ATTY

MOTO-Q NOTES

Morales, Occiano, Tongcua, Occiano, Quitain

Atty. Crisostomo Uribe

Notes in Civil Law Review 2

I. OBLIGATIONS 20% Midterm

30% quizzes and recitations

50% finals

Digest Sales; starting with Sanchez v. Rigos

2 quizzes in oblicon

Certification that the digest is complete and is in your own handwriting -( from 2 classmates

-( cases penned by justice Azcuna -( 2 quizzes

OBLICON Tolentino

Sales Baviera

Partnership Bautista

Common Law general and ordinary law of a country/ community; unwritten law founded on memorial usage and natural justice and reason.

Passive solidarity not always one debtor; may/ may have 2 or more debtors/creditors.

When the fulfillment of the condition depends upon the sole will of the debtor, the conditional obligation shall be void this is true only in resolutory conditions.

Alternative obligations simple when choice has already been communicated! If not communicated there is no consent.Facultative obligations is the choice always with the creditor?

Obligations:

Art. 1156. An obligation is a juridical necessity to give, to do or not to do. (n)

it is a civil obligation because of the phrase juridical necessity.

Q: Does a creditor have a right under natural obligations?

A: Yes

Q: Suppose a promissory note was made:

1/2/93

I promise to pay B P1M

A

Is it civil or natural?

A: It may be civil or natural. Civil-within 10 years prescriptive period; natural-beyond ten years.

Q: If it was made beyond the prescriptive period, may it be considered a civil obligation?

A: Yes. If prescriptive period was interrupted or if no written demand was made. Only if demanded within the prescriptive period may it be due and demandable.

Q: Is consent one of the essential elements of obligations?

A: NO. It is true only with contracts.

Essential elements of obligation:1. Active Subject creditor/obligeeQ: Is any kind of person subject to obligation?

A: Yes. Not only Natural persons but also juridical entities/persons.

2. Prestation to give, to do, or not to do.

Q: Is it a thing?

A: No. It is the particular conduct of the debtor.

3 Juridical tie vinculum juris

that which binds the parties.

Q: When can there be a tie? What creates a tie?

A: when there is an existence of the source of obligation.Sources of Obligation:

Art. 1157. Obligations arise from:

(1) Law;

(2) Contracts;

(3) Quasi-contracts;

(4) Acts or omissions punished by law; and

(5) Quasi-delicts. (1089a)QUASI CONTRACTS:

Kinds:

1.Nominate:

a.) solutio indebiti

b.) Negotiorum gestio

2. Innominate Articles 2164-2175

SECTION 3. - Other Quasi-Contracts Art. 2164. When, without the knowledge of the person obliged to give support, it is given by a stranger, the latter shall have a right to claim the same from the former, unless it appears that he gave it out of piety and without intention of being repaid. (1894a)

Art. 2165. When funeral expenses are borne by a third person, without the knowledge of those relatives who were obliged to give support to the deceased, said relatives shall reimburse the third person, should the latter claim reimbursement. (1894a)

Art. 2166. When the person obliged to support an orphan, or an insane or other indigent person unjustly refuses to give support to the latter, any third person may furnish support to the needy individual, with right of reimbursement from the person obliged to give support. The provisions of this article apply when the father or mother of a child under eighteen years of age unjustly refuses to support him.

Art. 2167. When through an accident or other cause a person is injured or becomes seriously ill, and he is treated or helped while he is not in a condition to give consent to a contract, he shall be liable to pay for the services of the physician or other person aiding him, unless the service has been rendered out of pure generosity.

Art. 2168. When during a fire, flood, storm, or other calamity, property is saved from destruction by another person without the knowledge of the owner, the latter is bound to pay the former just compensation.

Art. 2169. When the government, upon the failure of any person to comply with health or safety regulations concerning property, undertakes to do the necessary work, even over his objection, he shall be liable to pay the expenses.

Art. 2170. When by accident or other fortuitous event, movables separately pertaining to two or more persons are commingled or confused, the rules on co-ownership shall be applicable.

Art. 2171. The rights and obligations of the finder of lost personal property shall be governed by Articles 719 and 720.

Art. 2172. The right of every possessor in good faith to reimbursement for necessary and useful expenses is governed by Article 546.

Art. 2173. When a third person, without the knowledge of the debtor, pays the debt, the rights of the former are governed by Articles 1236 and 1237.

Art. 2174. When in a small community a nationality of the inhabitants of age decide upon a measure for protection against lawlessness, fire, flood, storm or other calamity, any one who objects to the plan and refuses to contribute to the expenses but is benefited by the project as executed shall be liable to pay his share of said expenses.

Art. 2175. Any person who is constrained to pay the taxes of another shall be entitled to reimbursement from the latter.

certain lawful, unilateral act must concur.

For negotiorum gestio- there must be abandonment.

BAR EXAM QUESTION:

A bought a pack of cigar worth P225.00. He paid P375.00. What relationship was created?

A: Quasi contract; solutio indebiti

Q: A had a fishpond. Lawless events forced to go to Manila and then Europe. B, who has in the business of buying and selling fish, realized that it was harvest time, harvested the fish and sold them to X. B borrowed money from Y in order to buy the fingerlings.

a. What Juridical relationship was created between A and B?

A: Negotiorum gestio

b. What juridical relationship was created by A with respect to B and X?

A: to remit the sale of fish sold to X

c. A with respect to B and Y?

A: A must pay the loan to B because it was for the benefit of A.

d. If A ratified the acts of B, what will happen?

A: A shall be indebted to BQ: Is innominate quasi contract exclusive?

A: No. Acts or omissions punishable by law.-> crimes and delicts.

felony is limited only to the RPC.

Requisites for it to arise:

There must be a conviction. Proof beyond reasonable doubt.

Q: Is there a crime where there is no civil liability?

A: Justifying Circumstances.

QUASI DELICT:

Quasi-delict = culpa aquiliana

- it is not culpa extra contractual or torts.

Culpa extra contractual includes:

1. contractual

2. Extra contractual includes other sources under 1157.

Pineda would say that torts is not quasi-delict because torts include malicious and negligent acts.

Atty. Uribe does not agree with him. Torts is the same as quasi delict.

Art. 2177. Responsibility for fault or negligence under the preceding article is entirely separate and distinct from the civil liability arising from negligence under the Penal Code. But the plaintiff cannot recover damages twice for the same act or omission of the defendant. (n) Cangco v. Manila Railroad (18 Phil 768)

Q: What were the defendant's defenses?A: plaintiff was negligent; defendant exercised due diligence in selecting its employees. (not a good defense. It is raised only in quasi delict.MRRs liability was based on contract of carriage.)

Q: Was it the negligence of Cangco?

A: No. the proximate cause was the bulk of watermelon. It was dimly lighted. There is negligence considering the person, time and place.

Gutierrez v. Gutierrez (56 Phil 177)

- there were 5 defendants. 3 were held liable. The mother and child were not held liable.

Q: A obliged himself the following to B: a. to give a refrigerator, model 123; b. an 18 inch TV set; c. fix piano of B. A failed to perform any. What are the remedies?

