1

CASE LAWS TRANSCRIPT BY RESCI ANGELLI RIZADA NOTE: PLEASE STUDY GUYS HA. I AM DOING WHAT I THINK WOULD REALLY HELP THE CLASS. BAHALA NA MA.JOGSAK KO OR MABAGSAK BASTA AT LEAST DILI KAAU KAHIYA2X ANG ATONG SCORES MAINLY BECAUSE WALA NAGREVIEW C MAM SA ATO..LET'S HELP OURSELVES. DO NOT ALWAYS RELY ON OTHERS TO PROVIDE NOTES FOR YOU. BASTA I EXPECT EVERYONE TO PARTICIPATE, HELP OTHERS AND PRIMARILY HELP YOURSELVES! OKAY?:) kaya lageh ni! aja!!!!! REVIEW MAYA AT 5PM!!!!!!!!!!!!!!:)))) ANG MAG-ABSENT UG DILI MGPAREVIEW KAY PAMATI !!!! MANLUOD JUD KO!!!!!!!!!! [blehhh..hehehehe] CASE LAWS TRANSCRIPT BY RESCI ANGELLI RIZADA[GWAPA] char lang:) CASE TRANSCRIPT RESCI ANGELLI RIZADA CAMACHO VS. CA There was a perfected contract. While it may be true..what is the contention of camacho? There was no consideration/cause..kay illegal. But there was a perfected contract. Involves parcel of land supposedly donated to municipality. Consideration of the lawyer for his rendering of services is a parcel of land. GOLANGCO CONSTRUCTION VS. PCIB Involves interpretation on liablitliy of construction company. Stipulation is clear that it is only liable for one year. After that, no liability shall attach CASTRO VS. TAN Interest rate- where unconscionable kc orig. obligation is 30K up to 329k PNB VS. FERNANDEZ Involves ESCALATION CLAUSE.Where not void per se but the increase in rate of interest must not be unilateral. There must be an assent of the other contracting party. In this case, there was unilateral upward raise of the interest.. ALLIED BANKING VS. CA Involves interpretation of clause in lease agreement where the contract may be renewed for like term at option of lessee..SC said not violative daw of 1308, it does not negate the mutuality of contracts because it is one stipulation that may be given to the lessee. However, once the lessee exercises the option then both parties are bound to the agreement. Different from case of Lim Lao, because that provision involving same contract of lease, it really is violative of principle ofmutuality of contract becoz the other party does not have any act or is bound to the agreemtn for as long as the other party will exercise the option EQUITABLE PCI VS. NG SHEUNG NGOR BALUYOT VS. CA There is a stipulation pour autrui. All requisistes present. INTEGRATED PACKAGING VS. There was no stipulation in favor of Philacor. The agreement was purely bet. IP and Philacor. Fil-anchor not a party to the contract. The fact that Fil-anchor stopped the delivery of paper materials reqrd for printing but in as much as IP breached its oblig and failed to pay the amount due.-->Then, it has no oblig to make further delivery of those paper matls,; it cant be held liable for hte breach committed by IP against Philacor for absence of privity of contract. A&C MINIMART VS. VILLAREAL This involves the demand for delivery of penalty to the real owner of property. The real owner cannot demand such. The contract was entered by former owner and lesee. There is no privity of contract bet. Real owner and A&C . then he is not entitled now for 3% penalty if A&C or has defaulted in payment of rental BORROMEO VS. CA Ito ung Equitable PCIwhere Equi PCI w/o consent of debtor, transferred it GENATO VS. BAYHON Ito ung about sa estate..Heirs are only liable for as much as what they have received from the legitime. JARDINE DAVIES AND PUREFOODS VS. CA AND FEMSCO There was a perfected contract bet. Purefoods and Femsco. Dec. 12 letter is NOT a conditional counter offer but was an acceptance on the part of Femsco. Precisely, it -__ submitted all with insurance contract and performance bond. Was Jardie liable for interference? NO. because there was no proof/evidence that would show it interfered with such contract. SOLER VS. CA All stages of contract are found. NEGOTIATION. PERFECTION..CONSUMMATION DOMINGO REALTY VS. CA CASTILLO VS. REYES Ito yung sa plan..what was used in paying balance of the check?and the seller now gives buyer midnight to replace check with casH. It was not replaced..seller sold it to another person. According to the seller, it was only a contract to sell and not a contract of sale. SC said that in as much as there was no reservation on the part of seller that the ownership is reserved until full payment o fthe purchase price, what was entered into by the parties was not a contract to sell but a contract of sale. AMADO VS. SALVADOR There was no perfected contract of sale. There was no evidence shown by Mr. salvador that an agreement of sale exists. He only shown paper but there was no indication as to where that amount is to be applied. Although, He said such payment come in the form of cash and construction material but there was no contract of sale. GSIS VS. LOPEZ NO perfected contract of sale because what was required?: consent of the Board of trustees of GSIS. There was none. There was no perfected contract of sale. Such was a condition sine qua non for a contract of sale to exist. What about that downpayment of 10% ..that was applied in the arrears in rent. There was compensation GARCIA VS. THIO There was perfected contract because there was delivery. A contract of loan is a type of real contract where aside from consent, there is delivery. BALALAD VS. YUPANO This involves a contract of sale. There was a perfected contract. PANGAN VS. PERRERAS Merong perfected contract with respect to the share of the mother and not to the heirs. 1/3 portion.. ASUNCION VS. CA This involves RIGHT OF FIRST REFUSAL. Is this akin to option contract? NO. LIMSON VS. CA This is one where there was option granted to buyer. There was a consideration distinct from the price not forming part of purchase price. to equi savings bank. The argument was that the latter bank..own 70% of stocks. SCthey have separate personalities. While it may be true that majority stockholder of Equi savings bank is Equi Pci, but in as much as diff. personality, no privity of contract bet. Borromeo and equi savings bank ESTATE OF LLENADO VS. LLENADO Contract of lease is with stipulation that during the existence of the lease, the owner cant sell where gasoline staiton is found. Subsequiently, owner sold it for the wife failed to renew the lease contract before its expiration. In as much as there was no renewal by the widow, it was only proper to sell it. NARVAEZ VS. ALCISO Stipulation pour autrui-all requisites are present

2
However, the option period has lapsed before the buyer has decided to exercise the option. TAYAG VS. LACSON There was NO stipulaiton pour autrui. No option granted to Tayag. The tenants were not the owners of the property. So, they have no right to offer it to Mr. Tayag. Is lacson liable for interference bet. The contract of tenants and mr. tayag? NO. no evidence was shown. How do you prove FRAUD? CLEAR AND CONVINCING EVIDENCE. Not merely preponderance of evidence. EULOGIO VS. APELES NO OPTION money. There was no consideration given for the option. LEQUIN VS. VIZCONDE Was there fraud? YES. There was FRAud. In fact, It was the owner who paid for the property he was occupying. He was made to believe that he occupied the property of the subsequent buyer. When in truth and in fact, the subsequent buyer bought that patay na tapa. It is not the property where they had built their house. Ito ang pinalabas ng subsequent buyer.sige magtayo lng kau ng bahay on that 500m. property But actually, they are the owners of that 1000m prperty. They were the ones who asked to pay 50,000. DELA CRUZ VS. DELA CRUZ Was 1332 applied? NO. there was NO corroboration to the testimony of placencia that she does not understood the language in which the contract was written. Tehre were other circumstances that would really show that Placencia had really shold the prop to fortunato. Fortunato sold prop. 3 times. If fortunato was not really the owner, he should have obtained the consent of Placencia. But he did not. He mortgaged it pa several times. No annulment of contract. FELICIANO VS. ZALDIVAR 1332 Application is proper. Despite the fact that the lawyer has testified in behalf of the buyer. What was lacking? He did not fully explain the terms of the contract. He may have interpreted the contract but did not really explain the terms of the contract to feliciano. VALERIO VS. REFRESCA There was RELATIVE SIMULATION of the contract. The parties are still bound to the contract because there was no prejudice to a third person by the relatively simulated contract. while the title was a Contract of Sale, it was actually a deed of Donation. VILLEGAS VS. RURAL BANK ABSOLUTE simulation. Void ang contract but villegas cannot demand for the return of the property that was foreclosed by the bank becoz of the pari delicto rule. MARTINEZ VS. CA The priest who bought the property from dela paz .because it was sold by dela paz inlcuding the portion already bought by martinez. In fact, he already built a house on it and where his family live. The argument of dela paz was that there was no written document. What was only given to martinez was a piece of paper becoz he paid thru installment. When he demanded for exec of deed of sale, Dela paz said it was already invalid for the absence of that written document that will embody.. according to SC, d he can avail of the remedy provided for in 1357. For purposes of registration ha. TEOCO VS. MBTC This is the DEEd of assignment for the right to redeem the property that was earlier controlled by metrobank. Where metrobank opposed the redemption on the ground that deed of assignment did not comply with the reqt that such deed be duly certified by consular official where teoco spouses are residents. According to SC, this involves contracts under 1358 paragraph 1 where the formality is ONLY FOR CONVENIENCE and not for validity or enforceability. If I remember it right, SC in that decision, bold na ung word na CONVENIENCE. did you observe that? BENTIR VS. LEANDA AND LEYTE GULF TRADING NO REFORMATION because action for reformation has already prescribed. This involves a lease contract where property leased was subsequently sold by the lessor. Lessee objected to the sale in that he was given the right to first refusal in the event that the lessor should decide to sell property. But Which stipulation was inadvertently excluded by their own lawyer? SC said why did you allow 10 yrs to lapse to ask for reformation if indeed there was this omission. In fact, the contract here was even renewed. VILLEGAS VS. ARJONA Reformation is proper! Because there is really a property but was not sufficiently described. Technical description was not included so there is no need ot execute a new contract. What is reqd is to reform it. It is the proper remedy. DUMLAO VS. MAR LON REALTY INTERPRETATION OF CONTRACTSthis refers to payment of interest. Db un ang issue? SECURITY BANK VS. CA Application of 1374. ..this refers to stipulation of liabilty of secu agency when the bank was robbed. REDONDO VS. JIMENEZ Issue is woN Sale or equitable mortgage. THIRD EXAM COVERAGE MCQ- 1 pt each (20 items) MODIFIED TRUE OR FALSE (20 ITEMS) If TRUE- NO NEED TO EXPLAIN why true (if correct, 2 pts agad) If FALSE- STATE WHY FALSE. If you got the correct answer as false, but you did not explain, 1 pt. lang. situatioN: pwede pala false lahat? ENUMERATION [ buot2x sa ko ug answer ha] (10 items) 1. REQUISITES OF when is there FRAUD AS TO ANNUL THE CONTRACT: SUGGESTED ANSWER: Requisites: 1. it must have been employed by one contracting party upon the other but NOT to a co-party; 2. it must have induced the other party to enter into the contract 3. it must have been serious 4. it must have resulted in damage or injury to the party seeking annulment 2. WHAT ARE THOSE CONTRACTS THAT MUST BE IN A PUBLIC DOCUMENT FOR CONVENIENCE. [ HIGH PROBABILITY] Suggested answer: Art. 1358. The following must appear in a public document: (1) Acts and contracts which have for their object the creation, transmission, modification or extinguishment of real rights over immovable property; sales of real property or of an interest therein a governed by Articles 1403, No. 2, and 1405 (2) The cession, repudiation or renunciation of hereditary rights or of those of the conjugal partnership of gains; (3) The power to administer property, or any other power which has for its object an act appearing or which should appear in a public document, or should prejudice a third person; (4) The cession of actions or rights proceeding from an act appearing in a public document.3. WHEN REFORMATION IS PROPER [HIGH PROBABILITY] The best examples are the following: a. When a mutual mistake of the parties causes the failure of the instruemnt to disclose their real agreement (article 1361, CC) b. If one party was mistaken and the other acted fraudulently or inequitably in such a way that the instrument does not show their true intention (Art. 1362, CC) c. When one party was mistaken and the other knew or believed that the instrument did not state their real agreement but concealed that fact from

3
the former (art. 1363) d. When through the ignorance, lack of skill, negligence or bad faith on the part of the person drafting the instrument or of the clerk or typist, the instrument does not express the true intention of the parties (art. 1364) e. If 2 parties agree upon the mortgage or pledge of real or personal property , but the instrument state that the property is sold absolutely, or with a right of repurchase (art. 1365) 4. CONTRACTS THAT CANNOT BE REFORMED [HIGH PROBABILITY] The following instruments cannot be reformed: a. Simple donations intervivos wherein no condition is imposed; b. Wills c. Those where the real agreement is void d. When one of the parties ask for the enforcement of the contract, one can no longer ask for reformation e. When aciton for reformation has already prescribed {NOTE. Prescription period is 10 years] 5. REQUISITES FOR STIPULATION POUR AUTRUI [remember not all stip. In favor of 3rd persons are stip. Pour autrui} [HIGH PROBABILITY] - In order for this stipulation shall arise, there are 6 requisites: 1. stipulation in favor of a third persons 2. stipulation in favor of a third persons should be a part, not the whole, of the contract 3. clear and deliberate conferment of favor upon a third person by the contracting parties and not a mere incidental benefit or interest 4. favorable stipulation should not be conditioned or compensated by any kind of obligation whatever 5. that the third person must have communicated his acceptance to the obligor before its revocation; acceptance must be absolutely unconditional. 6. neither of the contracting parties bears the legal representation or authorization of the third party 6. RATIFICATION OF CONTRACTS ACCORDING TO FORM { ambot dili klaro..tsk>>] MURAG MUGAWAS NI..[high probability] unsa ni???! Kindly answer!! 7. INSTANCES WHERE PROVISIONS OF THE LAW-- WHERE 3RD PERSONS INTERFERE IN A CONTRACT (4 xa, 2ND paragraph of 1311, 1312, 1313, 1314) a. Where the contract contains a beneficial stipulaitn in favor of a third person, provided that such sperson has communicated his acceptance to the obligor before it is revoked. (Article 1311, paragrah 2, CC) b. Where a third person comes into the possession of the object of a contract creating a real right (Article 1312, CC) c. Where the contract is entered into in order to defraud a third person (Article 1313, CC) and d. Where the third person induces a contracting party to violate his contract (Article 1314, CC). 8. WHAT ARE THE ELEMENTS? a. ESSENTIALArt. 1318. There is no contract unless the following requisites concur: (1) Consent of the contracting parties; (2) Object certain which is the subject matter of the contract; (3) Cause of the obligation which is established. (1261) a. NATURAL b. ACCIDENTAL 9. STAGES OF CONTRACT 10. CHARACTERISTICS OF CONTRACT 11. WHO CANNOT GIVE CONSENT a. Unemancipated minors; b. Insane or demented persons unless the contract was entered into during a lucid interval; c. Deaf-mutes who do not know how to write. (Write Ha! Dili read! ) EXCLUDED: violence and intimidation..FRAUD LANG TLGA TAU..FRAUD IS A COMMON GROUND CASE LAWS TRANSCRIPT BY RESCI ANGELLI RIZADA NOTE: PLEASE STUDY GUYS HA. I AM DOING WHAT I THINK WOULD REALLY HELP THE CLASS. BAHALA NA MA.JOGSAK KO OR MABAGSAK BASTA AT LEAST DILI KAAU KAHIYA2X ANG ATONG SCORES MAINLY BECAUSE WALA NAGREVIEW C MAM SA ATO..LET'S HELP OURSELVES. DO NOT ALWAYS RELY ON OTHERS TO PROVIDE NOTES FOR YOU. BASTA I EXPECT EVERYONE TO PARTICIPATE, HELP OTHERS AND PRIMARILY HELP YOURSELVES! OKAY?:) kaya lageh ni! aja!!!!! REVIEW MAYA AT 5PM!!!!!!!!!!!!!!:)))) ANG MAG-ABSENT UG DILI MGPAREVIEW KAY PAMATI !!!! MANLUOD JUD KO!!!!!!!!!! [blehhh..hehehehe] CASE LAWS TRANSCRIPT BY RESCI ANGELLI RIZADA[GWAPA] char lang:) CASE TRANSCRIPT RESCI ANGELLI RIZADA CAMACHO VS. CA There was a perfected contract. While it may be true..what is the contention of camacho? There was no consideration/cause..kay illegal. But there was a perfected contract. Involves parcel of land supposedly donated to municipality. Consideration of the lawyer for his rendering of services is a parcel of land. GOLANGCO CONSTRUCTION VS. PCIB Involves interpretation on liablitliy of construction company. Stipulation is clear that it is only liable for one year. After that, no liability shall attach CASTRO VS. TAN Interest rate- where unconscionable kc orig. obligation is 30K up to 329k PNB VS. FERNANDEZ Involves ESCALATION CLAUSE.Where not void per se but the increase in rate of interest must not be unilateral. There must be an assent of the other contracting party. In this case, there was unilateral upward raise of the interest.. ALLIED BANKING VS. CA Involves interpretation of clause in lease agreement where the contract may be renewed for like term at option of lessee..SC said not violative daw of 1308, it does not negate the mutuality of contracts because it is one stipulation that may be given to the lessee. However, once the lessee exercises the option then both parties are bound to the agreement. Different from case of Lim Lao, because that provision involving same contract of lease, it really is violative of principle ofmutuality of contract becoz the other party does not have any act or is bound to the agreemtn for as long as the other party will exercise the option EQUITABLE PCI VS. NG SHEUNG NGOR BALUYOT VS. CA There is a stipulation pour autrui. All requisistes present. INTEGRATED PACKAGING VS. There was no stipulation in favor of Philacor. The agreement was purely bet. IP and Philacor. Fil-anchor not a party to the contract. The fact that Fil-anchor stopped the delivery of paper materials reqrd for printing but in as much as IP breached its oblig and failed to pay the amount due.-->Then, it has no oblig to make further delivery of those paper matls,; it cant be held liable for hte breach committed by IP against Philacor for absence of privity of contract. A&C MINIMART VS. VILLAREAL This involves the demand for delivery of penalty to the real owner of property. The real owner cannot demand such. The contract was entered by former owner and lesee. There is no privity of contract bet. Real owner and A&C . then he is not entitled now for 3% penalty if A&C or has defaulted in payment of rental BORROMEO VS. CA Ito ung Equitable PCIwhere Equi PCI w/o consent of debtor, transferred it

4
to equi savings bank. The argument was that the latter bank..own 70% of stocks. SCthey have separate personalities. While it may be true that majority stockholder of Equi savings bank is Equi Pci, but in as much as diff. personality, no privity of contract bet. Borromeo and equi savings bank ESTATE OF LLENADO VS. LLENADO Contract of lease is with stipulation that during the existence of the lease, the owner cant sell where gasoline staiton is found. Subsequiently, owner sold it for the wife failed to renew the lease contract before its expiration. In as much as there was no renewal by the widow, it was only proper to sell it. NARVAEZ VS. ALCISO Stipulation pour autrui-all requisites are present GENATO VS. BAYHON Ito ung about sa estate..Heirs are only liable for as much as what they have received from the legitime. JARDINE DAVIES AND PUREFOODS VS. CA AND FEMSCO There was a perfected contract bet. Purefoods and Femsco. Dec. 12 letter is NOT a conditional counter offer but was an acceptance on the part of Femsco. Precisely, it -__ submitted all with insurance contract and performance bond. Was Jardie liable for interference? NO. because there was no proof/evidence that would show it interfered with such contract. SOLER VS. CA All stages of contract are found. NEGOTIATION. PERFECTION..CONSUMMATION DOMINGO REALTY VS. CA CASTILLO VS. REYES Ito yung sa plan..what was used in paying balance of the check?and the seller now gives buyer midnight to replace check with casH. It was not replaced..seller sold it to another person. According to the seller, it was only a contract to sell and not a contract of sale. SC said that in as much as there was no reservation on the part of seller that the ownership is reserved until full payment o fthe purchase price, what was entered into by the parties was not a contract to sell but a contract of sale. AMADO VS. SALVADOR There was no perfected contract of sale. There was no evidence shown by Mr. salvador that an agreement of sale exists. He only shown paper but there was no indication as to where that amount is to be applied. Although, He said such payment come in the form of cash and construction material but there was no contract of sale. GSIS VS. LOPEZ NO perfected contract of sale because what was required?: consent of the Board of trustees of GSIS. There was none. There was no perfected contract of sale. Such was a condition sine qua non for a contract of sale to exist. What about that downpayment of 10% ..that was applied in the arrears in rent. There was compensation GARCIA VS. THIO There was perfected contract because there was delivery. A contract of loan is a type of real contract where aside from consent, there is delivery. BALALAD VS. YUPANO This involves a contract of sale. There was a perfected contract. PANGAN VS. PERRERAS Merong perfected contract with respect to the share of the mother and not to the heirs. 1/3 portion.. ASUNCION VS. CA This involves RIGHT OF FIRST REFUSAL. Is this akin to option contract? NO. LIMSON VS. CA This is one where there was option granted to buyer. There was a consideration distinct from the price not forming part of purchase price. However, the option period has lapsed before the buyer has decided to exercise the option. TAYAG VS. LACSON There was NO stipulaiton pour autrui. No option granted to Tayag. The tenants were not the owners of the property. So, they have no right to offer it to Mr. Tayag. Is lacson liable for interference bet. The contract of tenants and mr. tayag? NO. no evidence was shown. How do you prove FRAUD? CLEAR AND CONVINCING EVIDENCE. Not merely preponderance of evidence. EULOGIO VS. APELES NO OPTION money. There was no consideration given for the option. LEQUIN VS. VIZCONDE Was there fraud? YES. There was FRAud. In fact, It was the owner who paid for the property he was occupying. He was made to believe that he occupied the property of the subsequent buyer. When in truth and in fact, the subsequent buyer bought that patay na tapa. It is not the property where they had built their house. Ito ang pinalabas ng subsequent buyer.sige magtayo lng kau ng bahay on that 500m. property But actually, they are the owners of that 1000m prperty. They were the ones who asked to pay 50,000. DELA CRUZ VS. DELA CRUZ Was 1332 applied? NO. there was NO corroboration to the testimony of placencia that she does not understood the language in which the contract was written. Tehre were other circumstances that would really show that Placencia had really shold the prop to fortunato. Fortunato sold prop. 3 times. If fortunato was not really the owner, he should have obtained the consent of Placencia. But he did not. He mortgaged it pa several times. No annulment of contract. FELICIANO VS. ZALDIVAR 1332 Application is proper. Despite the fact that the lawyer has testified in behalf of the buyer. What was lacking? He did not fully explain the terms of the contract. He may have interpreted the contract but did not really explain the terms of the contract to feliciano. VALERIO VS. REFRESCA There was RELATIVE SIMULATION of the contract. The parties are still bound to the contract because there was no prejudice to a third person by the relatively simulated contract. while the title was a Contract of Sale, it was actually a deed of Donation. VILLEGAS VS. RURAL BANK ABSOLUTE simulation. Void ang contract but villegas cannot demand for the return of the property that was foreclosed by the bank becoz of the pari delicto rule. MARTINEZ VS. CA The priest who bought the property from dela paz .because it was sold by dela paz inlcuding the portion already bought by martinez. In fact, he already built a house on it and where his family live. The argument of dela paz was that there was no written document. What was only given to martinez was a piece of paper becoz he paid thru installment. When he demanded for exec of deed of sale, Dela paz said it was already invalid for the absence of that written document that will embody.. according to SC, d he can avail of the remedy provided for in 1357. For purposes of registration ha. TEOCO VS. MBTC This is the DEEd of assignment for the right to redeem the property that was earlier controlled by metrobank. Where metrobank opposed the redemption on the ground that deed of assignment did not comply with the reqt that such deed be duly certified by consular official where teoco spouses are residents. According to SC, this involves contracts under 1358 paragraph 1 where the formality is ONLY FOR CONVENIENCE and not for validity or enforceability. If I remember it right, SC in that decision, bold na ung word na CONVENIENCE. did you observe that?

5
BENTIR VS. LEANDA AND LEYTE GULF TRADING NO REFORMATION because action for reformation has already prescribed. This involves a lease contract where property leased was subsequently sold by the lessor. Lessee objected to the sale in that he was given the right to first refusal in the event that the lessor should decide to sell property. But Which stipulation was inadvertently excluded by their own lawyer? SC said why did you allow 10 yrs to lapse to ask for reformation if indeed there was this omission. In fact, the contract here was even renewed. VILLEGAS VS. ARJONA Reformation is proper! Because there is really a property but was not sufficiently described. Technical description was not included so there is no need ot execute a new contract. What is reqd is to reform it. It is the proper remedy. DUMLAO VS. MAR LON REALTY INTERPRETATION OF CONTRACTSthis refers to payment of interest. Db un ang issue? SECURITY BANK VS. CA Application of 1374. ..this refers to stipulation of liabilty of secu agency when the bank was robbed. REDONDO VS. JIMENEZ Issue is woN Sale or equitable mortgage. THIRD EXAM COVERAGE MCQ- 1 pt each (20 items) MODIFIED TRUE OR FALSE (20 ITEMS) If TRUE- NO NEED TO EXPLAIN why true (if correct, 2 pts agad) If FALSE- STATE WHY FALSE. If you got the correct answer as false, but you did not explain, 1 pt. lang. situatioN: pwede pala false lahat? ENUMERATION [ buot2x sa ko ug answer ha] (10 items) 1. REQUISITES OF when is there FRAUD AS TO ANNUL THE CONTRACT: SUGGESTED ANSWER: Requisites: 1. it must have been employed by one contracting party upon the other but NOT to a co-party; 2. it must have induced the other party to enter into the contract 3. it must have been serious 4. it must have resulted in damage or injury to the party seeking annulment 2. WHAT ARE THOSE CONTRACTS THAT MUST BE IN A PUBLIC DOCUMENT FOR CONVENIENCE. [ HIGH PROBABILITY] Suggested answer: Art. 1358. The following must appear in a public document: (1) Acts and contracts which have for their object the creation, transmission, modification or extinguishment of real rights over immovable property; sales of real property or of an interest therein a governed by Articles 1403, No. 2, and 1405 (2) The cession, repudiation or renunciation of hereditary rights or of those of the conjugal partnership of gains; (3) The power to administer property, or any other power which has for its object an act appearing or which should appear in a public document, or should prejudice a third person; (4) The cession of actions or rights proceeding from an act appearing in a public document.3. WHEN REFORMATION IS PROPER [HIGH PROBABILITY] The best examples are the following: a. When a mutual mistake of the parties causes the failure of the instruemnt to disclose their real agreement (article 1361, CC) b. If one party was mistaken and the other acted fraudulently or inequitably in such a way that the instrument does not show their true intention (Art. 1362, CC) c. When one party was mistaken and the other knew or believed that the instrument did not state their real agreement but concealed that fact from the former (art. 1363) d. When through the ignorance, lack of skill, negligence or bad faith on the part of the person drafting the instrument or of the clerk or typist, the instrument does not express the true intention of the parties (art. 1364) e. If 2 parties agree upon the mortgage or pledge of real or personal property , but the instrument state that the property is sold absolutely, or with a right of repurchase (art. 1365) 4. CONTRACTS THAT CANNOT BE REFORMED [HIGH PROBABILITY] The following instruments cannot be reformed: a. Simple donations intervivos wherein no condition is imposed; b. Wills c. Those where the real agreement is void d. When one of the parties ask for the enforcement of the contract, one can no longer ask for reformation e. When aciton for reformation has already prescribed {NOTE. Prescription period is 10 years] 5. REQUISITES FOR STIPULATION POUR AUTRUI [remember not all stip. In favor of 3rd persons are stip. Pour autrui} [HIGH PROBABILITY] - In order for this stipulation shall arise, there are 6 requisites: 1. stipulation in favor of a third persons 2. stipulation in favor of a third persons should be a part, not the whole, of the contract 3. clear and deliberate conferment of favor upon a third person by the contracting parties and not a mere incidental benefit or interest 4. favorable stipulation should not be conditioned or compensated by any kind of obligation whatever 5. that the third person must have communicated his acceptance to the obligor before its revocation; acceptance must be absolutely unconditional. 6. neither of the contracting parties bears the legal representation or authorization of the third party 6. RATIFICATION OF CONTRACTS ACCORDING TO FORM { ambot dili klaro..tsk>>] MURAG MUGAWAS NI..[high probability] unsa ni???! Kindly answer!! 7. INSTANCES WHERE PROVISIONS OF THE LAW-- WHERE 3RD PERSONS INTERFERE IN A CONTRACT (4 xa, 2ND paragraph of 1311, 1312, 1313, 1314) a. Where the contract contains a beneficial stipulaitn in favor of a third person, provided that such sperson has communicated his acceptance to the obligor before it is revoked. (Article 1311, paragrah 2, CC) b. Where a third person comes into the possession of the object of a contract creating a real right (Article 1312, CC) c. Where the contract is entered into in order to defraud a third person (Article 1313, CC) and d. Where the third person induces a contracting party to violate his contract (Article 1314, CC). 8. WHAT ARE THE ELEMENTS? a. ESSENTIALArt. 1318. There is no contract unless the following requisites concur: (1) Consent of the contracting parties; (2) Object certain which is the subject matter of the contract; (3) Cause of the obligation which is established. (1261) a. NATURAL b. ACCIDENTAL 9. STAGES OF CONTRACT 10. CHARACTERISTICS OF CONTRACT 11. WHO CANNOT GIVE CONSENT a. Unemancipated minors; b. Insane or demented persons unless the contract was entered into during a lucid interval; c. Deaf-mutes who do not know how to write. (Write Ha! Dili read! ) EXCLUDED: violence and intimidation..FRAUD LANG TLGA TAU..FRAUD IS A COMMON GROUND

6
OBLIGATIONS & CONTRACTS FULLCOVERAGE Chapter 1- GENERAL PROVISIONS Art. 1156. An obligation is a juridical necessity to give, to do or not to do. An incomplete definition because it only refers to the debt side; it only refers to the conduct to be observed by the obligor; there is no debt without credit. o Complete definition: A juridical relation between two persons, known as the creditor and debtor, whereby the former can demand from the latter the observance of a determinate conduct and in case of breach, may obtain satisfaction from the assets of the latter. Why is it a juridical necessity? Because the term, juridical necessity connotes that in case of noncompliance, there will be legal sanction. - Note: It covers only civil obligations, not natural obligations. Characteristics of an Obligation: 1. It represents an exclusively private interest 2. It creates ties that are by nature transitory 3. It involves the power to make the juridical tie effective in case of nonfulfillment through an economic equivalent obtained from the debtor's patrimony. Types of obligations: a. Civil obligations - those which derive their binding force from positive law, and can be enforced by court action or the coercive power of public authority. b. Natural obligations - refer to those which derive their binding force from equity and natural justice, and its fulfillment cannot be compelled by court action but depends exclusively on the conscience of the debtor. c. Moral obligations - are those which arise from moral law developed by the church and not enforceable in court. It deals with the spiritual obligation of a person in relation to his God and church ELEMENTS of an OBLIGATION CODE: A P O E A. Active subject (creditor, obligee) Has the power to demand the prestation; it is he who in his favor the obligation is constituted, established or created; it is he who has the right to demand. B. Passive subject (debtor, obligor) One who is bound to perform the prestation; passive because without the demand, there will be no action, he has to wait for the demand from the creditor. Has the juridical necessity of adjusting his conduct to the demand of the creditor pursuant to the obligatory tie. NB: It is not necessary that the active/passive subject (also known as the personal elements of the obligation) be determinate at the time of the constitution, but they must at least be determinable. When the subject cannot be determined, the obligatory tie can have no effect. C. The object or the prestation The object is not a thing but a particular conduct of the debtor. It is the subject matter of the obligation which has an economic value or susceptible to pecuniary substitution in case of noncompliance. D. Efficient cause or juridical tie between the two subjects The vinculum by which the debtor is bound to in favor of the creditor to perform the prestation. It is determined by knowing the sources of the obligation (Art. 1157) Note: Additional elements from RAM Notes: 5. Causa debendi/ obligationes (Castan).-- This is what makes the obligation demandable. This is the proximate why of an obligation. 1. it must be physically and juridically possible; 2. it must be determinate or at least determinable according to preestablished elements or criteria; 3. it must have a possible equivalent in money or a pecuniary value. (why: so in case of breach, one can demand damages) Article 1157 Sources of obligation a. Law; b. Contracts; c. Quasi-Contracts; d. Crimes; e. Quasi-delicts; The enumeration of the sources of obligation is exclusive; no obligation exists if its source is not one of those enumerated above. Note: 1. Unilateral promise is admitted by modern doctrine, which recognizes that unilateral engagements may give rise to obligations without the need of acceptance. 2. Contrary to Pineda, Tolentino supports that it cannot be said with certainty that the enumeration in this article is exclusive because there is nothing which expressly precludes other sources of obligation, such as the unilateral promise to the public of an award for a certain act or accomplishment. 3. The clear implication of Sagrada Orden vs. Nacoco is that, these five (5) are the only sources of obligations. Articles 1158 - 1162 specify the general principles regarding the sources of obligation enumerated in Art. 1157. Art. 1158. Obligations derived from law are not presumed. Only those expressly determined in this Code or in special laws are demandable, and shall be regulated by the precepts of the law which establishes them; and as to what has not been foreseen, by the provisions of this Book. Note: When we say that law is an independent source of obligation, it does not mean that law and human acts exclude each other completely. The law cannot exist as a source of obligation, unless the acts to which its principles may be applied exists. But once those acts exist, the obligations arising from them by virtue of law are entirely independent of the agreement of the parties. NB: When the law merely acknowledges the existence of an obligation generated by an act which constitutes a contract, quasi-contract, delict or quasi-delict, and its only purpose is to regulate such obligation which did not arise from it, the act itself is the source of obligation and not the law. But, when the law creates the obligation, and the act upon which it is bases is nothing more that a mere factor in determining the moment when it becomes demandable, then the source of obligation is the law itself. (i.e. a 6. Form.-- This is controversial. This is acceptable only if form means some manifestation of the intent of the parties. KINDS OF PRESTATION: a. to give consists of the delivery of a movable or immovable thing which is either determinate (specific) or indeterminate (generic). This is in order to create a real right, or for the use of the creditor, or for its simple possession, or in order to return to its owner. b. to do involves all kinds of work or services whether physical or mental, but in most cases the essence of the act man not be such, but merely the necessity of concluding a juridical operation, such as, when a person promises to give a bond. c. not to do is a negative obligation which consists of abstaining from some act, it includes not to give. REQUISITES OF PRESTATION

7
husbands obligation to his spouse is not anchored upon the contract of marriage but on the law which dictates it.) Art. 1159. Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. Known as the Principle of autonomy of will. The parties can stipulate anything (they have the freedom), provided that the terms of the contract are not contrary to law, public policy or public order. Contracts are perfected by mere consent, and from that moment the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which according to their nature, may be in keeping with good faith, usage and law. Since a contract has the force of law between parties, each is bound to fulfill what has been expressly stipulated therein. does not apply to attorneys contracts: courts can decide whether or not attorneys fees are reasonable. Art. 1160. Obligations derived from quasi-contracts shall be subject to the provisions of Chapter 1, Title XVII,of this book. A quasi-contract is a juridical relation which arises from certain lawful, voluntary and unilateral act/s executed by somebody for the benefit of another and for which the former must be indemnified to the end that no one shall be enriched or benefited at the expense of another; It is a kind of contract created without the consent of one party but whose missing consent is given by law (presumptive consent). Characteristics of a Quasi-Contract a. The acts executed must be lawful b. The acts executed must be voluntary c. The acts executed must be unilateral TWO PRINCIPLE TYPES: 1. NEGOTIORUM GESTIO- (officious manager) juridical relation which takes place when somebody takes charge of the agency or management of the business or property of another without any power form the latter. The owner shall reimburse the gestor for the necessary and useful expenses incurred by the latter, and for the damages suffered by him in the performance of his functions. 2. SOLUTIO INDEBITI a juridical relation which takes place when somebody received something from another without any right to demand for it, and the thing was unduly delivered through mistake (compared to Art. 22 or unjust enrichment wherein there was no mistake). Obligation to return the thing arises on the part of the recipient. Art. 1161. Civil obligations arising from criminal offenses shall be governed by the penal laws, subject to the provisions of Article 2177, and of the pertinent provisions of Chapter 2, Preliminary Title on Human Relations, and of Title XVIII of this Book, regulating damages. Basis is Article 100 of RPC, that every person criminally liable is also civilly liable Art. 1162. Obligations derived from quasi-delicts shall be governed by the provisions of Chapter 2, Title XVII of this Book, and by special laws. Chapter 2- NATURE AND EFFECT OF OBLIGATIONS Art. 1163. Every person obliged to give something is also obliged to take care of it with the proper diligence of a good father of a family, unless the law or the stipulation of the parties requires another standard of care. Refers to the obligation to give. The obligation to give may refer to a determinate object / thing or to an indeterminate or generic thing. A generic thing/ indeterminate thing is one that is indicated by its kinds, without being designated and distinguished from the others of the same kind. In an obligation to deliver a generic or indeterminate thing, the thing is determinable and becomes determinate from the time the obligation has been fulfilled or performed. A generic thing is something which is not particularized or specified but has reference to a class or genus. A limited generic obligation is one when a the generic objects are classified to a particular class, i.e. one of my cars A Determinate thing is something which is susceptible of particular designation or specification. It is one which is individualized and can be identified or distinguished form the others of its kind. Read in relation to Art. 1173 - The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of the obligation and corresponds with the circumstances of the persons, of the time and of the place. When negligence shows bad faith, the provisions of articles 1171 and 2201, paragraph 2, shall apply. Effect of breach: Liability for damages, unless the loss or damage of the thing is due to a fortuitous event. Art. 1164.The creditor has a right to the fruits of the thing from the time the obligation to deliver it arises. However, he shall acquire no real right over it until the same has been delivered to him. Delivery is essential to acquire real right . WHEN DOES OBLIGATION TO DELIVER ARISE? a. Perfection of contract if no term/condition; b. From the moment the term/condition arrives if there is a term The creditor has a right to the fruits of the thing from the time to deliver it arises. The fruits referred involve only determinate things. Kinds of fruits: (cf: Property) 1) Natural 2) Civil 3) Industrial The moment when the obligation to deliver arises varies in different types of obligations: a. In obligations arising form law, quasi-delicts, quasi-contracts and crimes, the specific provisions of law applicable to the obligation determine when the delivery should be made. b. Suspensive conditions attached to an obligation to deliver arises only form the moment the condition happens. c. Suspensive periods agreed upon for the performance of the obligation gives rise to its delivery only upon the expiration of the term. d. Pure obligations are immediately demandable The right to the fruits of the thing shall only be personal, and only upon the delivery of the thing, its fruits, accessory and accession shall the creditor acquire a real right over it. Classes of Delivery or Tradition: a. REAL or ACTUAL tradition- This contemplates the actual delivery of the thing from the hand of the grantor to the hand of the grantee , if it is a personal property. If it is a real property, it is manifested by certain possessory acts executed by the grantee with the consent of the grantor such as by taking over the property; occupying the property.

8
b. CONSTRUCTIVE tradition- when the delivery of the thing is not actual but representative or symbolical in essence. But there must be intention to deliver the ownership. Kinds of CONSTRUCTIVE TRADITION: i. Tradicion Symbolica- delivery of certain symbols or things representing the thing to be delivered such as keys, titles. ii. Tradicion Instrumental consists in the delivery of the instrument of conveyance to the grantee by the grantor. iii. Tradicion Longa Manu consists in the pointing to a movable property within sight by the grantor to the grantee but which at the time of the transaction, the thing could not be placed yet in the possession of the grantee. iv. Tradicion Brevi Manu consists in the grantees continuation of his possession over the thing delivered but now under a title of ownership as in case of a lessee who had purchased the property leased to him. (Jovellanos) v. Tradicion Constitutum Possessorium consists in the owners continuous possession of the property he had sold to another person and his present possession thereof is no longer that of the owner but of a lessee. vi. Tradicion by operation of law consists in the delivery of the thing by operation of law such as intestate succession vii. Quasi-Tradicion- consists in the delivery of incorporeal property. Art. 1156. When what is to be delivered is a determinate thing, the creditor, in addition to the right granted to him by article 1170, may compel the debtor to make the delivery. If the thing is indeterminate or generic, he may ask that the obligation be complied with at the expense of the debtor. If the obligor delays, or has promised to deliver the same thing to 2 or more persons who do not have the same interest, he shall be responsible for any fortuitous event until he has effected the delivery. RULES: OBLIGATION TO DELIVER REMEDY 1. Determinate thing Creditor may compel debtor to deliver 2. Indeterminate or generic thing Creditor may ask for compliance at the expense of the debtor REMEDIES OF CREDITOR a. Demand for specific performance - This action presupposes that it is based on a contractual relationship between the contending parties. Specific performance is available even if the thing to be delivered is indeterminate. b. Rescission of the obligation which is under Art. 1380. c. Resolution of the contract under Art. 1191 if it is a reciprocal obligation. d. Damages exclusively or in addition to either of the first actions. General Rule: Obligation to deliver a specific thing is extinguished by fortuitous event; Indeterminate thing is however not extinguished. Exceptions: 1. If obligor delays or in default; 2. Obligor is guilty of bad faith; Art. 1166. Obligation to give a determinate thing includes that of delivering all its accessions and accessories, even though they may not have been mentioned. Art. 1167. If a person obliged to do something fails to do it, the shall be executed at his cost. This same rule shall be observed if he does it in contravention of the tenor of the obligation. Furthermore, it may be decreed that what has been poorly done be undone. Remedies: 1. have obligation executed at debtors expense; 2. obtain damages. Thing may be ordered undone if done poorly or obligation is a negative one i. This article presupposes that the thing can be done by the creditor himself or a third person. However, if the prestation can be done only by the debtor, the only recourse available to the creditor is a claim for damages since it is against the constitution to force the debtor to perform the obligation. Coverage: a. the obligor failed to fulfill a positive personal obligation, that is TO DO something; b. he fulfilled the obligation but in contravention of the agreement; c. There was fulfillment but the same was poor or inadequate. Note: if any of the above happens, the creditor is entitled to have the thing done in a proper manner, by himself or by a third person, at the expense of the debtor. The court has no discretion to merely award damages to the creditor when the act can be done in spite of the refusal or failure of the debtor to do so. 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. Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation Demand is generally necessary, even if a period has been fixed in the obligation. Even in obligations where there is an acceleration clause, there is still a need for demand. INSTANCES when demand by Creditor not necessary in order that delay may exist: a. when there is an express stipulation between the parties to that effect; b. where the law so provides; c. when time or period is the controlling motive or the principal inducement for the creation of the obligation; d. when demand would useless; e. when the obligor admits he is in delay 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. Note: The demand must refer to the prestation due and not to another, however, there will still be delay even if the demand was wrong if: 1. even if the demand had been absolutely correct, the debtor would not have performed the obligation, or 2. in the light of good faith he should have offered the prestation in the form and manner that it is due. When the time for the fulfillment of the obligation is fixed, no further demand is necessary. In case of doubt on whether the debtor has incurred delay, the doubt is resolved in favor of the debtor. REASON: because the dispensing of demand is only an exception, it is not a general rule. The law does not require expressly that the debtor should know that the fixing of the date for the performance was a controlling motive on the part of the creditor; but this knowledge is essential in order that it can be said that the debtor has tacitly consented to incur delay without the necessity of delay. KINDS OF DELAY: A. MORA SOLVENDI default on the part of the debtor which may either be

9
ex re (real obligations; obligations to give) or ex persona (personal obligations; obligations to do) B. MORA ACCIPIENDI default on the part of the creditor C. COMPESATIO MORAE default on the part of both parties in reciprocal obligations fraud, negligence, or delay and those who in any manner contravene the tenor thereof, are liable for damages. GROUNDS FOR LIABILITY: 1. Fraud; 2. negligence; 3. default; and 4. violation of terms of obligations. Damages: MENTAL Indemnity for damages consists of: a. that agreed upon; b. in absence of agreement, legal rate of interest. Art. 1171. Responsibility arising from fraud is demandable in all obligations. Any waiver of an action for future fraud is void. Art. 1172. Responsibility arising from negligence in the performance of every kind of obligation is also demandable, but such liability may be regulated by the Courts, according to the circumstances. KINDS: 1. Culpa Contractual breach of contract 2. Culpa Aquiliana civil negligence, tort or quasi-delict; 3. Culpa Criminal criminal negligence that which results in commission of crime or a delict. Culpa Contractual Culpa Aquiliana Culpa Criminal 1. negligence is incidental; oblig. Exists- contract N is direct, substantive and independent; N is direct, substantive 2. there is pre-existing obligation. No pre-existing obligation; No pre-existing obligation except not to harm others 3. preponderance of evidence - same - Guilt beyond reasonable doubt 4. master-servant rule Defense of a good father of a family ERs guilt- civilly liable in case of insolveny 5. there is a contract Prove that defendant is negligent Presumption of innocence until contrary is proved. Case: Prudential Bank vs. CA: responsibility from negligence in the performance of every kind of obligation is demandable. While in the case at bar there was no bad faith, respondent still suffered anxiety, embarrassment and humiliation. Hence, entitle to recover (moral) damages. Art. 1173. The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of the obligation and corresponds with the circumstances of the persons, of the time and of the place. When negligence shows bad faith, the provisions of articles 1171 and 2201, paragraph 2, shall apply. If the law or contract does not state the diligence which is to be observed in the performance, that which is expected of a good father of a family shall be required. DILIGENCE REQUIRED: 1. that agreed upon by parties; 2. in the absence of #1, that required by law; 3. in absence of #2, that expected of a good father of a family. (cases) SABEDA airlines, Prudential Bank cases Art. 1174.Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be responsible for those events which could not be foreseen, or which, though foreseen, were inevitable. o General Rule: Fortuitous events absolve Obligor from liability.

I. MORA SOLVENDIREQUISITES FOR MORA SOLVENDI TO EXIST: 1. the obligation pertains to the debtor or obligor; 2. the obligation is determinate or liquidated, due and demandable; 3. the obligation has not been performed on its maturity date; 4. there is a demand made by the creditor on the debtor for the fulfillment of the obligation that is due. DOES NOT APPLY IN THE FF. OBLIGATIONS: 1. natural obligations; 2. negative obligations CONSEQUENCES/EFFECTS OF MORA SOLVENDI: 1. debtor may be liable for damages or interests; 2. debtor may bear the risk or loss of the things even if the default is due to fortuitous event, subject to equitable mitigation if the loss would have still occurred even if there was no default on the part of the debtor. II. MORA ACCIPIENDI- delay in the performance of the obligation based on the omission by the creditor of the necessary cooperation, especially in acceptance on his part. - it is necessary that it be lawful for the debtor to perform, and that he can perform. REQUISITES FOR MORA ACCIPIENDI TO EXIST 1. an offer of performance by the debtor who has the required capacity; 2. the offer must be to comply with the obligation as it should be performed; 3. the creditor refuses the performance without just cause CONSEQUENCES OF MORA ACCIPIENDI 4. the responsibility of the debtor for the thing is reduced and limited to fraud and gross negligence; 5. the debtor is exempted from the risks of loss of the thing, which automatically pass to the creditor; 6. all expenses incurred by the debtor for the preservation of the thing after the mora shall be chargeable to the creditor; 7. the debtor may relieve himself from the obligation by consignation of the thing. III. COMPENSATIO MORAE applies only in reciprocal obligations. Where the parties are both guilty of mora or mutual default, the default of one compensates the default of the other. o Delay begins when one party fulfills his obligation. o When one party does not fulfill his obligation, he releases the other from his obligations, who therefore does not become delinquent in the fulfillment. o Neither party incurs delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. CESSATION OF THE EFFECTS OF DELAY: (may the right to place the debtor in delay be renounced or waived? Yes. How: ) 1. Renunciation by the creditor, which may be implied or expressed. There is implied renunciation when the creditor, even after the delay, grants an extension of time to the debtor or agrees to a novation of the obligation. (remember Tayag vs. Leyva case. The effects of delay was not applied since there was a waiver on the part of Tayag when she accepted the payments even after the due date) 2. Prescription Art. 1170. Those who in the performance of their obligations are guilty of

10
o ELEMENTS OF FORTUITOUS EVENT: 1. The cause of the unforeseen and unexpected occurrence, or the failure of the debtor to comply with his obligations must be independent of the human will, or of the debtors will. In the case of PAL, the hijacking was independent of the will of PAL. 2. It must be impossible to foresee the event which constitute the caso fortuito, or if it can be foreseen, it was inevitable to avoid Although under normal circumstances, it was not impossible for PAL to foresee the hijacking of the airplane, the military take over that took place that afternoon rendered the foreseeability of the event as impossible since it was the army already conducting the checking and frisking. Note: In the case of PHILCOMSAT v Globe: the SC held that although the parties could have foreseen the closure of the military bases, it was impossible to avoid. 3. The occurrence must be of such as to render it impossible for the debtor to fulfill his obligation in a normal manner. 4. The obligor must be free from any participation in, or aggravation of, the injury resulting to the creditor. Note: o An obligation consisting of the delivery of a specified thing shall be extinguished when the said thing shall be lost or destroyed without the fault of the obligor and before he is in default. o The obligor is released from liability no only when the non-performance of the obligation is due to fortuitous events, but also when it is due to the act of the creditor himself, such as defective packing. o EXCEPTIONS: (when obligor is still liable even if there is a fortuitous event) 1. When the law so provides; 2. When it is expressly stipulated by the parties; 3. When the nature of the obligation requires the assumption of risk; 4. When the obligor is in delay already; 5. When the obligor has promised the same thing to two or more persons who do not have the same interest (Art. 1165); 6. When the possessor is in bad faith and the thing is lost or deteriorated due to a fortuitous event; 7. When the obligor contributed to the loss of the thing during the fortuitous event; 8. When the obligor is guilty of fraud, negligence or delay or if he contravened the tenor of the obligation. o ASSUMPTION OF RISKS: (doctrine of created risk) The exception is based on social justice: If a person, for his convenience or profit, creates risks for the public which formerly did not exist, although morally his fault or negligence may not be the cause of the damages resulting therefrom, he should nevertheless be held liable for such. If he benefits from the means that have produced the loss, it is only equitable that he should bear the consequences of such loss. Case: Yobido vs. CA: Even if the tires are new, or that it had a good brand name, it is settled that all accident caused either by defects in the automobile Or through the negligence of its driver is not a caso fortuito that would exempt the carrier from liability for damages. Moreover, a common carrier may not be absolved from liability in case of force fortuitous event alone. The common carrier must still prove that it was not negligent in causing the death or injury resulting from an accident. Petitioners should have shown that it undertook extraordinary diligence in the care of its carrier, such as conducting daily routinary check-ups of the vehicle's parts. Art. 1175. Usurious transactions shall be governed by special laws. (n) Art. 1176. The receipt of the principal by the creditor without reservation with respect to the interest, shall give rise to the presumption that said interest has been paid. The receipt of a later installment of a debt without reservation as to prior installments shall likewise raise the presumption that such installments have been paid. Art. 1177. The creditors, after having pursued the property in possession of the debtor to satisfy their claims, may exercise all the rights and bring all the actions of the latter for the same purpose, save those which are inherent in his person; they may also impugn the acts which the debtor may have done to defraud them. (1111) Rights of Creditors: 1. exact payment; 2. exhaust debtors properties generally by attachment; 3. subrogatory action exercise all rights and actions except inherent rights; 4. impugn/rescind acts or contracts done by debtor to defraud them. Art. 1178. Subject to the laws, all rights acquired in virtue of an obligation are transmissible, if there has been no stipulation to the contrary. (1112) Gen. Rule: All rights acquired in virtue of an obligation are transmissible. Exceptions: 1. if law provides otherwise; 2. if contract provides otherwise; 3. if obligation is purely personal Note: The exceptions refer to: a. those not transmissible by their nature, i.e. purely personal rights; and b. those not transmissible by law or by stipulation of the parties. CHAPTER 3 DIFFERENT KINDS OF OBLIGATIONS SECTION 1. - Pure and Conditional Obligations PURE AND CONDITIONAL OBLIGATIONS: o Condition: An event which is both future and uncertain upon which the existence or extinguishment of an obligation is made to depend. The element of futurity and uncertainty must concur. The condition must be imposed by the will of a party and must not be a necessary legal requisite of the act. o PAST EVENTS can be conditions too. The futurity required in past events is the future knowledge or proof of a past event unknown to the parties, not the event itself. Example: I will pay you 1,000 if the number of people who died in the 9/11 attack exceeds 2,000. In past events, the contract or obligation arises not when the event happened or the fact came into existence, but when the proof of such fact or event is presented, which would be in the future. Art. 1179. Every obligation whose performance does not depend upon a future or uncertain event, or upon a past event unknown to the parties, is demandable at once. Every obligation which contains a resolutory condition shall also be demandable, without prejudice to the effects of the happening of the event. (1113) o Kinds of Obligations: a. PURE - When the obligation contains no term or condition whatever upon which depends the fulfillment of the obligation contracted by the debtor. it is immediately demandable and there is nothing to exempt the debtor from compliance therewith. If the debtor does not fulfill his prestation, especially

11
after a valid demand, he is placed in default. b. CONDITIONAL with a condition CONDITION- is an uncertain event w/c wields an influence on a legal relation. TERM is that w/c necessarily must come whether the parties know when it will happen or not. INSTANCES WHEN AN OBLIGATION IS DEMANDABLE AT ONCE: 3 KINDS OF CONDITIONS a. when it is pure; b. when it has resolutory condition. CLASSIFICATION OF CONDITIONS A. SUSPENSIVE - happening of event/condition gives rise to obligation. RESOLUTORY happening of event/condition extinguishes the obligation. B. POTESTATIVE depends upon the will of the debtor. CASUAL depends on chance/will of a 3rd person. MIXED depends partly on will of 3rd person and partly on chance. C. DIVISIBLE capable of partial fulfillment. INDIVISIBLE not capable of partial fulfillment. D. POSITIVE an act is to be performed NEGATIVE something will be omitted. E. CONJUNCTIVE if all the conditions must be performed. ALTERNATIVE if only a few of the conditions have to be performed. Q: What does automatically/immediately demandable mean? A: Immediate demandability is not impaired when the performance of the obligation is allotted a reasonable time by the court. It does not imply immediate instantaneous compliance. Art. 1180. When the debtor binds himself to pay when his means permit him to do so, the obligation shall be deemed to be one with a period, subject to the provisions of article 1197. (n) payment does not depend on debtors will for he has promised to pay. TIME when payment is to be made depends upon the DEBTOR. HOW LONG? COURTS will fix the duration of the period. Article 1180- read in relation with Art. 1197. - in cases falling under this article, the creditor should file an action to fix a period for the payment of the obligation. An action to enforce the obligation is premature if the court has not yet fixed a period. - covers cases wherein the debtor binds himself to pay when his means permit him to do so, such as Ill pay you little by little; as soon as possible; as soon as I have the money; in partial payments - Here, the moment of payment is dependent upon the will of he debtor but not the payment. (or not the performance of the condition) Art. 1181. In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event which constitutes the condition. (1114) a. Suspensive conditions precedent/antecedent. The happening of w/c will give rise to the acquisition of a right future & uncertain event. b. Resolutory -- conditions subsequent rights are lost once the condition is The condition not to do an impossible thing shall be considered as not having been agreed upon. (1116a) EFFECTS: 1. If condition is to do an impossible or illegal thing CONDITION & OBLIGATION ARE VOID. 2. If condition is negative (not to do) DISREGARD CONDITION BUT OBLIGATION REMAINS. 3. If condition is negative (not to do an illegal thing) BOTH CONDITION & OBLIGATION ARE VALID. Note: o This article applies only to cases where the conditions was already impossible from the time of the constitution of the obligation, and also to POSITIVE SUSPENSIVE CONDITIONS. o The condition must already be existing at the time of the creation of the obligation. Supervening events which would render the obligation no longer impossible does not affect the effect of annulling the obligation. o In order for the condition to be considered as illicit or juridically impossible, it must consist of an act or fact for one of the parties. The mere mention of a juridically impossible condition does not annul the obligation. The criterion is the effects upon one of the parties. o Reason: one who promises something under a condition that is impossible or illicit knows that it cannot be fulfilled, and manifests that he does not have any intention to be bound. o NEGATIVE SUSPENSIVE CONDITIONS have the effect of converting the obligation into a pure and simple one. It is simply considered not written, thus as if no condition exists. a. Potestative (facultative) b. Casual c. Mixed POTESTATIVE ON THE PART OF THE DEBTOR 1. IF SUSPENSIVE both condition and obligation are void. 2. IF RESOLUTORY valid. Pure potestative conditions renders the whole obligation void. o This article applies only to potestative SUSPENSIVE CONDITIONS. Potestative and resolutory valid since there is immediate performance on the part of the obligor. o If it depends solely on the will of the creditor, it is valid. Reason: to allow conditions whose fulfillment depends exclusively on the debtors will, is to sanction illusory obligations; this cannot happen when the fulfillment depends on the will of the creditor. This is because the creditor is naturally interested in the fulfillment of the condition which will benefit him. Art. 1183. Impossible conditions, those contrary to good customs or public policy and those prohibited by law shall annul the obligation which depends upon them. If the obligation is divisible, that part thereof which is not affected by the impossible or unlawful condition shall be valid. Art. 1182. When the fulfillment of the condition depends upon the sole will of the debtor, the conditional obligation shall be void. If it depends upon chance or upon the will of a third person, the obligation shall take effect in conformity with the provisions of this Code. (1115) fulfilled. Case: Padilla vs. Paredes: there was no obligation to perform since the suspensive condition did not happen.

