You are on page 1of 37

I.

EXTINGUISHMENT OF OBLIGATIONS show that there has not been a substantial the debtor, upon payment by the third party,
PAYMENT OR PERFORMANCE performance the obligation between the debtor and creditor
ART 1232 – “Payment means not only the • The party who has substantially performed is already extinguished
delivery of money but also the performance, in may enforce specific performance of the ART 1237. Whoever pays on behalf of the
any other manner of an obligation” obligation of the other party or may recover debtor without the knowledge or against the
• It is the fulfillment of the prestation due that damages for their breach upon an allegation of will of the latter, cannot compel the creditor to
extinguishes the obligation by the realization of performance, without proof of complete subrogate him in his rights, such as those
the purposes for which it was constituted fulfillment. arising from a mortgage, guaranty or penalty
• It is a juridical act which is voluntary, licit and • This article gives to the third person who paid
made with the intent to extinguish an obligation • The other party, on the other hand, may by an only a simple personal action for
• Requisites: independent action before he is sued, or by a reimbursement, without the securities,
a.) person who pays counterclaim after commencement of a suit guaranties and other rights recognized in the
b.) the person to whom payment is made against him, recover from the first party the creditor, which are extinguished by the
c.) the thing to be paid damages which he has sustained by the latter’s payment
d.) the manner, time and place of payment etc failure to completely fulfill his obligation ART 1238. Payment made by a third person
• The paying as well as the one receiving should ART 1235 – “When the oblige accepts the who does not intend to be reimbursed by the
have the requisite capacity performance, knowing its incompleteness or debtor is deemed to be a donation, which
• Kinds: irregularity, and without expressing any protest requires the debtor’s consent/ but the payment
a.) normal –when the debtor voluntarily or objection, the obligation is deemed fully is in any case valid as to the creditor who has
performs the prestation stipulated complied with” accepted it
b.)abnormal – when he is forced by means of a • A person entering into a contract has a right ART 1239. In obligations to give, payment
judicial proceeding either to comply with to insist on its performance in all particulars, made by one who does not have the free
prestation or to pay indemnity according to its meaning and spirit. But if he disposal of the thing due and capacity to
ART 1233 – “A debt shall not be understood to chooses to waive any of the terms introduced alienate it shall not be valied, without prejudice
have been paid unless the thing or service in for his own benefit, he may do so. to the provisions of article 1427 under the Title
which the oligatoin consists has been completely • But he is not obliged to accept anything else in on “Natural Obligations”
delivered or rendered, as the case may be” place of that which he has contracted for and if • consignation will not be proper here. In case
• States 2 requisites of payment: he does not waive this right, the other party the creditor accepts the payment, the payment
a.) identity of prestation - the very thing or cannot recover against him without performing will not be valid except in the case provided in
service due must be delivered or released all the stipulations on is part article 1427
b.) integrity – prestation must be fulfilled • To constitute a waiver, there must be an ART 1240. Payment shall be made to the person
completely intentional relinquishment of a known right. A in whose favor the obligation has been
• Time of payment – the payment or waiver will not result from a mere failure to constituted, or his successor in interest, or any
performance must be on the date stipulated assert a claim for defective person authorized to receive it
(may be made even on Sundays or on any performance/payment. There must have been • the authority of a person to receive payment
holiday, although some states like the acceptance of the defective performance with for the creditor may be
Negotiable Instruments Law states that actual knowledge if the incompleteness or a.) legal – conferred by law (e.g.,guardian of the
payment in such case may be made on the next defect, under circumstances that would indicate incapacitated, administrator of the estate of the
succeeding business day) an intention to consider the performance as deceased)
• The burden of proving that the obligation has complete and renounce any claim arising from
been extinguished by payment devolves upon the defect b.) conventional – when the authority has been
the debtor who offers such a defense to the • A creditor cannot object because of defects in given by the creditor himself (e.g., agent who is
claim of the plaintiff creditor performance resulting from his own acts or appointed to collect from the debtor
• The issuance of a receipt is a consequence of directions • payment made by the debtor to a wrong party
usage and good faith which must be observed ART 1236. The creditor is not bound to accept does not extinguish the obligation as to the
(although our Code has no provision on this) payment or performance by a third person who creditor (void), if there is no fault or negligence
and the refusal of the creditor to issue a receipt has no interest in the fulfillment of the which can be imputed to the latter (even when
without just cause is a ground for consignation obligation, unless there is a stipulation to the the debtor acted in utmost good faith, or
under Art 1256 ( if a receipt has been issued by contrary. Whoever pays for another may through error induced by the fraud of the 3rd
payee, the testimony alone of payer would be demand from the debtor what he has paid, person). It does not prejudice the creditor and
insufficient to prove alleged payments) except that if he paid without the knowledge or the accrual of interest is not suspended by it
ART 1234 – “If the obligation has been against the will of the debtor, he can recover Art. 1241. Payment to a person who is
substantially performed in good faith, the only insofar as the payment has been beneficial incapacitated to administer his property shall
obligor may recover as though there had been a to the debtor be valid if he has kept the thing delivered, or
strict and complete fulfillment, less damages • Reason for this article: whenever a third insofar as the payment has been beneficial to
suffered by the obligee” person pays there is a modification of the him. Payment made to a third person shall also
• In order that there may be substantial prestation that is due. be valid insofar as it has redounded to the
performance of an obligation, there must have • Generally, the 3rd person who paid another’s benefit of the creditor. Such benefit to the
been an attempt in good faith to perform, debt is entitled to recover the full amount he creditor need not be proved in the following
without any willful or intentional departure paid. The law, however limits his recovery to cases:
therefrom the amount by which the debtor has been (1) If after the payment, the third person
• The non-performance of a material part of a benefited, if the debtor has no knowledge of, or acquires the creditor's rights;
contract will prevent the performance from has expressed his opposition to such payment (2) If the creditor ratifies the payment to the
amounting to a substantial compliance • If the debt has been remitted, paid third person;
• A party who knowingly and willfully fails to compensated or prescribed, a payment by a (3) If by the creditor's conduct, the debtor has
perform his contract in any respect, or omits to third person would constitute a payment of been led to believe that the third person had
perform a material part of it cannot be what is not due; his remedy would be against authority to receive the payment. (1163a)
permitted under the protection of this rule to the person who received the payment under • payment shall be considered as having
