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Lecture in Obligations and CONTRACTS With Jurisprudence PDF
Lecture in Obligations and CONTRACTS With Jurisprudence PDF
Chapter 1
GENERAL PROVISIONS
Art. 1156
Definition of Obligation
-a juridical necessity to give, to do or not to do.
-a juridical relation whereby a person (called the creditor) may demand from another
(called the debtor) the observance of a determinate conduct (the giving, doing, or not
doing), and in case of breach, may demand satisfaction from the assets of the latter.
( Arias Ramos, p. 74)
Judicial necessity because non-compliance can result in judicial or legal sanction.
Elements of Obligation:
1) an active subject (obligee or creditor): the possessor of a right; he in whose favor
the obligation is constituted;
2) a passive subject (obligor or debtor): he who has the duty of giving, doing or not
doing;
3) the object or prestation: the subject matter of the obligation; it may consist of
giving a thing, or doing or not doing a certain act;
4) the efficient cause (vinculum or juridical tie): the reason why the obligation exists
and
5) Causa (causa debendi/causa obligationes) - why obligation exists
Requisites of Object:
a. licit - if illicit, it is void
b. possible - if impossible, it is void
c. determinate or determinable - or else, void
d. pecuniary value
Kinds of Obligations
1) From the viewpoint of sanction
a) civil obligation (perfect obligation) : defined in Art. 1156, Civil Code, and
sanctioned by judicial process
b) natural obligation: the duty not to recover what has voluntarily been paid
although payment was no longer required
: it is sanctioned by law, but only because conscience had originally motivated
the payment
Example: Knowing that it already prescribed, a debtor still paid his debt to the
creditor.
c) moral obligation: sanctioned by conscience or morality, or the laws of the
church.
Example: the duty of a catholic to hear mass on Sundays
In Sagrada v. Naccoco, the Supreme Court held that the sources of obligation
in Art 1157 is exclusive. Many commentators believe, however that it should not
be. At present, there is one more possible source of obligations - PUBLIC OFFER
(Public Offer is in fact a source of obligation in the German Civil Code)
Chapter 2
NATURE AND EFFECT OF OBLIGATIONS
EFFECTS OF OBLIGATION
1. Obligation to give - obligation to deliver the thing agreed upon
2. Obligation to do/not to do - obligation to do/not to do the service agreed upon
ACCESSORY OBLIGATIONS:
1. Exercise diligence / Preserve the thing (Art. 1163) EDD
When does right to fruits arise? from the time the obligation to deliver arises
a) Conditional from the moment the condition happens
b) With a term/period upon the expiration of the term/period
c) Simple from the perfection of the contract
IT DEPENDS!
A. If there is no term or condition, then from the perfection of the contract
B. If there is a term or a condition, then from the moment the term arrives or the
condition happens.
KINDS OF DELIVERY
A. ACTUAL OR TRADITION physically, the property changes hands
B. CONSTRUCTIVE DELIVERY where the physical transfer is implied
1. Traditio Simbolica (symbolical tradition) as when the keys to the
bodega are given
2. Tradition Longa Manu (delivery by mere consent or the pointing out of the
object) like pointing out to the car, which is the object of a sale.
3. Tradition Brevi Manu (delivery by short hand) a possessor of a thing not
as an owner, becomes the possessor as owner like when a tenant already in
possession buys the house he is renting.
4. Tradition Constitutum Possessorium opposite of Brevi Manu the
delivery whereby a possessor of a thing as an owner retains possession no longer of a
thing as an owner but in some other capacity.
5. Tradition by the Execution of Legal Forms and Solemnities like the
execution of a public instrument selling land.
Art. 1165
DELAY in this article means LEGAL DELAY or DEFAULT
a. ORDINARY DELAY - merely the non-performance at the stipulated time
b. LEGAL DELAY or DEFAULT that delay which amounts to a virtual non-
fulfillment of the obligation. AS A RULE, to put a debtor in default, there must be a
JUDICIAL or EXTRAJUDICIAL DEMAND or fulfillment
WHEN THE DEBTOR FAILS TO COMPLY WITH HIS OBLIGATION, THE CREDITOR
CAN:
1. Demand specific performance or compliance
- Specific Performance- performance of the prestation itself
- Substitute Performance - someone else performs or something else is
performed at the expense of debtor
- Equivalent Performance demand for damages
Art. 1166
ACCESSORIES those joined to or included in the principal for the latters better
use, perfection or enjoyment. (Example: keys to a house, jack of a car)
ACCESSIONS additions to improvements upon a thing (Examples: whatever is
built, planted or sown on a parcel of land).
If there is a stipulation to said effect, accessions and accessories do not have to be
included.
Art. 1168
When the obligation consists in not doing, and the obligor does what has been
forbidden him, it shall also be undone at his expense.
1. Contravention of tenor
2. Delay/ Mora - Non performance with respect to time
Elements:
(1) The obligation must be due, enforceable and already liquidated or
determinate in amount
(2) There must be non-performance
(1) There must be a demand, unless demand is not required
Effects:
a. if determinate thing - debtor bears risk of loss (even when there is
fortuitous event)
b. debtor liable for damages/interest
c. resolution (art 1170, in proper cases)
Effects:
(1) responsibility of debtor is reduced to fraud and gross negligence
(2) debtor is exempted from risk of loss of thing / creditor bears risk of
loss
(3) expenses by debtor for preservation of thing after delay is chargeable
to creditor
(4) if obligation bears interest, debtor does not have to pay from time of
delay
(5) creditor liable for damages
(6) debtor may relieve himself of obligation by consigning the thing
Art 1169
Those obliged to deliver or to do something incur in delay from the time the
obligee judicially or extra-judicially demands from them the fulfillment of their obligation.
However, the demand from the creditor shall not be necessary in order that delay
may exist:
a. When the obligation or the law expressly so declares. ONU
b. When from the nature and the circumstances of the obligation it appears that the
designation of the time when the thing is to be delivered to the service is to be
rendered was a controlling motive for the establishment of the contract
c. When demand would be useless, as when the obligor has rendered it beyond his
power to perform
In reciprocal obligations, neither party incurs in delay if the other does not comply or
is not ready to comply in a proper manner with what is incumbent upon him. From
the moment one of the parties fulfills his obligation, delay by the other begins.
Those who in the performance of their obligation are guilty of fraud, negligence
or delay and those who in any manner contravene the tenor thereof are liable for
damages.
Those liable under this Article should pay damages, only if prejudice or damage was
caused.
Kinds of Damages
a. Moral-for moral and physical anguish
b. Exemplary-corrective or to set an example
c. Nominal-to vindicate a right-when no other kind of damages may be recovered
d. Temperate-when the exact amount of damages cannot be determined
e. Actual-actual losses as well as unrealized profits
f. Liquidated predetermined beforehand by agreement.
Art 1171
Art 1172
Art 1173
The fault or negligence of the obligor consists in that omission of the diligence
which is required by the nature of the obligation and corresponds with the circumstances
of the person, of the time and of the place. When negligence shows bad faith, the
provisions of Articles 1171 and 2201 paragraph 2, shall apply.
FRAUD NEGLIGENCE
There is deliberate intention to cause There is no deliberate intention to cause damage.
damage.
Liability cannot be mitigated. Liability may be mitigated.
Waiver for future fraud is void. Waiver for future negligence may be allowed in
certain cases:
a) gross can never be excused in advance;
against public policy
b) simple may be excused in certain cases
Art 1174
Concept: Fortuitous Event - event which could not be foreseen, or which though
foreseen, were inevitable
Refers to as caso fortuito, act of God, force majeure, unavoidable accident
Eg. Natural calamities
General Rule for Fortuitous Events- No person shall be liable for fortuitous events;
i.e., his obligation will be extinguished:
Exceptions to the General Rule- when the debtor shall be held liable for a
fortuitous event (Art. 1174)
a) when expressly declared by law ( bad faith, subject matter is
generic, debtor is in delay )
b) when expressly declared by stipulation or contract
c) when the nature of the obligation requires assumption of risk (eg.
obligation of an insurer)
EXAMPLE:
Jaypee is obliged to give Jaboom his car on Dec. 7, 1991. If on that said day,
Jaypee does not deliver, he is in ordinary delay. If on Dec. 8, 1991, an earthquake
destroys the car, he is not liable because the obligation is extinguished.
Art 1175
The condition not to do an impossible thing shall be considered as not having been
agreed upon:
a. If condition is to do an impossible of illegal thing=condition and obligation are
void
b. If the condition is negative/not to do the impossible=just disregard the condition
but the obligation remain
c. If the obligation is negative/not to do= both condition and obligation are valid
Art. 1177 Remedies of creditor to enforce payment of his claims against debtor
Requisites:
a. Creditor must have right of return against debtor
b. The debt is due and demandable
c. There is a failure of the debtor to collect his own debt from 3rd persons
either through malice or negligence
d. Debtor's assets are insufficient
e. The right of account is not purely personal
Requisites:
a. There is a credit in favor of plaintiff
b. The debtor has performed an act subsequent to the contract, giving
advantage to other persons
c. The creditor is prejudiced by the debtor's act which are in favor of 3rd
parties and rescission will benefit the creditor
d. The creditor has no other legal remedy
e. The debtor's acts are fraudulent
Art. 1178
Rule on transmissibility of rights and exceptions thereto.
CATEGORIES:
Primary Classification
1. Pure obligation
2. Conditional Obligation
3. Obligation with a period
4. Alternative Obligation
5. Facultative Obligation
6. Joint Obligation
7. Solidary Obligation
8. Divisible obligation
9. Indivisible Obligation
10. Obligation with a Penal Clause
1. Pure obligation demandable at once, with no term and no condition Eg. I will give
you ten pesos.
2. Conditional Obligation- one whose demandability or extinguishment depends
upon the happening of a condition.
A condition is a future and an uncertain event or a past event unknown to the parties
eg. I will give you one million pesos if you pass the Bar.
Definition of Condition: It is an uncertain event which wields influence on a legal
relationship (Manresa)
Kinds of Condition
1. Suspensive and Resolutory
2. Potestative, Casual and Mixed
3. Possible and Impossible
4. Positive and Negative
5. Divisible and Indivisible
iv. Casual dependent upon chance or hazard, or upon the will of a third person
eg. Ill give you P1000 if I will win first prize in the lotto which I bet today
v. Mixed dependent partly upon chance and upon the will of one of the parties,
or upon the will of a third person. Eg. I will give you P1million if you marry A.
OBLIGATION WITH A PERIOD future & certain, past & uncertain, payable when able
remedy:
a) agreement among parties
Kinds:
a. Resolutory ( in diem ) takes effect at once but terminate upon arrival of
the day certain;
Day certain that which must necessarily come, although it may not be known
when
a) art 1197
e) art 1180
e. attempts to abscond
(4). Facultative only one prestation has been agreed upon but another may be given
in substitution
(1) If only 1 is left either because of fortuitous events or due to debtor's acts,
perform what is left. The effect is that the debtor loses the right of choice
(2) if the choice is limited because of the creditor's acts, the debtor has the right
of resolution and damages
(3) if all are lost due to debtor, the creditor is entitled to damages
(4) if some are lost, the debtor can choose from the remaining
(1) if one or some are lost due to fortuitous event, the creditor chooses the
remainder
(2) if one or some is lost because of the fault of debtor, the creditor may choose
either the remainder or the value of any which disappeared, and damages in
either case
(3) if all is lost due to the debtor's fault, the creditor may choose the value of any
if some is lost due to debtor's fault, the creditor chooses the remainder
ALTERNATIVE FACULTATIVE
a) Various things are due but the giving a) Only one thing is due but a substitute may be
principally of one is sufficient given to render payment/fulfillment easy
b) If one of prestations is illegal, others
b) If principal obligations is void and there is no
may be valid but obligation remains necessity of giving the substitute; nullity of P
carries with it nullity of S
c) If it is impossible to give all except c) If it is impossible to give the principal, the
one, the last one must still be given substitute does not have to be given; if it is
impossible to give the substitute, the principal
must still be given
d) Right to choose may be given either d) The right of choice is given only to the debtor
to debtor or creditor
(6). Joint presumption when 2 or more creditors or 2 or more debtors concur in one
and the same obligation
Effects:
Effects:
1. Death of 1 solidary creditor transmits share to heirs (but collectively)
Effects:
1. Each debtor may be requested to pay whole obligation with right to recover
from co-debtors
c. Mixed on the part of the obligors and obligees, or the part of the debtors and
the creditors
5. bailees in commodatum
Effects:
a. payment made before debt is due, no interest can be charged, otherwise
interest can be charged
b. insolvency of one others are liable for share pro-rata
c. if different terms & conditions collect only what is due, later on collect from any
f. fault of any debtor every one is responsible price, damage & interest
c. loss due to fortuitous event after default there is liability (because of default)
c. provided by law
d. intention of parties
(10). With penal clause - an accessory undertaking to assume greater liability in case of
breach;
a. partial/irregular performance
The condition that some event will happen at a determinate time shall extinguish
the obligation as soon as the time expires or if it has become indubitable that the event
will not take place.
If the period is not fixed in the contract, the court, considering the parties intentions,
should determine what period was really intended.