12
Art. 1184. The condition that some event happen at a determinate time shall extinguish the obligation as soon as the time expires or if it has become indubitable that the event will not take place. (1117) - positive condition Effect if Period of Fulfillment is not fixed: 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 render 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 probably been contemplated, bearing in mind the nature of the obligation. Negative Condition Art. 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment. (1119) Requisites: 1. Voluntarily made the intent to prevent is present. 2. Actual prevention of compliance. Note: This refers to Constructive Fulfillment/ Implied fulfillment o Applies to a condition which, although not exclusively within the will of the debtor, may in some way be prevented by the debtor from happening. o There is constructive fulfillment only if the act of the debtor had in fact prevented compliance with the condition. o EXCEPTION: if in preventing the fulfillment of the condition the debtor acts pursuant to a right, the condition will not be deemed fulfilled. Example: B ordered A to stop building because it was against the city ordinance. 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. In obligations to do and not to do, the courts shall determine, in each case, the retroactive effect of the condition that has been complied with. (1120) In conditional oblig, to give, once fulfilled, shall retroact to the day of the constitution of obligation. In reciprocal oblig. the fruits and interests during the pendency of condition, shall be deemed to have been mutually compensated. In unilateral oblig. the debtor shall appropriate the fruits and interests received UNLESS from the nature of the obligation it should be inferred that the intention of person was different. In Obligation to do or not to do the Court shall determine the retroactive effect of condition that has been complied with. - Remember: between the constitution and the happening of the suspensive condition, the creditor cannot enforce the obligation. - The right of the creditor during the period is mere expectancy. (Jovellanos case: The right of Daniel to the property was merely inchoate and expectant right which would ripen into a vested right only upon his acquisition of the ownership) - The moment the suspensive condition happens, the right becomes enforceable and the debtor may be compelled to perform the obligation. Cause of action accrues, and prescription is computed from this time. - The EFFECTS, however, RETROACTS to the moment of constitution of such obligation. Reason: suspensive conditions are merely accidental to the obligation, they are not essential elements of the obligation. An obligation is deemed constituted when all the necessary elements are present. The suspensive condition only prevents the efficacy of the obligation. - Case: DBP vs. CA - Limitations to retroactivity: the right to the fruits or interests of the thing accruing before the happening of the condition, unless otherwise stipulated by the parties. Art. 1188. The creditor may, before the fulfillment of the condition, bring the appropriate actions for the preservation of his right. The debtor may recover what during the same time he has paid by mistake in case of a suspensive condition. (1121a) APPROPRIATE ACTIONS FOR CREDITOR TO PRESERVE HIS RIGHTS: a. action for prohibition restraining the alienation of the thing pending the happening of the condition b. petition for the annotation of the creditors right, if real property is involved; c. action to demand security in case the debtor becomes insolvent; d. action to set aside alienations made by the debtor in fraud of the creditors; 2nd Par: a case of solutio indebiti (undue payment) if creditor is in bad faith, debtor is entitled to fruits and interests. IF PAYMENT WAS NOT BY MISTAKE, CAN THERE BE RECOVERY? a. If condition is fulfilled NO RECOVERY b. If condition is not fulfilled, there should be recovery EXCEPT when a pure donation was intended. Note: - Before the happening of the suspensive condition, the debtor cannot alienate the subject property if it is a determinate thing. - If the obligor alienated the determinate property to a 3rd person (good faith on part of the 3rd person), the creditor cannot reclaim the property as the delivery of the thing vests ownership. His only recourse is damages against the debtor. However, if there was bad faith on the part of the 3rd person, he may be compelled to deliver the thing to the creditor. - Creditors can however, alienate their inchoate right. - If payment was a determinate thing, the cause of action is accion revindicatoria, otherwise the provisions of solution indebiti applies. - If however, payment was made with the knowledge of the condition, there is an implied waiver of the condition and what has been paid cannot be recovered. - No express provision regarding fruits and interests, however, there can be recovery by the provisions of solution indebiti. 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: (1) If the thing is lost without the fault of the debtor, the obligation shall be extinguished; (2) If the thing is lost through the fault of the debtor, he shall be obliged to pay damages; It is understood that the thing is lost: a. when it perishes; (physical loss) or b. goes out of commerce; (legal loss) or c. disappears in such a way that its existence is unknown or it cannot be recovered; (civil loss) (3) When the thing deteriorates without the fault of the debtor, the impairment is to be borne by the creditor;

13
(4) If it deteriorates through the fault of the debtor, the creditor may choose between the rescission of the obligation and its fulfillment, with indemnity for damages in either case; (5) If the thing is improved by its nature, or by time, the improvement shall inure to the benefit of the creditor; (6) If it is improved at the expense of the debtor, he shall have no other right than that granted to the usufructuary. (1122) Article applies if: a. suspensive condition is fulfilled; b. and if object is specified (not generic) Art. 1190. When the conditions have for their purpose the extinguishment of an obligation to give, the parties, upon the fulfillment of said conditions, shall return to each other what they have received. In case of the loss, deterioration or improvement of the thing, the provisions which, with respect to the debtor, are laid down in the preceding article shall be applied to the party who is bound to return. As for the obligations to do and not to do, the provisions of the second paragraph of article 1187 shall be observed as regards the effect of the extinguishment of the obligation. (1123) EFFECTS WHEN RESOLUTORY CONDITION IS FULFILLED: 1. Obligation is extinguished; 2. Parties shall return what they have received, including fruits & interests; 3. Courts shall determine the retroactivity of resolutory conditions 4. In case of loss, deterioration, or improvement, apply Art. 1189. Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible. The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period. This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with articles 1385 and 1388 and the Mortgage Law. (1124) o CHARACTERISTICS OF RIGHT TO RESCIND 1. It exists only in reciprocal obligations. If there is a fixed period, no actions can be done before the expiration of period. 2. can be demanded only if the plaintiff is ready, willing and able to comply with his own obligation and the other is not. 3. not absolute slight breach is not sufficient as held in Tayag vs. CA- The right to rescind is not absolute and will not be granted if there has been substantial performance by partial payments. 4. it needs judicial approval in some cases when there has already been delivery of thing. If theres no delivery, judicial approval may not be needed; if there has been delivery, the contract stipulates for rescission in case the other has not performed. 5. the right to rescind is implied to exist; 6. the right to rescind may be waived expressly or impliedly o DAMAGES FOR BREACH OF LEASE CONTRACT: a) If he selects specific performance as an action, he can demand the accrued rent plus the future rent for the unexpired term; b) If lessor demands rescission, he gets only the back rents and ouster the lessee plus damages but not future rents. Note: - This article is applicable only to reciprocal obligations. Reciprocal obligations are those which arise from the same cause, and in which each party is a debtor and a creditor of each other, such that the obligation of one is dependent upon the obligation of the other. They are to be performed simultaneously, so that the performance of one is conditioned upon the simultaneous fulfillment of the other. It is not enough that both parties are creditor and debtor or each other, the reciprocity in the obligation must arise from the same cause. - Even if there is no corresponding agreement between the parties, the law provides for such power to rescind. This article does not apply when the parties made a stipulation providing for the automatic rescission of the contract in case of violation of the terms thereof without need of judicial intervention or permission. - The breach contemplated is the obligors failure to comply with an obligation already existing, not a failure of a condition to render binding that obligation. There can be no breach of a non-existent obligation. Case: Failure to pay, in this instance, is not even a breach but merely an event which prevents the vendor's obligation to convey title from acquiring binding force. Hence, the agreement of the parties in the case at bench may be set aside, but not because of a breach on the part of petitioner for failure to complete payment of the purchase price. Rather, his failure to do so brought about a situation which prevented the obligation of respondent spouses to convey title from acquiring an obligatory force. (Ong vs. CA) - Case: Padilla vs. Paredes : There can be no rescission of an obligation that is non-existent, considering that the suspensive condition has not yet happened. The right of rescission of a party to an obligation under Article 1191 of the Civil Code is predicated on a breach of faith by the other party who violates the reciprocity between them. The breach contemplated in the said provision is the obligors failure to comply with an existing obligation. When the obligor cannot comply with what is incumbent upon it, the obligee may seek rescission and, in the absence of any just cause for the court to determine the period of compliance, the court shall decree the rescission. - Rescission here is to be understood as resolution or cancellation of the contract. - Who can demand rescission: The party who can demand rescission should be the party who is ready, willing and able to comply with his own obligations while the other is not capable to perform his own. A party who has not performed his pat of the obligation cannot rescind. - When one party fails to comply with his obligation under a contract, the other party has the right to either demand performance, or ask for the resolution of the contract. These remedies/choices are mutually exclusive. One cannot choose specific performance then rescission. Case: Velarde vs. CA: when Padilla chose to rescind the contract, although Velarde opted to pay, the choice had already been made and to allow Velarde to pay the existing amount would tantamount to a novation of the contract . - In cases of specific performance, there is always a need for judicial action if the other party refuses to make the delivery of the thing promised. exception: when the injured party chose specific performance, and the prestation had become impossible to perform, he may then cancel or rescind the contract. However, so long as there has been no judgment declaring rescission, however, the creditor who has asked for it may change his mind and demand specific performance instead, or vice-versa, unless he has previously renounced one of these remedies. - Where both parties have committed a breach of obligation, and it cannot be determined who was the first infractor, the contract shall be deemed extinguished and each shall bear his own damages. - EXTRAJUDICIAL rescission produces legal effects. Once one of the parties

14
fails to comply with his obligation, the other is relieved from complying with his, and he may therefore by his own declaration elect to rescind by not performing his own undertaking. - When can there be extrajudicial rescission? When there has been no performance of the obligation or whatsoever. If the obligation has not yet been performed, extra-judicial declaration of rescission by the party who is ready and willing to perform would suffice. However, if the injured party has already performed such as when property has already been delivered by him to the other party, he cannot by his own declaration rescind the contract. Hence, the court must declare the rescission. - Case: Cannu vs. Galango Limitations/Restrictions on the right to rescind: 1. DUE PROCESS MUST BE OBSERVED- the rescission authorized is judicial rescission; the other party must be given his day in court. It is the judgment of the court and not the mere act of the vendor which produces the rescission of the sale (Cannu) 2. The right to rescind is SUBORDINATED TO THE RIGHTS OF 3RD PERSONS who acquired the thing in good faith. 3. The injured party must respect the power of the court to fix period in lieu of decreeing rescission. (case: Central Univ- the court may fix the period for the fulfillment of the obligation, however, in this case, the court held that there was no need to fix the period since sufficient time had already lapse for the plaintiff to fulfill the condition.) Note: When the contract, however, is one of lease, and the lessee fails to pay the rents stipulated within the time agreed upon, the court will have no discretion to grant the lessee a period within which to pay the rents. 4. Evidence is needed to justify the rescission. 5. Slight breach of the contract will not justify rescission, the breach should be substantial and fundamental as to defeat the object of the parties in making the contract. o EFFECTS OF RESCISSION - Note that the exercise of the power to rescind extinguishes the obligatory relation as if it had never been created, the extinction having a retroactive effect. The rescission has the effect of abrogating the contract in all parts and The parties will be brought back, as much as possible to the status quo before they entered into the contract. Hence, there is always a need for restitution. The resolution or cancellation shall take effect only after the creditor has notified the debtor of his choice of rescission. (case: Laperal vs. Solid Homes. Rescission under Art. 1191 always carries with it the obligation of mutual restitution. However, in this case, Laperal was not made to pay restitution since the parties had expressly stipulated the payment for damages in case of breach.) In Ong vs. CA, the SC held that Ong was not entitled to reimbursement as regards the improvements he made on the property because he contracted these improvements in bad faith. - In estimating the damages to be awarded in case of rescission or resolution, those elements of damages only can be admitted that are compatible with the idea of rescission - In case of resolution of a contract of sale, the purchaser is entitled to indemnity for damages. This indemnity, in case of resolution for non-delivery of the thing sold cannot consist in the fruits, to which he is entitled only when delivery is made. Having chosen rescission, he is only entitled to the interest on the amount he has paid. - Tayag case: WAIVER. o Inapplicability of Art. 1191: 1. in obligations of sales of real property by installments since Maceda Law RA 6552 governs; 2. sales of personal property by installments governed by RA 1484 (Recto 1. a condition is an uncertain event; 2. a period is an event which must happen sooner or later at a date known beforehand or a time which cannot be determined. B. With reference to time 1. Period refers to future; 2. Condition may under the law refer to past. C. As to Influence on the obligation 1. Condition causes an obligation to arise or to cease; 2. Period merely fixes the time or the efficaciousness of an obligation. DIFFERENT KINDS OF TERMS/PERIODS a. DEFINITE exact date/time is known and given INDEFINITE something that will surely happen, but date of happening is unknown. b. LEGAL a period granted by law CONVENTIONAL/VOLUNTARY period agreed upon or stipulated by parties. JUDICIAL period or term fixed by Courts for the performance of an obligation, or for its termination. c. EX DIE or SUSPENSIVE PERIOD a period with suspensive effect. Obligation begin only from a day certain; upon arrival of period. IN DIEM or RESOLUTORY PERIOD a period/term with a resolutory effect. Termination of obligation upon the arrival of said period. REQUISITES FOR A VALID PERIOD/TERM 1. Must refer to the future; Law) 3. Contracts of partnerships 4. Contracts of lease o Cases when judicial approval is not needed in rescission: a. if there is an express stipulation of automatic rescission; b. if there is no express stipulation of automatic rescission in case of breach, judicial approval is needed when there has been already delivery of the objectunless the debtor voluntarily returned the thing. 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. (n) SECTION 2. - Obligations with a Period Art. 1193. Obligations for whose fulfillment a day certain has been fixed, shall be demandable only when that day comes. Obligations with a resolutory period take effect at once, but terminate upon arrival of the day certain. A day certain is understood to be that which must necessarily come, although it may not be known when. If the uncertainty consists in whether the day will come or not, the obligation is conditional, and it shall be regulated by the rules of the preceding Section. (1125a) Period: A certain length of time which determines the effectivity or the extinguishments of obligations. PERIOD vs. CONDITION A. As to their fulfillment

15
2. must be certain but can be extended; 3. must be physical and legally possible otherwise it is void. NOTE: An action may be brought to immediately enforce an obligation originally with a term if: a. the contract in which the terms is imposed has been cancelled by mutual agreement of the parties; or b. When the non-fulfillment of the terms of the contract resolves the period and authorizes the creditor to immediately demand performance. (the obligation is converted into a pure obligation) Art. 1194. In case of loss, deterioration or improvement of the thing before the arrival of the day certain, the rules in article 1189 shall be observed. (n) Article 1194- Article 1189 is applicable in cases of loss, deterioration, and improvement during the pendency of condition. Thing Is Lost When 1. It perishes. 2. It goes out of commerce. 3. It disappears in such a way that its existence is unknown. 4. It disappears in such a way that it cannot be recovered. Note: Genus nunquam perit in an obligation to deliver generic thing the loss or destruction of anything of the same kind does not extinguish the obligation. If the thing is lost through the fault of the debtor, he shall be obliged to pay damages. If the thing deteriorates through the fault of the debtor, the creditor may choose between (1) rescission of the agreement or obligation plus damages, or (2) fulfillment of the obligation plus damages. If the thing is improved by nature, or by time, the creditor gets the benefit. If the thing has improved through the expense of the debtor, he shall have the rights granted to a usufructuary for improvements on a thing held in usufruct. 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 the fruits and interests. (1126a) PERIOD W/IN W/C RECOVERY MAY BE MADE Without Debtors knowledge 1. Before the debt matures ( Art. 1194) 2. Even after maturity if creditor is in bad faith the right prescribes in 5 years after premature payment With Debtors knowledge NO RECOVERY (implied waiver) Note: the law presumes that the debtor knew of the prematureness. Art. 1196. Whenever in an obligation a period is designated, it is presumed to have been established for the benefit of both the creditor and the debtor, unless from the tenor of the same or other circumstances it should appear that the period has been established in favor of one or of the other. (1127) 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. (1128a) The debtor shall have no right to choose those prestations which are impossible, unlawful or which could not have been the object of the obligation. (1132) In obligation with a term general rule: term is for both parties benefit In obligation/alternative oblig general rule: Debtor has the right of choice. The Debtor Shall Have No Right To Choose Those Prestations Which Are: 1. Impossible. 2. Unlawful. 3. Or 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. (1133) Means of Communication to other party oral, written, implied, express WHEN THE COURT MAY FIX A PERIOD 1. When the duration depends upon the will of the debtor. 2. When although the obligation does not fix a period, it can be inferred that a period was intended. INSTANCES WHEN THE COURT MAY NOT FIX THE TERM: 1. When no term was specified because no term was ever intended; 2. When the obligation or not is payable on demand; 3. When specific periods are provided for in the law; 4. When what appears to be a term is really a condition; 5. When the period w/in which to ask the court to have the period fixed has itself already prescribed. PRESCRIPTIVE PERIOD: ACTION MUST FIX THE PERIOD 10 YEARS Art. 1198. The debtor shall lose every right to make use of the period: (1) When after the obligation has been contracted, he becomes insolvent, unless he gives a guaranty or security for the debt; (2) When he does not furnish to the creditor the guaranties or securities which he has promised; (3) When by his own acts he has impaired said guaranties or securities after their establishment, and when through a fortuitous event they disappear, unless he immediately gives new ones equally satisfactory; (4)When the debtor violates any undertaking, in consideration of which the creditor agreed to the period; (5)When the debtor attempts to abscond. (avoid legal process) (1129a) actual absconding, intent to do so is sufficient. Note: the insolvency referred to does not have to be judicially declared; it is sufficient for him to find a hard time paying off his obligations because of financial reverses that have made his assets less than his liabilities. SECTION 3. - Alternative Obligations Art. 1199. A person alternatively bound by different prestations shall completely perform one of them. The creditor cannot be compelled to receive part of one and part of the other undertaking. (1131) Alternative Obligation is one where out of the 2 or more prestations which may be given, only one is due. Art. 1200. The right of choice belongs to the debtor, unless it has been expressly granted to the creditor.

16
EFFECT OF NOTICE THAT CHOICE HAS BEEN MADE Obligation becomes a simple obligation to do or deliver the object selected. PURPOSE: To inform the creditor that the obligation is now a simple one, no longer alternative and if already due, for the creditor to receive the object being delivered, if tender of the same has been made. REQUISITES FOR MAKING A CHOICE 1. Made properly so that creditor or agent will know; 2. made with full knowledge that a selection is indeed being made (if there is error choice can be annulled) 3. made voluntarily and freely (no force, coercion etc. ) 4. made in due time and that is before or upon maturity; 5. made to all the proper persons; 6. made w/o conditions unless agreed to by the creditor; 7. may be waived, expressly/impliedly. Art. 1202. The debtor shall lose the right of choice when among the prestations whereby he is alternatively bound, only one is practicable. (1134) Example: Objects A,B & C. A&B are destroyed; C can only be delivered- if C is destroyed (fortuitous event) obligation is extinguished. Art. 1203. If through the creditor's acts the debtor cannot make a choice according to the terms of the obligation, the latter may rescind the contract with damages. (n) Art. 1204. The creditor shall have a right to indemnity for damages when, through the fault of the debtor, all the things which are alternatively the object of the obligation have been lost, or the compliance of the obligation has become impossible. The indemnity shall be fixed taking as a basis the value of the last thing which disappeared, or that of the service which last became impossible. Damages other than the value of the last thing or service may also be awarded. (1135a) Art. 1205. When the choice has been expressly given to the creditor, the obligation shall cease to be alternative from the day when the selection has been communicated to the debtor. Until then the responsibility of the debtor shall be governed by the following rules: (1) If one of the things is lost through a fortuitous event, he shall perform the obligation by delivering that which the creditor should choose from among the remainder, or that which remains if only one subsists; (2) If the loss of one of the things occurs through the fault of the debtor, the creditor may claim any of those subsisting, or the price of that which, through the fault of the former, has disappeared, with a right to damages; (3) If all the things are lost through the fault of the debtor, the choice by the creditor shall fall upon the price of any one of them, also with indemnity for damages. The same rules shall be applied to obligations to do or not to do in case one, some or all of the prestations should become impossible. (1136a) if contract does not state to whom the right to choose is given, THE DEBTOR MAY CHOOSE. Effect if Creditor delays in making the choice: he cannot hold the debtor in default for the debtor does not know what to deliver; if debtor wants to relieve himself from the obligation, he may petition the court to compel Creditor to accept in the alternative, at the petitioners option with damages. Art. 1206. When only one prestation has been agreed upon, but the obligor may render another in substitution, the obligation is called facultative. The loss or deterioration of the thing intended as a substitute, through the negligence of the obligor, does not render him liable. But once the substitution has been made, the obligor is liable for the loss of the substitute on account of his delay, negligence or fraud. (n) FACULTATIVE OBLIGATION it is one where only one prestation has been agreed upon but the obligor may render another in substitution. DISTINCTIONS ALTERNATIVE FACULTATIVE 1. various things are due, but giving of one is enough; 1. only one thing is principally due but may be substituted. 2. if one prestation is illegal, others may be valid and the obligation remains; 2. if principal obligation is void, giving of the substitute is no longer necessary. (NULLITY OF PRINCIPAL CARRIES WITH IT THE NULLITY OF SUBSTITUTE.) 3. if it is impossible to give all except one, the one left must still be given. 3. If it is impossible to give the principal, the substitute does not have to be given; if vice versa, the principal must be given. 4. the right to choose may be given either to debtor/creditor 4. The right to choose is given only to the debtor. SECTION 4. - Joint and Solidary Obligations Art. 1207. The concurrence of two or more creditors or of two or more debtors in one and the same obligation does not imply that each one of the former has a right to demand, or that each one of the latter is bound to render, entire compliance with the prestation. There is a solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity. (1137a) JOINT SOLIDARY Each of the debtors is liable only for a proportionate part of the debt and each creditor is entitled to a proportionate part of the credit. Each debtor entire obligation; each creditor is entitled to demand the whole obligation. GENERAL RULE: When there are 2 or more debtors or creditors, the obligation is JOINT. EXCEPTIONS: 1. when there is a stipulation in the contract that the obligation is solidary; 2. when the nature of the obligation requires liability to be solidary; 3. when the law declares so INSTANCES WHERE LAW IMPOSES SOLIDARY LIABILITY a. obligation arising from torts; b. quasi-contracts; c. legal provisions re: the obligation of legatees and devisees; d. liability of principals, accomplices and accessories of a felony; e. bailees in commodatum. a) There may be plurality of creditors b) Plurality of both debtors and creditors; c) Plurality of debtors. EFFECTS OF JOINT LIABILITY a. Demand by one creditor upon one debtor produces effects of default only with respect to both parties but not with respect to the others; b. Interruption of prescription by judicial demand of one creditor upon one debtor does not benefit the other creditors; c. Vices of each obligation arising from personal defect of a particular debtor or creditor does not affect the obligation or rights of the others; d. Insolvency of a debtor does not increase the responsibility of his codebtors nor does it authorize a creditor to demand anything from his cocreditors; e. In joint divisible obligation, the defense of res judicata is not extended from one debtor to another.

17
Art. 1208. If from the law, or the nature or the wording of the obligations to which the preceding article refers the contrary does not appear, the credit or debt shall be presumed to be divided into as many shares as there are creditors or debtors, the credits or debts being considered distinct from one another, subject to the Rules of Court governing the multiplicity of suits. (1138a) Art. 1209. If the division is impossible, the right of the creditors may be prejudiced only by their collective acts, and the debt can be enforced only by proceeding against all the debtors. If one of the latter should be insolvent, the others shall not be liable for his share. (1139) Indivisible joint obligation requires the consent of all debtors CHARACTERISTICS Obligation is joint but since it is indivisible, creditor must proceed against all the joint debtors. Demand must be to all joint debtors; In case of insolvency of one debtor; others are not liable for his share; If there are joint creditors, delivery must be made to all unless authorized by others; Each joint creditor may renounce his share Art. 1210. The indivisibility of an obligation does not necessarily give rise to solidarity. Nor does solidarity of itself imply indivisibility. (n) Solidarity ---the tie between parties Indivisibility --- subject matter KINDS OF SOLIDARITY 1. ACTIVE on the part of creditors/obliges 2. PASSIVE debtors/obligors part 3. MIXED both 4. CONVENTIONAL agreed by parties 5. LEGAL imposed by law Art. 1211. Solidarity may exist although the creditors and the debtors may not be bound in the same manner and by the same periods and conditions. (1140) Art. 1212. Each one of the solidary creditors may do whatever may be useful to the others, but not anything which may be prejudicial to the latter. (1141a) Art. 1213. A solidary creditor cannot assign his rights without the consent of the others. (n) Art. 1214. The debtor may pay any one of the solidary creditors; but if any demand, judicial or extrajudicial, has been made by one of them, payment should be made to him. (1142a) Art. 1215. Novation, compensation, confusion or remission of the debt, made by any of the solidary creditors or with any of the solidary debtors, shall extinguish the obligation, without prejudice to the provisions of article 1219. The creditor who may have executed any of these acts, as well as he who collects the debt, shall be liable to the others for the share in the obligation corresponding to them. (1143) NOVATION; EFFECT Modification of an obligation by changing its object or principal conditions; by substituting the person of debtor; subrogation COMPENSATION Is that w/c takes place when 2 persons in their own right, are creditors and debtors of each other. CONFUSION/ MERGER W/c takes place when the characters of creditor and debtor are merged in the same person, as when a check issued by A, in the course of negotiation, is eventually endorsed to him. The solidary obligation is extinguished; but the other is still indebted to the other for his share. REMISSION (WAIVER) That act of liberality whereby a creditor condones the obligation of the debtor; that where the creditor tells the debtor to forget about the whole thing. Art. 1216. The creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. The demand made against one of them shall not be an obstacle to those which may subsequently be directed against the others, so long as the debt has not been fully collected. (1144a.) Effect of not proceeding against ALL there is no waiver against those not yet sued; they may be proceeded against later. Applies only to solidary obligation, not joint. PASSIVE SOLIDARITY & SURETYSHIP (similarities) 1. both the solidary debtor and the surety guarantee for another person. 2. both can demand reimbursement Differences: 1. Solidary debtor indebted for own share only; SURETY is indebted only for the share of the principal debtor; 2. Solidary debtor can be reimbursed with what he has paid less his own share; SURETY can be reimbursed for everything he has paid. 3. SD receives an extension of period of payment, others are still liable for the whole obligation minus the share of the debtor who has extension. If the principal debtor receives extension w/out suretys consent, the surety is released. Art. 1217. Payment made by one of the solidary debtors extinguishes the obligation. If two or more solidary debtors offer to pay, the creditor may choose which offer to accept. He who made the payment may claim from his co-debtors only the share which corresponds to each, with the interest for the payment already made. If the payment is made before the debt is due, no interest for the intervening period may be demanded. When one of the solidary debtors cannot, because of his insolvency, reimburse his share to the debtor paying the obligation, such share shall be borne by all his co-debtors, in proportion to the debt of each. (1145a) 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. (n) Art. 1219. The remission made by the creditor of the share which affects one of the solidary debtors does not release the latter from his responsibility towards the co-debtors, in case the debt had been totally paid by anyone of them before the remission was effected. (1146a) Art. 1220. The remission of the whole obligation, obtained by one of the solidary debtors, does not entitle him to reimbursement from his co-debtors. (n) Art. 1221. If the thing has been lost or if the prestation has become impossible without the fault of the solidary debtors, the obligation shall be extinguished. If there was fault on the part of any one of them, all shall be responsible to the creditor, for the price and the payment of damages and interest, without prejudice to their action against the guilty or negligent debtor. If through a fortuitous event, the thing is lost or the performance has become impossible after one of the solidary debtors has incurred in delay through the judicial or extrajudicial demand upon him by the creditor, the provisions of the preceding paragraph shall apply. (1147a) PAYMENT

18
Payment is one of the ways by which an obligation is extinguished and consists in the delivery of the thing or the rendition of the service which is the object of the obligation EFFECTS OF LOSS/ IMPOSSIBILITY 1. if w/out fault no liability 2. if w/ fault liable + damages and interest 3. fortuitous event after default there is liability because of default. 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. (1148a) KINDS OF DEFENSES a. Those derived from the nature of the obligation b. Those personal to the debtor sued. SECTION 5. - Divisible and Indivisible Obligations Art. 1223. The divisibility or indivisibility of the things that are the object of obligations in which there is only one debtor and only one creditor does not alter or modify the provisions of Chapter 2 of this Title. (1149) Divisible obligation capable of partial performance; Indivisible not capable of partial fulfillment. INDIVISIBILITY vs. SOLIDARITY SOLIDARITY INDIVISIBILITY 1. refers to the tie between parties; Refers to nature of obligation; 2. needs at least 2 debtors or creditors; May exist even if there is one debtor and one creditor; 3. fault of one is fault of others Fault of one not fault of others CLASSES/KINDS OF INDIVISIBILITY 1. Conventional agreed to by parties; 2. Natural/absolute nature of obligation 3. Legal by law KINDS OF DIVISION 1. Quantitative depends of quantity 2. Qualitative depends of quality 3. Intellectual/ moral one that exists merely in the mind and not in physical reality Art. 1224. A joint indivisible obligation gives rise to indemnity for damages from the time anyone of the debtors does not comply with his undertaking. The debtors who may have been ready to fulfill their promises shall not contribute to the indemnity beyond the corresponding portion of the price of the thing or of the value of the service in which the obligation consists. (1150) EFFECT OF NON-COMPLIANCE the obligation is converted into a monetary one for indemnity. Art. 1225. For the purposes of the preceding articles, obligations to give definite things and those which are not susceptible of partial performance shall be deemed to be indivisible. When the obligation has for its object the execution of a certain number of days of work, the accomplishment of work by metrical units, or analogous things which by their nature are susceptible of partial performance, it shall be divisible. However, even though the object or service may be physically divisible, an obligation is indivisible if so provided by law or intended by the parties. In obligations not to do, divisibility or indivisibility shall be determined by the character of the prestation in each particular case. (1151a) a. legal; b. conventional/ voluntary c. Subsidiary when only penalty may be asked. d. Joint when both the principal contract and penal clause can be enforced *** be noted on this points (read the book) Penal Clause constitutes an obligation although an accessory May become demandable in default of the unperformed principal obligation PURPOSE: to insure performance and also to substitute for damages and the payment of interest in case of non-compliance EXCEPTIONS: 1. Expressly stipulated to the effect that damages and interests may still be recovered despite the presence of Penal clause 2. When debtor refuses to pay the penalty imposed in the obligation. 3. When debtor is guilty of fraud or dolo in the fulfillment of the obligaton. (reason: no waiver of future action for fraud) 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 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. (1153a) Art. 1228. Proof of actual damages suffered by the creditor is not necessary in order that the penalty may be demanded. (n) Art. 1229. The judge shall equitably reduce the penalty when the principal OBLIGATIONS THAT ARE DEEMED INDIVISIBLE 1. Obligations to give definite things. 2. Those which are not susceptible of partial performance. 3. Even if the thing is physically divisible, it may be indivisible if so provided by law. 4. Even if the thing is physically divisible, it may be indivisible if such was the intention of the parties concerned. OBLIGATIONS THAT ARE DEEMED DIVISIBLE 1. When the object of the obligation is the execution of a certain number of days of work. 2. When the object of the obligation is the accomplishment of work by metrical units. 3. When the purpose of the obligation is to pay a certain amount in installments. 4. When the object of the obligation is accomplishment of work susceptible of partial performance. SECTION 6. - Obligations with a Penal Clause Art. 1226. In obligations with a penal clause, the penalty shall substitute the indemnity for damages and the payment of interests in case of noncompliance, if there is no stipulation to the contrary. Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is guilty of fraud in the fulfillment of the obligation. The penalty may be enforced only when it is demandable in accordance with the provisions of this Code. (1152a) PENAL CLAUSE a coercive means to obtain from debtor compliance. It is an accessory undertaking to assume greater liability in case of breach. KINDS OF PENAL CLAUSE

19
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. (1154a) WHEN PENAL CLAUSE CANNOT BE ENFORCED: Two kinds of payment: a) The breach is the fault of creditor; b) Fortuitous event intervened unless the debtor expressly agreed on his liability in case of fortuitous event.; c) When debtor is not yet in default. 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. (1155) CHAPTER 4 EXTINGUISHMENT OF OBLIGATIONS Art. 1231. Obligations are extinguished: (1) By payment or performance: (2) By the loss of the thing due: (3) By the condonation or remission of the debt; (4) By the confusion or merger of the rights of creditor and debtor; (5) By compensation; (6) By novation. Other causes of extinguishment of obligations, such as annulment, rescission, fulfillment of a resolutory condition, and prescription, are governed elsewhere in this Code. (1156a) CLASSIFICATION OF CAUSES OF EXTINGUISMENT A. VOLUNTARY 1. Performance - payment - consignation 2. Substitution of Performance - compensation - novation - dacion en pago 3. Agreement to Obligation a. Subsequent to Obligation - unilateral waiver - natural waiver - remission - mutual dissent - compromise b. Simultaneous with Creation of Obligation - resolutory term or extinctive period - resolutory condition or condition subsequent B. INVOLUNTARY a) by failure to bring an action (prescription) b) resolutory/ condition subsequent (merger/confusion; in personal obligation- death; change of civil status) c) by reason of object impossibility of performance; loss of thing due SECTION 1. - Payment or Performance Art. 1232 Payment means not only the delivery of money but also the performance, in any other manner, of an obligation. (n) PAYMENT mode of extinguishing obligation consists of: c. delivery of money; d. performance in any other manner of an obligation; Payment is defined as not only the delivery of money but also the 1. It is normal (or voluntary) when the obligor voluntarily pays the obligation. 2. It becomes abnormal (involuntary) when the creditor institutes an action to collect payment in order that the obligor shall comply with his obligation. Requisites of a valid payment: 1. Capacity of the person paying; 2. Capacity of the person receiving the payment; 3. Delivery of the full amount or the full performance of the prestation; 4. Propriety of time, place and manner of payment; 5. Acceptance of the payment by the creditor. 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. (1157) Requisites of Valid Payment: 1. the very thing/ service contemplated must be paid; 2. fulfillment must be complete. HOW PAYMENT/ PERFORMANCE IS MADE 1. If monetary obligation, by delivery of money in full payment unless otherwise stipulated in contract; 2. if debt is delivery of thing/s, by delivery of such thing/s 3. if debt is doing of a personal undertaking, by performance of said undertaking;if debt is not doing of something, by refraining from doing such. Note: A debtor cannot compel the creditor to accept partial payment. But, he can accept partial payment. If he voluntarily accepts such payments then he is deemed to have waived the requirements in Art. 1233 that the performance of the obligation is not considered complete unless there is complete delivery or complete performance. While it may be true that there is no payment if there is no complete delivery or performance of the service, there are two exceptions to the general rule. And those are Art. 1234 and 1235. Art. 1234. If the obligation has been substantially performed in good faith, the obligor may recover as though there had been a strict and complete fulfillment, less damages suffered by the obligee. Note: 1. In 1234 there has been substantial performance by the obligor in good faith. So, if there has been substantial performance IN GOOD FAITH by the obligor, then the obligor can recover as though there had been strict and complete fulfillment, less of course the damages suffered by the creditor. 2. The omission or defect must be slight and unimportant, that is, it must not be so material as to frustrate the accomplishment of the intended work. 3. There must be no willful or intentional deviation from the contract or prestation by the debtor, and the omission or defect must not be material, otherwise, the performance will not amount to substantial compliance. Art. 1235. When the obligee accepts the performance, knowing its incompleteness or irregularity, and without expressing any protest or objection, the obligation is deemed fully complied with. (n) In this case, OBLIGEE is in ESTOPPEL barred from further action for claims. How shall it happen? The creditor accepts the performance despite performance, in any other manner, of an obligation. Payment is the satisfaction or fulfillment of a prestation that is due, resulting in the extinguishment of the obligation of the debtor. (Pineda); Payment and performance is identical.

20
knowledge of the incompleteness or irregularity and without protest or objection accepts the performance. In effect, he is deemed to have waived the irregularity because the law requires that he must know the incompleteness or irregularity of the performance and accept it without protest or objection. Art. 1236. The creditor is not bound to accept payment or performance by a third person who has no interest in the fulfillment of the obligation, unless there is a stipulation to the contrary. Whoever pays for another may demand from the debtor what he has paid, except that if he paid without the knowledge or against the will of the debtor, he can recover only insofar as the payment has been beneficial to the debtor. (1158a) Art. 1237. Whoever pays on behalf of the debtor without the knowledge or against the will of the latter, cannot compel the creditor to subrogate him in his rights, such as those arising from a mortgage, guaranty, or penalty. (1159a) The creditor can refuse payment by a 3rd person, EXCEPT: a. When stipulated; b. If said 3rd person has an interest in the fulfillment of the obligation. Instance when RECOVERY can be had from Creditor and not from Debtor: 1. Prescription; 2. Remission; 3. Paid/performed debt; 4. When legal compensation had already taken place NB: If the 3rd person pays the obligation of the debtor with the knowledge and consent of the debtor, the payor is entitled to be reimbursed for the full amount. The same applies if the debtor knows that the third person is making the payment but he did not object thereto, or he did not repudiate the same at anytime. If payment was made without the knowledge or without the consent of the debtor, the reimbursement shall be only up to the amount or extent by which the debtor was benefited. (With knowledge but without consent of debtor falls under this situation) o From transcription: So, if he does not consent even if he knew about it, how much can the 3rd person demand reimbursement? Only to the extent that the debtor is benefited. What if he has the knowledge but he does not say anything? Full reimbursement, because the law does not require that knowledge and consent must come together. There can be knowledge without the consent, in effect he has the knowledge but the consent is tacit or implied. Because if he does not want that the 3rd person will pay his obligation, then definitely he would express his refusal, diba? This is just like the MU sa inyo. So, if he pays with the knowledge, then the third person can demand full reimbursement, or with the consent. Consent of course always means with the knowledge. Knowledge does not always mean there is consent because consent can be implied. But with the knowledge but without the consent, only so much as the payment redounded to the benefit of the debtor, and we call that beneficial reimbursement. Consequently, if the debt had already prescribed or had already been compensated, the payment would no longer be beneficial. Under this situation, the payor is definitely not entitled to reimbursement from the debtor. Another effect if payment was with the knowledge and consent is that the 3rd is subrogated into the rights of the former creditor. He becomes the new creditor. But if it is without the consent or against the will of the debtor or without the knowledge, then he has no right to demand that he be subrogated into the right of the creditors. Such right is not granted to him by law as stated in Art. 1237. SUBROGATION act of putting somebody into the shoes of the Creditor, hence, enabling the former to exercise all the rights and actions that could be exercised by the creditor. Rights w/c may be exercised by Person subrogated in the Place of Creditor: 1. arising from mortgage; 2. guaranty; 3. penalty SUBROGATION REIMBURSEMENT 1. recourse can be had to the mortgage or guaranty or pledge; no recourse 2. debt is extinguished in one sense but a new creditor appears with same rights; new creditor has different rights 3. there is something more than a personal action of recovery. Personal action 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 debtor's consent. But the payment is in any case valid as to the creditor who has accepted it. If the creditor accepts payment even if it is against the will of the debtor, the payment is still valid, only that we will apply 1236, with respect to reimbursement. But take note that if the payment made by the third person who does not intend to be reimbursed exceeds P5,000 the requirement of the law is that the payment must be in writing.(to be considered as a valid donation) But the payment is still valid since the consent of the debtor is immaterial as the extinguishment of the obligation is concerned. 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 article 1427 under the Title on "Natural Obligations." (1160a) PAYMENT BY AN INCAPACITATED PERSON GENERAL RULE: If payment is made by a person incapacitated to give: 1. payment is not valid if accepted; 2. creditor cannot be compelled to accept; 3. remedy of consignation is not proper. EXCEPT: Art. 1247 -- The minors who entered into a contract, without the consent of the parents or the guardian, but voluntarily pays a sum of money or delivers a fungible thing for the fulfillment of the obligation, the minor cannot recover the same from the creditor who accepted it 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. (1162a) TO WHOM PAYMENT MUSTBE MADE 1. To person in whose favor the obligation has been constituted (creditor); 2. successor in interest; 3. to any person authorized to receive it (eg. Guardian of insane, agent) Q: Pedro borrowed money (900,000) from Juan, who is married to Petra. Petra died. They had a child, JR (17 years old). Juan remarried to Jane. Juan died. Pedro, when the obligation became due and demandable, paid Jane. Is the payment valid? Answer: The payment is not valid despite the authority of Juan. It belongs to the first marriage. What about the authority? Authority terminates upon the death of the person executing that authority. It terminates upon the death, diba? So, the payment is not valid. So, kanino pala nya ibayad? To the administrator of the property. Now, if JR is of age, then the payment to JR is

21
valid. But definitely not to the 2nd wife, because the 2nd wife is not part of the agreement. This belongs to the estate of the former marriage. (Discussion of Culaba case) Art. 1241. Payment to a person who is incapacitated to administer his property shall be valid if he has kept the thing delivered, or insofar as the payment has been beneficial to him. Payment made to a third person shall also be valid insofar as it has redounded to the benefit of the creditor. Such benefit to the creditor need not be proved in the following cases: (1) If after the payment, the third person acquires the creditor's rights; (2) If the creditor ratifies the payment to the third person; (3) If by the creditor's conduct, the debtor has been led to believe that the third person had authority to receive the payment. (1163a) Sahijwani; Torquator vs. Bernabe; Art. 1242. Payment made in good faith to any person in possession of the credit shall release the debtor. (1164) Requisites: 1. payment must be in good faith; 2. payee must be in possession of the credit itself. 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. (1165) judicial order prompted by an order of attachment, injunction, or garnishment GARNISHMENT- takes place when the debtor of a debtor is ordered not to pay the latter so that preference would be given to the latters creditor. INTERPLEADER action in w/c a certain person in possession of certain property wants claimants to litigate among themselves for the same. INJUNCTION a judicial process by virtue of w/c a person is generally ordered to refrain from doing something.

If payment was made to the incapacitated creditor who cannot administer his property, or if he has not kept the thing delivered, the debtor may be compelled by the creditor to pay anew when he regains capacity, or by the latters representative during the time of the incapacity of the creditor. (Pineda) Benefit may be in the form of financial, moral or intellectual advantages which must be proved. From Transcription: Payment to a third person shall also be valid if it has redounded to the benefit of the creditor. So, you have the burden of proving that payment made to the third person redounded to the benefit of the creditor. But benefit need not be proved in the following instances: 1. if after the payment, the third person acquires the creditor's rights Ex: you have an obligation to deliver a diamond ring, and it was received by a third person, and later on you saw the third person wearing the same ring, the presumption is that he had acquired ownership over the property you had delivered; 2. the creditor ratifies the payment to the third person. So it follows that at the time of payment, the creditor had no authority to accept payment, but when you made the payment, he ratified it. Ratification comes after, because if it is prior, ano yan? Authorization. The presumption is that the payment was without his authority, only that he ratified it. 3. You lead the debtor to believe that the third person is authorized to receive payment. Other instances where payment to a third person releases the debtor: 1. When the creditor assigns his credit to a third person, without the consent of the debtor, and the debtor paid the original creditor. When a creditor assigns credit to a third person, the third person becomes the new creditor, but in as much as he did not inform the debtor, and the debtor paid the old creditor, the payment is still valid. Why? Because he did not inform the debtor. 2. Another instance is, under 1242 payment is made to a third person in possession of the credit. In possession of the credit, not the evidence of the credit. What is the difference between a person in possession of the credit? An example of a document which is the credit itself is a check payable to the order of the bearer, or in cash. But if what is presented is the evidence of the credit, an example a promissory note payable to the order of Pedro, the person must present evidence that he is Pedro. So, that is the difference between possession of the credit and the evidence of the credit. Cases: Culaba vs. CA; PnB vs. CA; Sering vs. CA; Meat Packing vs. Sandiganbayan; FEB vs. Diaz Realty; Seguvia Dev't case; Pabugais vs.

Art. 1244. The debtor of a thing cannot compel the creditor to receive a different one, although the latter may be of the same value as, or more valuable than that which is due. In obligations to do or not to do, an act or forbearance cannot be substituted by another act or forbearance against the obligee's will. (1166a) EXCEPTIONS: a) In case of FACULTATIVE OBLIGATION b) In case there is another agreement resulting in: - Dation in payment - Novation c) In case of waiver by creditor SPECIAL FORMS OF PAYMENT A. Dation in payment B. Application of payments C. Assignment in favor of Creditors (cession) D. Tender of payment and consignation. I. DATION IN PAYMENT /DATION EN PAGO/ ADJUDICACION EN PAGO Art. 1245. Dation in payment, whereby property is alienated to the creditor in satisfaction of a debt in money, shall be governed by the law of sales. (n) Concept: Property is alienated to the creditor in satisfaction of a debt in money. At the time of the constitution of the obligation what is due is money, but at the time of fulfillment, the debtor could no longer deliver the money. So, what he did instead is to offer that instead of the money, he will deliver another thing in lieu of the money. If the creditor accepts, then the obligation is extinguished, depending on the agreement of the parties. If it extinguishes the entire obligation then there is full extinguishment. But, if it will only be based on the value of the thing that is delivered, and it is not sufficient to cover the monetary obligation, then there is partial fulfillment. Take note that as soon as the agreement has been perfected, it is no longer governed by the law on obligations and contracts but the law on sales. SALE DATION IN PAYMENT 1. no pre-existing credit; 1. There is pre-existing credit; 2. gives rise to obligations; 2. Extinguishes the obligation; 3. cause/consideration is the price or obtaining the object; 3. Extinguishment

22
of his debt & acquisition of object offered in credit (part of creditor); 4. greater freedom in determining price; 4. Less freedom 5. giving of price may generally end the obligation of buyer. 5. May extinguish completely or partially the credit. CONDITIONS under w/c a Dation in Payment is valid a) If creditor consents; b) If dation in payment will not prejudice the other creditors; c) If debtor is not judicially declared insolvent. Q: Suppose there was an agreement between the parties but the debtor delivered a car and the creditor accepts, what presumption arises? Is dation in payment presumed? A: When there is delivery and you cannot presume what the agreement of the parties is, and money is exchanged for the delivery, the presumption is there is merely a pledge. 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. (1167a) Except: if there is WAIVER. When the Kind and quantity cannot be determined w/out need of a new agreement, the contract is VOID. These provisions are without prejudice to venue under the Rules of Court. (1171a) WHERE PAYMENT MUST BE MADE Art. 1247. Unless it is otherwise stipulated, the extrajudicial expenses required by the payment shall be for the account of the debtor. With regard to judicial costs, the Rules of Court shall govern. (1168a) 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 in part unliquidated, the creditor may demand and the debtor may effect the payment of the former without waiting for the liquidation of the latter. (1169a) GEN. RULE: Payment shall be complete EXCEPT: 1. when it is stipulated otherwise; 2. when different prestations are subject to different conditions or terms; 3. when debt is part liquidated and part unliquidated; 4. when a joint debtor pays his share or the creditor demands the same; 5. when a solidary debtor pays only the part demandable; 6. in case of compensation, when one debt is bigger than the other; 7. when work is to be done by parts. 1. If there is a stipulation in designated place. 2. if there is no stipulation i. if its determinate, at the place where the thing might be at the time the obligation was constituted. ii. If its generic/personal, at the domicile of the Debtor. Note: the creditor shall bear the expenses, unless the debtor changes his domicile in bad faith. Transcription: Now what about if payment is made through couriers, like the LBC? Suppose the debtor sent the money through the LBC, and the courier ran away with the money, who shall bear the loss? It depends. If it was the creditor was the one who said that it should be sent to him through the courier, then he bears the loss. What will the creditor do? Wala na syang pag-asa? The creditor would run after the courier. But if it was through the initiative of the debtor, then he should bear the loss? Merisi. Why is he merisi? What will be your defense? In the absence of any stipulation, payment shall be made in the domicile of the debtor. II. APPLICATION OF PAYMENT Art. 1252. He who has various debts of the same kind in favor of one and the same creditor, may declare at the time of making the payment, to which of them the same must be applied. Unless the parties so stipulate, or when the application of payment is made by the party for whose benefit the term has been constituted, application shall not be made as to debts which are not yet due. If the debtor accepts from the creditor a receipt in which an application of the payment is made, the former cannot complain of the same, unless there is a cause for invalidating the contract. (1172a) APPLICATION OF PAYMENT shows w/c debt, out of 2 or more debts owing the same creditor, is being paid. Note: The right to choose w/c debt to serve first is vested to the DEBTOR except: If there was a valid prior but contrary agreement; Debtor cannot choose to pay part of the principal ahead of the interest unless the creditor consents. case of International Corporate Bank vs. Gueco Art. 1250. In case an extraordinary inflation or deflation of the currency stipulated should supervene, the value of the currency at the time of the establishment of the obligation shall be the basis of payment, unless there is an agreement to the contrary. (n) Applies only to cases where a contract or agreement is involved. This does not apply where obligation to pay arises from law, independent of contracts. (This applies only to contractual obligations, to indebtedness. This will not apply to quasi-delict, quasi-contract, to obligations arising from law. Purely contractual obligations; payment of monetary obligations. Case of Filipino Bank vs. MWSA, Art. 1251. Payment shall be made in the place designated in the obligation. There being no express stipulation and if the undertaking is to deliver a determinate thing, the payment shall be made wherever the thing might be at the moment the obligation was constituted. In any other case the place of payment shall be the domicile of the debtor. If the debtor changes his domicile in bad faith or after he has incurred in delay, the additional expenses shall be borne by him.

Art. 1249. The payment of debts in money shall be made in the currency stipulated, and if it is not possible to deliver such currency, then in the currency which is legal tender in the Philippines. The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents shall produce the effect of payment only when they have been cashed, or when through the fault of the creditor they have been impaired. In the meantime, the action derived from the original obligation shall be held in the abeyance. (1170) LEGAL TENDER is that w/c a debtor may compel a creditor to accept in payment of the debt.

23
Note: When shall the debtor make the choice? At the time payment shall be made, but subject to certain conditions: First, that he cannot apply it to a debt which will not cover the entire obligation because under the law, the creditor cannot be compelled to accept partial payment. Second, he cannot choose to apply it first to the principal. The law says interest should be paid first before the principal. Third, he cannot choose a debt that is not yet due and demandable. Fourth, he cannot choose a debt or an obligation which is not of the same kind of the other debt. So those are the limitations. REQUISITES FOR APPLICATION OF PAYMENT 1. There must be 2 or more debts (severalty of debts); 2. Debts must be of the same kind; 3. Debts are owed by the same debtor in favor of the same creditor; 4. All debts must be due unless contrary is provided eg. Stipulated by parties. 5. Payment is not enough to extinguish all the debts. RULE WHEN DEBTS ARE NOT YET DUE there may be application of payments when: a. the parties so stipulate; b. when application of payment is made by the party for whose benefit the term has been constituted. HOW APPLICATION IS MADE A. Debtor designates B. If not, creditor makes it known or made at the time of the issuance of the receipt; unless there is cause for voiding the contract ( ex. Creditor does it w/o debtors consent) C. If both do not avail of it, by operation of law. (Applying Arts. 1253 and 1254) REVOCATION GEN. RULE: Once application of payment is made, it cannot be revoked. EXCEPT: If both parties agree Even if both parties agree, if it will prejudice 3rd personscannot revoke WHEN APPLICATION CANNOT BE AVAILED OF? 1. In case of partner-creditor 2. Surety or a solidary guarantor one debt only not several. From transcription: Now, suppose, the debtor has 50,000, and the debtor has to make the choice under the given situation: 1. 20,000 due on June 25, 2004 with an interest of 6% plus a penalty of 2% on the interest in case of delay; 3. 20,000 due on Dec. 25, 2004, secured by a mortgage. 4. 10,000 without interest; 5. a 4 carat pink diamond ring 6. 50,000 with interest and penalty due on Dec. 24, 2006. To where shall the 50,000 be applied? To the most onerous of the debts already due and demandable. The most onerous of the 3 debts due is the 20,000 because of the penalty. The debt with a mortgage is less onerous because there is only that tendency to lose the mortgage, and once the mortgage is foreclosed, the obligation is extinguished. A simple debt, (without interest) is the least onerous because it can run up to how many years and the amount would be the same. Number 4 cannot be the subject Note: The more burdensome rule does not apply if debtor has used application of payment. From transcription; What are the rules to remember? 1. Creditor cannot be forced to accept partial payment. 2. Payment cannot be applied to the principal first if there is interest due. Except: if creditor agrees. 3. The debtor cannot also pay the debt not yet due. Exception: if the period is for the benefit of the debtor, he can choose a debt not yet due. 4. When the parties have an agreement as to which debt shall be paid first, then the debtor cannot vary the agreement. 5. All obligations must be due and of the same kind, generally. Exception: unless the obligation is converted into the payment of damages. It becomes monetary in character. III. PAYMENT BY CESSION OR ASSIGNMENT It is the process of transfer of debtors property to creditors not subject to execution so that the latter may sell them and thus apply the proceeds to their credits. The purpose of the transfer or the assignment or the cession, is for the creditors to sell these properties, and to apply the proceeds in proportion to their respective credit. An assignment of credit is an agreement by virtue of which the owner of a credit, by legal causes (such has sale, dation, etc) without the need of the debtors consent, transfers the credit and its accessory rights to another who acquires the power to enforce it to the same extent as the assignor could have enforced it against the debtor. Art. 1255. The debtor may cede or assign his property to his creditors in payment of his debts. This cession, unless there is stipulation to the contrary, shall only release the debtor from responsibility for the net proceeds of the thing assigned. The agreements which, on the effect of the cession, are made between the debtor and his creditors shall be governed by special laws. (1175a) 2 Kinds of Assignment of application of payment because it is not of the same kind. Likewise, 50,000 is the most onerous of the debts, however, it is not yet due and demandable. So, the application of payment will only be centered on the 3. Art. 1253. If the debt produces interest, payment of the principal shall not be deemed to have been made until the interests have been covered. (1173) Interest must be paid first except if creditor consents to payment of the principal first WHAT INTEREST IS SUPPOSED TO BE PAID? a. interest by way of compensation; b. interest by way of damages by way of default. Art. 1254. When the payment cannot be applied in accordance with the preceding rules, or if application cannot be inferred from other circumstances, the debt which is most onerous to the debtor, among those due, shall be deemed to have been satisfied. If the debts due are of the same nature and burden, the payment shall be applied to all of them proportionately. (1174a) Burdensome Debts 1. Older accounts in case of running accounts 2. Interest-bearing debts; 3. If 2 interest-bearing debts, that w/c charges the higher interest; 4. debts secured by mortgage/pledge; 5. debts w/ penal clause; 6. advances for subsistence than cash advances; 7. a debt where debtor is in mora (default) 8. exclusive debt than solidary

24
a. Legal majority of creditors must agree b. Voluntary all creditors must agree REQUISITES FOR VOLUNTARY ASSIGNMENT 1. More than 1 debt 2. More than 1 creditor 3. Complete or partial insolvency of debtor 4. Abandonment of all debtors property not exempt from execution to the creditors 5. Acceptance or consent on creditors part EFFECTS OF VOL. ASSIGNMENT a) Creditors do not become owners; merely assignees with authority to sell; b) Debtor is released up to the amount of the net proceeds unless stipulated; c) Creditors will collect credits in the order of preference agreed upon or in default, in the order established by law. DACION EN PAGO CESSION 1. does not affect all properties; In general, affects all properties; 2. does not require plurality of creditors; Requires more than 1 creditor; 3. only the specific creditors consent is needed; (transfer is only in favor of one creditor to satisfy a debt) All creditors consent; (there are various creditors) 4. may take place during solvency; (no presumption of insolvency) Requires full/partial insolvency; (there is presumption of insolvency) 5. transfers ownership upon delivery; Does not transfer ownership, only possession and administration are transferred to the creditors with the authorization to convert the property into cash with which the debts shall be paid. 6. there is an act of novation Not an act of novation 7. May totally extinguish the obligation and release the debtor Only extinguishes the credits to the extent of the amount realized from the properties assigned, unless otherwise agreed upon. SUBSECTION 3. - Tender of Payment and Consignation IV. TENDER OF PAYMENT AND CONSIGNATION 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 court or judicial authorities whenever the creditor cannot accept or refuse to accept payment. From transcription: tender of payment is the manifestation made by the debtor to the creditor of his desire to comply with his obligation with the offer of immediate performance. But mere tender alone does not extinguish the obligation. It must be followed by consignation, if the creditor refuses what you have tendered, without just cause. Note: Tender and consignation is only true if there is a debt due. Because if it were in an exercise of a right, then mere tender is sufficient, as in the case of exercising the right to repurchase (Meat Packing case). Like the case of DBP, that act of the respondent in buying the property was an exercise of the right to repurchase. Art. 1256. If the creditor to whom tender of payment has been made refuses without just cause to accept it, the debtor shall be released from responsibility by the consignation of the thing or sum due. Consignation alone shall produce the same effect in the following cases: (1) When the creditor is absent or unknown, or does not appear at the place of payment; (2) When he is incapacitated to receive the payment at the time it is due; (3) When, without just cause, he refuses to give a receipt; Requisites wherein the creditor is deemed to have unjustly refused the tender of payment 1. That there was previous tender of payment 2. That the tender of payment was of the very thing due, or in case of money obligations, that the legal tender currency was offered; 3. That the tender of payment was unconditional; and, 4. that the creditor refused to accept payment without just cause. (4) When two or more persons claim the same right to collect; (5) When the title of the obligation has been lost. (1176a) REQUISITES OF A VALID TENDER OF PAYMENT a) Must be in legal tender (lawful currency) not a check but if there is consent valid; b) It must include whatever interest is due; c) It must be unconditional; but if made with conditions and no protest on creditors part, he cannot later on prescribe the terms for the validity of the acceptance w/c he had already made complete payment; d) The obligation must be due.