A: Determine first the nature of the thing to be delivered whether determinate or indeterminate:

a. determinate/specific(ref)- specific performance plus damages.

b. Generic (TV) to have another person perform at the expense of the debtor.

c. Service (to do) damages;involuntary servitude.

Generic depends on the purpose and circumstances.July 7, 2007 (7/7/07)

Compliance of Obligation; specific obligation of the debtor; different kinds of obligation joint solidary.

July 10 and 28 -make up class

Compliance determine the kind of obligation; determine the purpose.

BAR EXAM QUESTION:

There was an obligation on the part of A to deliver mangoes on july 1, 2006, 6 months after agreement with B. One month before delivery, A sold to the fruit to X. Can B recover the fruits from X?

A: No. B has no real rights over the fruits since it was not delivered to him.

KINDS OF OBLIGATIONS AS TO PERFECTION AND EXTINGUISHMENT:

Q: promissory note:

1/2/93

I promise to pay B P1M

A

What kind of obligation?

A: Pure Obligation

even if suspensive or postestative condition, the debtor may be compelled if there is a pre existing condition.

Impossible Conditions:

If with a term shall annul condition

If without a term it is void

If negative impossible valid condition

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.

Reciprocal sale

Unilateral donation

Q: A obliged himself to B to deliver a thing on September 2005, after they agreed in January 2003. A however delivered it to C in April of 2003. Who has a better right? What about C?A: B has a better right. C will have a better right if he acted in good faith.

* with regard to improvements, if voluntarily made by the debtor, no other right than usufructuary.

BAR EXAM QUESTION:Q: A borrowed P1M from B payable at the end of the year; A delivered a car as stipulated, B may use the car. On August 1, A offered to pay P1M, can B be compelled to accept P1M?

A: It depends on whose benefit the term was constituted. If for the benefit of both parties, there may be no compulsion. If for the benefit of the debtor, creditor may be compelled to accept.

Instances for the benefit of the debtor:

1. on or before

2. Not later than

3. within ___ mos.

Q: A borrowed from B P1M, payable at the end of the year. August 1, creditor demanded a mortgage constituted on the house of A. No mortgage was delivered. On Aug.16, can creditor demand? When?A: When he loses the right to make use of the period. If debtor has promised, in this case the debtor did not promise anything.

Q: If insolvent, will he lose his right?

A: No, if he furnishes a guaranty which is acceptable to the creditor.

Q: How will he be insolvent?

A: by giving one or more of his property.

Q: What if he has no assets?

A: third person may guarantee.

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. (1129a) Lim v. People (133 SCRA 333)-> merely an agent; 1197 is not applicable. Period as soon as sold

Millares v. Hernando (151 SCRA 484)-> 1197 is not applicable.

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)

AS TO PLURALITY OF PRESTATION:

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)

Art. 1200. The right of choice belongs to the debtor, unless it has been expressly granted to the creditor.

The debtor shall have no right to choose those prestations which are impossible, unlawful or which could not have been the object of the obligation. (1132)

Art. 1201. The choice shall produce no effect except from the time it has been communicated. (1133)

Art. 1202. The debtor shall lose the right of choice when among the prestations whereby he is alternatively bound, only one is practicable. (1134)

Art. 1203. If through the creditor's acts the debtor cannot make a choice according to the terms of the obligation, the latter may rescind the contract with damages. (n)

Art. 1204. The creditor shall have a right to indemnity for damages when, through the fault of the debtor, all the things which are alternatively the object of the obligation have been lost, or the compliance of the obligation has become impossible.

The indemnity shall be fixed taking as a basis the value of the last thing which disappeared, or that of the service which last became impossible.

Damages other than the value of the last thing or service may also be awarded. (1135a)

Art. 1205. When the choice has been expressly given to the creditor, the obligation shall cease to be alternative 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)

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)

a.) alternative

b.) facultative

c.) conjunctive 2 or more prestations which shall be complied with.

Example:

I promise to __,__,and ___ (conjunctive)

I promise to __,__,or ___ (alternative)

In conjunctive and facultative, no choice is made.

In alternative, choice is with debtor unless:

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.

* choice must be communicated. (relevant if one of the prestation was lost)

1. if fault of debtor after communication debtor is liable.

2. if loss happened before communication due to fortuitous event debtor may still choose from the remaining.

IF FAULT WAS DUE TO ONE OF THE PARTIES; MAKE A DISTINCTION, WHO HAS AT FAULT AND WHO HAS THE CHOICE:1. Choice of debtor; fault of creditor.

- debtor may choose from those remaining or debtor may opt to rescind the obligation.

2. Choice of creditor; fault of debtor.- creditor may opt to choose from those remaining or that value of which was lost plus damages.

Example:

Choice of debtor, first prestations were lost due to his fault, only one is left and yet was lost through fortuitous event.

- debtor cant be held liable.

In alternative, if all prestations were lost due to the fault of the debtor?

depends on who has the right to choose:

1. if debtor: value of last prestation plus damages.

2. if creditors choice: anything of those lost plus damages.

In Facultative: involves 2 or more prestations but only one is due.

if one is lost, depends if there was a communication.

Tolentino: if debtor destroys the substitute, it doesnt matter.

Q: What if debtor refuses to make a choice?

A: Creditor file an action in the alternative.

Final exams/ midterms (might be asked)

In July 1, 2003, A and B entered into an agreement. When it fell due, B failed to fulfill and was in delay. (Sir said that he is not in delay, because there was no demand.)

Q: When can debtor make a choice of the substitution?

A: He can make a choice even before it becomes due and demandable.

Facultative vs. Penal clause (there should be non-compliance.)AS TO THE RIGHTS AND OBLIGATION OF MULTIPLE PARTIES:

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)

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)

Art. 1210. The indivisibility of an obligation does not necessarily give rise to solidarity. Nor does solidarity of itself imply indivisibility. (n)

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)

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)

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)

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)

1. Joint obligation

2. Solidary obligation

In the exams if A, B and C are debtors and X and Y are creditors, and it speaks of solidarity, presume solidarity on both sides.

BAR EXAM QUESTION:

Q: A and B obliged themselves to deliver 1thousand pesos worth of specific sacks of rice to X and Y. What is the type of obligation?A: It is a joint obligation unless there is a stipulation; the law requires it; the nature of the obligation requires it.

Q: B delivered entire 1 thousand pesos to X, can Y compel B to deliver?

A: Yes. Because the obligation is joint.

Solidary:

1. Joint and several.

2. jointly and severally.

Ronquillo v. CA (132 SCRA 274)

individually and jointly, respectively, collectively and distinctively.

In promissory note: I promise to pay A and B (solidary).We promise to pay. (solidary)

If simple We joint

Solidary liability examples:

LAW

Solution indebiti, crimes, negotiorum gestio. In agency read b.solidary on the on the outline, 1823-1824-> tortuous act of one of the parties.