Art 1185
The condition that some event will not happen at a determinate time shall ender
the obligation effective from the moment the time indicated has elapsed, or if it has
become evident that the event cannot occur.
If no time has been fixed, the condition shall be deemed fulfilled at such time as
may have been contemplated, bearing in mind the nature of the obligation.
Art 1186
The condition shall be deemed fulfilled when the obligor voluntarily prevents its
fulfillment (Doctrine of Constructive Fulfillment)
This Article deals with Constructive or Presumes Fulfillment.
Reason for the article: One must not profit by his own fault.
Requisites:
a. Voluntarily made-intent to prevent must be present
b. Actually prevents-intention without prevention or prevention without intention is
not sufficient
Art 1187
The effects of a conditional obligation to give, once the condition has been
fulfilled, shall retroact to the day of the constitution of the obligation. Nevertheless, when
the obligation imposes reciprocal prestations upon the parties, the fruits and interests
during the pendency of the condition shall be deemed to have been mutually
compensated. If the obligation is unilateral, the debtor shall appropriate the fruits and
interests received, unless from the nature and circumstances of the obligation it should
be inferred that the intention of the person constituting the same was different.
Art 1188
The creditor may, before the fulfillment of the condition, bring the appropriate
actions fro the preservation of his rights.
The debtor may recover what during the same time he has paid by mistake in
case of suspensive condition.
Art 1189
When the conditions have been imposed with the intention of suspending the
efficacy of an obligation to give, the following rules shall be observed in case of the
improvement, loss or deterioration of the thing during the pendency of the condition:
a. If the thing is lost without the fault of the debtor, the obligation shall be
extinguished
b. If the thing is lost through the fault of the debtor, he shall be obliged to pay
damages, it is understood that the thing is lost when it perishes, or goes out of
commerce, or disappears in such a way that its existence is unknown or cannot
be recovered.
c. When the thing deteriorates without the fault of the debtor, the impairment is to
be borne by the creditor
d. If it deteriorates through the fault of the debtor, the creditor may choose from the
rescission of the obligation and its fulfillment, with indemnity for damages in
either case
e. If the thing is improved by its nature or by time, the improvement shall inure to
the benefit of the creditor
f. If it is improved at the expense of the debtor, he shall have no other right than
that granted to the usufractuary.
Art 1190
When the condition have for their purpose the extinguishments of an obligation to
give, the parties, upon fulfillment of said conditions, shall return to each other what they
have received.
Art 1191
The power to rescind obligations is implied in reciprocal ones in case one of the
obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment if the latter should become
impossible.
The court shall decree the rescission claimed, unless there be just cause
authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons who have
acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage Law.
To rescind=to cancel/revoke
Rescission may be judicial or extra-judicial (but best to be judicial)
Effect of Rescission-mutual restitution
This article speaks of reciprocal obligations
Judicial approval for rescission is needed when there has already been delivery of
the object (unless there is a voluntary returning)
Judicial approval is not needed when there has been no delivery yet
Choice by the Injured Party
a. Fulfillment or specific performance with damages or
b. Rescission plus damages
Art 1192
In case both parties have committed a breach of the obligation. The liability of
the first infractor shall be equitably tempered by the courts. If it cannot be determined
which of the parties first violated the contract, the same shall be deemed extinguished,
and each shall bear his own damages.
Breach of the second infractor provides mitigating effect to the liability of the first
infractor because of this, the courts shall temper/regulate/lessen the liability of the
first infractor.
Art 1193
Obligations for whose fulfillment a day certain has been fixed, shall be
demandable only when that day comes.
Obligations with resolutory period take the effect at once, but terminate upon
arrival of the day certain.
If the uncertainty consists in whether the day will come or not, the obligation is
conditional and it shall be regulated by the rules of the preceding Section.
Period ids a certain length of time which determines the effectively or the
extinguishment of the obligation (it must surely come)
Art 1194
In case of loss, deterioration or improvement of the thing before the arrival of the
day certain, the rules in Art 1189 shall be observed.
Art 1195
Anything paid or delivered before the arrival of the period, the obligor being
unaware of the period or believing that the obligation has become due and demandable,
may be recovered, with fruits and interests.
Art 1196
General Rule: Term is for the benefit of the debtor or creditor. Meaning, the debtor
cannot prematurely pay and the creditor cannot demand prematurely.
This Article applies only to a contract with a period they fixed themselves.
Art 1197
If the obligation does not fix a period, but from its nature and the circumstances it
can be inferred that a period was intended, the courts may fix the duration thereof.
The courts shall also fix the duration of the period when it depends upon the will
of the debtor.
In every case, the courts shall determine such period as may under the
circumstances have been probably contemplated by the parties. Once fixed by the
courts, the period cannot be changed by them.
Art 1198
The debtor shall lose every right to make use of the period:
a. When after the obligation has been contracted, he becomes insolvent, unless he
gives a guaranty or security for the debt
b. When he does not furnish to the creditor the guarantees or securities which he
has promised
c. When by his own acts he has impaired said guaranties and securities after their
establishment, and when through a fortuitous event they disappear, unless he
immediately gives new ones equally satisfactory
d. When the debtor violates any undertaking, in consideration of which the creditor
agreed to the period
e. When the debtor attempts to abscond.
The debtor shall lose every right to make use of the period-it means that the term is
extinguished and the creditor can demand fulfillment at once.
Art 1199
The creditor cannot be compelled to receive part of one and part of the other
undertaking.
Art 1200
The right of choice belongs to the debtor, unless if as been expressly granted to
the creditor.
The debtor shall have no right to choose from those prestations which are
impossible, unlawful, or which could not have been the object of the obligation.
General Rule-In the absence of any stipulations, the right if choice belongs to the
debtor.
Limitation on the Debtors Choice- the debtor shall have no right to choose
prestations which are:
a. Impossible
b. Unlawful
c. Which could not have been the object of the obligation
Art 1201
The choice shall produce no effect except from the time it has been
communicated.
Art 1202
The debtor shall lose the right of choice when among the prestations whereby he
is alternatively bound, only one is practicable.
Art 1203
If through the creditors acts the debtor cannot make a choice according to the
terms of the obligation, the latter may rescind the contract with damages.
Art 1204
The creditor shall have a right to indemnity for damages when, through the fault
of the debtor, all the things which are alternatively the object of the obligation have been
lost, or the compliance of the obligation has become impossible.
The indemnity shall be fixed taking as a basis the vale of the last thing which
disappeared, or that of the services which last become impossible.
Art 1205
When the choice has been expressly given to the creditor, the obligation shall
cease to be alternative from the day the selection has been communicated to the
debtor.
Until then the responsibility of the debtor shall be governed by the following rules:
a. If one of the things is lost through a fortuitous event, he shall perform the
obligation by delivering that which the creditor should choose from among the
remainder, or that which remains if only one subsists
b. If the lose of one of the things occurs through the fault of the debtor, the creditor
may claim any of those subsisting, or the price of that which, through the fault of
the former has disappeared, with a right to damages
c. If all the things are lost through the fault of the debtor, the choice by the creditor
shall fall upon the price of any of them, also with indemnity for damages.
Art 1206
When only one prestation has been agreed upon the obligor may render another
in substitution, the obligation is called facultative.
Facultative Obligation- one where only one prestation has been agreed upon but
the obligor may render another in substitution.
Art 1207
Joint Obligations- each obligor answers only for a part of the whole liability and to each
obligee belongs only a part of the correlative (equivalent) rights
Solidary / Joint and Several Obligations- the relationship between the active and the
passive subjects is so close that each of the former or of the latter may demand the
fulfillment of or must comply to the whole obligation.
General Rule: When there are two or more debtors or two or more creditors the
obligation is joint.
Exceptions:
a. When there is a stipulation to the contract that the obligation is solidary
b. When the object of the obligation requires liability to be solidary
c. When the law declares the obligation to be solidary
Art 1208
Liability of Partners:
a. If it arises out of contracts the liability is joint or pro-rata
b. If it arises out of a crime or quasi-delict, the liability is solidary together with the
partnership
Art 1209
If the division is impossible, the rights of the creditors may be prejudiced only by
their collective acts, and the debt can be enforced only by proceeding against all the
debtors.
Characteristics
a. The obligation is joint but since the object is indivisible, the creditor may proceed
against all the joint debtors for compliance is possible only if all the joint debtors
would act together
b. Demand must therefore be made on all the joint debtors if anyone of the debtors
does not comply with his monetary obligation for damages
c. If any of the debtors shall be insolvent, the others shall not be liable for his share
d. If there be joint creditors, delivery must be made to all, and not merely to one,
unless that one be specifically authorized by others
e. Each joint creditor is allowed to renounce his proportionate credit
Art 1210
The indivisibility of an obligation does not necessarily give rise to solidarity. Nor
does solidarity of itself imply indivisibility.
Art 1211
Art 1213 A solidary creditor cannot assign his rights without the consent of the
others.
Art 1214 The debtor may pay any one of the creditors: but if any demand has
been made by any one of them, payment must be made to him.
Art 1215
The creditor who may have expected any of these acts, as well as he who
has collects the debt, shall be liable to the others for the share in the obligation
corresponding to them.
Compensation- that which takes place when 2 persons in their own right are creditors
and debtors of each other. Compensation may be Total or Partial depending upon the
amount involved
Confusion or Merger- That which takes place when the characters of the creditor and
debtor are merged in the same person
Remission or Waiver- that act of liberality whereby the creditor condones the obligation
of the debtor, that where the creditor tells the debtor to forget the whole thing
Payment- one of the ways by which the obligation is extinguished and consists in the
delivery of the thing or the rendition of the service which is the object of the obligation.
Art 1218 Payment by a solidary debtor shall not entitle him to reimbursement from his
co-debtors if such payment is made after the obligation has prescribed or become illegal.
Art 1220 The remission of the whole obligation, obtained by one of the solidary
debtors, does not entitle him from reimbursement from his co-debtors.
Art 1221
If the thing has been lost or the prestation has become impossible without the
fault of the solidary debtors, the obligation shall be extinguished.
If there was fault on the part of any one of them, all shall be responsible to the
creditor, for the price and the payment of damages and interest, without prejudice to
their action against the guilty or negligent debtor.
Art 1222
A solidary debtor may, in actions filed by the creditor, avail himself of all defenses
which are derived from the nature of the obligation and of those which are personal to
him, or pertain to his own share. With respect to those which personally belong to the
others, he may avail himself thereof only as regards that part of the debt for which the
latter are responsible.
Kinds of Defense
a. Those derived from the nature of the obligation
- Lack of consideration or cause
- Absolute simulation-as when the contract is totally fictitious
- Illegal consideration
- Extinguishment of the obligation-as when the whole debt has been paid, remitted,
etc.
- Non-fulfillment of the suspensive condition
- Statute of frauds
- When all the debtors were incapacitated to give consent-such as unemancipated
minors, insane, etc.
- When there are Vices of Consent/Vitiated Consent on the part of all the debtors
Art 1223
The divisibility of the indivisibility of the things that are the object of obligations in
which there is only one debtor and only one creditor does not alter or modify the
provisions of Chapter 2 of this Title.
Kinds of Division
a. Quantitative- depends on quantity
b. Qualitative- depends on quality, irrespective of quantity
c. Intellectual or Moral- one that exists only in the mind, and nor in physical reality
Art 1224
A joint indivisible obligation give rise to indemnity for damages from the time
anyone of the debtors does not comply with his undertaking. The debtors who may have
been ready to fulfill their promises shall nor 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.
Effect of Non Compliance- the obligation is converted to a monetary one for indemnity.
Art 1225
For the purpose of the preceding articles, obligations to give definite and those
which are not susceptible of partial performance shall be deemed to be indivisible.
Art 1226
In obligation with a penal clause, the penalty shall substitute the indemnity fro
damages and the payment of interest in case of non-compliance, if there is no stipulation
to the contrary. Nevertheless, damages shall be paid if the obligor refuses to pay the
penalty or is guilty of fraud in the fulfillment of the obligation.
Principal Purpose of the Penal Clause- to insure the performance of the obligation and
also to substitute for damages and the payment of interest in case of non-compliance.
Art 1227
The debtor cannot exempt himself from the performance of the obligation by
paying the penalty, save in the case where this right has been expressly reserved for
him. Neither can the creditor demand the fulfillment of the obligation and the satisfaction
of the penalty at the same time, unless this right has been clearly granted to him.
However, if after the creditor has decided to require the fulfillment of the obligation, the
performance thereof should become impossible without his fault, the penalty may be
enforced.
IF the debtor can just pay the penalty, the fulfillment of the obligation will be
considered an alternative one.
Art 1228 Proof of actual damages suffered by the creditor is not necessary in order
that the penalty may be demanded.
Art 1229
The judge shall equitably reduce the penalty when the principal obligation has
been partly or irregularly complied with by the debtor. Even if there has been no
performance, the penalty may also be reduced by the courts if it is iniquitous or
unconscionable.
Art 1230 The nullity of the penal clause does not carry with it that of the principal
obligation.
The nullity of the principal obligation carries with it that of the penal clause.