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. The consignation shall be ineffectual if it is not made strictly in consonance with the provisions which regulate payment. (1177) REQUISITES OF CONSIGNATION a) Existence of a valid debt; b) Valid prior tender of payment, unless tender is excused; c) Prior notice of consignation (before deposit); d) Actual consignation (deposit); e) Subsequent notice of consignation f) Hearing; g) Judgment DEPOSIT; EFFECTS OF a) The property is in custodia legis; b) Not exempt from attachment and execution; c) But if property be perishable by nature, the court may order the sale of the property; d) The debtor by consigning the thing practically makes himself the agent or receiver of the court, particularly if for some reason, the property cannot actually be placed in the hands of the court. From transcription: REQUISITES FOR VALID CONSIGNATION 1. There must be a debt due; there must be a debt owing. 2. That the consignation was made because of some legal cause provided in the present article. (the unjust refusal of the creditor) 3. Previous notice of the consignation has been given to the persons interested in the performance of the obligation. 4. That the amount or thing due was placed at the disposal of the court (actual consigning or depositing the thing due with the clerk of court); and 5. That after the consignation had been made, the persons interested were notified thereof. Q: what if the debtor decides to withdraw what has been consigned, would that be allowed? A: Yes. The original obligation is revived. Q: Can he withdraw after the court finds that consignation is proper? A: Generally, no, unless or the exception is the creditor consents. Q: what are the consequences if the creditor consents to the withdrawal

25
after the finding of the court that consignation is proper? One of the consequences is that the creditor loses the preference of credit; He loses the security attached to that obligation. EFFECT OF PROPER CONSIGNTATION: It retroacts to the time of consignation. Likewise, all interest shall be deemed to stop running from the time of consignation. Art. 1258. Consignation shall be made by depositing the things due at the disposal of judicial authority, before whom the tender of payment shall be proved, in a proper case, and the announcement of the consignation in other cases. The consignation having been made, the interested parties shall also be notified thereof. (1178) HOW IS CONSIGNATION MADE? 1. The things due must be deposited with the proper judicial authorities; 2. There must be proof that: Tender was previously made; Or that the creditor had previously notified the debtor that consignation will be made (in case tender is not required) Art. 1259. The expenses of consignation, when properly made, shall be charged against the creditor. (1178) 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. (1180) VALID CONSIGNATION, EFFECTS OF: 1. Debtor may ask the judge to cancel the obligation; 2. The running of interest is suspended; 3. It should be observed that before the creditor accepts or before the judge declares that consignation has been properly made, the obligation remains. IMPROPER CONSIGNATION; EFFECTS: 1. If improperly made, obligation remains; 2. At the time of consignation, the debt already due; requisites are absent DEBTOR is in default. Art. 1261. If, the consignation having been made, the creditor should authorize the debtor to withdraw the same, he shall lose every preference which he may have over the thing. The co-debtors, guarantors and sureties shall be released. (1181a) Effects of Withdrawal a) Obligation remains; b) Creditor loses any preference over the thing; c) Co-debtors, guarantors and sureties are released (unless they consented) LOSS OF THE THING DUE WHEN IS A THING CONSIDERED LOST a) When it perishes; b) When it goes out of commerce; c) When it disappears in such a way that: Its existence is unknown; or It cannot be recovered. Note: The term loss does not refer strictly to actual or physical loss but contemplates also impossibility of performance. WHAT IMPOSSIBILITY OF PERFORMANCE INCLUDES a) Physical impossibility; b) Legal impossibility; Directly prohibited by law; Indirectly e.g when debtor is required to enter a military draft. c) Moral impossibility Art. 1262. An obligation which consists in the delivery of a determinate thing shall be extinguished if it should be lost or destroyed without the fault of the debtor, and before he has incurred in delay. When by law or stipulation, the obligor is liable even for fortuitous events, the loss of the thing does not extinguish the obligation, and he shall be responsible for damages. The same rule applies when the nature of the obligation requires the assumption of risk. (1182a) 2 Kinds of Obligation to give 1. to give a generic thing; 2. to give a specific thing Effect of Loss GEN. RULE: Obligation is extinguished EXCEPTIONS 1. If debtor is at fault; 2. When debtor is made liable for fortuitous event because of: Provision of law; Contractual stipulation; Nature of obligation requires the assumption of risk (debtor) INSTANCES when Law requires Liability even in case of Fortuitous Event: 1. Debtor is in default; 2. When debtor has promised to deliver the same thing to 2 or more persons who do not have the same interest; 3. Obligation arises from a crime; 4. When borrower has lent the thing to another who is not a member of his own HH; 5. When thing loaned has been delivered with appraisal of value unless stipulated exempting borrower from responsibility; 6. When payee in solutio indebiti is in bad faith. Q: What about partial loss? Will that extinguish the obligation? It depends. Why? Generally, if the partial loss is due to a fortuitous event, the obligor has to deliver the object at its deteriorated state. But if the loss is such that led the parties to enter into the contract, then there is extinguishment of the obligation. For instance, you bought a lot at Royal Pines because of the view that it affords. And then a high rise hotel was constructed which obstructed the view. Is there total loss? No, but there is extinguishment of the obligation. 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. (n) GEN. RULE: Genus never perishes EXCEPTIONS 1. If the generic thing is delimited; 2. If generic thing has been segregated or set aside it becomes specific now. e.g. MONEY Art. 1264. The courts shall determine whether, under the circumstances, the partial loss of the object of the obligation is so important as to extinguish the obligation. (n) 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

26
contrary, and without prejudice to the provisions of article 1165. This presumption does not apply in case of earthquake, flood, storm, or other natural calamity. (1183a) 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. (1184a) Article 1266 refers to impossibility in obligations to do when the prestation has become legally or physically impossible without the fault of the obligor. The impossibility must arise after the constitution of the obligation. Because if it were prior or at the time of the inception, the nullity of the contract. Legal/physical impossibility must be after the constitution of obligation. Effect of Loss Thru Fortuitous Event in Reciprocal Obligation GEN. RULE: The obligation that was not extinguished by the fortuitous event remains. EXCEPTIONS: 1. In case of lease if object is destroyed, both lease and rent are extinguished; 2. In contracts for a piece of work. Note from transcription: what are the forms of impossibility? 1. It might be physical, when by reason of its nature the act cannot be performed. 2. Second, legal: a law is subsequently passed making the act illegal. 3. Objective when the act or service itself, without considering the person of the obligor, becomes impossible. It is the act itself. 4. The last is subjective which is the opposite of objective. The act or service cannot be done by the obligor, and the reason why you entered into the obligation is the person who would perform the act or the service. Q: What happens if there is temporary impossibility? A: You merely wait for the impossibility but you still have to comply with the obligation. Exception is if the obligation is to be performed at a definite time, and that time is within the period of that impossibility, so the obligation is extinguished. Q: What happens if the debtor has complied with the obligation then here comes this temporary impossibility by reason of a circumstance or a situation. Is he entitled to the payment of his performance of what he has partially performed? A: Yes, of course, unless it is an indivisible obligation. If it turns out the impossibility has become permanent, and you have not yet paid, then you have to pay, unless there is extinguishment of the obligation (falling under 1234 and 1235), Art. 1267. When the service has become so difficult as to be manifestly beyond the contemplation of the parties, the obligor may also be released therefrom, in whole or in part. (n) Refers to moral impossibility or impracticability due to change of certain conditions; Refers to personal obligation (or obligations to do) and not real ( to give) Does not cover highly speculative contracts or agreements such as stocks and aleatory contracts such as insurance contracts Based on the doctrine of unforeseen events or rebus sic stantibus Requisites: 1. Even or change of circumstances could not have been forseen at the time of the execution of the contract; 2. Performance is extremely difficult but not impossible; 3. The impossibility was not due to acts of any of the parties; 4. The prestation refers to a future one, not an immediate fulfillment; Art. 1268. When the debt of a thing certain and determinate proceeds from a criminal offense, the debtor shall not be exempted from the payment of its price, whatever may be the cause for the loss, unless the thing having been offered by him to the person who should receive it, the latter refused without justification to accept it. (1185) Effect of Loss in Criminal Offenses DOES NOT EXTINGUISH OBLIGATION, EVEN IF FORTUITOUS EVENT INTERVENES e.g theft. So this is one of the exceptions to the rule that if a determinate thing is lost through fortuitous events, the obligation is extinguished. Exception is when Creditor is in Mora Accipiendi (default); otherwise stated, if the thing was offered to the person who should receive it and the latter refused without just cause. 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. (1186) CONDONATION/REMISSION OF A DEBT It is the gratuitous abandonment by the creditor of his right against the debtor. Condonation/remission is essentially a donation of the credit to the debtor. It is a bilateral act (not reciprocal), which requires the acceptance by the donor. It is therefore, subject to the rules on donations with respect to acceptance, amount and revocation . It may be made expressly or impliedly. Express condonation shall, furthermore, comply with the forms of donation. Art. 1270. Condonation or remission is essentially gratuitous, and requires the acceptance by the obligor. It may be made expressly or impliedly. One and the other kind shall be subject to the rules which govern inofficious donations. Express condonation shall, furthermore, comply with the forms of donation. (1187) ESSENTIAL REQUISITES FOR REMISSION 1. There must be an agreement; 2. Parties must be capacitated and must consent; 3. There must be subject matter (object/prestation); 4. The cause or consideration must be liberality essentially gratuitous; 5. Obligation remitted must be demandable at the time of remission; 6. The remission must not be inofficious not excessive; 7. Formalities of a donation are required in case of an express remission; 8. Waivers/remissions are not to be presumed generally it must be expressed or implied; 9. The debtor must accept the remission. CLASSES OF REMISSION A. AS TO EFFECT/EXTENT 1. Total 2. Partial (upto the portion/ or may refer to accessory obligation) B. AS TO DATE OF EFFECTIVITY 1. Inter vivos (during lifetime) 2. Mortis Causa (after death) C. AS TO FORM 1. Implied (no formality) conduct is enough 2. Express/formal If debtor does not accept and creditor does not collect within the statute of limitations, the debt may be said to have been extinguished by Prescription. Note from transcription: Now, may the creditor waive interest but demand fulfillment of the principal? Yes. May the court waive interest? No. Can the court lower interest? Yes, if unconscionable or inequitous. May the court lower penalty? Yes. Can it erase penalty? No. (Ligutan case, RCBC case) Art. 1271. The delivery of a private document evidencing a credit, made

27
voluntarily by the creditor to the debtor, implies the renunciation of the action which the former had against the latter. If in order to nullify this waiver it should be claimed to be inofficious, the debtor and his heirs may uphold it by proving that the delivery of the document was made in virtue of payment of the debt. (1188) 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. (1189) Presumption of remission prevails over presumption of payment. The private document must refer to the original of the original (because it may be issued in duplicate copies) Not true in case of public documents because there is always a copy in the archives to prove the credit. PRESUMPTION IN JOINT/SOLIDARY OBLIGATION In Solidary, whole obligation is remitted; In joint, only the share of the Debtor to whom creditor has granted remission. Art. 1273. The renunciation of the principal debt shall extinguish the accessory obligations; but the waiver of the latter shall leave the former in force. (1190) 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. (1191a) Only the accessory is remitted, the principal obligation remains in force. CONFUSION OR MERGER OF RIGHTS Art. 1275. The obligation is extinguished from the time the characters of creditor and debtor are merged in the same person. (1192a) MERGER/CONFUSION the meeting in one person of the qualities of creditor and debtor with respect to the same obligation. REQUISITES 1. It should take place between principal debtor and creditor. No confusion if Debtor and Creditor represent different juridical entities even if both are the same. 2. Merger must be clear and definite. 3. The very obligation involved must be the same or identical 4. The confusion must be total or as regards the entire obligation (exception Art. 1277) If the reason for confusion ceases, the obligation is revived. (Example: when the merger takes place by a particular title, this may be set aside for causes of nullity or rescission of contract. Effect if mortgagee becomes owner --- mortgage is extinguished but principal obligation may remain. Art. 1276. Merger which takes place in the person of the principal debtor or creditor benefits the guarantors. Confusion which takes place in the person of any of the latter does not extinguish the obligation. (1193) The extinguishment of the principal obligation through confusion releases the guarantors because the obligation of the latter is merely accessory. However, when the merger takes place in the person of a guarantor, the obligation is not extinguished. 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. COMPENSATION OR OFF SETTING It is a mode of extinguishing to the concurrent amount, the obligations of those persons who in their own right are reciprocally debtors and creditors of each other. It is the offsetting of 2 obligations which are reciprocally extinguished if they are of equal value, or extinguished to the concurrent amount if of different values. It is a simplified or abbreviated payment because the 2 debts are extinguished without requiring the transfer of money or property from one party to the other. Kinds/Classes of Compensation I- AS TO ITS EXTENT a) TOTAL obligation are completely extinguished because they are of the same amount. b) PARTIAL - when a balance remains. II- AS TO ITS ORIGIN/CAUSE a) LEGAL takes place by operation of law. b) VOLUNTARY/CONVENTIONAL- agreed to by parties; - Requisites: (1) each of the parties can dispose of the credit he seeks to compensate; (2) the parties agree to mutual extinguishment of their credits. c) JUDICIAL (SET-OFF)- must be pleaded; effective upon order of the Court. (Two debts arising from final and executory judgment) d) FACULTATIVE one party has the choice of claiming the compensation. This is compensation which can be set up only at the option of a creditor when legal compensation cannot take place because of want of some legal requisites for the benefit of the creditor. DISTINCTIONS PAYMENT COMPENSATION - Payment must be complete and indivisible; - Partial extinguishment is always allowed. - Involves action/delivery - True or legal compensation takes place by operation of law. - Capacity to dispose of the thing paid and capacity to receive payment are required - No such capacity is necessary COMPENSATION MERGER As to # of Persons - 2 persons who are mutually creditor and debtor to each other; - one person in whom is merged the qualities of C and D; As to # of Obligation - 2 obligation - one obligation COMPENSATION COUNTERCLAIM OR SET-OFF - Takes place by operation of law and extinguishes reciprocally the 2 debts as soon as they exist simultaneously to the amount of respective sums - Must be pleaded to be effectual - Works as a sort of judicial compensation, provided that requirements of ROC are observed. Art. 1278. Compensation shall take place when two persons, in their own right, are creditors and debtors of each other. (1195) Art. 1279. In order that compensation may be proper, it is necessary: (although the parties may not be aware of it CF Art. 1290) (1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other; (2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated;

28
(3) That the two debts be due; (4) That they be liquidated and demandable; (5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor. (1196) NEGATIVE REQUISITES OF LEGAL COMPENSATION a) That over neither of the debts must there be any retention or controversy commenced by 3rd persons and communicated in due time to the debtor. b) There must have been no waiver of the compensation; c) The compensation of debts must not have been prohibited by law. PROHIBITED COMPENSATION 1. Debts arising from a depositum except bank deposits; 2. Debts arising from the obligations of a depositary; 3. Debts arising from the obligations of a bailee in commodatum; 4. Debts arising from a claim for future support due by gratuitous title; 5. Debts consisting in civil liability arising from a penal offense; 6. Damages suffered by a partnership through the fault of a partner cannot be compensated with profits and benefits w/c he may have earned for the partnership by his industry. Note: There can be no compensation when the object of the obligation is specific or determinate because there is only one determinate or specific thing, you cannot duplicate that. Q: May there be compensation of obligations subject to conditions? A: It depends. If the conditions are resolutory, pwede. But if one is reciprocal and the other is suspensive, there can be no compensation. 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. (1197) Why is a guarantor allowed to set up compensation? Because it will be beneficial to him, he will be released from the debt. Art. 1281. Compensation may be total or partial. When the two debts are of the same amount, there is a total compensation. (n) True for all different kinds of compensation whether voluntary, legal, etc. B assigned his credit to C on Dec. 25, 2005. Art. 1282. The parties may agree upon the compensation of debts which are not yet due. (n) Applies to conventional or voluntary compensation. 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. (n) JURISDICTION OF COURT RE: VALUE OF DEMAND GEN. RULE: Jurisdictionn depends upon the totality of the demand in all the causes of action, irrespective of whether the plural cases arose out of the same or different transactions. EXCEPTIONS 1. Where the claim joined under the same complainant are separately owed by, or due to, different parties in w/c cases each separate claim furnishes the jurisdictional test. 2. Where not all the causes of action joined are demands or claims for money. Art. 1284. When one or both debts are rescissible or voidable, they may be Q: What are the rights of A? What debts can he claim compensation? What debts can be the subject of compensation? A: It depends: 1. If with consent, wala. (unless there is reservation of right to claim.) 2. If with knowledge, without consent: all debts previous to the assignment. (#2, #3, #5) 3. Assign without knowledge: it would now depend when A acquired knowledge, because Dec. 25, 05 is not the reckoning point. 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. (1199a) Applies to compensation by operation of law; Indemnity for expenses of transportation (of goods/objects) Indemnity for expenses of exchange. Art. 1287. Compensation shall not be proper when one of the debts arises from a depositum or from the obligations of a depositary or of a bailee in commodatum. compensated against each other before they are judicially rescinded or avoided. (n) Note: The rescissible obligations here refer to Art. 1381. Art. 1285. The debtor who has consented to the assignment of rights made by a creditor in favor of a third person, cannot set up against the assignee the compensation which would pertain to him against the assignor, unless the assignor was notified by the debtor at the time he gave his consent, that he reserved his right to the compensation. If the creditor communicated the cession to him but the debtor did not consent thereto, the latter may set up the compensation of debts previous to the cession, but not of subsequent ones. If the assignment is made without the knowledge of the debtor, he may set up the compensation of all credits prior to the same and also later ones until he had knowledge of the assignment. (1198a) RULES: 1. Assignment with consent of debtor -- Compensation cannot be set-up, it serves as a waiver except if the right to compensation is reserved 2. Assignment with knowledge but without consent of debtor --compensation can be set-up re: debts before the cession, but not after the assignment. 3. Assignment made w/out knowledge of debtor -- debtor can set up compensation as a defense for all debts maturing prior to his knowledge of assignment. From transcription: Situation: A owes B : 1. a bracelet worth 100,000 due on Jan 1, 2004; 2. 75,00 due on June 1,2006, 3. 100,000 due on Dec. 1, 05, 4. 25,000 due on Aug. 1, 04 B owes A 1. 80,000 due on Feb. 25, 06; 2. 50,000 due on Aug. 15,05. 3. 75, 000 due on Oct. 10,04. 4. A dining set worth 200,000 due on April 1, 03 5. A cow worth 15,000 eonverted into damages by reason of non performance.

29
Neither can compensation be set up against a creditor who has a claim for support due by gratuitous title, without prejudice to the provisions of paragraph 2 of article 301. (1200a) Art. 1288. Neither shall there be compensation if one of the debts consists in civil liability arising from a penal offense. (n) WHEN LEGAL COMPENSATION CANNOT TAKE PLACE 1. When one debt arises from a depositum; 2. When one debt arises from the obligation of a depositary; 3. When one debt arises from the obligation of a bailee in commodatum; 4. When one debt arises because of a claim for support due to gratuitous title. 5. When the debt arises from a criminal liability. But the offended party may claim compensation (this is an example of a facultative obligation) OBLIGATIONS OF A DEPOSITARY a) The Depositary is obliged to keep the thing safely and to return it when required to the depositor, or to his heirs and successors or to person who may have been designated in the contract. b) Unless stipulated to contrary, the depositary cannot deposit the thing to 3rd persons. c) If deposit to 3rd person is allowed, the depositary is liable for the loss if the person is careless or unfit. d) Depositary is responsible for the negligence of his employees. e) Depositary cannot make use of the thing deposited w/out express permission of depositor otherwise he shall be liable for damages except preservation of thing requires its use. Art. 1289. If a person should have against him several debts which are susceptible of compensation, the rules on the application of payments shall apply to the order of the compensation. 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. (1202a) Legal compensation takes place automatically unless there has been valid waiver thereof. Compensation w/c extinguishes principal obligation carries with it the extinguishments of the accessory obligation. to the Concurrent amount means if one debt is bigger than the other, the balance subsists as debt. Q: May it be possible for one claiming compensation despite the fact that the one claiming has a debt that already prescribed? A: Yes, for as long as the requisites have met at a certain point, even if one of the debts had already prescribed at the time of the claim for compensation. As long as at one point, all the requisites mentioned in 1279 are present before the debt actually prescribed, then there can be compensation. Q: May the benefit of compensation be renounced or waived? A: Yes. Example of which would be 1285 paragraph 1. NOVATION NOVATION substitution or change of an obligation by another w/c extinguishes/modifies the 1st either by changing its object or principal condition or substituting another in place of debtor, or subrogating a 3rd person in the rights of creditor. Art. 1291. Obligations may be modified by: (1) Changing their object or principal conditions; (2) Substituting the person of the debtor; (3) Subrogating a third person in the rights of the creditor. (1203) KINDS OF NOVATION a) The existence of a valid old obligation If valid nothing to novate If voidable possible novation before annulment b) Intent to extinguish or to modify the old obligation by substantial difference c) The capacity and consent of all the parties except in case of expromision old debtor does not participate d) Validity of new obligation Is there novation if the amount in the new obligation is increased? No. But if the new obligation is increased but if separate from the old obligation? (There is an increase in the old but it is found in a separate document) There is because the prior promissory notes are extinguished and superceded by the new promissory notes. If the period is increased, is there novation or lengthened or shortened? No. Why? It merely affects the performance of the obligation. If the evidence of credit from promissory note payable to order to payable to bearer? There is no novation. Renunciation of security? None ha, it merely becomes a simple debt. From alternative to simple or simple to alternative? Yes. Surrender of the evidence of credit? No. (remission) There is no novation there because the obligation is extinguished. From contract of donation to contract of sale? Yes, anong change dun? The juridical tie. But there is no novation in a subsequent execution of a real estate mortgage as security, why? The mortgage being merely an accessory obligation to secure the loan or promissory note. Obligations to pay a sum of money is not novated by a new instrument which merely changes the terms of payment. Novation however is proper in case of change of juridical relation, example would be from commodatum to lease of thing. Even if that is merely an implied novation, are there incompatible in all material points. Yes. In commodatum, it is a free use of thing while in lease, you have to pay. It also says from negotiorum gestio to contract of agency, because it is from a non-contractual relation to a contractual relation. From mortgage to antichrisis. Yes, there is a novation. There is a novation if there is a change in the nature of the prestation. Take note that novation is never presumed. In order that there is implied novation, the agreements must be incompatible with each other. Otherwise, if the change is merely accessory or accidental, it does not affect either the principal object, condition, person of the creditor or debtor, there is no novation. In order that there shall be novation, four requisites must be complied with: 1. There must be a previous valid obligation; 2. The consent of the parties to extinguish the prior obligation; 3. A valid new obligation. 4. The extinguishment of the old obligation. (Absent any, there is no novation) Art. 1292. In order that an obligation may be extinguished by another which substitute the same, it is imperative that it be so declared in unequivocal terms, or that the old and the new obligations be on every point incompatible with each other. (1204) II- According to Form of its Constitution a) Express b) Implied (incompatibility of 2 obligation) III- According to its Extent/Effect a) Total or extinctive (old obligation is totally extinguished) b) Partial or modificatory (imperfect or improper REQUISITES OF NOVATION I- According to its Object/Purpose a) Real/objective changing the object/principal conditions of obligation. b) Personal/subjective change of persons i. Substituting the person of debtor. ii. Subrogating a 3rd person in the rights of creditor (by agreement or by law) c) Mixed (change of object and parties)

30
a) Express Novation declared in unequivocal terms b) Implied complete/substantial incompatibility - substantial changes: In object/subject matter of contract In cause or consideration of contract In principal terms or conditions of contract If debt subject to condition is made an absolute one w/out a condition Reduction of term/period stipulated W/out consent of subscribers INSTANCES WHEN COURT HELD: NO EXTINCTIVE NOVATION a) Slight alterations or modifications in construction plans of buildings. b) New contract merely contains supplementary agreement c) When additional interest is agreed upon d) When additional security is given e) When after a final judgment, a contract was entered into precisely to provide a method of payment other than that stated in judgment. f) When a guarantor enters into an agreement with creditor that he (guarantor) will also be a principal debtor. g) When creditor in the meantime refrains from suing debtor or even when creditor merely extends the term of payment for here the period merely affects performance, not the creation of the obligation. h) Place of payment is changed or there is variation in amount of partial payments. i) When a public instrument is executed to confirm a valid contract. j) When payment of purchase price for certain trucks is made by execution of promissory note for said price. Art. 1293. Novation which consists in substituting a new debtor in the place of the original one, may be made even without the knowledge or against the will of the latter, but not without the consent of the creditor. Payment by the new debtor gives him the rights mentioned in articles 1236 and 1237. (1205a) 2 Kinds of Personal/Subjective Novation 1. Change of debtor (passive) 2. Change of Creditor (active) FORMS (Passive Novation) I- Expromision initiative comes from 3rd person; it is essential that old debtor be released from his obligation. Requisites 1. Initiative from 3rd person 2. New debtor and creditor must consent 3. Old debtor must be released from his obligations II- Delegacion initiative from debtor for it is he who delegates another to pay; 3 parties (old, new debtor and creditor) must agree. Requisites 1. Initiative from old debtor 2. All parties concerned must consent Implied/express Before/after new debtor has given consent Maybe conditional has to be fulfilled. 3 Parties Delegante original debtor Delegatario creditor Delegado new debtor 1293: is expromission. In expromission, the original debtor's consent is not necessary. Now, what would be the effect: 1236 and 1237. What happens if the new debtor is insolvent? Is the old debtor liable for the new debtor? No, precisely because he did not consent or it was made without his knowledge. He cannot be held liable by reason of insolvency of the new debtor. Now, what about delegacion. Who proposes the new debtor? The old debtor. So in both cases the consent of the creditor is always necessary. Now what happens if the new debtor is insolvent. Will that revive the old obligation? It does not. Exception: If the insolvency of the new debtor is of public knowledge and existing and known to the (old) debtor, even if it is not of public knowledge, then there is revival of the original obligation. What happens if the obligation is one with an accessory obligation or contract and the principal obligation is extinguished? Would that carry the extinguishment of the accessory obligation? Yes. exception if there is a stipulation pour autrui. (an example is being named as a beneficiary of an insurance policy, review PNB vs. CA compensation case) Art. 1294. If the substitution is without the knowledge or against the will of the debtor, the new debtor's insolvency or non-fulfillment of the obligations shall not give rise to any liability on the part of the original debtor. (n) Refers to expromision Art. 1295. The insolvency of the new debtor, who has been proposed by the original debtor and accepted by the creditor, shall not revive the action of the latter against the original obligor, except when said insolvency was already existing and of public knowledge, or known to the debtor, when the delegated his debt. (1206a) Refers to delegacion Requisites to Hold Old debtor Liable 1. Insolvency was already existing and of public knowledge at time of Delegation. 2. Or the insolvency was already existing and known to the debtor at the time of delegation. When Art. 1295 does not apply: a. 3rd person is only an agent, messenger or employee of debtor b. 3rd person action only as guarantor/ surety c. New debtor merely agreed to make himself solidarily liable for the obligation. d. New debtor merely agreed to make himself jointly or partly liable for the obligation Art. 1296. When the principal obligation is extinguished in consequence of a novation, accessory obligations may subsist only insofar as they may benefit third persons who did not give their consent. (1207) Art. 1297. If the new obligation is void, the original one shall subsist, unless the parties intended that the former relation should be extinguished in any event. Now, what happens if the new oblilgation is void? Would that extinguish the old obligation? It does not. This is 1297. Now what if the old obligation is void, would that extinguish the new obligation? Yes. Art. 1298. The novation is void if the original obligation was void, except when annulment may be claimed only by the debtor or when ratification validates acts which are voidable. (1208a) If old obligation is void no valid novation; If old obligation is voidable and annulled no more obligation; novation is also void. 1298: When can a debtor claim annulment? What would be an instance wherein a debtor can claim annulment? A very common defense would be prescription of debt. But can a prescribed debt be the subject of novation? Can a prescribed debt be an object of a contract? Yes. So a prescribed debt can be the subject of novation in as much as the prescribed debt can be the subject of a contract. But can it be a defense of the obligor? The prescription of the debt? Yes. Can minority be a defense? Yes. But can it also be subject to ratification? Yes. Art. 1299. If the original obligation was subject to a suspensive or resolutory condition, the new obligation shall be under the same condition, unless it is otherwise stipulated. (n)

31
GEN. RULE: The conditions attached to the old obligation are also attached to the new obligation. EXCEPTION: If there is a contrary stipulation. Art. 1300. Subrogation of a third person in the rights of the creditor is either legal or conventional. The former is not presumed, except in cases expressly mentioned in this Code; the latter must be clearly established in order that it may take effect. Now what if the original obligation has a suspensive or resolutory condition? Would the new obligation that novates the old obligation carry with it the condition? Yes. 1299 says the new obligation shall be under the same condition, unless it is otherwise stipulated. SUBROGATION SUBROGATION transfer to a 3rd person all the rights appertaining to creditor right to proceed against guarantors, possessors of mortgages etc. ASSIGNMENT OF CREDIT CONVENTIONAL SUBROGATION Mere transfer of same right or credit (transfer does not extinguish credit); Extinguishes obligation and creates a new one; Does not require consent of debtor; - Requires debtors consent; Defect in credit/right is not cured by assigning the same. - Defect in old obligation may be cured in such a way that the new obligation becomes entirely valid. Art. 1301. Conventional subrogation of a third person requires the consent of the original parties and of the third person. Subrogation is different from ex promission or delegacion because the latter involves a change in the person of the debtor, while subrogation involves change in the person of the creditor. But subrogation is classified into conventional (by agreement of the parties) or legal (1302). But may a legal subrogation be changed into conventional subrogation? Yes, diba? Autonomy of will. So, when is there conventional subrogation? It would require the consent of the original parties and of the third person. (Licaros vs. Gatmaitan case) Art. 1302. It is presumed that there is legal subrogation: (1) When a creditor pays another creditor who is preferred, even without the debtor's knowledge; (2) When a third person, not interested in the obligation, pays with the express or tacit approval of the debtor; (3) When, even without the knowledge of the debtor, a person interested in the fulfillment of the obligation pays, without prejudice to the effects of confusion as to the latter's share. So, when is there legal subrogation? (1302) 1. when the creditor pays another creditor who is preferred, even without the debtor's knowledge; *Who is the creditor who is preferred? A, whose credit of 100,000 has an interest of 12% per annum, or B, whose credit of 100,000 is secured by a chattel mortgage? B is preferred, because in the event of default by the debtor, need not go to court to file an action for the collection of the 100,000. All he has to do is to foreclose the mortgage and his credit is extinguished by reason of the foreclosure. So, in this case, if A pays B, even without the knowledge of the debtor, A now steps into the shoes of creditor B and is entitled to the security of B. 2. When a third person, not interested in the obligation, pays with the tacit or express approval of the debtor; 3. When, even without the knowledge of the debtor, a person interested in the fulfillment of the obligation pays, without prejudice to the effects of confusion as to the latter's share. So, those are the situations when legal subrogation takes place. Art. 1303. Subrogation transfers to the persons subrogated the credit with all the rights thereto appertaining, either against the debtor or against third person, be they guarantors or possessors of mortgages, subject to stipulation in a conventional subrogation. (1212a) If transferred credit is subject to suspensive condition, new creditor cannot collect until after such condition is fulfilled. 1303: So despite the fact that there is legal subrogation, the parties may still enter into a conventional subrogation. Art. 1304. A creditor, to whom partial payment has been made, may exercise his right for the remainder, and he shall be preferred to the person who has been subrogated in his place in virtue of the partial payment of the same credit. 1304: Speaks of two creditor. The old creditor whose debt has been partially performed, and the new creditor whose debt has also been partially performed. As between the two, who is preferred? The old creditor. For as long as the original credit has not been fully satisfied, then he has a right of preference over the new creditor. CONTRACTS Art. 1305. A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service. (1254a) CONTRACT is a juridical convention manifested in legal form, by virtue of w/c, one or more persons bind themselves in favor of another or others, or reciprocally, to the fulfillment of a prestation to give, to do or not to do. ELEMENTS (Essential) Consent Subject matter Cause/consideration NATURAL Elements those found in certain contracts and presumed to exist, unless the contrary has been stipulated. ACCIDENTAL Elements various particular stipulations that may be agreed upon by the contracting parties in a contract. CLASSIFICATION OF CONTRACTS A. According to Formation a. Consensual perfected by consent b. Real - perfected by delivery c. Formal/solemn those where special formalities are essential before contract may be perfected. B. According to Cause/Equivalence of Value of Prestations a. Onerous interchange of equivalent valuable considerations b. Gratuitous/ lucrative free, one party receives no equivalent prestation c. Remunerative one where one prestation is given for a benefit or service that had been rendered previously. C. According to Importance/ Dependence of One upon Another a. Principal contract stands alone by itself b. Accessory depends for its existence upon another contract. (eg. Mortgage; principal is Loan) c. Preparatory contract is not the end itself but as means through w/c future transactions or contracts may be made. D. Parties Delegated a. Unilateral one party has obligation b. Bilateral both parties are obliged to give or render reciprocal prestations E. Name/Designation a. Nominate contract has a name b. Innominate contract has no name F. Risk of Fulfillment a. Commutative parties contemplated a real fulfillment; equivalent value are given (lease) b. Aleatory fulfillment is dependent upon chance; values vary.

32
adhesion) G. Time of Performance a. Executed one contemplated at time the contract is entered into, that is, obligations are complied with at this time (eg. Contract of sale) b. Executory prestations are to be complied with at some future time (eg. Property not yet delivered and price not yet given) H. Subject Matter a. Contract involving things (eg. Sale) b. Contract involving Rights/credits (usufruct, assignment of credits) c. Contract involving services (carriage) I. Obligation Imposed and regarded by Law a. Ordinary b. Institutional J. Evidence Required for its Proof a. Parol/oral b. Required written proof K. No. of Persons actually and physically entering into Contracts a. Ordinary (2) b. Auto-contracts one represents 2 opposite parties but in different capacities L. #of Persons participating in Drafting a Contract a. Ordinary e.g sale b. Contract of Adhesion buyer or person interested is insured, signifies his consent by signing the contract. M. Nature a. Personal b. Impersonal STAGES OF CONTRACT 1. Preparation (conception) negotiations between parties 2. Perfection (birth) agreement; elements of subject matter and valid cause accepted by mutual consent. 3. Consummation (termination) terms of contract are perfected. Basic Principles/Characteristics of Contract 1. Freedom to stipulate 2. Obligatory force and compliance in good faith 3. Perfection by mere consent 4. Both parties are mutually bound 5. Relativity Contract: juridical convention manifested in legal form, by virtue of which one or more persons bind themselves in favor of another or others, or reciprocally, to the fulfillment of a prestation to give, to do, or not to do. 1305 says that a contract is the meeting of minds between two persons whereby one binds himself with respect to the other to give some thing or to render some service. It does not mean that the parties are only limited to only two persons. The appropriate term is to parties because there can be as many persons in a contract as they are interested in the contract. May a person enter into a contract with himself? Yes, but in different capacities. (contracts of adhesion) He can be a vendor and a vendee at the same time only that in one contract he might merely be an agent and the other the buyer. So different capacities in one person. Now, may any person just enter into a contract? Is that right absolute? No, because there are certain limitations. Such as: husbands and wives cannot enter into contracts involving properties, except if there is complete separation of property. Other limitations: in agency, if the agent is authorized to borrow money, can the agent also be the lender? Or if he is authorized to lend, may he borrow money? But if he is authorized to lend, can he use his own money? o The existence of a contract is not determined by the number of persons who intervene in it, but by the number of declarations of will. (Contracts of What are contracts of adhesion? Example of which would be an insurance contract. Now, we learned before that in cases of contracts of adhesion, in case of doubt, the construction is construed strictly against that person who prepared that contract, and liberally in favor of the person who does nothing but merely affixes his signature to the already prepared contract. Because in that case, the parties do not stand on equal footing. The debtor, especially if he borrows money from the bank, cannot stipulate his term. He cannot say that this is onerous on my part. He cannot do that. The only option is to either to sign or not to sign. So in those cases in case of doubt, the interpretation would always be in favor of the person who merely affixed his signature thereto and who did not participate in the preparation of the contract. Now, what are the characteristics of a contract? Contracts have three characteristics: we have the obligatory force of contracts. Now, what is meant by obligatory force of contracts? Just like autonomy of will, what has been stipulated in the contract is the law between the parties to the contract. And one cannot be heard later on to say that the agreement is disadvantageous on his part. The presumption is that at the time of the negotiation, prior to the perfection of the contract, the parties freely stipulates the conditions, terms and stipulations that may have agreed which arrived at and belong to the perfection of the contract. The second is mutuality of contract. The validity and performance cannot be left to the performance of one of the contracting parties and leaving the other free from complying with what is stipulated in the contract. The third is the principle of relativity of contracts. That it only binds the parties to the contract and their successors in interest. One of the exceptions there is: if there is a stipulation in favor of a third person. Now, contracts have 3 elements. We have the essential elements. Consent, subject matter, and the cause. The cause is the why of the contract, the reason why parties entered into the contract. Then we have the natural elements, which are those elements that even if not agreed upon by the parties form part of the contract. An example of which would be the warranty against hidden defects. The third element would be the accidental elements. The accidental elements are the ones that must be agreed upon by the parties. That if it is not stipulated there, the presumption is that it is not part of the agreement. An example would be that if the parties agree that in case of breach, their liability would be solidary. Because, under the law, solidary liability is not presumed. To arrive at a consummated or perfected contract, there are three stages: when the parties bargain or negotiate, you call that preparation or generation. Ano ang kasama sa negotiation? The price. Then you have perfection, the birth and the perfection of the contract. And when you pay the price and he delivers what you have bought, then that is consummation or death of the contract. Because there is now fulfillment or performance of the terms agreed upon in the contract. Now, how are contracts classified? First is according to the degree of dependence, a contract may be preparatory in nature such as a contract of agency because this would lead to future transactions. Why is it called preparatory? It is called such in as much as it looks forward to future transactions. Now what are those future transactions that will arise from a contract of agency? It would depend to the powers granted. If Y is authorized to lend money, what would be the future transaction that would arise? A contract of loan. This is what you call as future transactions. So, the contract of loan is the principal contract. A contract might also be considered accessory because its existence will depend on the principal contract. So if the loan is guaranteed by a mortgage, then this is the accessory contract. So the contract of loan is the principal contract, the contract of agency the prepratory contract and the contract of mortgage the accessory contract. So, how are contracts perfected? It might be perfected by mere consent and

33
they are called as consensual, such as sale. Now, if a contract of sale does not have any document is that a valid contract? Yes, because it is perfected by mere consent. Is marriage a consensual contract? Yes. You don't have to have the contract or certificate of marriage. Hindi man yan kailangan. But there are certain contracts that will require delivery aside from consent, an example of which would be antichresis. Remember antichresis? You have to deliver the property in order that antichresis shall be perfected. Because there can be no antichresis if the debtor does not deliver the property. Art. 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy. 1306: Autonomy of contract = to autonomy of will; it is the obligatory force between the parties. 1306 Autonomy of Contracts: But there are certain limitations. As I said, it must not be contrary to law, likewise even if the parties would say "this is valid between us ha, the promissory note of a gambling debt". So, if X and A played Tong-its and then their bet is 50K, natalo si A at umabot ang utang nya ng 300,000. So, sabi ni A, i don't have the money now, but i will furnish you a promissory note, this PN if suppose A would not pay what is stated on it, X will not have a cause of action against A. X cannot sue A by reason of the PN, because this is not a contractual debt. The cause of the issuance is an illegal cause, it is from gambling. (except those allowed). So in this case, A in fact can recover what he had lost from X kung nagbigay sya ng pera, of course he cannot recover under the circumstances of the promissory note, because as I've said, the PN cannot be the basis for X to file a case against A because the source is from a polluted source from one not allowed by law. (illegal gambling) But suppose X would negotiate the PN to Y, who received the PN in good faith and paid value for it. (like, sige discounted ko yan, 20K). Now, Y would demand from A the value of the PN. A cannot invoke as a defense that the PN is a void PN as against a 3rd person who acted in good faith and paid the PN with consideration. Between Y and A, Y can still collect the amount stated in the PN. he is not affected by the agreement between X and A. (because 3rd persons are always protected.) Now, parties are free to stipulate. Yes, but the juridical relations as well as the rights and obligations that would arise by reason of that contract that you have entered into is not governed by the stipulation of the parties, but rather by law. Such as what? Suppose A executed a deed of Sale with right to repurchase in favor of C. The deed of Sale with right to repurchase contains that A, for and in consideration of the sum of 20K hereby transfers, sells, conveys, disposes, alienates his parcel of land covered by TCT 123 located in Ecoland D.C. consisting of 500 sq. m. And if A will be unable to repurchase the property within the period of 1 year, then B's right over the property shall be absolute and unconditional. Now, looking at it, would you believe that that is a valid deed of sale taking into account that the land is located in Ecoland, and only for 20K for 500sq. m.? Would the parties now be bound by that agreement in case there is a doubt? No, because while it might be true that the stipulation is the law between the parties, however, the rights and obligations which arise by reason of this contract is not governed by the stipulations. In fact, by looking at it, it would seem that the contract entered into is one of mortgage, only couched differently by the parties. For one, the consideration is very very low. Second, there is a period to repurchase within one year. So those are the considerations that must be taken together when the parties entered into the agreement. There would be no question if the consideration was 20million, that would really be a deed of sale with right to repurchase because the consideration given is really equivalent to the value of the property based on its location. So in that case, the SC said, in case of doubt, it is one of equitable mortgage, not of sale with right to repurchase. So, that is an example of the principle that while it may be true that parties are bound by their stipulations and it shall constitute the law between them, however, the juridical relations as well as the rights and obligations that will arise by reason of the contract is not governed by the stipulation but rather by law. - not absolute because there are limitations, such as husband and wives cannot enter into a contract subject to certain exceptions, an agent authorized to lend cannot borrow. Art. 1307. Innominate contracts shall be regulated by the stipulations of the parties, by the provisions of Titles I and II of this Book, by the rules governing the most analogous nominate contracts, and by the customs of the place. (n) 4 Kinds of Innominate Contracts i. Do ut Des ( I give that you may give) ii. Do ut Facias ( I give that you may do) iii. Facio ut Des (I do that you may give) iv. Facio ut Facias (I do that you may do) Rules Governing Innominate i. Stipulations of parties ii. Provisions of Title I and II iii. Rules governing most analogous nominate contract iv. Customs of place 1307: Innominate Contracts These are contracts that have no specific name. Unlike when you enter into a contract of sale, there is this deed of sale; when you rent, there is this contract of lease, or when you borrow money, and it is secured by a pledge, it is a loan with pledge. Here, the agreement has no specific name, like when a lawyer and a client enters into an agreement whereby the client hires the services of the lawyer, there is no specific name. There are four kinds of innominate contracts 1. Do ut des ( I give and you give) 2. Do ut facias ( I give and you do) 3. Facio ut des ( I do and you give) 4. Facio ut facias ( I do and you do) There was this very old case. There was this Spaniard who came to the Philippines and wanted to tour the Philippines. Unfortunately, he did not know how to speak the local dialect. When one of the Filipinos learned the dilemma of the Spaniard, the presented himself to do the interpretation. So he went around the island. After the tour, the Filipino now demanded payment for his services. The Spaniard countered that there was no contract between them because the Filipino presented himself, voluntarily entered into the request of the Spaniard. But the SC said that as soon as you have hired the services of the person and you made use of the talent of that person, he is therefore entitled for compensation. Regardless if there is a contract or not. Now, in one bar examination, the question goes like this: X called B, "can you go to the store to buy for me the following items?". Was there a contract entered into by the parties, and if there was what kind of a contract was it? Can the person demand payment for the services he rendered, assumed that the person consented the request. There is a contract, because he rendered his services and he is entitled to compensation. o Innominate contracts are, in the absence of stipulations and specific provisions of law on the matter, to be governed by rules applicable to the most analogous contract. Art. 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them. (1256a) Mutuality of contracts both parties are bound. Consequences of Mutuality 1. A party cannot revoke or renounce a contract w/o the consent of the other, nor can have it set aside on the ground that he had made a bad bargain. 2. When the fulfillment of condition depends upon the sole will of debtor, the conditional obligation is void if the condition is suspensive; if it is resolutory it is valid.

34
1308: Speaks of mutuality of contracts that both parties must be bound by the agreements that they have entered into. Its validity and compliance cannot be left to the will of only one of them. So, in this case, the presumption is that both parties at the time of the negotiation, at the time of the bargaining stage, they stood on equal footing. Meaning each one of them participated during the negotiation stage, precisely which lead to the perfection of the contract. So, mutuality is that both parties must be bound to the contract, it cannot be left to one of the parties alone leaving the other party free from complying with what is incumbent upon him. - 1308: The contract must bind both contracting parties; its validity cannot be left to the will of one of them. - Mutuality of contract. - The binding effect of the contract on both the parties is based on the principles that (1) obligations arising from contracts have the force of law between the contracting parties; and (2) there must be mutuality between the parties based on their essential equality. - Just as nobody can be forced to enter into a contract, in the same manner once a contract is entered into, no party can renounce it unilaterally or without the consent of the other. The fact that a party may not have fully understood the legal effect of the contract is no ground for setting it aside. The unilateral act of one party in terminating the contract without legal cause makes it liable for damages. - Allied Bank case: . It is a purely executory contract and at most confers a right to obtain a renewal if there is compliance with the conditions on which the right is made to depend. The right of renewal constitutes a part of the lessees interest in the land and forms a substantial and integral part of the agreement. - The fact that such option is binding only on the lessor and can be exercised only by the lessee does not render it void for lack of mutuality. After all, the lessor is free to give or not to give the option to the lessee. And while the lessee has a right to elect whether to continue with the lease or not, once he exercises his option to continue and the lessor accepts, both parties are thereafter bound by the new lease agreement. Their rights and obligations become mutually fixed, and the lessee is entitled to retain possession of the property for the duration of the new lease, and the lessor may hold him liable for the rent therefor. The lessee cannot thereafter escape liability even if he should subsequently decide to abandon the premises. Mutuality obtains in such a contract and equality exists between the lessor and the lessee since they remain with the same faculties in respect to fulfillment. The questioned provision states that the lease "may be renewed for a like term at the option of the lessee." The lessor is bound by the option he has conceded to the lessee. The lessee likewise becomes bound only when he exercises his option and the lessor cannot thereafter be excused from performing his part of the agreement Art. 1309. The determination of the performance may be left to a third person, whose decision shall not be binding until it has been made known to both contracting parties. (n) E.g. in a contract of sale, the fixing of price and delivery date can be left to a 3rd person; the decision binds the party only after it is made known to both. Art. 1310. The determination shall not be obligatory if it is evidently inequitable. In such case, the courts shall decide what is equitable under the circumstances. (n) Art. 1311. Contracts take effect only between the parties, their assigns and heirs, except in case where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by provision of law. The heir is not liable beyond the value of the property he received from the decedent. If a contract should contain some stipulation in favor of a third person, he may demand its fulfillment provided he communicated his acceptance to the obligor before its revocation. A mere incidental benefit or interest of a person is not sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a third person. (1257a) Principle of Relativity Contracts are generally effective only between the parties, their assigns and their heirs. Exceptions: 1. Where obligations arising from the contract are not transmissible by their nature, by stipulation in favor of a 3rd party. 2. Where there is stipulation Pour Autri ( a stipulation in favor of 3rd person) 3. Where a third person induces another to violate his contract 4. Where in some cases, 3rd persons may be adversely affected by a contract where they did not participate. 5. Where law authorizes the creditor to sue on a contract entered into by his debtor. i. Requisites of Stipulation Pour Autri a) There must be a stipulation in favor of a 3rd person; b) Contracting parties must have clearly and deliberately conferred a favor upon a 3rd person; c) A mere incidental benefit or interest of a person is not sufficient d) The stipulation must be part of contract and not the whole of the contract; e) 3rd person communicated his acceptance to obligor before its revocation; f) There must be no relation of agency between either of the parties and 3rd person. (Neither the contracting parties bears the representation or authorization of the 3rd party.) g) That the favorable condition should not be conditioned or compensated by any kind of obligation or whatsoever; Art. 1312. In contracts creating real rights, third persons who come into possession of the object of the contract are bound thereby, subject to the provisions of the Mortgage Law and the Land Registration Laws. Art. 1314. Any third person who induces another to violate his contract shall be liable for damages to the other contracting party. Requisites: 1. Existence of a valid contract; 2. Knowledge by the 3rd person of the existence of the contract; 3. Interference of the 3rd person in the contractual relation without legal justification. Art. 1315. Contracts are perfected by mere consent, and from that moment the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law. (1258) Consensual contracts are perfected from the moment there is agreement (consent) on the subject matter, and the Cause or consideration. Note: Contracts are not what the parties choose to call them, but what they really are as determined by the principles of laws. The validity of stipulations is one thing, and the juridical qualification of the contract resulting therefrom is another. Art. 1316. Real contracts, such as deposit, pledge and Commodatum, are not perfected until the delivery of the object of the obligation. (n) Requires Consent, Subject matter, Cause/consideration and Delivery. Art. 1317. No one may contract in the name of another without being authorized by the latter, or unless he has by law a right to represent him. A contract entered into in the name of another by one who has no authority or legal representation, or who has acted beyond his powers, shall be unenforceable, unless it is ratified, expressly or impliedly, by the person on whose behalf it has been executed, before it is revoked by the other contracting party. (1259a) Requisites for a Person to Contract in the Name of Another a) He must be duly authorized (express/impliedly)

35
b) He must have by law a right to represent him (guardian/administrator) c) Contract must be subsequently ratified (express/implied, by word or deed) Unenforceable contracts are valid contracts but they cannot be enforced through court actions. CF: Law on agency ESSENTIAL REQUISITES OF CONTRACTS Art. 1318. There is no contract unless the following requisites concur: (1) Consent of the contracting parties; (2) Object certain which is the subject matter of the contract; (3) Cause of the obligation which is established. Note: 1. Consent presupposes legal capacity, otherwise, contract is voidable. 2. Object certain means at the very least determinable I. CONSENT It is the meeting of the minds between parties on the subject matter and the cause of the contract, even if neither one has been delivered. Consent may be express or implied. Theories: 1. Cognition Theory Contracts are perfected only upon the knowledge of the offer of the acceptance of the offeree. (Used if consent is manifested through letter or telegram; adhered in the Phil.) 2. Manifestation Theory Contracts are perfected upon the moment acceptance is declared, regardless of whether the declaration has come to the knowledge of the offeror or not. 3. Expedition Theory Contracts are perfected the moment the offeree transmits the acceptance to the offeror, such as the letter or telegram of acceptance is placed in the mail box. 4. Reception Theory Contracts are perfected upon the time the acceptance is in the hand of the offeror (regardless of knowledge or if he read the same) Note: Offer by telephone similar to face to face conversation. Note: In our law, according to maam G., silence does not authorize any definite conclusion. However, according to Tolentino, there are requisites in order that silence produces tacit acceptance, namely: a. There is a duty or the possibility to express oneself; b. The manifestation of the will cannot be interpreted in any other way; c. There is a clear identity in the effect of the silence and the undisclosed will. Art. 1319. Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes a counter-offer. Acceptance made by letter or telegram does not bind the offerer except from the time it came to his knowledge. The contract, in such a case, is presumed to have been entered into in the place where the offer was made. (1262a) Requisites of Consent a) Plurality of subjects/parties; b) Parties must be capable or capacitated; c) There must be no vitiation of consent or consent must be made intelligently and freely; d) There must be no conflict between what was expressly declared and what was really intended; e) The intent must be declared properly (legal formalities must be complied with) Note: Accdg. to Tolentino: (f) express or tacit manifestation of the will and (g) conformity of the internal will and its manifestation. Requisites for Meeting of Minds a) An offer that must be certain - An offer must be definite, complete and intentional. b) And an acceptance that must be Unqualified and absolute. If there are 2 contracts and they are independent of each other, acceptance of one does not imply acceptance of the other. A qualified acceptance constitutes a counter-offer. Note: Offer and acceptance may be withdrawn before perfection of the contract. If a persons offers the same thing to two persons, at different times, and the second offeree accepts the offer before the first, the offeror becomes liable for damages to the 1st offeree if he does not withdraw his offer prior to the acceptance of the 2nd offeree. Q: Is there a perfected contract in a qualified acceptance? No, there is no contract if there is a qualified acceptance. What happens is a counter-offer. Note: Another type of acceptance is amplified acceptance. Here, there is acceptance but there is a qualification. So, there is no perfected contract. When we say amplified, "I'm selling you mangosteen at 5/kl but you have to get 100 kilos. I will buy another 100 for the same price." Is there a perfected contract there? Yes, with respect to the first but not to the 2nd. There is a perfected contract with respect to the first (sell at 5/kilo) but not to the second offer (buy 100 kilos). Note: Rule on public offers: A promise may be made publicly by way of advertising a reward, compensation, or prize for any person who performs of executes a particular act or obtains a particular result. This is a unilateral promise. A unilateral promise is not recognized by our Code as having obligatory effect. In order that such promise can be enforced, there must be an acceptance that shall convert it into a contract. So the performance of the act for which a reward or prize is promised can be considered as an acceptance. Art. 1320. An acceptance may be express or implied. (n) Forms of Acceptance 1. express 2. implied 3. presumed (by law)

1321: The person making the offer may fix the time, place and manner of acceptance, all of which must be complied with. Note: When the offeror has not fixed a period and the offer is made to a person present, the acceptance must be made immediately. 1322: An offer made through an agent is accepted from the time acceptance is communicated to him. Art. 1323. An offer becomes ineffective upon the death, civil interdiction, insanity, or insolvency of either party before acceptance is conveyed. (n) Other instances when Offer becomes Ineffective a) When the offeree expressly or impliedly rejects the offer; b) When the offer is accepted with a qualification or condition; c) When before acceptance is communicated, the subject matter has become illegal or impossible; d) When the period of time given to the offeree w/in which he must signify his acceptance has already lapsed. e) When the offer is revoked in due time (before the offeror has learned of its acceptance by the offeree) Art. 1324. When the offerer has allowed the offeree a certain period to accept, the offer may be withdrawn at any time before acceptance by

36
communicating such withdrawal, except when the option is founded upon a consideration, as something paid or promised. (n) GEN. RULE: If the offeror has allowed the offeree a certain period to accept, the offer may be withdrawn at any time before acceptance (of thing being offered) by communicating such withdrawal. Exception: when the option is founded upon a consideration as something paid or promised. OPTION CONTRACT contract granting a person the privilege to buy or not to buy certain objects at anytime w/in the agreed period at a fixed price. - It must have its own cause/consideration because it is a distinct contract; and the grant must be exclusive - The cause is not only price but something/anything of value; may also come in the form of a forfeiture. - It binds the party who has given the option not to enter into the principal contract with any other person during the period designated and, within that period, to enter into such contract with the one to whom the option was granted if the latter should decide to use the option. From Transcription: Suppose Y will say "give me 3 days to decide, but here is 10,000 as earnest money" and A says "okay, i will accept it. We will just execute the deed of sale as soon as you deliver the balance." Then that is removed from 1324 because it says part of the purchase price. Earnest money is actually part of the purchase price. there is no contract of option here but a perfected contract of sale. Art. 1325. Unless it appears otherwise, business advertisements of things for sale are not definite offers, but mere invitations to make an offer. (n) Unless the object is determinate, the business advertisement is not an offer. Art. 1326. Advertisements for bidders are simply invitations to make proposals, and the advertiser is not bound to accept the highest or lowest bidder, unless the contrary appears. (n) Exceptions: Judicial sales and if specifically stated in the advertisement Art. 1327. The following cannot give consent to a contract: (1) Unemancipated minors; (2) Insane or demented persons, and deaf-mutes who do not know how to write. (1263a) In General, Contracts w/c they enter into are Voidable, Unless: a) Upon reaching the age of majority, they ratify the same; b) They were entered into through a guardian and the court having jurisdiction had approved it; c) Contracts of life insurance in favor of their parents, spouse, children, brothers and sisters and provided furthermore that the minor is 18 years and above. d) In the form of savings account, provided that minor was at least 7 years old. e) They were contracts for necessities such as food, but here the people who are legally bound to give them support should pay therefore. f) They were contracts where the minor misrepresented his age and pretended to be one of major age and is thus in Estoppel. INSANE/DEMENTED PERSONS no proper declaration of insanity by the court is required, as long as it is shown that at the time of contracting, the person was really insane. Note: But if both are incapable of giving consent, the contract is unenforceable. Art. 1328. Contracts entered into during a lucid interval are valid. Contracts agreed to in a state of drunkenness or during a hypnotic spell are voidable. (n) Mistake as to the identity or qualifications of one of the parties will vitiate consent only when such identity or qualifications have been the principal cause of the contract. A simple mistake of account shall give rise to its correction. (1266a) Requisites For Mistake to Vitiate Consent a) The error must be substantial regarding: Object of contract The conditions w/c principally moved/induced one of the parties. Identity or qualifications but only if such was the principal cause of the contract. b) The error must be excusable (not caused by negligence) c) The error must be a mistake of fact and not of law. (Mistake of law is not a ground for annulment of contracts) Error of law refers to a mistake as to the existence of a legal provision or as to its interpretation or application. Note: If the error refers to the rights of the parties in the contract, the contract is not invalidated. Errors which do not affect the validity of the contract: 1. error with respect to accidental qualifies of the object of the contract; 2. error in the value of the thing; 3. error which refers to accessory matters in the contract foreign to the determination of the object. 4. error in the name of the person, but without error as to the person. Error as to the person will invalidate consent when the consideration of the person has been the principal cause of the contract. 5. error as to the solvency of the party; 6. error as to the motive of a party Voidable Contracts: a) Entered into by insane/demented persons (unless they acted during a lucid interval) b) Those in state of drunkenness c) Under hypnotic spell Art. 1329. The incapacity declared in article 1327 is subject to the modifications determined by law, and is understood to be without prejudice to special disqualifications established in the laws. (1264) Incompetents under Rules of Court a) Under Civil interdiction b) Hospitalized lepers c) Prodigals d) Deaf and dumb; unable to read and write e) Unsound mind even though they have lucid intervals f) Those who by reason of age, disease, weak mind, and other similar causes, cannot w/o aid, take care of themselves and manage their property. Art. 1330. A contract where consent is given through mistake, violence, intimidation, undue influence, or fraud is voidable. (1265a) Vices/Causes of Vitiated Consent Mistake (error) Fraud (deceit) Violence Intimidation Undue influence Note: Vitiated consent does not avoid the contract but merely renders it voidable. Mere preponderance of evidence is not sufficient. Art. 1331. In order that mistake may invalidate consent, it should refer to the substance of the thing which is the object of the contract, or to those conditions which have principally moved one or both parties to enter into the contract.