compel the other party to perform; and the such conditions and not against the debtor who benefited the incapacitated person if he made
trend of the more recent decisions is to hold that did not benefit from the payment an intelligent and reasonable use thereof, for
the percentage of omitted or irregular • payment against debtor’s will – even if purposes necessary or useful to him, such as
performance may in and of itself be sufficient to payment of the third party is against the will of that which his legal representative would have
or could have done under similar • This is the delivery and transmission of • so long as the notes were legal tender at the
circumstances, even if at the time of the ownership of a thing by the debtor to the time they were paid or delivered, the person
complaint the effect of such use no longer exists creditor as an accepted equivalent of the accepting them must suffer the loss if thereafter
(e.g., taxes on creditor’s property, money to performance of the obligation. they became valueless
extinguish a mortgage on creditor’s property) • The property given may consist not only of a • the provisions of the present article have been
• the debtor is not released from liability by a thing but also of a real right (such as a usufruct) modified by RA No. 529 which states that
payment to one who is not the creditor nor one • Considered as a novation by change of the payments of all monetary obligations should
authorized to receive the payment, even if the object now be made in currency which is legal tender
debtor believed in good faith that he is the • Where the debt is money, the law on sale shall in the Phils. A stipulation providing payment in
creditor, except to the extent that the payment govern; in this case, the act is deemed to be a a foreign currency is null and void but it does
inured to the benefit of the creditor sale with the amount of the obligation to the not invalidate the entire contract
• in addition to those mentioned above, payment extent that it is extinguished being considered • A check, whether a manager’s check or an
to a third person releases the debtor: as price ordinary check is not legal tender and an offer
a.) when, without notice of the assignment of Art. 1246. When the obligation consists in the of the check in payment of debt is not a valid
credit, he pays to the original creditor delivery of an indeterminate or generic thing, tender of payment
b.) when in good faith he pays to one in whose quality and circumstances have not been Art. 1250. In case an extraordinary inflation or
possession of the credit stated, the creditor cannot demand a thing of deflation of the currency stipulated should
• even when the creditor receives no benefit superior quality. Neither can the debtor deliver supervene, the value of the currency at the time
from the payment to a third person, he cannot a thing of inferior quality. The purpose of the of the establishment of the obligation shall be
demand payment anew, if the mistake of the obligation and other circumstances shall be the basis of payment, unless there is an
debtor was due to the fault of the creditor taken into consideration. (1167a) agreement to the contrary. (n)
Art. 1242. Payment made in good faith to any • If there is disagreement between the debtor • Applies only where a contract or agreement is
person in possession of the credit shall release and the creditor as to the quality of the thing involved. It does not apply where the obligation
the debtor. (1164) delivered, the court should decide whether it to pay arises from law, independent of contracts
• the person in possession of the credit is neither complies with the obligation, taking into • Extraordinary inflation of deflation may be
the creditor nor one authorized by him to consideration the purpose and other said to be that which is unusual or beyond the
receive payment, but appears under the circumstances of the obligation common fluctuations in the value of the
circumstances of the case, to be the creditor. He • Both the creditor and the debtor may waive currency, which parties could not have
appears to be the owner of the credit, although the benefit of this article reasonably foreseen or which was manifestly
in reality, he may not be the owner (e.g., an heir Art. 1247. Unless it is otherwise stipulated, the beyond their contemplation at the time when
who enters upon the hereditary estate and extrajudicial expenses required by the payment the obligation was constituted
collects the credits thereof, but who is later shall be for the account of the debtor. With Art. 1251. Payment shall be made in the place
deprived of the inheritance because of regard to judicial costs, the Rules of Court shall designated in the obligation. There being no
incapacity to succeed) govern. (1168a) express stipulation and if the undertaking is to
• it is necessary not only that the possession of • This is because the payment is the debtor’s deliver a determinate thing, the payment shall
the credit be legal, but also that the payment be duty and it inures to his benefit in that he is be made wherever the thing might be at the
in good faith discharged from the burden of the obligation moment the obligation was constituted. In any
Art. 1243. Payment made to the creditor by the • Art. 1248. Unless there is an express other case the place of payment shall be the
debtor after the latter has been judicially stipulation to that effect, the creditor cannot be domicile of the debtor.
ordered to retain the debt shall not be valid. compelled partially to receive the prestations in • If the debtor changes his domicile in bad faith
(1165) which the obligation consists. Neither may the or after he has incurred in delay, the additional
• the payment to the creditor after the credit debtor be required to make partial payments. expenses shall be borne by him. These
has been attached or garnished is void as to the • However, when the debt is in part liquidated provisions are without prejudice to venue under
party who obtained the attachment or and in part unliquidated, the creditor may the Rules of Court.(1171a)
garnishment, to the extent of the amount of the demand and the debtor may effect the payment • Since the law fixes the place of payment at the
judgment in his favor. of the former without waiting for the domicile of the debtor, it is the duty of the
• The debtor upon whom garnishment order is liquidation of the latter. (1169a) creditor to go there and receive payment; he
served can always deposit the money in court by • The creditor who refuses to accept partial should bear the expenses in this case because
way of consignation and thus relieve himself prestations does not incur delay except when the debtor cannot be made to shoulder the
from further liability there is abuse of right or if good faith requires expenses which the creditor incurs in
Art. 1244. The debtor of a thing cannot compel acceptance performing a duty imposed by law and which is
the creditor to receive a different one, although • This article does not apply to obligations for his benefit.
the latter may be of the same value as, or more where there are several subjects or where the • But if the debtor changes his domicile in bad
valuable than that which is due. In obligations various parties are bound under different terms faith or after he has incurred in delay, then the
to do or not to do, an act or forbearance cannot and conditions additional expenses shall be borne by him
be substituted by another act or forbearance Art. 1249. The payment of debts in money shall • When the debtor has been required to remit
against the obligee's will. (1166a) be made in the currency stipulated, and if it is money to the creditor, the latter bears the risks
• Upon agreement of consent of the creditor, the not possible to deliver such currency, then in and the expenses of the transmission. In cases
debtor may deliver a different thing or perform the currency which is legal tender in the however where the debtor chooses this means of
a different prestation in lieu of that stipulated. Philippines. The delivery of promissory notes payment, he bears the risk of loss.