CHAPTER IV
EXTINGUISHMENT OF OBLIGATIONS
(1) identity
(3) indivisibility
(1) Payor
(a) Payor - the one performing, he can be the debtor himself or his heirs or
assigns or his agent, or anyone interested in the fulfillment of the
obligation; can be anyone as long as it is with the creditor's consent
If performance is done also with debtor's consent - he takes the place of the
debtor. There is subrogation except if the 3rd person intended it to be a
donation
(c) 3rd person pays/performs with consent of creditor but not with debtor's
consent, the repayment is only to the extent that the payment has been
beneficial to debtor
(2) Payee
ii. it falls under art 1241, par 1,2,3 - the benefit is total so, performance
is total
(c) anyone in possession of the credit - but will apply only if debt has not
been previously garnished
PRESUMED IF:
3. By creditors conduct, debtor has been led to make the payment (estoppel)
Requisites:
1. Payment by debtor must be made in good faith
2. Creditor must be in possession of the credit & not merely the evidence of
indebtedness
SUBSTANTIAL PERFORMANCE
2. Deviation is slight
1. Obligor may recover as though there has been strict and complete
fulfillment, less damages suffered by the obligee
2. Same debtor
3. Same creditor
3. If neither the debtor nor creditor has made the application or if the
application is not valid, then application, is made by operation of law
Exception: Creditor
2. If debts are of the same nature and burden, application shall be made to
all proportionately
b. Dacion en Pago mode of extinguishing an obligation whereby the debtor
alienates in favor of the creditor property for the satisfaction of monetary debt;
Kinds:
EFFECTS:
a) Creditors do not become the owner; they are merely assignees with
authority to sell
d. Consignation
Tender -the act of offering the creditor what is due him together with a
demand that the creditor accept the same (When creditor refuses w/o just
cause to accept payment, he becomes in mora accepiendi & debtor is
released from responsibility if he consigns the thing or sum due)
Consignation the act of depositing the thing due with the court or judicial
authorities whenever the creditor cannot accept or refuses to accept
payment; generally requires prior tender of payment
REQUISITES OF VALID CONSIGNATION:
(1) Existence of valid debt
(3) Before creditor accepts or before judge declares consignation has been
properly made, obligation remains ( debtor bears risk of loss at the
meantime, after acceptance by creditor or after judge declares that
consignation has been properly made risk of loss is shifted to creditor)
1) Physical impossibility
2) Legal impossibility :
a) Debtor is at fault
Exceptions:
c) monetary obligation
OBLIGATION TO DO
3. REBUS SIC STANTIBUS - agreement is valid only if the same conditions prevailing
at time of contracting continue to exist at the time of performance
REQUISITES:
The event or change could not have been forseen at the time of the
execution of the contract
(b) The event was not due to the act of any of the parties
REQUISITES:
a. There must be an agreement
b. There must be a subject matter (object of the remission, otherwise there would
be nothing to condone)
Requisites of Implied:
REQUISITES:
a. It must take place between principal debtor & principal creditor only
c. The obligation involved must be same & identical one obligation only
REQUISITES:
a. Both parties must be mutually creditors and debtors - in their own right
and as principals
b. Both debts must consist in sum of money or if consumable , of the same
kind or quality
c. Both debts are due
d. Both debts are liquidated & demandable (determined)
e. Neither debt must be retained in a controversy commenced by 3rd person
& communicated w/ debtor (neither debt is garnished)
Kinds:
d. judicial set off; upon order of the court; needs pleading & proof; all
requirements must concur except liquidation
e. total when 2 debts are of the same amount
f. partial when 2 debts are not of the same amount
REQUISITES:
a. valid obligation
b. intent to extinguish old obligation expressed or implied:
completely/substantially incompatible old and new obligation on every point
c. capacity & consent of parties to the new obligation
d. valid new obligation
EFFECT OF NOVATION:
a. extinguishment of principal carries accessory, except:
- stipulation to contrary
- stipulation pour autri unless beneficiary consents
- modificatory novation only; obliged to w/c is less onerous
- old obligation is void
KINDS:
b. PERSONAL/SUBJECTIVE
EXPROMISION; initiative is from 3rd person or new debtor; new debtor &
creditor to consent; old debtor released from obligation;
b. Delegatario - creditor
presumed when-
Art 1232 Payment means not only the delivery of money but also the performance in
any other manner, of an obligation.
Art 1233 a debt shall not be understood to have been paid unless the thing or service
in which the obligation consists has been completely delivered or rendered, as the case
may be.
Art 1235 When the obligee accepts the performance, knowing its incompleteness of
irregularity, and without expressing any protest or objection, the obligation is deemed
fully complied with.
Art 1236
Creditor may accept payment from a stranger:
a. if there is a stipulation allowing this
b. or if said third person has an interest in the fulfillment of the obligation
Instances when recovery can be had from the creditor and not from the innocent debtor:
a. When the debt has prescribed
b. When the debt had been completely remitted
c. When debt has already been paid
d. When legal compensation had already taken place
Art 1237 Whoever pays on behalf of the debtor without the knowledge or against the
will of the later, cannot compel the creditor to subrogate him in his rights, such as those
arising from a mortgage, guaranty, or penalty.
Art 1238 Payment made by a third person who does not intend to be reimbursed by
the debtor is deemed to be a donation, which requires the debtors consent. But the
payment is in any case valid as to the creditor who has accepted it.
Art 1239 In obligations to give, payment made by one who does not have the free
disposal of the thing due and capacity to alienate it shall not be valid without prejudice to
the provisions of Art 1427 under the Title on Natural Obligations
Exception- When a minor between 18 and 21 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 the fulfillment of an obligation, there shall be no right to
recover from the same from the obligee who has spent or consumed it in good faith.
Art 1240 - Payment shall be made to the person in whose favor the obligation
has been constituted, or his successor in interest, or any person authorized to
receive it.
If the recipient was not authorized, the payment is generally not valid.
Art 1241 Payment to a third parson who is incapacitated to administer his property
shall be valid if he has kept the thing delivered, or insofar as the payment has been
beneficial to him.
Payment made to a third person shall also be valid insofar as it has redounded to
the benefit of the creditor. Such benefit to the creditor need not be proven in the
following case:
a. If after the payment, the third person acquires the rights of the
creditor
b. If the creditor ratifies the payment to the third person
c. If by the creditors conduct, the debtor has been led to believe that
the third person had authority to receive the payment
Art 1242 Payment made in good faith to any person in possession of the credit shall
release the debtor.
Requisites:
a. Payment by the payor must be made in good faith (this is presumed, but payee
may be in good or bad faith)
b. The payee must be in possession of the credit itself (not merely the document
evidencing credit)
Art 1243- Payment made to the creditor by the debtor after the latter has been judicially
ordered to retain the debt shall not be valid.
Garnishment:
a. Takes place when the debtor of a debtor is ordered not to pay the latter so that
preference would be given to the latters consent
b. The preceding by which a debtors credit is subjected to the payment of his own
debt to another
Art 1244 The debtor of a thing cannot compel the creditor to receive different one,
although the latter may be of the same value as, or more valuable that which is due.
b. Dation in Payment
-There is a pre-existing credit
-This extinguishes obligations
The cause or consideration here, from the viewpoint of the debtor is the
extinguishment of his debt, and from the point of view of the creditor, it is
the acquisition of the object offered in credit
-There is less freedom in determining the price
The giving of the object in lieu if the credit may extinguish completely or
only partially the credit (depending on the agreement)
In dation, it is not always necessary that all the property of the debtor will be given to
satisfy the credit.
Art 1246 When the obligation consists in the delivery of an indeterminate or generic
thing, whose quality and circumstances have not been stated, the creditor cannot
demand a thing of superior quality. Neither can the debtor deliver a thing of inferior
quality. The purpose of the obligation and other circumstances shall be taken into
consideration.
Art 1248 Unless there is an express stipulation to that effect, the creditor cannot be
compelled partially to receive the prestations in which the obligation consists. Neither
may the debtor be required to make partial payments.
However, when the debt is in part liquidated and on part unliquidated, the creditor
may demand and the debtor may effect the payment of the former without waiting for the
liquidation lf the latter.
Art 1249
That payments 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.
In the meantime, the action derived from the original obligation shall be held in
abeyance.
Legal tender- it is that which a debtor may compel the creditor to accept in payment of a
debt.
Art 1250
* Under this article, the basis of payment is the value at the time the obligation was
constituted or incurred, unless there is an agreement to the contrary.
Art 1251 - Payment shall be made in the place designated in the obligation.
There being no express stipulation and if the undertaking is to deliver a thing, the
payment shall be made wherever the thing might be at the moment the obligation was
constituted.
In any other case, the place of payment shall be the domicile of the debtor. If the
debtor changes his domicile in bad faith, or after he has incurred in delay, the additional
expenses shall be borne by him.
General rule: it is the debtor who is given the right to select which of his debt he is
paying.
Exception:
d. If there was a valid prior but contrary agreement, the debtor cannot
choose
e. The debtor cannot choose to pay part of the principal ahead of the
interest unless the creditor consents.
If the debt produces interest, payment of the principal shall not be deemed to
have been made until the interest has been covered.
Interest must be paid first the debtor cannot insist that his payment be credited
to the principal instead of the interest. However, if the creditor agrees, that is ala
right.
Effect if payment is credited to the principal reduction of the principal would of
course result in the decrease of the total interest collectible.
What interest I supposed to be paid:
d. Interest by way of compensation
e. Interest by way of damages due to default
Art. 1254
Section 2
Payment by Cession
Art 1255
b. Cession
-In general, affects all the properties of the debtor
-Requires more than 1 creditor
Requires the consent of all the creditors
-Requires full or partial insolvency
Does not transfer ownership
Not an act of novation
Art 1256
Tender of Payment- the act of offering the creditor what is due him together with a
demand that the creditor accept the same.
Consignation-the act of depositing the thing due with the court or judicial authorities
whenever the creditor cannot accept or refuses to accept payment. It generally requires
a prior tender of payment. It releases the debtor of his debt.
Art 1257 In order that the consignation of the thing due may release the obligor, it
must first be announced to the persons interested in the fulfillment of the obligation.
Art 1258 Consignation shall be made by depositing the thing due at the disposal of
judicial authority, before whom the tender of payment shall be proved, in a proper case,
and the announcement of the consignation in other cases.
Art 1259 The expenses of consignation, when properly made shall be charged against
the creditor.
Art 1260 Once the consignation has been duly made, the debtor may ask the judge to
order the cancellation of the obligation.
Before the creditor has accepted the consignation, or before a judicial declaration
that the consignation has been properly made, the debtor may withdraw the thing or the
sum deposited, allowing the obligation to remain in force.
Art 1261 If the consideration having made, the creditor should authorize the debtor to
withdraw the same, he shall lose every preference which he may have over the thing.
The co-debtors, guarantors and sureties shall be released.
Art 1262
Exceptions:
a. If the debtor is at fault
b. When the debtor is made liable for a fortuitous event because:
Of a previous law
Of a contract stipulation
The nature of the obligation requires the assumption of risk on the part of the
debtor
Examples of instances when the law requires liability even in the case of a fortuitous
event:
a. When the debtor is in default
b. When the debtor has promised to deliver the same thing to 2 or more parties who
do not have the same interest
c. When the obligation arises from a crime
d. When the borrower of an object has lent the thing to another who is not a
member of his own household
e. When the thing loaned has been delivered with appraisal of the value, unless
there is a stipulation exempting the borrower from responsibility in case of a
fortuitous event
f. When the payee in solutio indebiti is in bad faith
Art 1263 In an obligation to deliver a generic thing, the loss or destruction of anything
of the same kind does not extinguish the obligation.
Exceptions:
a. If the generic thing is delimited
b. If the generic thing has already been segregated or set aside in which case, it
has become specific.
Art 1264 The courts shall determine whether, under the circumstances, the partial loss
of the obligation is so important as to extinguish the obligation.
Art 1265 Whenever the thing is lost in the possession of the debtor, it shall be
presumed that the loss was due to his fault, unless there is proof to the contrary,
and without prejudice to the provisions of Article 1165. This presumption does
not apple in case of earthquake, flood, storm or other natural calamity.
In a case filed by the creditor, he doesnt have to prove that the debtor was at
fault, because it is already presumed.
Art 1266 The debtor in obligations to do shall also be released when the prestation
becomes legally or physically impossible without the fault of the obligor.
Art 1267
Art 1268
This Article gives one instance where a fortuitous event does not extinguish the
obligation.
Exception: When the creditor is in Mora Accipiende (default on the part of the
creditor)
Art 1269 The obligation having been extinguished by the loss of the thing, the creditor
shall have all the rights of action which the debtor may have against third persons by
reason of the loss.
Classes of Remission:
a. As regards its effect or extent:
Total
Partial-only a portion is remitted or the remission may refer only to the accessory
obligations
b. As regards its date of effectivity:
inter vivos- during life
mortis causa- after death
c. As regards its form:
*Implied or Tacit- required no formality
Express of Formal- requires formalities of a donation if inter vivos; of a will or cordial
if mortis causa
Effect if Remission is not Accepted by the Debtor- This would not be remission.
If the creditor does not really collect within the statute of limitations, the debt may
be said to have been extinguished by prescription.