37
Art. 1332. When one of the parties is unable to read, or if the contract is in a language not understood by him, and mistake or fraud is alleged, the person enforcing the contract must show that the terms thereof have been fully explained to the former. (n) Presumption: One always acts with due care and signs with full knowledge of all the contents of a document even if the mind of the party signing was confused at the time of signing as long as he knew what he was doing. When Presumption Cannot Apply a) When one of the parties is unable to read b) Or if contract is in a language not understood by one of the parties In both cases, the person enforcing the contract must show that the terms thereof have been fully explained to the former. Art. 1333. There is no mistake if the party alleging it knew the doubt, contingency or risk affecting the object of the contract. (n) Art. 1334. Mutual error as to the legal effect of an agreement when the real purpose of the parties is frustrated, may vitiate consent. (n) Requisites for Mutual Error To Vitiate Consent 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. If there is no meeting of the mind and both parties erroneously that their acts is intended towards a particular contract but the same was not met/frustrated then the remedy is annulment, otherwise it is REFORMATION. 1334: The provision here refers to mistakes of doubtful questions of law. Legal effects. Doubtful questions of law, or the different interpretations or construction of the law. So in that case, you cannot agree to a certain provision, that might lead to frustration of the real intention of the parties that would warrant annulment. Art. 1335. There is violence when in order to wrest consent, serious or irresistible force is employed. There is intimidation when one of the contracting parties is compelled by a reasonable and well-grounded fear of an imminent and grave evil upon his person or property, or upon the person or property of his spouse, descendants or ascendants, to give his consent. To determine the degree of intimidation, the age, sex and condition of the person shall be borne in mind. A threat to enforce one's claim through competent authority, if the claim is just or legal, does not vitiate consent. (1267a) Requisites for Violence to Vitiate Consent a) Employment of serious or irresistible force. b) It must have been the efficient cause why the contract was entered into. Requisites for Intimidation to Vitiate Consent a) Reasonable and well-grounded fear b) Of an imminent and grave evil c) Upon his person, property or upon the person or property of his spouse, descendants or ascendants; d) Efficient cause of the execution of the contract; e) The threat must be an unjust act, an actionable wrong. Now, when is there violence, when is there intimidation? The same definition that you have in your criminal law. (1335) Violence, in order to wrest consent, serious or irrisistible force is employed. Intimidation: compelled by a resonable and well-grounded fear of an imminent and grave evil upon the person or property of one of the contracting parties, or employed upon the spouse, descendants or ascendants, to give his consent. (or their properties). Take note of third paragraph, it is also found in your criminal law. The last paragraph is enforcement of one's claim through competent authority. Undue influence: when a person takes improper advantage of his powe over the will of another, depriving the latter of a reasonable freedom of choice. The following shall be considered: the confidential (the priest), family, spiritual and other relations between the parties, or that the person alleged to have been unduly influenced was suffering from mental weakness, or was ignorant or in financial distress. Art. 1336. Violence or intimidation shall annul the obligation, although it may have been employed by a third person who did not take part in the contract. (1268) Art. 1337. There is undue influence when a person takes improper advantage of his power over the will of another, depriving the latter of a reasonable freedom of choice. The following circumstances shall be considered: the confidential, family, spiritual and other relations between the parties, or the fact that the person alleged to have been unduly influenced was suffering from mental weakness, or was ignorant or in financial distress. (n) Art. 1338. There is fraud when, through insidious words or machinations of one of the contracting parties, the other is induced to enter into a contract which, without them, he would not have agreed to. (1269) Kinds of Fraud A. Fraud in the Celebration of Contract a) Dolo Causante were it not for the fraud, the other party would not have consented--the contract is voidable b) Dolo Incidente even w/o the fraud, the parties would have still agreed, fraud is incidental--Contract is valid but damages may be recovered. B. Fraud in Performance of Obligations stipulated in the Contract Requisites of Dolo Causante a) Fraud must be material and serious; induced the other to consent; b) Fraud must have been employed by only one of the contracting parties, because if both committed fraud, the contract would remain valid. c) There must be a deliberate intent to deceive or to induce therefore misrepresentation in good faith is not fraud. d) The other party must have relied on the untrue statement and must himself not be guilty of negligence in ascertaining the truth. 1338: There is fraud when, through insidouse words or machinations, the other party was induced. And it must not be employed on a co-party. It must be employed against the other contracting parties. And if both parties employed fraud, the courts will leave them where they are. It is as if they were in good faith because of the fact that they are in pari delicto. Now, the fraud here is fraud at the time of the inception of the contract, not the fraud at the time of the fulfillment of the contract. Because if it were the latter, that belongs to 1171, and it cannot result to the nullity or annulment of the contract but will only be a ground for damages. But if it were fraud under 1338, it can be a ground for nullity or annulment of the contract plus damages. But the fraud here must be one that is causal. (dolo causante). Because if it were merely dolo incidente, no annulment, merely damages. And the fraud alleged by the other party seeking annulment must be clearly and convincingly established by sufficient and clear evidence, not by mere preponderance. So, requisites of fraud: 1. It must have been employed by one contracting party upon the other contracting party, not against a co-party. 2. It must have induced the other party to enter into the contract; example: when you apply for insurance policy and the amount is one that will not require you to undergo medical examination but only to fill up a certain form. You are a chain smoker, and there is a question there do you smoke and how many packs, you answer no, i don't smoke. And you were approved. This is an example of material misrepresentation. 3. It must have been serious and must have resulted in damage or injury to the other party now seeking annulment of the contract.

38
Art. 1339. Failure to disclose facts, when there is a duty to reveal them, as when the parties are bound by confidential relations, constitutes fraud. 1339: Confidential relations: between the principal and the agent. Like if the principal authorizes the agent to sell the property at 100,000. The agent now was able to sell it at 200,000. Is the agent bound to disclose to the principal this fact? Yes, because of the confidential relation between them. Failure to do so constitutes fraud. Art. 1340. The usual exaggerations in trade, when the other party had an opportunity to know the facts, are not in themselves fraudulent. 1340: Dolos Bonus. Tolerated fraud. common victims are the women. For as long as the other party has the opportunity to know the facts. The rule is: let the buyer beware. According to authors, the reason for the loss is the stupidity of the person. Why will you immediately believe that this particular product is a miracle. Basta what is required here is that you must have the opportunity to know the facts. And if it turns out that the facts are not true, you cannot sue. Because that what we call as tolerated fraud. And the rule is let the buyer beware, caveat emptor. Art. 1341. A mere expression of an opinion does not signify fraud, unless made by an expert and the other party has relied on the former's special knowledge. 1341: So, you ask the opinion of a person if this is a true diamond, and the person says yes. Is there fraud? No, because that is merely an opinion. Exception, if you seek the opinion of an expert, an expert would be one that is knowledgeable in that specific area. Exception to the exception, if the expert is the employee of the person seeking the opinion of the expert. If it turns out the the opinion of the expert is false, then you cannot sue your own employee. Even if it is given by an expert, but the expert is your employee, then there can be no annulment of the contract based on fraud. Art. 1342. Misrepresentation by a third person does not vitiate consent, unless such misrepresentation has created substantial mistake and the same is mutual. 1342: There was this case Diaz vs. CA whereby the mistake was committed by a surveyor with respect to the particular location of a particular lot. So in that case, the mistake was not committed by both parties but by a third person, committed by the surveyor and there was mutual mistake by both parties and the SC said that annulment is proper because of the mistake. Art. 1343. Misrepresentation made in good faith is not fraudulent but may constitute error. Requisites of Simulation a) Outward declaration of will different from the will of the parties; b) False appearance must have been intended by mutual agreement; c) The purpose is to deceive 3rd persons. Effect: If Absolute simulation, the contract is void. The parties did not intend to be bound by the agreement. But if it were relative simulation, then it shall bind the parties provided that no third person shall be prejudiced by such relative simulation. Art. 1346. An absolutely simulated or fictitious contract is void. A relative simulation, when it does not prejudice a third person and is not intended for any purpose contrary to law, morals, good customs, public order or public policy binds the parties to their real agreement. (n) Kinds of Simulated Contracts A. Absolutely Simulated (simulados) fictitious contracts: Parties do not intend to be bound; EFFECT: Contract is Void. B. Relatively Simulated (disimulados) disguised contracts: Parties conceal their true agreement EFFECT: Parties are bound to the real or true contract/agreement except: o If contract should prejudice a 3rd person; or o If the purpose is contrary to law, morals, good customs, public order or public policy. Accdg. to Tolentino: If the absolute simulation does not have an illicit purpose, the parties to the contract ma prove the simulation in order to recover whatever may have been given under such simulated act. But if the simulated contract has an illegal object, the provisions of Art. 1411 and 1412 will apply. ABSOLUTE SIMULATION FRAUDULENT ALIENATION 1. Implies that there is no existing contract; no real act executed; 1. Means there is a true and existing transfer or contract; 2. Can be attacked by any creditor, including one subsequent to the contract 2. Can be assailed only by the creditors before the alienation; 3. The insolvency of the debtor making the simulated transfer is not a prerequisite to the nullity of the contract; 3. The action to rescind (accion pauliana) requires that the creditor cannot recover in any other manner what is due to him; 4. The action to declare a contract absolutely simulated does not prescribe 4. Accion pauliana to rescind a fraudulent alienaction prescribes in 4 years. OBJECTS OF CONTRACTS Art. 1347. All things which are not outside the commerce of men, including future things, may be the object of a contract. All rights which are not intransmissible may also be the object of contracts. No contract may be entered into upon future inheritance except in cases expressly authorized by law. All services which are not contrary to law, morals, good customs, public order or public policy may likewise be the object of a contract. (1271a) Requisites of Object of a Contract Incidental Fraud not a cause for annulment, only damages can be recovered. Art. 1345. Simulation of a contract may be absolute or relative. The former takes place when the parties do not intend to be bound at all; the latter, when the parties conceal their true agreement. (n) Simulation of Contract process of intentionally deceiving others by producing the appearance of a contract that really does not exist (absolute) or w/c is different from the true agreement (relative). a) The thing or service must be w/in the commerce of man; b) Must be transmissible; c) Must not be contrary to law, morals, good customs, public order or policy; d) Must not be impossible; e) Must be determinate as to its kind or determinable w/o need of a new contract or agreement. Notes:

Art. 1344. In order that fraud may make a contract voidable, it should be serious and should not have been employed by both contracting parties. Incidental fraud only obliges the person employing it to pay damages. (1270) Fraud should not be employed by a party against a co-party, i.e. between two partners. This will not annul the contract. Requisites for Fraud to Vitiate Consent a) Fraud must be serious b) The parties must not be in pari delicto; otherwise there can be no annulment.

39
1. There can be sale of future things or objects having potential existence. Also there can be sale of hope, but no of vain hope (CF: Sales) 2. No contract may be entered upon future inheritance, exceptions: (1) marriage settlements. Spouses are allowed to donate to each other future properties provided that they comply with the forms of will; (2)partition of the property during the lifetime of the testator. (3) When ones right over the property is not as an heir but as a creditor. Your rights to the credit are subordinated to the death of the debtor. So, in that case that is not within the meaning of future inheritance. Ex: X borrows money from Y, and Y says I will pay you when I die. So in that case, X can enter into a contract involving that credit but subordinated to the death of Y. Art. 1348. Impossible things or services cannot be the object of contracts. (1272) Nature of Impossibility a) Nature of transaction or because of law b) Absolute (objectively impossible) nobody can do it c) Relative (subjectively impossible) particular debtor cannot comply Note: The impossibility must exist at the time of the constitution of the contract. Art. 1349. The object of every contract must be determinate as to its kind. The fact that the quantity is not determinate shall not be an obstacle to the existence of the contract, provided it is possible to determine the same, without the need of a new contract between the parties. (1273) Object must be determinate determinable (w/out need of a new agreement); otherwise the contract is void for want of an essential requisite the object of contract. Difficulty of performance A showing of mere inconvenience, unexpected impediments, or increased expenses is not enough to relieve a debtor from the obligation Equity cannot relieve from bad bargains simply because they are such. The debtor who does not perform in such cases must be held liable for damages. CAUSE OF CONTRACTS It is the essential and impelling reason why a party assumes, an obligation. It is the prestation to be performed by the other contracting party. Art. 1350. In onerous contracts the cause is understood to be, for each contracting party, the prestation or promise of a thing or service by the other; in remuneratory ones, the service or benefit which is remunerated; and in contracts of pure beneficence, the mere liberality of the benefactor. (1274) Classification of Contracts As to Cause a) Onerous the cause is for each contracting party, the prestation/promise of thing/service. b) Remuneratory the past service/benefit w/c by itself is a recoverable debt. c) Gratuitous or contracts of pure beneficence the cause is the mere liberality of the benefactor. Contract of guaranty is gratuitous unless there is stipulation to the contrary. Cause in Accessory Contracts Like Mortgage & Pledge the same as the cause for principal contract of loan. Moral obligation may be the cause of civil obligation if it does not exist , no valid cause. Art. 1351. The particular motives of the parties in entering into a contract are different from the cause thereof. (n) Q: Is the cause the same as the motive of the contract? No. No matter how illegal the motive is for as long as the cause is legal and lawful, it does not affect the validity of the contract. Exception: if the motive predetermines the purpose of the contract then the motive becomes the cause of the contract. Case: Lopez fell in love with Conchita, a 15 year old girl. Because of Lopez' desire and lust for the body of Conchita, he told the parents and Conchita that he will be donating a parcel of coconut land if you agree to cohabit with me. The parents and Conchita consented and they lived and had sexual intercourse. Then Lopez died. Conchita now demanded for the delivery of the parcel of land. The heirs of Lopez now said that the motive predetermined the purpose of the contract. And while it may be true that the cause is the liberality, however the real cause is the motive and the motive is to have sexual intercourse. Conchita said the cause is the liberality. The SC said the contract is void. While it is true that motive differs from the cause, still a contract conditioned upon the attainment of an immoral motive should be considered void. For here, it may be regarded as cause when it predetermines the purpose of the contract. It cannot be said that the donation is a contract of pure benifecence or a contract designed solely and exclusively for the benefit of the donee. The donation was designed both for the benefit of the donee and satisfy the sexual desire of Mr. Lopez. But because the donor cannot invoke his own immorality, then the more reasons that the heirs are barred in questioning the validity of the donation. Therefore Conchita is entitled to the land. In the MFR filed by the heirs, according to JBL Reyes, the pari delicto rule cannot apply in the case. Remember that Conchita is a minor, the guilt of the minor cannot be judged with equal severity with the guilt of an adult. Minors occupy a privilege position before the law. MOTIVE CAUSE May vary although he enters into same contract; The same Maybe unknown to the other; Always known Its presence cannot cure the absence of cause ILLEGAL CAUSE makes a contract void, ILLEGAL MOTIVE not necessarily renders the contract void. Art. 1352. Contracts without cause, or with unlawful cause, produce no effect whatever. The cause is unlawful if it is contrary to law, morals, good customs, public order or public policy. (1275a) Requisites for Cause a) It must be present no cause, contract is void b) It must be true if cause is false, contract is void unless some other cause w/c is lawfully really exists. c) It must be lawful From transcription: There was this case: X is an employee of a business establishment, and it was found out that she was stealing money from the business establishment. When she was about to be prosecuted for what she did, the father and the husband of X executed a PN covering the value of what has been lost by reason of X's stealing. But X was not made a signatory to the PN. Now, the PN remained as a PN, so the employer was not able to collect. So the employer filed an action to collect the amount stated in the PN. The case was dismissed because accdg. to the court, the cause was the stifling of the criminal prosecution of X. Cause is void. But in another case, there was A who was given money by B to buy palay within a certain period or if unable to secure the palay by that time, to return the money to B. No palay was bought, no money was returned. So what B did was file a case against A for estafa. Now, before the hearing, a friend entered before and in behalf of A, with B seeking consideration that the case would be dismissed because he will try to convince A to issue a promissory note to cover the amount that was not returned. A executed a PN, but the amount was not paid. So what B did was to file an action to recover the amount. A moved for the dismissal of the case, stating that the cause for the action was illegal because it was to stifle a criminal prosecution. But the SC said that motion should be denied because there was an admission on the part of A that he really owed B money. This is different from the first case. Art. 1353. The statement of a false cause in contracts shall render them void,

40
if it should not be proved that they were founded upon another cause which is true and lawful. (1276) False cause does not necessarily mean that contract is void; the parties are given a chance to show that a cause really exists and is lawful and true. Art. 1354. Although the cause is not stated in the contract, it is presumed that it exists and is lawful, unless the debtor proves the contrary. (1277) Cause must exist but is not necessary to state the cause; Under Statute of Frauds certain agreement must be in writing, 1354: So, no matter how inadequate the consideration is, the presumption is that the contract is valid. The exception there is when fraud is employed, or there is mistake or there is undue influence. Like the actual value is 1M and he's only selling it for 100K, and the buyer is the son or daughter, then that is not an absolutely simulated contract but only a relatively simulated one, and the parties bound to it unless third persons are prejudiced by such simulation. Art. 1355. Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a contract, unless there has been fraud, mistake or undue influence. (n) LESION inadequacy of cause (eg. Insufficient price of a thing sold) Rules on Lesion Gen. Rule: Lesion/inadequacy of price does not invalidate a contract. Exceptions: a. When together with lesion there has been i. Fraud; ii. Mistake; or iii. Undue Influence b. In cases expressly provided by law. FORMS OF CONTRACTS The general principle is that the law looks more into the spirit, rather than in form. Underlying principle that in the interpretation and/or construction of the law, we must interpret not by the letter that killeth, but by the spirit that giveth life. That is how one should construct or interpret the law. But in contracts, there are certain exceptions. Because if you were the one who prepared the contract, then the contract should be construed strictly against the person who prepared it, and liberally in favor of the person who merely affixed his signature and did not participate in the making of the contract. But with respect to form, contracts are obligatory, in whatever form they may have been entered into, provided that all the essential requisites for the validity are present. And what are the essential requisites? Consent, cause or consideration and object/subject matter. So, for as long as the three are found, then the contract is presumed valid, regardless of the form. When we say form, it may refer to the manner in which the contract is executed, which may be written or oral. So, a sale of a parcel of land orally made is valid. So a sale involving real property is valid in whatever form it is entered into. Even if it is orally made between the parties. For what purpose then is the form? It is not for validity, but rather to transfer ownership over the property in favor of the vendee. The register of deeds will not transfer the title of the property from the vendor to the vendee unless it is in a public document. So that is the purpose of the form. And to inform third person that the property has already been bought. But for validity, no. It is valid. Even if there is no (written) contract, for as long as there has been payment (vendee) and there has been delivery on the part of the vendor. But there are certain contracts which would require that they be in a certain form. One is for validity, and the other for enforceability. A contract may be valid, but it is unenforceable. When we say enforceable, it cannot be enforced through court action. You cannot maintain an action in court because there is a lack in that particular document. But there are certain documents which will require a certain form in order that it be valid. An WHEN FORM IS IMPORTANT a) For validity b) Enforceability (Statute of Frauds); may be waived by acceptance of benefits (partial) or by failure to object to presentation of oral or parol evidence. c) For convenience 1356 is the spiritual system of a contract, which means that, contracts are obligatory in whatever form they may have been entered into, provided that all the essential requisites for its validity are present. But the spiritual system of contract cannot be adopted in unqualified manner. Otherwise, oral agreements would often lead to fraud in the fulfillment of the obligation. Because the faintest ink is better than the sharpest memory. Because if worse comes to worst, you file a case in court and what is your proof? It was orally admitted. Who were there when you entered into the agreement? There were only two of us, then that is highly debatable. So, whether a certain form is required or not, better put it into writing. Now, there is this case of Hernaez vs. Delos Angeles. Hernaez was a star of Philippine Cinema. And her services were engaged by one of the producers. She was paid but there was a balance. So after rendering service, Ms. Hernaez now demanded for the payment of the balance. The movie company refused to honor the agreement stating that the agreement is deemed void because it was not in writing, and the balance exceeds 500 pesos. So, they went to court. Delos Angeles is the judge, he sided with the movie company. The SC said that the dismissal was not proper. Under 1356, all contracts are valid regardless of form, there are only two exceptions. One is when the contractual form is needed for validity. As in a case of a donation of real property which needs to be in a public document. Second when form is needed for enforceability, under the Statute of Fraud. The contract covered by Art. 1358 are binding and enforceable by action despite the absence of writing because the Article nowhere provides that the absence of written form will make the agreement invalid or unenforceable. example of which would be a donation of a real property which must be in a public document in order to be valid. And not only that, the acceptance of the donee must also be in a public document to be valid. Absent one makes the donation void. Another example of a contract which would require a certain form is donation involving movable property and the value exceeds 5K. The law require that it must be in writing, but it need not be in a public document to be valid. Now, what else? Contracts involving antichresis. That must be in writing otherwise void. And another is when you are into lending money, agreements for the payment of interests must be in writing otherwise one cannot collect. The authority of the agent to sell property must be in writing, if not, then the sale is void. Now, another exception is for purposes of enforceability. Now what would be required, under 1403, paragraph 2, it must be in writing or in some memorandum or note, subscribed by the parties. (Statute of Fraud). So those are only the exceptions for purposes of validity or enforceability. So that a contract may prove in a certain way, that requirement is absolute and indispensable. So, if it is absolute and indispensable, noncompliance with it means the contract is void. In such cases, the right of the parties stated in the following article cannot be exercised. Art. 1356. Contracts shall be obligatory, in whatever form they may have been entered into, provided all the essential requisites for their validity are present. However, when the law requires that a contract be in some form in order that it may be valid or enforceable, or that a contract be proved in a certain way, that requirement is absolute and indispensable. In such cases, the right of the parties stated in the following article cannot be exercised. (1278a) GEN. RULE: NO FORM IS REQUIRED IN CONSENSUAL CONTRACTS Formal Contracts requires form ( eg. Donation) Real Contracts requires delivery

41
Art. 1357. If the law requires a document or other special form, as in the acts and contracts enumerated in the following article, the contracting parties may compel each other to observe that form, once the contract has been perfected. This right may be exercised simultaneously with the action upon the contract. 1357: If the law requires that a document or other special form, as in the acts and contracts enumerated in 1358, the contracting parties may compel each other to observe that form, once the contract has been perfected. This right may be exercised simultaneously with the action upon the contract. Art. 1358. The following must appear in a public document: (1) Acts and contracts which have for their object the creation, transmission, modification or extinguishment of real rights over immovable property; sales of real property or of an interest therein a governed by articles 1403, No. 2, and 1405; (2) The cession, repudiation or renunciation of hereditary rights or of those of the conjugal partnership of gains; (3) The power to administer property, or any other power which has for its object an act appearing or which should appear in a public document, or should prejudice a third person; (4) The cession of actions or rights proceeding from an act appearing in a public document. All other contracts where the amount involved exceeds five hundred pesos must appear in writing, even a private one. But sales of goods, chattels or things in action are governed by articles, 1403, No. 2 and 1405. 1358: Is the requirement that it must be in a public document for the purpose of validity? No. Only for purposes of affecting third persons, or for efficacy against third persons. So, those enumerated under 1358, even if not in a public docu are valid. The reason why there is this requirement that it must be in a public document, is that it is to enforce against third person. Because by itself, it is already valid. Now what are those contracts? 1. Acts and contracts which have for their object the creation, transmission, modification or extinguishment of real rights over immovable property. An example of this is waiver of a right, assignment, barter, mortgage (modification of one's proprietarial rights), when you enter into a contract of usufruct because there is a transfer of ownership. [Take note that sale involving real properties is already removed from par. 1 of 1358] 2. The cession, repudiation, or renuncitation of hereditary rights, or of those if the conjugal partnership of gains. You renounce your right over the inheritance that has already become vested in favor of your siblings; 3. The powers to administer property, or any other power which has for its object an act appearing or which should appear in a public document, or should prejudice a third person In your family code, when one spouse desires to transfer administration over his communal or paraphernal property to the other spouse, the transfer must be in a public document. The reason is to inform 3rd persons that the administration has been transferred. 4. The cession of actions or rights proceeding from an act appearing in a public document [example Claim of ownership] All other contracts where the amount involved exceeds 500 must appear in writing, even a private one. But sales of goods, chattels, or things in action are governed by Art. 1403. Nowhere does it say that if it is not in writing, the contract is void. That's the essence of the Hernaez case. REFORMATION REFORMATION OF INSTRUMENTS (n) Remedy in equity by means of w/c a written instrument is made or construed so as to express or conform to the real intention of the parties when some error or mistake has been committed. Art. 1359. When, there having been a meeting of the minds of the parties to a contract, their true intention is not expressed in the instrument purporting to embody the agreement, by reason of mistake, fraud, inequitable conduct or accident, one of the parties may ask for the reformation of the instrument to the end that such true intention may be expressed. If mistake, fraud, inequitable conduct, or accident has prevented a meeting of the minds of the parties, the proper remedy is not reformation of the instrument but annulment of the contract. Requisites for Action for Reformation 1. There must be meeting of the minds 2. True intention is not expressed in the instrument 3. There must be clear and convincing proof thereof 4. It must be brought w/in the proper prescriptive period. 5. Document must not refer to a simple unconditional donation inter vivos or to wills or to a contract where real agreement is void. Art. 1360. The principles of the general law on the reformation of instruments are hereby adopted insofar as they are not in conflict with the provisions of this Code. Why is there a need to reform instruments? Instruments are reformed in order that the true intention of the parties is expressed. But all the essential requisites are present. Only that when the parties reduced the agreement into writing, the writing failed to keep the true intention. By reason of what? Fraud, mistake, inequitable conduct or accident, one of the parties may ask for the reformation of the instrument to the end that such true intention may be expressed. But if any of the vices of consent have prevented the meeting of the minds of the parties, then there is no reformation but rather annulment. So here is there was failure on the part of the parties to express their true intention. By reason of Fraud, mistake, inequitable conduct or accident. But if it prevented the meeting of the minds, then no reformation but annulment. What are the requisites in order that reformation is proper? 1. There must have been a meeting of the minds upon the contract; 2. The instrument or document evidencing the contract does not express the true agreement between the parties; 3. the failure of the instrument to express the agreement must be due to mistake, fraud, inequitable conduct or accident. Art. 1361. When a mutual mistake of the parties causes the failure of the instrument to disclose their real agreement, said instrument may be reformed. Requisites: 1. Mistake must be mutual 2. Mistake may be unilateral under the conditions set forth in Art. 1362 and 1363. 3. Mistake must be of fact. 1361: The error is thru mistake but all the essential requisites are present Art. 1362. If one party was mistaken and the other acted fraudulently or inequitably in such a way that the instrument does not show their true intention, the former may ask for the reformation of the instrument. 1362: Now, there was this case of Ong vs. Car (?), involving a Spaniard and a Chinese. Now the Chinese does not know how to read or speak English. So the Spaniard was interested to buy the property of the Chinese. Now the Chinese said the agreement should be a pacto de retro. The Spaniard said, ok. When the document was already prepared, the Chinese aske if he included the condition that the sale should be one with a right to repurchase. The Spanish said yes when in truth the Spaniard omitted that it was a sale of pacto de retro because he intended to mortgage the property. Now in that case, there has been an agreement. There was already a meeting of the mind with respect to object and the cause, and the parties have consented. What was only omitted was the right of the buyer to repurchase, through the fraudulent acts of the other. Art. 1363. When one party was mistaken and the other knew or believed that

42
the instrument did not state their real agreement, but concealed that fact from the former, the instrument may be reformed. Art. 1364. When through the ignorance, lack of skill, negligence or bad faith on the part of the person drafting the instrument or of the clerk or typist, the instrument does not express the true intention of the parties, the courts may order that the instrument be reformed. 1364: This is very common in law firms, because lawyers trust their secretaries. (typographical error) Art. 1365. If two parties agree upon the mortgage or pledge of real or personal property, but the instrument states that the property is sold absolutely or with a right of repurchase, reformation of the instrument is proper. 1365: Now there are money lenders who would, instead of having executed a deed of real estate mortgage, would say that let's just execute a deed of sale with a right to repurchase. That is under a different guise. Very common is equitable mortgage although the document is denominated as deed of sale with a right to repurchase. It has the following indicators: 1. The seller remains in possession of the property; 2. the buyer retains a portion of the purchase price. That portion represent actually the interest. 3. The seller, aside from he remains in possession of the property, continues to pay the taxes on the property. [Because if it were sale, then definitely the seller has to vacate the property and why should he continue to pay the taxes. Moreover, why should the buyer retain a portion of the purchase price. ] Now read 1502 Art. 1366. There shall be no reformation in the following cases: (1) Simple donations inter vivos wherein no condition is imposed; (2) Wills; (3) When the real agreement is void. 1366: #1 and 2 are contracts based purely on the liberality of the testator, and being gratuitous you cannot question the intention of the person giving or donating the thing/property. #3, being void, how can you reform it. No legal effect shall come from a void contract. There is no force or effect that arise from a void contract. In fact, in a void contract, parties do not intend to be bound by their agreement. Art. 1367. When one of the parties has brought an action to enforce the instrument, he cannot subsequently ask for its reformation. (estoppel, waiver or ratification) 1367: You cannot ask for reformation and at the same time ask for enforcement. One is inconsistent with the other. If you say that it does not express the true intention of the parties, yet at the same time you are asking for performance. So, those are contrary to each other. Art. 1368. Reformation may be ordered at the instance of either party or his successors in interest, if the mistake was mutual; otherwise, upon petition of the injured party, or his heirs and assigns. - Prescriptive period for reformation of contracts is 10 years Art. 1369. The procedure for the reformation of instrument shall be governed by rules of court to be promulgated by the Supreme Court. INTERPRETATION OF CONTRACTS: Art. 1370. If the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control. If the words appear to be contrary to the evident intention of the parties, the latter shall prevail over the former. So, how do you interpret contracts? If the stipulations of the contract are clear and leave no room for doubt, literal interpretation. Now, the important task of contract interpretation is to always ascertain the intention of the contracting parties. And guided by the principle again that we should interpret not by the letter that killeth, but by the spirit that giveth life. However, that will not find any application if the stipulation of the parties are clear and unambiguous which leaves no room for interpretation. Then we must interpret the law as it is written. Ita Scripta Lex. So, if the words appear contrary to the intention of the parties, then the intention shall prevail. (1370) If the written instrument is different from what has been verbally agreed upon? Reformation because it does not express the true agreement. So, if you say the sale of land with all the improvements thereon, what are included? Everything that is incorporated with the land. Art. 1371. In order to judge the intention of the contracting parties, their contemporaneous and subsequent acts shall be principally considered. 1371: So going back to the example of equitable mortgage, if the buyer is not yet in possession after several years, so what is the presumption? The presumption is that what was entered into by the parties is not one of sale but mortgage. And the determination is based on their subsequent acts. Art. 1372. However general the terms of a contract may be, they shall not be understood to comprehend things that are distinct and cases that are different from those upon which the parties intended to agree. 1372: Example is your best friend executed an SPA for you to encumber her property. So you used it as a collateral in your loan. It does not follow that even if your property was used as a surety, you would also be liable for the debt of your friend. Because those are different and distinct from the agreement. Art. 1373. If some stipulation of any contract should admit of several meanings, it shall be understood as bearing that import which is most adequate to render it effectual. (1284) Art. 1374. The various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense which may result from all of them taken jointly. 1374: (Allied Bank) Harmoninize the provisions. If it cannot be harmonized, remove those which are incompatible. Then you ascertain the intention of the parties. The various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense which may result from all of them taken jointly. So for instance it is a pacto de retro sale. But upon demand, the price varies. Anong presumption dyan? The difference in the payment actually refers to the payment of interest. Art. 1375. Words which may have different significations shall be understood in that which is most in keeping with the nature and object of the contract. 1375: If you are appointed as an administrator, it does not involve acts of dominion or acts of ownership. Art. 1376. The usage or custom of the place shall be borne in mind in the interpretation of the ambiguities of a contract, and shall fill the omission of stipulations which are ordinarily established. (1287) Art. 1377. The interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity. 1377: Very common in contracts of adhesion. Art. 1378. When it is absolutely impossible to settle doubts by the rules established in the preceding articles, and the doubts refer to incidental circumstances of a gratuitous contract, the least transmission of rights and interests shall prevail. If the contract is onerous, the doubt shall be settled in favor of the greatest reciprocity of interests. If the doubts are cast upon the principal object of the contract in such a way that it cannot be known what may have been the intention or will of the parties, the contract shall be null and void. 1378: So between a commodatum and donation, which has the least transmission of rights? Commodatum, why? Because there is no transfer of

43
ownership in commodatum. Whereas if it were a donation, the property has left the patrimony of the donor forever. Usufruct or the donation? Usufruct, because the usufructuary is under obligation to return the property. (2nd sentence) Now, what if the contract is onerous? The doubt shall be resolved in favor of the greatest reciprocity of interest. So a person giving a ring to the other person, and the other person gives money. What is the presumption? Pledge, because that would fall under the greatest reciprocity of interest. Between pledge or mortgage? If there is doubt, mortgage. Why? Because there is no transfer of possession, but the creditor still enjoys the interest on the money that was loaned. Between antichresis and mortgage? Mortgage parin. (Last paragraph) Lack of object which makes the contract void because the intention of the parties cannot be ascertained. Art. 1379. The principles of interpretation stated in Rule 123 of the Rules of Court shall likewise be observed in the construction of contracts. RESCISSIBLE CONTRACTS 4 Kinds of Defective Contracts 1. Rescissible contract w/c is valid until rescinded; extrinsic defect consists of economic lesion or damage. 2. Voidable valid until annulled except if ratified intrinsic defect as in vitiated consent. 3. Unenforceable cannot be sue upon or enforced unless ratified; no effect now but it may be upon ratification. 4. Void (inexistent or illegal) no effect at all; nor can be ratified or validated. Rescissible Contracts are valid contracts. Of the four of defective kinds of contracts, rescissible contracts occupy the highest lesion. The contracts are valid but by reason of economic injury caused either to one of the parties, or to a third person, the contract has to be rescinded. And unlike 1191, when we speak of rescission, there is no breach of faith in the performance but rather the ground of rescission is more on the economic injury suffered by the parties or a third person. Art. 1380. Contracts validly agreed upon may be rescinded in the cases established by law. (1290) Requisites for Rescission 1. There must be at the beginning either a valid or a voidable contract. 2. There is an economic or financial prejudice to someone ( a party or a third person) 3. Requires mutual restitution. RESCISSION (1380) RESCISSION (1191) Based on lesion or fraud upon creditors; Based on non-performance or nonfulfillment of the obligation. The action is instituted by either of the parties or by third parties; Action may be instituted only by the injured party to the contract; Courts cannot grant a period or term w/in w/c to comply In some cases, the courts may grant a term. Non-performance by other party is immaterial. Non-performance of the party is important. Fictitious contract cannot be rescinded since it is null and void. What rescission presupposes is a valid contract. Rescission under 1381 is a subsidiary remedy, especially if it is found in number 3 of 1381. You have to prove before the court that you have exhausted all the remedies available to you as a creditor before you are given a right to institute an action for rescission 1380: What are those cases? 1381 provides those cases. Art. 1381. The following contracts are rescissible: (1) Those which are entered into by guardians whenever the wards whom they represent suffer lesion by more than one-fourth of the value of the things which are the object thereof; (2) Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the preceding number; (3) Those undertaken in fraud of creditors when the latter cannot in any other manner collect the claims due them; (4) Those which refer to things under litigation if they have been entered into by the defendant without the knowledge and approval of the litigants or of competent judicial authority; (5) All other contracts specially declared by law to be subject to rescission. LESION disparity between price and the value. - mere inadequacy of price, unless shocking to the conscience is not a sufficient ground for setting aside a sale, if there is no showing that, in the event of a resale, a better price can be obtained. EFFECT OF CONTRACTS ENTERED IN BEHALF OF WARD (1) If an act ownership, Court approval is required otherwise it is unenforceable whether there is lesion or not. (2) If act of administration i. With Court approval valid regardless of lesion ii. W/out Court approval rescissible, if lesion is more than contract may be rescinded on the ground of lesion is a partition of inheritance. (3) Accion Pauliana action to rescind made in fraud of creditors. Requisites a. There must be a creditor who became such Prior to the contract sought to be rescinded (a person asking for a rescission is a judgment creditor immaterial) b. There must be an alienation made subsequent to such credit. c. The party alienating must be in bad faith (he knew that damages would be caused) d. There must be no other remedy for the prejudiced creditor inability to collect to the claims due them. Action to rescind may be brought even if debtor has not been judicially declared insolvent and even if the creditor has not yet brought an action to collect. (4) THINGS IN LITIGATION (eg. A sues B for recovery of ring pendente ite, B sells ring to C sale to C is rescissible) - Property is in litigation after defendant received service of summons. 1381: #1 and 2: The guardian with respect to the ward, and the representative with respect to the absentee are only given the powers of administration. The powers mentioned in 1381 are powers of administration and the representative or the guardian entered into a contract and the object of the contract resulted to the economic injury of either the ward or the absentee. By more than 1/4 of value of the object thereof. So example, you wanted to enhance the development of the farm, so what you did was to buy an equipment, a tractor. But you also have other motives in mind. And you tell now the dealer, "can you increase the price by 30%? You get 5%, I get 25%", so in that case the contract entered into by the administrator can be rescinded because it will result to the economic injury of the ward by more than 1/4 of the value of the object which is the tractor. But, even if it exceeds more than 1/4, but the administrator obtained judicial authorization, then there can be no rescission. Only in cases where there has been no judicial authorization obtained by the representative or the guardian. But what if the guardian or the representative speaks of getting money in order to develop the property. He now mortgaged the property. What kind of a contract is that? Unenforceable contract, beyond his authority. Now, if you remember in your Family Code, when can you consider a person

44
an absentee for purposes of administration? 2 years if without administrator, and 5 years if there is an administrator. In those cases there is a need for judicial declaration as an absentee. And normally the spouse is given priority. So the spouse' authority only includes powers of administration, it does not include acts of ownership. Because if you co-relate that with the provisions of the Family Code and there is a need to encumber or dispose a portion of the property of the absentee, what will you do? For purposes of supporting the family? You gain judicial authority in a summary proceeding, otherwise that act of the other spouse is void but it is a continuing offer between the spouse who did not give consent and the offeree unless earlier revoked. Pag third person ang magbenta, ano? Unenforceable. If the representative is a third person, unenforceable. But if it were the spouse, void yan. summary: -This only refers to acts of administration, and not acts of ownership - if the guardian or representative would exercise acts of ownership beyond what is authorize, the act will not be rescissible but rather unenforceable. That is acted without or in excess of the authority granted to him. But if the representative is the spouse, the act is void. But such act prior to the effectivity of the family code is not void, but voidable. So this would only refer to in excess of the authority granted to the present spouse and the encumbrance/alienation refers to the paraphernal property and the capital(?) property of the absentee. -But if it were acts of administration, to fall whether in number one or number two 1381, it must exceed 1/4 of the value of the object of the contract. - But even if it exceeds more than one fourth of the value, but there is court approval or judicial authorization, then there can be no rescission. -The exception in #1 and 2 is judicial authorization, no rescission if with court approval, even if the wife or the absentee suffers lesion by more than one fourth. 3.) Those undertaken in fraud of creditors when teh latter cannot in any other manner collect the claim due them. Now the creditor cannot ask for annulment precisely because he is not a party to the contract. He can only ask for rescission. The court cannot just grant rescission since there are certain requisites that must be complied with. In order that rescission will lie. It will be found in the cases that i've assigned. Now if the transfer is onerous, we have to take into account the good faith or bad faith of the transferee. So the exception in number three would now depend on the kind of transfer. If suppose it is an onerous transfer, meaning there is an equivalent consideration given. So if it is onerous and ther is good faith from the first transferor to the first transferee (meaning the transferee acted in good faith), then the creditor who is prejudiced by the transfer could no longer ask for the rescission of the transfer because of the good faith. His only recourse is to ask damages from the transferor. Exception: even if the first transferee acted in GF, subsequent transferee acted in bad faith, and there is collusion between the transferor and the second transfeee, to cleanse the transfer of any defect, they would now use the first transferee as an intermediary or a bridge, then there can be rescission. But if there was no collusion between the transferor and the 2nd transferee, the good faith of the first transferee will cleanse the transfer, hence there can no longer be rescission, even if the subsequent transfer is in bad faith. The good faith of the first transfer cures the bad faith of the second transfer. Now, if there is bad faith from the first to the 2nd then definitely there can be rescission. OR suppose there are several transfer. From the 1st transferee who acted in bad faith, to the second transferee who acted in bad faith, to the third transferee who still acted in bad faith and the fourth transferee who acted in good faith. Then it ends now to the fourth transferee regardless of the bad faith of the subsequent transferee because it ended with the person who acted in good faith, when he received the thing transferred. Then there can be damages, not rescission because there has been good faith of the last transferee. So all the of the transferee will be liable, from the first transferee to the third transferee. Now what if the transfer is gratuitous? Do we also follow the same principle? No. The good faith or bad faith of the transferee is immaterial. Regardless of the good faith or bad faith of the receiver, the contract has to be rescinded. Why? There is no consideration given by the transferee, so he cannot be prejudiced by the rescission. Now, In Oria vs. Manikil (?), there are also what we call as the badges of fraud with respect to alienation in order to defraud creditors. Now what are the badges of fraud: 1. the fact that the consideration of the conveyance is inadequate 2. a transfer made by the debtor after suit has been begun and while it is pending against him. -meaning there is already a case filed against him involving collection or money claim, then the debtor now would start to dispose or encumber the properties that might answer for the judgment award that may be rendered by the court against him. 3. a sale upon credity by an insolvent debtor - So if you are insolvent, why will you sell your property on credit when you are actually in need of money. 4. Evidence of large indebtedness or complete insolvency. -Your assets cannot meet your obligations. Obligations exceeds assets. 5. the transfer of all or nearly all of his property by a debtor, especially when he is insolvent or greatly embarrassed financially, especially if the transfer is gratuitous in nature. 6. the fact that the transger is made between father and son, when there are present any of the above circumstances. -The mere fact that there is a transfer between a parent and a child does not arise that there is a fraudulent transfer. But if it is a transfer between a father and a son and it is accompanied by a sale upon credit by an insolvent debtor (Chua vs. CA), then definitely the presumption will arise that the transfer is to defraud creditors. 7. the failure of the vendee to take exclusive possession of all the property So those are the badges of fraud. And if any of those will be found, then the presumption will arise especially if the transfer is made after incurring the obligation and it can be shown that the debtor has no other property which can answer for that obligation except that property which he has transferred, then the presumption will arise that he intended to defraud the creditors when he made that transfer. 4.) Those which refer to things under litigation if they have been enterd into by the defendant without the knowledge and approval of the litigants or of competent judicial authority Example of this would be a claim for reconveyance, meaning you're asking for the return of real or movable property, if what is involved is real property and you are the complainant, to protect your right, to prevent the defendant in possession of the property from alienating it without your knowledge or without the approval of court, then you may go to the office of the Register of Deeds and have it annotated at the back of the title of the property that this property is under litigation. And we call that notice of lis pendens. Or if what is involved is personal property, then you pray before the court that a writ of attachment be issued or a receiver be appointed over the property which is the subject matter of the litigation, in order to place the property in custodia legis and to take it away from the possession of the debtor. 5.) All other contracts specially declared by law to be subject to rescission Those referred to in Art. 78 with respect to partiton of the estate of the deceased when one of the heirs suffer lesion by more than 1/4 of the value which he is supposed to receive. Others would be those falling under the Law on Sales, 1524, 1526, and 1529 Art. 1382. Payments made in a state of insolvency for obligations to whose fulfillment the debtor could not be compelled at the time they were effected, are also rescissible. (1292) Requisites (1) The Debtor-payer must have been insolvent (no judicial declaration

45
needed) (2) Debt was not yet due and demandable. Now another act which can be the subject of rescission can be found in 1382: obligations not yet due. That is what is meant by to whom fulfillment the debtor could not be compelled at the time they were effected, are also rescissible. So it refers to obligations not yet due, yet despite the fact that the debtor is insolvent pays the obligation, so there can also be rescission. And that is why we said that the action for rescission is subsidiary, the person who will be prejudiced by such must show proof before court that he had already exhausted all efforts to recover what is due him, and he failed, and he found out that the debtor has already transferred nearly all his property to answer for the credit that is due him. So it cannot be instituted except when the party suffering damage has no other legal means to obtain reparation for the same. (1383) And he cannot ask for more than what is due him. He can only ask to the extent necessary to cover the damages caused. (1384) Art. 1383. The action for rescission is subsidiary; it cannot be instituted except when the party suffering damage has no other legal means to obtain reparation for the same. (1294) Art. 1384. Rescission shall be only to the extent necessary to cover the damages caused. (n) Partial rescission is possible; benefits only the creditor who has asked for rescission. Art. 1385. Rescission creates the obligation to return the things which were the object of the contract, together with their fruits, and the price with its interest; consequently, it can be carried out only when he who demands rescission can return whatever he may be obliged to restore. Neither shall rescission take place when the things which are the object of the contract are legally in the possession of third persons who did not act in bad faith. In this case, indemnity for damages may be demanded from the person causing the loss. (1295) Mutual restitution Requisites before Rescission can be Brought a) Generally, plaintiff must be able to return what has been received by virtue of rescissible contract. Except when it is prejudicial to creditors. b) The thing-object of the contract is not in the legal possession of 3rd persons in good faith. c) There must be no other legal remedy. d) The action must be brought w/in proper prescriptive period. 1385: So what must be returned? The object of the contract, the fruits, the price and the interest. And if you cannot return this then you cannot ask for rescission. It can be carried out only when he who demands rescission can return whatever he will be obliged to return. So just like 1191, there is mutual restitution. And you cannot ask for rescission unless you can return what you have received from the other party. Neither shall rescission take place when the things which are the object of hte contract are legally in the possession of third persons who did not act in bad faith. In this case, indemnity for damages may be demanded from the person causing the loss. Now, if the transfer is gratuitous and you acted in good faith, you received the property believing in good faith that the transfer gratuitously is legal and valid, are you also obliged to return the thing, the fruits, the price and the interest? If you are a transferee in good faith, your obligations are to return the thing but not to pay for the fruits already received. Second, if you have incurred necessary expenses, then you can ask for reimbursement. Third, you return the thing in the condition that it is found. Meaning if there has already been deterioration, then you return the thing in that state. Unless, if the deterioration is caused by your negligence or through fraud after receiving the summons for rescission. But if it was due to a fortuitous event and before you have received the summons, then you will not be liable for the deterioration of the thing which is the subject matter for rescission. Now, restoration or restoration applies only to what under Art. 1381? #1 and 2 and 3, exception is onerous and good faith, and in number 4, exception you are the complainant and you have not annotated it, and the 3rd person who acquired it had no constructive knowledge of the litigation. Art. 1386. Rescission referred to in Nos. 1 and 2 of article 1381 shall not take place with respect to contracts approved by the courts. 1386: Rescission referred to in Nos. 1 and 3 of 1381 shall not take place with respect to contracts approved by the courts Art. 1387. All contracts by virtue of which the debtor alienates property by gratuitous title are presumed to have been entered into in fraud of creditors, when the donor did not reserve sufficient property to pay all debts contracted before the donation. Alienations by onerous title are also presumed fraudulent when made by persons against whom some judgment has been issued. The decision or attachment need not refer to the property alienated, and need not have been obtained by the party seeking the rescission. In addition to these presumptions, the design to defraud creditors may be proved in any other manner recognized by the law of evidence. (1297a) PRESUMPTIONS OF FRAUD Gratuitous Alienations - presumed fraudulent: when debtor did not reserve sufficient property to pay all debts contracted before the donation. Onerous Alienations - Presumed fraudulent when made by persons: 1. Against whom some judgment has been rendered in any instances (even if not final); or 2. Against whom some writ of attachment has been issued. BADGES OF FRAUD (circumstances that a certain alienation has been made in fraud of creditors) 1. The fact that consideration of the conveyance is fictitious or inadequate; 2. A transfer made by a debtor after suit has been began and while it is pending against him; 3. A sale upon credit by an insolvent debtor; 4. The transfer of all or nearly all of his property by a debtor, especially when he is insolvent or greatly embarrassed financially; 5. Evidence of large indebtedness or complete insolvency; 6. The fact that the transfer is made between father and son; 7. The failure of vendee to take exclusive possession of all the property. A gratuitous conveyance or donation, validly executed is presumed valid unless it can be shown that at the time of execution of conveyance, a creditor/s is/are adversely affected by said transaction. Fraud is not sufficient to rescind; for after all transferee may have been in good faith and is now in legal possession of the property. 1387: Presumptions Par. 1: It is absolutely necessary when you prepare a deed of donation for the donor to state that he has reserved sufficient property for himself to answer for his support as well as the obligations that he has incurred prior to this donation. Otherwise, if that is not found then the presumption is that you intend to defraud your creditors. Par. 2: So the first is that, even if it is by onerous title, 1. there is already an on going case filed against you for collection of money, or 2. there is a writ of attachment ( a writ of attachment is issued during the pendency of the case asked by the complainant upon the court that the defendant is about to dispose nearly all his property and which if judgment shall be rendered by the court in favor of the complainant, the writ of execution issued by the court by reason of that favorable judgment will be returned unsatisfied by the sheriff) Par. 3: Badges of fraud Art. 1388. Whoever acquires in bad faith the things alienated in fraud of

46
creditors, shall indemnify the latter for damages suffered by them on account of the alienation, whenever, due to any cause, it should be impossible for him to return them. If there are two or more alienations, the first acquirer shall be liable first, and so on successively. (1298a) due to any cause includes fortuitous event. Rescission is merely a secondary remedy --- only if debtor cannot pay. Transfers If transferee is in good faith; good/ bad faith of next transferee is immaterial; If transferee is in bad faith; the next transferee is only liable if he is in bad faith. 1388: So in this case, the first acquirer shall be liable, then as we said, he transfers it to T2 and then to T3, the liability will be only upto T3. He will not be liable to return, precisely because he has transferred it, but he will be liable for damages. Because of the impossibility to return what he is supposed to return to the debtor for purposes of answering the liabilities of the debtor. Art. 1389. The action to claim rescission must be commenced within four years. For persons under guardianship and for absentees, the period of four years shall not begin until the termination of the former's incapacity, or until the domicile of the latter is known. (1299) WHO CAN BRING ACTION? 1. The injured party (or defrauded creditor) 2. His heir or successor-in-interest 3. Creditors of (a) and (b) by virtue of Art. 1177 of C.C 1389 Now when do you institute the action for rescission? Must be commenced within four years. For persons under guardianship and for absentees, the four years shall not begin until the termination of the former's incapacity, or until the domicile of the latter is known. Now suppose it does not fall under numbers 1 and 2. When shall you start counting the four year period? That was answered in the case of Cheng vs. CA. VOIDABLE CONTRACTS Art. 1390. The following contracts are voidable or annullable, even though there may have been no damage to the contracting parties: (1) Those where one of the parties is incapable of giving consent to a contract; (2) Those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud. These contracts are binding, unless they are annulled by a proper action in court. They are susceptible of ratification. (n) RESCISSION ANNULMENT Basis is lesion (damage) - Basis is vitiated consent or incapacity to consent Defect is external/extrinsic - Defect is internal/intrinsic (in the meeting of mind) Action is subsidiary - Action is principal A remedy - A sanction Private interest governs - Public interest governs Equity predominates - Law predominates Plaintiff may be party or 3rd person - Plaintiff must be a party to the contract There is damage - Damage is immaterial If plaintiff is indemnified; rescission will not prosper - Indemnity is not a bar to the action Compatible w/ perfect validity - Defect is presupposed To prevent rescission, ratification is not required. - To prevent annulment, ratification is required. There are only two kinds of voidable contracts, and these can be annulled by the court even if there may have been no damage to the contracting parties. So one would be when one of the parties is incapable of giving consent to a contract, 2. where any of hte vices of consent is employed in order to obtain the consent by one of the contracting parties. These contracts are binding, unless there are annulled by a proper action in court. They are susceptible of ratification. And voidable or annullable contracts cannot be attacked collaterally. You must institute a direct proceeding asking that the contract be annulled. What do you mean by collateral attack? You say, "By the way, the contract is voidable because one of the parties is a minor". When you say direct, you insitute an action asking the court asking the court to annul the contract on the ground of 1 or 2. Or you can state it in the counterclaim if you are a defendant. And when will you bring the action for annulment? Four years, and the period shall begin 1. If it were intimidation, violence or undue influence, form the time the defect of the consent ceases; 2. In cases of mistake or fraud, from the time of the discovery of the same; 3. and when the action refers to contracts entered into by minors or other incapacitated persons, from the time the guardianship ceases. May the guardian bring also an action for annulment? of course. But if it were the minor, then upon reaching the age of majority, if the incapacitated, then from the time of the cessation of guardianship. What happens if there is ratification? Ratification cleanses the contract of its defects, and it shall retroact to the day of the inception of the contract. It has retroactive effect, and it cleanses the contract of whatever defects it creates. So it becomes a valid contract. Now ratification may be express or tacit. It is understood as tacit if with knowledge of the reason which renders the contract voidable and such reason having ceased, the person who has a right to invoke it should execute an act which necessarily implies an intention to waive his right. Now who has the right to invoke it? May the capacitated person invoke the incapacity of the other party? Or the person who employed any of the vices of the consent on the ground that the contract is voidable because he used fraud or there was mistake, and he was the one who caused the mistake? No. It can only be brought by the aggrieved party.Who? The minor, the incapacitated, the person upon whom any of the vices of consent were employed. So when is there tacit ratification? For instance, the minor sells the property during minority. Upon reaching the age of majority, instead of asking for the annulment of the contract, he will now rent the very property. Or he buys the property during minority, and instead of having that contract of sale annulled upon reaching the age of majority, he now donates the property. Or during the minority the purchase price has not been fully paid, and upon reaching the age of majority, he asks for the balance of the purchase price. So the guardian may effect the ratification. Art. 1391. The action for annulment shall be brought within four years. This period shall begin: In cases of intimidation, violence or undue influence, from the time the defect of the consent ceases. In case of mistake or fraud, from the time of the discovery of the same. And when the action refers to contracts entered into by minors or other incapacitated persons, from the time the guardianship ceases. (1301a) Art. 1392. Ratification extinguishes the action to annul a voidable contract. (1309a) Requisites of Ratification 1. Contract is voidable 2. Person ratifying must know the reason for the contract being voidable (cause is known) 3. Cause must not exist/continue to exist anymore at time of ratification 4. Ratification is made expressly or by an act implying a waiver of action to annul 5. Person ratifying must be the injured party.