In this case there may be dation in payment or payable to order, or bills of exchange or other APPLICATION OF PAYMENTS
novation mercantile documents shall produce the effect Art. 1252. He who has various debts of the same
• The defects of the thing delivered may be of payment only when they have been cashed, kind in favor of one and the same creditor, may
waived by the or when through the fault of the creditor they declare at the time of making the payment, to
creditor, if he expressly so declares or if, with have been impaired. which of them the same must be applied. Unless
knowledge thereof, he accepts the thing without In the meantime, the action derived from the the parties so stipulate, or when the application
protest or disposes of it or consumes it original obligation shall be held in the abeyance. of payment is made by the party for whose
Art. 1245. Dation in payment, whereby (1170) benefit the term has been constituted,
property is alienated to the creditor in • legal tender means such currency which in a application shall not be made as to debts which
satisfaction of a debt in money, shall be given jurisdiction can be used for the payment are not yet due.
governed by the law of sales. (n) of debts, public and private, and which cannot If the debtor accepts from the creditor a receipt
be refused by the creditor in which an application of the payment is made,
the former cannot complain of the same, unless • Must be initiated by debtors 1.) That there was previous tender of payment,
there is a cause for invalidating the contract. • Such assignment does not have the effect of without which the consignation is ineffective
(1172a) making the 2.) That the tender of payment was of the very
• It is necessary that the obligations must all be creditors the owners of the property of the thing due, or in case of money obligations that
due. It is only in case of mutual agreement of debtor unless there is an agreement to that legal tender currency was offered
the parties or upon the consent of the party in effect 3.) That the tender of payment was
whose favor the term was established that TENDER OF PAYMENT AND unconditional and
payments may be applied to obligations which CONSIGNATION 4.) That the creditor refused to accept payment
have not yet matured Art. 1256. If the creditor to whom tender of without just cause
• It is also necessary that all the debts be for the payment has been made refuses without just Art. 1257. In order that the consignation of the
same kind, generally of a monetary character. cause to accept it, the debtor shall be released thing due may release the obligor, it must first
This includes obligations which were not from responsibility by the consignation of the be announced to the persons interested in the
originally of a monetary character, but at the thing or sum due. fulfillment of the obligation. The consignation
time of application of payment, had been Consignation alone shall produce the same shall be ineffectual if it is not made strictly in
converted into an obligation to pay damages by effect in the following cases: consonance with the provisions which regulate
reason of breach or nonperformance. (1) When the creditor is absent or unknown, or payment. (1177)
• If the debtor makes a proper application of does not appear at the place of payment; • The lack of notice does not invalidate the
payment but the creditor refuses to accept it (2) When he is incapacitated to receive the consignation but simply makes the debtor liable
because he wants to apply it to another debt, payment at the time it is due; for the expenses
such creditor will incur in delay (3) When, without just cause, he refuses to give • The tender of payment and the notice of
• If at the time of payment, the debtor does not a receipt; consignation sent to the creditor may be made
exercise his right to apply it to any of his debts, (4) When two or more persons claim the same in the same act. In case of absent or unknown
the application shall be understood as provided right to collect; creditors, the notice may be made by
by law, unless the creditor makes the (5) When the title of the obligation has been publication
application and his decision is accepted by the lost. (1176a) Art. 1258. Consignation shall be made by
debtor. This application of payment can be • Tender of payment : manifestation made by depositing the things due at the disposal of
made by the creditor only in the receipt issued the debtor to the creditor of his desire to comply judicial authority, before whom the tender of
at the time of payment (although the application with his obligation, with the offer of immediate payment shall be proved, in a proper case, and
made by creditor may be contested by the performance; preparatory act which precedes the announcement of the consignation in other
debtor if the latter’s assent to such application consignation cases.
was vitiated by such causes as mistake, violence, • Consignation : the deposit of the object of the The consignation having been made, the
intimidation, fraud, etc) obligation in a competent court in accordance interested parties shall also be notified thereof.
• The debtor and the creditor by agreement, can with the rules prescribed by law, after the (1178)
validly change the application of payment tender of payment has been refused or because Art. 1259. The expenses of consignation, when
already made without prejudice to the rights of of circumstances which render direct payment properly made, shall be charged against the
third persons acquired before such agreement to creditor impossible or inadvisable; creditor. (1179)
Art. 1253. If the debt produces interest, constitutes payment; must follow, supplement • The consignation is properly made when:
payment of the principal shall not be deemed to or complete the tender of payment in order to 1.) after the thing has been deposited in court,
have been made until the interests have been discharge the obligation the creditor accepts the consignation without
covered. (1173) • Tender of payment by certified check is valid; objection and without any reservation of his
• Applies both to compensatory interest (that a mere check would also be valid for tender of right to contest it because of failure to comply
stipulated as earnings of the amount due under payment if the creditor makes no prompt with any of the requisites for consignation and
the obligation) and to interest due because of objection, but this does not estop the latter from 2.) when the creditor objects to the consignation
delay or mora on the part of the debtor later demanding payment in cash but the court, after proper hearing, declares
Art. 1254. When the payment cannot be applied • When a tender of payment is made in such a that the consignation has been validly made *in
in accordance with the preceding rules, or if form that the creditor could have immediately these cases, the creditor bears the expenses of
application can not be inferred from other realized payment if he had accepted the tender, the consignation
circumstances, the debt which is most onerous followed by a prompt attempt of the debtor to Art. 1260. Once the consignation has been duly
to the debtor, among those due, shall be deemed deposit the means of payment in court by way made, the debtor may ask the judge to order the
to have been satisfied. If the debts due are of the of consignation, the accrual of interest on the cancellation of the obligation. Before the
same nature and burden, the payment shall be obligation will be suspended from the date of creditor has accepted the consignation, or
applied to all of them proportionately. (1174a) such tender. But when the tender of payment is before a judicial declaration that the
• As to which of 2 debts is more onerous is not accompanied by the means of payment, and consignation has been properly made, the
fundamentally a question of fact, which courts the debtor did not take any immediate step to debtor may withdraw the thing or the sum
must determine on the basis of the make a consignation, then the interest is not deposited, allowing the obligation to remain in
circumstances of each case suspended from the time of such tender. force. (1180)
• Example: • Requisites of consignation: 1.) There was a • Consignation has a retroactive effect and the
PAYMENT BY CESSION debt due payment is deemed to have been made at the
Art. 1255. The debtor may cede or assign his 2.) The consignation of the obligation was made time of the deposit of the thing in court or when
property to his creditors in payment of his because of some legal cause provided in the it was placed at the disposal of the judicial
debts. This cession, unless there is stipulation to present article authority
the contrary, shall only release the debtor from 3.) That previous notice of the consignation has • The effects of consignation are: 1.) the debtor
responsibility for the net proceeds of the thing been given to persons interested in the is released in the same manner as if he had
assigned. The agreements which, on the effect of performance of the obligation performed the obligation at the time of the
the cession, are made between the debtor and 4.) The amount or thing due was placed at the consignation because this produces the same
his creditors shall be governed by special laws. disposal of the court effect as a valid payment, 2.) the accrual of
(1175a) 5.) After the consignation had been made the interest on the obligation is suspended from the
• Consists of the abandonment of the persons interested were not notified thereof moment of consignation, 3.) the deteriorations
universality of the property of the debtor for • If the reason for consignation is the unjust or loss of the thing or amount consigned
the benefit of his creditors in order that such refusal of the creditor to accept payment, it occurring without fault of the debtor must be
property may be applied to the payment of the must be shown: borne by the creditor, because the risks of the
credits
thing are transferred to the creditor from the What singularly delayed the opening the HELD: Court affirmed decision of the lower
moment of stipulated LOC which in turn, caused the court stating that the amount due to Kalalo was
cancellation of the allocation in Burma (and the $28k as his fee in IRRI Institute Project (to be
deposit 4.) any increment or increase in value of forfeiture of the 5% deposit) was the inability of converted into Phil peso on the basis of the
the thing the appellant corporation to meet the condition current rate of exchange at the time of the
after the consignation inures to the benefit of imposed by the Bank for granting the same. payment of the judgment
the creditor. • When the amount consigned does Also, its culpability arises from its willful and RATIO:
not cover the entire obligation, the creditor may deliberate assumption of contractual obligations 1.) Estoppel did not rise in this case because the
accept it, reserving his right to the balance. If even as it was well aware of its financial act of the party sought to be estopped is due to
no reservations are made, the acceptance by the incapacity to undertake the prestation ignorance founded on innocent mistake. Also,
creditor of the amount consigned may be (manifested in its letter of application with none of the elements in relation to party
regarded PNB) Article 1170 provides that those who in claiming estoppel are present (elements: 1.) lack
as a waiver of further claims under the contract the performance of their obligations are guilty of knowledge to the facts in question, 2.)