Art. 1823. The partnership is bound to make good the loss:

(1) Where one partner acting within the scope of his apparent authority receives money or property of a third person and misapplies it; and

(2) Where the partnership in the course of its business receives money or property of a third person and the money or property so received is misapplied by any partner while it is in the custody of the partnership. (n)Art. 1824. All partners are liable solidarily with the partnership for everything chargeable to the partnership under Articles 1822 and 1823. (n)

NATURE OF THE OBLIGATION WHICH REQUIRES SOLIDARITY:

Example:

1. Liability arising from human relations. (torts-2194)

Art. 2194. The responsibility of two or more persons who are liable for quasi-delict is solidary.2. Decisions of the Supreme Court which became final.

Liwanag v. WCC

Computations:

Joint obligations

P120

AX

B

CY

-> X may demand P60If X demands from A, A is to pay only P20.

Mixed SolidarityX may demand 120 from any of them.

What if there was an agreement? A = ; B = ; C =1/4; X = ; Y =

A: If joint- X with respect to A can demand 45;

Q: If mixed:

A: X= 90; Y = 30; X may demand P22.50 from A.Passive solidarity:

No agreement debtors are solidarily bound. X may demand 60 from A.

If there is an agreement: X may demand from A- 45, B and C- 22.50.Active Solidarity:

Creditor solidarily bound. X can demand from A = 40; if Y receives 40, he should give 20 to X.

If there is an agreement: X may demand 45 from A and Y may demand 15 from A.

In a joint obligation if A paid the whole 120, he cannot claim reimbursement from B and C unless he proves that they have been benefited. There was payment to the wrong party.

Solidary:

Q: A demanded payment from X, can Y still collect?

A: No. the payment of one debtor extinguishes the obligation.Q: In joint, C became insolvent, how much can X demand from A?

A: Still P20. Insolvency shall not increase the debt of joint debtors.

Q: if X remitted entire obligation in favor of A, can Y still collect from B and C?

A: Yes.

Q: If solidary, C became insolvent, how much can X demand? A: 120. The share of 1 solidary debtor shall be shouldered by other solidary debtors.

Q: If A was compelled to pay X, how much can A recover?

A: From B=P60

REMISSION IN SOLIDARY:

Q: X condones share of A and demanded payment from B. How much can B pay?

A: P80

Q: If after condonation C was already insolvent, how much can B recover from A?

A: Having paid 80, B shall recover 20, even if remitted, it does not exempt if one is insolvent.

EFFECT OF DISMISSAL OF ACTIONQ: X and Y filed a case against A, however it was dismissed. Y filed a case again. Will his action prosper?A: it depends if joint or solidary.

Q: If joint: If reason is prescription, Y still files, may it prosper?

A: Yes. The debts are separate and distinct in joint. Action shall not inure to X.

Q: If the ground is subject to different conditions?

A: Yes. The debts are separate and distinct in joint. Action shall not inure to X.

Q: If ground is minority. May it prosper?

A: No, it is an absolute defense.

Q: If dismissed because contract is void, will it prosper?

A: No.

Q: if solidary?

A: No. The demand of one creditor inures to the benefit of other creditors.

BAR EXAMINATION QUESTION:

Q: Four medical students rented an apartment. They agreed for the payment of utilities. Before the lease contract ended, 3 of the 4 went back to their country. They have unpaid telephone bills worth 100k, can the one left pay only P25?

A: Yes. It is presumed to be a joint obligation as provided in Article 1207.

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)

DISJUNCTIVE

1. A will pay P120 either to X or Y2. A or B will pay X

Q: If X demands payment, A paid Y, can X still demand payment from A? Who has the right to choose? A: Depends on the agreement.

Q: What if there is no agreement?

A: Tolentino- should be treated like solidary. Payment should be made to the solidary creditor who demanded first.

* Sir does not agree! Rules on alternative obligation should govern because under the law solidarity is not presumed hence disjunctive is not one of it.NEXT MEETING TUESDAY!

July 24, 2007BAR EXAM QUESTION:

Q: Corporation promised to deliver furniture set to A. they agreed that in case of non compliance, a penalty of 100 thousand pesos must be paid. The corporation delivered furniture set which is different, instead of Narra. Buyer is asking for 300 thousand pesos as damages and 100 thousand for the penalty. Is this claim tenable?

A: UP Law Center: It is not tenable. The penalty is the substitute for damages.

Alternative answer: Yes, he may claim for damages because there was fraud committed.

PENAL CLAUSE provides for greater liability.

Robes-Francisco v. CFI 86 SCRA 59The supreme court ruled that the 4% stipulation is not a penal clause. Even without such stipulation, corporation is still liable to pay 6% based on Article 2209.

Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the absence of stipulation, the legal interest, which is six per cent per annum. (1108) Bachrach v. Espiritu 52 PHIL 346Facts: There was a sale of 2 trucks with interest of 12% for the unpaid portion and a penalty of 25%.

Held: Parties expressly stipulated the payment of interest hence liable, the penalty was reduced to 10% because there was partial performance; usurious.

* no need to present proof of damages as long as there is breach of the obligation.

Q: May the aggrieved party be able to compel the other party to pay penalty plus performance?

A: The general rule is they may not, however if it is clearly granted, they may.

Illustration: A construction of a building which has a penalty of 10 thousand pesos per day if not completed on the agreed day, plus performance was agreed upon.

Q: Debtor offered his car instead of paying the penalty. May a debtor compel creditor to accept penalty instead of car.

A: General rule: No; Exception: Unless expressly reserved.

Q: If the principal is void, will it follow that the accessory is void?

A: General Rule: Yes

Exception: if the basis is the nullity of the obligation there can be a penalty.

Example:Foreigners who contracted Filipinos usually penalty is provided in case contract is declared void. In this case the nullity of the principal does not affect the penalty.

BREACH OF OBLIGATION:

Q: Who can be held liable?

A: Those who are enumerated in Article 1170; hence, anyone.

Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages. (1101) FRAUD:

1. Fraud in contract art. 1338

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)2. Causal fraud dolo causante in contracts; voidable.

3. Incidental fraud dolo incidente

Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages. (1101) - if obligation is monetary in character for example, P1M, it is interest by way of damages.

Compensatory damages expressly stipulated in writing.

Q: Is article 1170 by way of dolo?

A: No. Better term is bad faith or malice. The phrase in any manner covers not only fraud but also negligence and delay.

WAIVER of future fraud is void:

consider the dated when waiver was made, and date when the fraudulent act happened.

NEGLIGENCE (memorize)

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. (1104a) depends on the circumstances, time and place.

Degree of diligence: that of a good father of a family unless the law or the stipulations provide otherwise.

Q: May a waiver of future negligence be considered void.

A: Yes. Gross negligence is equivalent to fraud.

Telefast v. Castro 158 SCRA 445The negligence in this case was considered gross in character.

DELAY:

Mora; non-fulfillment with respect to time.

no delay in obligation not to do. (obviously!)

Effects of delay:

1. If determinate thing to deliver, there was a fortuitous event the obligor is still liable.

BAR EXAM QUESTION:

Q: A and B entered into a lease agreement over certain machineries. B was to open a car repair shop. On February 15, they agreed that the machineries will be leased for one month. On March 15, the lessor demanded return of the machineries. Because the truck of B had a problem, the machineries were not returned. Is B liable?