Art 1271 The delivery of a private document evidencing a credit, made voluntarily by
the creditor to the debtor, implies the renunciation of the action the former had against
the latter.
Art 1272 Whenever the private document in which the debt appears is found in the
possession of the debtor, it shall be presumed that the creditor delivered it voluntarily,
unless the contrary is proved.
Art 1273 The renunciation of the principal debt shall extinguish the accessory
obligation; but the waiver of the latter shall leave the former in force.
Art 1274 It is presumed that the accessory obligation of pledge has been remitted
when the thing pledged, after its delivery to the creditor, is found in the possession of the
debtor, or of a third person who owns the thing.
Art 1275 The obligation is extinguished from the time the characters of creditors and
debtors are merged in the same person.
Merger or Confusion It is the meeting in one person the qualities of a creditor and
debtor with respect to the same obligation.
Art 1276 Merger which takes place in the person of the principal debtor or creditor
benefits the guarantors. Confusion which takes place in the person of any of the latter
does not extinguish the obligation.
Art 1277 Confusion does not extinguish a joint obligation except as regards the share
corresponding to the creditor or debtor in whom the two characters concur.
In joint obligations, the debts are distinct and separate from each other.
Section 5 Compensation
Art 1278 Compensation shall take place when two persons, in their own right, are
creditors and debtors of each other.
Classes of Compensation
a. According to its effect or extent
Total-both obligations are completely extinguished because they are of the same
amount
Partial- when a balance remains
Art 1279
The requisites enumerated under Art 1279 are those for LEGAL compensation.
VOLUNTARY compensation in general requires no requisite except that the
agreement be voluntarily and validly entered into.
Art 1280 Notwithstanding the provisions of the preceding article, the guarantor may
set up compensation as regards what the creditor may owe the principal debtor.
Art 1281 Compensation may be total or partial. When the two debts are of the same
amount, there is total compensation.
Art 1282 The parties may agree upon the compensation of debts whish are not yet
due.
Art 1283 If one of the parties to a suit over an obligation has a claim for damages
against the other, the former may set it off by proving his right to said damages and the
amount thereof.
All the requisites mentioned in Art 1279 must be present, except at the time of
the pleading, the claim need not yet be liquidated.
Art 1284 When one or both debts are rescissible or voidable, they may be
compensated against each other before they are judicially rescinded or avoided.
Art 1285
Art 1286 Compensation takes place by operation of law, even though the debts may
be payable at different places, but there shall be an indemnity for expenses of exchange
or transportation to the place of payment.
Art 1287 Compensation shall not be proper when one of the debts arises from a
depositum or from the obligation of a depository or of a bailee in commodatum.
This Article speaks of instances when legal compensation cannot take place,
such as:
a. When one debt arises from a depositum (not bank deposit for this is really a
loan)- It is the depository who cannot claim compensation. The depositor is
allowed to so claim.
b. When one debt arises from the obligations of a depository
c. When one debt arises from the obligations of a bailee in commodatum (the
borrower of property who pays nothing for the loan)- the lender may claim
compensation, the borrower is not allowed to do so.
Art 1288- Neither shall there be compensation if one of the debts consists of civil liability
arising from a penal offense.
Art 1289 If the person shall have against him, several debts which are susceptible of
compensation, the rules on the application of payment shall apply to the order of the
compensation.
Art 1290 When all the requisites mentioned in Article 1279 are present, compensation
takes effect by operation of law, and extinguishes both debts to the concurrent amount,
even though the creditors and debtors are not aware of the compensation.
Art 1291
Kinds of Novation:
A. According to its Object or Purpose:
1. Real or Objective- changing the object or principal conditions of the obligation
2. Personal or Subjective -change of persons
a. Expromission or Delegacion- substituting the person of the debtor
b. Subrogating a third person in the rights of the creditor- may be
b1.Conventional Subrogation- by agreement
b2.Legal Subrogation- by operation of law
b3. Mixed- change of object or parties
Art 1292 In order that an obligation may be extinguished by another which substitute
the same, it is imperative that it be so declared in unequivocal terms, or that the old and
the new obligation be on every point incompatible with each other.
How implied Novation may be Made- it is done by making Substantial Changes in:
a. The object or subject matter of the contract (e.g. delivery of a car instead of a
diamond ring)
b. The cause or consideration of the contract (e.g. upward changes in price)
a. The principal terms of the contract (e.g. reduction of the term or period
originally stipulated)
Art 1293
Art 1293 speaks of Passive subjective Novation- which may be in the form of:
a. Expromission- initiative comes from a third person
c. Delegacion- initiative comes from the debtor, for it is he who delegates another to
pay the debt, and thus, he excuses himself. The 3 parties, the old debtor, the
new debtor and the creditor, must agree.
Art 1294 If the substitution is without the knowledge or against the will of the debtor,
the new debtors insolvency or non-fulfillment of the obligation shall not give rise to any
liability on the part of the original debtor.
Art 1295 The insolvency of the debtor, who has been proposed by the original debtor
and accepted by the creditor, shall not revive the action of the latter against the original
obligor, except when said insolvency was already existing and of public knowledge or
known to the debtor, when he delegated his debts.
Art 1296
Art 1297 If the new obligation is void, the original one shall subsist unless the parties
intend that the former relation should be extinguished in any event.
Other factors:
a. If the new obligation is subject to a condition and said condition does not materialize,
the old obligation subsists.
If the new obligation was intended, but the new contract was never perfected fro lack of
the necessary consent, the old obligation continues.
If the old obligation was VODABLE, and has NOT YET been annulled, there
MAY BE a valid novation, provided that:
a. Annulment may be claimed only by the debtor or
b. When ratification validates acts which are voidable
Art 1300
Subrogation- 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, subject
to any legal provision or any modification that may be agreed.
Kinds of Subrogation:
From the viewpoint of Cause of Origin
a. Conventional or Voluntary Subrogation- requires an agreement and the consent
of the original parties and of the creditor.
b. Legal Subrogation- takes place by operation of law
Art 1301 Conventional subrogation of a third person requires the consent of the
original parties and of the third person.
Note: Generally, the debtor losses the right to present against the new creditor any
defense which he, the debtor, could have set up against the old creditor.
Art 1303
Art 1304
Partial Subrogation
Here, there are the creditors
a. The old creditor, who still remains a creditor as to the balance (because partial
payment has been made to him)
b. The new creditor who is a creditor to the extent of what he had paid the creditor.
PART II CONTRACTS
Meeting of minds bet 2 parties whereby one binds himself with respect to other to give
something or render some service
PRINCIPAL CHARACTERISTICS:
2. Mutuality performance or validity binds both parties; not left to will of one of
parties
4. Relativity binding only between the parties, their assigns, heirs; strangers
cannot demand enforcement
EXCEPTION TO RELATIVITY:
a. Accion pauliana
b. Accion directa
(2) The stipulation in favor of a 3rd person should be a part of, not the whole
contract
(5) The third person communicates his acceptance before revocation by the
original parties
d. Art 1312
e. Art 1314
KINDS OF CONTRACTS
As to perfection or formation:
1. consensual perfected by agreement of parties
As to cause
2. accessory depends on another contract for its existence; may not exist on its own
3. Preparatory not an end by itself; a means through which future contracts may be
made
As to parties obliged:
As to name or designation:
1. Nominate
2. Innominate
STAGES IN A CONTRACT:
1. Preparation - negotiation
2. perfection/birth
3. consummation performance
ESSENTIAL ELEMENTS:
1. Consent meeting of minds between parties on subject matter & cause of contract;
concurrence of offer & acceptance
Requirements:
a. Plurality of subject
b. Capacity
Note: Ang Yu v. CA (1994) states that a unilateral promise to buy or sell, if not
supported by a distinct consideration, may be withdrawn but may not be done
whimsically or arbitrarily; the right of the grantee here is damages and not
specific performance; Equatorial v. Mayfair(264 SCRA 483) held that an option
clause in order to be valid and enforceable must indicate the definite price at
which the person granting the option is willing to sell, contract can be
enforced and not only damages; Paranaque Kings V CA (1997) states that right
of first refusal may be enforced by specific performance.
EXCEPTIONS:
1. Upon reaching age of majority they ratify the same
2. They were entered unto by a guardian and the court having jurisdiction
had approved the same
3. They were contracts for necessities such as food, but here the persons
who are bound to give them support should pay therefor
4. Minor is estopped for having misrepresented his age and misled the other
party (when age is close to age of majority as in the Mercado v Espiritu & Sia
Suan v Alcantara cases)
2. hospitalized lepers
3. prodigals
5. those who by reason of age, disease, weak mind and other similar
causes, cannot without outside aid, take care of themselves and manage
their property, becoming an easy prey for deceit and exploitation
1. violence
REQUISITE:
a. Irresistable physical force
2. Intimidation
REQUISITE:
a. Determining cause for the contract
d. Produces a well grounded fear that the person making it will carry it over
3. undue influence
SIMULATED CONTRACTS
REQUISITES:
a) Within the commerce of man - either existing or in potency
c) Possible
e) Transmissible
REQUISITES:
a) It must exist
b) It must be true
c) It must be licit
MOTIVE - purely private reason; illegality does not invalidate contract except when it
predetermines purpose of contract; when merged into one
4. FORM in some kind of contracts only as contracts are generally consensual; form
is a manner in which a contract is executed or manifested
a. Informal may be entered into whatever form as long as there is consent,
object & cause
3) for convenience
General Rule: contract is valid & binding in whatever form provided that 3 essential
requisites concur
Exception:
a. Law requires contract to be in some form for validity - donation &
acceptance of real property
c. Law requires contract to be in some form for convenience - contract is valid &
enforceable, needed only to bind 3rd parties
CAUSES/GROUNDS:
mutual
mistake of fact
b. unilateral
one party was mistaken
\
other either acted fraudulently or inequitably or knew but concealed
REQUISITES:
1. there is a written instrument
b. wills
REQUISITES:
a. Contract must be rescissible
c. The things must not have been passed to 3rd parties who did not act in bad faith
Mutual Restitution
1. Things w/c are the objects of the contract & their fruits
2. VOIDABLE CONTRACTS intrinsic defect; valid until annulled; defect is due to vice
of consent or legal incapacity
CHARACTERISTICS:
d. Can be assailed only by the party whose consent was defective or his
heirs or assigns
REQUISITES:
1. Refers to the subject of the thing which is the object of the
contract
2. Refers to the nature of the contract
(4) undue influence person takes improper advantage of his power over will of
another depriving latter of reasonable freedom of choice
EFFECTS OF ANNULMENT:
KINDS/VARIETIES:
a. no authority conferred
d. Agreement for sale of goods, chattels or things in action at price not less
than 500; exception: auction when recorded sale in sales book
e. Agreement for lease of property for more than 1 year & sale of real
property regardless of price
CHARACTERISTICS:
a. It produces no effect whatsoever either against or in favor of anyone
f. Imprescriptible
g. Anyone may invoke the nullity of the contract whenever its juridical effects are
asserted against him
2) Prohibited by law
(f) Those expressly prohibited or declared void by law - Contracts w/c violate any
legal provision, whether it amounts to a crime or not
PARI DELICTO DOCTRINE -both parties are guilty, no action against each other;
those who come in equity must come with clean hands; applies only to illegal
contracts & not to inexistent contracts; does not apply when a superior public policy
intervenes
1. If purpose has not yet been accomplished & If damage has not been
caused to any 3rd person
Requisites:
a) contract is for an illegal purpose
b) Labor if law sets the minimum wage for laborers, any laborer who agreed
to receive less may still be entitled to recover the deficiency; if law set max
working hours & laborer who undertakes to work longer may demand
additional compensation
c) Interest paid in excess of the interest allowed by the usury law may be
recovered by debtor with interest from date of payment
General Rule: parties should return to each other what they have given by virtue of
the void contract in case where nullity arose from defect in essential elements
Exception: No recovery can be had in cases where nullity of contract arose from
illegality of contract where parties are in pari delicto;
except:
a. incapacitated not obliged to return what he gave but may
recover what he has given
CONTRACTS
Art 1305
ELEMENTS OF A CONTRACT
a. Essential Elements
1.Consent
2.Subject Matter
3.Cause or Consideration
Classification of Contracts
a. According to perfection or formation
1. Consensual
2. Real-perfected by delivery
3. Formal or Solemn
k. According to the number of persons actually and physically entering into the
contracts
1. Ordinary two parties are represented by different persons
2. Auto Contracts where only one person represents two opposite parties,
but in different capacities
STAGES OF A CONTRACT
a. Preparation
b. Perfection
c. Consummation (or death or termination)
Art 1307
Art 1308-1310
MUTUALITY OF CONTRACTS
The validity or fulfillment of a contract cannot be left to the will of one of the
contracting parties.
The validity or fulfillment may be left to the will of a third person.
The validity or fulfillment may be left to chance.
Art 1311
Exceptions:
a. Where the obligation arising from the contract are not transmissible by their
nature, by stipulation, or by provision of law.
b. Where there is stipulation pour atrui (a stipulation in favor of a third party)
c. Where a third person induces another to violate his contract
d. Where, in some cases, third persons may be adversely affected by a contract
where they did not participate.
e. Where the law authorizes the creditor to sue on a contract entered into by his
debtor.