Art. 1261. If, the consignation having been of fraud, negligence, or delay and those who in reliance in good faith upon the conduct or
made, the creditor should authorize the debtor any manner contravene the tenor thereof are statements of the party to be estopped 3.) action
to withdraw the same, he shall lose every liable for damages. or inaction based thereon
preference which he may have over the thing. *In view of RA 527 which specifically requires 2.)RA 529 (requiring payment in foreign
The co-debtors, guarantors and sureties shall be the discharge of obligations only “in any coun currency must be discharged in Phil currency)
released. (1181a) or currency which at the time of payment is does not provide for the rate of exchange for the
• When the consignation has already been made legal tender for public and private debt”, the payment of obligation incurred after the
and the creditor has accepted it or it has been award of damages in US dollars made by the enactment of said Act. The logical conclusion is
judicially declared as proper, the debtor cannot lower court is modified by converting it into that the rate of exchange should be that
withdraw the thing or amount deposited unless Philippine pesos at the rate of exchange prevailing at the time of payment for such
the creditor consents thereto. If the creditor prevailing at the time the obligation was contracts.
authorizes the debtor to withdraw the same, incurred or when the contract in question was NEW PACIFIC TIMBER & SUPPLY CO INC
there is a revival of the obligation, which has executed. v SENERIS
already been extinguished by the consignation, KALALO v LUZ Petitioner is the defendant in a complaint for
and the relationship of debtor and creditor is On November 17 1959, plaintiff-appellee collection of money filed by the private
restored to the condition in which it was before Octavio Kalalo, a licensed civil engineer entered respondent. Subsequently, a compromise
the consignation. But third persons, solidary into an agreement with defendant-appellant judgment was rendered in accordance with an
co-debtors, guarantors and sureties who are Alfredo Luz, a licensed architect whereby the amicable settlement entered into by the parties.
benefited by the consignation are not former was to render engineering design However, petitioner failed to comply with his
prejudiced by the revival of the obligation services to the latter for fees, as stipulated in the obligation. Because of this, the respondent
between the debtor and the creditor agreement, Kalalo sent to Luz a statement of judge, upon motion of private respondent,
CASES account to which was attached an itemized issued an order for the issuance of a writ of
ARRIETA v NATIONAL RICE AND CORN statement of architect’s account according to execution for the amount of P63,130. Pursuant
CORP (NARIC) which the total engineering fee asked by to that, personal properties of petitioner were
Plaintiff participated in a public bidding called engineer amounted to P116,565 from which sum also levied upon and set for auction sale. Prior
by NARIC for the supply of 20k metric tons of was to be deducted the previous payments made to the day of the auction sale, petitioner
Burmese rice and was awarded the contract. in the amount of P57K. Luz then sent a resume deposited with the Clerk of Court the sum of
Subsequently, plaintiff and NARIC entered into of fees to Kalalo (May 18 1962). Said fees, P63,130 consisting of P50k in Cashier’s check
a Contract of Sale of Rice (in which the according to appellant amounted to P10,861.08 and P13,130 in cash. Respondent judge declined
defendant in turn would commit itself to pay by instead of the amount claimed petitioner’s motion for issuance of certificate of
means of a letter of credit in US currency in satisfaction of judgment, relying on Sec 63 of
favor of the plaintiff and/or supplier in Burma. by appellee. On June 14 1962, appellant sent the Central Bank Act stating that checks
Despite its commitment to pay immediately, the appellee a check for said amount which appellee representing deposit money do not have legal
defendant took the first step to open the letter of refused to accept as full payment of the balance tender power
credit one month after the execution of the of the fees due him. ISSUE: WON petitioner’s check payment was a
contract (July 30 1952). It was stated in the Luz contends that some of Kalalo’s services valid tender so as to extinguish his obligation
application (for the LOC) that they do not have were not in accordance with the agreement and with the private respondent
a sufficient deposit with PNB to cover the his claims were not justified by the services HELD: SC ordered private respondent to
amount required as a condition for the opening actually rendered. Luz also claims that the accept the sum of P63,130 under deposit as
of LOC and they were asking to be treated as a statement of account given to him by Kalalo payment of the judgment obligation in his favor
special case in consideration to the fact that its barred the latter from asserting any claim RATIO: Since the check deposited had been
supplier has a deadline to meet which is on contrary to what was stated therein. On the certified by the drawee bank, by the
August 4, 1952. other hand, Kalalo asserts that when he certification, the funds represented by the check
On August 4 1952, PNB informed appellant prepared the said statement of account, he was are transferred from the credit of the maker to
NARIC that its application for LOC has been laboring an innocent mistake. Second, Luz was that of the payee (the latter becomes the
approved with the condition that 50% marginal aware of the services actually rendered by depositor of the drawee bank with rights and
cash deposit be paid and that drafts are to be Kalalo and the fees due to the latter under the duties of one in such situation). The object of
paid upon presentment. However, NARIC is not original agreement and third, appellant did not certifying a check, as regards both parties is to
in any financial position to meet the condition. rely on the data appearing in the said statement enable the holder to use it as money.