A: No, B is not liable. There were only 28 days. An agreement of 1 month is 30 days.

*As a rule there has to be a demand.

*Demand need not be in writing; It is different from demand to interrupt the prescriptive period.

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.

However, the demand by the creditor shall not be necessary in order that delay may exist:

(1) When the obligation or the law expressly so declare; or

(2) When from the nature and the circumstances of the obligation it appears that the designation of the time when the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the contract; or

(3) When demand would be useless, as when the obligor has rendered it beyond his power to perform.In 1169 no demand is needed.

1. by law eg. Payment of tax, agency.

2. Stipulation

3. When period is the controlling motive. Ex. Wedding.

4. Demand would be useless due to the of the debtor.

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. (1100a)

Reciprocal obligations:

- arise from the same transaction.

Example: Contract of sale.

1169 should apply only if both are already due and demandable upon establishment or at the same time.

Agcaoili v. GSIS 165 SCRA 1

if both in delay, no right of recission.

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. (1105a)

it is the happening of a fortuitous event. It applies to any kind of obligation.

In obligation to give, Article 1262 applies:

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) In Article 1165, even if obligation became impossible due to Fortuitous event, debtor is still liable.

Art. 1165. When what is to be delivered is a determinate thing, the creditor, in addition to the right granted 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 two or more persons who do not have the same interest, he shall be responsible for any fortuitous event until he has effected the delivery. (1096)

promise to deliver to two or more persons, the debtor is still liable. In Napocor v. CA (161 SCRA 344), to be excused there should be no concurring negligence.BAR EXAM QUESTION:

Q: A ring was delivered to a jewelry shop for cleaning. After a week, the ring was not yet cleaned. Thereafter, the ring was lost due to robbery. Is the jewelry shop liable?

A: Yes. Before the fortuitous event, the jewelry shop was already in delay.

REMEDIES FOR BREACH:

A. Extra judicial principal remedy, expressly granted by law. - 1191. It can be invoked aside from other remedy. Art.1381 is only a subsidiary remedy.

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) Art. 1381. The following contracts are rescissible:

(1) Those which are entered into by guardians whenever the wards whom they represent suffer lesion by more than one-fourth of the value of the things which are the object thereof;

(2) Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the preceding number;

(3) Those undertaken in fraud of creditors when the latter cannot in any other manner collect the claims due them;

(4) Those which refer to things under litigation if they have been entered into by the defendant without the knowledge and approval of the litigants or of competent judicial authority;

(5) All other contracts specially declared by law to be subject to rescission. (1291a)If court declared the act as rescissory, it will retroact from the time notice was given to the other party.

Q: Why is there a need to file a rescission with the courts when it can be extrajudicial?

A: Because a party cannot take the law in his own hands especially if there is recovery needed.

UP v. de los Angeles (35 SCRA 102)

- there can be unilateral decision provided it is agreed upon. BAR EXAMINATION QUESTION

Q: A sold a parcel of land to B for P1M, B paid 100 thousand as down payment. Vendor will be liable for eviction of squatters, balance to be paid 30 days after eviction, if squatters are still there for 6 months buyer should return the money. During the 6th month period, the price of the land was doubled. Seller offered to return the 100 thousand pesos. Buyer refused and offered to pay the balance and asked seller to sign. Seller filed an action for rescission. Is the action proper?

A: No. The seller was not the aggrieved party. Rescission as a remedy maybe invoked only by the aggrieved party.

UFC v. CA (33 SCRA 1)

1. Only those who have complied with their obligation or at least ready to comply.

2. Violation must be substantial/fundamental in character.

There was no showing that Mafran had exhausted all the remedies available.

SC: rescission is under 1191 not 1381.Q: If obligation becomes impossible, what is the remedy?

A: Rescission. If already rescinded, he can no longer demand for the fulfillment.

Magdalena Estate v. Myrick (71 Phil 344) Myrick was able to recover because there was no stipulation as to forfeiture. Other extrajudicial remedies:Rights of unpaid seller:

Art. 1526. Subject to the provisions of this Title, notwithstanding that the ownership in the goods may have passed to the buyer, the unpaid seller of goods, as such, has:

(1) A lien on the goods or right to retain them for the price while he is in possession of them;

(2) In case of the insolvency of the buyer, a right of stopping the goods in transitu after he has parted with the possession of them;

(3) A right of resale as limited by this Title;

(4) A right to rescind the sale as likewise limited by this Title.Where the ownership in the goods has not passed to the buyer, the unpaid seller has, in addition to his other remedies a right of withholding delivery similar to and coextensive with his rights of lien and stoppage in transitu where the ownership has passed to the buyer. (n) B. Judicial Remedies:

a.) Principal remedies specific performance

Q: In obligation to do, is substitute performance allowed?A: It depends. If personal qualification was stipulated.

If no specific performance, it amounts to involuntary servitude.

Q: If obligation was to do and obligation was poorly done.

A: Art. 1167. If a person obliged to do something fails to do it, the same 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. (1098) b.) Subsidiary remedies

1. accion pauliana to be discussed in rescissible contracts.

2. accion subrogatoria creditor may be subrogated to the right of the debtor as to 3rd persons.

- pertains to obligation to give; monetary obligation. It does not pertain to purely personal right. Example: acts of agency.

Q: What is the extent of liability?

A: 2236, applies to present and future property.Art. 2236. The debtor is liable with all his property, present and future, for the fulfillment of his obligations, subject to the exemptions provided by law. (1911a) If a person is judicially declared to be insolvent, when he inherits, the future property is exempt.

Family Home: May be a subject for tax nonpayment, creditors for construction, claim of laborers and mortgagee. (Rules of Court rule 39, sec.13)

MODES OF EXTINGUISHMENT Article 1231Art. 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)

It presupposes that there is an existing valid obligation.

Recission principal remedy is under article 1191.

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) Extinctive prescription conversion of civil to natural.

Q: Are thes modes exclusive?

A: No! In Saura v. DBP, there was a mutual dissent. This also considered as a mode. The Supreme Court said that there was a perfected consensual contract of loan. (mutuum)

Q: Aside from it, what are the other modes?

A: Death - To the extent of personal obligation to do. It does not extinguish property rights. Eg. Agency death of an agent; Partnership death of a partner.

Q: Fulfillment of resolutory condition in 1231 pertains to?

A: Happening of a resolutory condition. will of one of the parties in contracts as a general rule does not extinguish obligation.

Exception: contracts involving trust and confidence. Partnership without prejudice to the possible liability of partner causing dissolution.

Q: Is happening of a fortuitous event a mode of extinguishment?

A: Fortuitous events are not modes of extinguishment. Only results to loss of the thing due.

Insolvency per se is not a mode of extinguishment, there must be a judicial declaration.

Q: What about renunciation by the creditor?

A: Not necessarily. If it is gratuitous, it would fall under condonation/remission. If for a consideration, it falls under novation.

Q: Compromise?

A: It may. But it would fall under one of those mentioned by law; common result reduction of obligation which falls under condonation; if it would fall under a totally new obligation, it is novation.1. PAYMENT synonymous with performance.