Art 1312
A real right binds the property over which it is exercised.
Exception to the general rule that a contract binds only the parties.
Art 1313
Right of defrauded creditor.
Art 1314
Requisites before a third person in this article can be held for damages
a. Existence of a valid contract
b. Knowledge on the part of the third person of the existence of the contract
c. Interference by the third person without legal justification or excuse
Art 1315-1316
Perfection of contracts
Art 1317
Requisites for a Person to Contract in the Name of Another
a. He must be duly authorized (expressly or impliedly)
b. Or he must have by law a right to represent him
c. Or the contract must be subsequently ratified
Art 1318
Requisites of Contracts
a. Consent (Art 1319-46)
b. Object (Art 1347-1349)
c. Cause (Art 1350-55)
Art 1319
Definition of Consent
-Art 1319,first paragraph
Requisite of Consent
a. There must be two or more parties
b. The parties must be capable or incapacitated
c. There must be no vitiation of consent
d. There must be no conflict between what was expressly declared and what was
really intended
e. The intent must be declared properly
Art 1320
Forms of Acceptance
Art 1322
Acceptance of an Offer made thru an agent
Art 1323
Other instances when the offer becomes ineffective
a. When the offeree expressly or impliedly rejects the offer
b. When the offer is accepted with qualification or condition
c. When before acceptance is communicated, the subject matter becomes illegal
or impossible
d. When the period of time given to the offeree within which he must signify his
acceptance has already lapsed
e. When the offer is rejected in due tome
Art 1324
Option Contract
Option- it is a contract granting a person the privilege to buy or not to buy certain objects
at anytime within the agreed period at a fixed price
Perfection of Option
When there is a meeting of minds on the option
Art 1325-1326
If the advertisement contains all the specific particular needed in a contract, it is a
definite offer.
If important details are left out, the advertisement is not a definite offer, but a
mere invitation to make an offer.
Art 1328
Voidable contracts by reason of incapacity
Art 1330
This article enumerates causes or vices of consent.
Kinds of Mistake
a. Mistake as to the object
1. Mistake as the identity of the thing
2. Mistake as to the substance of the thing
3. Mistake as to the conditions of the thing
4. Mistake as to the quantity of the thing
b. Mistake as to person
1. Mistake must be either with regards to the identify or with regard to the
qualification of one of the contracting parties
2. Such identity or qualification must have been the principal consideration
for the celebration of the contract
Art 1332
Burden of proof in case of mistake
Art 1333
Effect of knowledge of risk
Art 1334
Mistake of Law
Is that which arises from an ignorance of some provision of law, or from an
erroneous interpretation of its meaning, or from an erroneous conclusion as to the legal
effect of the agreement, on the part of one of the parties.
Requisites:
a. There must be mutual error
b. The error must refer to the legal effect of the agreement
c. The real purpose of the parties is frustrated
Art 1335-1336
Violation refer to physical coercion
Intimidation refers to moral coercion
Art 1337
Requisites for undue influence to vitiate consent
a. Improper advantage
b. Power over the will of another
c. Deprivation of the latters will of a reasonable freedom of choice
Art 1338-1341
Kinds of Fraud
a. Fraud in the celebration of the contract
1. Dolo Causante or causal fraud (Art 1338)
2. Dolo Incidente of incidental fraud
Art 1342-1344
Speaks about misrepresentation
Art 1345-1346
Simulation
Kinds
a. Absolute; Effect; the contract is void
b. Relative; Effect; the parties are bound to the real or true agreement except-
a. If the contract should prejudice third persons
b. Or if the purpose is contrary to law, morals, public order, policy or
good customs
Requisites
a. An outward declaration of will difference from the will of the parties
b. The false appearance must have been intended by mutual agreement
c. The purpose is to deceive third persons
Art 1347-1349
Objects (Subject Matter) of a contract
- A thing or a service
Requisites
a. The thing or service must be within the commerce of man
b. Must be transmissible
c. Must not be contrary to law, morals, good customs, public order, or public policy
d. Must not be impossible
e. Must be determinate as to its kind or determinate without the need of a new
contract or agreement
CAUSE OF CONTRACTS
Art 1350
Cause defined
-It is the essential and impelling reason why a party assumes an obligation
Art 1351
Motive is the purely personal or private reason which a party has in entering into a
contract
Cause
a. Always the same
b. Always known
c. Cannot cure the absence of cause
Art 1352-1355
Requisites for cause
a. It must be present
b. It must be true
c. It must be lawful
CHAPTER 3
FORM OF CONTRACTS
Art 1356
Meaning of form of contracts
-Refers to the manner in which a contract is executed or manifested
CHAPTER 4
REFORMATION OF INSTRUMENT
Art 1360-69
Art 1360
Rule in case of conflict
Art 1366
Instances when reformation is not allowed
CHAPTER 5
INTERPRETATION OF A CONTRACT
Art 1370
Definition of interpretation of contract
-Is the determination of the meaning of the terms or words used by the parties in
their contract
Requisites of rescission
a. The contracts must be validly agreed upon
b. There must be lesion or pecuniary prejudice to one of the parties or to a third
person
c. The rescission must be based upon a case especially provided by law
d. There must be no other legal remedy to obtain reparation of the damages
e. The party asking for rescission must be able to return what he is obliged to
restore by reason of the contract
f. The object of the contract must not legally
g. The object of the contract must not legally be in the possession of third persons
who did not act in bad faith
h. The period for filing the action of rescission must have not prescribed
Meaning of Rescission
-Remedy granted by law to the contracting parties and sometimes even to third
persons in order to secure reparation of damages caused by them by a valid contract, by
means of the restoration of things to their condition in which they were prior to the
celebration of the said contract.
Art 1385
Effects of rescission
Art 1324
Prescription
VOIDABLE CONTRACTS
Definition
-Are those which possess all the essential requisites of a valid contract but one of
the parties is incapable of giving consent, or consent is vitiated by mistake, violence,
intimidation, undue influence, or fraud
Characteristics
a. Their defect consist in the vitiation of consent of one of the contracting parties
b. They are binding until they are annulled by competent court
c. They are susceptible of convalidation by ratification or by prescription
Voidable
a. Defect is intrinsic
b. Contract is voidable even if there is no damage or prejudice
c. Annulability of the contract is based on law
d. Susceptible of ratification
e. The causes of annulment
The causes of rescission
Rescissible
a. Defect is extrinsic
b. Contract is not rescissible id there is no damage or prejudice
c. Rescissibility of the contract is based on equity
d. Not susceptible of ratification
e. Are different form
Art 1390
Voidable contracts
Art 1391
Prescription
Art 1392-96
Concept of Ratification
-By virtue of which efficacy is given to a contract which suffers from a vice of
curable nullity
Art 1398-99
Effects of annulment
Art 1400-02
- Effect pf failure to make restitution
-Where loss is due to fault of plaintiff
-Where loss is due to fault of defendant
-Where loss is due to fortuitous event
CHAPTER 8
UNENFORCEABLE CONTRACTS
Kinds:
a. Those entered into in the name of another by one without or acting in excess of
authority
b. Those that do not comply with the statute of fraud
c. Those where both parties are incapacitated of giving consent
Unauthorized contracts
-Those entered into in the name of another person by one who has been given
no authority or legal representation on who has acted beyond his powers.
STATUTE OF FRAUDS
Purpose
-Not only to prevent fraud but also to guard against the mistakes of honest men
by requiring that certain agreement specified must be in writing.
Application
a. Not applicable in actions which are neither for damages because of a violation of
a contract, nor for the specific performance thereof
b. Applicable only to executory contracts and not to contracts which are totally or
partially performed
c. Not applicable where the contract is admittedly expressly, or impliedly by the
failure to deny specifically its existence, no further evidence thereof being
required in such case.
d. Applicable only to the agreements enumerated therein
e. Not applicable where a writing does not express the true agreement of the
parties
f. It does not declare the contracts infringing it are void but merely unenforceable
g. The defense of the statute of frauds may be waived
h. The defense of the statute of frauds is personal to the parties and cannot be
enforced by strangers to the contract
Effect of Non-Compliance
-The contract or agreement is unenforceable by action
CHAPTER 9
Void Contracts
-Those, which of certain defects generally produce no effect at all
Inexistent Contracts
-Refer to agreements which lack one or some or all the elements or do not
comply with the formalities which are essential for the existence of a contract
Art 1411-1412
Where both parties are in pari delicto
a. The parties shall have no action against each other
b. Both shall be prosecuted
c. The things or the price of the contract, as the effects of the crime shall be
confiscated in favor of the government
NATURAL OBLIGATIONS
Art 1423
-Defines Natural Obligations
Civil
a. Arise from la, contracts, quasi-contracts, and quasi-delicts
b. Give a right of action to compel their performance
Natural
a. Based not on positive law but on equity and natural law
b. Do not grant such right of action to enforce their performance
TITLE IV
ESTOPPEL
Art 1431
Definition of Estoppel
-Condition or state by virtue of which admission or representation is rendered
conclusive upon the person making it and cannot be denied or disproved as against the
person relying thereon
Art 1432
Adoption of the principle
Art 1433
Kinds of Estoppel
A. Estoppel in Pais (equitable estoppel)
-That which arises one y his acts, representations, or admission, or by his silence
when he ought to speak out, intentionally or through culpable negligence, induces
another to believe certain facts to exist and such, other rightfully relies and acts on such
belief, as a consequence of which he would be prejudice if the former is permitted to
deny the existence of such facts
Kinds
a. Estoppel by conduct or by acceptance of benefits
b. Estoppel by representation or concealment
c. Estoppel by silence
d. Estoppel by omission
e. Estoppel by laches
Requisites
a. As related to the party being estopped
a. Conduct which amounts to a false representations or concealment of
material facts, or at least which is calculated to convey the impression
that the facts are otherwise than, and inconsistent with those which the
party subsequently attempts to assert;
b. The intention or at least the expectation, that such conduct shall be acted
upon, or influence, the other party or other person; and
c. Knowledge, actual or constructive, of the real facts
Kinds
a. Estoppel by deed proper
b. Estoppel by judgment as a court record
Estoppel by Laches
Definition of Laches
-Failure or neglect, for an unreasonable and unexplained length of time, to do
that which by exercising due diligence, one could or should have done earlier; it is
negligence or omission to assert a right within a reasonable time, warranting a
presumption that the party entitled to assert it either has abandoned it or declined to
assert on
Requisites
a. Conduct on the part of the defendant, or of one under whom he claims, giving
rise to the situation of which complaint is made
b. Delay in asserting the complainants right, the complainant having had
knowledge or notice of the defendants conduct and having been afforded an
opportunity to sue; actual knowledge of the omission of the adverse act is not
necessary, it being enough that such knowledge may be imputed to the
complainant because of circumstances of which he was cognizant;
c. Lack lf knowledge or notice on the part of the defendant that the complainant
would assert the right on which he bases his suit;
d. Injury or prejudice to the defendant in the event of relief is accorded to the
complainant, or the suit is not held to be barred
Laches
a. Concerned with the effect of delay
b. Principally a question of inequity of permitting a claim to the enforced
c. Not statutory
d. Applies in equity
e. Not based on fixed time
Prescription
a. Concerned with the fact of delay
b. Question of matte of time
c. Statutory
d. Applies at law
e. Based on fixed time
VIEWMASTER CONSTRUCTION CORP vs. ROXAS (G.R. No. 133576, July 13, 2000)
Civil Law/ Contracts/ Statute of Frauds/ Implied Trusts/ Sales: The verbal agreement
entered into between petitioner Viewmaster and respondent Allen Roxas was an
agreement that by its terms is not to be performed within a year from the making
thereof. To be taken out of the operation of the Statute of Frauds, the agreement
must be fully performed on one side within one year from the making thereof. In the
case at bar, since neither of the parties has fully performed their obligations within
the one-year period, then it behooves this Court to declare that the case falls within
the coverage of the Statute of Frauds. Also, as the sale of fifty percent (50%) of Allen
Roxass shareholdings in State Investment would amount to more than five hundred
pesos (P500.00), the contract must be in writing to be enforceable.
There is no implied trust here for in order for the provisions of Article 1448 to
apply in the case at bar "the price is paid by another for the purpose of having the
beneficial interest of the property." It bears stressing that respondent Allen Roxas
obtained a loan from First Metro Investments, Inc. not from petitioner Viewmaster. It
was FMIC that provided the funds with which Allen Roxas acquired the controlling
interest in State Investment Trust, Inc. FMIC lent the money to Roxas because the
latter needed the money and not to obtain any beneficial interest in the shares of
stock in State Investment. Viewmaster merely facilitated the loan by acting as
guarantor of the loan and nothing more.
Civil Law/ Oblicon/Application of Equity/ Sales: Obligations arising from contracts and
agreements between parties not contrary to law, morals, good customs, public
policy or public order have the force of law between the contracting parties and
should be complied with in good faith.
Equity is applied only in the absence of, and never against, statutory law or judicial
rules of procedure.
