This document discusses various topics related to usurious transactions and obligations under Philippine law:
1. It discusses the Anti-Usury Act and defines usurious transactions as those where the agreed, charged, or imposed interest rate is excessive. Interest is generally capped at 12-14% depending on if the obligation is secured or unsecured.
2. A court case established that while interest rates are no longer capped, the rate must still be reasonable and not "excessive, unconscionable".
3. Additional remedies for creditors beyond specific performance or recission of a contract are discussed, including levying assets or filing actions to impugn fraudulent transactions by debtors.
This document discusses various topics related to usurious transactions and obligations under Philippine law:
1. It discusses the Anti-Usury Act and defines usurious transactions as those where the agreed, charged, or imposed interest rate is excessive. Interest is generally capped at 12-14% depending on if the obligation is secured or unsecured.
2. A court case established that while interest rates are no longer capped, the rate must still be reasonable and not "excessive, unconscionable".
3. Additional remedies for creditors beyond specific performance or recission of a contract are discussed, including levying assets or filing actions to impugn fraudulent transactions by debtors.
This document discusses various topics related to usurious transactions and obligations under Philippine law:
1. It discusses the Anti-Usury Act and defines usurious transactions as those where the agreed, charged, or imposed interest rate is excessive. Interest is generally capped at 12-14% depending on if the obligation is secured or unsecured.
2. A court case established that while interest rates are no longer capped, the rate must still be reasonable and not "excessive, unconscionable".
3. Additional remedies for creditors beyond specific performance or recission of a contract are discussed, including levying assets or filing actions to impugn fraudulent transactions by debtors.
Usurious Transactions - Anti Usury Act (not the Civil Code) - Civil Code should never be confused by Civil Law - Civil Law governs property, family rights, succession and laws that are civil in character - Civil laws of Spaniards not at all Spanish (Napoleon Code) - Not all civil laws are found in the civil code (special civil laws e.g., family code, condominium code, water code) Usury law state regulates the interest that could be charged if an obligation is unsecured, the maximum rate of interest that can be charged is 14% per annum - If an obligation is secured, the maximum rate of interest that can be charged is 12% per annum - Any rate of interest that is agreed upon, charged and imposed upon an obligation is usurious Who has the power to regulate the rates of interest in the country? - Vested in the monetary board (agency in the Central Bank) - Dec. 1982 rates > the monetary board passed Resolution 2224 abolishing the ceiling on interest rates (Jan 1983) - CB issued Circular 905 after 2224 to disseminate the content of Resolution 2224 2224 increased the legal rate of interest Abolished the ceiling Did this give the parties freedom to agree in any interest? (Medera v Gonzales Enterprises) - Medera applied an additional loan subject to the ff conditions: New obligation under one promissory note Consolidated 5.5% interest per month - Lower court > 5.5% is excessive; 12% should be per annum - Gonzales assailed the ruling of the lower court There was no legal basis for the lower court to apply the 12% rate of interest Legal rate of interest > shall only be applied if the parties only agreed to the terms of payment, but did not agree upon the rate of interest - SC > This is not a usurious transaction but the amount 5.5% per month is indeed excessive, unconscionable (unenforceable, shocking to the morals of the world) Pay principal + 12% interest per annum - SC has never been consistent in the ruling in usurious transactions Legal rate of interest When is an interest be said as a legal rate? - When parties to a contract have agreed that the interest should be there, but failed to stipulate the interest rate - Will apply only if they agreed upon the payment of interest Civil code > 6% per annum legal rate of interest Resol. 2224 > increased to 12% per annum Did Resolution 2224 repeal the Civil Code? (Phil Rabbit Lines v Judge Leonardo de Castro) - Mishandled a bus > 1 passenger was injured - Lower court said award damages to injuries suffered with interest at legal rate - Passenger filed a motion to execute judgment > computed an amount he believed which should be awarded to him - Phil Rabbit Lines said it will only pay P60,000 When an obligation arise from a loan, involves a loan, forebearance of money, goods, chattels or judgments thereon, then the legal rate is 12% < under Monetary board circular 2224 Based on a claim for damages so it should not be 12% but 6% - Monetary board is not a legislation body so it could not repeal a law (Eastern Shipping Lines case) - ___ dues < dues paid in the pier 6% - Although the obligation does not arise from a loan, forbearance of money, if after judgment of the court has become final and executor and still the debtor fails/refuses to pay the obligation, it automatically becomes a forbearance of loan > 12% should apply - Subsequent to the monetary board resolution 2224 Another resolution was passed with respect