May apply to all kinds of obligation.

Rules:

a.) As to person who pays.

b.) As to whom payment is made.

c.) Prestation in obligation.

d.) Date, time and place.

a.) person who pays. Should be called payor, not only debtor, because third persons may pay.

Not every person under the NCC can compel a person to pay except those who have an interest and those who by virtue of stipulation.

Eg. A is indebted to B. X is a 3rd person.

Q: Who are those who have interest?

A: Joint debtors have interest in the fulfillment of the entire obligation, those who are subsidiary liable. (guarantors, mortgagors, pledgors.)

Q: If a third person pays, if he has interest, what happens?

A: Subrogation.

If X is a guarantor, Y is a mortgagor who secured debt, Y pays, he shall be subrogated to the rights of B and can exercise right of a creditor.

if X pays B, obligation of A to B is extinguished but accessory obligations are not extinguished. It subsists that is why X can still foreclose the mortgage.

Q: A is indebted to B. X pays 100 thousand to B for As debt. Does A have a right to recover from A and can he have a right of foreclosure?

A: It depends. If A consented, he has the right.

Q: If before X pays, A partially paid 20 thousand, X paid entire 100 thousand, how much can Y ask for reimbursement?

A: Only 80 thousand, that which redounded to the benefit of A.

Q: If X pays without the knowledge of A, can he compel A to pay?

A: No. He is not subrogated to the rights of B, hence he cannot foreclose the mortgage.

consented means debtor failed to object at a reasonable time.

Q: X had agreement with B without knowledge of A, can he recover the payment made?

A: As long as payment was without knowledge, third person shall not be subrogated to the rights of the creditor. (1236-1237)

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)

Q: X paid B without any intention of being reimbursed. What if X demanded the return after one week?

A: Indirect Donation. As far as payment, it is valid and binding.

- Payor must have the capacity to alienate the thing or has free disposal.

b.) as to the person to whom payment is made.- called payee; normally the creditor.

CASE: Araas v. Tutaan

creditor does not have to be a party. A creditor may be any person who has the right to compel the performance.

Eg. A is indebted to B. But the real payment should be given to Y; even if A pays B, Y can still compel A to pay.

there is also payment to a person authorize to receive payment; the law may provide. Eg. Payment to a sheriff, executors and administrators.

Q: May payment to a wrong person extinguish obligation?

A: Gen. rule: No! Except: 1. if payment redounded to the benefit of B. Otherwise, obligation is not extinguished.Q: Who has the burden to prove?

A: No need to prove if: 1. it was ratified by the creditor; 2. principle of estoppel; 3. if the person to whom payment made acquired rights of creditor after the payment.

Q: Are there any more exceptions?

A: Yes. If payment was made in good faith to a person in possession of the credit, not a mere possession of the instrument.Q: X (in possession of PN) demanded payment from A when the promissory note became due and demandable, A paid x in good faith.A: Obligation is extinguished.

Q: A is indebted to B. However, B dies and is survived by Y. Even if A paid Y, can it be invalidated?

A: Yes. If the payment was not made in good faith, such as when there is a pending action to declare Y incapacitated.

Q: A is indebted to B. B assigned the credit to X. May it extinguish the assignment?

A: Yes.c.)Prestation in obligation- identity of the obligation; consider the purpose.

General Rule: A partial performance is non-compliance.

Except:

1. The parties expressly stipulate. - Subject to different terms integrity of the prestation. Rescission is not a remedy if there is substantial performance.Case: JM Tuason v. JavierA obligated himself to deliver 100 sacks to B for 1000 pesos. He only delivered 95.

Q: How much can he recover?

A: Amount or value delivered, less damages.

As to kind of obligation:

Q: A is obliged to B. He paid Japanese yen. Is it valid?A: Yes. RA 8183. Payment may be made in any currency as long as stipulated. Before: RA 529-payment not in Philippine currency is prohibited.

Q: Can creditor be compelled to accept check?

A: No. As stated in New pacific timber v. Seeris. Creditor may refuse to accept check.

Before: If Manager or Cashiers check, it is deemed as cash.

Q: If partly check and partly cash?

A: Creditor may refuse. Except if stipulated. In Article 1249, it is extinguished if encashed.

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)

Q: If check is stale, will the obligation be extinguished?

A: No.

Q: When is payment thru check extinguish obligation?

A: When it is encashed or through fault of the debtor when it had been impaired.Q: B owes A 1M in 1968. A claimed that in 1968, the value of 1M is only 500k compared to the present because of devaluation, hence he claimed 2M base on Art.1250.

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)

Is his contention correct?

A: No. As decided in the Philippine Pipe Foundry case, the supreme court said as far as Philippine experience is concerned, there has never been an extraordinary inflation as experienced by Germany in 1920-1923. Art.1250 may only be invoked if the source is a contract. In Velasco v. Meralco, Article 1250 may not be invoked because the source is a quasi delict.

d.)date, time, place Determinate place where obligation was constituted.Generic domicile of the debtor.

SPECIAL FORMS OF PAYMENT

1. Payment by Cession and decion en pago.

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)

( conventional assignment

( requires consent of both parties.

CASE: Filinvest v. Philippine Acetylene

no dation en pago, the delivery of the case was not consented to.

Filinvest was only an agent; there was no transfer of ownership.

Dacion en pagoCession

As to transfer of ownership:

The delivery results to the transfer of ownership, same is true with application of payment.No transfer of ownership, creditor only given the power to sell.

As to effect of payment:

General rule: Extinguished only as to the extent of value delivered.

Exception: unless stipulated upon that anything delivered shall extend the entire obligation.General Rule: governed by law on sales only if the pre- existing obligation is in money.

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)

General Rule: Extinguish only as to the extent of the proceeds of the sale of creditor.

Exception: Unless there is an express agreement.

Q: If A is to deliver a carabao, but instead gave a refrigerator. Is it dacion en pago on sale?A: No. It is novation. The pre-existing obligation is not in money.

CASE: Citizens Surety v. CA

no dation en pago if at the time of the transaction there is no obligation.

All transactions were executed within one day. The indemnity agreement that they will be liable upon default on payment of surety bond, hence no obligation yet on that day.

SC: Dation en pago may pertain to delivery of rights/things.

2. Application of payments:Problem: X is the creditor. A owes him, 100k, 50k, 20k and 10k.Rules:

1. debtor ha the right to designate to which payment is to be applied.

a.) no partial payment.

b.) to that which is due and demandable, except if payment was made for the benefit of the debtor.

c.) If the debt is interest bearing.

2.) if debtor fails to designate, the creditor may designate.

3.) if both failed to designate:

Note: provision for application of payment is not applicable here.

3. that which is most onerous.

4. Proportionate application (provided, it is of the same nature and burden) if the debts are of different amounts.

Q: How do we determine what is the most onerous?

A: There is no hard and fast rule. We must consider factors and circumstances.

3. Payment by cession:1255: voluntary assignment requires consent of the creditor.

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)

Q: How will the proceeds of the sale be applied?A: 1. based on stipulation. 2. without agreement; rules in concurrence and preference of credits shall be applied.

debtor must deliver his property to creditor.