47
Art. 1393. Ratification may be effected expressly or tacitly. It is understood that there is a tacit ratification if, with knowledge of the reason which renders the contract voidable and such reason having ceased, the person who has a right to invoke it should execute an act which necessarily implies an intention to waive his right. (1311a) Art. 1394. Ratification may be effected by the guardian of the incapacitated person. (n) Art. 1395. Ratification does not require the conformity of the contracting party who has no right to bring the action for annulment. 1395: Ratification does not require the conformity of the contracting party who has no right to bring the action for annulment. Ratification does not require the consent of the party who has no right to institute the action for annulment. So who can ask for annulment? Those who may be obliged either principally or subsidiarily (guarantors, sureties, mortgagors). However, persons who are capable cannot allege the incapacity of those with whom they contracted; nor can those who exerted intimidation, violence, or undue influence, or employed fraud, or caused mistake base their action upon these flaws of the contract. So we apply the principle of estoppel with respect to those who are capable, they cannot ask for annulment on the ground that the other party is incapacitated. Now the exception there is if there is active misrepresentation on the part of the incapacitated person. Then the incapacitated person cannot be heard later on when asking for annulment that at the time he entered into the contract, he was incapacitated because there was active misrepresentation. Active misrepresentation, for example: "You are a minor" and you say "No, i am 18 and I have a cedula to show you" but the cedula is doctored. Art. 1396. Ratification cleanses the contract from all its defects from the moment it was constituted. (1313) Retroactive Effect of Ratification - Once ratified, annulment based on original defect cannot prosper. - Rights of innocent 3rd persons must not be prejudiced. Art. 1397. The action for the annulment of contracts may be instituted by all who are thereby obliged principally or subsidiarily. However, persons who are capable cannot allege the incapacity of those with whom they contracted; nor can those who exerted intimidation, violence, or undue influence, or employed fraud, or caused mistake base their action upon these flaws of the contract. (1302a) WHO MAY ASK FOR ANNULMENT: o The victim (principal or subsidiary party) o EXCEPT: If person not obliged principally/ subsidiarily in a contract may exercise an action for nullity if he is prejudiced in his rights w/ respect to one of the contracting parties. - Creditors of victim cannot ask for annulment except when it prejudice them and the debtor has no other property. Art. 1398. An obligation having been annulled, the contracting parties shall restore to each other the things which have been the subject matter of the contract, with their fruits, and the price with its interest, except in cases provided by law. In obligations to render service, the value thereof shall be the basis for damages. (1303a) Effects of Annulment 1. If contract is not complied w/, parties are excused from the obligation. 2. If contract has already been performed . . . Mutual Restitution of: a. The thing with fruits; b. The price with interest. Cannot be availed of by strangers to contract and innocent third parties cannot be obliged to restore. Husband cannot barter away his wifes paraphernal properties except when she consents. 1398: If there is annulment, what will be the obligation of the parties, again, mutual restitution. And what shall it consist? The subject matter, the fruits, the price with its interest. But this will only apply to contracts falling under Number 2. (employment of any of the vices of consent) Art. 1399. When the defect of the contract consists in the incapacity of one of the parties, the incapacitated person is not obliged to make any restitution except insofar as he has been benefited by the thing or price received by him. 1399: Contract entered into by the incapacitated (number 1). He is only obliged to restore in so far as he has been benefited by the thing or price received by him. In relation to that 1241, if he has kept the thing delivered, or if he has disposed the thing and the disposal was to his benefit, those are the exception. No restoration except if he has kept the thing delivered, or if he has disposed of it and was benefited by the disposal. So those are the only instances wherein restoration will be possible with respect to the incapacitated. The defendant in an annullable contract would either be the capacitated or the person who employed the vices of the consent. Now, if he were the one who lost the thing which is the object of the contract which is annullable, then he shall have the obligation to return the fruits received, the price or the value of the thing plus the interest. So those are the object that he would have to return in case annulment is possible but he could no longer do it because it has been lost by fault (or fraud), then he has to return the value, the price and the interest. Now what happens if the thing is lost and the person obliged to return it is the incapacitated, or the person upon whom any of the vices of consent were employed? 1401 says that if the thing is lost through the fault of the person who has the right to institute the action, then the petition for annulment is extinguished. Now, if the lost is fortuitous, then the action will prosper because the law says through the fault or fraud. So it were lost through fortuitous event, however the defendant cannot be compelled to restore what he is obliged to restore because the essence of mutual restitution becomes untenable in as much as there can be no mutual restitution. But it will prosper if the plaintiff if the person who has the right to institute the action for annulment offers to pay the value of the thing that he has lost. Now, what will be the basis of the valuation? The value at the time of the loss of the object. Now the defendant will be obliged to return, but the plaintiff will only be obliged to pay the value. He is exempt from paying the value because the lost is through fortuitous event. Art. 1400. Whenever the person obliged by the decree of annulment to return the thing can not do so because it has been lost through his fault, he shall return the fruits received and the value of the thing at the time of the loss, with interest from the same date. (1307a) Art. 1401. The action for annulment of contracts shall be extinguished when the thing which is the object thereof is lost through the fraud or fault of the person who has a right to institute the proceedings. If the right of action is based upon the incapacity of any one of the contracting parties, the loss of the thing shall not be an obstacle to the success of the action, unless said loss took place through the fraud or fault of the plaintiff. 1401 2nd paragraph speaks of the action instituted by the incapacitated. So the loss shall not be an obstacle to the success of the action. If you remember also, if it were the incapacitated who lost or squandered the object he is not under obligation to return it. The law only obliges him to return it if it has redounded to his benefit or he has kept the thing. So here, under the 2nd par of 1401, it shall not be an obstacle to the action, unless the loss is through the fault or fraud of the incapacitated. Now what if the defendant loss the object of the contract through a

48
fortuitous event and a petition for annulment is filed by the party who has the right to institute the action? Is he still obliged to pay the value, interest and fruits? No. Because he is in good faith, and the loss is not due to his fault, then he is only obliged to pay the value no longer the interest. Art. 1402. As long as one of the contracting parties does not restore what in virtue of the decree of annulment he is bound to return, the other cannot be compelled to comply with what is incumbent upon him. (1308) Principle of mutual restitution 1402: As long as one of the contracting parties doesn not restore what in virtue of the decree of annulment he is bound to return, the other cannot be compelled to comply with what is incumbent upon him. There is that mutual obligation to restore. And if the thing is lost, and the party who lost it has the right to institute the action, and it is lost through fortuitous event, he can still compel if he offers to pay the value of the object of what he is bound to return. If the thing is lost through the fault or negligence of the defendant or the capacitated or the person who excercised the fraud, then he is obliged to pay the value, plus interest, plus damages because there was negligence. CHAPTER 8 UNENFORCEABLE CONTRACTS (n) Contracts that cannot be sued upon or enforced unless RATIFIED --- no effect yet. KINDS OF UNENFORCEABLE CONTRACTS a) Unauthorized contracts b) Those that fail to comply with the Statute of Frauds c) Those where both parties are incapable of giving consent to a contract. Art. 1403. The following contracts are unenforceable, unless they are ratified: (1) Those entered into in the name of another person by one who has been given no authority or legal representation, or who has acted beyond his powers; (2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases an agreement hereafter made shall be unenforceable by action, unless the same, or some note or memorandum, thereof, be in writing, and subscribed by the party charged, or by his agent; evidence, therefore, of the agreement cannot be received without the writing, or a secondary evidence of its contents: (a) An agreement that by its terms is not to be performed within a year from the making thereof; (b) A special promise to answer for the debt, default, or miscarriage of another; (c) An agreement made in consideration of marriage, other than a mutual promise to marry; (d) An agreement for the sale of goods, chattels or things in action, at a price not less than five hundred pesos, unless the buyer accept and receive part of such goods and chattels, or the evidences, or some of them, of such things in action or pay at the time some part of the purchase money; but when a sale is made by auction and entry is made by the auctioneer in his sales book, at the time of the sale, of the amount and kind of property sold, terms of sale, price, names of the purchasers and person on whose account the sale is made, it is a sufficient memorandum; (e) An agreement of the leasing for a longer period than one year, or for the sale of real property or of an interest therein; (f) A representation as to the credit of a third person. (3) Those where both parties are incapable of giving consent to a contract. Mere lapse of time, no matter how long, is not the ratification required by law. W/out ratification, the agent assumes personal liability. STATUTE OF FRAUDS Purpose: to prevent fraud; thus some agreement are required to be in writing. Waivable (defense) Personal defense, cannot be assailed by 3rd persons Does not apply to contracts fully or partially performed. Unenforceable contracts are not curable by any lapse of time. Unlike voidable which prescribe in 4 years, if you do not institute the action, and the lapse of four years will be deemed a waiver of your right to question the voidability of the contract. Another would be, in rescissible contract, the prescriptive period is also 4 years. But here there is no prescription. It gives rise to a defense against its enforcement. You cannot enforce it thru court Does not apply to contract of loan. 2 Ways to Waive This Defense (1) Timely failure to object to presentation of oral evidence to prove the oral agreement. (2) Acceptance of benefits under them (as where contract is totally or partially performed) Art. 1403;2 (b) - special promise refers to a subsidiary/collateral promise to pay like contract of guaranty. 2(c) agreements in consideration of marriage marriage settlement; donations propter nuptias STATUTE OF FRAUDS laws, statutes or provisions w/c require certain agreements to be in writing before they can be enforced in a judicial action. statutes are applicable only to executory contracts, not to partially or totally executed or performed contracts. It may be invoked in actions for damages for breach of said agreement or for specific performance. UNENFORCEABLE CONTRACT There are three kinds of unenforceable contracts. Unenforceable contracts cannot be enforced through court action, unless first ratified. The first two are enforceable thru court action. There can be compulsion through specific performance. Here specific performance will not lie, unless the unenforceable contract is ratified. Now, unenforceable contracts are valid contracts only that because they are still in the stage where there is no performance yet by either of the parties, there can be no action that can be maintained before the court precisely because the agreement is in its executory stage. That is why you cannot prove the existence of the contract through parol or oral evidence. That is why, say A and B would enter into an agreement. A says to B that I am selling my house for 500K, and B says I will buy your house. That is an oral agreement. Valid? Yes, because contracts are valid in whatever form they are entered into unless forms are necessary for its validity or enforceable. So this one is a purely executory but valid contract. There is an offer and there is an unqualified acceptance. So there is a perfected contract only that there is no execution yet by the parties. Now suppose A now would change his mind and later on sell it to C, can B sue A for breach of contract? Can B go to court and compel A to perform? In that case oral evidence is not allowed to prove the existence of the agreement because this is a purely executory agreement involving the sale of real property. So this will only apply to purely executory contracts. But suppose B says, I have 50K, as earnest money, then even if A does not issue a receipt, that agreement is removed from the ambit of purely executory contracts. There is now what we call as partial fulfillment or partial execution. So in that case if A changes his mind and sells to C, B now can go to court and prove before the court the agreement. And there can be oral proof as to the agreement because of this partial payment. It applies only to purely executory contracts, and not to contract which have been consummated, or partially consummated. So let's say its the other way around. B says sige bilihin ko, and A now got hold of his diary and tore a piece of paper and writes that B agreed to buy my property, located at so and so and covered by TCT# 1111, this is already a sufficient note or memorandum. So in that case, if B changes his mind, A now can compel B to pay the purchase price, there is now a perfection of the contract and the proof is the note. It does not have to be a public document.

49
action precisely because it is a purely executory contract. But not an action to set aside a contract. So you cannot enforce it through court action, but not an action to set aside. It is a defense against its enforcement. So in this case, if B sues A, then A can say that it cannot be enforced precisely because there was no note or memorandum. But A cannot ask for the setting aside of the agreement. So it a sheild but not a sword. So, what are those contracts which are unenforceable unless ratified? (1403) 1. Those entered into in the name of another person by one who has been given no authority or legal representaion or who has acted beyond his powers. If you remember, we discussed this already under 1317. The agent is given the authority to rent, but not the authority to sell. Then in that case if he sells, then the authority is in excess of his authority and in that case the contract entered into by the agent is unenforceable. How shall the principal ratify it? If he demands for the payment of the purchase price. Or he delivers the DOS and asks for the purchase price. But before the ratification comes, the buyer cannot compel the principal to execute the deed of sale precisely because the agent was in excess of his authority. 2. Those that do not comply with the Statute of Frauds. The enumeration in paragraph 2 is exclusive, what is not found there is not considered to be included. a. an agreement that by its terms is not be be performed within a year from the making thereof. So the agreement must not be performed within a year from the time of its constitution. It will not apply if part of it will be performed within the year although the completion of it will take five years. No part of it shall be performed within the entire 1 year period. Or even if on your part it is to be performed within one year but the other party has already performed his part, even partially. That is no longer covered. b. A special promise to answer for the debt, default or miscarriage of another. An example of this would be a contract of guaranty. But not a credit extended to a debtor upon the exclusive promise of the promissor. So if the promissor says, you sell me your credit, ako ang bahala. That is not within the purview of this paragraph, because that will be what, the exclusive promise of the promissor, but if he guarantees, then it falls within this paragraph. c. An agreement made n consideration of marriage other than the mutual promise to marry. Remember in your Family Code that a breach of action to marry is not an actionable wrong. It becomes actionable if the breach is coupled with seduction. What would fall under letter c would be marriage settlements, the ante-nuptial agreements or prenuptial agreements. If you remember your requirements in order that prenuptial agreements will be valid, there are only three: writing, signed by the parties, and executed by the parties before the celebration of the marriage. No where does it provide it be in a public document. Before the effectivity of the family code, donations propter nuptias are also covered by letter c but with the effectivity of the FC, letter C is no longer applicable because now it states that donations propter nuptias must observe the forms on ordinary donations. And if you do not comply with the formalities of ordinary donations, it is void. Now there is this case of Domalagan vs. Bolifer, sabi ni Domalagan, kunin ko yung 500 ko, because hindi sila nagkatuluyan. You read this case and Locquiao case. d. An agreement for the sale of goods, chattels or things in action (those movables not susceptible of possession, such as credit, negotiable instruments) , at a price not less than five hundred pesos, unless the buyer accept and receive part of such goods and chattels, or the evidences, or some of them, of such things in action, or pay at the time some art of the purchase money; Now, what if you buy a certain good and the price is less than 500, but if you take all together, the price is more than 500. Must it be in writing to be enforceable? How will you now interpret the agreement as such? The determining factor is the intention of the parties. If the intention is that it should be taken as a whole, then it must be in writing, subscribed and sworn by the person charged to be enforceable. e. an agreement for the leasing for a longer period than one yaer, of for the sale of real property or of an interest therein; contract of lease for more than one year must be in writing to be enforceable. Take note of the sale of real property that is why in 1358, sale of real property is definitely excluded. As well as of the interest therein, meaning the real property. When we say interest, does that include boundaries, partition? (Rosencor case) f. A representation to the credit of a third person. An example of this is suppose Lorelie would like to borrow money from Mr. Tan, and asks Mr. Vicente, kilala mo ba si Lorelie? Ah Oo kilala ko yan. Is she a good payor. Ah yes. You are not vouching for the obligation, you are merely vouching for the credit standing of the third person. That is a representation to the credit of a third person. 3. Those where both parties are incapable of giving consent to a contract. Now what if one of the representatives of the incapacitated person would ratify the contract, what would now be the nature of the agreement? Voidable. If both the guardians would ratify, valid. It becomes valid and enforceable. Art. 1404. Unauthorized contracts are governed by article 1317 and the principles of agency in Title X of this Book. Art. 1405. Contracts infringing the Statute of Frauds, referred to in No. 2 of article 1403, are ratified by the failure to object to the presentation of oral evidence to prove the same, or by the acceptance of benefit under them. So 1405 is the exception. The failure to object to the presentation of oral evidence to prove the unenforceable agreement because it is not in writing. That is one exception. Art. 1406. When a contract is enforceable under the Statute of Frauds, and a public document is necessary for its registration in the Registry of Deeds, the parties may avail themselves of the right under Article 1357. This right is given only when contract is both valid and enforceable. 1406: Remember the case of Martinez vs. CA. The public document is only necessary for the registration with the Registry of Deeds and you can compel the other contracting party to observe the required form, and not for purposes of validity or enforceability. But for purposes of registration. Art. 1407. In a contract where both parties are incapable of giving consent, express or implied ratification by the parent, or guardian, as the case may be, of one of the contracting parties shall give the contract the same effect as if only one of them were incapacitated. If ratification is made by the parents or guardians, as the case may be, of both contracting parties, the contract shall be validated from the inception. 1407: I have discussed this already. Art. 1408: Unenforceable contracts cannot be assailed by third persons. Only the parties because the defense of Statute of Fraud is personal to the contracting parties. CHAPTER 9 VOID AND INEXISTENT CONTRACTS VOIDABLE VOID May be ratified - Cannot be ratified Produces effect until annulled - No effect Defect: incapacity/ vitiated consent - Defect is ordinarily against public policy Valid until annulled - Void from the very beginning; no action is required to set aside, UNLESS contract has been performed May be cured by prescription - Cannot be cured by prescription Defense may be invoked only by parties or their successors-in-interest Available to anybody 3rd persons provided that their interests are affected Referred to as relative/ conditional nullity - Absolute nullity. UNENFORCEABLE VOID 1. may be ratified - Cannot be ratified

50
2. there is contract but it is unenforceable; - No contract at all 3. cannot be assailed by third parties - Can be assailed by anybody directly affected. Art. 1409. The following contracts are inexistent and void from the beginning: (1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy; (2) Those which are absolutely simulated or fictitious; (3) Those whose cause or object did not exist at the time of the transaction; - (the object could not come into existence because the object may legally be a future thing) (4) Those whose object is outside the commerce of men; (5) Those which contemplate an impossible service; (6) Those where the intention of the parties relative to the principal object of the contract cannot be ascertained; (7) Those expressly prohibited or declared void by law. These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived. Special Classification 1. Inexistent essential formalities are not complied with. 2. Illegal/ illicit ones Simulate Contracts 1. Absolute void for lack of consent 2. Relative hidden/intended contract is binding CHARATERISTICS OF VOID CONTRACTS a. Right to set up the defense of illegality cannot be waived; appealable even if not raised in trial court. b. Action/defense for declaration as inexistent does not prescribe. c. Not available to third persons whose interests are not directly affected. d. Cannot give rise to a contract e. Produces no effect f. No action to declare them void is needed g. Cannot be ratified. VOID/INEXISTENT CONTRACTS And there are 7 (1409). Take note that it is void or inexistent from the beginning. These contracts cannot be ratified. Neither can the right to set up the defense if illegality be waived. There are certain contracts which are void, remember that void contracts do not produce any legal effect and no obligation shall arise from a void contract. Exception to the void contracts that cannot be ratified: The contract is void and yet the law says that it can be ratified. Ano yon? Any encumbrance or disposition of the property by the present/capacitated spouse without the written consent of the incapacitated or absentee spouse or without judicial authority is void. But it shall be a continuing offer between the spouse who did not obtain consent and the third person, and shall be considered as a perfected contract as soon as the written consent of the incapacitated spouse or absent spouse is obtaine or judicial authorization. Another is marriage. What kind? When the authority of the solemnizing officer is absent, but one or both the contracting parties believed in good faith that the solemnizing officer has the authority to do. Believed in good faith lang ang kailangan. It cannot prescribe but can be defeated by laches. When is there laches? When you sleep on your rights. You know that the contract is defective, it is void but you did not institute the appropriate action. Because while it may be true that void contracts have no legal effect from the very beginning. However, if there has been performance by one of the contracting parties, there is still a necessity for the declaring of the contract void. There is no need to declare nullity by the competent court if the contract is still purely executory, but if there is performance already, then you have to go to court and let the court declare that the contract is void. Art. 1410. The action or defense for the declaration of the inexistence of a contract does not prescribe. So the right might be lost by the unreasonable passage of time and not by prescription. (1410) 1410: The action of defense for the declaration of teh inexistence of a contract does not prescribe. But as I said, it can be defeated by laches. Art. 1411. When the nullity proceeds from the illegality of the cause or object of the contract, and the act constitutes a criminal offense, both parties being in pari delicto, they shall have no action against each other, and both shall be prosecuted. Moreover, the provisions of the Penal Code relative to the disposal of effects or instruments of a crime shall be applicable to the things or the price of the contract. This rule shall be applicable when only one of the parties is guilty; but the innocent one may claim what he has given, and shall not be bound to comply with his promise. (1305) Art. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the following rules shall be observed: (1) When the fault is on the part of both contracting parties, neither may recover what he has given by virtue of the contract, or demand the performance of the other's undertaking; (2) When only one of the contracting parties is at fault, he cannot recover what he has given by reason of the contract, or ask for the fulfillment of what has been promised him. The other, who is not at fault, may demand the return of what he has given without any obligation to comply his promise. 1411and 1412: 1411 referst to a contract that is void because it proceeds from the illegality of the cause or object and the act constitutes a criminal offense. Either both parties are in pari delicto, or only one of the parties is guilty. So what would be the rules if both parties are in bad faith or in pari delicto? They shall have no action against each other and both shall be prosecuted. And if you remember your provisions in the RPC, what would be the general rule with respect to the effects of a crime or its instruments? It shall be seized by the State. An example of which would be, illegal drugs. This rule shall be applicable when only one of the parties is guilty; but the innocent one may claim what he has given and shall not be bound to comply with his promise. The very common example of this is you deal in drugs. The rule is that when both parties are in bad faith, then the law leaves them where they are and they have no cause of action against each other. No action can be maintained in an illicit transaction. So take note that 1411 speaks of an act which has an illegal cause and the act constitutes a criminal offense. 1412 is also a void contract but the unlawful or forbidden cause does not constitute a criminal offense but nevertheless it is unlawful or forbidden. When the fault is on the part of both contracting parties, again neither may recover what he has given by virtue of the contract, or demand the performance of the other's undertaking. When only one of the contracting parties is at fault, he cannot recover what he has given by reason of the contract, or ask for the fulfillment of what has been promised by him. The other, who is not at fault, may demand the return of what he has given without any obligation to comply with his promise. That is the distinction between 1411 and 1412. One is that, 1411 refers to a contract which has an illegal cause which act proceeds from a criminal offense, whereas 1412, it is unlawful or forbidden but it does not constitute a criminal offense. Now what would be an unlawful or forbidden cause but does not constitute a criminal offense? Is a contract involving a sale of land to a foreigner valid? No. Is that a criminal offense? No. So if the State will find that out, what happens? Just like when you are a benificiary of CARP, you are prohibited to sell, transfer, encumber the property you acquired by reason of the implementation of CARP within 10 years, and if you violate that undertaking, the government will take back what has been given to you. And if you were the one who bought it, you could no longer get the money back as a form of punishment because there is really that prohibition.

51
So take note of 1411 and 1412. Now, would that apply to inexistent contracts? Inexistent contracts does not necessarily mean a void contract, because when we say inexistent, it does not actually exist, it is purely or absolutely simulated contract. Would that fall under 1411 and 1412, no. If you have read the case of Modina vs. CA and Guan vs. Ong. That will not fall under here because what has been entered into by the parties are what we call as absolutely simulated contracts. Now we no longer have the Usury Law. The laws on usury have been repealed, and parties can agree with respect to the rate of interest, provided that the rate of interest agreed upon is not unconscionable and inequitous which is for the court to be determine. Moreover, regardless of whether the rate of interest is unconscionable or inequitous, your utang shall subsist. It does not mean that the obligation is deemed extinguished by reason of the rate of interest imposed by the creditor. Art. 1413. Interest paid in excess of the interest allowed by the usury laws may be recovered by the debtor, with interest thereon from the date of the payment. Art. 1414. When money is paid or property delivered for an illegal purpose, the contract may be repudiated by one of the parties before the purpose has been accomplished, or before any damage has been caused to a third person. In such case, the courts may, if the public interest will thus be subserved, allow the party repudiating the contract to recover the money or property. Recovery even if it is in pari delicto provided The purpose has not yet been accomplished; or If damage has not been caused to any third person. Applies also if parties are not equally guilty and where public policy would be advanced by allowing the suit for relief. 1414: So suppose Miranda would give Querubin 100K to kill Gloria. Now suppose he later on has a change of heart and tells Quirubin please do not proceed with our plan. In that case if Miranda would decide to repudiate the plan and has a change of heart, then he can now get back what he has earlier given to Querubin before the purpose has been accomplished, and when public interest will be subserved, then the other can recover what he has given either money or property. Art. 1415. Where one of the parties to an illegal contract is incapable of giving consent, the courts may, if the interest of justice so demands allow recovery of money or property delivered by the incapacitated person. 1415: Suppose a minor buys a gram of shabu. Remember the penalty for illegal possession of drugs has been repealed and is now made to depend on the amount of the drugs. But if it were the incapacitated or the minor, then definitely the law will treat them differently. If you remember the Liguez case (?), Conchita was allowed to get what was promised to her because according to the court, being a minor, she occupies a privileged position under our law. And if you also notice most of the provisions in the RPC regarding minors would always lean to the protection of the minor Art. 1416. When the agreement is not illegal per se but is merely prohibited, and the prohibition by the law is designated for the protection of the plaintiff, he may, if public policy is thereby enhanced, recover what he has paid or delivered. Contracts: (1) Illegal per se forbidden for it is against public interest. (2) And merely prohibited contracts - forbidden because of private interest - recovery is permitted provided that: contract is not illegal per se prohibition is for protection of plaintiff; public policy is enhanced. 1416: Example of this is donation of all the properties of the donor, so it is not illegal per se, but it is prohibited because one is, it might prejudice the creditor. Second is you may no longer have anything to support your needs when you will be giving all your properties. Especially if donations inter vivos. This provision is actually designed for the protection of the donor. And in that case he can recover what he has delivered. Another example would be homestead lands. Art. 1417. When the price of any article or commodity is determined by statute, or by authority of law, any person paying any amount in excess of the maximum price allowed may recover such excess. 1417: This is true in basic necessities. And you have your friendly neigborhood variety store. So if your sari-sari store sells you more than what is permitted by DTI, you can go to DTI and complain. So here is you can recover the excess of what you have paid. Art. 1418. When the law fixes, or authorizes the fixing of the maximum number of hours of labor, and a contract is entered into whereby a laborer undertakes to work longer than the maximum thus fixed, he may demand additional compensation for service rendered beyond the time limit. 1418: So when the maximum hours of work is fixed, you can demand for overtime pay. May overtime pay be waived? It depends. If for service rendered, yes. But if you are still going to render service. No, that is against the law. Art. 1419. When the law sets, or authorizes the setting of a minimum wage for laborers, and a contract is agreed upon by which a laborer accepts a lower wage, he shall be entitled to recover the deficiency. Cannot be waived; Any contract in violation of this article shall be invalid. 1419: Is minimum wage. Art. 1420. In case of a divisible contract, if the illegal terms can be separated from the legal ones, the latter may be enforced. If indivisible, the whole contract is void. If divisible, the legal terms may be enforced if they can be separated from illegal terms. 1420: In case of a divisible contract, if the illegal terms can be separated from the legal ones, the latter may be enforced. So an example of that would be a pledge, and there is that stipulation that you cannot redeem what has been pledged and it becomes the property of the creditor, that is a void agreement.So in that case, the loan obligation shall remain but the pledge shall be stricken out. Art. 1421. The defense of illegality of contract is not available to third persons whose interests are not directly affected. 1421: So third persons can invoke as a defense the illegality of the contract for as long as they will be affected by such an illegal contract. Art. 1422. A contract which is the direct result of a previous illegal contract, is also void and inexistent. 1422: A contract which is the direct result of a previouis illegal contract, is also void and inexistent. Precisely because the previous contract might either be one that has an illegal object or an illegal cause or forbidden cause. In short, the contract that will arise from such forbidden contract would also be void and inexistent . Now there is this case Osmena vs. Commission on Audit. Now the City of Cebu appropriated 5 million for the construction of a modern abatoir but the allocation exceeded the budget. The construction company that won the bidding had already started building the slaughter house, and it demanded for the payment of what it had constructed. The parties and the City of Cebu arrived at a compromise agreement, the obligation as demanded by the constructor is about 2.5 million so they arrived at about 1.5 M as a compromise but it was questioned with respect to the compromise and it went to SC. SC said the compromise agreement is void because it is a derivative of a void contract.

52
Title III. - NATURAL OBLIGATIONS Art. 1423. Obligations are civil or natural. Civil obligations give a right of action to compel their performance. Natural obligations, not being based on positive law but on equity and natural law, do not grant a right of action to enforce their performance, but after voluntary fulfillment by the obligor, they authorize the retention of what has been delivered or rendered by reason thereof. Some natural obligations are set forth in the following articles. Voluntary Fulfillment debtor complies with the same even if he knows that he could not have been legally forced to do so. In case of partial voluntary fulfillment, the balance cannot be recovered since on said balance, no legal obligation has yet been created. In case of Prescription If prescription is unknown, there can be recovery. If it is known, no recovery, for this is a case of natural obligation. Example of Natural Obligation (1) Obligation to pay interest for use of money, even if not agreed upon in writing. (2) Duty to support natural or spurious children. (3) Giving of material and financial assistance to children upon their marriage. Moral obligation has no juridical tie; though it may be converted into civil obligation. (e.g. acknowledgment of a prescribed debt) NATURAL OBLIGATIONS Four kinds of obligations according to juridical science: moral obligations, these are obligations which are purely based on conscience or what we call as duty. Natural obligations are obligations not sanctioned by any action (court action). Civil obligations which are obligations enforceable in court, except unenforceable contracts. Mixed is either civil with moral, or moral with natural. But natural obligations may be converted into civil obligations by novation or by acknowledgement or confirmation such as that of a prescribed debt. 1423: Obligations are either civil or natural. Civil obligations give a right of action to compel their performance. Precisely when demand is made and the other person does not perform what is incumbent upon him, the creditor can institute an action to compel the obligor to perform his obligation. But such is not true in natural obligations because natural obligations are not based on positive law but on equity and natural law and being such they do not grant a right of action to enforce their performance, but after voluntary fulfillment by the obligor, they authorize the retention of what has been delivered and rendered by reason thereof. So if there has been voluntary performance then the person who has performed can no longer recover or demand for the return or the payment of what he has delivered or rendered. Art. 1424. When a right to sue upon a civil obligation has lapsed by extinctive prescription, the obligor who voluntarily performs the contract cannot recover what he has delivered or the value of the service he has rendered. So what are the different kinds of natural obligations? One of which is found in 1424. So in all instances the performance must be accompanied by voluntary because if there is no voluntariness in the performance, then the person who perform can demand the restoration or the payment of whatever has been delivered or rendered. So there is always that voluntariness on the part of the person who performs the obligation. Here is the civil obligation has already prescribed, so a debt has already prescribed because no demand was made within the period of 10 years and therefore the creditos could no longer sue the debtor for the non payment. But the obligor is conscience stricken, he voluntarily delivers. So in that case he can no longer demand for the return of what has been delivered. Art. 1425. When without the knowledge or against the will of the debtor, a third person pays a debt which the obligor is not legally bound to pay because the action thereon has prescribed, but the debtor later voluntarily reimburses the third person, the obligor cannot recover what he has paid. Another example would be 1425. Remember 1236 and 1237. Because the action the has already prescribed, but the debtor later voluntarily reimburses the third person, the obligor cannot recover what he has paid. He is not under obligation under the law to reimburse the third person because the payment did not redound to his benefit. Art. 1426. When a minor between eighteen and twenty-one years of age who has entered into a contract without the consent of the parent or guardian, after the annulment of the contract voluntarily returns the whole thing or price received, notwithstanding the fact the he has not been benefited thereby, there is no right to demand the thing or price thus returned. 1426. (15 years old to 17) Remember 1241: the minor is not obliged to restore. He is only obliged to restore if he has kept the thing or if it has redounded to his benefit. Art. 1427. When a minor between eighteen and twenty-one years of age, who has entered into a contract without the consent of the parent or guardian, voluntarily pays a sum of money or delivers a fungible thing in fulfillment of the obligation, there shall be no right to recover the same from the obligee who has spent or consumed it in good faith. 1427 no longer applies to 18-21, but by analogy it applies to those below 18. Correlate to 1239: delivers a sum of money a sum of money or a fungible thing in fulfillment of an obligation there shall be no right to recover the same from the obligee who has spent or consumed it in good faith. This was mentioned in 1239, you remember that. Art. 1428. When, after an action to enforce a civil obligation has failed the defendant voluntarily performs the obligation, he cannot demand the return of what he has delivered or the payment of the value of the service he has rendered. 1428: This time suppose A files a case against B. But the court decided in favor of B, therefore the complaint of A against B did not prosper so whatever he has prayed for in that complaint could no longer be recovered from B since there was an unfavorable judgment against A. However, if B decides to honor what has been written in the complaint and delivers voluntarily he could no longer asks for the return of what he has delivered or payment for the service he has rendered. Art. 1429. When a testate or intestate heir voluntarily pays a debt of the decedent exceeding the value of the property which he received by will or by the law of intestacy from the estate of the deceased, the payment is valid and cannot be rescinded by the payer. 1429: Remember 1311that the heirs is not liable beyond the value of what he has received, so he is not liable for the debts of the decedent which exceeds the amount he received from the decedent. Art. 1430. When a will is declared void because it has not been executed in accordance with the formalities required by law, but one of the intestate heirs, after the settlement of the debts of the deceased, pays a legacy in compliance with a clause in the defective will, the payment is effective and irrevocable. If the will is void, the legacy is also void and the deceased is considered to have died without a will. 1430: Wills are classified either notarial or holographic. Let us go to holographic or simple will. It has 3 requirements, one is it must be entirely handwritten by the testator, dated by the testator and signed by the testator. The requirement dated and signed applies to all pages of the will. If there are alterations, there must be a signature otherwise the will be void. Now suppose one of the pages was not dated. So if the testator dies what will the heirs do, they will now file before the court a special proceeding for the probate of the will. Now if one of the pages was undated, then the court declares the will void. So in that case, the stipulations in the will will no

53
longer govern the distribution of the estate of the deceased. So if what is stated here is a legacy (personal movable property) of a car and the will is void, then suppose the heirs are A, B, and C could now ignore the provisions in the holographic will. Despite the fact, the heirs chose to honor the legacy stated in the will. A, B, C as heirs of X. X already died, the will of X contains a stipulation in favor of D which was a legacy. The court declared the will void because one of the pages was not signed by the testator. But B and C now chose to honor the legacy, A did not want to. But he was forced by B and C, so there was force employed upon him, therefore consent was vitiated. Now A died a year later, the heirs of A, Y and R filed now a petition for rescission because the consent of A was vitiated by force. Being the heirs of A will the action for annulment prosper? No. Because while it may be true that they are successors in interest, the vice that was employed upon A is personal upon A and moreover, they merely have an inchoate right over the thing that was delivered to D as a legacy at the time of the delivery. So the action is true with A but not with Y and R. Natural obligations will only produce a binding effect if the performance is coupled with voluntariness. If there is no voluntarines on the performance, then the person who performed it can demand for the return of whatever he has delivered or payment for the service he has rendered. Otherwise, in the absence of voluntariness, it ceases to be a natural obligation. Title IV. - ESTOPPEL (n) A bar w/c precludes a person from asserting or denying anything contrary to that w/c has been, in contemplation of law, established as the truth, either by acts of judicial/legislative officers, by his own deed Art. 1431. Through estoppel an admission or representation is rendered conclusive upon the person making it, and cannot be denied or disproved as against the person relying thereon. Art. 1432. The principles of estoppel are hereby adopted insofar as they are not in conflict with the provisions of this Code, the Code of Commerce, the Rules of Court and special laws. Art. 1433. Estoppel may in pais or by deed. (1) Estoppel in Pais (Equitable estoppel) a. By conduct or by acceptance of benefits; b. By representation or concealment; c. By silence; d. By omission; e. By laches (unreasonable delay in suing) (2) Estoppel by Deed ( Technical estoppel) a. Proper (written instrument may also be in the form of a bond/mortgage) b. Estoppel by judgment as a Court record when court is in res judicata. Prevents the parties from raising questions that could have been put in issue and decided in previous case. Estoppel in Pais Arises when one, by his acts, representations or admissions or by his silence when he ought to speak out, intentionally or thru culpable negligence, induces another to believe certain facts to exist, and such the other rightfully relies and acts on such belief, so that he will be prejudiced if the former is permitted to deny the existence of such facts. 4 Elements of Laches a. Conduct on the part of defendant, or of one under whom he claims, giving rise to the situation of w/c the complaint is made and for w/c the complaint seeks a remedy. b. Delay in asserting the complainants rights, the complainant having had knowledge or notice of defendants conduct and having been afforded an opportunity to institute a suit. c. Lack of knowledge or notice on the part of the defendant that complainant would assert the right on w/c he bases his suit. d. Injury/ prejudice to defendant in the event relief is accorded to complainant, or the suit is not held to be barred. Estoppel by Deed A bar w/c precludes a party to a deed and his privies from asserting as against the other and his privies any right or title in derogation of deed, or from denying the truth of any material fact asserted in it. There must be a written contract; If deed/instrument is null and void, estoppel will not apply. If a person notarizes (and is not a party to), the instrument, estoppel does not apply. ESTOPPEL Estoppel is a bar that precludes a person from denying or asserting anything contrary to what he has ascertained earlier. A very common example of estoppel would be one that came out of a bar exam. This guy was walking a dog around the neighborhood. Now a neighbor asked the person whose dog he was walking. And he said, mine. A week later the same dog bit the neighbor. The neighbor went to the person and asked for reimbursement and the person said it is not my dog but a friend of mine's. I just walked the dog. Well, that is estoppel. He cannot assert something different from what he has represented earlier. Estoppel by silence or inaction. This is sometimes referred to as estopple by standing by or laches. The principle behind that is one who is silent when he ought to speak cannot be heard later on to speak when he ought to be silent. If there is a need to rebutt or affirm, then rebutt or affirm it otherwise you will be estopped later on from denying or affirming it. 1431: So estoppel works against the person representing that he is this type of person and later on he would say that it was just a joke if the other person has relied on your statement or representation. Now there is also what we call as estoppel by acquiesence. But estoppel is different from laches which is the failure to institute the action within the reasonable period of time. It is not based on positive law unlike prescription. Estoppel cannot be also predicated on an illegal act. Meaning the person who has acted on a particular illegal act, cannot be estopped. For example a person who is in need of money because a loved one is hospitalized and he goes to a money lender, and the money lender says my rate of interest is 20% per month. Despite that, he borrows. And later on when payment is to be made, he would now question the interest. The creditor cannot say that you are estopped from questionning the interest, because that is predicated in an illegal act. So estoppel will not lie against the debtor. Now other kinds of estoppel we have, corporation by estoppel. Like two or more persons would represent themselves to a person(stranger) that they are officers of a corporation and by reason of that misrepresentation, the third person would enter into a transaction with these people who are in fact not a corporation, then those who misrepresented themselves are already estopped from denying that actually no corporation existed. Then we have judgment by estoppel, (Tijam vs. Sibunghanoy): One of the parties knew that the court trying the case has no jurisdiction but despite knowledge he entered into trial. Unfortunately the ruling of the court was not favorable to the person who knew. So later he invoked the fact that the lower court had no jurisdiction, SC said he was estopped. We also have estopple in pais and estoppel by deed. Estoppel in pais is what we call as equitable estoppel. In cases of contracts, we know that a check is not a legal tender. But if the creditor accepts the check without any objection, he cannot be heard later on to say that the check is not a legal tender because of his acceptance of the check. Estoppel by deed or technical estoppel. Now a house made of strong material is an immovable. But the parties in an agreement may treat the house as a chattel, meaning movable. If the question arises later on about the contract, the parties cannot be heard later on to say that the contract is void because the object is not actually a movable but an immovable property. Yan, technical estoppel. Art. 1434. When a person who is not the owner of a thing sells or alienates and delivers it, and later the seller or grantor acquires title thereto, such title

54
passes by operation of law to the buyer or grantee. In this kind of estoppel, prejudice is not essential. Art. 1435. If a person in representation of another sells or alienates a thing, the former cannot subsequently set up his own title as against the buyer or grantee. Prejudice is not essential Art. 1436. A lessee or a bailee is estopped from asserting title to the thing leased or received, as against the lessor or bailor. Presumption does not apply if alleged tenant does not admit expressly or impliedly the existence of lease contract (such as when landlord did not, attach or plead in his complaint the contract of lease.) 1434: Here, the person is nt the owner of the thing alienated but he sold it. Later on however he acquired ownership of the thing. he cannot be heard later on that at the time of the alienation, he was not actually the owner but merely a representative. 1435 is the exact opposite of 1434. But a tenant will not be heard to dispute the title of the landlord. And the presumption is conclusive. It is not a disputable presumption. Neither can a bailee dispute the title of the bailor. Art. 1437. When in a contract between third persons concerning immovable property, one of them is misled by a person with respect to the ownership or real right over the real estate, the latter is precluded from asserting his legal title or interest therein, provided all these requisites are present: (1) There must be fraudulent representation or wrongful concealment of facts known to the party estopped; (2) The party precluded must intend that the other should act upon the facts as misrepresented; (3) The party misled must have been unaware of the true facts; and (4) The party defrauded must have acted in accordance with the misrepresentation. 1437 applies to an immovable property and a third person is misled by a person with respect to the ownership or real right over the immovable. The latter is precluded from asserting his legal title or interest provided all the requisites are present. 1. There must be fraudulent representation or wrongful concealment of facts known to the party estopped; 2. the part precluded must intend that the other should act upon the facts as misrepresented; 3. the party misled must have been unaware of the true facts; 4. The party defrauded must have acted in accordance with the misrepresentation. This applies to an immovable. If it were a movable, you apply 1435 and 1436. Art. 1438. One who has allowed another to assume apparent ownership of personal property for the purpose of making any transfer of it, cannot, if he received the sum for which a pledge has been constituted, set up his own title to defeat the pledge of the property, made by the other to a pledgee who received the same in good faith and for value. Estoppel resulting from acceptance of benefits (knowledge of true facts) 1438 applies to a situation wherein you allow your friend to borrow your jewelry and pawn. And later on also made use of the portion of the proceeds of the loan. And later on you had a change of heart and tells the owner of the pawnshop that you are the owner. that is estoppel. Because there is estoppel in the acceptance of benefits. Art. 1439. Estoppel is effective only as between the parties thereto or their successors in interest. 1439: Estoppel is effective only as between the parties thereto or their successors in interest. But not to third persons. Third persons can invoke the principle of estoppel. Now estoppel does not lie against the state. Neither does prescription lie against the state. That is the general rule. 2 hours ago Like Subscribe Mina Chi 1305-1389 OBLI CONTRACTS Art. 1305. A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service. (1254a) CONTRACT is a juridical convention manifested in legal form, by virtue of w/c, one or more persons bind themselves in favor of another or others, or reciprocally, to the fulfillment of a prestation to give, to do or not to do. ELEMENTS (Essential) Consent Subject matter Cause/consideration NATURAL Elements those found in certain contracts and presumed to exist, unless the contrary has been stipulated. ACCIDENTAL Elements various particular stipulations that may be agreed upon by the contracting parties in a contract. CLASSIFICATION OF CONTRACTS A. According to Formation a. Consensual perfected by consent b. Real - perfected by delivery c. Formal/solemn those where special formalities are essential before contract may be perfected. B. According to Cause/Equivalence of Value of Prestations a. Onerous interchange of equivalent valuable considerations b. Gratuitous/ lucrative free, one party receives no equivalent prestation c. Remunerative one where one prestation is given for a benefit or service that had been rendered previously. C. According to Importance/ Dependence of One upon Another a. Principal contract stands alone by itself b. Accessory depends for its existence upon another contract. (eg. Mortgage; principal is Loan) c. Preparatory contract is not the end itself but as means through w/c future transactions or contracts may be made. D. Parties Delegated a. Unilateral one party has obligation b. Bilateral both parties are obliged to give or render reciprocal prestations E. Name/Designation a. Nominate contract has a name b. Innominate contract has no name F. Risk of Fulfillment a. Commutative parties contemplated a real fulfillment; equivalent value are given (lease) b. Aleatory fulfillment is dependent upon chance; values vary. G. Time of Performance a. Executed one contemplated at time the contract is entered into, that is, obligations are complied with at this time (eg. Contract of sale) b. Executory prestations are to be complied with at some future time (eg. Property not yet delivered and price not yet given) H. Subject Matter a. Contract involving things (eg. Sale) b. Contract involving Rights/credits (usufruct, assignment of credits) c. Contract involving services (carriage)

55
I. Obligation Imposed and regarded by Law a. Ordinary b. Institutional J. Evidence Required for its Proof a. Parol/oral b. Required written proof K. No. of Persons actually and physically entering into Contracts a. Ordinary (2) b. Auto-contracts one represents 2 opposite parties but in different capacities L. #of Persons participating in Drafting a Contract a. Ordinary e.g sale b. Contract of Adhesion buyer or person interested is insured, signifies his consent by signing the contract. M. Nature a. Personal b. Impersonal STAGES OF CONTRACT 1. Preparation (conception) negotiations between parties 2. Perfection (birth) agreement; elements of subject matter and valid cause accepted by mutual consent. 3. Consummation (termination) terms of contract are perfected. Basic Principles/Characteristics of Contract 1. Freedom to stipulate 2. Obligatory force and compliance in good faith 3. Perfection by mere consent 4. Both parties are mutually bound 5. Relativity Contract: juridical convention manifested in legal form, by virtue of which one or more persons bind themselves in favor of another or others, or reciprocally, to the fulfillment of a prestation to give, to do, or not to do. 1305 says that a contract is the meeting of minds between two persons whereby one binds himself with respect to the other to give some thing or to render some service. It does not mean that the parties are only limited to only two persons. The appropriate term is to parties because there can be as many persons in a contract as they are interested in the contract. May a person enter into a contract with himself? Yes, but in different capacities. (contracts of adhesion) He can be a vendor and a vendee at the same time only that in one contract he might merely be an agent and the other the buyer. So different capacities in one person. Now, may any person just enter into a contract? Is that right absolute? No, because there are certain limitations. Such as: husbands and wives cannot enter into contracts involving properties, except if there is complete separation of property. Other limitations: in agency, if the agent is authorized to borrow money, can the agent also be the lender? Or if he is authorized to lend, may he borrow money? But if he is authorized to lend, can he use his own money? o The existence of a contract is not determined by the number of persons who intervene in it, but by the number of declarations of will. (Contracts of adhesion) What are contracts of adhesion? Example of which would be an insurance contract. Now, we learned before that in cases of contracts of adhesion, in case of doubt, the construction is construed strictly against that person who prepared that contract, and liberally in favor of the person who does nothing but merely affixes his signature to the already prepared contract. Because in that case, the parties do not stand on equal footing. The debtor, especially if he borrows money from the bank, cannot stipulate his term. He cannot say that this is onerous on my part. He cannot do that. The only option is to either to sign or not to sign. So in those cases in case of doubt, the interpretation would always be in favor of the person who merely affixed his signature thereto and who did not participate in the preparation of the contract. Now, what are the characteristics of a contract? Contracts have three characteristics: we have the obligatory force of contracts. Now, what is meant by obligatory force of contracts? Just like autonomy of will, what has been stipulated in the contract is the law between the parties to the contract. And one cannot be heard later on to say that the agreement is disadvantageous on his part. The presumption is that at the time of the negotiation, prior to the perfection of the contract, the parties freely stipulates the conditions, terms and stipulations that may have agreed which arrived at and belong to the perfection of the contract. The second is mutuality of contract. The validity and performance cannot be left to the performance of one of the contracting parties and leaving the other free from complying with what is stipulated in the contract. The third is the principle of relativity of contracts. That it only binds the parties to the contract and their successors in interest. One of the exceptions there is: if there is a stipulation in favor of a third person. Now, contracts have 3 elements. We have the essential elements. Consent, subject matter, and the cause. The cause is the why of the contract, the reason why parties entered into the contract. Then we have the natural elements, which are those elements that even if not agreed upon by the parties form part of the contract. An example of which would be the warranty against hidden defects. The third element would be the accidental elements. The accidental elements are the ones that must be agreed upon by the parties. That if it is not stipulated there, the presumption is that it is not part of the agreement. An example would be that if the parties agree that in case of breach, their liability would be solidary. Because, under the law, solidary liability is not presumed. To arrive at a consummated or perfected contract, there are three stages: when the parties bargain or negotiate, you call that preparation or generation. Ano ang kasama sa negotiation? The price. Then you have perfection, the birth and the perfection of the contract. And when you pay the price and he delivers what you have bought, then that is consummation or death of the contract. Because there is now fulfillment or performance of the terms agreed upon in the contract. Now, how are contracts classified? First is according to the degree of dependence, a contract may be preparatory in nature such as a contract of agency because this would lead to future transactions. Why is it called preparatory? It is called such in as much as it looks forward to future transactions. Now what are those future transactions that will arise from a contract of agency? It would depend to the powers granted. If Y is authorized to lend money, what would be the future transaction that would arise? A contract of loan. This is what you call as future transactions. So, the contract of loan is the principal contract. A contract might also be considered accessory because its existence will depend on the principal contract. So if the loan is guaranteed by a mortgage, then this is the accessory contract. So the contract of loan is the principal contract, the contract of agency the prepratory contract and the contract of mortgage the accessory contract. So, how are contracts perfected? It might be perfected by mere consent and they are called as consensual, such as sale. Now, if a contract of sale does not have any document is that a valid contract? Yes, because it is perfected by mere consent. Is marriage a consensual contract? Yes. You don't have to have the contract or certificate of marriage. Hindi man yan kailangan. But there are certain contracts that will require delivery aside from consent, an example of which would be antichresis. Remember antichresis? You have to deliver the property in order that antichresis shall be perfected. Because there can be no antichresis if the debtor does not deliver the property. Art. 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy.

56
1306: Autonomy of contract = to autonomy of will; it is the obligatory force between the parties. 1306 Autonomy of Contracts: But there are certain limitations. As I said, it must not be contrary to law, likewise even if the parties would say "this is valid between us ha, the promissory note of a gambling debt". So, if X and A played Tong-its and then their bet is 50K, natalo si A at umabot ang utang nya ng 300,000. So, sabi ni A, i don't have the money now, but i will furnish you a promissory note, this PN if suppose A would not pay what is stated on it, X will not have a cause of action against A. X cannot sue A by reason of the PN, because this is not a contractual debt. The cause of the issuance is an illegal cause, it is from gambling. (except those allowed). So in this case, A in fact can recover what he had lost from X kung nagbigay sya ng pera, of course he cannot recover under the circumstances of the promissory note, because as I've said, the PN cannot be the basis for X to file a case against A because the source is from a polluted source from one not allowed by law. (illegal gambling) But suppose X would negotiate the PN to Y, who received the PN in good faith and paid value for it. (like, sige discounted ko yan, 20K). Now, Y would demand from A the value of the PN. A cannot invoke as a defense that the PN is a void PN as against a 3rd person who acted in good faith and paid the PN with consideration. Between Y and A, Y can still collect the amount stated in the PN. he is not affected by the agreement between X and A. (because 3rd persons are always protected.) Now, parties are free to stipulate. Yes, but the juridical relations as well as the rights and obligations that would arise by reason of that contract that you have entered into is not governed by the stipulation of the parties, but rather by law. Such as what? Suppose A executed a deed of Sale with right to repurchase in favor of C. The deed of Sale with right to repurchase contains that A, for and in consideration of the sum of 20K hereby transfers, sells, conveys, disposes, alienates his parcel of land covered by TCT 123 located in Ecoland D.C. consisting of 500 sq. m. And if A will be unable to repurchase the property within the period of 1 year, then B's right over the property shall be absolute and unconditional. Now, looking at it, would you believe that that is a valid deed of sale taking into account that the land is located in Ecoland, and only for 20K for 500sq. m.? Would the parties now be bound by that agreement in case there is a doubt? No, because while it might be true that the stipulation is the law between the parties, however, the rights and obligations which arise by reason of this contract is not governed by the stipulations. In fact, by looking at it, it would seem that the contract entered into is one of mortgage, only couched differently by the parties. For one, the consideration is very very low. Second, there is a period to repurchase within one year. So those are the considerations that must be taken together when the parties entered into the agreement. There would be no question if the consideration was 20million, that would really be a deed of sale with right to repurchase because the consideration given is really equivalent to the value of the property based on its location. So in that case, the SC said, in case of doubt, it is one of equitable mortgage, not of sale with right to repurchase. So, that is an example of the principle that while it may be true that parties are bound by their stipulations and it shall constitute the law between them, however, the juridical relations as well as the rights and obligations that will arise by reason of the contract is not governed by the stipulation but rather by law. - not absolute because there are limitations, such as husband and wives cannot enter into a contract subject to certain exceptions, an agent authorized to lend cannot borrow. Art. 1307. Innominate contracts shall be regulated by the stipulations of the parties, by the provisions of Titles I and II of this Book, by the rules governing the most analogous nominate contracts, and by the customs of the place. (n) 4 Kinds of Innominate Contracts i. Do ut Des ( I give that you may give) ii. Do ut Facias ( I give that you may do) iii. Facio ut Des (I do that you may give) iv. Facio ut Facias (I do that you may do) Rules Governing Innominate i. Stipulations of parties ii. Provisions of Title I and II iii. Rules governing most analogous nominate contract iv. Customs of place 1307: Innominate Contracts These are contracts that have no specific name. Unlike when you enter into a contract of sale, there is this deed of sale; when you rent, there is this contract of lease, or when you borrow money, and it is secured by a pledge, it is a loan with pledge. Here, the agreement has no specific name, like when a lawyer and a client enters into an agreement whereby the client hires the services of the lawyer, there is no specific name. There are four kinds of innominate contracts 1. Do ut des ( I give and you give) 2. Do ut facias ( I give and you do) 3. Facio ut des ( I do and you give) 4. Facio ut facias ( I do and you do) There was this very old case. There was this Spaniard who came to the Philippines and wanted to tour the Philippines. Unfortunately, he did not know how to speak the local dialect. When one of the Filipinos learned the dilemma of the Spaniard, the presented himself to do the interpretation. So he went around the island. After the tour, the Filipino now demanded payment for his services. The Spaniard countered that there was no contract between them because the Filipino presented himself, voluntarily entered into the request of the Spaniard. But the SC said that as soon as you have hired the services of the person and you made use of the talent of that person, he is therefore entitled for compensation. Regardless if there is a contract or not. Now, in one bar examination, the question goes like this: X called B, "can you go to the store to buy for me the following items?". Was there a contract entered into by the parties, and if there was what kind of a contract was it? Can the person demand payment for the services he rendered, assumed that the person consented the request. There is a contract, because he rendered his services and he is entitled to compensation. o Innominate contracts are, in the absence of stipulations and specific provisions of law on the matter, to be governed by rules applicable to the most analogous contract. Art. 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them. (1256a) Mutuality of contracts both parties are bound. Consequences of Mutuality 1. A party cannot revoke or renounce a contract w/o the consent of the other, nor can have it set aside on the ground that he had made a bad bargain. 2. When the fulfillment of condition depends upon the sole will of debtor, the conditional obligation is void if the condition is suspensive; if it is resolutory it is valid. 1308: Speaks of mutuality of contracts that both parties must be bound by the agreements that they have entered into. Its validity and compliance cannot be left to the will of only one of them. So, in this case, the presumption is that both parties at the time of the negotiation, at the time of the bargaining stage, they stood on equal footing. Meaning each one of them participated during the negotiation stage, precisely which lead to the perfection of the contract. So, mutuality is that both parties must be bound to the contract, it cannot be left to one of the parties alone leaving the other party free from complying with what is incumbent upon him.

57
- 1308: The contract must bind both contracting parties; its validity cannot be left to the will of one of them. - Mutuality of contract. - The binding effect of the contract on both the parties is based on the principles that (1) obligations arising from contracts have the force of law between the contracting parties; and (2) there must be mutuality between the parties based on their essential equality. - Just as nobody can be forced to enter into a contract, in the same manner once a contract is entered into, no party can renounce it unilaterally or without the consent of the other. The fact that a party may not have fully understood the legal effect of the contract is no ground for setting it aside. The unilateral act of one party in terminating the contract without legal cause makes it liable for damages. - Allied Bank case: . It is a purely executory contract and at most confers a right to obtain a renewal if there is compliance with the conditions on which the right is made to depend. The right of renewal constitutes a part of the lessees interest in the land and forms a substantial and integral part of the agreement. - The fact that such option is binding only on the lessor and can be exercised only by the lessee does not render it void for lack of mutuality. After all, the lessor is free to give or not to give the option to the lessee. And while the lessee has a right to elect whether to continue with the lease or not, once he exercises his option to continue and the lessor accepts, both parties are thereafter bound by the new lease agreement. Their rights and obligations become mutually fixed, and the lessee is entitled to retain possession of the property for the duration of the new lease, and the lessor may hold him liable for the rent therefor. The lessee cannot thereafter escape liability even if he should subsequently decide to abandon the premises. Mutuality obtains in such a contract and equality exists between the lessor and the lessee since they remain with the same faculties in respect to fulfillment. The questioned provision states that the lease "may be renewed for a like term at the option of the lessee." The lessor is bound by the option he has conceded to the lessee. The lessee likewise becomes bound only when he exercises his option and the lessor cannot thereafter be excused from performing his part of the agreement Art. 1309. The determination of the performance may be left to a third person, whose decision shall not be binding until it has been made known to both contracting parties. (n) E.g. in a contract of sale, the fixing of price and delivery date can be left to a 3rd person; the decision binds the party only after it is made known to both. Art. 1310. The determination shall not be obligatory if it is evidently inequitable. In such case, the courts shall decide what is equitable under the circumstances. (n) Art. 1311. Contracts take effect only between the parties, their assigns and heirs, except in case where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by provision of law. The heir is not liable beyond the value of the property he received from the decedent. If a contract should contain some stipulation in favor of a third person, he may demand its fulfillment provided he communicated his acceptance to the obligor before its revocation. A mere incidental benefit or interest of a person is not sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a third person. (1257a) Principle of Relativity Contracts are generally effective only between the parties, their assigns and their heirs. Exceptions: 1. Where obligations arising from the contract are not transmissible by their nature, by stipulation in favor of a 3rd party. 2. Where there is stipulation Pour Autri ( a stipulation in favor of 3rd person) 3. Where a third person induces another to violate his contract 4. Where in some cases, 3rd persons may be adversely affected by a contract where they did not participate. 5. Where law authorizes the creditor to sue on a contract entered into by his debtor. i. Requisites of Stipulation Pour Autri a) There must be a stipulation in favor of a 3rd person; b) Contracting parties must have clearly and deliberately conferred a favor upon a 3rd person; c) A mere incidental benefit or interest of a person is not sufficient d) The stipulation must be part of contract and not the whole of the contract; e) 3rd person communicated his acceptance to obligor before its revocation; f) There must be no relation of agency between either of the parties and 3rd person. (Neither the contracting parties bears the representation or authorization of the 3rd party.) g) That the favorable condition should not be conditioned or compensated by any kind of obligation or whatsoever; Art. 1312. In contracts creating real rights, third persons who come into possession of the object of the contract are bound thereby, subject to the provisions of the Mortgage Law and the Land Registration Laws. Art. 1314. Any third person who induces another to violate his contract shall be liable for damages to the other contracting party. Requisites: 1. Existence of a valid contract; 2. Knowledge by the 3rd person of the existence of the contract; 3. Interference of the 3rd person in the contractual relation without legal justification. Art. 1315. Contracts are perfected by mere consent, and from that moment the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law. (1258) Consensual contracts are perfected from the moment there is agreement (consent) on the subject matter, and the Cause or consideration. Note: Contracts are not what the parties choose to call them, but what they really are as determined by the principles of laws. The validity of stipulations is one thing, and the juridical qualification of the contract resulting therefrom is another. Art. 1316. Real contracts, such as deposit, pledge and Commodatum, are not perfected until the delivery of the object of the obligation. (n) Requires Consent, Subject matter, Cause/consideration and Delivery. Art. 1317. No one may contract in the name of another without being authorized by the latter, or unless he has by law a right to represent him. A contract entered into in the name of another by one who has no authority or legal representation, or who has acted beyond his powers, shall be unenforceable, unless it is ratified, expressly or impliedly, by the person on whose behalf it has been executed, before it is revoked by the other contracting party. (1259a) Requisites for a Person to Contract in the Name of Another a) He must be duly authorized (express/impliedly) b) He must have by law a right to represent him (guardian/administrator) c) Contract must be subsequently ratified (express/implied, by word or deed) Unenforceable contracts are valid contracts but they cannot be enforced through court actions. CF: Law on agency ESSENTIAL REQUISITES OF CONTRACTS Art. 1318. There is no contract unless the following requisites concur: (1) Consent of the contracting parties; (2) Object certain which is the subject matter of the contract;

58
(3) Cause of the obligation which is established. Note: 1. Consent presupposes legal capacity, otherwise, contract is voidable. 2. Object certain means at the very least determinable I. CONSENT It is the meeting of the minds between parties on the subject matter and the cause of the contract, even if neither one has been delivered. Consent may be express or implied. Theories: 1. Cognition Theory Contracts are perfected only upon the knowledge of the offer of the acceptance of the offeree. (Used if consent is manifested through letter or telegram; adhered in the Phil.) 2. Manifestation Theory Contracts are perfected upon the moment acceptance is declared, regardless of whether the declaration has come to the knowledge of the offeror or not. 3. Expedition Theory Contracts are perfected the moment the offeree transmits the acceptance to the offeror, such as the letter or telegram of acceptance is placed in the mail box. 4. Reception Theory Contracts are perfected upon the time the acceptance is in the hand of the offeror (regardless of knowledge or if he read the same) Note: Offer by telephone similar to face to face conversation. Note: In our law, according to maam G., silence does not authorize any definite conclusion. However, according to Tolentino, there are requisites in order that silence produces tacit acceptance, namely: a. There is a duty or the possibility to express oneself; b. The manifestation of the will cannot be interpreted in any other way; c. There is a clear identity in the effect of the silence and the undisclosed will. Art. 1319. Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes a counter-offer. Acceptance made by letter or telegram does not bind the offerer except from the time it came to his knowledge. The contract, in such a case, is presumed to have been entered into in the place where the offer was made. (1262a) Requisites of Consent a) Plurality of subjects/parties; b) Parties must be capable or capacitated; c) There must be no vitiation of consent or consent must be made intelligently and freely; d) There must be no conflict between what was expressly declared and what was really intended; e) The intent must be declared properly (legal formalities must be complied with) Note: Accdg. to Tolentino: (f) express or tacit manifestation of the will and (g) conformity of the internal will and its manifestation. Requisites for Meeting of Minds a) An offer that must be certain - An offer must be definite, complete and intentional. b) And an acceptance that must be Unqualified and absolute. If there are 2 contracts and they are independent of each other, acceptance of one does not imply acceptance of the other. A qualified acceptance constitutes a counter-offer. Note: Offer and acceptance may be withdrawn before perfection of the contract. If a persons offers the same thing to two persons, at different times, and the second offeree accepts the offer before the first, the offeror becomes liable for damages to the 1st offeree if he does not withdraw his offer prior to the acceptance of the 2nd offeree. Q: Is there a perfected contract in a qualified acceptance? No, there is no contract if there is a qualified acceptance. What happens is a counter-offer. Note: Another type of acceptance is amplified acceptance. Here, there is acceptance but there is a qualification. So, there is no perfected contract. When we say amplified, "I'm selling you mangosteen at 5/kl but you have to get 100 kilos. I will buy another 100 for the same price." Is there a perfected contract there? Yes, with respect to the first but not to the 2nd. There is a perfected contract with respect to the first (sell at 5/kilo) but not to the second offer (buy 100 kilos). Note: Rule on public offers: A promise may be made publicly by way of advertising a reward, compensation, or prize for any person who performs of executes a particular act or obtains a particular result. This is a unilateral promise. A unilateral promise is not recognized by our Code as having obligatory effect. In order that such promise can be enforced, there must be an acceptance that shall convert it into a contract. So the performance of the act for which a reward or prize is promised can be considered as an acceptance. Art. 1320. An acceptance may be express or implied. (n) Forms of Acceptance 1. express 2. implied 3. presumed (by law)

1321: The person making the offer may fix the time, place and manner of acceptance, all of which must be complied with. Note: When the offeror has not fixed a period and the offer is made to a person present, the acceptance must be made immediately. 1322: An offer made through an agent is accepted from the time acceptance is communicated to him. Art. 1323. An offer becomes ineffective upon the death, civil interdiction, insanity, or insolvency of either party before acceptance is conveyed. (n) Other instances when Offer becomes Ineffective a) When the offeree expressly or impliedly rejects the offer; b) When the offer is accepted with a qualification or condition; c) When before acceptance is communicated, the subject matter has become illegal or impossible; d) When the period of time given to the offeree w/in which he must signify his acceptance has already lapsed. e) When the offer is revoked in due time (before the offeror has learned of its acceptance by the offeree) Art. 1324. When the offerer has allowed the offeree a certain period to accept, the offer may be withdrawn at any time before acceptance by communicating such withdrawal, except when the option is founded upon a consideration, as something paid or promised. (n) GEN. RULE: If the offeror has allowed the offeree a certain period to accept, the offer may be withdrawn at any time before acceptance (of thing being offered) by communicating such withdrawal. Exception: when the option is founded upon a consideration as something paid or promised. OPTION CONTRACT contract granting a person the privilege to buy or not to buy certain objects at anytime w/in the agreed period at a fixed price.