only to the legal rate of interest - Under the present Monetary Board resolution Has been returned from 12% to 6% effective July 1, 2013 Effects: 1) returned 12% to 6% interest rates Abandoned the ruling of eastern shipping with respect to forbearance of money (no longer applicable) Jan. 14, 2014 Demandability classes of obligations 1. Pure immediately demandable / not subject to a condition or period or term 2. Subject to condition 3. Subject to period or term Condition futurity and uncertainty Period upon which the demandablity of the obligation depends - Future and certain Distinguish an obligation from a period Suspensive condition (birth) gives rise to an obligation; as long as the condition still exists, there will be no obligation Suspensive period (demandability) makes the obligation demandable; only effect; no retroactivity 1187 effects of conditional obligation rise to an obligation entire effects shall retroact to the day of the constitution of the obligation To give retroact To do or not to do courts shall determine the retroactivity Reciprocal obligation mutually compensate; need not deliver the fruits Unilateral (debtor) keep interest, fruits, because he is not receiving anything
Rights of the creditor when the debtor does not comply 3 primary remedies 1. Specific performance only applies to give; creditor seeking to enforce the obligation 2. Recission not seeking of performance; unmaking of the contract 3. Damages return the parties to status quo ante; if the debtor return everything to the creditor *1 & 2 can never be combined; others can be combined Additional remedies (art 1177): 1. Levying after exhausting primary; running after assets; court determines if ok to levy; creditor becomes a judgment creditor 2. Accion subrogatoria 3. Accion pauliana Levying you can levy only in pursuance of a court order follow the rules of court > execution of judgment - Personal things first; no to real as long as there are still real properties Acion pauliana only applies on valid contracts; if void > action for nullity of contract - To impugn / assail acts and contracts entered into by the debtor for the purpose of defrauding the creditor Eg. Void contract: No other properties but one > but that only one was retained; gave to his friend to defraud
Jan 24, 2014 1191 the power to rescind is implied in reciprocal obligations - Tacit resolutory in reciprocal obligations In ordinary obligations (not reciprocal) to be able to rescind, the power must be expressly provided in the contract (general rule) In reciprocal obligations recission is implied; need not be agreed upon; implied only in reciprocal 1191 > in order to apply, identify first if obligation is reciprocal Reciprocal > the parties are debtors and creditor of each other but their respective obligations must arise from the same cause power to rescind is implied in case of breach in reciprocal obligations, the injured is given the power to rescind How may it be availed of/exercised? - If it has been established that the obligation is reciprocal, the method shall depend upon the terms of the contract If the contract recognizes extrajudicial recission then extrajudicial If it doesnt rescind judicially 1191 remedies in case of breach of contract 1. Specific performance 2. Recission despite the repeated use of the word recission, jurisprudence said the civil code means resolution Distinctions between recission and resolution 1. Resolution is a primary remedy injured party can avail immediately a. Recission is subsidiary remedy only a remedy of last resort i. Why subsidiary? Very harsh remedy; third parties can be affected by recission 2. in resolution available only to the party to the contract a. in recission even third persons can invoke the recission if the contract has caused the third person damages 3. in resolution should there be just and valid reasons, the court can deny the action to resolve a. in recission under the law, once you have established the crown of recission, the court has no power to deny the petition for recission 1191 recission? No! resolution! - Why? Apply the 3 distinctions - On what ground can be availed of (specific performance and recission)? Only on the ground of breach Will any kind of breach justify the availment of specific performance and recission? According to jurisprudence (Phil amusement board v natividad) - Involved a contract of lease of a jukebox - PAB supplied the boxes; Natividad was the lessee - After using, boxes started to work usatisfactorily - PAB sent mechanics still malfunctioned - After three times, Natividad wanted to rescind - On the ground of breach - Despite the breach > SC said no because recission is a harsh penalty - If the breach is simple or merely casual, the remedy will not lie - Only when the breach committed is substantial will the remedy of recission lie it will only depend on the initially chosen remedy Nature of the two remedies provided on 1191 - Alternative (not cumulative) - You have to choose only one, but the choosing of one doesnt necessarily mean the waiver of another - If specific performance becomes impossible, can shift to recission Cannot be reversed because recission can never be impossible - If the chosen remedy is recission, what is the period of prescription to be able to choose that remedy? Go to the law on recission > 4 years When to begin? From the date the contract sought to be rescinded Exceptions according to 1191 Recission as initial remedy > shall prescribe from the date the contract sought to be rescinded Recission s a substitute remedy > will prescribe from the time the initially chosen remedy becomes impossible o WHY?? Because it is the time which the law allows the shifting Cases: UP v Alumcor? Alonco? - Forest concession offered for lease to the highest bidder - Contract of lease awarded to alonco Should the lessee fail to comply, UP shall be free to terminate the contract - Failed to update payment of rentals despite repeated demands - UP rebidded the same property - Alonco said you cannot terminate; should be judicial - SC: No, because contract expressly provided for extrajudicial recission - When alonco failed to update rentals, under 1191 is UP of right to rescind? What is the status of the recission? Is the act of UP terminating the said contract final? No. while the injured party becomes entitled, it is not final because the determining entity to validate/invalidate the act is still the court Case: involved a sale of piece of land (Conspicula/Adomos) - Sale is done > title was cancelled and new title was transferred to the new buyer Conspicula died > heirs questioned validity - Court found the sale defective > not valid Ordered to reconvey the property to the heirs The buyer did not agree, appealed to CA During the pendency, the buyer sold the subject land to another buyer - Duringthe 2 nd sale, buyer presented the undertakings to the 2 nd buyer 2 nd buyer went to the court to compel the seller to comply with the undertakings Replaced the specific performance with the action to rescind - Seller: under 1191, being alternative, the choice of one is a waiver of another The replacement should not be allowed Even assuming that the buyer went to the court for action to rescind, it has already prescribed - SC: 1. Wrong, while it is alternative, it is not a waiver. Shifting from specific performance to recission is not proper because specific performance became impossible - Yes, it is true that it had been more than four years but it is valid because the specific performance became impossible, so the period of prescription will start on the time it became impossible - Even after the establishment of recission, the court may deny the action of recission to be able to comply with specific performance Case: Roque v Gapuz sale of land - 120 equal monthly instalments first 3 months update - In succeeding became in default > failed to update payment and arrears - Seller brought an action seeking recission on account of breach According to paragraph 3 there is just and valid reasons so he should be allowed for extension of period (gave 45 days CA) - SC: CA was wrong 3 rd paragraph will apply only as long as the debtor had not incurred delay 1191 who has the power to bring an action? Reyes v CA; Solomon case only the injured party
Feb. 11, 2014 Alternative obligations Alternative several things due but performance of one extinguishes Conjunctive several things due but all should be completed to extinguish Facultative
Conjunctive presence of the conjunctive and Alternative presence of the disjunctive or
Plural objects > if one is unlawful, would the entire obligations be invalid? > distinguish: Conjunctive > invalidate > why? > all should be delivered Alternative > still okay > deliver only one as long as he doesnt choose the unlawful object Facultative
Right of choice Alternative > debtor + creditor + 3 rd parties (consent is required-WHY? The choice should be accepted by both) Conjunctive > no right of choice Facultative > debtor only; cannot be transferred Only one obligation need to be performed
Solidarity can exist on one side and joint on the other side - Any term as long as the term connotes solidarity
Tests of solidarity: determining the nature of the obligation 1. Parties stipulated solidarity 2. Law requires solidarity 3. Nature of the obligation requires solidarity
Solidary obligations 1. Passive debtors side 2. Active creditors side 3. Mixed debtors and creditors PNB case can the creditor sure one of the debtors or all of the debtors in passive solidary obligations? although they are necessary parties, they are not indispensable You can leave one, you can go against others Case: Imperial insurance v Stella David Bonds > secure answer to the judgment that the court shall render Indemnity agreement > should the bonds be demandable? > the spouses shall indemnify the bonds Husband died > stella was sued by Imperial insurance > instead of answering, she filed a motion to dismiss > on the ground that Imperial had no cause of action against her bec. Of solidarity > should proceed against the estate under the rules of court within 6 months Supreme court said WRONG, you bound yourself solidarily, they are indispensable parties but not necessary parties, you can file as many actions as you want
Any one of the solidary creditors may seek from any of the solidary debtors > basis mutual agency (one creditor acts not only on his behalf) Start? From the moment of the perfection of the obligation If did not comply > it is joint > the law does not presume End? The moment one of the solidary creditors demands from any of the solidary debtors > the debtor can only pay to the demanding creditor (the mutual agency bet. The demanding and paying is extinguished) If the debtor paid not to the demanding creditor > the payment is void because it is considered as payment to a 3 rd person > the demanding creditor can compel the repeat of payment With respect to the other debtors who were not given demand they may pay to all the solidary creditors including the one who made the demand beforehand (mutual agency still exists between the other debtors) The demanding creditor cannot refuse payment even though he received the demand beforehand > principles of mutual agency and guaranty apply
