to one party but the price is paid by another for the

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b)

c) $)

e)

purpose of having the beneficial interest of the property. "he former is the trustee, while the latter is the beneficiary. >owever, if the person to whom the title is conveyed is a child, legitimate or illegitimate, of the one paying the price of the sale, no trust is implied by law, it being disputably presumed that there is a gift in favor of the child. (Article '==D) "here is also an implied trust when a donation is made to a person but it appears that although the legal estate is transmitted to the donee, he nevertheless is either to have no beneficial interest or only a part thereof. (Article '==C) :hen land passes by succession to any person and he causes the legal title to be put in the name of another, a trust is established by implication of law for the benefit of the true owner. (Article '=@') #f two or more persons agree to purchase property and by common consent the legal title is ta$en in the name of one of them for the benefit of all, a trust is created by force of law in favor of the others in proportion to the interest of each. (Article '=@&) :hen property is conveyed to a person in reliance upon his declared intention to hold it for, or transfer it to another or the grantor, there is an implied trust in favor of the person whose benefit is contemplated. (Article '=@7) WHAT
IS AN EXAMPLE OF CONSTRUCTIVE TRUST?

a. #f the price of a sale of property is loaned or paid by one person for the benefit of another and the conveyance is made to the lender or payor to secure the payment of the debt, a trust arises by operation of law in favor of the person to whom the money is loaned or for whom it is paid. "he latter may redeem the property and compel a conveyance thereof to him. (Article '=@9) b. #f an absolute conveyance of property is made in order to secure the performance of an obligation of the grantor toward the grantee, a trust by virtue of law is established. #f the fulfillment of the obligation is offered by the grantor when it becomes due, he may demand the reconveyance of the property to him. (Article '=@=) c. :hen any trustee, guardian or other person holding a fiduciary relationship uses trust funds for the purchase of property and causes the conveyance to be made to him or to a third person, a trust is established by operation of law in favor of the person to whom the funds belong. (Article '=@@) d. #f property is acquired through mista$e or fraud, the person obtaining it is, by force of law, considered a trustee of an implied trust for the benefit of the person from whom the property comes. (Article '=@()

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IS THE PERIOD OF PRESCRIPTION OF AN ACTION RECONVEYANCE OF REAL PROPERTY BASED ON IMPLIED TRUST?

WHAT

FOR

#t depends6 a) #f the action for reconveyance involves the annulment of a voidable contract which became the basis for the fraudulent registration of the sub3ect property, then the period of prescription is 4 *ears fro t-e discover* of t-e fraud. "his finds codal support in Article '7C', par. = of the ,ivil ,ode ("erona vs. 2e "u6 an, 11 +C#A 1'33 Fa,ian vs. Fa,ian, 22 +C#A 2313 Carantes vs. Court of Appeals, (6 +C#A '143 Alarcon vs. Eidin, 120 +C#A 390). b) #f the action does not involve the annulment of a contract, but there was fraud in the registration of the sub3ect property, then the period of prescription is 10 *ears fro t-e discover* of t-e fraud. "his finds codal support in Article ''==, *o. & ( Eueno vs. #e*es, 2( +C#A 11(93 Varsit* Dills, Inc. vs. $avarro, 43 +C#A '033 @sca* vs. Court of Appeals, 61 +C#A 3603 /ara il vs. Court of Appeals, () +C#A 4203 Vda. 2e $acala,an vs. Court of Appeals, )0 +C#A 42)3 2u:ue vs. 2o in1o, )0 +C#A 6'4). c) #f the action involves the declaration of nullity or inexistence of a void or inexistent contract which became the basis for the fraudulent registration of the sub3ect property, then the action is i prescripti,le. "his finds codal support in Article '='9 ( Article 8on1o* vs. Court of Appeals, 123 +C#A (1)). $) #f the action for reconveyance is in reality an action to quiet title and the legitimate owner of the sub3ect property which was fraudulently registered in the name of another had always been in possession thereof so that the constructive notice rule cannot be applied, then the action is i prescripti,le (Cara1a*&%a1no vs. Court of Appeals, 133 +C#A (1)).
A TRUSTEE ACQUIRE ABSOLUTE OWNERSHIP OVER THE PROPERTY HELD IN TRUST BY ACQUISITIVE PRESCRIPTION?

CAN

:hether the trust is express or implied, as a general rule, the trustee cannot acquire absolute ownership over the trust by acquisitive prescription. >owever, if (') he repudiates the right of the beneficiary% and (&) such act of repudiation is brought to the $nowledge of the beneficiary, and (7) the evidence thereon is clear and conclusive, he may be able to acquire absolute ownership over the trust but only (=) after the lapse of the period fixed by law. HOW
MAY IMPLIED TRUST BE PROVED?

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An implied trust may be proved by oral evidence. (Article '=@))

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