59
- It must have its own cause/consideration because it is a distinct contract; and the grant must be exclusive - The cause is not only price but something/anything of value; may also come in the form of a forfeiture. - It binds the party who has given the option not to enter into the principal contract with any other person during the period designated and, within that period, to enter into such contract with the one to whom the option was granted if the latter should decide to use the option. From Transcription: Suppose Y will say "give me 3 days to decide, but here is 10,000 as earnest money" and A says "okay, i will accept it. We will just execute the deed of sale as soon as you deliver the balance." Then that is removed from 1324 because it says part of the purchase price. Earnest money is actually part of the purchase price. there is no contract of option here but a perfected contract of sale. Art. 1325. Unless it appears otherwise, business advertisements of things for sale are not definite offers, but mere invitations to make an offer. (n) Unless the object is determinate, the business advertisement is not an offer. Art. 1326. Advertisements for bidders are simply invitations to make proposals, and the advertiser is not bound to accept the highest or lowest bidder, unless the contrary appears. (n) Exceptions: Judicial sales and if specifically stated in the advertisement Art. 1327. The following cannot give consent to a contract: (1) Unemancipated minors; (2) Insane or demented persons, and deaf-mutes who do not know how to write. (1263a) In General, Contracts w/c they enter into are Voidable, Unless: a) Upon reaching the age of majority, they ratify the same; b) They were entered into through a guardian and the court having jurisdiction had approved it; c) Contracts of life insurance in favor of their parents, spouse, children, brothers and sisters and provided furthermore that the minor is 18 years and above. d) In the form of savings account, provided that minor was at least 7 years old. e) They were contracts for necessities such as food, but here the people who are legally bound to give them support should pay therefore. f) They were contracts where the minor misrepresented his age and pretended to be one of major age and is thus in Estoppel. INSANE/DEMENTED PERSONS no proper declaration of insanity by the court is required, as long as it is shown that at the time of contracting, the person was really insane. Note: But if both are incapable of giving consent, the contract is unenforceable. Art. 1328. Contracts entered into during a lucid interval are valid. Contracts agreed to in a state of drunkenness or during a hypnotic spell are voidable. (n) Voidable Contracts: a) Entered into by insane/demented persons (unless they acted during a lucid interval) b) Those in state of drunkenness c) Under hypnotic spell Art. 1329. The incapacity declared in article 1327 is subject to the modifications determined by law, and is understood to be without prejudice to special disqualifications established in the laws. (1264) Incompetents under Rules of Court a) Under Civil interdiction Mistake as to the identity or qualifications of one of the parties will vitiate consent only when such identity or qualifications have been the principal cause of the contract. A simple mistake of account shall give rise to its correction. (1266a) Requisites For Mistake to Vitiate Consent a) The error must be substantial regarding: Object of contract The conditions w/c principally moved/induced one of the parties. Identity or qualifications but only if such was the principal cause of the contract. b) The error must be excusable (not caused by negligence) c) The error must be a mistake of fact and not of law. (Mistake of law is not a ground for annulment of contracts) Error of law refers to a mistake as to the existence of a legal provision or as to its interpretation or application. Note: If the error refers to the rights of the parties in the contract, the contract is not invalidated. Errors which do not affect the validity of the contract: 1. error with respect to accidental qualifies of the object of the contract; 2. error in the value of the thing; 3. error which refers to accessory matters in the contract foreign to the determination of the object. 4. error in the name of the person, but without error as to the person. Error as to the person will invalidate consent when the consideration of the person has been the principal cause of the contract. 5. error as to the solvency of the party; 6. error as to the motive of a party Art. 1332. When one of the parties is unable to read, or if the contract is in a language not understood by him, and mistake or fraud is alleged, the person enforcing the contract must show that the terms thereof have been fully explained to the former. (n) Presumption: One always acts with due care and signs with full knowledge of all the contents of a document even if the mind of the party signing was confused at the time of signing as long as he knew what he was doing. When Presumption Cannot Apply a) When one of the parties is unable to read b) Or if contract is in a language not understood by one of the parties b) Hospitalized lepers c) Prodigals d) Deaf and dumb; unable to read and write e) Unsound mind even though they have lucid intervals f) Those who by reason of age, disease, weak mind, and other similar causes, cannot w/o aid, take care of themselves and manage their property. Art. 1330. A contract where consent is given through mistake, violence, intimidation, undue influence, or fraud is voidable. (1265a) Vices/Causes of Vitiated Consent Mistake (error) Fraud (deceit) Violence Intimidation Undue influence Note: Vitiated consent does not avoid the contract but merely renders it voidable. Mere preponderance of evidence is not sufficient. Art. 1331. In order that mistake may invalidate consent, it should refer to the substance of the thing which is the object of the contract, or to those conditions which have principally moved one or both parties to enter into the contract.

60
In both cases, the person enforcing the contract must show that the terms thereof have been fully explained to the former. Art. 1333. There is no mistake if the party alleging it knew the doubt, contingency or risk affecting the object of the contract. (n) Art. 1334. Mutual error as to the legal effect of an agreement when the real purpose of the parties is frustrated, may vitiate consent. (n) Requisites for Mutual Error To Vitiate Consent 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. If there is no meeting of the mind and both parties erroneously that their acts is intended towards a particular contract but the same was not met/frustrated then the remedy is annulment, otherwise it is REFORMATION. 1334: The provision here refers to mistakes of doubtful questions of law. Legal effects. Doubtful questions of law, or the different interpretations or construction of the law. So in that case, you cannot agree to a certain provision, that might lead to frustration of the real intention of the parties that would warrant annulment. Art. 1335. There is violence when in order to wrest consent, serious or irresistible force is employed. There is intimidation when one of the contracting parties is compelled by a reasonable and well-grounded fear of an imminent and grave evil upon his person or property, or upon the person or property of his spouse, descendants or ascendants, to give his consent. To determine the degree of intimidation, the age, sex and condition of the person shall be borne in mind. A threat to enforce one's claim through competent authority, if the claim is just or legal, does not vitiate consent. (1267a) Requisites for Violence to Vitiate Consent a) Employment of serious or irresistible force. b) It must have been the efficient cause why the contract was entered into. Requisites for Intimidation to Vitiate Consent a) Reasonable and well-grounded fear b) Of an imminent and grave evil c) Upon his person, property or upon the person or property of his spouse, descendants or ascendants; d) Efficient cause of the execution of the contract; e) The threat must be an unjust act, an actionable wrong. Now, when is there violence, when is there intimidation? The same definition that you have in your criminal law. (1335) Violence, in order to wrest consent, serious or irrisistible force is employed. Intimidation: compelled by a resonable and well-grounded fear of an imminent and grave evil upon the person or property of one of the contracting parties, or employed upon the spouse, descendants or ascendants, to give his consent. (or their properties). Take note of third paragraph, it is also found in your criminal law. The last paragraph is enforcement of one's claim through competent authority. Undue influence: when a person takes improper advantage of his powe over the will of another, depriving the latter of a reasonable freedom of choice. The following shall be considered: the confidential (the priest), family, spiritual and other relations between the parties, or that the person alleged to have been unduly influenced was suffering from mental weakness, or was ignorant or in financial distress. Art. 1336. Violence or intimidation shall annul the obligation, although it may have been employed by a third person who did not take part in the contract. (1268) Art. 1337. There is undue influence when a person takes improper advantage of his power over the will of another, depriving the latter of a reasonable freedom of choice. The following circumstances shall be considered: the confidential, family, spiritual and other relations between the parties, or the fact that the person alleged to have been unduly influenced was suffering from mental weakness, or was ignorant or in financial distress. (n) Art. 1338. There is fraud when, through insidious words or machinations of one of the contracting parties, the other is induced to enter into a contract which, without them, he would not have agreed to. (1269) Kinds of Fraud A. Fraud in the Celebration of Contract a) Dolo Causante were it not for the fraud, the other party would not have consented--the contract is voidable b) Dolo Incidente even w/o the fraud, the parties would have still agreed, fraud is incidental--Contract is valid but damages may be recovered. B. Fraud in Performance of Obligations stipulated in the Contract Requisites of Dolo Causante a) Fraud must be material and serious; induced the other to consent; b) Fraud must have been employed by only one of the contracting parties, because if both committed fraud, the contract would remain valid. c) There must be a deliberate intent to deceive or to induce therefore misrepresentation in good faith is not fraud. d) The other party must have relied on the untrue statement and must himself not be guilty of negligence in ascertaining the truth. 1338: There is fraud when, through insidouse words or machinations, the other party was induced. And it must not be employed on a co-party. It must be employed against the other contracting parties. And if both parties employed fraud, the courts will leave them where they are. It is as if they were in good faith because of the fact that they are in pari delicto. Now, the fraud here is fraud at the time of the inception of the contract, not the fraud at the time of the fulfillment of the contract. Because if it were the latter, that belongs to 1171, and it cannot result to the nullity or annulment of the contract but will only be a ground for damages. But if it were fraud under 1338, it can be a ground for nullity or annulment of the contract plus damages. But the fraud here must be one that is causal. (dolo causante). Because if it were merely dolo incidente, no annulment, merely damages. And the fraud alleged by the other party seeking annulment must be clearly and convincingly established by sufficient and clear evidence, not by mere preponderance. So, requisites of fraud: 1. It must have been employed by one contracting party upon the other contracting party, not against a co-party. 2. It must have induced the other party to enter into the contract; example: when you apply for insurance policy and the amount is one that will not require you to undergo medical examination but only to fill up a certain form. You are a chain smoker, and there is a question there do you smoke and how many packs, you answer no, i don't smoke. And you were approved. This is an example of material misrepresentation. 3. It must have been serious and must have resulted in damage or injury to the other party now seeking annulment of the contract. Art. 1339. Failure to disclose facts, when there is a duty to reveal them, as when the parties are bound by confidential relations, constitutes fraud. 1339: Confidential relations: between the principal and the agent. Like if the principal authorizes the agent to sell the property at 100,000. The agent now was able to sell it at 200,000. Is the agent bound to disclose to the principal this fact? Yes, because of the confidential relation between them. Failure to do so constitutes fraud. Art. 1340. The usual exaggerations in trade, when the other party had an opportunity to know the facts, are not in themselves fraudulent. 1340: Dolos Bonus. Tolerated fraud. common victims are the women. For as

61
long as the other party has the opportunity to know the facts. The rule is: let the buyer beware. According to authors, the reason for the loss is the stupidity of the person. Why will you immediately believe that this particular product is a miracle. Basta what is required here is that you must have the opportunity to know the facts. And if it turns out that the facts are not true, you cannot sue. Because that what we call as tolerated fraud. And the rule is let the buyer beware, caveat emptor. Art. 1341. A mere expression of an opinion does not signify fraud, unless made by an expert and the other party has relied on the former's special knowledge. 1341: So, you ask the opinion of a person if this is a true diamond, and the person says yes. Is there fraud? No, because that is merely an opinion. Exception, if you seek the opinion of an expert, an expert would be one that is knowledgeable in that specific area. Exception to the exception, if the expert is the employee of the person seeking the opinion of the expert. If it turns out the the opinion of the expert is false, then you cannot sue your own employee. Even if it is given by an expert, but the expert is your employee, then there can be no annulment of the contract based on fraud. Art. 1342. Misrepresentation by a third person does not vitiate consent, unless such misrepresentation has created substantial mistake and the same is mutual. 1342: There was this case Diaz vs. CA whereby the mistake was committed by a surveyor with respect to the particular location of a particular lot. So in that case, the mistake was not committed by both parties but by a third person, committed by the surveyor and there was mutual mistake by both parties and the SC said that annulment is proper because of the mistake. Art. 1343. Misrepresentation made in good faith is not fraudulent but may constitute error. simulation, when it does not prejudice a third person and is not intended for any purpose contrary to law, morals, good customs, public order or public policy binds the parties to their real agreement. (n) Kinds of Simulated Contracts A. Absolutely Simulated (simulados) fictitious contracts: Parties do not intend to be bound; EFFECT: Contract is Void. B. Relatively Simulated (disimulados) disguised contracts: Parties conceal their true agreement EFFECT: Parties are bound to the real or true contract/agreement except: o If contract should prejudice a 3rd person; or o If the purpose is contrary to law, morals, good customs, public order or public policy. Accdg. to Tolentino: If the absolute simulation does not have an illicit purpose, the parties to the contract ma prove the simulation in order to recover whatever may have been given under such simulated act. But if the simulated contract has an illegal object, the provisions of Art. 1411 and 1412 will apply. ABSOLUTE SIMULATION FRAUDULENT ALIENATION 1. Implies that there is no existing contract; no real act executed; 1. Means there is a true and existing transfer or contract; 2. Can be attacked by any creditor, including one subsequent to the contract 2. Can be assailed only by the creditors before the alienation; 3. The insolvency of the debtor making the simulated transfer is not a prerequisite to the nullity of the contract; 3. The action to rescind (accion pauliana) requires that the creditor cannot recover in any other manner what is due to him; 4. The action to declare a contract absolutely simulated does not prescribe 4. Accion pauliana to rescind a fraudulent alienaction prescribes in 4 years. OBJECTS OF CONTRACTS Art. 1347. All things which are not outside the commerce of men, including future things, may be the object of a contract. All rights which are not intransmissible may also be the object of contracts. No contract may be entered into upon future inheritance except in cases expressly authorized by law. All services which are not contrary to law, morals, good customs, public order or public policy may likewise be the object of a contract. (1271a) Requisites of Object of a Contract Incidental Fraud not a cause for annulment, only damages can be recovered. Art. 1345. Simulation of a contract may be absolute or relative. The former takes place when the parties do not intend to be bound at all; the latter, when the parties conceal their true agreement. (n) Simulation of Contract process of intentionally deceiving others by producing the appearance of a contract that really does not exist (absolute) or w/c is different from the true agreement (relative). Requisites of Simulation a) Outward declaration of will different from the will of the parties; b) False appearance must have been intended by mutual agreement; c) The purpose is to deceive 3rd persons. Effect: If Absolute simulation, the contract is void. The parties did not intend to be bound by the agreement. But if it were relative simulation, then it shall bind the parties provided that no third person shall be prejudiced by such relative simulation. Art. 1346. An absolutely simulated or fictitious contract is void. A relative a) The thing or service must be w/in the commerce of man; b) Must be transmissible; c) Must not be contrary to law, morals, good customs, public order or policy; d) Must not be impossible; e) Must be determinate as to its kind or determinable w/o need of a new contract or agreement. Notes: 1. There can be sale of future things or objects having potential existence. Also there can be sale of hope, but no of vain hope (CF: Sales) 2. No contract may be entered upon future inheritance, exceptions: (1) marriage settlements. Spouses are allowed to donate to each other future properties provided that they comply with the forms of will; (2)partition of the property during the lifetime of the testator. (3) When ones right over the property is not as an heir but as a creditor. Your rights to the credit are subordinated to the death of the debtor. So, in that case that is not within the meaning of future inheritance. Ex: X borrows money from Y, and Y says I will pay you when I die. So in that case, X can enter into a contract involving that credit but subordinated to the death of Y.

Art. 1344. In order that fraud may make a contract voidable, it should be serious and should not have been employed by both contracting parties. Incidental fraud only obliges the person employing it to pay damages. (1270) Fraud should not be employed by a party against a co-party, i.e. between two partners. This will not annul the contract. Requisites for Fraud to Vitiate Consent a) Fraud must be serious b) The parties must not be in pari delicto; otherwise there can be no annulment.

62
Art. 1348. Impossible things or services cannot be the object of contracts. (1272) Nature of Impossibility a) Nature of transaction or because of law b) Absolute (objectively impossible) nobody can do it c) Relative (subjectively impossible) particular debtor cannot comply Note: The impossibility must exist at the time of the constitution of the contract. Art. 1349. The object of every contract must be determinate as to its kind. The fact that the quantity is not determinate shall not be an obstacle to the existence of the contract, provided it is possible to determine the same, without the need of a new contract between the parties. (1273) Object must be determinate determinable (w/out need of a new agreement); otherwise the contract is void for want of an essential requisite the object of contract. Difficulty of performance A showing of mere inconvenience, unexpected impediments, or increased expenses is not enough to relieve a debtor from the obligation Equity cannot relieve from bad bargains simply because they are such. The debtor who does not perform in such cases must be held liable for damages. CAUSE OF CONTRACTS It is the essential and impelling reason why a party assumes, an obligation. It is the prestation to be performed by the other contracting party. Art. 1350. In onerous contracts the cause is understood to be, for each contracting party, the prestation or promise of a thing or service by the other; in remuneratory ones, the service or benefit which is remunerated; and in contracts of pure beneficence, the mere liberality of the benefactor. (1274) Classification of Contracts As to Cause a) Onerous the cause is for each contracting party, the prestation/promise of thing/service. b) Remuneratory the past service/benefit w/c by itself is a recoverable debt. c) Gratuitous or contracts of pure beneficence the cause is the mere liberality of the benefactor. Contract of guaranty is gratuitous unless there is stipulation to the contrary. Cause in Accessory Contracts Like Mortgage & Pledge the same as the cause for principal contract of loan. Moral obligation may be the cause of civil obligation if it does not exist , no valid cause. Art. 1351. The particular motives of the parties in entering into a contract are different from the cause thereof. (n) Q: Is the cause the same as the motive of the contract? No. No matter how illegal the motive is for as long as the cause is legal and lawful, it does not affect the validity of the contract. Exception: if the motive predetermines the purpose of the contract then the motive becomes the cause of the contract. Case: Lopez fell in love with Conchita, a 15 year old girl. Because of Lopez' desire and lust for the body of Conchita, he told the parents and Conchita that he will be donating a parcel of coconut land if you agree to cohabit with me. The parents and Conchita consented and they lived and had sexual intercourse. Then Lopez died. Conchita now demanded for the delivery of the parcel of land. The heirs of Lopez now said that the motive predetermined the purpose of the contract. And while it may be true that the cause is the liberality, however the real cause is the motive and the motive is to have sexual intercourse. Conchita said the cause is the liberality. The SC said the contract is void. While it is true that motive differs from the cause, still a contract conditioned upon the attainment of an immoral motive should be considered void. For here, it may be regarded as cause when it predetermines the purpose of the contract. It cannot be said that the donation is a contract of pure benifecence or a contract designed solely and exclusively for the benefit of the donee. The donation was designed both for the benefit of the donee and satisfy the sexual desire of Mr. Lopez. But because the donor cannot invoke his own immorality, then the more reasons that the heirs are barred in questioning the validity of the donation. Therefore Conchita is entitled to the land. In the MFR filed by the heirs, according to JBL Reyes, the pari delicto rule cannot apply in the case. Remember that Conchita is a minor, the guilt of the minor cannot be judged with equal severity with the guilt of an adult. Minors occupy a privilege position before the law. MOTIVE CAUSE May vary although he enters into same contract; The same Maybe unknown to the other; Always known Its presence cannot cure the absence of cause ILLEGAL CAUSE makes a contract void, ILLEGAL MOTIVE not necessarily renders the contract void. Art. 1352. Contracts without cause, or with unlawful cause, produce no effect whatever. The cause is unlawful if it is contrary to law, morals, good customs, public order or public policy. (1275a) Requisites for Cause a) It must be present no cause, contract is void b) It must be true if cause is false, contract is void unless some other cause w/c is lawfully really exists. c) It must be lawful From transcription: There was this case: X is an employee of a business establishment, and it was found out that she was stealing money from the business establishment. When she was about to be prosecuted for what she did, the father and the husband of X executed a PN covering the value of what has been lost by reason of X's stealing. But X was not made a signatory to the PN. Now, the PN remained as a PN, so the employer was not able to collect. So the employer filed an action to collect the amount stated in the PN. The case was dismissed because accdg. to the court, the cause was the stifling of the criminal prosecution of X. Cause is void. But in another case, there was A who was given money by B to buy palay within a certain period or if unable to secure the palay by that time, to return the money to B. No palay was bought, no money was returned. So what B did was file a case against A for estafa. Now, before the hearing, a friend entered before and in behalf of A, with B seeking consideration that the case would be dismissed because he will try to convince A to issue a promissory note to cover the amount that was not returned. A executed a PN, but the amount was not paid. So what B did was to file an action to recover the amount. A moved for the dismissal of the case, stating that the cause for the action was illegal because it was to stifle a criminal prosecution. But the SC said that motion should be denied because there was an admission on the part of A that he really owed B money. This is different from the first case. Art. 1353. The statement of a false cause in contracts shall render them void, if it should not be proved that they were founded upon another cause which is true and lawful. (1276) False cause does not necessarily mean that contract is void; the parties are given a chance to show that a cause really exists and is lawful and true. Art. 1354. Although the cause is not stated in the contract, it is presumed that it exists and is lawful, unless the debtor proves the contrary. (1277) Cause must exist but is not necessary to state the cause; Under Statute of Frauds certain agreement must be in writing, 1354: So, no matter how inadequate the consideration is, the presumption is

63
that the contract is valid. The exception there is when fraud is employed, or there is mistake or there is undue influence. Like the actual value is 1M and he's only selling it for 100K, and the buyer is the son or daughter, then that is not an absolutely simulated contract but only a relatively simulated one, and the parties bound to it unless third persons are prejudiced by such simulation. Art. 1355. Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a contract, unless there has been fraud, mistake or undue influence. (n) LESION inadequacy of cause (eg. Insufficient price of a thing sold) Rules on Lesion Gen. Rule: Lesion/inadequacy of price does not invalidate a contract. Exceptions: a. When together with lesion there has been i. Fraud; ii. Mistake; or iii. Undue Influence b. In cases expressly provided by law. FORMS OF CONTRACTS The general principle is that the law looks more into the spirit, rather than in form. Underlying principle that in the interpretation and/or construction of the law, we must interpret not by the letter that killeth, but by the spirit that giveth life. That is how one should construct or interpret the law. But in contracts, there are certain exceptions. Because if you were the one who prepared the contract, then the contract should be construed strictly against the person who prepared it, and liberally in favor of the person who merely affixed his signature and did not participate in the making of the contract. But with respect to form, contracts are obligatory, in whatever form they may have been entered into, provided that all the essential requisites for the validity are present. And what are the essential requisites? Consent, cause or consideration and object/subject matter. So, for as long as the three are found, then the contract is presumed valid, regardless of the form. When we say form, it may refer to the manner in which the contract is executed, which may be written or oral. So, a sale of a parcel of land orally made is valid. So a sale involving real property is valid in whatever form it is entered into. Even if it is orally made between the parties. For what purpose then is the form? It is not for validity, but rather to transfer ownership over the property in favor of the vendee. The register of deeds will not transfer the title of the property from the vendor to the vendee unless it is in a public document. So that is the purpose of the form. And to inform third person that the property has already been bought. But for validity, no. It is valid. Even if there is no (written) contract, for as long as there has been payment (vendee) and there has been delivery on the part of the vendor. But there are certain contracts which would require that they be in a certain form. One is for validity, and the other for enforceability. A contract may be valid, but it is unenforceable. When we say enforceable, it cannot be enforced through court action. You cannot maintain an action in court because there is a lack in that particular document. But there are certain documents which will require a certain form in order that it be valid. An example of which would be a donation of a real property which must be in a public document in order to be valid. And not only that, the acceptance of the donee must also be in a public document to be valid. Absent one makes the donation void. Another example of a contract which would require a certain form is donation involving movable property and the value exceeds 5K. The law require that it must be in writing, but it need not be in a public document to be valid. Now, what else? Contracts involving antichresis. That must be in writing otherwise void. And another is when you are into lending money, agreements for the payment of interests must be in writing otherwise one cannot collect. The authority of the agent to sell property must be in writing, WHEN FORM IS IMPORTANT a) For validity b) Enforceability (Statute of Frauds); may be waived by acceptance of benefits (partial) or by failure to object to presentation of oral or parol evidence. c) For convenience 1356 is the spiritual system of a contract, which means that, contracts are obligatory in whatever form they may have been entered into, provided that all the essential requisites for its validity are present. But the spiritual system of contract cannot be adopted in unqualified manner. Otherwise, oral agreements would often lead to fraud in the fulfillment of the obligation. Because the faintest ink is better than the sharpest memory. Because if worse comes to worst, you file a case in court and what is your proof? It was orally admitted. Who were there when you entered into the agreement? There were only two of us, then that is highly debatable. So, whether a certain form is required or not, better put it into writing. Now, there is this case of Hernaez vs. Delos Angeles. Hernaez was a star of Philippine Cinema. And her services were engaged by one of the producers. She was paid but there was a balance. So after rendering service, Ms. Hernaez now demanded for the payment of the balance. The movie company refused to honor the agreement stating that the agreement is deemed void because it was not in writing, and the balance exceeds 500 pesos. So, they went to court. Delos Angeles is the judge, he sided with the movie company. The SC said that the dismissal was not proper. Under 1356, all contracts are valid regardless of form, there are only two exceptions. One is when the contractual form is needed for validity. As in a case of a donation of real property which needs to be in a public document. Second when form is needed for enforceability, under the Statute of Fraud. The contract covered by Art. 1358 are binding and enforceable by action despite the absence of writing because the Article nowhere provides that the absence of written form will make the agreement invalid or unenforceable. Art. 1357. If the law requires a document or other special form, as in the acts and contracts enumerated in the following article, the contracting parties may compel each other to observe that form, once the contract has been perfected. This right may be exercised simultaneously with the action upon the contract. 1357: If the law requires that a document or other special form, as in the acts and contracts enumerated in 1358, the contracting parties may compel each other to observe that form, once the contract has been perfected. This right may be exercised simultaneously with the action upon the contract. Art. 1358. The following must appear in a public document: if not, then the sale is void. Now, another exception is for purposes of enforceability. Now what would be required, under 1403, paragraph 2, it must be in writing or in some memorandum or note, subscribed by the parties. (Statute of Fraud). So those are only the exceptions for purposes of validity or enforceability. So that a contract may prove in a certain way, that requirement is absolute and indispensable. So, if it is absolute and indispensable, noncompliance with it means the contract is void. In such cases, the right of the parties stated in the following article cannot be exercised. Art. 1356. Contracts shall be obligatory, in whatever form they may have been entered into, provided all the essential requisites for their validity are present. However, when the law requires that a contract be in some form in order that it may be valid or enforceable, or that a contract be proved in a certain way, that requirement is absolute and indispensable. In such cases, the right of the parties stated in the following article cannot be exercised. (1278a) GEN. RULE: NO FORM IS REQUIRED IN CONSENSUAL CONTRACTS Formal Contracts requires form ( eg. Donation) Real Contracts requires delivery

64
(1) Acts and contracts which have for their object the creation, transmission, modification or extinguishment of real rights over immovable property; sales of real property or of an interest therein a governed by articles 1403, No. 2, and 1405; (2) The cession, repudiation or renunciation of hereditary rights or of those of the conjugal partnership of gains; (3) The power to administer property, or any other power which has for its object an act appearing or which should appear in a public document, or should prejudice a third person; (4) The cession of actions or rights proceeding from an act appearing in a public document. All other contracts where the amount involved exceeds five hundred pesos must appear in writing, even a private one. But sales of goods, chattels or things in action are governed by articles, 1403, No. 2 and 1405. 1358: Is the requirement that it must be in a public document for the purpose of validity? No. Only for purposes of affecting third persons, or for efficacy against third persons. So, those enumerated under 1358, even if not in a public docu are valid. The reason why there is this requirement that it must be in a public document, is that it is to enforce against third person. Because by itself, it is already valid. Now what are those contracts? 1. Acts and contracts which have for their object the creation, transmission, modification or extinguishment of real rights over immovable property. An example of this is waiver of a right, assignment, barter, mortgage (modification of one's proprietarial rights), when you enter into a contract of usufruct because there is a transfer of ownership. [Take note that sale involving real properties is already removed from par. 1 of 1358] 2. The cession, repudiation, or renuncitation of hereditary rights, or of those if the conjugal partnership of gains. You renounce your right over the inheritance that has already become vested in favor of your siblings; 3. The powers to administer property, or any other power which has for its object an act appearing or which should appear in a public document, or should prejudice a third person In your family code, when one spouse desires to transfer administration over his communal or paraphernal property to the other spouse, the transfer must be in a public document. The reason is to inform 3rd persons that the administration has been transferred. 4. The cession of actions or rights proceeding from an act appearing in a public document [example Claim of ownership] All other contracts where the amount involved exceeds 500 must appear in writing, even a private one. But sales of goods, chattels, or things in action are governed by Art. 1403. Nowhere does it say that if it is not in writing, the contract is void. That's the essence of the Hernaez case. REFORMATION REFORMATION OF INSTRUMENTS (n) Remedy in equity by means of w/c a written instrument is made or construed so as to express or conform to the real intention of the parties when some error or mistake has been committed. Art. 1359. When, there having been a meeting of the minds of the parties to a contract, their true intention is not expressed in the instrument purporting to embody the agreement, by reason of mistake, fraud, inequitable conduct or accident, one of the parties may ask for the reformation of the instrument to the end that such true intention may be expressed. If mistake, fraud, inequitable conduct, or accident has prevented a meeting of the minds of the parties, the proper remedy is not reformation of the instrument but annulment of the contract. Requisites for Action for Reformation 1. There must be meeting of the minds 2. True intention is not expressed in the instrument 3. There must be clear and convincing proof thereof 4. It must be brought w/in the proper prescriptive period. 5. Document must not refer to a simple unconditional donation inter vivos or to wills or to a contract where real agreement is void. Art. 1360. The principles of the general law on the reformation of instruments are hereby adopted insofar as they are not in conflict with the provisions of this Code. Why is there a need to reform instruments? Instruments are reformed in order that the true intention of the parties is expressed. But all the essential requisites are present. Only that when the parties reduced the agreement into writing, the writing failed to keep the true intention. By reason of what? Fraud, mistake, inequitable conduct or accident, one of the parties may ask for the reformation of the instrument to the end that such true intention may be expressed. But if any of the vices of consent have prevented the meeting of the minds of the parties, then there is no reformation but rather annulment. So here is there was failure on the part of the parties to express their true intention. By reason of Fraud, mistake, inequitable conduct or accident. But if it prevented the meeting of the minds, then no reformation but annulment. What are the requisites in order that reformation is proper? 1. There must have been a meeting of the minds upon the contract; 2. The instrument or document evidencing the contract does not express the true agreement between the parties; 3. the failure of the instrument to express the agreement must be due to mistake, fraud, inequitable conduct or accident. Art. 1361. When a mutual mistake of the parties causes the failure of the instrument to disclose their real agreement, said instrument may be reformed. Requisites: 1. Mistake must be mutual 2. Mistake may be unilateral under the conditions set forth in Art. 1362 and 1363. 3. Mistake must be of fact. 1361: The error is thru mistake but all the essential requisites are present Art. 1362. If one party was mistaken and the other acted fraudulently or inequitably in such a way that the instrument does not show their true intention, the former may ask for the reformation of the instrument. 1362: Now, there was this case of Ong vs. Car (?), involving a Spaniard and a Chinese. Now the Chinese does not know how to read or speak English. So the Spaniard was interested to buy the property of the Chinese. Now the Chinese said the agreement should be a pacto de retro. The Spaniard said, ok. When the document was already prepared, the Chinese aske if he included the condition that the sale should be one with a right to repurchase. The Spanish said yes when in truth the Spaniard omitted that it was a sale of pacto de retro because he intended to mortgage the property. Now in that case, there has been an agreement. There was already a meeting of the mind with respect to object and the cause, and the parties have consented. What was only omitted was the right of the buyer to repurchase, through the fraudulent acts of the other. Art. 1363. When one party was mistaken and the other knew or believed that the instrument did not state their real agreement, but concealed that fact from the former, the instrument may be reformed. Art. 1364. When through the ignorance, lack of skill, negligence or bad faith on the part of the person drafting the instrument or of the clerk or typist, the instrument does not express the true intention of the parties, the courts may order that the instrument be reformed. 1364: This is very common in law firms, because lawyers trust their secretaries. (typographical error) Art. 1365. If two parties agree upon the mortgage or pledge of real or

65
personal property, but the instrument states that the property is sold absolutely or with a right of repurchase, reformation of the instrument is proper. 1365: Now there are money lenders who would, instead of having executed a deed of real estate mortgage, would say that let's just execute a deed of sale with a right to repurchase. That is under a different guise. Very common is equitable mortgage although the document is denominated as deed of sale with a right to repurchase. It has the following indicators: 1. The seller remains in possession of the property; 2. the buyer retains a portion of the purchase price. That portion represent actually the interest. 3. The seller, aside from he remains in possession of the property, continues to pay the taxes on the property. [Because if it were sale, then definitely the seller has to vacate the property and why should he continue to pay the taxes. Moreover, why should the buyer retain a portion of the purchase price. ] Now read 1502 Art. 1366. There shall be no reformation in the following cases: (1) Simple donations inter vivos wherein no condition is imposed; (2) Wills; (3) When the real agreement is void. 1366: #1 and 2 are contracts based purely on the liberality of the testator, and being gratuitous you cannot question the intention of the person giving or donating the thing/property. #3, being void, how can you reform it. No legal effect shall come from a void contract. There is no force or effect that arise from a void contract. In fact, in a void contract, parties do not intend to be bound by their agreement. Art. 1367. When one of the parties has brought an action to enforce the instrument, he cannot subsequently ask for its reformation. (estoppel, waiver or ratification) 1367: You cannot ask for reformation and at the same time ask for enforcement. One is inconsistent with the other. If you say that it does not express the true intention of the parties, yet at the same time you are asking for performance. So, those are contrary to each other. Art. 1368. Reformation may be ordered at the instance of either party or his successors in interest, if the mistake was mutual; otherwise, upon petition of the injured party, or his heirs and assigns. - Prescriptive period for reformation of contracts is 10 years Art. 1369. The procedure for the reformation of instrument shall be governed by rules of court to be promulgated by the Supreme Court. INTERPRETATION OF CONTRACTS: Art. 1370. If the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control. If the words appear to be contrary to the evident intention of the parties, the latter shall prevail over the former. So, how do you interpret contracts? If the stipulations of the contract are clear and leave no room for doubt, literal interpretation. Now, the important task of contract interpretation is to always ascertain the intention of the contracting parties. And guided by the principle again that we should interpret not by the letter that killeth, but by the spirit that giveth life. However, that will not find any application if the stipulation of the parties are clear and unambiguous which leaves no room for interpretation. Then we must interpret the law as it is written. Ita Scripta Lex. So, if the words appear contrary to the intention of the parties, then the intention shall prevail. (1370) If the written instrument is different from what has been verbally agreed upon? Reformation because it does not express the true agreement. So, if you say the sale of land with all the improvements thereon, what are included? Everything that is incorporated with the land. Art. 1371. In order to judge the intention of the contracting parties, their contemporaneous and subsequent acts shall be principally considered. 1371: So going back to the example of equitable mortgage, if the buyer is not yet in possession after several years, so what is the presumption? The presumption is that what was entered into by the parties is not one of sale but mortgage. And the determination is based on their subsequent acts. Art. 1372. However general the terms of a contract may be, they shall not be understood to comprehend things that are distinct and cases that are different from those upon which the parties intended to agree. 1372: Example is your best friend executed an SPA for you to encumber her property. So you used it as a collateral in your loan. It does not follow that even if your property was used as a surety, you would also be liable for the debt of your friend. Because those are different and distinct from the agreement. Art. 1373. If some stipulation of any contract should admit of several meanings, it shall be understood as bearing that import which is most adequate to render it effectual. (1284) Art. 1374. The various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense which may result from all of them taken jointly. 1374: (Allied Bank) Harmoninize the provisions. If it cannot be harmonized, remove those which are incompatible. Then you ascertain the intention of the parties. The various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense which may result from all of them taken jointly. So for instance it is a pacto de retro sale. But upon demand, the price varies. Anong presumption dyan? The difference in the payment actually refers to the payment of interest. Art. 1375. Words which may have different significations shall be understood in that which is most in keeping with the nature and object of the contract. 1375: If you are appointed as an administrator, it does not involve acts of dominion or acts of ownership. Art. 1376. The usage or custom of the place shall be borne in mind in the interpretation of the ambiguities of a contract, and shall fill the omission of stipulations which are ordinarily established. (1287) Art. 1377. The interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity. 1377: Very common in contracts of adhesion. Art. 1378. When it is absolutely impossible to settle doubts by the rules established in the preceding articles, and the doubts refer to incidental circumstances of a gratuitous contract, the least transmission of rights and interests shall prevail. If the contract is onerous, the doubt shall be settled in favor of the greatest reciprocity of interests. If the doubts are cast upon the principal object of the contract in such a way that it cannot be known what may have been the intention or will of the parties, the contract shall be null and void. 1378: So between a commodatum and donation, which has the least transmission of rights? Commodatum, why? Because there is no transfer of ownership in commodatum. Whereas if it were a donation, the property has left the patrimony of the donor forever. Usufruct or the donation? Usufruct, because the usufructuary is under obligation to return the property. (2nd sentence) Now, what if the contract is onerous? The doubt shall be resolved in favor of the greatest reciprocity of interest. So a person giving a ring to the other person, and the other person gives money. What is the presumption? Pledge, because that would fall under the greatest reciprocity of interest. Between pledge or mortgage? If there is doubt, mortgage. Why? Because there is no transfer of possession, but the creditor still enjoys the interest on

66
the money that was loaned. Between antichresis and mortgage? Mortgage parin. (Last paragraph) Lack of object which makes the contract void because the intention of the parties cannot be ascertained. Art. 1379. The principles of interpretation stated in Rule 123 of the Rules of Court shall likewise be observed in the construction of contracts. RESCISSIBLE CONTRACTS 4 Kinds of Defective Contracts 1. Rescissible contract w/c is valid until rescinded; extrinsic defect consists of economic lesion or damage. 2. Voidable valid until annulled except if ratified intrinsic defect as in vitiated consent. 3. Unenforceable cannot be sue upon or enforced unless ratified; no effect now but it may be upon ratification. 4. Void (inexistent or illegal) no effect at all; nor can be ratified or validated. Rescissible Contracts are valid contracts. Of the four of defective kinds of contracts, rescissible contracts occupy the highest lesion. The contracts are valid but by reason of economic injury caused either to one of the parties, or to a third person, the contract has to be rescinded. And unlike 1191, when we speak of rescission, there is no breach of faith in the performance but rather the ground of rescission is more on the economic injury suffered by the parties or a third person. Art. 1380. Contracts validly agreed upon may be rescinded in the cases established by law. (1290) Requisites for Rescission 1. There must be at the beginning either a valid or a voidable contract. 2. There is an economic or financial prejudice to someone ( a party or a third person) 3. Requires mutual restitution. RESCISSION (1380) RESCISSION (1191) Based on lesion or fraud upon creditors; Based on non-performance or nonfulfillment of the obligation. The action is instituted by either of the parties or by third parties; Action may be instituted only by the injured party to the contract; Courts cannot grant a period or term w/in w/c to comply In some cases, the courts may grant a term. Non-performance by other party is immaterial. Non-performance of the party is important. Fictitious contract cannot be rescinded since it is null and void. What rescission presupposes is a valid contract. Rescission under 1381 is a subsidiary remedy, especially if it is found in number 3 of 1381. You have to prove before the court that you have exhausted all the remedies available to you as a creditor before you are given a right to institute an action for rescission 1380: What are those cases? 1381 provides those cases. Art. 1381. The following contracts are rescissible: (1) Those which are entered into by guardians whenever the wards whom they represent suffer lesion by more than one-fourth of the value of the things which are the object thereof; (2) Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the preceding number; (3) Those undertaken in fraud of creditors when the latter cannot in any other manner collect the claims due them; (4) Those which refer to things under litigation if they have been entered into by the defendant without the knowledge and approval of the litigants or of competent judicial authority; (5) All other contracts specially declared by law to be subject to rescission. LESION disparity between price and the value. - mere inadequacy of price, unless shocking to the conscience is not a sufficient ground for setting aside a sale, if there is no showing that, in the event of a resale, a better price can be obtained. EFFECT OF CONTRACTS ENTERED IN BEHALF OF WARD (1) If an act ownership, Court approval is required otherwise it is unenforceable whether there is lesion or not. (2) If act of administration i. With Court approval valid regardless of lesion ii. W/out Court approval rescissible, if lesion is more than contract may be rescinded on the ground of lesion is a partition of inheritance. (3) Accion Pauliana action to rescind made in fraud of creditors. Requisites a. There must be a creditor who became such Prior to the contract sought to be rescinded (a person asking for a rescission is a judgment creditor immaterial) b. There must be an alienation made subsequent to such credit. c. The party alienating must be in bad faith (he knew that damages would be caused) d. There must be no other remedy for the prejudiced creditor inability to collect to the claims due them. Action to rescind may be brought even if debtor has not been judicially declared insolvent and even if the creditor has not yet brought an action to collect. (4) THINGS IN LITIGATION (eg. A sues B for recovery of ring pendente ite, B sells ring to C sale to C is rescissible) - Property is in litigation after defendant received service of summons. 1381: #1 and 2: The guardian with respect to the ward, and the representative with respect to the absentee are only given the powers of administration. The powers mentioned in 1381 are powers of administration and the representative or the guardian entered into a contract and the object of the contract resulted to the economic injury of either the ward or the absentee. By more than 1/4 of value of the object thereof. So example, you wanted to enhance the development of the farm, so what you did was to buy an equipment, a tractor. But you also have other motives in mind. And you tell now the dealer, "can you increase the price by 30%? You get 5%, I get 25%", so in that case the contract entered into by the administrator can be rescinded because it will result to the economic injury of the ward by more than 1/4 of the value of the object which is the tractor. But, even if it exceeds more than 1/4, but the administrator obtained judicial authorization, then there can be no rescission. Only in cases where there has been no judicial authorization obtained by the representative or the guardian. But what if the guardian or the representative speaks of getting money in order to develop the property. He now mortgaged the property. What kind of a contract is that? Unenforceable contract, beyond his authority. Now, if you remember in your Family Code, when can you consider a person an absentee for purposes of administration? 2 years if without administrator, and 5 years if there is an administrator. In those cases there is a need for judicial declaration as an absentee. And normally the spouse is given priority. So the spouse' authority only includes powers of administration, it does not include acts of ownership. Because if you co-relate that with the provisions of the Family Code and there is a need to encumber or dispose a portion of the property of the absentee, what will you do? For purposes of supporting the family? You gain judicial authority in a summary proceeding, otherwise that act of the other spouse is void but it is a continuing offer between the spouse who did not give consent and the offeree unless earlier revoked. Pag third person ang magbenta, ano? Unenforceable. If the representative is a third person, unenforceable. But if it were the spouse, void yan.

67
summary: -This only refers to acts of administration, and not acts of ownership - if the guardian or representative would exercise acts of ownership beyond what is authorize, the act will not be rescissible but rather unenforceable. That is acted without or in excess of the authority granted to him. But if the representative is the spouse, the act is void. But such act prior to the effectivity of the family code is not void, but voidable. So this would only refer to in excess of the authority granted to the present spouse and the encumbrance/alienation refers to the paraphernal property and the capital(?) property of the absentee. -But if it were acts of administration, to fall whether in number one or number two 1381, it must exceed 1/4 of the value of the object of the contract. - But even if it exceeds more than one fourth of the value, but there is court approval or judicial authorization, then there can be no rescission. -The exception in #1 and 2 is judicial authorization, no rescission if with court approval, even if the wife or the absentee suffers lesion by more than one fourth. 3.) Those undertaken in fraud of creditors when teh latter cannot in any other manner collect the claim due them. Now the creditor cannot ask for annulment precisely because he is not a party to the contract. He can only ask for rescission. The court cannot just grant rescission since there are certain requisites that must be complied with. In order that rescission will lie. It will be found in the cases that i've assigned. Now if the transfer is onerous, we have to take into account the good faith or bad faith of the transferee. So the exception in number three would now depend on the kind of transfer. If suppose it is an onerous transfer, meaning there is an equivalent consideration given. So if it is onerous and ther is good faith from the first transferor to the first transferee (meaning the transferee acted in good faith), then the creditor who is prejudiced by the transfer could no longer ask for the rescission of the transfer because of the good faith. His only recourse is to ask damages from the transferor. Exception: even if the first transferee acted in GF, subsequent transferee acted in bad faith, and there is collusion between the transferor and the second transfeee, to cleanse the transfer of any defect, they would now use the first transferee as an intermediary or a bridge, then there can be rescission. But if there was no collusion between the transferor and the 2nd transferee, the good faith of the first transferee will cleanse the transfer, hence there can no longer be rescission, even if the subsequent transfer is in bad faith. The good faith of the first transfer cures the bad faith of the second transfer. Now, if there is bad faith from the first to the 2nd then definitely there can be rescission. OR suppose there are several transfer. From the 1st transferee who acted in bad faith, to the second transferee who acted in bad faith, to the third transferee who still acted in bad faith and the fourth transferee who acted in good faith. Then it ends now to the fourth transferee regardless of the bad faith of the subsequent transferee because it ended with the person who acted in good faith, when he received the thing transferred. Then there can be damages, not rescission because there has been good faith of the last transferee. So all the of the transferee will be liable, from the first transferee to the third transferee. Now what if the transfer is gratuitous? Do we also follow the same principle? No. The good faith or bad faith of the transferee is immaterial. Regardless of the good faith or bad faith of the receiver, the contract has to be rescinded. Why? There is no consideration given by the transferee, so he cannot be prejudiced by the rescission. Now, In Oria vs. Manikil (?), there are also what we call as the badges of fraud with respect to alienation in order to defraud creditors. Now what are the badges of fraud: 1. the fact that the consideration of the conveyance is inadequate 2. a transfer made by the debtor after suit has been begun and while it is pending against him. -meaning there is already a case filed against him involving collection or money claim, then the debtor now would start to dispose or encumber the properties that might answer for the judgment award that may be rendered by the court against him. 3. a sale upon credity by an insolvent debtor - So if you are insolvent, why will you sell your property on credit when you are actually in need of money. 4. Evidence of large indebtedness or complete insolvency. -Your assets cannot meet your obligations. Obligations exceeds assets. 5. the transfer of all or nearly all of his property by a debtor, especially when he is insolvent or greatly embarrassed financially, especially if the transfer is gratuitous in nature. 6. the fact that the transger is made between father and son, when there are present any of the above circumstances. -The mere fact that there is a transfer between a parent and a child does not arise that there is a fraudulent transfer. But if it is a transfer between a father and a son and it is accompanied by a sale upon credit by an insolvent debtor (Chua vs. CA), then definitely the presumption will arise that the transfer is to defraud creditors. 7. the failure of the vendee to take exclusive possession of all the property So those are the badges of fraud. And if any of those will be found, then the presumption will arise especially if the transfer is made after incurring the obligation and it can be shown that the debtor has no other property which can answer for that obligation except that property which he has transferred, then the presumption will arise that he intended to defraud the creditors when he made that transfer. 4.) Those which refer to things under litigation if they have been enterd into by the defendant without the knowledge and approval of the litigants or of competent judicial authority Example of this would be a claim for reconveyance, meaning you're asking for the return of real or movable property, if what is involved is real property and you are the complainant, to protect your right, to prevent the defendant in possession of the property from alienating it without your knowledge or without the approval of court, then you may go to the office of the Register of Deeds and have it annotated at the back of the title of the property that this property is under litigation. And we call that notice of lis pendens. Or if what is involved is personal property, then you pray before the court that a writ of attachment be issued or a receiver be appointed over the property which is the subject matter of the litigation, in order to place the property in custodia legis and to take it away from the possession of the debtor. 5.) All other contracts specially declared by law to be subject to rescission Those referred to in Art. 78 with respect to partiton of the estate of the deceased when one of the heirs suffer lesion by more than 1/4 of the value which he is supposed to receive. Others would be those falling under the Law on Sales, 1524, 1526, and 1529 Art. 1382. Payments made in a state of insolvency for obligations to whose fulfillment the debtor could not be compelled at the time they were effected, are also rescissible. (1292) Requisites (1) The Debtor-payer must have been insolvent (no judicial declaration needed) (2) Debt was not yet due and demandable. Now another act which can be the subject of rescission can be found in 1382: obligations not yet due. That is what is meant by to whom fulfillment the debtor could not be compelled at the time they were effected, are also rescissible. So it refers to obligations not yet due, yet despite the fact that the debtor is insolvent pays the obligation, so there can also be rescission. And that is why we said that the action for rescission is subsidiary, the person who will be prejudiced by such must show proof before court that he had already exhausted all efforts to recover what is due him, and he failed, and he found out that the debtor has already transferred nearly all his property

68
to answer for the credit that is due him. So it cannot be instituted except when the party suffering damage has no other legal means to obtain reparation for the same. (1383) And he cannot ask for more than what is due him. He can only ask to the extent necessary to cover the damages caused. (1384) Art. 1383. The action for rescission is subsidiary; it cannot be instituted except when the party suffering damage has no other legal means to obtain reparation for the same. (1294) Art. 1384. Rescission shall be only to the extent necessary to cover the damages caused. (n) Partial rescission is possible; benefits only the creditor who has asked for rescission. Art. 1385. Rescission creates the obligation to return the things which were the object of the contract, together with their fruits, and the price with its interest; consequently, it can be carried out only when he who demands rescission can return whatever he may be obliged to restore. Neither shall rescission take place when the things which are the object of the contract are legally in the possession of third persons who did not act in bad faith. In this case, indemnity for damages may be demanded from the person causing the loss. (1295) Mutual restitution Requisites before Rescission can be Brought a) Generally, plaintiff must be able to return what has been received by virtue of rescissible contract. Except when it is prejudicial to creditors. b) The thing-object of the contract is not in the legal possession of 3rd persons in good faith. c) There must be no other legal remedy. d) The action must be brought w/in proper prescriptive period. 1385: So what must be returned? The object of the contract, the fruits, the price and the interest. And if you cannot return this then you cannot ask for rescission. It can be carried out only when he who demands rescission can return whatever he will be obliged to return. So just like 1191, there is mutual restitution. And you cannot ask for rescission unless you can return what you have received from the other party. Neither shall rescission take place when the things which are the object of hte contract are legally in the possession of third persons who did not act in bad faith. In this case, indemnity for damages may be demanded from the person causing the loss. Now, if the transfer is gratuitous and you acted in good faith, you received the property believing in good faith that the transfer gratuitously is legal and valid, are you also obliged to return the thing, the fruits, the price and the interest? If you are a transferee in good faith, your obligations are to return the thing but not to pay for the fruits already received. Second, if you have incurred necessary expenses, then you can ask for reimbursement. Third, you return the thing in the condition that it is found. Meaning if there has already been deterioration, then you return the thing in that state. Unless, if the deterioration is caused by your negligence or through fraud after receiving the summons for rescission. But if it was due to a fortuitous event and before you have received the summons, then you will not be liable for the deterioration of the thing which is the subject matter for rescission. Now, restoration or restoration applies only to what under Art. 1381? #1 and 2 and 3, exception is onerous and good faith, and in number 4, exception you are the complainant and you have not annotated it, and the 3rd person who acquired it had no constructive knowledge of the litigation. Art. 1386. Rescission referred to in Nos. 1 and 2 of article 1381 shall not take place with respect to contracts approved by the courts. 1386: Rescission referred to in Nos. 1 and 3 of 1381 shall not take place with respect to contracts approved by the courts Art. 1387. All contracts by virtue of which the debtor alienates property by gratuitous title are presumed to have been entered into in fraud of creditors, when the donor did not reserve sufficient property to pay all debts contracted before the donation. Alienations by onerous title are also presumed fraudulent when made by persons against whom some judgment has been issued. The decision or attachment need not refer to the property alienated, and need not have been obtained by the party seeking the rescission. In addition to these presumptions, the design to defraud creditors may be proved in any other manner recognized by the law of evidence. (1297a) PRESUMPTIONS OF FRAUD Gratuitous Alienations - presumed fraudulent: when debtor did not reserve sufficient property to pay all debts contracted before the donation. Onerous Alienations - Presumed fraudulent when made by persons: 1. Against whom some judgment has been rendered in any instances (even if not final); or 2. Against whom some writ of attachment has been issued. BADGES OF FRAUD (circumstances that a certain alienation has been made in fraud of creditors) 1. The fact that consideration of the conveyance is fictitious or inadequate; 2. A transfer made by a debtor after suit has been began and while it is pending against him; 3. A sale upon credit by an insolvent debtor; 4. The transfer of all or nearly all of his property by a debtor, especially when he is insolvent or greatly embarrassed financially; 5. Evidence of large indebtedness or complete insolvency; 6. The fact that the transfer is made between father and son; 7. The failure of vendee to take exclusive possession of all the property. A gratuitous conveyance or donation, validly executed is presumed valid unless it can be shown that at the time of execution of conveyance, a creditor/s is/are adversely affected by said transaction. Fraud is not sufficient to rescind; for after all transferee may have been in good faith and is now in legal possession of the property. 1387: Presumptions Par. 1: It is absolutely necessary when you prepare a deed of donation for the donor to state that he has reserved sufficient property for himself to answer for his support as well as the obligations that he has incurred prior to this donation. Otherwise, if that is not found then the presumption is that you intend to defraud your creditors. Par. 2: So the first is that, even if it is by onerous title, 1. there is already an on going case filed against you for collection of money, or 2. there is a writ of attachment ( a writ of attachment is issued during the pendency of the case asked by the complainant upon the court that the defendant is about to dispose nearly all his property and which if judgment shall be rendered by the court in favor of the complainant, the writ of execution issued by the court by reason of that favorable judgment will be returned unsatisfied by the sheriff) Par. 3: Badges of fraud Art. 1388. Whoever acquires in bad faith the things alienated in fraud of creditors, shall indemnify the latter for damages suffered by them on account of the alienation, whenever, due to any cause, it should be impossible for him to return them. If there are two or more alienations, the first acquirer shall be liable first, and so on successively. (1298a) due to any cause includes fortuitous event. Rescission is merely a secondary remedy --- only if debtor cannot pay. Transfers If transferee is in good faith; good/ bad faith of next transferee is immaterial; If transferee is in bad faith; the next transferee is only liable if he is in bad

69
faith. 1388: So in this case, the first acquirer shall be liable, then as we said, he transfers it to T2 and then to T3, the liability will be only upto T3. He will not be liable to return, precisely because he has transferred it, but he will be liable for damages. Because of the impossibility to return what he is supposed to return to the debtor for purposes of answering the liabilities of the debtor. Art. 1389. The action to claim rescission must be commenced within four years. For persons under guardianship and for absentees, the period of four years shall not begin until the termination of the former's incapacity, or until the domicile of the latter is known. (1299) WHO CAN BRING ACTION? 1. The injured party (or defrauded creditor) 2. His heir or successor-in-interest 3. Creditors of (a) and (b) by virtue of Art. 1177 of C.C 1389 Now when do you institute the action for rescission? Must be commenced within four years. For persons under guardianship and for absentees, the four years shall not begin until the termination of the former's incapacity, or until the domicile of the latter is known. Now suppose it does not fall under numbers 1 and 2. When shall you start counting the four year period? That was answered in the case of Cheng vs. CA. 3 hours ago Like Subscribe Resci Rizada likes this. 5. Accidental elements? 6. What are the stages? Preparation? 7. What are the characteristics of contracts? 8. What do you mean by obligatory, mutuality and relativity? 9. Innominate contracts? 10. How are contracts classified if they do not have a name? 11. The client who hire the services of a lawyer? Do they have a name or it falls under innominate contracts? 12. If ever it falls to such, what category? 13. Are there situations where third persons may interfere in a contract? 14. What do you mean by stipulations pour atrou? Title II. - CONTRACTS CHAPTER 1 GENERAL PROVISIONS Art. 1305. A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service. 1305- defines a contract as a meeting of the minds between two parties,where one binds himself with respect to the other to give something or to render some service. The word persons there is not really correct in the sense that an ordinary contract can have as many parties as there are as many interested in the contract. This is only true with respect to the contract of marriage. And in fact in a contract of marriage, the gender of the parties are specified between a man and woman, 2 parties only: man and woman. Whereas in ordinary contracts, there can be as many as there are interested and regardless of the gender[no particularity with respect to gender of a person who enters into an ordinary contract] May a party enter into a contract with your own self? [definitely you cannot marry yourself] yes. This is what you call as auto-contracts but you enter into such in different capacities like you were the seller and then the buyer also authorized you to enter into a contract of sale involving the very same property. = auto contracts. Before a contract is consummated or fulfilled, it has to undergo 3 stages: 1. bargaining/negotiation/preparation- parties stipulate the terms and condition and one particular aspect important in the subject matter : it involves a contract of sale- parties would always haggle. Lower it to 5% and when you go to the lawyer, you also haggle with the lawyer for the fees. 2. Perfection- as soon as the parties agree to the stipulation 3. Consummation/fulfillment/death-as soon as the parties have complied with their respective obligaiton so the seller delivers the property and the buyer delivers the purchase price. A contract to be valid has to have the essential elements: 1. Consent- freely given; just like in the contract of marriage. If consent is vitiated- voidable; on capacity[consent freely given but incapacitated]- annulable/voidable; 2. Cause/consideration- the reason why parties enter into the contract. With respect to a sale involving a parcel of land. With respect to buyer, what is the cause? [acquisition of the land} on seller: the delivery of purchase price. It is the prestation that has to be rendered by the other party; that is the cause. 3. Object/subject matter Natural elements- one found in the contract , even if not stipulated; it is already part and parcel of the contract even if it is not found in the agreement itself; like warranty with respect to personal property- warranty against hidden defect. Even if it is not stated, nonetheless, it is presumed to be part and parcel of the contract. If it is real property, it is the warranty against eviction. Accidental elements- elements which would not be present in the contract unless expressly agreed upon by the parties. E. g. stipulation pour autrui (where a 3rd person not a aprty to a contract is benefited-check requisites), liability of the parties (remember that if several parties: presumption is joint

Resci Rizada ganahan ko ani ming..:) pwede more? hahah!:) 3 hours ago Like

Mina Chi ..gikan ni sa SR..na file..completo ni xa...res..fullcoverage.. 3 hours ago Like

Kristine Bailon LEGAL ETHICS CASE DIGESTS. ;p BY: KVBailon, DMPadua, RATumanda, CBarcelona, EJSolano, ASoriano VICTORIA LEGARDA vs. CA, NEW CATHAY HOUSE, INC. Petitioner was the owner of a parcel of land and the improvements thereon. Petitioner entered into a leased agreement with the respondent thru its representative, Roberto Cabrera, Jr. of the property for a period of five years that the ... OBLIGATIONS AND CONTRACTS ATTY. LYDIA GALAS TRANSCRIPT OF STENOGRAPHIC NOTES By resci angelli rizada gwapa AND Andrew S Contracts 01/25/2011 1305-1307 Recit: 1. What is a contract? 2. What are the elements of a contract? 3. what do you mean by essential elements? 4. Natural elements?