Feb. 14, 2014 In how many ways may solidarity exist? 1. Stipulation of the parties 2. By law 3. By reason of the nature of the obligation
There is nothing on the face of the obligations > that is why it is presumed Why is it presumed (not just joint?) - Nothing on the face of the obligation that characterizes / says if its joint or solidary - On the part of the creditors, it imposes greater power on the debtor because anyone of them can demand for compliance of the obligation from any one of the solidary debtors; and anyone of the debtors can be compelled to perform the obligation in favor of any of the debtors - Basis? Mutual agency (creditor) > one creditor acts on behalf of all the creditor Mutual guaranty (debtor) > any one of the debtors guarantee any one of the creditors of the performance of the obligation The moment the demand is made by any of the solidary creditors, the principle of mutual agency ceases to exist because the rights of the other creditors are consolidated into the person of the demanding creditor. Should X pay the entire obligation, it is extinguished. However, X acquires the right to be reimbursed with respect to the extent of their respective shares. The obligation now becomes joint because the right of B and C does not go beyond their respective shares Tests of solidarity Does the payment of X makes him subrogated into the right of the creditors? No. Because he only acquires the right to seek reimbursement. If X if subrogated into the creditors, he shall have the right to collect the entire payment, that would be unfair Agreement to exclude of the debtors shall be valid inter se, but not on the part of the debtors 1212. creditor cannot do anything prejudicial to the other creditors (basis: mutual agency). But in relation to Article 1215, the creditor shall deliver to others the share in the obligation (novation) In case the creditor who novated or condoned becomes insolvent, the other creditors doesnt have any remedy (lapse of the law) > assuming that insolvency is total insolvency Condonation and remission are allowed in solidary obligations - Effect of remission? Depends on the object of remission - Obligations with a penal clause (obligations which contain a penalty) - Purpose of a penal clause To strengthen the coercive force or tie of the obligaton Gives more teeth to the obligation The debtor breaches an obligation without a penal clause, what is the right of the creditor? > becomes entitled to claim damages however he must first prove that he incurred damages With a penal clause? He must first prove breach/damages before claiming payment of the penalty What is the purpose of penalty? Serves as substitute for the indemnification of damages The creditor cannot claim damages and penalties simultaneously. EXCEPTIONS 1. Partial performance 2. Irregularity 3. Unconscionable
Modes of extinguishment of the obligation 1. 6 primary causes 2. Additional causes annulment, recission, fulfillment of the resolutory condition, prescription, death When will death extinguish the obligation? - Not absolute, only a qualified cause - Only if the obligation is personal (to do) When will prescription extinguish the obligation? - Case: DBP v Judge Adil? - Prescription does not extinguish the obligation - What is extinguished is the right to enforce the obligation - Obligation is still valid after 80 years (prescribed in 50 years) because the creditor did not make a demand, the debtor himself voluntarily paid the obligation - The civil character of the obligation is the one extinguished - Civil vs natural obligations the difference lies in the sanctions - Civil actions in court - Natural justice, equity, conscience; voluntary performance extinguishes the obligation
PAYMENT - Not only delivery but also performance - Not only applies to give, but also to do or not to do - There shall be payment in ALL kinds of obligations - What if a 3 rd person pays? What is the status? If it is a donation, it is valid Consignation? > Special form of payment - Not all consignation requires tender of payment - How do you make a consignation? Judicial always made in pursuant of the Civil code Extrajudicial made in pursuant of BP 25 (only if obligation allows extrajudicial / judicial consignation) / ONLY in rentals and arrears - When is consignation not proper? Quirino case Right of redemption (no debt) or right of option (no debt) How do you make consignation (PAYMENT)? - Judicial: prior tender of payment as a rule (upon the unjust refusal of the offer of payment, consignation becomes unjustified) There is unjust refusal of offer of payment First notice to the debtor Still refuses the notice; creditor may file an action before the court Case: Lopez v CA > 2 nd notice rule > it is indispensable Tender of payment (judicial deposit is not always required) What is required is judicial placement at courts disposal so that the debtor can still use the thing due - Extrajudicial: consignation under BP 25 Law always require deposit (in the proper place of playment) Must always comply with the requisites of a valid payment Case: Lim v Chuangcai ?