Resorted to by debtor who is experiencing financial difficulty.

4. Tender of payment and consignation:

tender of payment alone shall never extinguish the obligation.

Actual offering of the amount or thing.

1256 the only one scenario when tender of payment should be made, when creditor refuses to accept without just cause.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;

(4) When two or more persons claim the same right to collect;

(5) When the title of the obligation has been lost. (1176a)CASE: Soco v. Militante:

Q: When may Tender of payment be made judicial?

A: No. Tender of payment by its nature is extra judicial.

Illustration:

Q: There was a sale with right to repurchase. Seller a retro refuses to accept money, an action was filed. Plaintiff said that he is not obliged because there is no tender of payment required. Is his contention correct?

A: Yes. No tender of payment is required. No consignation is required in sale with right to repurchase.

Q: Is notice required by consignation?

A: Yes.

Q: 2nd notice after consignation is required?

A: Yes. Required but it does not need to come from the debtor, it is in the form of summons.

Soco v. militante 2 notices per amount due.

Q: When will obligation be extinguished?

A: When creditor accepted, even if debtor refuses, may extinguish after consignation, it retroacts from the time of delivery.

Q: The obligation was due in January, 1998. There was a tender of payment in January 1, 2000 but was refused. In January 2, 2004, there was consignation. In January 2, 2007 there was a court ruling. Is the debtor liable to pay interest?

A: Yes. If from January 1998 he was already in delay, up to consignation if court ruled to be valid. If the consignation was ruled by the court to be invalid, the interest must be from January 1998 till court ruled.

According to Sir: however, mora accipiendi.-delay of the creditor to accept. Debtor may release himself from the obligation by the consignation of the thing.Q: Can debtor withdraw the consignated money?

A: Yes. If the withdrawal is made before acceptance of creditor and before court ruled on the consignation.

if creditor accepted and court ruled, no withdrawal. If no ruling yet, it may be withdrawn if creditor accepted.

Revival without consent of accessory creditor is released.

LOSSWhen not valid?

when it goes out of commerce.

Prohibited by law. Impossibility of performance.

Q: To deliver shabu? Is the obligation extinguished?

A: No. This is not a valid obligation therefore no extinguishment.

Q: If the thing is lost, who has the burden to prove?

A: depends on who is in possession of the thing at the time of the loss. However, this rule is not absolute when the loss occurred during the happening of a calamity, like typhoon.

Read: Art 1265 and Art 1262.

Art. 1265. Whenever the thing is lost in the possession of the debtor, it shall be presumed that the loss was due to his fault, unless there is proof to the contrary, and without prejudice to the provisions of article 1165. This presumption does not apply in case of earthquake, flood, storm, or other natural calamity. (1183a)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)

Q: In an agreement between A and B for construction of house, proceeds shall be equally distributed from the sale. B didnt give his share in the house because of the high price of materials. A filed an action. May court grant the action?

A: Yes. Because the event of increase of price is foreseen. 1267 is not applicable.

CASE: Occea v. Jacobsen court cant change agreement of the parties.

1267 only difficulty not impossibility.

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) 1264 depends on the intention of the parties.

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) CONDONATION OR REMISSION

donation of a credit

1272 refers to private document only . If public document, it needs many copies.

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)

Art. 1271. The delivery of a private document evidencing a credit, made voluntarily by the creditor to the debtor, implies the renunciation of the action which the former had against the latter.

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)

Q: X owes A 1M, he lends the same amount to A. Is there condonation?

A: Maybe, if payment of interest is remitted.

Q: If evidence of interest is found in debtor X? Is it condonation?

A: No.

Q: If evidence of interest is found in debtors possession, is there necessarily condonation?

A: No, may be through other modes, like payment.

Q: A is the creditor of 100k to B. X, a third party, pledged his car to B. May the pledged car be used as condonation? A: Determine first the status of X. Whether he is the owner or for what the pledge is for.

Then state the accessory v. principal. Not X. Because A and B are the parties in the principal obligation; there is only a presumption of X on part of the accessory obligation of the pledge.

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)

Q: May it be made through agreement of parties?

A: May be. It depends upon the intention. Ex. Merger of rights of a corporation.

Q: By operation of law, can there be confusion?

A: By succession, creditor died, debtor is son or daughter.

Q: debtor died, creditor is an heir, can confusion take place?

A: there can be, when there is acceptance.

Q: A is indebted to B. The debt is secured by a mortgage by M on B. Can there be a confusion of B and M?

A: No.

Q: If there is an agreement?

A: No. It will be subrogation. If B assigned his rights to M, but still obligation is not extinguished.Q: Will confusion result in total extinguishment?

A: No. In cases of joint obligations, in 1277.

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. (1194)

COMPENSATIONQ: If 2 or ore persons are debtors and creditors, will there be compensation?A: No, the requirements must be complied with. Art. 1279

Art. 1279. In order that compensation may be proper, it is necessary:

(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;

(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)Q: In compensation, is it a reciprocal obligation?

A: Not necessarily.

Q: When is it a reciprocal obligation?

A: Reciprocal obligations arise from a single transaction; contract of sale.

Q: What about legal compensation? Will it take place in reciprocal obligations?

A: Not necessarily. In reciprocal obligations, there can be none.

Q: In partial compensation, is debt totally extinguished?

A: No. Extinguished as to at least one debt.

Q: In compensation, how many debts are involved?A: 2 or more debts.

Q: Which debts will be extinguished?

A: Less onerous amount.

Q: A owes B the following, 50k, 100k, 75k, 225k, 100k. B owes A 100k. How many of the debts will be totally extinguished?

A: 2 debts of A and debt of B.

Q: A paid 100k to B. A has the following debts to B; 50k, 25k, 10k. How many debts are extinguished?A: 3 debts are extinguished. Partial compensation because there is still a balance.

Q: How many kinds of compensation are there?

A: 4: legal, conventional, facultative, judicial.

Q: In some books, there are three; facultative is removed, why?

A: It is a modification only of conventional.

Q: What are the other names of compensation?

A: set off or counterclaim.

Q: Not really the same because?

A: Set-off and counterclaim must be invoked in courts of law.

Q: What distinguishes legal from conventional?

A: As to requirements, not the same. In legal, all requirements should be present, in conventional, not necessary that all requirements are present. i.e. different amounts or objects; one debt is not yet due.

Q: Give an example of facultative.

A: Support. Invoked by the one who claims for support.Q: A opened a checking account with a bank, he borrowed money with the same bank. A failed to pay, Bank invoked compensation. A said that his checking account is depositum. Is his claim tenable?

A: No. In a checking account, the bank is the creditor, A is a debtor governed by mutuum, hence compensation cant take place.

Q: When is there a deposit?A: If the delivery is only for safe keeping.

Q: Other kind of facultative.A: In case of commodatum, bailor can invoke. In a civil case/penal, invoke by injured party.

CASE: PNB v. Acero

PNB invoked: No legal compensation, the credit line was used, lawyer of PNB claimed that credit line was shown to Acero.

you dont prove a fact by showing it to the other party.Q: A is indebted to B with G as guarantor. Can G invoke compensation?A: No. they are not debtors and creditors to each other. The law requires that they are principally bound.