Consequently, the credit instrument applied for of account MCLAUGHLIN v CA
was opened only on September 8 1952 (more ISSUES: Petitioner Mclaughlin and respondent Flores
than 2 mos from the execution of the contract – 1.) WON Kalalo is barred from soliciting a fee entered into a contract of conditional sale of
after the 15 day grace period). As a result of the different than that indicated in the statement of real property. The contract fixed the total price
delay, the allocation of appllee’s supplier in account by means of estoppel (no) of the property to P140K payable as follows: a.)
Rangoon was cancelled and the 5% deposit or 2.) WON the lower court erred in holding that 26,550 upon execution of the deed and b.)
P200K was forfeited. the balance from LUZ on the IRRI project 113,450 due not later than May 31 1977. for
ISSUE: WON NARIC is liable to pay plaintiff should be paid on the basis of the rate of failure of private respondent to pay the balance
damages exchange of the US dollar to the Phil peso at the due on May 31, 1977, petitioner filed a
HELD: time of payment of the judgment (no) complaint for the rescission of the deed of
conditional sale. Subsequently, the parties ISSUE: WON the BPI cashier’s check (P262k+) mortgage was constituted over the said
entered a compromise agreement stating that tendered by petitioners for payment of the properties in favor of BPI. The Tolentinos failed
the indebtedness of private respondent to judgment debt is legal tender to pay their mortgage indebtedness to BPI upon
petitioner amounts to P119,050.71 payable as HELD: Pursuant to RA 529, a check is not legal maturity. So a judicial foreclosure sale was held
follows: a.) 50k upon the signing of agreement tender and a creditor may validly refuse wherein BPI was the highest bidder.
and b.) 69k+ in 2 equal installments (one on payment by check whether it be a manager’s Meanwhile, on February 4, 1967, the dela
June and one on December). As agreed upon, cashier’s or personal check. Cruzes filed an action against the Tolentinos for
private respondent paid P50k upon signing the ESGUERRA v VILLANUEVA the repurchase of the homestead land on the
agreement Pursuant to the compromise Petitioner Esguerra and respondent de Guzman ground that they tried to repurchase said land
agreement also, private respondent entered into a contract whereby Esguerra extrajudicially but the Tolentinos would not
leased to de Guzman a portion of his building heed their request. The lower court rendered a
agreed to pay P1k monthly rental beginning for a term of 10 years beginning from July 12 decision allowing the dela Cruzes to repurchase
December 5 1979 until the obligation is duly 1961 for a monthly rental of P300 up to July 11 the land and the possession thereof was
paid. The compromise agreement also stipulates 1962 and P400 thereafter. De Guzman failed to delivered to the dela Cruzes upon payment.
that in the event the private respondent fails to pay the rental from February to August 1962 When Tolentino went to BPI to redeem the
comply with his obligation, plaintiff will be aggregating P1800, in addition to the sum of homestead property, she was informed that she
entitled to rescission of the contract. P300 (purchase price of equipment bought by can no longer do so because the property was
Petitioner filed a motion for rescission alleging him from the Esguerras. Because of this, already conveyed to the dela Cruzes. The
that private respondent failed to pay the respondent’s mother, Segunda de Guzman branch manager of BPI sent a letter to
installment due on June 1980 and since June executed in favor of the esguerras a promissory Tolentino stating that they can stil redeem the 2
1980 he had failed to pay a monthly rental of note for P2,100 (P1000 due on August 12 1962 other properties before the expiration of the
P1k.TC granted the motion. On Nov 1980, and P1100 not later than Augus 31 1962, upon redemption period upon payment of the balance
private respondent filed a motion for default of the first installment, the entire value remaining (P75,995.07). However, instead of
reconsideration tendering at the same time a becomes due and demandable). De Guzman complyinh with BPI’s advice Tolentino
Pacific banking Corp certified manager’s check failed to pay both installmnents so the consigned with the Office of the City Sheriff a
worth P76,059.71. CA nullified orders of the TC Esguerras commenced a civil case against Mrs. crozzed PNB check for P91,995.07. However,
ISSUES: De Guzman. They also instituted a civil case she then issued a stop payment order against
WON private respondent’s default in payment against de Guzman and writs of attachment the said crossed check to protect her rights and
constitutes a substantial breach of the contract were issued. Thereafter, the parties reached a prevent BPI from cashing said check without
so as to warrant its rescission (no) compromise agreement wherein defendants returning all her properties. Simultaneously
WON private responden’ts offer of payment by admit their indebtedness worth P2,260 . This with the consignation of the crossed check, she
certified check is a valid tender (yes) sum was not paid to the Esguerras on or before also filed a complaint
HELD:decision of CA was affirmed. However, November 26 1962 as stipulated in the (redemption case) against BPI) for refusing to
since private respondent did not deposit said compromise agreement. De Guzman however allow them to redeem all 3 lots and praying that
amount with the court, his obligation was not alleges that he had delivered to Esguerra BPI be ordered to allow the Tolentinos to
paid and he is liable in addition for the payment through his counsel P800 on December 1962 redeem their properties and to accept the
of the monthly rental of P1k from Jan 1,1981 and P1460 on January 5 1963 so he filed a payment consigned by them. Upon appeal, CA
until said obligation is duly paid motion for the release of the properties seized. stated that the manner of the tender of payment
RATIO: Since private respondent as purchaser De Guzman maintain and the lower court held made by them through consignation by crossed
by installment has already paid a substantial that the receipt of said sums P800 and P1400 by check does not satisfy the requirement that
portion of the purchase price, it would be the Esguerras constituted “acceptance” of the payment of debts in money should be made in
inequitable to have the amount paid forfeited as incomplete and irregular performance of their the currency stipulated
liquidated damages (as stipulated in the obligation, having been made without any ISSUE: WON BPI was legally justified in
contract), particularly if tender of payment was protest or objection. refusing the Tolentinos’ demand to be allowed
made. Also, private respondent’s tender of to redeem the lands in question
payment of the amount of P76,059.71 was ISSUE: WON Esguerra’s issuance of receipt HELD: The right of redemption is not an
within the 30-day period granted by law (RA constituted acceptance so as to release de obligation but an absolute privilege. A bona fide
6552 – a lot installment buyer is given a grace Guzman from completing his obligation (no) tender of the redemption price and formal offer
period to pay installments in arrears) HELD: decision of lower court was reversed to redeem is not essential where the redemption
Also, the offer of payment by certified check is a RATIO: The day immediately following the is being exercised by way of judicial action. A
valid tender of payment. first payment of P800, the Esguerras asked redemption is not rendered invalid by the fact
TIBAJIA JR v CA Judge Villanueva to issue the corresponding that the sheriff accepted check rather than cash.