Feb. 18, 2014 Requisites of payment matters essential to the validity of payment; absence of one may affect the validity Characteristics of payment manners of how payment should be made 1. Integrity substantial performance partial performance (with damages) estoppel (waiver on the part of the creditor) Accept performance knowingly that it is defective; you are not entitled to damages 2. Identity to deliver the very thing due EXCEPTION: Dation in payment o Involves the sale of all properties for the satisfaction of a debt in money o Dation in payment is not limited to money, it also even include goods / if there is a change in the object o The purpose is to extinguish the obligation Novation an old obligation is replaced with a new one o Consent is needed because he will be receiving a new thing (extinguishment is either partial / total o Dation in payment: extinguished obligation Value of payment should be commensurate? Not necessarily (extinguishment partial / total) *payment by cession what is ceded is not property but only the authority to sell Why? > the debtor continues to be the owner of the properties How? > requires the consent of all the creditors - If one of the creditors does not permit > can resolve into insolvency proceedings - Insolvency proceedings initiated by creditor How? Courts shall determine if the debtor is indeed insolvent Does not extinguish debtors insolvency or obligation Courts shall issue a discharge after Payment by cession depends on how much is realized on the sale of the debtors property (reason for not absolute extinguishment) *Novation not an absolute mode of extinguishment; the old obligation is replaced with a new one CONTRACTS definition not complete because the law does not require plurality 1. Essential consent, object, consideration 2. Natural matters __ not because parties stipulated it, but because the law made it (e.g. warranty, contract of sales, law on sales) 3. Accidental stipulated by parties (manner of payment; manners agreed upon by parties) Characteristics of a contract 1. Autonomy of the will freedom to contract, to enter into agreements of their choice which includes freedom to stipulate EXCEPTION: There can never be freedom outside the law Art. 1306 2. Obligatory force parties to a contract are bound not only by what they expressly provided, they are also bound by the consequences 3. Mutuality the terms must be on a common ground between the parties Case: PNB v Padilla - Former Sen. Padilla obtained a loan from PNB - With promissory note > rate of interest 18% > PNB shall have the right to increase the rate of interest whenever it becomes necessary > interest became 48% - In law, you cannot increase rate of interest more than once per year Effectivity, validity of the terms of the contract must not be left to one of the parties 4. Relativity answers the question of who are bound by the contract Transmissible rights successors, assigns, heirs Intransmissible rights only the parties are bound How does it become transmissible / intransmissible - By law - By stipulation - By nature of the right - EXCEPTION: stipulation pour autrubi Stipulation in a contract whereby both parties deliberately confers rights to a third person Why? A person complete stranger can enforce the contract Can be withdrawn if the third person has not yet accepted; both parties should withdraw Art. 1311. An heir cannot be held liable beyond what he is entitled - Meaning: an heir is entitled to only the residual value of the estate (what remains after the payment of all the debts - Heirs already paid indirectly (subtracted from the total estate) - Can an heir be liable to the debts of the deceased? An heir can never be held liable When a person dies, the debts should be paid before the computation of the estate < determination of the heirs
March 7, 2014 Contracts have 3 essential elements (different from elements) 1. Consent 2. Object 3. Cause / consideration There is no definition of consent in Civil code only how consent is manifested - Making of an offer - Acceptance of the object and cause (meeting of the minds for both) Effect? Results in the perfection of contract Parties become bound After perfection, next is implementation 2 elements of consent 1. Offer 2. Acceptance Offer can come in any form - If the offeror in his offer provide should provide a specific way, it must be complied < if oral acceptance? No effect Place of perfection in the place where the offer was made If made through someone? If the offeror dies before the receipt of the acceptance? - It depends on the capacity of the sender of offer If sender is an agent, knowledge of him is considered as knowledge of the offeror (law on agency) If sender is merely a messenger, no effect Consensual contracts - When does consent take place? Meeting of offer and acceptance - When does perfection take place? It takes place during acceptance Case: Arias v Laudico? (notice of withdrawal > sent) Perfection of contract? 1. Consent (consensual contracts) 2. Delivery of object (real contracts) a. What perfects the contract is delivery b. Is not consent necessary here? It is still necessary. The mere consent does not perfect the contract. Who cannot give consent? 