Also, while this Court recognizes that in contracts to sell even if the contract is
terminated the seller can retain the sums already received or paid, such can be done
only if it is expressly provided for in the contract.
1999
1998
JAPAN AIRLINES v. CA (August 1998)
Civil Law/ Contracts/ Fortuitous Event/ Nominal Damages: Respondents are
passengers of Japan Airlines who were stranded for almost a week in Japan due to
the Pinatubo eruption which made NAIA inaccessible to airline traffic. As a result of
the refusal of JAL to pay for the accommodations of respondents during their whole
stay in Japan, they commenced an action for damages against JAL.
As a general rule, common carriers are expected to follow a standard of care and
diligence which is higher and different in kind to that of ordinary carriers. However, in
the case at bar, JAL is not absolutely responsible for all injuries or damages suffered
by respondents because such was caused by a fortuitous event. They are liable for
nominal damages to respondents though, for their failure to make the necessary
arrangements to transport respondents on the first available connecting flight to
Manila. Nominal damages are adjudicated in order that a right of a plaintiff, which
has been violated of invaded by the defendant, may be vindicated or recognized,
and not for the purpose of indemnifying any loss suffered by him.
1997
Civil Law/Contracts/ Lease/ Novation: Art. 1311, NCC, provides that contracts take effect
only between the parties, their assigns and heirs, except where the rights
and obligations arising from contract are not transmissible by their nature,
or by stipulation or by provision of law. Here, paragraphs 4 and 5 of the
lease contract provided that the right of first option was not transmissible,
which are consistent with Art. 1649, NCC that the lessee cannot assign
the lease without the consent of the lessor, unless there is a stipulation to
the contrary. The lessor's consent is necessary as the assignment of the
lease would involve the transfer not only of rights, but also of obligations.
It constitutes novation by a substitution of the person of one of the parties.
It cannot be denied that Teofista's right of first option to buy the leased property
in case of its sale is but part of the bigger right to lease said property. The option was
given to Teofista as she was the lessee. It was a component of the consideration of the
lease. The option was by no means an independent right which Teofista could exercise.
It ought to follow that if Teofista was barred by contract from assigning her right to lease
the lot, she was similarly barred from assigning her right of first option to Angelita.
1996
RIZAL SURETY v. CA & TRANSOCEAN TRANSPORT (G.R. No. 96727, Aug. 28,
1996)
Civil Law/ Contracts/Trusts: In Mindanao Devt. Authority v. CA (113 SCRA 429, 436-437
[1982]), this Court held the elements of an express trust:
1) Competent trustor and trustee;
2) An ascertainable trust res; and
3) Sufficiently certain beneficiaries.
There is no need for stilted formalities. There must be a present and complete
disposition of the trust propoerty, notwithstanding that the enjoyment in the beneficiary
will take place in the future. Also, the purpose must be an active one to prevent trust
from being executed into a legal estate or interest, and one not in contravention of some
prohibition of statute or rule of public policy.
Power of administration must be other than a mere duty to perform a contract
although the contract is for a 3rd party beneficiary. A declaration of terms is essential,
and these must be stated with reasonable certainty in order that the trustee may
administer, and the court, if called upon to do so, may enforce the trust.
PHIL. INTL. TRADING CORP. v. ANGELES (G.R. No. 108461, October 1996)
Civil Law/Publication of Laws: In Taada v. Tuvera (146 SCRA 446 [1986]), we ruled
that executive issuances meant to enforce and implement an existing law pursuant to a
valid delegation, must be published.
SECURITY BANK & TRUST CO. v. RTC (G.R. No. 113926, October 1996)
Civil Law/Interest/Usury: Should the rate of interest on a loan as stipulated in a
contract (23% here), far in excess of the ceiling prescribed under or pursuant to the
Usury Law prevail over 2 of CB Circular No. 905 which prescribes that the rate of
interest thereof shall continue to be 12% per annum?
Circular No. 905 merely suspended the effectivity of the Usury Law. Where the
rate of interest was agreed upon by the parties freely, it is not for respondent court to
change the stipulations in the contract where it is not illegal. Further, Art. 1306, NCC
provides that contracting parties may establish stipulations as they deem convenient,
provided they are not contrary to law, etc. We find no valid reason for the respondent
court to impose a 12% interest rate on the principal balanc. In a loan, the interest due
should be that stipulated in writing, and in the absence thereof, the rate shall be 12%
p.a. (Eastern Shipping v. CA, 234 SCRA 78) Hence, only in the absence of a stipulation
can the court impose the 12% interest rate.
MACTAN CEBU INTL. AIRPORT AUTHORITY v. CA (G.R. No. 121506, October 1996)
Civil Law/Contracts/Statute of Frauds: Under Art. 1403, NCC, a contract for the sale of
real property shall be unenforceable unless the same or some note or
memorandum thereof be in writing and subscribed the party charged or
his agent. Evidence of the agreement cannot be received without the
writing, or a secondary evidence of its contents. In case at bench, the
deed of sale and verbal agreement allowing the right of repurchase
should be considered an integral whole. The deed of sale relied upon by
petitioner is in itself the note or memorandum evidencing the contract.
Thus, the requirement of the Statute of Frauds has been sufficiently
complied with. Moreover, the principle of the Statute of Frauds only
applies to executory contracts and not to contract either partially or totally
performed (Victoriano v. CA, 194 SCRA 19), as in this case, where the
sale has been consummated; hence, the same is taken out of the scope
of the Statute of Frauds.
1995
CASE NO.9
SM: Contracts; suretyship; Art. 2047, NCC
PALMARES vs. CA
GR # 126490, March 31, 1998
FACTS: Pursuant to a promissory note (PN), private respondent MB Lending Corp. (MB)
extended a loan to the spouses Azarraga together with petitioner amounting to P30k but
debtors were able to pay only P16, 300. Consequently, on the basis of petitioners
solidary liability under the PN, MB filed a complaint against petitioner as the lone party
defendant to the exclusion of the principal debtors, allegedly due to the latters
insolvency. Petitioner claimed that while she agreed to be liable on the note upon default
of the principal debtor, MB acted in bad faith in suing her alone without including the
Azarragas when they were the only ones who benefited from the loans proceeds.
HELD: Petitioner expressly bound herself to be jointly and severally liable with the
principal maker of the note. The terms of the contract are clear, explicit and unequivocal
that petitioners liability is that of a surety. A surety is an insurer of the debt, a
suretyship is an undertaking that the debtor shall pay. A surety promises to pay
the principals debt. If the principal will not pay, he binds himself to perform if the
principal does not, w/o regard to his ability to do so. In fine, a surety undertakes
directly for the payment and is so responsible at once if the principal debtor
makes default. It has not been shown, either in the contract or the pleadings that MB
agreed to proceed against petitioner only if and when the defaulting principal has
become insolvent
CASE NO. 10
SM: Contracts; A. 1342, NCC
PBC vs. CA
GR # 109803, April 20, 1998
FACTS: Chee Puen, then the general manager of Global Inc., informed private
respondent, his estranged wife that their company a P300k loan for its operational
expenses. He proposed that her paraphernal lot in Makati be used as collateral. He
assured her that the loan would not exceed P300k and she was asked to sign 3 sets of
blank forms of real estate mortgage (REM) of PBC. He wrote down in pencil the figure
300 under the space provided for the amount to be loaned and respondent signed the
blank mortgage forms due to Chee Puens representations. Chee Puen had the REM
document later notarized by Atty. Arzadon using a residence certificate bearing
respondents forged signature. Apparently, Chee Puen applied for a P3M loan from
PBC. To secure the loan, he mortgaged respondents paraphernal lot in Makati, using
the blank REM forms signed by her. He also misrepresented himself as president and
acting corporate secretary of Global, Inc. PBC did not investigate Chee Puens authority
to mortgage respondents property. Private respondent discovered that Chee Puen
obtained a loan of P3M from PBC. HELD: Respondent has not consented to
collateralize Global, Incs P3M loan with her paraphernal lot. All facts show that she was
misled by Chee Puen and thus, the REM should be nullified. The established facts
preclude the application of estoppel against the respondent. Respondent did not
deliberately or intentionally lead the PBCtobelieve that she was putting up her
paraphernal realty to secure the P3M loan of Global.It was Chee Puen who made the
misrepresentation thus defrauding respondent herself.
Further, PBCs reliance in the REMs signed in blank by the respondent was
unreasonable. As a banking institution, PBC was grossly negligent when (a) it took no
step to verify whether the respondent was really offering her paraphernal property as
collateral; (b) made no credit check on respondent and Global, Inc.; and (c) conducted
no investigation on the authenticity of the Secretarys Certificate of Board
Resolution.The business of a bank is affected with public interest and it should observe
a higher standard of diligence when dealing with the public. Neither will it matter that
PBC itself was misled by Chee Puen, a 3rd person to the contract. Under A.1342, NCC,
the misrepresentation of a 3rd person will vitiate consent if it has resulted in
substantial mistake and the same is mutual.
CASE NO.22
SM: Contracts; Arts. 1385 &1482
GOLDENROD, INC. vs. CA
GR# 126812, November 124, 1998
FACTS: Petitioner and private respondent Baretto Realty (BR) entered into a contract to
sell for one of the lots sold by BR. Petitioner gave BR earnest money for the said
property. It appeared that the same was intended to form part of the purchase price and
absent any express provision it shall not be forfeited in favor of BR in case petitioner fails
to comply with his obligation. Petitioner informed BR that it would no longer push thru
with the sale. It then resorted to extrajudicial rescission of its agreement to which BR did
not object. In fact, BR sold the subject realty a day after said letter of rescission was
received by BRs president. Petitioner demanded the return of its earnest money but BR
refused. HELD: Under A.1482, NCC, whenever earnest money is given in a
contract of sale, it shall be considered as part of the purchase price and as proof
of he perfection of the contract. Petitioner clearly stated without any objection from
BR that the earnest money was intended to form part of the purchase price. It was an
advance payment which must be deducted from the total price. Thus, the parties could
not have intended that the earnest money or advance payment would be forfeited when
the buyer should fail to pay the balance of the price, especially in the absence of a clear
and express agreement thereon. Petitioner resorted to extrajudicial rescission of its
contract with BR which in turn did not object. If the party does not oppose the declaration
of rescission of the other party, specifying the grounds therefore, and if it fails to reply or
protest against it, its silence thereon suggests an admission of the veracity and validity
of the rescinding partys claim. By virtue of the extrajudicial rescission of the contract to
sell by petitioner without opposition from BR, which, in fact, sold the property to other
persons, BR, as the vendor, had the obligation to return the earnest money of P1M. It
would be most inequitable if respondent BR would be allowed to retain it and at the
same time appropriate the proceeds of the 2nd sale.
CASE NO. 23
SM: Quasi delicts; Liability of employers under Arts.2180 & 2194, NCC
METRO MANILA TRANSIT CORP. vs. CA
GR# s 116617 & 126395, November 16, 1998
FACTS: Liza Rosalie Rosales died due to a vehicular accident involving petitioner
MMTCs vehicle driven by Pedro Musa. Her parents sued MMTC and Musa for
damages. According to MMTC, it has exercised the diligence of a good father of a
family with respect to the selection of employees by presenting mainly testimonial
evidence on its hiring procedure. Thus, it should not be liable for damages. HELD: The
evidence presented by MMTC to show that it exercised the diligence of a good father of
a family in the selection and supervision of employees and thus avoid the vicarious
liability for the negligent acts of its employees is insufficient to overcome the
presumption of negligence against it. MMTC is thus primarily liable for damages arising
from the negligence of its employee in view of A.2180, NCC. It can recover from its
employee but does not make the latters liability subsidiary. They are solidarily liable.
The liability of the registered owner of a public service vehicle for damages
arising from the tortious acts of its driver is primary, joint and direct with the
driver.
NO. 25
SM: Obligations and contracts; double sale
CHENG vs. GENATO
GR# 129760, December 29, 1998
FACTS: Respondent Ramon Genato entered into a contract to sell with the other
respondents, spouses Da Jose. The contract was in a public instrument and was duly
annotated at the back of the 2 Transfer of Certificate of Titles covering the said lots. The
contract provided, among others, the partial down payment of P50k and the payment of
the remaining P950k after 30 days and only after verifying and confirming the truth and
authenticity of the documents. Said 30 days was executed for another 30 days.
Pending the effectivity of said extension, and without notifying the Da Joses,
Genato executed an Affidavit to Annul the Contract to Sell but no annotation of the same
was made at the back of his titles.
Cheng and Genato thereafter entered into a contract of sale over the lands. Genato
decided to continue the contract he had with the Da Joses and sent back Chengs check
but Cheng demanded compliance with their agreement as it was already perfected.
Cheng further executed as Affidavit of Adverse Claim which was annotated on the
subject TCTs. Meanwhile, the Da Joses paid Genato the P950k balance. HELD: The
Da Joses were not in default since the 30 day extension period has not yet expired. In
addition, no further condition was agreed upon when the Da Joses were granted the 30
days extension. Even if they did default in their Contract to sell, the affidavit to annul is
not even called for. With or with out it, their non-payment to complete the full down
payment of the purchase price ipso facto avoids their contract to sell, it being subjected
to a suspensive condition. When a contract is subject to a suspensive condition, its
birth/effectivity can take place only if and when the event which constitutes the
condition happens or is fulfilled. If it does not take place, the parties would stand
as if the conditional obligation had never existed. Further, the act of a party of
canceling a contract should be made known to the other. Since that was not made, the
Da Joses contract was not rescinded properly. Lastly, the knowledge gained by Cheng
of t heist transaction between the Da Joses and Genato defeats his rights even if he is
first to register the 2nd transaction, since such knowledge taints his prior registration with
bad faith.