A suit for collection of a sum of money was filed writs of execution in the 2 cases. Thus, the The exercise of this right being optional no
by Eden Tan against the Tibajia spouses. A writ Esguerras patently manifested their importance can be attached to the fact that a
of attachment was issued by the trial court on dissatisfaction with – which necessarily implied stop payment order was issued against the
the deposit made by the Tibajia spouses in an objection or protest to- said partial payment check.
another case in RTC Caloocan amounting to *the law does not require the protest or FILINVEST CREDIT CORP v PHIL
P442,750 had been garnished. The RTC objection of the creditor to be made in a ACETYLENE CO INC
rendered its decision in favor of plaintiff Tan particular manner or at a particular time. So Philippine Acetylene Co. Inc purchased from
ordering the Tibajia spouses to pay her P300K. long as the acts of the creditor at the time of the Alexander Lim a motor vehicle. As security for
Eden Tan filed the correspondeing motion for incomplete or irregular payment by the debtor, the payment, the appellant executed a chattel
execution and the garnished funds at RTC were or within a reasonable time thereafter, evince mortgage over the same motor vehicle in favor
levied upon. The Tibajia spouses then delivered that the former is not satisfied with or agreeable of Lim Subsequently, Lim assigned to Filinvest
to the deputy sheriff the total money judgment to said payment or performance, the obligation all his rights, title and interest in the promissory
in the ff form: P262k+ in cashier’s check and shall not be deemed fully extinguished. note and chattel mortgage. Appellant failed to
P135k+ in cash. Private respondent Tan refused TOLENTINO v CA comply with the terms and conditions set forth
to accept the payment made by the Tibajia Ceferino dela Cruz died and left his heirs a in the promissory note since it had defaulted in
spouses and instead insisted that the garnished parcel of land. The dela Cruzes sold the the payment of 9 successive installments.
funds at RTC be withdrawn to satisfy the homestead land to the Tolentino spouses. The Appelee sent a demand letter demanding that
judgment obligation. Tolentino spouses constituted a mortgage over appellant either remit the aforesaid amount in
the land together with 2 other parcels of land in full or return the mortgaged property. Replying
favor of BPI for a loan of P40k. Another thereto, appellant wrote back advising appellee
of its decision to return the mortgaged Doctrine: the damage to the tricycle the purchase price of
property. Accordingly, the mortgaged vehicle In a sale with pacto de retro a showing that a which they only loaned to the victim.
was returned. Appellee informed appellant that valid tender of payment was made within the Issue: WON, the parents of the victim can sue
the former cannot sell the vehicle as there were period allowed for repurchase is sufficient for damages notwithstanding the release of
unpaid taxes so he offered to deliver back the consignation after the tender was refused is not claim and affidavit of desistance executed by the
motor to the appellant but the latter refused to necessary. victim’s wife.
accept it. CFI and CA adjudged that the HAHN v CA Held: NO. Obligations are extinguished by
appellant (Phil Acetylene) should accept back (Diamonds are a girl’s bestfriend) various modes among them by payment. There
the motor vehicle. Nature: Action for recovery of two diamond is no denying that the petitioner had paid their
ISSUE: WON the mere return of the motor rings or their value. Facts: obligation arising from the accident. The only
vehicle by appellant extinguished his obligation Santos received two diamond rings with a total question now is whether or not Alicia, the
for the unpaid price value of Php47,000 in 1966 from the petitioner. surviving spouse and the one who received the
HELD: Judgment of CA was affirmed The rings were delivered to her for sale on petitioner’s payment is entitled to it. Article
RATIO: Mere delivery of mortgaged motor commission and that they would be returned 1240 of the civil code enumerates the persons to
vehicle by mortgagor does not mean transfer of upon demand if unsold. The rings were not sold whom payment to extinguish an obligation
ownership to mortgagee without his nor were they returned when demanded by should be made. The enumeration in Article
Hahn. 1240 includes a successor in interestas the
consent under the principle of dacion en pago. Issue: WON an offer of payment on installment person authorized to receive payment. It is
What is transferred is merely possession of the made by Santos can be validly rejected? patently clear from a reading of Articles 1240
property. The evidence on record fails to show Held: Yes. Petitioner can validly reject he offer and 884 that the parents of the deceased
that the mortgagee, the herein appellee, to pay for the rings on installment because succeed only when the latter dies without a
consented or at least intended that the mere Hahn was entitled to payment in full. If such legitimate descendant. Petitioner therefore
delivery to and acceptance by him of the payment could not be made she is obligated to acted correctly in settling their
mortgaged motor vehicle be construed as actual return the rings. According to Article 1233 of obligation with Alicia as the widow of
payment, more specifically dation in payment. the Civil Code, “a debt shall not be understood Bienvinido and as the natural guardian of their
In the absence of clear consent of appellee to the to have been paid unless the thing or service in lone child.
proferred special mode of payment, there can which the obligation consists has been Neither can respondents seek relief and
be mo transfer of ownership of the mortgaged completely delivered or rendered as the case compensation from the petitioners as creditors
motor vehicle from appellant to appellee. may be.” of Bienvinido. The said purchase price of the
LEGASPI v CA As for the private respondent’s offer to return tricycle and the funeral expenses are but money
(father vs. son-in-law) the solitaire ring, which was also refused, the claims against the estate of their son.
Nature: Action for reconveyance of properties pertinent rule is Article 1244, providing that Doctrine:Mere estrangement is not a legal
pursuant to a sale with pacto de retro “the debtor of a thing cannot compel the ground for the disqualification of a surviving
Facts: creditor to receive a different one, although the spouse as an heir of the deceased spouse.