1. Unemancipated minors (18 below) 2. Insane / demented 3. Deaf mutes who does not know how to read and write Unemancipated minors (they are things on the past subject to RA 6809) - Reduction of the age of majority from 21 to 18 Art. 14 A minor 18 to 21 can contract marriage provided with parental consent - Already modified by RA 6809 - Minor is a person below 18 - Also modified on law on emancipation in the Civil code (3 ways) Law (reaching age of majority) Marriage Voluntary concession of parents and child to be emancipated according to the Civil Code - Family code Law Marriage Agreement between parent and child - RA 6809 > only one mode of emancipation by law Obligation and contracts should only read minors (not unemancipated) - In contraction with other laws - Rule law on sales > minors can contract by themselves provided if it is a necessity (food, clothing etc. exclusive) Insane and demented - They are not the same but common (mental ailment) - Insanity is greater than dementia - Dementia think like children - Deaf mute who does not know how to write Should be total deafness Mutism / shortness of tongue Lack of knowledge of writing 1327. Not disqualified Others who cannot give consent > other provisions incapacity v. disqualification - incapacity provided that he can be represented by someone, can still contract - disqualification he cannot be represented, cannot contract alienage is a special disqualification for certain contracts not an absolute rule on disqualification - Case: Chisman (alien, relaxed rule) - Case: a Chinaman (acquired land before naturalization) - Law on sale: if brought by a foreigner Real property null and void Personal property allowed by law Art. 1332 When a person does not know how to read, or if the language of the contract is written on the language not known to him, and if there is fraud or mistake, the other party must prove to the court that he has explained the contract When will this obligation arise? - Case: Bunyi v. Reyes - Will arise only after when the party claiming the fraud or mistake does not really know how to read, this should be first determined Vices of consent defect in the consent Read Braganza v Villa-Abrille (cited Mercado case) Can the minor invoke as a defense his minority? - If passive misrepresentation: yes (Villa Abrille: contract was silent, never claimed age) - If active misrepresentation: no (Mercado: expressly represented) Cannot bring an action to annul Bound by estoppel (stopped from denying the truth as to what you had misrepresented) If minor had allowed the contract to prescribe without seeking annulment? - In passive misrepresentation the prescription is 4 years - You lose the right to annul if prescribed - He loses the right, however he cannot have any positive relief Vices of consent defect in the consent that is given to a contract 1. Mistake 2. Violence 3. Intimidation 4. Undue influene 5. Fraud Mistake? What kind of mistake? - Must be a mistake of fact (excused for noncompliance) - Not a mistake of law (not an excuse) - Must be unilateral / only one party should commit it - If mutual mistake refer to legal / confuses the parties - Must be a substantial mistake > refers to the object or purpose or conditions - If merely accidental, shall not vitiate Violence? Intimidation? - Refers to external force, irresistible < Violence - Involves internal force / threats < intimidation - Purpose of both is to get the consent of a person - If consent is given as a result? Will it become voidable? NO. Case: Ruiz v Atienza Not all threats will vitiate consent; only those which shall produce a wrongful act. (e.g. fear/danger to life or property) - are in-laws included among those persons be intimidated? YES. Under ascendants
March 11, 2014 Vices of consent for the purpose of getting the consent of a person/s to a contract 1. Mistake Art. 1332 If one of the contracting parties does not know how to read contract , the enforcing party must prove that he explained the contents of the contract. When? Must first show to the courts that he is an illiterate, cannot understand the language of the contract > if not established > need not be shown to the court 2. /3. Violence and Intimidation vitiate consent (know the distinctions) Violence physical, external Intimidation internal, emotional force, fear - Ruiz v Atienza Not all threats will vitiate consent, only threats to commit an unlawful act - In the case of violence and intimidation, even though employed by 3 rd persons, will also vitiate consent Why? It is not necessary that there be connivance > violence and intimidation immediately produce effect - If fraud, it will not affect / invalidate the contract; EXCEPTION 3 rd persons connived with one of the parties 4. Undue Influence No physical, no moral force Imposition of ones will over another Should not be confused with referential fear (does not vitiate consent; fear of displacing another to whom respect is due; it is a unilateral act) 5. Fraud (must be serious) and machinations intended to induce the other to enter into a contract without which he did not enter One who tries to exaggerate (sales talk) will not vitiate as long as the other party was given chances Opinion persona; if given by an expert shall not vitiate consent Should not be made by both parties or else the fraud of one another will compensate each other Simulation - You do two things: pretend that there is (a contract) and pretend that it is (what appears) Kinds of simulation 1. Absolute no contract at all, although the parties do not intent to be bound by what appears 2. Relative the parties intended to be bound, but not in the manner that it is intended to appear Act of simulating is like fraud Declaration of nullity of a contract In absolute simulation contract is void Conceal their true agreement < relative simulation Status of absolute void; relative valid unless it was INTENDED to cause prejudice VALIDITY is the general rule, NULLITY is the exception
3 essential elements of a contract 1. Consent 2. Object 3. Cause / consideration Object things within the commerce of men e.g. rights, services within the commerce of man - Things which are susceptible of private ownership - Present or future things - Art. 1409 paragraph 3 present at the time of transaction Future things does not exist at the time of perfection > as long as it exists at the time of performance (Law on sales, not necessarily at time of perfection) - When the object of the contract on the Law on sales is a future thing, it must have potential existence - potential existence susceptible of coming from an existing thing Coconut seller even without coconut fruits > valid, because the person have coconut trees - Sales m__ resparati? > law on sales - Other laws > future things are valid if they have potential existence - With respect to future things, the law requires it only to be present at the time of the performance As long as he