70
but there are cases by stipulation that it is solidary?) May husband and wife enter into a contract of sale involving their properties? No, that is prohibited by the law. Not true if the property relations is complete separation of property or absolute community property.(you cannot enter into buy and sell) true only in conjugal partnership of gain. Reason: so as not to prejudice 3rd persons. Characteristics of contracts: 1. Obligatory force- the contract shall constitute the law between the partiestheir terms, conditions, stipulations and agreement- provided it is not contrary to law, morals, pub. Order and pub policy- thats the only limitation. 2. Mutuality of contracts- refers to: that the parties to the contract are bound by the contracts; invalid if one of the parties has no reconciliating ..whatsoever meaning it is the only party who has to comply with the contract, it is a void contract..it defeats mutuality.l precisely, remember the case of Ng Sheung ngor where the court has struck the power of the court to____without obtaining the consent of the debtor because it is violative of the mutuality of contracts under 1308 3. Relativity- only the parties to a contract are bound by it, heirs and special assigns. There are instances when third persons may interfere with the contract but the G.R. is that 3rd persons cannot because of absence of privity between third persons and the contracting parties subject to the exceptions provided for by law. Classification: 1. Preparatory- contracts look forward to a future transaction. E.g. contract of agency- the agent is authorized by the principal to sell a certain property,what is the future transaction? contract of sale; that is preparatory 2. Principal- e.g. sale . one where it has a life on its own/can stand alone; eg. Lease 3. Accessory- depends its life upon the existence and validity of the principal contract e.g. pledge, surety, mortgage, penalty. How perfected 1. Consensual- perfected by mere consent e.g. sale; no need for formality. Once you sell your property to the other person involving a house and lotthat is perfected by mere consent; no need to execute a deed of sale- that is only required to transfer the title of the property from the seller to the buyer. It does not require that at the time that the contract was entered into, there must be..a delivery of document ..a 2. Real cannot be perfected unless there is delivery; eg. Commodatum [ no perfected contract unless the lender delivers the object subject to such contract], pledge Form 1. Common form 2. Special- either for valdity, enforceability and conveniece; e.g. donationmust be in a public instrument, and acceptance must also be on a public instrument, for amount more than 5thou- for validity, it must be in writing Vinculum 1. Unilateral- only one of the parties is bound to deliver [commadatum- the lender ang magperform lang] 2. Bilateral/sinalagmatic- there are two parties who are boudn to comply[e.g. sale] Cause 1. Onerous- acquisition of a thing has an equivalent consideration given. [e.g. contract of sale- there is this property bought, there is also del. Of purchase price. 2. Gratuitous- no consideration Risk 1. Commutative- fulfillment is pre-determined [e.g. contract of lease- e.g. period of 1 year as to when it shall be terminated, month to month basis] 2. Aleatory- fulfillment depend upon chance [e.g. insurance-eg fire insuranceit will only happen upon the occurrence of the fire against the property insured; payment will only arise upon the happening of the contingency insured against. Accdg. To Norms 1. Nominate- has a particular name [sale, lease..] 2. Innominate- no name [ patient-doctor/ lawyer-client] 4 situtations: (refer to copy) AUTONOMY OF CONTRACTS Art. 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy. 1306 - Autonomy of contracts; parties establish any stipluation, clause, term or condition as they may deem convenient provided it is not contrary to law. - Remember 1159 in obligation - However, the juridical relation that is created by reason of the stipulationmade by the parties shall be determined not by the title of the contract but it is determined by law - For instance, the agreement of the parties in a contract of sale but one of the conditions found in the contract is that after the consummation/execution of deed of sale: the seller will stay in the property, pay the taxes due on the property and give a certain amount to the buyer monthly. - The presumption is that there is no contract of sale and/or consideration is one that is unconscionable. E.g. Valued ang property at 1million but was sold only at 100,000. The purchase price/consideraiton is unconscionable under the circumstances because the purchase price is far too low for such a purchase price. And then there is also the fact that the seller still stays in the property despite the sale. - In that case, the law says that what was entered into by the parties is not a contract of sale but is equitable mortgage. - So, parties are free to stipulate however the juridical relation that is created by reason of such stipulation would depend now upon the law and not as provided for by the parties. Example of agreement contrary to law: a promissory note issued by a gambler who lost in a gambling game- that PN is void for lack of consideration. The consideration/cause is a gambling debt which is an illegal consideration. - So if the holder of the promissory note will enforce it against the one who issued the PN there can be no action that can be maintained because that PN as against the one who issued it in favor of the person who won in the gambling game is void for absence of consideration. - But if the person who have received it would negotiate it with a 3rd person who does not have a knowledge of the flaw or the defect of the PN and received it in good faith and for value, then it can be enforced against the person who has endorsed it and not against the one who issued it. Art. 1307. Innominate contracts shall be regulated by the stipulations of the parties, by the provisions of Titles I and II of this Book, by the rules governing the most analogous nominate contracts, and by the customs of the place. 1307- we have discussed already innominate contracts. MUTUALITY OF CONTRACTS Art. 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them. Art. 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them. .Equitable bank vs. Ng sheung ngor- where it was provided in the loan

71
agreement that the bank has the authority to increase the rate of interest without obtaining consent of debtor [automatic escalation clause]. [violative of the mutuality characteristic] because the consent of the other was not obtained which would leave only 1 party to comply with the obligaiton leaving the other party free from complying with the obligation. Art. 1309. The determination of the performance may be left to a third person, whose decision shall not be binding until it has been made known to both contracting parties. Art. 1310. The determination shall not be obligatory if it is evidently inequitable. In such case, the courts shall decide what is equitable under the circumstances. Art. 1309. The determination of the performance may be left to a third person, whose decision shall not be binding until it has been made known to both contracting parties. Refer to determination of performance: delivery of the money or rendering of service. The det. Of performance can be made by a 3rd person not a party to the contract but such will not be binding unlessin fact in in Article 1310The determination shall not be obligatory if it is evidently inequitable. In such case, the courts shall decide what is equitable under the circumstances. - That the parties of the contract are residents of Davao but the contracting parties would decide that the debtor would deliver the payment and creditor accepts say in Amanpulo in Palawan where only the rich and the famous go. RELATIVITY OF CONTRACTS Art. 1311. Contracts take effect only between the parties, their assigns and heirs, except in case where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by provision of law. The heir is not liable beyond the value of the property he received from the decedent. If a contract should contain some stipulation in favor of a third person, he may demand its fulfillment provided he communicated his acceptance to the obligor before its revocation. A mere incidental benefit or interest of a person is not sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a third person. Art 1311. Contracts take effect only between the parties, their assigns and heirs. EXCEPTIONS: 1. in case where the rights and obligations arising from the contracts are not transmissible by their nature- E.g. oblig arising form marriage; only bet. Husband and wife. 2. or by stipulation or by provision of law.- cotnract of agency. If the agent or principal, then contract is deemed terminated by reason of the death of either parties. Of course, the heir is not liable beyond the value of the property he received from the decedent. He could only be made liable so much that would be equivalent to the legitime he has received. If what iyang nareceive is only 1000, and the debt is 100,000, they cannot demand morethey have to run against the estate of debtor but not from the heir. FIRST EXCEPTION to the general rule that the 3rd party cannot interfere in a contract: 1. If a contract should contain some stipulation in favor of a third person, he may demand its fulfillment provided he communicated his acceptance to the obligor before its revocation. A mere incidental benefit or interest of a person is not sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a third person. - This is STIPULATION POUR AUTRUI. - In order for this stipulation shall arise, there are 6 requisites: 1. stipulation in favor of a third persons 2. stipulation in favor of a third persons should be a part, not the whole, of the contract 3. clear and deliberate conferment of favor upon a third person by the contracting parties and not a mere incidental benefit or interest 4. favorable stipulation should not be conditioned or compensated by any kind of obligation whatever 5. that the third person must have communicated his acceptance to the obligor before its revocation; acceptance must be absolutely unconditional. 6. neither of the contracting parties bears the legal representation or authorization of the third party remember Ong vs. CA, discuss 1191, one of the agreemetn in the contract to sell is for buyer to deliver a purchase price to BPI because seller is indebted to a bank. That stipulation is in favor to a 3rd person, the bank. 1st-3rd requisite satisfied but the 4th requisite was not [ because the delivery is a compensation for the obligation of the seller] NO STIPLUATION POUR AUTRUI. Note: Not all stipulations in favor of a 3rd person, there is a presumption that would arise that there is a stipulation Pour autrui. Perfect example: one where a bus. Establishment and a bank issued a card ..credit card..and the bus. Establishment undertakes to accept a credit card issued as a payment by a cardholder for the goods bought. This is a stip. Pour autrui in favor of the cardholder. There is a cotnract bet. Bank and bus. Establishment to honor the value of the card for as long as the conditions are met and then there is no representation, no compensation whatsoeverno payment for bus. Establishment..he merely gives the card as payment for the merchandise. The cardholder has accepted by using the card. There is automatic acceptance and is unconditional. [remember Pantaleon vs. American express] In Lapes vs. CA, where there was disagreement with PNb and foreign bank. PNB undertakes to credit to the account of Mr. Lapes the amount that was sent by that bank in favor of his account in city bank makati. SC enunciated that that agreement is Stipulation Pour autrui.A in favor of Mr. Lapes. Common: you are a beneificiary of an insurance policy and you are not a minor..already of legal age. If minor, there is violation or non compliance with requisite #6: bears the legal representation. If the ben. Is a minor, then the insured becomes the legal representative of the beneficiary. Bar question: if X has leased his house to Y who has a married daughter and in the contract of lease, X andY agreed that if X agrees to sell the house, he must first make the offer to the married daughter of Y. [SPA] mother does not bear legal representation, she, being of legal age. Acceptance may be express or implied BUT if it express, it must be absolutely UNCONDITIONAL. SECOND EXCEPTION Art. 1312. In contracts creating real rights, third persons who come into possession of the object of the contract are bound thereby, subject to the provisions of the Mortgage Law and the Land Registration Laws. 2. Article 1312- In contracts creating real rights, third persons who come into possession of the object of the contract are bound thereby, subject to the provisions of the Mortgage Law and the Land Registration laws. - E.G. suppose X would sell prop to A, A is a stranger bet. Contrct of lease entered by X and Y. but A has to honor has to respect the contract of lease bet. X and Y. right of Y is right of possession which can only be terminated upon the expiration of the contract of lease. Contracts creating real rights: right of usufructuary, ownership which may involve a mortgate credit, right to repurchase, lease and easements. THIRD EXCEPTION Art. 1313. Creditors are protected in cases of contracts intended to defraud them. 3. Those contracts entered into by debtors to defraud creditors.

72
- 1313 in relation to 1380 where the debtor to evade payment of valid obligation of transfer or sell his properties after incurring the obligation, then the creditor may enter interfere into the contract not by asking the court to annul the contract because there is no privity bet.c reditor and parties but rescission under 1380- rescission being a subsidiary action, the creditor has to show that he has exhausted all remedies available to him before he can invoke rescission. Art. 1314. Any third person who induces another to violate his contract shall be liable for damages to the other contracting party. Art 1314. Any third person who induces another to waive his contract has legal justification. E.g. a minor who is asked to parade in skimpy in SM plaza even if with consent of mother. Being a minor, the State as parens patriae, will protect always the interest of the minor. However, if the 3rd person induces another without any justifiable cause to breach his contract, then he will be liable. The inducer and the induced will be solidarily liable, nature of liability is solidarily. For 1314 to apply, the ff. must be present: Requisites: 1. the existence of a valid contract 2. knowledge by the third person of the existence of a contract 3. interference by the third person in the contractual relation without legal justification - e.g. contract star who is a star/actress who has a subsisting with a film company and another company desires to get this star..induces star to breach his contract and work with the other company Art. 1315. Contracts are perfected by mere consent, and from that moment the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law. Art. 1316. Real contracts, such as deposit, pledge and Commodatum, are not perfected until the delivery of the object of the obligation. 1315- this refers to consensual contracts. Contracts are perfected by mere consent, and from that moment the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law. - E.g. Contract of sale- whether a personal or real property is a consensual contract. If you have noticed, once you buy something from watsons, tehre is no need for agreement. Just get the object, pay for it and issues a receipt - Real property: regardless of value..exchange title and deliver it to buyer and buyer delivers the purchase price. - Y reqd that there is a public docu? Reason: for purposes of transferring title from seller to buyer. The absence of which will not invalidate the contract. - There are contracts which require delivery : REAL CONTRACTS. E.g. deposit [depositor delivers object]; - Contract of pledge- pledgor and pledgee[the one who pledged] Art. 1317. No one may contract in the name of another without being authorized by the latter, or unless he has by law a right to represent him. A contract entered into in the name of another by one who has no authority or legal representation, or who has acted beyond his powers, shall be unenforceable, unless it is ratified, expressly or impliedly, by the person on whose behalf it has been executed, before it is revoked by the other contracting party. 1317- UNENFORCeable contract in relation to 1403. General Rule: No one may contract in the name of another without being authorized by the latter, or unless he has by law a right to represent him. - A contract entered into in the name of another by one who has no authority or legal representation, or who has acted beyond his powers, shall be unenforceable, unless it is ratified, expressly or impliedly, by the person on whose behalf it has been executed, before it is revoked by the other contracting party. - Read this in conjunction with Article 1403 on unenforceable contracts. - Eg. Suppose you heard your mother tell a 3rd person:sell my house at Ecoland for 10million, yo9u get a 10 percent commission. There was this written authorization. You overheard the conversation..then you try to find a buyer.were you authorized by your mother? NO. So, you found a buyer. That is not a void contract but only an unenforceable contract. - When void: 1. It becomes void if without your mothers knowledge , you sell the property becoz there is no object[ not for sale; so it cannot be the object of contract] if you were not authorized, then unenforceable 2. if you acted beyond your power. If X is authorized to sell but if he receives the payment, he has acted beyond the authority granted to him. That payment given to X will not bind the seller. If you spend the money, the buyer has to pay again. - Suppose X was authorized to sell a parcel of land at 500,000 only but cash. He was able to find a buyer and says hes gonna buy it at 800thou, downpayment of 200thou then balance payable in 4 equal monthly installments. Valid? Yes! But is it enforceable [can be enforced thru court action]? No! you cannot compel seller to execute the documents that would to prove that there is indeed that contract entered into between you, the seller and the buyer. Reason: it might be favorable to principal but it was done in excess of the power granted to agent. It is unenforceable. The only way to make it enforceable is for the person who granted the authority to ratify the contract. Prescription does not lie agains unenforceable contracts. No matter how long the contract has been entered into, it cannot be ratified by lapse by time. It must be ratified expressly or impliedly by the principal who had given authority to the agent. - Ratification may be express or implied. In the example, it is ultra vires in the part of X. how to ratify impliedly? One act: ask for the payment of the balance. That is implied. Once there is ratification, the contract is deemed to have been entered into not from the time of ratification but the time the contract has been entered into by the parties [retroactive effect] CONSENT Recit: 1. How is consent manifested for a contract to be perfected? 2. If acceptance is through letter or telegram, how is contract perfected? 3. What if the parties are face to face? CHAPTER 2 ESSENTIAL REQUISITES OF CONTRACTS GENERAL PROVISIONS Art. 1318. There is no contract unless the following requisites concur: (1) Consent of the contracting parties; (2) Object certain which is the subject matter of the contract; (3) Cause of the obligation which is established. (1261) SECTION 1. - Consent Art. 1319. Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes a counter-offer. Acceptance made by letter or telegram does not bind the offerer except from the time it came to his knowledge. The contract, in such a case, is presumed to have been entered into in the place where the offer was made. If the parties are face to face, acceptance with the offerer must be successive in order that there shall be a perfected contract as a general rule and consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause that constitute the contract. The offer must be certain and acceptance absolute. A qualified acceptance constitute a counter offer. Example of qualified acceptance is in the form of ______. This is especially true in the case of the fund. So if the parties cant agree to the price and the buyer said can u lower it, there is no perfected contract. It is merely a counter offer. But if there is absolute acceptance, then perfected

73
contract would arise by reason of agreement and there is another kind of acceptance which we call amplified acceptance. An example of amplified acceptance. x offers to Y 1000 kilos of mangoes at 20 pesos per kilo. Then Y will say I will buy 1000 kilos plus another 1000. There is a perfected contract with respect to the first but not the second. 2nd paragraph refers to perfection of contract. When shall a contract deemed perfected when the acceptance is made thru a letter or thru a telegram? They might say that letter is already obsolete likewise a telegram is also obsolete. As much as the law still adheres to letter or telegram. They must abide to article 1319 2nd paragraph. Acceptance made by the letter or telegram does not bind the offerer except from the time it came to his knowledge. So the acceptance must come to the knowledge of the offerer. The contract in such case is presumed to be perfected where the offer was made.It is the place of the offerer. Now. 4 theories advance on acceptance: (1) Adhesion theory our civil law adheres to. A contract in this theory is deemed perfected from the moment acceptance came to the knowledge of the offerer. (2) Manifestation Theory a contract is perfected from the moment acceptance is declared. So, there is declaration of acceptance and there is perfection of the contract. (3) Expedition theory The moment the offeree transmits the acceptance to the offer ( perfection of contract). Such as acceptance is place in the mail box. It does not need that acceptance comes to the knowledge of the offerer. (4) Resemption theory contract is deemed perfected from the moment acceptance is in the hand of the offerer. Never mind if the offerer has not yet opened the letter where acceptance is indicated. In respect w/ 2nd paragraph, the perfect example is when there are perfected contract in the case of Laudico vs Arias There were series of offer.Y is a resident of another place. X sent Y thru a letter. Subsequently, Y accepted the offer and sent the acceptance thru mail. This was sent 3 pm. Of same day at 9am, X had withdraw the offer. SC held that there was no perfected contract because the withdrawal of the offer was made earlier than that of the acceptance. Art. 1320. An acceptance may be express or implied. What about silence? If offerer made an offer to offeree. Offeree did not act on it. Silence does not rise any definite conclusion. So, by itself silence is ambiguous. Acceptance may be express or implied. If express, no problem. The buyer delivers the price and the seller delivers the object. By the subsequent act of the parties, it will not trigger that there was now perfected contract. That is implied Art. 1321. The person making the offer may fix the time, place, and manner of acceptance, all of which must be complied with. The person making the offer may fix the place, time and manner of acceptance by which it must be complied with. Art. 1322. An offer made through an agent is accepted from the time acceptance is communicated to him. An offer made thru an agent is accepted from the time acceptance is communicated to him. The contract is deemed perfected from the moment the acceptance is declared by the agent. The agent is considered as a duly authorized representative of the principal. That if who was sent by the principal is merely an employee of principal, then no presumption of perfection of contract. An employee is not an agent of the principal. Art. 1323. An offer becomes ineffective upon the death, civil interdiction, insanity, or insolvency of either party before acceptance is conveyed. In 1 bar examination, x donated his parcel of land to Y, who was a resident of another place.Y sent his acceptance thru mail. When the acceptance reached Xs house, X was in another country. When he returned, before he could open the letter, he got insane. When he become sane, he again become sick so he did not able to open the acceptance of Y to the donation. X died. When Y learned Xs death, he demanded the delivery of the land donated to him. The answer of examiner was the death of x, w/o him knowing of the acceptance rendered the donation ineffective because 1323 so provides. The acceptance was in x hand but did not come to his knowledge so ineffective according to adhesion theory which the civil law adheres. Art. 1324. When the offerer has allowed the offeree a certain period to accept, the offer may be withdrawn at any time before acceptance by communicating such withdrawal, except when the option is founded upon a consideration, as something paid or promised. This is a contract of option or option contract. It is a preparatory act whereby 1 party gives the other party a fixed period and under a specified condition whether or not he would later on enter into a principal contract. Ex. X offers to Y to sell his car for 500,000.Y asks for 2 weeks to decide whether he will buy the car or not. This is an option contract. X can withdraw his offer to Y by simply communicating his withdrawal even before the expiration of the same but if he proceed to a third person w/o communicating his withdrawal to Y. He will be held liable for damages. The law requires him to communicate his withdrawal to Y before he will offer it to 3rd person. I Y decide to give 20 pesos for the option then X cant withdraw the offer until after the termination of the 2 week period. The 20 pesos is a consideration for the option not part of the purchase price because if part of purchase price then it is an earnest money under law on sales so no option contract and it becomes a perfected contract on sales. So this 1 is separate and distinct from the purchase price. This has to be returned to the offeree in end of 2 week period. This is not part of purchase price. This is payment of the option. To protect Ys right over the option. X cannot withdraw the offer until the termination of the 2 week period. But supposed Y immediately accepted the offer but says he need 2 weeks to produce the 500,000. It ceases to be a contract of option. It becomes a perfected or bilateral promise to buy and to sell which is reciprocally demandable. There was acceptance upon the offer but because it requires to produce it ceases to be a contract of option. It becomes a perfected bilateral promise to buy and to sell which is reciprocally demandable. It says promise not only consideration so it comes in the form of say I will deliver a box of mangoes for the option. That is considered sufficient consideration for the contract of option. In the absence of the consideration of the option then offeror has absolute right to withdraw the offer. Art. 1325. Unless it appears otherwise, business advertisements of things for sale are not definite offers, but mere invitations to make an offer. What about business advertisement?Like SM will be advertising that there will be a 3 day sale of 50% discount. This is a business advertisement of sales for sale. This is not definite offer but mere invitation to make an offer. So u cant hold SM liable for damages. When the advertisement says 50% discount, but when u get there, it is only 10% discount then u cannot sue them for misrepresentation because it is only an invitation to make an offer not definite offer. If SM says levis 501 sizes 40-45 70% discount. If u go there and it is not true, u can sue SM for misrepresentation because it become a definite offer because it can be segregated. Art. 1326. Advertisements for bidders are simply invitations to make proposals, and the advertiser is not bound to accept the highest or lowest bidder, unless the contrary appears. What cannot be repudiated is a bidding in judicial sale. Judicial sale are public auction. Highest bidder always win in public auction. Commonly, in bidding, the bidder always make a reservation. The bidder reserve the right to reject or accept any bid or all bid w/o offering any reason or to waive any defect or infirmity that is part and parcel of an advertisement for bidders. Exception is a judicial sale when highest bidder always win. Art. 1327. The following cannot give consent to a contract: (1) Unemancipated minors; (2) Insane or demented persons, and deaf-mutes who do not know how to write. Unemancipated person are any person below 18 years old. Contracts entered by them are voidable.There is no requirement of judicial declaration of insanity. It is sufficient that insanity existed at time contract was entered into. Dimensia is different from insanity. It is common among old person. In order for contract to be avoided by reason that a party entering into it is a deaf-mute. It must be characterized / qualified by inability to write. Insanity does not include lunacy because lunatics are merely affected by the faces of the moon. They are sane only that they behave erratically during full moon.

74
Art. 1328. Contracts entered into during a lucid interval are valid. Contracts agreed to in a state of drunkenness or during a hypnotic spell are voidable. If Drunkenness is the reason in commiting criminal act then it is aggravating. It is an alternative circumstance. It becomes mitigating if drunkenness is such that it will obscure his mental faculties or affect his judgment. The same holds true if a drunk enters a contract. It can be ground for avoiding a contract because there is no voluntary giving of consent in as much as it had obscure his judgment. It has affected his mental faculties. Likewise, hypnotism can be a ground for avoiding a contract. If person hypnotized is under the spell of person making the hypnosis. Somnambulism or sleep walking will also affect the validity of contract if he enters a contract under state of somnambulism. It will be a ground for avoiding a contract. Art. 1329. The incapacity declared in Article 1327 is subject to the modifications determined by law, and is understood to be without prejudice to special disqualifications established in the laws. The incapacity mention in article 1327 refers to the restriction of the exercise of ones right. So if u r a minor , u r restricted from exercising ur ryt in that u cant enter a contract validly. It is a voidable contract. A special disqualification is the restriction of nthe very right itself. If u r a civil interdictee, u cant manage ur property. U r considered to be civilly dead. Husband and wife are prohibited to sell to each other their property. It is a special disqualification. It is the restriction of the very right itself. It does not refer to exercise of right. Art. 1330. A contract where consent is given through mistake, violence, intimidation, undue influence, or fraud is voidable. Art. 1331. In order that mistake may invalidate consent, it should refer to the substance of the thing which is the object of the contract, or to those conditions which have principally moved one or both parties to enter into the contract. Mistake as to the identity or qualifications of one of the parties will vitiate consent only when such identity or qualifications have been the principal cause of the contract. A simple mistake of account shall give rise to its correction. In 1 bar examination, A party enter into an agreement of sale with 1 furniture maker where they agreed that such furniture should be made of Narra wood. When the furniture was delivered, it was made of other kind of wood. So, there was mistake as to invalidate the contract because it refers to substance of thing and there was fraud in performance of the obligation. Mere accident or accessory condition that dont affect consent will not invalidate contract. If u hire the service of Miss Lee. She is a professor of Math in ADMU. She coached Ateneo students who won international competition. It is bthe qualification not the person. If u hire Erich Gonzales then u hire based on the person and not quality because she is from Davao. Mistake refers to object or principal condition. It moved the party to enter into the contract. Art. 1332. When one of the parties is unable to read, or if the contract is in a language not understood by him, and mistake or fraud is alleged, the person enforcing the contract must show that the terms thereof have been fully explained to the former. Take note that it is incumbent upon the party who understand the language or is able to read to explain the contract to the party unable to read or to understand thye language the contract is written. This can be invoke by the party unable to read or to understand the document not the party able to read. This is to the party unable to read. In 1 bar exam, There is x an insurance representative and convince y to obtain an insurance policy. Y was ask to answer certain question. X ask y if he needs his assistance. She did not tell the insurance rep. that she could not understand the language used. She just answer the questionnaire. Later Y suffered disability which existed prior to perfection of insurance contract. So she demanded payment for the disability based on insurance. The insurance company denied the claim because there was misrepresentation. She now invoked article 1332. Examiner said 1332 cant be invoked by y because it is she who is enforcing the contract and not the other way around. This will only apply if it is the party able to read enforcing the contract. Art. 1333. There is no mistake if the party alleging it knew the doubt, contingency or risk affecting the object of the contract. Refers to principle of estoppels. Art. 1334. Mutual error as to the legal effect of an agreement when the real purpose of the parties is frustrated, may vitiate consent. Applies to mistake or involving doubtful question of law or mistake in relation to question of law especially if there are 2 or more interpretation of a particular law or provision. There is doubt in the interpretation or construction of law. There must be a mutual error as to the legal effect. It refers to question of law or interpretation or coontruction of the law. If both parties, then it give rise to vitiation of consent. So, it will invalidate the consent. Art. 1335. There is violence when in order to wrest consent, serious or irresistible force is employed. There is intimidation when one of the contracting parties is compelled by a reasonable and well-grounded fear of an imminent and grave evil upon his person or property, or upon the person or property of his spouse, descendants or ascendants, to give his consent. To determine the degree of intimidation, the age, sex and condition of the person shall be borne in mind. A threat to enforce one's claim through competent authority, if the claim is just or legal, does not vitiate consent. Violence is external. It is a physical force. Intimidation is internal. It is a coercive force. Ex. If u r about to take the bar, u file a petition to take the exam. Subsequently, there is a conflict because u promised to 2 or more women to maqrry them. This is based on just and legal claim. There can be no vitiation of consent. Art. 1336. Violence or intimidation shall annul the obligation, although it may have been employed by a third person who did not take part in the contract. There is a 3rd person , not a party to the contract, but employs violence or intimidation. The contract entered into is deemed void. So, x, a neighbor of y, was suspected to be responsible of the offense in house of y. Y went to police so x was arrested. A employed violence or intimidation to x to execute a deed over x property to satisfy the losses of y. art. 1336 can be applied. It is ground for annulment. Art. 1337. There is undue influence when a person takes improper advantage of his power over the will of another, depriving the latter of a reasonable freedom of choice. The following circumstances shall be considered: the confidential, family, spiritual and other relations between the parties, or the fact that the person alleged to have been unduly influenced was suffering from mental weakness, or was ignorant or in financial distress. In both undue influence and intimidation, there is moral coercion. Intimidation requires that there is an unlawful act. In undue influence, there is no such requirement because undue influence is 1 where it may be exercised by any of the following: a.confidential relationship between lawyer and client; doctor and patient b.Family father , nother, elder brother c.Spiritual priest and the person who confessed d.Other relation between the parties e.Fact that the person alleged to have been unduly influenced was suffering from mental weakness, or was ignorant, or in financial distress. Between player and coach; director and actors; between teacher and student Teacher will exercise moral ascendancy Art. 1338. There is fraud when, through insidious words or machinations of one of the contracting parties, the other is induced to enter into a contract which, without them, he would not have agreed to. 4 requirements to invoke fraud in vitiating consent and be a caused of annulling the contract 1. Iit must have been employed by one contracting party upon the other 2. Iit must have induced the other party to enter into the contract 3. Iit must have been serious 4. Iit must have resulted in damage or injury to the party seeking annulment Fraud in 1338 is different from fraud in 1171.Fraud in 1171 speaks of fraud in the fulfillment of the obligation. Fraud in 1338 speaks of fraud employed prior or simultaneous in the creation of the contract. This is categorized into:

75
A. Causal fraud ( dolo causante) the fraud is the essential cause of the party why they enter the contract. It is a ground for nullity and damages. ; b. Incidental fraud ( dolo incidente) only a ground for damages. 1339- Failure to disclose facts, when there is a duty to reveal them, as when the parties are bound by confidential relations, constitutes fraud. - An example of this would be the duty of agent to revdeal to the principal all the transactions that had transpired even if the end result be beneficial or prejudicial to the principal. Example of which would be the agent was authorized to sell a parcel fo land for 300T but was able to sell it at 600T. agent cant keep the excess of 300T because he is at all times obligated to reveal to the principal those that would transpire in the transaction for which he was authorized. Otherwise, failure to disclose such facts would constitute fraud. Art. 1340. [TOLERATED FRAUD] The usual exaggerations in trade, when the other party had an opportunity to know the facts, are not in themselves fraudulent. - Common example, cosmetics used by women. Theyre so bound of beautifying themselves to make them look younger, they undergo pain to have their eyebrow ..threading..then they apply eyebrow pencil..to those who are aging, they undergo botox..liposuction..bust augmentation. - But with respect to ordinary cosmetics[ buy this for this wil..etc] you cant sue sales clerk for luring you in buying the product because you had the opporutnity to know the facts. And by themselves, they are not fraudulent. There is what we call as caveat.__ [let the buyer beware] And your law, this is not about a misrepresentation of the seller, but it is your stupidity that caused your loss. Art. 1341. A mere expression of an opinion does not signify fraud, unless made by an expert and the other party has relied on the former's special knowledge. - For instance, you go to a jewelry store, talk with a clerk and he told you the stones are diamonds but if you are into jewelries.you know that there are different classes of diamonds .e.g. industrial diamonds[used for cutting glass]. And if you believe in the representation of the sales clerk that those are real diamonds, then you cannot sue because that is merely an expression of opinion. But if you talk to the owner, and he tells you that person is an expert. Then you can sue the owner because he is considered an expert - Exception: if the person from whom you relied and is alleged to be an expert is your employee[ e.g. you went to the store then you brought along with you an expert and tells you that that is a true diamond] then you cant sue the owner on the ground of fraud because it came from your employee. There can be no suit or ground for annulment because such representation came from your employee. Art. 1342. Misrepresentation by a third person does not vitiate consent, unless such misrepresentation has created substantial mistake and the same is mutual. - the third person here is not a party to the contract; but both dparties believe in the misrepresentation and mistake is substantial, therefore, contract may be annulled. Art. 1343. Misrepresentation made in good faith is not fraudulent but may constitute error. (n) - e.g. you go to an electronic store selling paraphernalia on computers but you merely asked sales clerk who is not an expert. If there was misrepresentation or error on the part or thing you want to have, that is not considered as fraudulent, only an error. Art. 1344. In order that fraud may make a contract voidable, it should be serious and should not have been employed by both contracting parties. - Because if both employ fraud[bad faith + bad faith = goodfaith], law will not come to their aid. They will be left as they are. Incidental fraud only obliges the person employing it to pay damages. - Another where no contract may be avoided by reason of employment of fraud is if it is employed by a co-party. - E.g. C has a co-party R, the other party is A. if R employed fraud on C, there can be no avoidance of contract bcoz it will it is employed by a party against a co-party. Annulment by reason of fraud can only be effected it the fraud is employed by a party against another party but not a party as against a coparty. - Likewise, what is reqd is that it must be the determining cuause why the parties entered into the contract. - Incidental fraud- does not give rise to annulment. One may only demand for damages. Art. 1345. Simulation of a contract may be absolute or relative. The former takes place when the parties do not intend to be bound at all; the latter, when the parties conceal their true agreement. Art. 1346. An absolutely simulated or fictitious contract is void. A relative simulation, when it does not prejudice a third person and is not intended for any purpose contrary to law, morals, good customs, public order or public policy binds the parties to their real agreement - Absolute simulation renders contract void and the parties do not intend to be bound whatsoever. - In relative, parties conceal their true agreement. For so long as no third parties are effected in a relative simulation, then the parties are bound by the stipulations of their agreement. - Theres a prob on absolute simulation, they would make it appear as sale - In relative, commonly done bet. Parents and child and there are several children. To make it appear that there was exchange of consideration, they would enter into a contract of sale. But infact, no payment was made. OBJECT OF CONTRACTS. Art. 1347. All things which are not outside the commerce of men, including future things, [ which may also include future rights] may be the object of a contract. All rights which are not intransmissible may also be the object of contracts. - All rights that are transmissible. - But rights cant be transmitted- right of cohabitation - Some rights are licit but by provision of law, they are accident. It becomes illicit. E.g. sale of real property is licit. It becomes illicit when it becomes owned by an alien. No contract may be entered into upon future inheritance[because right of heirs is only a mere expectance] except in cases expressly authorized by law. All services which are not contrary to law, morals, good customs, public order or public policy may likewise be the object of a contract. - Future things, like future rights. Author is about to write a book..he goes to a publisher, then publisher agrees even if there is no book yet. - Or objects capbble of potential existence. ..fruits of mango plantation.. mere flowers lang xa, tho quantity cant be determined..e.g. yield in a rice plant. Can be the object of contract. ..ensure viratum ..[things having potential existence] - Sale of hopebuy a lotto ticket. You are banking on hope. - Right: usufruct..can be the object of contract. - EXCEPTIONS where a contract may be validly entered into involving future inheritance: 1. Marriage settlement- may involve future inheritance by the spouses provided it complies with the formalities on wills. 2. Partition of the property during the lifetime of testator- to avoid potential conflict among heirs, testator makes a will and have the will probated. Court will determine all those procedural in nature. If court approves the probate, they deal on determination of validity of testamentary provision. If court finds that such has been approved by probee, the heirs have no longer an inchoate right over the share but now becomes a vested right. But the delivery of the object will be made only upon the death of the testator because the right over it only becomes vested upon testators death but it can now be an object of contracts. It is already apportioned..fix ang share..e.g. A was given a parcel of land. He can already sell that but he cannot demand delivery of the parcel of land at the time contract was entered into..only upon death of testator. . Subject to payment of taxes upon testators death 3. WhereRight of the party over the property, ..heir who has a creditor. Only that he delievery of payment made only upon death of testator. - Right over it is of a legatee or devisee..already approved..pwedeng object of contracts. Art. 1348. Impossible things or services cannot be the object of contracts.

76
Art. 1349. The object of every contract must be determinate as to its kind. - You cnanot enter into a contract for the deliver of athing. It must be determinate as to its kind. E.g. car..dlie lang dapat thing..or a horse but you only said an animal.. it might not be what you wanted. Precisely, the fact that the quantity is not determinate shall not be an obstacle to the existence of the contract, provided it is possible to determine the same, without the need of a new contract between the parties. - The time of creationof contract, parties can only estimate or yield of a particular parcel of land. That can only be determined say, on harvest. But not at the time of creation of contracts. CAUSE OF CONTRACTS The cause of the contract is the why of the contract, the immediate and most proximate purpose of the contract, the essential reason which impels the contracting parties to enter into it and which explains and justifies the creation of the obligation through such contract. The cause as to each party is the undertaking or prestation to be performed by the other. The object of the contract is the subject matter thereof (e.g., the land which is sold in a sales contract). Consideration, meanwhile, is the reason, motive, or inducement by which a man is moved to bind himself by an agreement. CAUSE is the prestation ot be performed by the other party. In a contract of sale, with respect to seller: DELIvery of purchase price by the buyer. With respect to buyer, it is the delivery of the object of the contract. Contracts are classified accoridng to cause 1. Onerous- CONSIDERATION or act or service that will be rendered by the other party in exchange for another party or money; equivalent consideration 2. Remuneratory- service rendered by the othe rpaty. E.g. hcild of neighbor and saved by the other party. The latter is entitled to pay for the act of saving child 3. Contract of pure benenficence- cuase is liberality of the contracting party. - Prescribed debt can be a subject of novaiton. It is also a sufficient cause for a promise to pay. - What about accommodation party? - E.g. X wants to enter into a sale of goods or merchandise from Y. so Y, demanded from X the issuance of a check to cover the goods obtained by X. but X does not have achecking account, so he would go to another party to cover a check to cover the goods. A issued the check, he is the accommodation party..not a co-maker, not a co-debtor or a joint debtor. He only accommodated X so that X will push thru th econtract he entered with Y. There was no consideration. No cause. - Suppose the obligation of X is to fund the check under As checking account. Say 200K, for if X forgot to fund the check and Y presented this to the bank then the latter dishonored it for insufficiency of account or fund..Y sued A. As defense: no consideration given. There is no cause. In fact, he is not a party to a contract. Is that sufficient? NO - It is sufficient that a time was contract was entered into, value was given even if there was no consideration because art. 1354 Although the cause is not stated in the contract, it is presumed that it exists and is lawful, unless the debtor proves the contrary. So the obligation of debtor is to prove that at the time of entry of contract, there was no cause or consideration. But the presumption is that there was value at the time contract was created. - Motives does not affect the value fo the contract. If one buys a gun, that contract is valid. Because cause is different from motive. - But if the motive predetermines the contract, it becomes the causa or the cause and renders contract void. - That is the holding of SC on Liguez v. CA where a 15yr. old girl was the apple of the eye of an old guy. He promised a land to the girl in order to gratify his sexual desire and to get the parents permission for them to live together, he also promised them a land. - When the old man died, conchita now asks for the delivery of promised land. Heirs opposed - CONTENTION OF HEIRS: there is no cause. Contracts without cause, or with unlawful cause, produce no effect whatever. The cause is unlawful if it is contrary to law, morals, good customs, public order or public policy. - Contention of conchita: the cause is the liberality of donor. Motive is different from cause so it will not affect the validity of donation - SC: donation is void. While it may be true that motive is diff. from cause, but if it predetermines the purpose of contract, it becomes the causa and makes contract void. Causa is the liberality an dthe motive is to gratify sexual desire, it now becomes the cause. But in as much as the donor is at fault, then Conchita is entitled of the parcel of land. Donor cannot question the immorality of the donation. If the donor himself cannot question the validity of donation , with more reason can the heirs question the same. Pari delicto rule will not apply because she is a minor. They occupy a privileged position in our law. Art. 1350. In onerous contracts the cause is understood to be, for each contracting party, the prestation or promise of a thing or service by the other; in remuneratory ones, the service or benefit which is remunerated; and in contracts of pure beneficence, the mere liberality of the benefactor. Art. 1351. The particular motives of the parties in entering into a contract are different from the cause thereof. Art. 1352. Contracts without cause, or with unlawful cause, produce no effect whatever. The cause is unlawful if it is contrary to law, morals, good customs, public order or public policy. Art. 1353. The statement of a false cause in contracts shall render them void, if it should not be proved that they were founded upon another cause which is true and lawful. - E.xamples: 1. iniquitous or unconscionable interests, and in order for debtor to pay that, htye made it appear for payment of a certain object in a contract of sale 2. promissory note representing a gambling debt which was made to appear as payment of an obligation 3. MEDEZ VS. RAMA: the employee of a pawnshop embezzled some money from pawnshop and to prevent the employee from being prosecuted, the father and husband executed a promssory note to pay what was taken. when PN became due and demandable, no payment was made so the owner filed an action for the value of PN. SC said no action can be maintained against the PN. It has no cause or consideration. With respect to the father, there was cause or consideration. It was his right as father. For husband, theres cause for there is tacit recognition on the fact that conjugal partnership property may be held liable to the act committed by the wife. But in as much as the wife was not made a party on the PN. The cause of PN is to stipple criminal prosecution, therefore is void. 4. MACTAL VS. MELIGRITO: Creditor gave debtor some amount of money for debtor to buy palay. If he cant , he must return the money. Nothing was done. Creditor sued for estafa. While case was ongoing,a friend of debtor approached creditor and asked for case to be dismissed. The friend said that debtor promises to satisfy oblig and executed PN to pay obligation. PN was not made good. Creditor sued the debtor. Defense of debtor: no cause. It was illegal. It was made to stipple crim. prosecution Supreme Court: PN was valid. There was cause. The fact that there was admission of his indebtedness is a sufficient cause for the issuance of PN. Therefore, he is liable for the PN. Art. 1354. Although the cause is not stated in the contract, it is presumed that it exists and is lawful, unless the debtor proves the contrary. Art. 1355. Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a contract, unless there has been fraud, mistake or undue influence. (n) - lesion refers to economic or pecuniary injury; inadequacy of cause - True for contracts under 1381[rescissbile contracts- 1. on the ward,with respect to the guardian 2. Absentee[prop under the representative] 3. Creditor who were defrauded by debtor - In these cases, there must be lesion in order to invalidate the contract. - Mistake or undue influenceannulment - Fraud by reason of economic injury- ground for rescission under 1383. CHAPTER 3

77
FORM OF CONTRACTS General rule with respect to contracts: Art. 1356. Contracts shall be obligatory, in whatever form they may have been entered into, provided all the essential requisites for their validity are present. Only the essential requisites are reqd. remember the natural elements, as part and parcel of contract, even if not agreed upon..accidental elements exist if expressly agreed upon by the parties. 1st sentence refer to SPIRITUAL intent of contract. Law looks more into the spirit rather than the form. Remember consensual contract, no reqts to go on formalities for purposes of enforceability or validity. It is already a valid contract. EXCEPTIONS: 1. when the law requires that a contract be in some form in order that it may be valid or enforceable, 2. or that a contract be proved in a certain way, - such as those contracts purusant to Art. 1358..public document for purposes of convenience or to affect third persons 3. that requirement is absolute and indispensable. In such cases, the right of the parties stated in the following article cannot be exercised. - While it may be true that a contract is valid in whatever form it is entered into ..they must not be adopted in unqualified agreement because oral agreement often leads to fraud when it comes to fulfillment of contract. Man will always reject those he wishes to reject and remember which he remembers. It would be wise if everything will be put into writing. - HERNAEZ vs. DELOS ANGELES- Hernaez is a movie star , she demanded payment of balance. sHe was refused..it was void because balance exceed P500 under 1358. No public document kc. - SC held that the dismissal of the petition [siding producer because it was void in lieu of the absence of public docu.] was not proper. It was not proper because generally, contracts are valid in whatever form.there are only 2 exceptions: for purposes of enforceability and validity. Contracts under 1358 are binding and enforceable by action or true despite absence of any wiriting. FORM OF CONTRACTS Dauden-Hernaez vs. De los Angeles (1969) This is a petition for a writ of certiorari to set aside certain orders of the CFI of Quezon City dismissing a complaint for breach of contract and damage, etc. Facts: Marlene Dauden-Hernaez is a motion picture actress who has filed a complaint against private resp Hollywood Far East Productions Inc and its President Ramon Valuenzela to recover P14, 700 representing a balance due to said actress for her services as leading actress in two motion pictures produced by the company and to recover damages. Her petition was dismissed by the lower court because it was defective because not evidenced by any written document, either public or private considering that the claim is more than P500 thereby violating Article 1356 and 1358 of the Civil Code. Issue: WON the court below abused its discretion in ruling that a contract for personal services involving more than P500 was either invalid or unenforceable under the last par of 1358 of the CC. Held: Yes. The court below abused its discretion. There was a misunderstanding of the role of the written form in contracts, as ordained in the present CC. The contractual system of our CC still follows that of the Spanish Code of 1889 and of the Ordenamiento de Alcala (ah so Leghis) of upholding the spirit and intent of the parties over formalities, hence, in general, contracts are valid and binding from their perfection regardless of the form, whether they be oral of written as provided by Art 1315 (Contracts are perfected by mere consent xxx) and by 1356 ( Contracts shall be obligatory in whatever form they may have been entered into xxx). The essential requisites are present in the contract- C-O-C. However 1356 also provides two exceptions: a. Contracts for which the law itself requires that they be in some particular form (writing) in order to make them valid and enforceable (the so-called solemn contracts). Ex. 1. donation of immovable property (in public ins) (Art. 749) 2. donation of movables worth more than P5,000 (Art. 748) 3. contracts to pay interest in loans (mutuum) (Art. 1956). 4. agreements contemplated in: 4.1. Art 1744: Stipulation bet the common carrier and the shipper or the owner limiting the liability of the former for the loss destruction or deterioration of the goods to a degree less than extraordinary diligence xxx 4.2. Art 1773: A contract of partnership is void, whenever immovable property is contributed thereto, if an inventory of said property is not made, signed by the parties, and attached to the public instrument. 4.3. Art. 1874: When a sale of a piece of land or any interest therein is through an agent, the authority of the latter shall be in writing; otherwise, the sale shall be void. 4.4. Art. 2134: The amount of the principal and of the interest shall be specified in writing; otherwise the contract of antichresis shall be void. Note: Antichresis: a contract whereby the creditor acquires the right to receive the fruits of an immovable of his debtor, with the obligation to apply them to the payment of the interest, if owing and thereafter to the principal of his credit (Art. 2132). b. Contracts that the law requires to be proved by some writing (memorandum) of its terms as in those covered by the old Statute of Frauds, now Art. 1403(2) of the CC. (This is needed for enforceability of the contract by an action in court). The basis error in the courts decision lies in overlooking that in our contractual system it is not enough that the law should require that the contract be in writing, as it does in Art. 1358. The law MUST further PRESCRIBE that without the writing the contract is not valid or enforceable by action. Order set aside and case remanded to court of origin for further proceedings. - E.g. of contracts needed to be in PB for purposes of validity: donation involving personal prop exceeding 5K, donations involving real[dapat public docu and acceptance also], agreement on payment of interest..otherwise void..if the creditor demands payment of interest but it was just an oral agreement, the debtor may not be compelled to pay in as much as the same must be in writing for it to be valid. - Other instances: 1317..the agent.if agent authorized to sell real property..that authority must be in wirting, otherwise, sale of the agent is void. - But When is the contract entered into by the agent unenforceable? [under 1317] When he exceeds the authority granted to him. Or he does not have any authroity at all..authority to sell lang but he received a payment. Receiving the payment was without authority. - Dapat in writing for purposes of VALIDITY. - On donation propter nuptias: must conform with formalities of ordinary donation. Art. 1357. If the law requires a document or other special form, as in the acts and contracts enumerated in the following article, the contracting parties may compel each other to observe that form, once the contract has been perfected. This right may be exercised simultaneously with the action upon the contract. What does 1358 require? Art. 1358. The following must appear in a public document: [ not for purposes of validity..but only for purposes of convenience and for affecting third persons] (1) Acts and contracts which have for their object the creation, transmission, modification or extinguishment of real rights over immovable property; sales of real property or of an interest therein a governed by Articles 1403, No. 2, and 1405; - covers creation: Sale..law is specific..sale of real property and its interest is covered by Art/ 1403. Donation of real property? Is it covered?

78
The reqt that a donation of a real property must be in public document is not for convenience but for VALIDITY. ..so ang covered: waiver of rights, barter, assignment!! (2) The cession, repudiation or renunciation of hereditary rights or of those of the conjugal partnership of gains; - if you renounce your share, what is the right of heir over legitime? The right must be vested in order for him to have the capacity to renounce his share or to assign or repudiate his share in estate.. (3) The power to administer property, or any other power which has for its object an act appearing or which should appear in a public document, or should prejudice a third person; - no renunciation or modification in CPG or ACP unless there is separation of property during the marriage..that must be in PB not for validity but to affect third persons.; again, in persons, if one spouse would transfer admin of his share to the other spouse, that must be in PB. For purposes of informing 3rd persons that such prop. Is in the admin of the other spouse. (4) The cession of actions or rights proceeding from an act appearing in a public document.- assigment of aciton or rights e.g. claim of ownership to affect 3rd persons . All other contracts where the amount involved exceeds five hundred pesos must appear in writing, even a private one. But sales of goods, chattels or things in action are governed by Articles, 1403, No. 2 and 1405. - For instance, agreement is for sale with a right to repurchase but the other party did not tell the person who made the docu but did not include the right to repurchase. There was meeting of the minds but wla naingon ang right to repurchas..reformation is proper. Art. 1363. When one party was mistaken and the other knew or believed that the instrument did not state their real agreement, but concealed that fact from the former, the instrument may be reformed. - One fo the parties has knowledge of this mistake..did not do anything about..reformationis proper subject to the prescriptive period. Art. 1364. When through the ignorance, lack of skill, negligence or bad faith on the part of the person drafting the instrument or of the clerk or typist, the instrument does not express the true intention of the parties, the courts may order that the instrument be reformed. - Specially true when the secretary prepared the docu. Commonly, lawyers already have a docu in the computer and secretary just have to erase the facts earlier entered..enter names of parties..then sometimes, secretary is negligent and wala natarong ug edit. By that reason, there was mistake. No annulment, merely reformation! - Common: deed of sale with pacto de retro or right to repurchase..failed to include the period where the vendor may have the right to repurchase. Art. 1365. If two parties agree upon the mortgage or pledge of real or personal property, but the instrument states that the property is sold absolutely or with a right of repurchase, reformation of the instrument is proper. - One of the cases: equitable mortgage.in order to fully appreciate such, there are some reqts that must be present in order to arrive at such a conclusion. One of which is INADEQUACY of price, continued possession of owner, the taxes due to the property is still paid by the seller..coupled with other circumstances: it is not sale but equitable mortgage. Art. 1366. There shall be no reformation in the following cases: (1) Simple donations inter vivos wherein no condition is imposed; (2) Wills; [ first two do not allow reformation because the acts are based on the beneificence of the testator or donor. Whatever is found in then instrument, the presumption is tha it is the true intention of testator or donor. It cannot be reformed. (3) When the real agreement is void.[ being void, no legal effect shall flow therefrom. It shall have no effect whatsoever 4. when one of the parties ask for enforcement and reformation. one is contrary to the other. If you enforce, you agree to the validity of the contract. Art. 1367. When one of the parties has brought an action to enforce the instrument, he cannot subsequently ask for its reformation. Art. 1368. Reformation may be ordered at the instance of either party or his successors in interest, if the mistake was mutual; otherwise, upon petition of the injured party, or his heirs and assigns. Art. 1369. The procedure for the reformation of instrument shall be governed by rules of court to be promulgated by the Supreme Court. CHAPTER 5 INTERPRETATION OF CONTRACTS - Guide: it is the embodiment of the true intention of parties. We must interpret not by the letters that killeth but the spirit that giveth life. Art. 1370. If the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control. - eta kripta lex..as that law is written. .. If the words appear to be contrary to the evident intention of the parties, the latter shall prevail over the former. evident intention ang magprevail. Lawyers are fond of writing in a deed of sale with all the improvements and all the rights thereto appertaining. The potted plant, car in the garage..these are improvements..but this is beyond the intention already. So lawyers must be careful in drafting the same. Art. 1371. In order to judge the intention of the contracting parties, their

CHAPTER 4 REFORMATION OF INSTRUMENTS (n) Reformation is a remedy available to the parties when the written document entered into by the parties does not embody the true agreement of the parties. Although there is a meeting of the minds, when the written docu failed to express the true intention of the parties, ..one of the parties may ask for reformation of the contractblah blah.. Art. 1359. When, there having been a meeting of the minds of the parties to a contract, their true intention is not expressed in the instrument purporting to embody the agreement, by reason of mistake, fraud, inequitable conduct or accident, one of the parties may ask for the reformation of the instrument to the end that such true intention may be expressed. If mistake, fraud, inequitable conduct, or accident has prevented a meeting of the minds of the parties, the proper remedy is not reformation of the instrument but annulment of the contract. - Remedy: Annulment--Because the mistake,f raud..is one that vitiates consent. So no meeting of the minds..ground for annulment not reformation. In the 1st paragraphit was merely to prevent parties from staing their true intention in the agreement. - Once reformation is granted by the court, it takes effect from the time contract is entered into. Not from the time of reformation. - Theres a case : on prescriptive period to file for reformation - For reformation to be proper: 1. There must be meeting of the minds between the contracting parties 2. The documents evidecing the contract does not express the true agreement of parties 3. Failure to express the true agreement is due to mistake, fraud.. Art. 1360. The principles of the general law on the reformation of instruments are hereby adopted insofar as they are not in conflict with the provisions of this Code. - You might find some of those principles in Stat Con [on interpretationof contracts] Art. 1361. When a mutual mistake of the parties causes the failure of the instrument to disclose their real agreement, said instrument may be reformed. - Mutual mistakee.g. the agreemetn is to cover a parcel fo land but when the docu was made, instead of Lot #12, tpos #11 nakabutang..reformation lang..in as much as true intention was not embodied in the document, then it can be reformed. There was a valid object[land], there was consideration..meeting of the minds.. Art. 1362. If one party was mistaken and the other acted fraudulently or inequitably in such a way that the instrument does not show their true intention, the former may ask for the reformation of the instrument.