CASE: Sycip V. CA

SC: debtors and creditors should be debtors and creditors in their own rights.CASE: Francia v. IAC

SC: There is no compensation when Francia paid real property tax to the LG of Pasay. The national government was the one who expropriated. compensation takes place if debt became due at the same time.

Q: Monetary debts must arise from contracts?

A: Not necessarily. Eg. Attorneys fees

Q: Are all monetary debts subject to compensation?

A: No. Custom duties. (Francia v. IAC)

CASE: International Corp. Bank v. IAC

Facts: Villanueva applied a loan from ICB for 50M. Only 1M was delivered by the bank. The loan was secured by a mortgage, which is 110 M asset. Villanueva deposited 1M to ICB. He invoked compensation.SC: Since there was a question on the foreclosure sale, there was no legal compensation.CASE: Solinap v. del RosarioFacts: The lessee did not pay rentals. He invoked that the lessor had made advancements.

SC: No legal compensation because alleged debt were being questioned in the estate proceedings. no legal compensation if debts arise from depositum, commodatum, civil liability arising from crime.

Q: A is the creditor of B worth 100k secured by a mortgage. B gave 50k. If there is a partial compensation, will the mortgage be extinguished?A: Not necessarily. It depends which debt is most onerous.

Q: If there is total compensation, will the mortgage be extinguished?A: Yes. Mortgage will be extinguished.

Q: B is indebted to A for 100k which is interest bearing. B gave 50 k to A. Will there be payment of interest even after payment of compensation?

A: Depends. If there is total compensation, no interest will be paid. If partial, depends on whose debt is bigger.

Q: Will partial compensation be extinguished by prescription?

A: Yes. Partial compensation does not toll the running of the period.

ASSIGNMENT OF THE CREDITQ: On January 1, 2002, A owes B 100k. B assigned the credit to C on June 1, 2002. Can C demand payment from A?A: Determine when the assignment was made; if made after both obligation was due and demandable, there will already be compensation.

Q: What if A paid B 50k in May 1, 2002? How much can C claim?

A: 50k. He must ask B for the other 50k.

Q: In the same case, the debt is demandable on May 1, 2002. The credit was assigned to on March 1, 2002. May D validly demand it on the same date?

A: No. The obligation is not yet due.

Q: A owes B 100k due and demandable on May 1, 2003. B assigned it to X on April 1, 2003. A made the following payments to B: 20k-March 1, 2003; 30K-June 1, 2003; 40k-decemeber 1, 2003. On May 1, 2003, how much may X validly demand?

A: It depends: If A had knowledge of assignment of X and he consented with reservation, X may claim 90k, if he consented without reservation, 100k. If it was without knowledge of A, X may claim 10k.NOVATIONI. Subjective/Personal

II. Objective/Real

III. Mixed

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.)

I. Subjective:A. Active third person is subrogated in the rights of the creditor.

B. Passive substitution of the person of the debtor.

* other classifications:

1. express or implied.

2. extinctive.

3. modificatory.Eg. PrescriptionQ: In ACTIVE SUBJECTIVE, operative word is subrogated. When does this happen?

A: 1. by agreement (express);

2. art. 1302 legal subrogation.

a. Third Party pays creditor without consent of debtor.

b. TP who has an interest pays creditor with or without consent of debtor.

c. Creditor of debtor pays creditor of the same debtor.

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. (1210a)Q: In PASSIVE SUBJECTIVE, operative word is substitution. When does this happen?

A: 1. Expromission substitution was made without knowledge or against will of original debtor.

2. delegacion substitution was made with knowledge of debtor.

Q: A is indebted to B. A mortgaged to B his property worth 100k. B is indebted to C, 100k also. If A does not pay, can C foreclose the mortgage?

A: No. He was not subrogated.

DELEGACION there is already subrogation, therefore, C may foreclose the mortgage.

if there is already novation through delegacion, no consent of original debtor is void.

If payment consented to by A, no novation, subrogation. (1236-1237)

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)

Effect of Insolvency of new debtor: If C becomes insolvent after substitution, A is no longer liable.

If C was already insolvent at the time of substitution, A cant be held liable if no knowledge except if he acted in Bad Faith or such insolvency is of public knowledge.

II. ObjectiveA. Change in object no problem, eg. Money to celphone (art.1245)

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)

B. Change in principal obligation:a. express

b. implied

* if 2 obligations cant stand together, there is novation, there is incompatibility.

* there was novation in FOA and the Villar case.

There was a lease contract entered into for 5 years. Another contract was entered into for 10 years. The contention is that the 2nd agreement is void, therefore novation is void.CASE: Ronquillo v. CA

Facts: The obligation was due in 1952, In 1967, debtor acknowledge debt and promised to pay. Since it is now transformed to a natural obligation, will the action for novation prosper?SC: Even natural obligations may be subject of novation.Q: X is the creditor of A, B and C for 10M. After 3 months, C paid 10M to X without the knowledge of A and B. After 6 months A and B paid 7M to X. May A and B recover the 7M from X?

A: if voluntarily given, the creditor can retain.

According to sir: It is actually a payment by mistake therefore solution indebiti.

In natural obligations, payor knows he cant be compelled to pay but nonetheless pays. II. CONTRACTS

while all contracts are agreements, not all agreements are contracts.

Prohibited:

Auto contracts a person contracts himself. article 1491.Art. 1491. The following persons cannot acquire by purchase, even at a public or judicial auction, either in person or through the mediation of another:

(1) The guardian, the property of the person or persons who may be under his guardianship;

(2) Agents, the property whose administration or sale may have been entrusted to them, unless the consent of the principal has been given;

(3) Executors and administrators, the property of the estate under administration;

(4) Public officers and employees, the property of the State or of any subdivision thereof, or of any government-owned or controlled corporation, or institution, the administration of which has been intrusted to them; this provision shall apply to judges and government experts who, in any manner whatsoever, take part in the sale;

(5) Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and other officers and employees connected with the administration of justice, the property and rights in litigation or levied upon an execution before the court within whose jurisdiction or territory they exercise their respective functions; this prohibition includes the act of acquiring by assignment and shall apply to lawyers, with respect to the property and rights which may be the object of any litigation in which they may take part by virtue of their profession.

(6) Any others specially disqualified by law. (1459a)ELEMENTS OF A CONTRACT:Natural implied warranties.

Essential Consent, Object, Consideration

Accidental payment of interest. (compensatory)

CHARACTERISTICS:1. Autonomy freedom of contract/liberty of contract.

Art. 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy. (1255a) Void waiver:Example:

a. for agent to waive accounting.b. pactum commisoriumc. partnership, exclusive partner from sharing profits pactum aliena

mortgage pactum aliendro

d. Public policy:

CASE: Cui v. Arellano

scholarship in law school must not be contrary to public policy.CASE: Saura v. Sandico

Escalation clause ex. Construction contracts. Creditor has right to demand a higher compensation upon the happening of a contingency. Ex. Contract of loan (interest). Acceleration clause stipulation whereby in an obligation to pay on installment, balance shall automatically become due and demandable when debtor fails to pay.