is the owner of the thing in the time of the delivery Rights it must be lawful and transmissible (intransmissible rights only binds the parties) - If the contract involves transmissible rights > parties, heirs, assigns, successors in interest - If the contract involves intransmissible rights > only the parties Services lawful and possible Last element: cause / consideration - Reason of the existence of the contract - Why of the contract - Is this the same with juridical tie? YES - Is there a difference between cause and consideration? Phil. Laws-NO / U.S. Laws-YES - Is there a difference between cause and motive? Motive personal reason Cause is known to both parties, motive-no If the cause is valid, does it mean that the contract is valid? YES If the motive is unlawful will it affect validity? YES, provided except if illegality will affect validity - Example: motive becomes integral part of the existence of the contract Is it necessary that the cause to be adequate? NO, what the law requires is sufficient Cause may be sufficient, valid, insufficient / inadequate, void > void unless you will make it appear that it is founded on another valid contract Presumptions of cause 1. Existence 2. Validity If the law on the contract of sale is inadequate, it does not invalidate the contract, it just does not have an effect, only a defect on part of the parties Forms of contract
March 18, 2014 Restitution only on damages Restitution not available on fraud 2 grounds for recission 1. damages 2. fraud in contracts involving fraud, when will recission lie: 1. if gratuitous without leaving / reserving enough property to answer for his obligations 2. if onerous sell the property after the issuance of writ of attachment / judgment what must be returned after recission > no exception: principle of quasi-contract 1. the thing received altogether 2. fruits 3. the price plus interest incapacity only applies to voidable contracts! Not applicable to recissible! Incapacity not a ground for recission! In voidable contracts there is ratification If the ground for annulment is incapacity to give consent, who may ratify? > parents and guardians From date of recording > fraud (registered) From date of discovery > (not registered) Can there be annulment without restitutiom? - Yes. If the ground for annulment is incapacity but he was required to restore what he has benefitted Statute of Frauds No right of choice 1. One of those enumerated under the 2 nd paragraph 2. Must be totally executor on both sides 3. In writing 4. Applies only on specific performance or damages Effect if not complied with: you cannot prove the oral agreement by an oral evidence What does in writing mean? - Requirement that in writing does not mean the entire agreement must be in writing - Only the essentials must appear, not the entire agreement Purpose of State of Frauds to prevent fraud / perjury through reliance of ones memory 1. The nonperformance by agreement of the parties (not external) 2. Only applies to personal guaranty (no collateral) Real guaranty (always with a security / collateral) 3. Under the Civil Code in settlement and donations propter nuptias must be covered by the Statute of Frauds (oral is valid) Under the Family code > marriage settlement must be in writing i. in donation propter nuptias present donations ii. in testamentary and formality of wills future it must be in a will; not enough in writing what can be donated? > all present property EXCEPTION donation propter nuptias allows future 4. not absolute, auction sale 2 nd paragraph there is no sales agreement yet Does not allow the use of ?? price 5. Must be a real property Hernandez case statute sale itself agency authority of the agent Mindanao case grant of the right of way Espina v Abaya partition agreement Who may avail (recission)? - Either one of the parties who suffered lesion - Defrauded party - Third person Who may avail in voidable? - Those who are bond primarily and subsidiarily - EXCEPTION: third persons who suffered injury Who may avail in unenforceable? Not all property included; must be within specific performance (leasing/sale) - Either of the parties Void contracts - Pari delicto / in delicto - Torres v Ventura (when will pari delicto not apply) violation of the homestead law Navarra v Navarra (in cases of Family Code)
March 25, 2014 Unenforceable Contracts Statute of Frauds 1. Writing 2. 6 enumeration 3. Executor on both sides 4. For specific performance / damages Effect: you cannot produce an oral contract by oral evidence Hernandez case (2 enumeration, only in real properties) 1. Leasing for more than one year 2. Sale The law on agency 1874 whenever the sale of an immovable is made through an agent, if the authority of the agent is not in writing, it is void Statute of frauds sale itself must be in writing An oral sale of an immovable property is valid, but not registrable Void Contracts Art. 1409 - A non-existing contract - Confers no right - Imposes no obligation - Imprescriptible > can be brought at any time by anyone - What does not exist cannot produce any effect Ninal case (rulings, 2 parts) - Distinction between an action for annulment and declaration of nullity - Interpretation of article 34 of Family code; art. 47 applies to voidable, not void marriages Pari delicto they cannot bring an action against each other - Not allowed to sue each other (basis:) - He who goes to court for purposes for seeking redress must come with clean hands In delicto not equally at fault Can there be a void contract outside of Article 1409? law on sales 1306 is the only limitation on the right to contract and right to stipulate (connect) Law on sales (Art 1544 Double sale) > Laureta case > same seller, same object, different buyers not only on double sale but also on double donation 1. Who registers 1 st in good faith 2. Possession 1 st in good faith 3. Gets the title 1 st in good faith Natural obligation valid obligation not enforceable by court action - Have sanctions but not similar to civil - Justice, equity and conscience Payment made by an incapacitated can recover what he has paid subject to Art. 1427 1311 heir is not liable beyond the value of the inheritance that he has received - What he is entitled to is what is left after the debt has been paid 1430 you cannot be compelled to perform - Not an actionable obligation - Supreme Court: prescription does not extinguish an obligation What is extinguished is the sealing character Converting to it a natural obligation If the payment is made voluntarily cannot be recovered