Bernardo B. Legaspi is the registered owner of latter may be of the same value as, or more AQUINO v CA
two parcels of land which he sold to his valuable than that which is due.” More so in Nature: Criminal Case for Illegal Recruitment
son-in-law, Leonardo B. Salcedo on October 15, this case where the ring offered ws less valuable Facts:
1965 for the sum of Php25,000 with the right to than that which is due. Rodrigo Nicolas, Braulio Sapitula, Aurelio
repurchase the same within 5 years from the BARITUA v CA Costales and Benito Vertudez filed the instanct
execution of the deed of sale. Before the expiry case against Aurora Aquino for illegal
date of the repurchase period Legaspi offered (Estranged wife benefits from dead hubby) recruitment.
and tendered to Salcedo the amount of Nature: Complaint for damages. Rodrigo Nicolasa laborer applied at Aquino’s
Php25,000 for the repurchase of the two parcels Facts: travel agency for the position of carpenter. As
of land; that the tender of payment was refused Bienvinido Nacario, tricycle driver, was driving part of his application he paid the amount of
by Salcedo on the ground that the repurchase along the national Highway in Camarines Sur Php1500, of which Php1000 was refunded
price should have been Php42,250 due to when he met an accident with a bus driven by directly to him by defendant and the balance of
extraordinary inflation. Salcedo, furthermore; petitioner Bitancor and owned and operated by Php500 was included in0 0an alleged “group
refused to convey the property to Legaspi. As a petitioner Jose Baritua. Nacario and his refund check” for Php5720 which could not be
result of his refusal, Legaspi consigned with the passenger died and the tricycle was damaged. cashed for lack of funds.
CFI of Cavite the amount of Php25,000. No criminal case arising from the incident was Braulio Sapitula on the other hand is also a
Issue: WON the prior offer and tender of ever instituted. farmer who likewise applied for the position of
payment of the amount of Php25,000 is valid as Subsequently, as a consequence of the carpenter. He also paid the amount of Php1500
to warrant reconveyance of the parcels of land extra-judicial settlement of the matter for his application.
Held: YES. Legaspi offered and tendered the negotiated by the petitioners and the bus Aurelio Costales likewise applied for a job in
amount to Salcedo within the five year period insurer Phlippine First Insurance Company Guam and also paid Php1500. Diappointed for
that he is allowed to repurchase the property. (PFICI)—Bienvinido Nacario’s widow, Alicia not being able to go to Guam he asked for a
The court held that the argument of Salcedo in received P18500. In consideration of the amount refund. He as paid Php700 and the remaining
refusing the payment of Legaspi within the she executed a “Release of Claim” in favor of balance was part of the alleged “group refund
period allowed for him to repurchase the the petitioners and PFICI releasing and forever check” for Php5270 issued by appellant.
property is untenable.The case involves the discharging them from all actions, claims, and Benito Vertudez also applied for a job in Guam.
exercise of the right to repurchase and a demands arising from the accident. She likewise He was able to advance the amount of Php1070
showing that petitioner made a valid tender of executed an affidavit of desistance in which she the refund of which was also part of the alleged
payment is sufficient. It is enough that a sincere formally manifested her lack of interest in group refund check.
or genuine tender of payment and not a mock instituting any case, either civil or criminal Issue: WON the obligation of Aquino was
and deceptive one was made. The fact that he against petitioners. discharged through the “group refund check”
deposited the amount to the clerk of court is A year and ten months after the accident the
merely a security for the petitioner is was not an parents of Nacario, filed a complaint for Held: NO. The charges for illegal recruitment
essential act that had to be performed after the damages against the petitioners. They alleged filed against Aquino was dismissed and
tender of that petitioners failed to fulfill their promise therefore what remains to be discussed is
payment was refused although it may serve to that as extra-judicial settlement, they shall be whether or not her liability to refund the
indicate the veracity of the desire to comply indemnified for the death of their son and for amounts paid to her by the petitioners was
with the obligation. likewise discharged.
The petitioner issued a check to reimburse the Acceptance of money consigned unconditionally Doctrine:
complainants for the sums of money paid by the and without reservation stands as a waiver of Dation in payment does not necessarily mean
latter by virtue of the “failed” overseas the creditor’s other claims under the contract. total extinguishment of the obligation.
contract. The controversy arose when the check CALTEX v IAC SANGRADOR v VALDERRAMA
was dishonored by the drawee bank due to lack Nature: Action for the collection of sum of (Spouses gone broke by a loan broker)
of funds. The petitioner claims full satisfaction money. Nature: Action for collection of a sum of money.
of the sum owed by her since she already issued Facts: Facts:
a check in favor of complainants.Her position is On January 12, 1978, private respondent Asia On April 11, 1983 defendant spouses
untenable. The issuing of a check is not Pacific Airways Inc. entered into an agreement Valderrama obtained a P500k loan from
payment until the check has been encashed. with petitioner Caltex whereby the latter agreed Manuel Asencio payable on or before April 12,
Although a check, as a negotiable instrument, is to supply private respondent’s aviation fuel 1984 secured by a real estate mortgage.
regarded as a substitute or money, it is not requirements for two years from January 1, Foreseeing that they would not be able to
money. Hence, its mere delivery does not, by 1978 until December 31, 1979.Pursuant thereto, redeem their property upon maturity of the
itself, operate as payment. It was therefore, de Caltex supplied respondent’s fuel requirements. loan they scouted for money lenders. Through
rigueur for the petitioner to have presented the As of June 30, 1980 Asia Pacific had a balance the help of a loan broker who was able to refer
check she issued to the complainants which had of Php4,072,682.13 representing the unpaid them to his aunt plaintiff Teresita Sangrador.
been honored by the drawee bank in order to price of the fuel supplied. To settle this The sps. Valderama were able to obtain a P1M
show that the amount covered by the check has obligation respondent executed a Deed of loan putting up the previously mortgaged
been received evidencing, therefore, full Assignment on June 30, 1980 wherein it property to Asencio as security. The loan is
satisfaction of the sums of money owed to the assigned to Caltex its receivables or refunds of evidenced by a promissory note providing for
complainants. The honored check was never Special Fund Import Payments from the the payment of P1.4M.Furthermore, the
presented. National Treasury of the Philippines to be promissory note also includes a stipulation that
Doctrine: The issuing of a check is not payment applied as payment for its balance with Caltex. should an extraordinary inflation should
until the check has been encashed. On February 12, 1981, pursuant to the Deed of supervene the value of the peso at the time of
To be considered as payment, the check which Assignment a treasury warrant in the amount the establishment of the obligation shall be the
was subsequently honored by the drawee bank of Php5,475,24 was issued to Caltex. Four days basis for payment.
should be presented as evidence. later, respondent having learned that the Issue: WON the stipulation providing for the
RIESENBACK v CA amount covered by the Deed of payment of P1.4M is valid anent evidence
Nature: Complaint for consignation and showing that the Sps Valderrama received only
damages. Assignment exceeded the amount of his P1M?