CASE NO. 29
SM: Obligation and contracts; Rescission, A.1191, NCC
ONG vs. CA
GR# 97347, July 06, 1999
FACTS: Petitioner Jaime Ong and respondent spouses Miguel and Alejandra Robles
executed an Agreement of Purchase and Sale on 2 lots for P2M. Ong paid the Robles
couple the initial payment of P103, 499.91 as agreed upon, by depositing it with the
UPCB. Ong took possession of the property will all the improvements thereon. He
further deposited the remaining payment with the BPI in accordance with their stipulation
that Ong pay the respondents loan with BPI. Ong issued 4 post dated Metro Bank
checks to answer fro his P1.4M balance but they were dishonored for insufficient funds.
Ong failed to replace the checks and out of the P496, 500 BPI loan, he only paid P393,
679.60. Respondents then sold 3 of their rice mills transformers found in the subject
lots and Ong gave them the authority to operate the mill while retaining possession of
the lots. Respondents demanded Ong the return of their properties. Ong ignored the
same. HELD: A careful reading of the parties contract shows that it is a contract to
sell whereby ownership is by agreement, reserved in the vendor and is not to pass
to the vendee till full payment of the purchase price. In a contract to sell, payment
of the purchase price is a positive suspensive condition, the failure of which is not
a breach, causal or serious, but a situation that prevents the obligation of the
vendor to convey title from acquiring an obligatory force. In the instant case,
the respondents bound themselves to deliver a deed of absolute sale and a clean title
upon full payment by Ong of the P2M. Ongs failure to complete payment rendered the
contract to sell ineffective and without force and effect. The breach contemplated in
A.1191, NCC is the obligors failure to comply with an obligation already extant, not a
failure of a condition to render binding that obligation. Hence, the agreement of the
parties herein maybe set aside, but not because of a breach on Ongs part to pay in full.
Rather, his failure brought a situation which prevented the obligation of respondents to
convey title from acquiring an obligatory force.
CASE NO. 30
SM: Wills and Succession; Holographic will; A.811, NCC
CODOY vs. CALUGAY
GR# 123486, August 12, 1999
CASE NO. 31
SM: Contracts; A.1603, NCC; equitable mortgage
CHING SEN BEN vs. CA
GR # 124355, September 21, 1999
FACTS: Petitioner constructed a house on his Marikina lot (TCT 128394) and agreed to
transfer the same to Vicente for P150, 000 to be paid by Vicente from the proceeds of
his housing loan from the SSS which granted him a P119, 400 loans. Ching then
executed a Deed of Absolute Sale over said realty in Vicentes favor. Ching informed
Vicente that he has a P43k balance on the house and lot. Vicente failed to pay the said
amount. Thereafter, they executed a Deed of Sale with Assumption of Mortgage and
With Right to Repurchase whereby Vicente conveyed the property to Ching. It provided
that Ching will assume all the duties and obligations of Vicente imposed upon by the
latter in the deed of mortgage he executed in SSSs favor, as if Ching was the original
mortgagor in the mortgaged deed. However, Vicente retained possession of the
property. Ching paid in full to the SSS Vicentes account. SSS then issued a release of
REM annotated on TCT 146078 under Vicentes name. Ching demanded that Vicente
execute a Deed of Absolute Sale over the property. Vicente ignored it. HELD: The deed
of sale with assumption of mortgage and right to repurchase is actually an equitable
mortgage. The purported consideration for the sale with right to repurchasing the amount
of P60, 242.86 is unusually inadequate compared to the purchase price of P150k when
Vicente bought it from Ching 6 months before the execution of the deed. Not only did
Vicente retained possession of the property but he also retained ownership thereof
which led Ching to file the consolidation case.The real intention of the parties was to
secure the payment by Vicente of the balance of the purchase price and the transfer
fees of P43k. The stipulation in the Deed of sale with right to repurchase that absolute
title shall be vested in the vendee in case the vendor failed to redeem the property on
the specified date is void for being a pactum commissorium. Further, that Ching
assumed the mortgage obligation of Vicente to the SSS does not detract from the real
nature of the agreement as a contract of mortgage to secure the debts payment.
CASE NO. 38
SM: Contracts; void contract; A.1412 (2)
CAVITE DEVELOPMENT BANK vs. SPOUSES LIM
GR# 131679, February 01, 2000
FACTS: Rodolfo Guansing obtained a P90k loan from CDB and mortgaged a lot
covered by TCT#300809 registered in his name. Guansing defaulted in his payment and
thus, CDB foreclosed the mortgage which was sold to CDB in the foreclosure sale that
ensued. Guansing failed to redeem his lot and CDB eventually consolidated title to the
property in its name evidenced by TCT# 355588.Private respondent Lolita Lim offered to
buy the lot from CDB. The offer provided 10% option money and the balance payable in
cash. Lim discovered that the subject property was originally registered in the name of
Perfecto Guansing, Rodolfos father. Apparently, Rodolfo succeeded in having the lot
registered in his name under the title he mortgaged to CDB and from which CDBs title
was derived. However, Perfecto instituted a case for the cancellation of Rodolfos title
which was granted and the decision became final and executory. HELD: In the instant
case, the P30k, although denominated in the offer to purchase as option money, is
actually in the nature of earnest money or down payment when considered with the
other terms of the offer. An option contract is a contract separate from and
preparatory to a contract of sale which, if perfected, does not result in the
perfection or consummation of the sale. Only when the option is exercised may a
sale be perfected. Here however, after the payment of the 10% option money, the offer
to purchase provides for the payment only of the balance of the purchase price. This is
the result of paying earnest money under A.1482, NCC. Clearly, the parties entered into
a contract of sale, perfected and partially executed by the partial payment of the
purchase sale. But due to the legal obstacle of the annulment of Rodolfos title from
which CDB derived its own title, the contract between it and Lim can not be enforced and
is void by reasons of public policy. Since CDB can not be considered a mortgagee in
good faith due to its negligence for failing to conduct an exhaustive investigation, it is
liable to return the P30k, plus damages as provided by A.1412 (2), NCC.
CASE NO. 40
SM: Obligation and contracts; rescissible contracts; A.1381(3), NCC
CHINA BANKING CORPORATION (CBC) vs. CA
GR# 129644, March 3, 2000
FACTS: Alfonso Roxas Chua obtained a loan from MetroBank which he secured by
mortgaging his conjugal share in a property covered by TCT #410603. Alfonso failed to
pay and consequently MetroBank foreclosed the realty. In 1988, during the period of
exercising his right to redeem said realty, Alfonso sold his right of redemption to his son,
Paulino who redeemed the property and caused the annotation thereof at the back of the
title. This preceded the annotation of the levy of execution in CBCs favor by 2 years
and the certificate of sale also in CBCs favor by more than 3 years. CBC is Alfonsos
creditor which obtained judgment against him and Pacific Multi Agro Industrial Co. on
November 07, 1985, 2 years before Alfonso sold his right to redeem to Paulino.
Consequently, CBC sued Paulino alleging that the transaction between him and his
father was fraudulent and was meant to defraud the latters creditors such as CBC.
HELD: Since the judgment of the trial court in CBCs favor against Alfonso was rendered
as early as 1985, there is a presumption that the 88 sale of his property, in this case, the
right of redemption, is fraudulent under A.1387, NCC. The fact that Paulino redeemed
the property and caused its annotation on the TCT ahead of CBC is of no moment since
a fraudulent transaction , such as Alfonsos and Paulinos , is not overcome by the mere
fact that the deeds of sale were in the nature of public instruments. This
presumption is strengthened by the fact that the conveyance has virtually left Alfonsos
other creditors with no other property to attach. The mere fact that the conveyance
was founded on valuable consideration as in the case at bar, does not necessarily
negates the presumption of fraud under A.1387, NCC. There has to be a valuable
consideration and the transaction must have been made bona fide. In the instant
case, the presumption of fraudulent conveyance has not been overcome.
CASE NO. 50
SM: Obligations; when is a contract perfected
JARDINE DAVIES INC. vs. CA
GR#s 128066 & 128069, June 19, 2000
CASE NO. 51
SM: Contracts; Novation
ESPINA vs. CA
GR# 116805, June 22, 2000
FACTS: Respondent Diaz originally occupied the subject condo unit in 1987 as a
lessee. While he was its lessee, petitioner agreed to sell the unit to him by installments.
The agreement to sell was provisional as the consideration was payable in installments.
Petitioner terminated the provisional deed of sale by a notarial notice of cancellation;
Diaz remained the lessee but he failed to pay the rentals due. Diaz subsequently made
payment of P100k applicable either to the back rentals or for the purchase of the unit.
Nevertheless, petitioner gave Diaz a notice to vacate the premises and to pay his back
rentals. Diaz failed to do both and so petitioner filed an action for unlawful detainer
against him. Diaz alleged that the provisional deed of sale executed by them novated the
original existing contract of lease and thus, petitioner has no cause of action for
ejectment against him. HELD: Novation must be clearly proved; its existence is not
presumed. It only takes place if the parties expressly so provide, otherwise, the original
contract remain in force. Where there is no clear agreement to create a new contract in
place of the existing one, novation cannot be presumed to take place, unless the terms
of the new contract are fully incompatible with the former agreement on every point. In
the case at bar, after the initial down payment , respondents checks in payment of 6
installments all bounced and were dishonored. This led to petitioners termination of the
provisional deed of sale. Petitioners subsequent acceptance of payment did not
withdraw the cancellation of the provisional sale. Unless the application of payment is
expressly indicated, the payment shall be applied to the most onerous obligation of the
debtor, in this case, the unpaid rentals. Since the payment did not fully settle the
unpaid rentals, the cause of action for ejectment survives.
CASE NO. 53
SM: Contracts; A. 1479, NCC
SAN MIGUEL PROPERTIES PHIL INC. vs. SPOUSES HUANGS
GR# 137290, July 31, 2000
FACTS: The parties in the case at bar executed an instrument involving the sale of the
petitioners subject real properties to the Huangs. The Huangs wrote petitioner the terms
of their offer. Among the conditions given by the Huangs are: (1) that they be given the
exclusive option to purchase the property within 30 days from acceptance of the offer;
(2) that during the option period, the parties would negotiate the terms and conditions of
the purchase; and (3) petitioner would secure the necessary approval while respondents
would handle the documents. The Huangs gave petitioner P1M as earnest deposit.
However, the couple and petitioner failed to agree on the terms of the payment.
Petitioner gave the Huangs a 45-day extension so that a final agreement may be had.
What transpired however was nothing more than offers and counter offers. Petitioner
then offered the properties to another. HELD: Under A.1479, NCC, consideration in an
option contract maybe anything of value, unlike in sale where it must be the price certain
in money or its equivalent. In the case at bar, there is no showing of any consideration
for the option. Lacking any proof of such consideration, the option is unenforceable. The
manner of payment of the purchase price is an essential element before a valid and
binding contract of sale can exist. Although the NCC does not expressly state that the
minds of the parties must also meet on the terms/manner of payment of the price, the
same is needed; otherwise, there is no sale. Agreement on the manner of payment goes
into the price such that a disagreement is tantamount to a failure to agree on the price.
Thus, it is not the giving of earnest money, but the proof of the concurrence of all the
essential elements of the contract of sale which establishes the existence of a perfected
sale. In addition, the Huangs did not give the P1M as earnest money as defined by
A.1482, NCC. It was only given not as a part of the purchase price and as proof of the
perfection of the contract of sale but only as a guarantee that respondents would not
back out of the sale.
CASE NO. 54
SM: Obligations and Contracts; Contract to Sell vs. Contract of Sale
SPOUSES FORTUNATO AND ROSALINDA SANTOS vs. CA
GR# 120820, August 01, 2000
FACTS: Private respondents, the Caseda couple, possessed the subject house and lot
in Paraaque City. However, the TCT over the same issued by the Register of Deeds of
Paraaque has always remained in Rosalindas name. Although the parties agreed that
the Casedas would assume the mortgage, all amortization, payments made by Carmen
Caseda to the bank were in Rosalindas name. The bank cancelled and discharged the
mortgage in Rosalindas favor. Apparently, petitioners thus informally sold with
conditions the said realties to the Casedas. The Casedas failed to pay in full. The
Santoses thus reposed their property. HELD: A.1458, NCC expressly obliges the vendor
in a contract of sale to transfer the ownership of the thing sold as an essential element of
such a contract. After a careful examination of the contents of the parties unofficial
receipt and other proofs, the SC held that there was no valid transfer of ownership was
made by the Santoses to the Casedas. Absent this essential element, their agreement
can not be deemed a contract of sale. What they had was a mere contract to sell. In
contracts to sell, ownership is reserved in the vendor and is not to pass until full payment
of the purchase price. In a contract of sale, the vendor has lost ownership of the thing
sold and can not recover it, unless the contract of sale is rescinded and set aside. In a
contract to sell, however, the vendor remains the owner for as long as the vendee has
not complied fully with the condition of paying the purchase. If the vendor should eject
the vendee for failure to meet the condition precedent, he is enforcing the contract and
not rescinding it. Such is what the Santoses did in this case.