March 28, 2014 Void contracts (Laureta case) Under the doctrine of pari delicto > essential that both parties are equally at fault Effects of pari delicto 1. Neither one can sue each other (basis: clean hands) 2. Neither one can recover what he has given to another Rules in pari delicto, not absolute EXCEPTIONS: 1. Ventura case pari delicto does not apply to violations of the Homestead Law - Why? The moment the grant under it has been violated > it is converted into a public character but not automatically i. Ligao v CA > no automatic cancellation or reversion of the Homestead grant ii. Should bring an action for reversion Only the solicitor general is authorized to bring an action, the State is not precluded to bring an action - Homestead law not allows performance of the any within 5 years: i. Cannot encumber ii. Cannot alienate iii. Cannot dispose Cannot be done by the patentee or the grantee; if committed any of the 3 acts, it amounts to a violation 2. Velasco case does not apply to actions under Art. 36 for nullity on the basis of psychological incapacity - Nothing can prevent the court to declare both parties / spouses as psychologically incapacitated 3. Actions for disbarment (Mortel v. Aspiras?) - Case about an atty who promised to marry a girl but let his son marry her instead - Disbarments are exceptions to pari delicto - Relief is not granted to the complainant - Purpose of disbarment is to remove misfits and persons who does not deserve to be legal practitioners Natural obligations - Not based on law / not human law - Based on equity and natural law Distinctions between law and equity Law Equity Law is a rule of conduct which must be just and obligatory and formulated by a competent legislative power for common good / common benefit (Manresa) Law is an ordinance of reason promulgated by competent authority and must be for the common good (St. Augustine) Equity is justice outside legality. Cannot and does not supplant the law but it may supplement the law (Aguila v CFI) Law is always promulgated by competent authority-congress Equity is not enacted by law-making bodies, it emanates from natural law When there is conflict between law and equity, law always prevails Equity is grounded on the precepts of conscience rather than sanctions based on positive law When there is an applicable law, equity does not apply Applies only in the absence of law > not a replacement Dural in nature (sanctions of positive law) Ethical in nature (morals)
The sanction of natural obligation justice, equity, conscience - Cannot be enforced through a civil action - No recovery on what has been paid (rule applies on voluntary payments only!) - If voluntary, can be recovered In relation to RA 6809 (reduced the age of minority to 18) Recovery in cases of pari delicto > may be allowed EXCEPTIONS: 1. Violations of price control law 2. Violations of labor law 3. Violations of minimum wage law
REVIEW REVIEW REVIEW Obligations Delay the mere fact that the debtor has not performed on the due date on the moment of demand does not put him in delay. IT MUST BE CULPABLE DELAY. If the cause is not imputable NOT IN DELAY Last paragraph of Art. 1169 < demand is not necessary (demand is replaced by the offer) - Not in delay (4) - When will there be delay in reciprocal obligations? - If there is an offer or performance of the other, and the other party does not perform, there is delay USURIOUS no more usurious transactions according to Resolution 2224 (removed the ceiling on interest rates) Case: Medel v CA (never asked in the bar because of the flip flopping rulings regarding the amount of interest) Legal rate of interest increased from 6 > 12% - Case: Eastern Shipping Lines no longer holds hand since July 1, 2013 > 6% again In other cases, it is the courts discretion. In these cases, it is a matter of right - Will apply only if the parties have agreed on the payment of interest but failed to stipulate on the rate Kinds of Interests 1. Moratory use of somebody elses money 2. Compensatory interest in form of punishment 3. Interest to become due a. Moratory must appear in writing b. Compensatory interest imposed by the court, need not in writing Compounding of interest > payment of interest of the interest is not paid - Not illegal but not favored by the law - More /heavier burden on the part of the debtor - Requirements (there must be agreement in writing / oral not allowed) - EXCEPTION: Judicial _____ Classification of obligations in so far as demandability is concerned 1. Know the distinction between condition and period 2. What obligations are immediately demandable 3. What are the effects of an illegal / impossible condition a. Does not automatically nullify i. If the illegal / impossible condition can be separated from valid conditions; valid ii. If cannot separate > find out how the illegal / impossible condition was attached: 1. Attached negatively valid 2. Attached positively void Alternative obligations (as per plurality of obligations) 1. Conjunctive obligations characterized by and; several obligations, everything should be complied with a. No right of choice 2. Alternative obligations several things due, compliance of one is enough 3. Facultative one thing due, debtor has the right for substitution of the principal Cause or consideration - If contract has no cause? - If it may be proven: valid - If it appears not to have any cause: not necessarily void (establish another valid cause) PROBLEMS 10 ONLY FOR FINALS READ THE PROBLEM CAREFULLY DO NOT FORGET TO QUALIFY ANSWERS
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