79
contemporaneous and subsequent acts shall be principally considered. - In equi mortgage: what contemporatneous acts: delivery of purchase price..that a buyer retains portion of purchase price. Subsequent? Who takes possession? If sale,dapat buyer na..who pays taxes?dapat buyer na if sale jud. These have to be considered. Art. 1372. However general the terms of a contract may be, they shall not be understood to comprehend things that are distinct and cases that are different from those upon which the parties intended to agree. - E.g. if one intends to borrow in a lending institution tpos he is secured to secure the oblig, borrower will go to a friend and ask that his property be used as security. If friend executes SPA, it does not follow that friend is also liable for oblig. His oblig is only to give sercurity for the loan. Art. 1373. If some stipulation of any contract should admit of several meanings, it shall be understood as bearing that import which is most adequate to render it effectual. - There are stipulations susceptible of various interpretations. Use interpretations that will make it valid. No the one which makes it void. Art. 1374. The various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense which may result from all of them taken jointly. - Parties are not bound only by the title. It should be that you take the entire contract, not just simply the provisions/stip considered favorable to one of the parties. Art. 1375. Words which may have different significations shall be understood in that which is most in keeping with the nature and object of the contract. - E.g. garnishment..it refers to cooking. But in law, it refers to an order to the court issued to the bank.. not to release property of a debtr..becoz of a case against the depositor. Art. 1376. The usage or custom of the place shall be borne in mind in the interpretation of the ambiguities of a contract, and shall fill the omission of stipulations which are ordinarily established. - In a contract of lease, if nothing is stipulated regarding the rentalthen u use the current amount rental in the area. Art. 1377. The interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity. - This is very true in contracts of adhesioninsurance contracts. Or a contract bet. A lawyer and a client.if u borrow money from bank, contract loan consists a number of so many pages..font 6! In the event of default of borrower, the interpretion in the stip of contract of loan, will be construed against the bank. The borrow had no right to object during the signing of contract of adhesion kc - In lawyer-client..lawyer can always use words that are quite difficult to comprehend by a layman. Precisely, in the event of doubt, it will always be interpreted against the laywer for his grasp knowledge of the law and language. Art. 1378. When it is absolutely impossible to settle doubts by the rules established in the preceding articles, and the doubts refer to incidental circumstances of a gratuitous contract, the least transmission of rights and interests shall prevail. If the contract is onerous, the doubt shall be settled in favor of the greatest reciprocity of interests. If the doubts are cast upon the principal object of the contract in such a way that it cannot be known what may have been the intention or will of the parties, the contract shall be null and void. Art. 1379. The principles of interpretation stated in Rule 123 of the Rules of Court shall likewise be observed in the construction of contracts. SUPPLEMENTARY NOTES Definition of a Contract A meeting of the minds Between two persons Whereby one binds himself, with respect to the other To give something or to render some service Different phases or stages in the life of a contract 1. 1. Preparation Preliminary to formation 2. 2. Perfection birth of the contract 3. 3. Consummation - fulfillment Essential characteristics of Contracts 1. 1. Obligatory force must be complied with in good faith 2. 2. Autonomy parties are free to enter such stipulations, clauses, terms and conditions Clauses and condtions must not be contrary to: LAW Morals Good Customs Public Order Public Policy 3. 3. Mutuality contract must bind both parties Determination can be left to third party, whose decision shall be binding only when communicated to both parties Unless such determination be evidently inequitable 4. 4. Relativity takes effect only bet parties, their assigns and heirs Stipulation pour autrui accepted by third party Where third persons comes into possesion of the object of contract creating real rights Where contract is to defraud a third person Where third person induces a contracting party to violate his contracta. Different Classes of Contracts According to perfection Consensual Perfected by mere agreement of the parties Real Requires not only consent, but also the delivery of the object According to form Common Do not require particular form Formal Those which require particular form, like donation, mortgage According to nature of vinculum Unilateral Obligation of one party only Bilateral Reciprocal obligations for both parties According to cause Onerous Giving of an equivalent or compensation Gratuitous Given without compensation, just pure liberality According to risks involved Commutative Prestation is pecuniarily appreciable and determined at the moment of celebration of contract Aleatory Pecuniarily appreciable but not yet determined at the moment of celebration, since it depends upon the happening of an uncertain event. Ex. Insurance According to name Nominate with specific names or designation in law Innominate no specific name Essential Requisites of Contracts Consent of the contracting parties Object certain subject matter of the contract Cause of the obligation which is established

80
Dolo causante (Causal Fraud) Fraud employed at the time of the execution of a contract in order to secure consent, remedy is annulment bec of vitiation of consent o o Must be employed by one of the contracting parties, o o but not by both or by third parties o o Must be Serious o Must have induced the other party to enter into the contract - - Vices of Declaration Simulated Contracts 1. Absolute Contracting parties do not intend to be bound by the contract at all Void 2. Relative Contracting parties conceal their true intentions Real agreement binding on the parties if it does not prejudice third person Objects Thing, right or service which is the subject matter of the obligation created or established Thing or service must be within the commerce of man o o The law prohibits future inheritance as object of contract o o Transmissible and can be appropriated o o Not contrary to Law Moral Good Conduct Public Order Public Policy o o Real or possible o o Determinate or determinable Cause Essential reason why the parties enter into the contract o Cause should be in existence o Licit or lawful o True Interchangeable with consideration, but not same as motive o General rule: Particular motive of the party in entering into a contract are not material. Except: When it predetermines the purpose of the contract Form Whatever may be the form, Contract shall be obligatory on all provided all the essential requisites are present Two exceptions: When Law requires a certain form for validity When Law requires form for enforcement Must appear in Writing to be valid: o o Donation exceeding P 5,000 o o Sale of piece of land or interest therein by an agent o o Antichresis - Creditor acquires rights to fruits of immovable but applying to payment of interest o o Agreement regarding payment of interest Must appear in Public Instrument to be valid: Donations of immovable property Partnership where immovable or real rights are contributed Must appear in Public Instrument for Enforcement Creation, transmission, modification, sales or extinguishments of real rights over immovable properties Cession, repudiation, or renunciation of hereditary rights, or those of conjugal partnership of gains Power to administer property Cession of actions or rights proceeding from an act appearing in a public document

Elements of Consent Concurrence of the offer and the acceptance o Definite Offer that may be exactly fixed o Assent to the terms without qualifications or conditions o Conveyed before the death, civil interdiction, insanity, or insolvency o Qualified acceptance is a counter offer o Perfected when acceptance comes to knowledge of offeror o Offer can be withdrawn anytime before acceptance, unless option is founded on consideration o If offer made thru agent, accepted when communicated to the agent By parties with legal capacity to contract o Not minors, insane or demented, deaf-mutes who do not know how to write, incompetents under guardianship, civil interdiction o Minor can be liable if he misrepresents his age o Prohibited by law from entering into contracts Husband and Wife to each other o o Insolvents o o Persons prohibited from giving donations o o Adultery, concubinage o o In consideration of criminal offense o o Made to public officer, spouse, by reason of office o o Persons with fiduciary relations o o Guardian, for property under his guardianship o o Agents, for property entrusted to them o o Executor/administrator o Public officers, judges, for property under their jurisdictiono Intelligently, freely given, consciously - - Vices of the will Mistake - False notion of a thing or a fact materrial to the contract Simple mistake gives rise to correction Render voidable in following cases: Mistake as to object of the contract o Identity of thing, Substance, Condition, Quantity only if principal reason o o Mistake of Law o Will not make it voidable except: Mutual error as to the legal effect of an agreement when the real purpose of the parties is frustrated Mistake as to person o If such identity or qualification is principal cause of contract Violence Employment of external physical force, irresistible and serious to wrest consent Intimidation Moral compulsion to influence another to give his consent thru fear of imminent or grave evil o o Force employed must be serious or irresistible o o Determining cause for the party in entering into the contract Undue Influence Improper advantage of his power over the will of another depriving the latter of reasonable freedom of choice Confidential, Family, Spiritual and other relations or Person influenced suffering from mental weakness, ignorant, financial distress Fraud Insidious words or machinations of one of the contracting parties induced the other to enter into a contract, which without them he would not have agreed; Failure of one party to disclose facts to other party when there is a duty to reveal them Dolo incidente (Incidental Fraud) - committed in the performance of preexisting obligation, remedy is damages

81
Reformation When the true intention of the parties are not expressed in the instrument, one of the party may ask for the instrument to be changed so that true intention may be expressed. Requisities Must be a meeting of the minds of the parties True intention is not expressed in the instrument Failure due to mistake, fraud, inequitable conduct or accident What may be reformed Mutual mistake of parties cause failure to disclose real agreements One party mistaken and the other acted fraudulently or inequitably One party was mistaken and the other knew that instrument did not state real agreement, yet concealed it Ignorance, lack of skill,, negligence or bad faith on the part of person drafting it Where parties agree on mortgage, but instrument states property is sold absolutely or with right to repurchase

Kcire Nohj Cabuslay haha. .san ka nakapanood ng oblation ly?? 22 hours ago Like

Lyra Mae Borrega @ eric: sa school namin, san pa :p 14 hours ago Like

Nyang PAdua STRICT OR LIBERAL CONSTRUCTION STRICT OR LIBERAL CONSTRUCTION 7.01. GENERALLY

o o What may not be reformed o o Simple Donations with no condition o o Wills o o Those where real agreement is void 5 hours ago Like Subscribe

The strict or liberal construction of a statute will be depend upon the nature of the statute, the purpose to be subserved and the mischief to be remedied. A strict or liberal interpretation will be given a statute that will best accomplish the end desired and effectuate legislative intent. (Agpal... See More on Tuesday View Doc Like Subscribe

Resci Rizada YOUr welcome:) unta maningkamot na pud jud tang tanan..huhu.. 5 hours ago Like

Nyang PAdua this will be our report guys... Yesterday at 10:33am Like

Resci Rizada ERRATUM: COGNITION THEORY instead of adhesion theory.. 5 hours ago Like

Siena Katrina Adolfo me and you against the world. . mas labad pa mani kesa mangita ug kwarta pang therapy sa akong anak..luoya nato ui.tsk 6 hours ago Like Subscribe Kristine Bailon and Resci Rizada like this.

Nyang PAdua Manresa, we need your partcpation for r statcon rport 2mrw. May mga questions kmi, but i'm sure mk.answr m, ky in a form f rview lng cxa. Thank you so much daan! on Tuesdayvia Facebook Mobile Like Subscribe Resci Rizada RELEVANT DOCTRINE LANG : Feliciano vs. Zaldivar G.R. No. 162593. September 26, 2006 Remegia Y. Feliciano (FELICIANO) filed against the spouses Aurelio and Luz Zaldivar a complaint for declaration of nullity of TCTNo. T-17993 and reconveyance of the property consisting of 243 square meters of lot situated in Cagayan de Oro City. The said title is registered in the name of Aurelio Zaldivar. Feliciano alleges that she was the registered owner of a parcel of land in Cagayan de Oro City with an area of 444 square meters, covered by TCT No. T-8502. Sometime in 1974, Aurelio, allegedly through fraud, was able to obtain TCT No. T- 17993 covering the 243-sq-m portion of Felicianos lot as described in her TCT No. T-8502. Feliciano also contends that the subject lot was originally leased from her by Pio Dalman, Aurelios father-in-law, for P5.00 a month, later increased to P100.00 a month in 1960. She further alleged that she was going to mortgage the subject lot to Ignacio Gil for P100.00, which, however, did not push through because Gil took back the money without returning the receipt she had signed as evidence of the supposed mortgage contract. Thereafter, in 1974, Aurelio filed with the then Court of First Instance of Misamis Oriental a petition for

Raia Angelie OBLATION RUN NEXT WEEK! on Sunday Like Subscribe Lyra Mae Borrega likes this.

82
partial cancellation of TCT No. T-8502. It was allegedly made to appear therein that Aurelio and his spouse Luz acquired the subject lot from Dalman who, in turn, purchased it from Gil. The petition was granted and TCT No. T17993 was issued in Aurelios name. Feliciano denied that she sold the subject lot either to Gil or Dalman. She likewise impugned as falsified the joint affidavit of confirmation of sale that she and her uncle, Narciso Labuntog, purportedly executed before a notary public, where Feliciano appears to have confirmed the sale of the subject property to Gil. She alleged that she never parted with the certificate of title and that it was never lost. As proof that the sale of the subject lot never transpired, Feliciano pointed out that the transaction was not annotated on TCT No. T-8502. The RTC rendered a judgment in favor of Feliciano. On appeal, the CA reversed the decision of the RTC and ruled in favor of the Zaldivars Issue 1: Whether the Court of Appeals was correct in ruling that the land in dispute was correctly registered in the name of Aurelio Zaldivar. Ruling: No. It should be recalled that respondent Aurelio Zaldivar filed with the then CFI of Misamis Oriental a petition for issuance of a new owners duplicate copy of TCT No. T-8502, alleging that the owners duplicate copy was lost. In the Order dated March 20, 1974, the said CFI granted the petition and consequently, a new owners duplicate copy of TCT No. T-8502 was issued. However, as the trial court correctly held, the CFI which granted Aurelios petition for the issuance of a new owners duplicate copy of TCT No. T-8502 did not acquire jurisdiction to issue such order. It has been consistently ruled that when the owners duplicate certificate of title has not been lost, but is in fact in the possession of another person, then the reconstituted certificate is void, because the court that rendered the decision had no jurisdiction. Reconstitution can validly be made only in case of loss of the original certificate. In such a case, the decision authorizing the issuance of a new owners duplicate certificate of title may be attacked any time. The new owners duplicate TCT No. T-8502 issued by the CFI in the name of Aurelio is thus void. As Feliciano averred during her testimony, the owners duplicate copy of TCT No. T-8502 was never lost and was in her possession from the time it was issued to her. The court a quo correctly nullified TCT No. T-17993 in Aurelios name, emanating as it did from the new owners duplicate TCT No. T-8502, which Aurelio procured through fraud. The appellate courts reliance on the joint affidavit of confirmation of sale purportedly executed by Remegia and her uncle, Narciso Labuntog, is not proper. In the first place, respondent Aurelio cannot rely on the joint affidavit of confirmation of sale to prove that they had validly acquired the subject lot because, by itself, an affidavit is not a mode of acquiring ownership. Moreover, the affidavit is written entirely in English. On this point, Article 1332 of the Civil Code is relevant: ART.1332. When one of the parties is unable to read, or if the contract is in a language not understood by him, and mistake or fraud is alleged, the person enforcing the contract must show that the terms thereof have been fully explained to the former. import of the joint affidavit of confirmation of sale and, consequently, fraud or mistake attended its execution. The burden is on respondents, the spouses Zaldivar, to rebut this presumption. They tried to discharge this onus by presenting Atty. Francisco Velez (later RTC Judge) who notarized the said document. Atty. Velez testified that he read and interpreted the document to the affiants and he asked them whether the contents were correct before requiring them to affix their signatures thereon. The bare statement of Atty. Velez that he read and interpreted the document to the affiants and that he asked them as to the correctness of its contents does not necessarily establish that Remegia actually comprehended or understood the import of the joint affidavit of confirmation of sale. Nowhere is it stated in the affidavit itself that its contents were fully explained to Remegia in the language that she understood before she signed the same. Thus, to the mind of the Court, the presumption of fraud or mistake attending the execution of the joint affidavit of confirmation of sale was not sufficiently overcome. Moreover, the purported joint affidavit of confirmation of sale failed to state certain important information. For example, it did not mention the consideration or price for the alleged sale by Remegia of the subject lot to Ignacio Gil. Also, while it stated that the subject lot was conveyed by Ignacio Gil to Pio Dalman, it did not say whether the conveyance was by sale, donation or any other mode of transfer. Finally, it did not also state how the ownership of the subject lot was transferred from Pio Dalman to respondent Aurelio or respondents. on Monday Like Subscribe

Andrew Soriano tin, wala talaga akng natanggap na call.....baka ibang no. na miss call mo, akala mo lng sa akin..... Tuesday at 11:19pm Like

Kristine Bailon huh?? same number man ang tinawagan ko sa ginatxt ko sau...halaaaaa kaaaa dreeeew! awooooooo!! hahaha Yesterday at 7:45am Like

The principle that a party is presumed to know the import of a document to which he affixes his signature is modified by the foregoing article. Where a party is unable to read or when the contract is in a language not understood by the party and mistake or fraud is alleged, the obligation to show that the terms of the contract had been fully explained to said party who is unable to read or understand the language of the contract devolves on the party seeking to enforce the contract to show that the other party fully understood the contents of the document. If he fails to discharge this burden, the presumption of mistake, if not, fraud, stands unrebutted and controlling. Applying the foregoing principles, the presumption is that Remegia, considering her limited educational attainment, did not understand the full

Chino Ants Doctrine of Necessary Implications One of the rules of statutory construction used to fill in the gap is the doctrine of necessary implication. The doctrine states that what is implied in a statute is as much a part thereof as that which is expressed. According to Black ,in his book on Interpretation of Laws, this doctrine of necessary implications is important for very rarely, if at all, are statutes framed with minute particularity as to cover every conceivable situation. It enables the courts to draw inferences from the legislative purpose and intention in such a way as to determine whether certain minor or specific things are covered by the general or broad terms used in a statute. Doctrine of necessary implication is not judicial legislation; it is rather a method of discovery of legislative intent thru the logical process of deduction. Every statute is understood, by implication to contain all such provisions as may be necessary to effectuate its object and purpose, or to make effective rights, powers, privileges or jurisdiction which it grants, including all such collateral and subsidiary consequences as may be fairly and logically inferred from its terms. The principle is expressed in the maxim, Ex necessitate legis or from the necessity of the law. (Agpalo; 2003) A statutory grant of power carries with it, by implication, everything necessary to carry out the power or right and make it effectual and complete. (Root vs. York Corp., 39 A. 2d., p. 780). Necessity defines what may be properly and logically be inferred from and

83
read into the statute. It includes such inferences as may be logically be drawn from the purpose or object of the statute, from what the legislature must be presumed to have intended, and from the necessity of making the statute effective and operative and excludes what is merely plausible, beneficial or desirable. (Agpalo; 2003) What may implied in a certain statute must be consistent with the Constitution or to existing laws for an implication which violative of the law is unjustified or unwarranted. Illustrative of the said doctrine are the cases Chua v. Civil Service Commission and Commission on Audit v. Province of Cebu. The first case raised the issue whether a coterminous employee is entitled early retirement benefits under Republic Act 6683. Subject of argument is Section 2 of the said act which states that: Sec. 2. Coverage. This Act shall cover all appointive officials and employees of the National Government, including government-owned or controlled corporations with original charters, as well as the personnel of all local government units. The benefits authorized under this Act shall apply to all regular, temporary, casual and emergency employees, regardless of age, who have rendered at least a total of two (2) consecutive years of government service as of the date of separation. Uniformed personnel of the Armed Forces of the Philippines including those of the PC-INP are excluded from the coverage of this Act. Petitioner Lydia Chua believes that she is qualified to avail of the benefits of the program however she was denied of it. The mentioned section enumerated those who can avail of the said retirement benefits. Excluded from the benefits under RA 6683 are the following: experts and consultants hired by agencies for a limited period to perform specific activities, uniformed personnel of the Armed Forces of the Philippines, appointive officials, officials and employees who retired voluntarily prior to the enactment of this law and officials and employees with pending cases punishable by mandatory separation from the service under existing civil service laws, rules and regulations. Based on the above exclusions, petitioner does not belong to any one of them. The law however shall apply to all regular, temporary, casual and emergency employees. The respondent contended that herein petitioner is not among these specified employees who can avail of the benefit provided for by the Act. Ms. Chuas employment is considered coterminous. Coterminous is the employment status of personnel hired under foreign-assisted projects. An employee having such employment status is considered a non-career civil servant similar to casual and emergency employees. The court thus ruled in favor of petitioner. Since a coterminous employee is no different from a casual or temporary employee, and by necessary implication, the inclusion of the latter in the class of government employees entitled to the benefits of the law necessarily implies that the former should also be entitled to such benefits. Included in the ruling of the court is the discussion on doctrine of necessary implication. The doctrine holds that: No statute can be enacted that can provide all the details involved in its application. There is always an omission that may not meet a particular situation. What is thought, at the time of enactment, to be an all-embracing legislation may be inadequate to provide for the unfolding events of the future. So-called gaps in the law develop as the law is enforced. One of the rules of statutory construction used to fill in the gap is the doctrine of necessary implication. The doctrine states that what is implied in a statute is as much a part thereof as that which is expressed. Every statute is understood, by implication, to contain all such provisions as may be necessary to effectuate its object and purpose, or to make effective rights, powers, privileges or jurisdiction which it grants, including all such collateral and subsidiary consequences as may be fairly and logically inferred from its terms. Ex necessitate legis. And every statutory grant of power, right or privilege is deemed to include all incidental power, right or privilege. This is so because the greater includes the lesser, expressed in the Maxim, in eo plus sit, simper inest et minus. Similar to the case of Ms. Chua is the case Commission on Audit v. Province of Cebu which referred to the doctrine of necessary implication in its decision. Issue raised in this particular case is whether the law which authorizes the opening of extension classes includes payment of salaries and other benefits of extension teachers. The provincial governor of Cebu appointed classroom teachers to handle extension classes. When the Commission on Audit audited the accounts of the province, they found that the salaries and benefits given to the teachers are charged to the provinces Special Education Fund (SEF). COA questioned this and issued Notices of Suspension to the Province of Cebu saying that the disbursements for the salaries of teachers and scholarship grants are not chargeable to the provincial SEF. The province however contends that the salaries of the hired teachers for the said extension classes should be charged to the SEF. Under R.A. No. 5447, the SEF may be expended exclusively for the following activities of the DECS (a) the organization and operation of such number of extension classes as may be needed to accommodate all children of school age desiring to enter Grade I, including the creation of positions of classroom teachers, head teachers and principals for such extension classes x x x; (c) the payment and adjustment of salaries of public school teachers under and by virtue of Republic Act Numbered Five Thousand One Hundred SixtyEight and all the benefits in favor of public school teachers provided under Republic Act Numbered Four Thousand Six Hundred Seventy The court ruled in favor of the Province of Cebu. Indeed the salaries and benefits received by the hired teachers for extension classes should be charged to the Special Education Fund of the province. Even under the doctrine of necessary implication, the allocation of the SEF for the establishment and maintenance of extension classes logically implies the hiring of teachers who should, as a matter of course be compensated for their services. Every statute is understood, by implication, to contain all such provisions as may be necessary to effectuate its object and purpose, or to make effective rights, powers, privileges or jurisdiction which it grants, including all such collateral and subsidiary consequences as may be fairly and logically inferred from its terms. Ex necessitate legis. Verily, the services and the corresponding compensation of these teachers are necessary and indispensable to the establishment and maintenance of extension classes. Remedy implied from a right Ubi jus, ibi remediumwhere there is a right, there is a remedy for violation thereof, is well-settled principle. The existence of a right in favor of a person implies a corresponding obligation on the part of another who violates such right, and entitles the former to a remedy to assure its observance and vindication therefor. The fact that the statute is silent as to the remedy does not preclude him from vindicating his right, for such remedy is implied from such right. (Agpalo, 2003) The principle is that where there is a wrong, there is remedy which courts of general jurisdiction can grant. The word wrong means deprivation or violation of right. The principle assumes the existence of right. If, however, there is no right, this principle does not apply. (Agpalo, 2003) Related to the discussion on remedy implied from a right is the case of Pedro Batungbakal vs National Development Corp. Petitioner was suspended and removed from office which proved to be illegal and violative not only of the Administrative Code but of the Constitution itself. Court ruled that to remedy the evil and wrong committed, there should be reinstatement and payment of backwages, among other things. However, there was a legal problem as to his reinstatement, for when he was suspended and eventually dismissed, somebody was appointed to his position. The issue presented is whether or not remedy should be denied to petitioner. The court affirmed the decision of the lower court ordering the reinstatement and payment of backwages of petitioner. On the issue regarding his position being occupied court ruled that position was never vacant. Since there is no vacancy, the present incumbent cannot be appointed permanently. The incumbent is only holding a temporary position. Moreover, the incumbents being made to leave the post to give way to the employees superior right may be considered as removal for cause. Grant of Jurisdiction Jurisdiction to hear and decide cases is granted only by the Constitution or by Statutes. In absence of clear legislative intent and by express provision, jurisdiction may not be implied from the wordings of a statute. The 1987 Constitution grants to the Supreme Court Judicial power to hear and decide cases and to inferior courts as may be prescribed by legislation. Sec. 1, Art. VIII of the 1987 Constitution states: "The Judicial power shall be vested in one Supreme Court and in such lower courts sass may be established by law. Judicial power includes the duty of the courts of justice to settle actual

84
controversies involving rights which are legally demandable and enforceable, and to determine whether or not there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the Government." Sec 2, Art. VIII of the 1987 Constitution states: "The Congress shall have the power to define, prescribe, and apportion the jurisdiction of the various courts but may not deprive the Supreme Court of its jurisdiction over cases enumerated in Section 5 hereof. No law shall be passed reorganizing the Judiciary when it undermines the security of tenure of its Members." Other Constitutional Grants of Jurisdiction Sec. 17, Art. VI "The Senate and the House of Representatives shall each have an Electoral Tribunal which shall be the sole judge of all contests relating to the election, returns, and qualifications of their respective members. Each Electoral Tribunal shall be composed of nine Members, three of whom shall be Justices of the Supreme Court to be designated by the Chief Justice, and the remaining six shall be Members of the Senate or the House of Representatives, as the case may be, who shall be chosen on the basis of proportional representation from the political parties and the parties or organizations registered under the part-list system represented therein. The senior Justice in the Electoral Tribunal shall be its Chairman." (2) Sec. 2, Subtitle C, Art. IX What may be implied from grant of Jurisdiction "Exercise exclusive original jurisdiction over all contests relating to the elections, returns, and qualifications of all elective regional, provincial, and city officials, and appellate jurisdiction over all contests involving elective municipal officials decided by the trial courts of general jurisdiction, or involving elective barangay officials decided by trial courts of limited jurisdiction. Statutory Grants of Jurisdiction Sec. 5, Republic Act No. 9160 otherwise known as the Anti-Money Laundering Act of 2001 "The regional trial courts shall have jurisdiction to try all cases on money laundering . Those committed by public officers and private persons who are in conspiracy with such public officers shall be under the jurisdiction of the Sandiganbayan" Par. 1, Sec. 90, Art. XI of "Jurisdiction- The Supreme Court shall designate special courts from among the existing Regional Trial Courts in each judicial region to exclusively try and hear cases involving violations of this Act. The number of courts designated in each judicial region shall be based on the population and the number of cases pending in their respective jurisdiction." Case: Pimintel vs. Commission on Elections G.R. No. L-53581-83 Facts: Petitioners, in their election protest, alleged that they were duly certified candidates and rightful winners for the positions of mayor, vice-mayor, and members of the Sangguniang Bayan in the municipality of Diffun, Quirino Province in the general elections held in 1980. However, the Municipal Board of Canvassers invalidated the votes in their favor having considered them stray votes since they were not bonafide candidates for the said posts. Petitioners filed an election complaint before the Court of First Instance of What is implied when there is grant of jurisdiction, whether by Constitutional provision, express wording in a statute, or implied by clear legislative intent, is that it carries with it all the necessary incidental powers to employ writs, processes, and other means essential to make its jurisdiction effective. Courts and other government agencies granted with jurisdiction have all the powers which are reasonably necessary for them to effectively perform their functions and mandates. Therefore, statutes conferring jurisdiction to a Court or Government agency must be construed to enable such court or agency to perform tasks necessary for it to properly discharge its functions. Case: Philippine Airlines Employees Association vs. Philippine Airlines G.R. No. L-18559 Facts: Petitioner, a labour union composed of regular employees of respondent, Philippine airlines, are parties in a case which sought to determine whether or not Philippine Airlines is a Government Owned and Controlled consequently entitling its employees to the privileges provided under R.A. No. 1880. Respondent questioned the jurisdiction of the lower court contending that cases involving employer-employee relationships are under the Jurisdiction of Court of Industrial Relations. Issue/s: Whether or Not the lower court had jurisdiction to hear and decide the instant case. Ruling: The Supreme Court held, after examination of the records of the case, that apart from the mere difference in opinion whether or not members of the petitioner union are entitled to the provisions of R.A. No. 1880, the relationship between the parties are harmonious. By this reason the instant case does not fall under the jurisdiction of the Court of Industrial Relations. The case therefore, falls under the jurisdiction of the lower court and with that grant of jurisdiction includes all the necessary incidental powers for it to properly discharge its functions. Quirino praying for the annulment of respondent's proclamations in the above-mentioned posts and that the votes casted in their favor be reexamined by the Board of Canvassers. During the hearing for the Election Complaint, respondents filed a motion for certiorari and prohibition with preliminary injunction before COMELEC praying that CFI of Quirino be prevented from enforcing its previous order which denied their motion to limit reception of evidence. On 25 March 1980, COMELEC issued Resolution No. 9592 granting the prayer of herein respondents. Petitioners, in the instant case seeks the annulment of Resolution No. 9592 issued by COMELEC contending that it had no jurisdiction to act on the petition for certiorari filed by respondents. In their answer, respondents contend that with the appellate jurisdiction granted to COMELEC by sec. 196 of the 1978 Election Code, it is implied that it is endowed with jurisdiction to take cognizance of petitions for certiorari, prohibition, and mandamus; similar to that granted to the Court of Appeals by virtue of Sec. 4, Rule 65 of the Rules of Court. Issue/s: Whether or not the Commission on Elections had jurisdiction to issue Resolution No. 9592, dated March 25, 1980, which required petitioners to answer the petition for certiorari and prohibition with preliminary injunction filed by respondents. Decision: No, the Commission on Elections committed grave abuse in discretion amounting to excess jurisdiction when it issued Resolution No. 9592. True is the fact that the Court of Appeals has jurisdiction over petitions for certiorari, prohibition or mandamus, however its grant of jurisdiction is not by virtue of Sec. 4, Rule 65 of the Rules of Court but by Legislative enactment- Sec. 30 of the Judiciary Act or R.A. No. 296. In absence of clear legislative intent and by express provision, jurisdiction may not be implied from the wordings of a statute.

85
What cannot be done directly cannot be done indirectly What the law prohibits cannot, in some other way be legally accomplished. Quando aliquid prohibetur ex direct, prohibetur et per oblique (R.E. Agpalo, 1998) Example: Resolution No. 00-0516 issued by the Employees Compensation Commission It was resolved by the Employees Compensation Commission that the appointment of Antao by his half brother, a member of the Board of Administration, is nepotistic in character. It is legal maxim that what cannot be directly cannot be done indirectly. Section 59, Subtitle A, Title I, Book V of the Administrative Code defines nepotism as: "Section 59. Nepotism - (1) All appointments in the national, provincial, city and municipal governments or in any branch or instrumentality thereof, including government owned or controlled corporations, made in favor of a relative [within the third degree] of the appointing and recommending authority, or of the chief of the bureau or office, or of the persons exercising immediate supervision over him, are hereby prohibited." The above-stated provision should be construed as to include half-brother relations. The spirit of the provision is to avoid the evils of nepotism, thus it should include appointments made wherein there is undue favor afforded to the appointee by the appointing officer brought about by blood relations. Authority to charge against public funds may not be implied. With the Constitutional provision that no money shall be paid out of the pocket of the State except in pursuance of an appropriation made by law, comes the appropriation power of the legislative body. Unless a statute expressly so authorizes, no claim against public funds may be allowed. Where a statute grants leave privileges to APPOINTIVE officials, this cannot be construed to include ELECTIVE officials, and where it states that employer to pay 13th month pay, it does not imply that it includes government. Illegatlity of act implied from prohibition. The legal maxim in pari delicto potior est conditio defendentis, expresses that where a statute prohibits the doing of an act, the act done in violation thereof is by implication null and void. Prohibited act cannot serve as foundation of a cause of action for relief. Other related legal maxims are: Ex dolo malo non oritur actio no man can be allowed to found a claim upon his own wrongdoing or inequity Nullus coomodum capere potest de injuria sua propria no man should be allowed to take advantage of his own wrong Public policy requires that parties to an act prohibited by statute be left where they are, to make the statute effective and to accomplish its object. A party to an illegal contract cannot come to court of law and ask that his illegal object be carried out. A citizen who sold his land to an alien in violation of the constitutional restriction cannot annul the same and recover the land, for both seller and buyer are guilty of having violated the Constitution. The law will not aid either party to an illegal agreement. It leaves the parties where it finds them. Exceptions to the rule. Pari delicto doctrine will not apply when its enforcement or application will violate an avowed fundamental policy or public interest.

86
This exception was illustrated in the case of Delos Santos v. Roman Catholic Church, 94 Phil. 405, as follows: Homestead Law to give and preserve in the homesteader and his family a piece of land for his house and cultivation The law prohibits the alienation of a homestead within 5 years following the issuance of the patent and provides that any contract of a conveyance in contravention thereof shall be null and void The seller or his heirs, although in pari delicto, may recover the land subject of such illegal sale. When the transaction is not illegal per se but merely prohibited and the prohibition by law is designed for protection of one party, the court may grant relief in favor of the latter. This was further illustrated in the case of Barsobia v. Cuenco, G. R. No. 33048, April 16, 1982 where a parcel of coconut land was sold by its Filipino owner, petitioner Epifania, to a Chinese, Ong King Po, and by the latter to a naturalized Filipino, respondent herein. In the meantime, the Filipino owner had unilaterally repudiated the sale she had made to the Chinese and had resold the property to another Filipino. The Supreme Court held that if this suit is between Epifania and Ong King Po, she could have been declared entitled to the litigated land, but the factual set-up has changed. The litigated property is now in the hands of a naturalized Filipino.Respondent, as a naturalized citizen, was constitutionally qualified to own the subject property. There would be no more public policy to be served in allowing petitioner Epifania to recover the land as it is already in the hands of a qualified person. FIRST DIVISION [G.R. Nos. 130634-35. March 12, 2001] PEOPLE OF THE PHILIPPINES, Plaintiff-Appellee, v. MANOLITO OYANIB y MENDOZA, Accused-Appellant. DECISION PARDO, J.: Accused Manolito Oyanib y Mendoza appeals from the joint decision [1 of the Regional Trial Court, Branch 02, Iligan City finding him guilty beyond reasonable doubt of homicide and parricide and sentencing him to an indeterminate penalty [2 of six (6) months one day (1) to six (6) years of prision correccional as minimum to six (6) years one (1) day to eight (8) years of prision mayor as maximum, [3 and to pay P50,000.00 civil indemnity and the costs for the death of Jesus Esquierdo, and to reclusion perpetua, to pay P50,000.00 and the costs for the death of his wife, Tita T. Oyanib. [4 On September 11, 1995, Iligan City Prosecutor Ulysses V. Lagcao filed with the Regional Trial Court, Iligan City two (2) separate informations charging accused Manolito Oyanib y Mendoza with murder and parricide, as follows: Criminal Case No. 6012 That on or about September 4, 1995, in the City of Iligan, Philippines, and within the jurisdiction of this Honorable Court, the said accused, armed with a deadly weapon to wit: a hunting knife about six inches long and with intent to kill and evident premeditation and by means of treachery, did then and there willfully, unlawfully and feloniously attack, assault, stab and wound one Jesus Esquierdo, thereby inflicting upon him the following physical injuries, to wit: Cardiorespiratory arrest Hypovolemic shock irreversible Multiple organ injury Multiple stab wound chest & abdomen and as a result thereof the said Jesus Esquierdo died. Contrary to and in violation of Article 248 of the Revised Penal Code with the aggravating circumstances (sic) of evident premeditation.[5 Criminal Case No. 6018 That on or about September 4, 1995, in the City of Iligan, Philippines, and within the jurisdiction of this Honorable Court, the said accused, having conceived and (sic) deliberate intent to kill his wife Tita Oyanib, did then and there willfully, unlawfully and feloniously and with evident premeditation, attack, assault, stab and wound his wife, as a result of said attack, the said Tita Oyanib died. Contrary to and in violation of Article 246 of the Revised Penal Code.[6 The prosecutor recommended no bail for the temporary liberty of accused Manolito Oyanib y Mendoza in both cases. On September 11, 1995, accused voluntarily surrendered to the police authorities [7 and was immediately detained at the Iligan City Jail. [8 On January 17, 1996, the trial court arraigned accused Manolito Oyanib y Mendoza by reading the informations against him and translating them into the Visayan dialect. [9 He pleaded not guilty to both charges. As the two (2) cases arose from the same set of facts, the trial court conducted a joint trial. Accused Manolito Oyanib y Mendoza (hereafter Manolito) and Tita T. Oyanib (hereafter Tita) were married on February 3, 1979 [10 and had two (2) children, Desilor and Julius. They lived in Purok 1, Tambacan, Iligan City. In 1994, due to marital differences, Manolito and Tita separated, with Manolito keeping custody of their two (2) children. Tita rented a room at the second floor of the house of Edgardo Lladas (hereafter Edgardo), not far from the place where her family lived. At about 9:30 in the evening of September 4, 1995, while Edgardo and his family were watching TV at the sala located at the ground floor of their house at Purok 3-A, Tambacan, Iligan City, they heard a commotion coming from the second floor rented by Tita. The commotion and the noise lasted for quite some time. When it died down, Edgardo went upstairs to check. [11 Upstairs, Edgardo saw Tita wearing a duster, bloodied and sprawled on the floor. He saw Manolito stabbing Jesus Esquierdo (hereafter Jesus) while sitting on the latters stomach. Jesus was wearing a pair of long black pants. When Edgardo asked Manolito what he was doing, accused told Edgardo not to interfere. Thereafter, Edgardo left the house and called the police. Meanwhile, the neighbors brought Tita to the hospital. She died on the way to the hospital. [12 SPO3 Eduard Tubil, police investigator, General Investigation Office, Iligan City Police Command, Precinct I, Poblacion, Iligan City said that at about 9:00 in the evening of September 4, 1995, while he was on duty, he received an information regarding a stabbing incident at the Llagas residence at Purok 3A, Tambacan, Iligan City. [13 At the crime scene, SPO3 Tubil saw the lifeless body of Jesus lying face up with several stab wounds in different parts of the body. Jesus was clad in tshirt and long pants. From the crime scene, he recovered a knife. Afterwards, he went to Dr. Uy Hospital to check on Tita; he was informed that she was dead. Manolito was the suspect in the killing of Jesus and Tita. [14 The incident was recorded in the police blotter as Entry No. 137138. [15 On September 5, 1995, Dr. Leonardo A. Labanon, Medico-Legal Officer, Iligan City examined the bodies of Jesus and Tita. [16 Jesus sustained multiple stab wounds, and those inflicted in the right and left chests and stomach were fatal. [17 The cause of death was cardiorespiratory arrest, hypovolemic shock irreversible, multiple organ injury and multiple stab wound chest and abdomen. [18 Likewise, Tita sustained several stab wounds, with the fatal wounds inflicted in the left chest and right side of the abdomen. The cause of death was cardiorespiratory arrest, hypovolemic shock and multiple stab wound. [19 As heretofore stated, in 1994, following a series of arguments, Manolito and Tita decided to live separately. Manolito retained custody of their two (2) children. Immediately after the separation, Tita stayed at her friend Merlyns house for two (2) months. Afterwards, she transferred to the Lladas residence, located at Purok 3, G. Tambacan, Iligan City, and rented the second floor. [20 The rented space consisted mainly of a sala with one adjoining room. It was arranged in a manner that if one enters the main entrance door, one is immediately led to the sala and from the sala, directly to the door of the adjoining room. Despite their separation, Manolito tried to win Tita back and exerted all efforts towards reconciliation for the sake of the children. However, Tita was very reluctant to reconcile with Manolito. [21 In fact, she was very open about her relationship with other men and would flaunt it in front of Manolito. One time, he chanced upon his wife and her paramour, Jesus, in a very intimate situation by the hanging bridge at Brgy. Tambacan, Iligan City. [22 Manolito confronted Tita and Jesus about this. He censured his wife and reminded her that she was still his wife. They just ignored him; they even threatened to kill him. [23 In the evening of September 4, 1995, after supper, his daughter Desilor handed Manolito a letter from the Iligan City National High School. The letter mentioned that his son Julius failed in two (2) subjects and invited his parents to a meeting at the school. Because he had work from 8:00 in the morning until 5:00 in the afternoon the next day, Manolito went to Titas house to ask her to attend the school meeting in his behalf. [24 Upon reaching Titas rented place, he heard sounds of romance (kissing)

87
coming from the inside. He pried open the door lock using a hunting knife. He caught his wife Tita and Jesus having sexual intercourse. Jesus was on top of Tita and his pants were down to his knees. Upon seeing him, Jesus kicked Manolito in the cheek. Manolito immediately stabbed Jesus. Though Jesus was 59 in height and weighed about 70 kg., the suddenness of the assault caused him to lose his balance and fall down. Manolito took advantage of this opportunity and stabbed Jesus in the stomach. Tita left the room upon seeing Manolito, only to come back armed with a Tanduay bottle. She hit Manolito in the head, while at the same time shouting kill him Jake, kill him Jake. [25 In the commotion, Manolito stabbed Jesus, hitting him in the abdomen. Jesus fell down and Manolito stabbed him again. Meanwhile, Tita stabbed Manolito in the arm with the broken Tanduay bottle. This angered Manolito and he stabbed Tita in the left breast. He stabbed her three (3) more times in different parts of her body. Tita fell near the lifeless body of her paramour. It was at this point that Edgardo, the owner of the house Tita was renting, appeared from the ground floor and inquired about what had happened. Manolito told Edgardo not to interfere because he had nothing to do with it. Thereafter, Manolito left the house of Edgardo and went to Kilumco, Camague, Iligan City and stayed at the wake of his friends neighbor. He threw away the knife he used in stabbing his wife and her paramour. At around 4:00 in the morning of the following day, he went to Camague Highway to catch a bus for Lentogan, Aurora, Zamboanga. While in Lentogan, he heard over radio DXIC that there was a call for him to surrender. He heeded the call and gave himself up to the police authorities in Precinct 2, Nonocan, Iligan City. [26 When asked why he was carrying a knife when he went to his wifes place, Manolito said that he brought it for self-defense. Prior to the incident, he received threats from his wife and her paramour, Jesus, that they would kill him so they could live together. [27 After trial, on May 26, 1997, the trial court promulgated a joint decision finding accused guilty beyond reasonable doubt of the crimes charged. The dispositive portion reads: WHEREFORE, in the light of the foregoing findings and pronouncements and having carefully observed the demeanor of witnesses, this Court hereby declares accused MANOLITO OYANIB y Mendoza GUILTY beyond reasonable doubt of the crime of Homicide (Crim. Case No. II-6012) and Parricide (Crim. Case No. II-6018) and appreciating the two (2) mitigating circumstances of passion or obfuscation and voluntary surrender without any aggravating circumstances to consider, this Court sentences accused Manolito Oyanib y Mendoza to suffer an imprisonment as follows: 1) In Criminal Case No. II-6012: To an Indeterminate Penalty ranging from SIX (6) MONTHS ONE (1) DAY to SIX (6) YEARS as Minimum to Six (6) YEARS ONE (1) DAY to EIGHT (8) YEARS as Maximum; to indemnify heirs of Jesus Esquierdo the sum of P50,000.00 as civil indemnity, and to pay the costs. 2) In Criminal Case No. II-6018: To RECLUSION PERPETUA pursuant to Republic Act No. 7659; to indemnify heirs of his wife P50,000.00 as civil indemnity and to pay the costs. It is likewise ordered that the aforesaid imprisonment is subject to the forty (40) years limitation prescribed in Article 70 of the Revised Penal Code. Accused is likewise entitled to full credit of his preventive imprisonment. SO ORDERED. Iligan City, Philippines, May 26, 1997. MAXIMO B. RATUNIL Presiding Judge[28 On June 17, 1997, accused Manolito Oyanib y Mendoza interposed an appeal from the joint decision of the trial court to the Supreme Court. [29 Accused admitted the killings. He argued that he killed them both under the exceptional circumstances provided in Article 247 of the Revised Penal Code. He raised several errors allegedly committed by the trial court, which boiled down to the basic issue of whether accused is entitled to the exceptional privilege under Article 247 of the Revised Penal Code. [30 He questioned the trial courts appreciation of the facts and the evidence, contending that it ignored and overlooked vital pieces of physical evidence material to the defense of the accused, like the photograph of the lifeless body of Jesus. Accused contends that the photograph graphically showed that Jesus pants were wide open, unzipped and unbuttoned, revealing that he was not wearing any underwear, lending credence to his defense that he caught his wife and her paramour in the act of sexual intercourse. On the other hand, the Solicitor General submitted that accused-appellant failed to discharge the burden of proving, by clear and convincing evidence, that he killed the victims under the exceptional circumstances contemplated in Article 247 of the Revised Penal Code. Hence, the trial court did not err in denying him the exempting privilege under the Article. [31 We find the appeal meritorious. At the outset, accused admitted killing his wife and her paramour. He invoked Article 247 of the Revised Penal Code as an absolutory and an exempting cause. An absolutory cause is present where the act committed is a crime but for reasons of public policy and sentiment there is no penalty imposed. [32 Having admitted the killing, it is incumbent upon accused to prove the exempting circumstances to the satisfaction of the court in order to be relieved of any criminal liability. Article 247 of the Revised Penal Code prescribes the following essential elements for such a defense: (1) that a legally married person surprises his spouse in the act of committing sexual intercourse with another person; (2) that he kills any of them or both of them in the act or immediately thereafter; and (3) that he has not promoted or facilitated the prostitution of his wife (or daughter) or that he or she has not consented to the infidelity of the other spouse. [33 Accused must prove these elements by clear and convincing evidence, otherwise his defense would be untenable. The death caused must be the proximate result of the outrage overwhelming the accused after chancing upon his spouse in the act of infidelity. Simply put, the killing by the husband of his wife must concur with her flagrant adultery. [34 There is no question that the first element is present in the case at bar. The crucial fact that accused must convincingly prove to the court is that he killed his wife and her paramour in the act of sexual intercourse or immediately thereafter. After an assiduous analysis of the evidence presented and the testimonies of the witnesses, we find accused to have acted within the circumstances contemplated in Article 247 of the Revised Penal Code. Admittedly, accusedappellant surprised his wife and her lover in the act of sexual intercourse. To the mind of the court, what actually happened was that accused chanced upon Jesus at the place of his wife. He saw his wife and Jesus in the act of having sexual intercourse. Blinded by jealousy and outrage, accused stabbed Jesus who fought off and kicked the accused. He vented his anger on his wife when she reacted, not in defense of him, but in support of Jesus. Hence, he stabbed his wife as well several times. Accused Manolito Oyanib y Mendoza surrendered to the police when a call for him to surrender was made. The law imposes very stringent requirements before affording the offended spouse the opportunity to avail himself of Article 247, Revised Penal Code. As the Court put it in People v. Wagas: [35 The vindication of a Mans honor is justified because of the scandal an unfaithful wife creates; the law is strict on this, authorizing as it does, a man to chastise her, even with death. But killing the errant spouse as a purification is so severe as that it can only be justified when the unfaithful spouse is caught in flagrante delicto; and it must be resorted to only with great caution so much so that the law requires that it be inflicted only during the sexual intercourse or immediately thereafter. WHEREFORE , the Court REVERSES the appealed decision of the Regional Trial Court, Branch 02, Iligan City in Criminal Cases Nos. II-6012 and II-6018. The Court sentences accused Manolito Oyanib y Mendoza to two (2) years and four (4) months of destierro. [36 He shall not be permitted to enter Iligan City, nor within a radius of one hundred (100) kilometers from Iligan City. [37 Costs de oficio. SO ORDERED. on Monday Like Subscribe Norman Pescado and Stephen Valderrama like this.

Kristine Bailon ART. 1359 REFORMATION OF INSTRUMENTS a. BENTIR v. LEANDA F: LEYTE GULF TRADERS INC. filed complaint for reformation of instrument against TOLANDA ROSELLO-BENTIR, sps. SAMUEL AND CHARITO PORMADA.

88
LEYTE GULF TRADERS INC. allege that it entered into a contract of lease of a parcel of land with BENTIR for 20 yrs, then was extended for another 4 yrs or until may 31 1992. Sometime on may 1989 BENTIR sold the leased premises to SPS. PORMADA. LEYTE GULF questioned the sale alleging that it had a right of first refusal. SC: The core issue that merits our consideration is whether the complaint for reformation of instrument has prescribed. The remedy of reformation of an instrument is grounded on the principle of equity where, in order to express the true intention of the contracting parties, an instrument already executed is allowed by law to be reformed. The right of reformation is necessarily an invasion or limitation of the parol evidence rule since, when a writing is reformed, the result is that an oral agreement is by court decree made legally effective. Consequently, the courts, as the agencies authorized by law to exercise the power to reform an instrument, must necessarily exercise that power sparingly and with great caution and zealous care. Moreover, the remedy, being an extraordinary one, must be subject to limitations as may be provided by law. Our law and jurisprudence set such limitations, among which is laches. A suit for reformation of an instrument may be barred by lapse of time. The prescriptive period for actions based upon a written contract and for reformation of an instrument is ten (10) years under Article 1144 of the Civil Code. Prescription is intended to suppress stale and fraudulent claims arising from transactions like the one at bar which facts had become so obscure from the lapse of time or defective memory Reformation of an instrument is that remedy in equity by means of which a written instrument is made or construed so as to express or conform to the real intention of the parties when some error or mistake has been committed. It is predicated on the equitable maxim that equity treats as done that which ought to be done. The rationale of the doctrine is that it would be unjust and unequitable to allow the enforcement of a written instrument which does not reflect or disclose the real meeting of the minds of the parties. However, an action for reformation must be brought within the period prescribed by law, otherwise, it will be barred by the mere lapse of time. Private respondent theorized, and the Court of Appeals agreed, that the extended period of lease was an "implied new lease" within the contemplation of Article 1670 of the Civil Code, under which provision, the other terms of the original contract were deemed revived in the implied new lease. We do not agree. First, if, according to respondent corporation, there was an agreement between the parties to extend the lease contract for four (4) years after the original contract expired in 1988, then Art. 1670 would not apply as this provision speaks of an implied new lease (tacita reconduccion) where at the end of the contract, the lessee continues to enjoy the thing leased "with the acquiescence of the lessor", so that the duration of the lease is "not for the period of the original contract, but for the time established in Article 1682 and 1687." In other words, if the extended period of lease was expressly agreed upon by the parties, then the term should be exactly what the parties stipulated, not more, not less. Second, even if the supposed 4-year extended lease be considered as an implied new lease under Art. 1670, "the other terms of the original contract" contemplated in said provision are only those terms which are germane to the lessees right of continued enjoyment of the property leased. The prescriptive period of ten (10) years provided for in Art. 1144 applies by operation of law, not by the will of the parties. Therefore, the right of action for reformation accrued from the date of execution of the contract of lease in 1968 an action for the reformation of an instrument is instituted as a special civil action for declaratory relief. Since the purpose of an action for declaratory relief is to secure an authoritative statement of the rights and obligations of the parties for their guidance in the enforcement thereof, or compliance therewith, and not to settle issues arising from an alleged breach thereof, it may be entertained only before the breach or violation of the law or contract to which it refers. Here, respondent corporation brought the present action for reformation after an alleged breach or violation of the contract was already committed by petitioner Bentir. Consequently, the remedy of reformation no longer lies. TEOCO v. METROBANK ---REAL CREDITORS ARE RARELY UNWILLING TO RECEIVE THEIR DEBTS FROM ANY HAND WHICH WILL PAY THEM. ang tunay na may pautang ay bihirang tumanggi sa kabayaran mula kaninuman. FACTS: - LYDIA T. CO, married to RAMON CO, is the registered owner of 2 parcels of land. The lots were mortgaged by RAMON to METROBANK (MB) for 200,000 - Prop. Were sold to MB in an extrajudicial foreclosure. TCTs were issued in the name of MB for failure of RAMON to redeem the same within one year. - MB filed petition for issuance of writ of possession against sps. CO. HOWEVER, SINCE THE SPS. CO WERE NO LONGER RESIDING IN THE PHIL. AT THE TIME THE PETITION WAS FILED, MB was ordered by trial court to effect summons by publication. - May 1994 brothers TEOCO, herein petitioners, filed answer-inintervention, alleging that they are the successors-in-interest of SPS. CO and that they have validly redeemed the subject properties. MB in its reply alleged that the amount deposited by BROTHERS was NOT SUFFICIENT, and that the assignment of the right of redemption by the sps. Co in their favor was NOT properly executed as it lacks necessary authentication from the phil. Embassy - MB refused to accept the amount deposited because BROTHERS were supposed to pay sps. Cos subsequent obligations to MB as well. The BROTHERS claimed that they are NOT bound to pay all the obligations of the sps. Co, but only the value of the property sold during the public auction ISSUE: - won amount tendered was sufficient - Would the exercise by the BROTHERS of the right to redeem the properties in question be precluded by the fact that the assignment of right of redemption was not contained in a public document? Negative. RULING: 1. MB should prove by preponderance of evidence that such subsequent obligations are secured by said mortgage contract and not by any other form of security entering into such mortgage contracts does not necessarily put within its coverage all loan agreements that may be subsequently entered into by the parties 2. verily, the assignment of redemption is not admissible in evidence as a public document in our courts. However, this does not necessarily mean that such document has no probative value; first public documents are prima facie evidence of the facts stated in them. second - presentation of public document dispenses with the need to prove a documents due execution and authenticity. Third the law may require the certain transactions appear in public instruments such as art. 1358 and 1625. MB never challenged either the content, due execution, genuineness of the assignment of the right of redemption. Thus, deemed to have admitted the same. Having impliedly admitted the content of the assignment, there is no necessity for prima facie evidence of the facts there stated. THE NECESSITY OF A PUBLIC DOCUMENT FOR CONTRACTS WHICH TRANSMIT OR EXTINGUISH REAL RIGHTS OVER IMMOVABLE PROPERTY, AS MANDATED BY ART. 1358, IS ONLY FOR CONVENIENCE. IT IS NOT ESSENTIAL FOR VALIDITY OR ENFORCEABILITY; the only effect of noncompliance with art. 1358 is that a party to such a contract embodied in a private document may be compelled to execute a public document. In the case at bar, MB would not be prejudiced by the assignment. The BROTHERS would merely step into the shoes of the assignors, sps. Co. the BROTHERS must comply with all the reqts imposed by law on the sps. Co. 1357/1358 FORM FOR THE CONVENIENCE OF THE PARTIES: MARTINEZ v. CA ---where immovable prop is the subject of a double sale, ownership shall be transferred to 1. Person acquiring it in good faith first recorded at registry of property, 2. In default, person in good faith first in possession, 3. In default, person who presents the oldest title. ---in case of doubt, a contract purporting to be a sale of right to repurchase shall be construed as equitable mortgage; requirements: *parties entered into a contract denominated as contract of sale *intention was to secure existing debt by way of mortgage. Contract of sale with right to repurchase gives rise to presumption that it is an equitable mortgage in the ff: 1. price of sale with right to repurchase unusually inadequate 2. vendor remains in possession as lessee, or otherwise 3. upon or after expiration of right to repurchase another instrument extending period of redemption or granting new period is executed 4. purchaser retains for himself part of purchase price 5. vendor binds himself to pay taxes on the thing sold 6. any other case where it can be fairly inferred that the real intention is that

89
the transaction shall secure payment of debt or performance of any obligation FACTS: - Feb. 1981: priv. resps. GODOFREDO and MANUELA DE LA PAZ had an oral with petitioner, REV. FR. MARTINEZ for sale of a lot, 15,000 - At time of sale, lot was still registered to priv. resp.s mother although it was already sold to MANUELA by deed of absolute sale in May 1976. It was only on October 1981 that the sale was registered to her name. - The sale of land to REV. FR. MARTINEZ pushed through and completed payment on jan. 31, 1983 where 2 documents were executed by priv.resp. stating that deed of sale was to be delivered on feb 25 1983 and affidavit of sale of lot was to be signed by Freddie de la paz on march 20. HOWEVER, NO DEED OF SALE WAS DELIVERED ON SAID DATE. - Meanwhile, priv. resp. sold 3 lots with right to repurchase to SPOUSES VENERACION for 150,000. ONE OF THE LOTS SOLD WAS THE LOT PREVIOUSLY SOLD TO REV. FR. MARTINEZ - VENERACION never took actual possession of any of the lots during period of redemption but the titles were given to him - Before the 1-year expiration, MR. TECSON wanted to buy the 2 lots along Maharlika Highway, ONE OF WHICH WAS THE ONE PURCHASED BY REV. FR. MARTINEZ; the same offer was also given by VENERACION for the purchase of the same 2 lots MR. TECSON wanted to buy. The priv. resp. accepted VENERACIONS offer - When VENERACION inquired about the ownership of subject lot, he was reassured by priv. resp. thereafter, deed was registered on march 5 1984 - REV. FR. MARTINEZ discovered that the lot he was occupying has been sold to SPS. VENERACION ISSUE: won VENERACION ARE BUYERS IN GOOD FAITH RULING: as early as oct. 1981 veneracion knew there was construction being made on the property they purchased First contract of sale between priv. resp. and veneracion was in fact an equitable mortgage, as evidenced by: 1. veneracion never took actual possession of the 3 lots 2. Priv. resp still resided in one of the lots 3. No effort to take possession of property between first and second sale 4. Purchased lot for same amount when they found out that mr. tecson is interested Thus, Did not meet standard of good faith Art. 1357 /1358 related to art. 1403 (2) sale of real prop must be in writing to be enforceable; need NOT be notarized. if not in writing, may compel the other party to observe such reqt. Deed of sale bet. Priv. resp and sps. Veneracion X!