CASE NO. 65
SM: Obligation and Contracts; Novation
AGRO CONGLOMERATES, INC. vs. CA
GR# 117660, December 18, 2000
FACTS: The conflict among the parties started from a contract of sale of a farmland
between Agro and Wonderland Food Industries.The original plan was that the initial
payments would be paid in cash. Subsequently, the parties, with respondent banks
participation, executed an addendum providing instead, that Agro would secure a loan in
its name for the total amount of the initial payments, while the settlement of said loan
would be assume by Wonderland. Thereafter, petitioner Soriano signed several
promissory notes (PNs) and received the proceeds in Agros behalf. In effect, the
parties entered into a subsidiary contract of suretyship since petitioners signed the PNs
as makers and accommodation party for Wonderlands benefit. Petitioners asserted that
the addendum provided that their obligation to pay the PNs was novated by substitution
of a new debtor, Wonderland, and as such, they were not liable anymore on the PNs.
HELD: In order that a novation can take place, the concurrence of the following
requisites is indispensable: (1) there must be a previous valid obligation; (2) there
must be an agreement of the parties concerned to a new contract; (3) there must be the
extinguishment of the old contract; and (4) there must be the validity of the new contract.
In the case at bar, the 1st requisite for a valid novation is lacking. There was no
novation by substitution of debtor because there was no prior obligation which was
substituted by a new contract. The PNs, which bound petitioners to pay, were executed
after the addendum. The addendum modified the contract of sale, not the stipulation in
the PNs which pertain to the surety contract. Wonderland apparently assured the
payment of future debts to be incurred by petitioners. Consequently, only a contract of
surety arose. It was wrong for petitioners to presume that a novation had taken place.
Settled is the rule that a novation is never presumed, it must be clearly and
unequivocally shown.
CASE NO. 67
SM: Obligations and Contracts; Novation as a means to extinguish a contract of surety
BABST vs. CA
GR#s 99398/104625, January 26, 2001
FACTS: Babst alleged that DBP sold ELISCONs entire asset to the NADECO, for the
latter to take over and continue the operation of its business. Thereafter, the DBPs
Board of Governors adopted Resolution# 2817 providing that DBP shall enter into a
contractual arrangement with NDC for the latter to pay ELISCON;s creditors, including
BPI, amounting to P 4,015,534.54. A Memorandum of Agreement (MOA) between DBP
and NDC followed which provided that NDC shall pay to ELISCONs creditors, through
DBP, the amount of P299, 524,700. BPI again was listed as a creditor. Babst further
alleged that the ELISCON assets which DBP acquired and later transferred to NADECO
(NDC) were placed under the Asset Privatization Trust. Thus, he was not liable. Due to
its failure to make payment, BPI commenced an action to enforce payment of the credits
of ELISCON with CBTC which was acquired in a merger by BPI. The action was against
Pacific Multi Commercial Corporation and Babst as ELISCONs sureties. HELD: While a
surety is solidarily liable with the principal debtor, his obligation to pay only arises upon
the principal debtors failure/ refusal to pay. In the case at bar, there was no indication
that the principal debtor will default in payment. BPIs conduct further showed a clear
and unmistakable consent to DBPs substitution for ELISCON as debtor. The authority
granted by BPI to its account officer to attend the creditors meeting was an authority to
represent the bank such that when he failed to object to the substitution of debtors, he
did so in behalf of and for the bank. Hence, there was a valid novation which resulted in
the release of ELISCON from its obligation to BPI, whose course of action should be
directed against DBP as the new debtor. The original obligation having been
extinguished, the contracts of suretyship executed separately by Babst and Multi being
accessory obligations are likewise extinguished.
CASE NO. 73
SM: Quasi- Contracts; Art. 2141, NCC
RODZSSEN SUPPLY CO. VS. FAR EAST
GR# 109087, May 09, 2001
FACTS: RODZSSEN applied for and obtained an irrevocable 30- day domestic Letter of
Credit from respondent Bank on January 15, 1979, in favor of Ekman & Co. Inc. in order
to finance the purchase of 5 units of hydraulic loaders amounting to P190k. After several
extensions, the validity was finally granted until October 16, 1979. Far East paid Ekman
for the first 3 hydraulic loaders that w ere delivered. The bank however paid Ekman
P76k on March 14, 1980 for the last 2 units which petitioner accepted under its trust
receipt arrangement with Far East. The latter demanded payment from petitioner which
refused the same since the bank paid Ekman when it was no longer bound to do so
under the Letter of Credit which expired 5 months prior to the payment of the 2 units.
HELD: The subject Letter of Credit had become invalid upon the lapse of period fixed
therein. Thus, respondent should not have paid Ekman since it was not obliged to do so.
However, Far Easts right to seek recovery from the petitioner is anchored not upon the
inefficacious letter of Credit, but on Art. 2142, NCC. Indeed, equitable considerations
should be used to allow recovery by respondent. Thus, it erred in paying Ekman but
petitioner itself was not without fault in the transaction. It must be noted that the latter
had voluntarily received and kept the loaders since October 1979.
CASE NO. 77
SM: Contracts; Novation as a mode of extinguishing obligations.
MOLINO vs. SECURITY DINDERS INTERNATIONAL CORPORATION
GR# 136780, August 16, 2001
FACTS: Danilo Alto is a credit card owner of SDIC. He signed a Surety Undertaking with
petitioner to ensure payment of his credit card debts with SDIC. Under the Undertaking,
petitioner bound herself jointly ad severally with Alto to pay SDIC all obligations and
charges in the use of the Diners Club Card and that any change or novation in the
Agreement or any extension of the time granted by SDIC to pay such obligation shall not
release her from the Surety Undertaking. Alto upgraded his card and became Diamond
card holder. However, he incurred debts of P166, 408.31 in credit card advances which
he failed to pay. SDIC sued Alto and petitioner as his surety to collect said amount.
HELD: The upgrading was a novation of the original agreement covering the 1 st credit
card issued to Alto, basically since it was committed with the intent of canceling and
replacing the said card. But the novation did not serve to release petitioner from her
surety obligations because in the Surety Undertaking she expressly waived discharged
in case of change/ novation in the agreement governing the use of the 1st credit card.
The extent of a suretys liability is determined by the language of the surety ship
contract/ bond itself. Also, the Surety Undertaking expressly provides that petitioners
liability is solidary. Although the contract of surety is in essence secondary only to a valid
principal obligation, his liability to the creditor is direct, primary and absolute; he
becomes liable for the debt and duty of another although he possesses no direct or
personal interest over the obligations nor does he receive any benefit there from.
Petitioner had the option to withdraw her suretyship when Alto upgraded his card to one
that permitted unlimited purchases, but instead she approved the upgrading. Hence, her
liability subsists.
CASE NO. 81
SM: obligations; damages
GSIS vs. SPOUSES GONZALO DEANG
GR# 135644, September 17, 2001
FACTS: GSIS and the Deangs had a loan agreement secured by a Real Estate
Mortgage. The Deangs were able to pay said loan and asked that their duplicate copy of
title be released by the GSIS. The latter insisted however that it was not obligated to
return said duplicate copy immediately. As a result, the Deangs were not able to secure
another loan, resulting to damages to their business. Consequently, they sued GSIS for
damages. HELD: Although Article 2180, NCC in inapplicable in the case at bar, GSIS is
still liable for damages. Under Articles 1170 and 2001, NCC, GSIS, due to its negligence
and refusal to return the duplicate copy of title, should pay the Deangs for the damages
they suffered. Since good faith is presumed and bad faith is a matter of fact which
should be proved, GSIS was treated by the SC as a party who defaulted in its obligation
to return the owners duplicate copy of title. As an obligor in good faith, GSIS is liable for
all the natural and probable consequences of the breach of the obligation. The inability
of the Deangs to secure another loan and the damages they suffered thereby has its
roots in the failure of GSIS to return the owners duplicate copy of title. Hence, award of
damage due to the breach of contract is granted.
CASE NO. 84
SM: Obligation and Contracts RA 6552 (realty Installment Buyer Protection Act); Art.
1169, NCC
LEAO vs. CA
GR# 129018, November 15, 2001
FACTS: Petitioner and private respondent Fernando executed a contract to sell over a
piece of property. The contract provided that the vendee, herein petitioner, may continue
occupying said lot as long as she complies with all the terms and conditions agreed
upon. The respondent- vendor meanwhile will only execute a deed of sale after the
complete payment of the total purchase price of the property. The parties agreed further
that petitioner will pay in monthly installments for a period of 10 years. However, after
April 01, 1989, petitioner failed to pay said installments. Respondents thereafter filed an
ejectment case against petitioner. HELD: Petitioners non payment of the installments
prevented respondents obligation to convey the property from arising. In fact, it brought
into effect the provision of the contract on cancellation. Any attempt to cancel the contact
to sell would have to comply with the provisions of RA 6552. RA 6552 recognizes on
conditional sales of all kinds of real estate (industrial, commercial, residential) the right of
the seller to cancel the contract upon non- payment of an installment by the buyer, which
is simply an event that prevents the obligation of the vendor to convey title from
acquiring binding force. The law also provides for the rights of the buyer in case of
cancellation. Sec. 3(b) provides even that If the contract is cancelled, refund to the buyer
of the case surrender value of the payments is a must. It also provides that the actual
cancellation of the contract shall take place after 30 days from receipt by the buyer of the
notice of cancellation/ demand for rescission of the contract. The decision in the
ejectment case operated as the notice of cancellation required by Sec. 3 (b). As
petitioner was not given the cash surrender value of the payments that she made, there
was still no actual cancellation of the contract. Consequently, petitioner may still
reinstate the contract by updating her account.
CASE NO. 85
SM: Obligations and Contracts; Double Sale; Art. 1544, NCC
TAN vs. CA
GR# 135038, November 16, 2001
FACTS: Hayden Luzon bought the subject property from Lorenzo Atega on sale by
installment, starting form 1957 till 1987. Leoncio Paredes bought a portion of his
property in 1977 and the remaining portion in 1990. However, no registration of their
claims had been made in their favor, much less any title issued in their name. Petitioner
meanwhile bought the lot through Ismael Elloso. Petitioner thereafter registered said
sale with the Register of Deeds in November 1979, soon after title was issued in Ategas
name, segregating his share in Lot No. 436-A. petitioner filed a notice of adverse claim
which was duly annotated on Ategas title. HELD: There is evidence showing not only
that respondents knew of the sale of the lot by Elloso to petitioner but also that the latter
was ahead in registering his acquisition of the lot with the Register of Deeds. Both the
prior registration of the deed of sale in petitioners favor, as well as the adverse claim,
effectively gave Luzon and Paredes notice of petitioners right on the subject land.
Before 2nd buyers like Luzon and Paderes can obtain priority over 1st buyers like Elloso,
petitioners predecessor- in interest, they must show that they have acted in good faith
throughout, having been ignorant of the 1st buyers rights from the time of their
acquisition until the title was transferred to them by registration. The requirement is such
that the 2nd buyer must show continuing good faith and innocence or lack of knowledge
of the 1st sale till his contract ripens into full ownership through prior registration as
provided by law. Evidently, both respondents claim must yield in petitioners favor.
CASE NO. 86
SM: Obligation and Contracts; reciprocal Obligations; Consignation
BACUS vs. CA
GR# 127695, December 03, 2001
FACTS: Petitioners entered into a lease contract with option to buy with respondents.
The private respondents communicated to petitioners their intention to buy the property
prior to the expiration of their contract. However, petitioners refused to execute the deed
of sale and demanded respondents to first deliver the money before they would execute
the same. The respondents filed a case for specific performance in the RTC. Before the
RTC rendered its decision, respondents issued a cashiers check in petitioners favor
purportedly to bolster their claim that they were ready to pay the purchase price.
Asserting that the respondents were in delay when they issued the cashiers check after
the contract expired, petitioners filed this petition. HELD: Obligations under an option to
buy are reciprocal obligations. In an option to buy, the payment of the purchase price by
the creditor is contingent upon the execution and delivery of a deed of sale by the
debtor. In the case at bar, when the respondents opted to buy the property, their
obligation was to advise petitioners of their decision and their readiness to pay the price.
They were not yet obliged to make actual payment. Only upon petitioners actual
execution and delivery of the deed of sale were acquired to pay. Respondents did not
incur in delay when they did not yet deliver payment nor make a consignation before the
expiration of the contract. In reciprocal obligations, neither party incurs in delay if
the other does not comply or is not ready to comply in a proper manner with what
is incumbent upon him. Only from the moment one of the parties fulfills his
obligation, does delay by the other begin. Accordingly, as there was no compliance
yet with what was incumbent upon petitioners under the option to buy, respondents had
not incurred in delay when the cashiers check was issued even after the contract
expired.