Q: Will an escalation clause be valid when there is no descalation clause?

A: It is relevant only in contracts of loan; only effect of circular issued by the Central Bank provided the escalation clause only happens once a year.

2. Consensuality:

Art. 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy. (1255a)

CASE: Republic v. PLDT to compel PLDT to enter into inter- connection agreements is actually expropriation.Validity of contracts of adhesion:

CASE: Ong Yu v. CA

plaintiff bought ticket from PAL, eventually he lost his baggage. In the ticket it contained a waiver of a right.SC: waiver of a right in a contract of adhesion are not considered gladly by the Supreme Court.3. Mutuality: goes to validity and compliance.Art. 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them. (1256a)

( termination by mere notice valid.4.Obligatory: 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)

Q: When is a contract obligatory?

A: Upon perfection of the contract.

Q: When is a contract perfected?

A: It depends if it is consensual (concurrence between the offer and acceptance), real (like deposit, pledge, commodatum requires delivery), formal/solemn (requires compliance with certain formalities prescribed by law).

5. Relativity:

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)

General rule: Contracts take effect only between parties, their assigns and heirs.Exceptions: 1. creation of real rightsQ: A mortgaged his land to B and eventually A sold it to C. Can C be bound by the mortgage?

A: Yes.

2. Interference by a third party.Art. 1314. Any third person who induces another to violate his contract shall be liable for damages to the other contracting party. (n) Requisites:

existence of a valid contract

knowledge of contract by third persons

interference by third persons without legal justification or excuse.Q: A has a contract with GMA. Subsequently, A entered a contract with ABS-CBN. A was in bad faith. May ABS CBN be liable?

A: No. To be liable there must be malice impugned. Third Party liability does not impugn liability of debtor who violated.

3. Contracts in fraud of creditors:

Q: A is the debtor of B. A sold his property to C. May B rescind the contract between A and C?A: Yes.

4. Stipulation pour atrui stipulation in favor of third persons. It is not the main agreement.

CASE: Kaufman v. PNBCASE: Florentino v. Encarnacion

acceptance may be implied.CASE: Bonifacio bros. v. Mira

enforcement of insurance.

CLASSIFICATION OF CONTRACTS:

A: Degree of Dependence

1) principal (agency, partnership)

2) accessory (Real Estate Mortgage, Chattel Morgtage, Pledge, Antichresis)

example: crop loan scenario

B. As to Perfection

1) Real (Pledge, Commodatum,

Mutuum. Deposit)

2) Formal (antichresis; donation)

C. Purpose

D. As to cause

1) onerous

2) pure beneficience

a) gratuitous

b) lucrative

liberality id the consideration

3) remuneratory

seller (payment); buyer

(deliver)

E. Risk of Fulfillment

1) Aleatory

sale of hope emptio spei

risk of fulfillment

insurance

life annuity

2) commutative

F. Name and Designation

1) Nominate

2) innominate

G. As to subject matter

1) Things

2) Right

3) Services

PAQIII/Oct2007III. SALES

- there must be an agreement to transfer ownership.

Q: A sold goods to B for purpose of resale, Y bought goods from X for personal consumption. What law shall govern this contract?

A: NCC and Code of Commerce,

A-B commercial sale

Y-X civil sale

now no distinction, NCC governs Characteristics:

1. principal

2. bilateral-imposes obligations on two parties

3. nominate

4. onerous- always! otherwise donation

5. commutative- emptio spei

Subject matter:

things and rights, service is not included

As to object:

a. movable

b. immoxable

Concepts involve:

a) Recto Law- personal prop by

installment

b) Maceda- immovable

c) double sale

d) Statute of Frauds

Q: As to WON tangible/intangible?

A: corporeal (things); incorporeal

(rights)

Q: relevant as to what concept?

A: delivery

Q: As to validity?

A: void, unenforceable, rescissible, voidable

Q: 1458 2nd par: provides for?

A: absolute/conditional sale:

In an absolute sale there is an automatic transfer of ownership while in conditional sale, there is a reservation of ownership.

Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent.

A contract of sale may be absolute or conditional. (1445a)

Q: Conditional sale vs. contract to sell A: In conditional sale, ownership depends on the happening of condition and it take place by operation of law. In contract to sell, ownership passes after full payment passes. There is no automatic transfer, buyer have right to ask execute final deed.

Q: A delivered receipt to B as partial payment to my car, received by D, balance payable at the end of the month, signed by A.

Is this contract pertaining to a contract to sell?

A: NO, there is already transfer of ownership, there was no reservation as to ownership.

dacion en pago vs. contract of sale

dacion en pago is a mode of extinguishing obli, it is a pecial form of payment; while contract of sale is a source of obli.

Q: Kobe & companion B is to buy shoes, Bshoes to be delivered, upon payment, Kobe ordered a particular shoe.

A: Kobe- contract of piece of work

B- contract of sale

contract for a piece of work under (Aticle1467) is also called Massachusetts RuleArt. 1467. A contract for the delivery at a certain price of an article which the vendor in the ordinary course of his business manufactures or procures for the general market, whether the same is on hand at the time or not, is a contract of sale, but if the goods are to be manufactured specially for the customer and upon his special order, and not for the general market, it is a contract for a piece of work. (n)

Q: A to deliver his car to B, B to give A his watch plus money, 100k. What law should govern?

A: 1st. depends on manifest intention of parties.

Barter = value of thing given as a part of consideration > money/its equivalent; if value of watch >100k

Sale- if same value

Q: A granted B exclusive right (right to sell within a specific area) to sell maong pants to Isabela, before B could sell, his store was burned, can B be compelled to pay?

A: contract of sale bec. There is a stipulation. B is a distributor/dealer 99.99% Quiroga vs. Parsons- will supply the bed and pay price within a certain period. No obli to remit the price, no stipulation.

ELEMENTS OF SALE:

1. Consent

2. Price- consideration as to whom? The seller.

Buyer- acquisition of ownership over the thing.

3. Object

Contracts which are void: Absolutely simulated contract (parties voluntarily entered)

ex. To defraud creditors, wife hide property from husband, buyer go abroad.

relatively simulated- why? To reduce tax liability, circumvent law on legitime

SPECIFIC PERSONS PROHIBITED TO ENTER INTO SALE

Guardian- absolute

Agent- administration/sale

Q: A inherited property from father to transfer property; executor to pay 700k, status?

A: valid; Assignment of rights which A can validly sell, not part of the estate under Ys administration.

Q: a sued B for recovery of a parcel of land, hired lawyer, one year after filing, entered into a contract of sale with B involving the land.

A: not valid. object of sale is subject to litigation-actually depends. WON the case is still pending.

Q: 1491 status of contracts

A:GR: voidable

Except: agents- subject to ratification

Par.1,2,3 voidable- can be ratified

private interests is involved.

4,5,6 void

1,2,3 can be ratified because after lapse of incapacity, another contract maybe entered into Rubias VS. Materia

Wolfgang vs. Martinez

Art. 1491. The following persons cannot acquire by purchase, even at a public or judicial auctio