Facts: obligation with Caltex asked for a refund of the Held: NO. The disputed amount was a hidden
On July 27, 1988 petitioner consigned and excess. Caltex made a refund pf Php900,000 interest that the petitioners had required the
deposited with the Clerk of Court of RTC Cebu plus in favor of private respondent.The latter respondents to pay at the maturity of the loan
the sum of Php113,750.Respondent believing itself to be entitled to a larger amount As can be gleaned from the evidence, the said
subsequently filed a manifestation Accepting by way of refund demanded the refund of the amount was not received or delivered to the
Consignation and Motion to Dismiss on August remaining amount which petitioner explained respondents. This conclusion is strengthened by
1, 1988. In the manifestation he stated, inter in its letter response that the remaining amount the fact that the promissory note and the deed
alia, that”without necessarily admitting the not returned Php510,550.63 represented of real estate mortgage did not have any
correctness of obligation of plaintiff to interest and service charges at the rate of 18% stipulation as to the rate of interest.
defendant, the latter hereby manifests to accept per annum on the unpaid and overdue account The rate of interest for loans or forbearance of
the said amount of Php113750 which is of respondent from June 1, 1980 to July 31, money, in the absence of express contract as to
consigned by plaintiff, provided that the present 1981. such rate of interest shall be at 12% per annum.
complaint be dismissed outright with costs Issue: WON the deed of assignment is in fact a Thus, since no express stipulation as to the rate
against plaintiff. dation in payment which totally extinguished of interest the Court fixed the amount at 12%
Issue: WON the acceptance with reservation the obligation of Asia Pacific and therefore (of P1M) per annum.
made by plaintiff in his manifestation of the Caltex will no longer have any right to interests As regards the stipulation providing for a case
consignation is valid? accruing after the assignment? when an extraordinary inflation should
Held: YES.Private respondent’s acceptance of Held: NO. The deed of assignment executed by supervene in the instant case no showing that
the amount consigned by the petitioner-debtor the parties on July 31, 1980 is not a dation in such inflation occurred. Petitioners failed to
with a reservation or qualification as to the payment which totally extinguished prove the supervening extraordinary inflation,
correctness of the petitioner’s obligation is respondent’s obligations as stated therein. as contemplated in Article 1250 of the Civil
legally permissible. Citing Tolentino (cited Dation in payment does not necessarily mean Code, between April 6, 1984 and December 7,
3Llerena 263), the court said that before a total extinguishment of the obligation. The 1984
consignation can be judicially declared proper, obligation is totally extinguished only when the LOSS OF THE THING DUE
the creditor may prevent the withdrawal of the parties, by agreement express of implied, or by Arts 1262-1269
amount consigned by the debtor, by accepting their silence, consider the thing as equivalent to Art 1262 CC: An obligation which consists in
the consignation, even with reservations. the obligation. the delivery of a determinate thing shall be
A creditor could accept a valid consignation In the Deed of Assignment three obligation were extinguished if it should be lost
even with reservation as to his right to damages contemplated— (1) the outstanding obligation;
and other claims (Sing Juco v. Cuaycong, 46 (2) the applicable interest charges on overdue or destroyed without the fault of the debtor, and
Phil. 81 ). accounts; and (3) the other avturbo fuel lifting before he has incurred in delay.
On the contrary, when the creditor’s acceptance and deliveries that assignor may from time to When by law or stipulation, the obligor is liable
of the money consigned is conditional and with time receive from assignee. Furthermore, even for fortuitous events, the loss of the thing
reservations, he is not deemed to have waived charges for interest were made ever month and does not extinguish the obligation and he shall
he claims he reserved against his debtor. Thus, not once did respondent question such. Thus, a be responsible for damages. The same rule
when the amount consigned does not cover the reading of the deed of assignment and the applies when the nature of the obligation
entire obligation, the creditor may accept it, subsequent acts of the parties clearly show that requires the assumption of risk.
reserving his right to the balance. they did not intend for the assignment to have Art 1263 CC: In an obligation to deliver a
Doctrine: Acceptance of consignation with the effect of totally extinguishing the obligations generic thing, the loss or destruction of
reservation to other claims arising from the of private respondent without payment of the anything of the same kind does not extinguish
obligation is valid. applicable interest charges on the overdue the obligation. (n)
account.
Art. 1264. The courts shall determine whether, The contract stipulates that PNCC should pay If in order to nullify this waiver it should be
under the circumstances, the partial loss of the the rental annually (in advance) at the rate of claimed to be inofficious, the debtor and his
object of the obligation is so important as to P20,000 per month on the first year plus 5% heirs may uphold it by proving that the delivery
extinguish the obligation. (n) every year after (i.e. P21k 2nd yr, P22k 3rd yr). of the document was made in virtue of payment
Art. 1265. Whenever the thing is lost in the of the debt. (1188)
possession of the debtor, it shall be presumed It was also stipulated the the termination of the Art. 1272. Whenever the private document in
that the loss was due to his fault, unless there is lease would only be by “mutual agreement of which the debt appears is found in the
proof to the contrary, and without prejudice to the parties” possession of the debtor, it shall be presumed
the provisions of article 1165. This presumption On January 1986, PNCC got a Temporary Use that the creditor delivered it voluntarily, unless
does not apply in case of earthquake, flood, Permit, and so the Raymundos wrote a letter the contrary is proved. (1189)
storm, or other natural calamity. (1183a) demanding for the first annual rent which since Art. 1273. The renunciation of the principal
Art. 1266. The debtor in obligations to do shall the clearance has arrived, commenced the lease debt shall extinguish the accessory obligations;
also be released when the prestation becomes contract. but the waiver of the latter shall leave the
legally or physically impossible without the PNCC requested to cancel the lease and former in force. (1190)
fault of the obligor. (1184a) discontinue the project “due to financial, as well Art. 1274. It is presumed that the accessory
Art. 1267. When the service has become so as technical difficulties.” obligation of pledge has been remitted when the
difficult as to be manifestly beyond the The Raymundos filed a complaint for specific thing pledged, after its delivery to the creditor,
contemplation of the parties, the obligor may performance, and the lower court granted them is found in the possession of the debtor, or of a
also be released therefrom, in whole or in part. P492,000 rental for 2 years, which CA affirmed. third person who owns the thing. (1191a)
(n) PNCC thus filed this petition for certiorari. Trans-Pacific v CA
Art. 1268. When the debt of a thing certain and This time, PNCC invokes Art. 1266 of the CC August 19, 1994
determinate proceeds from a criminal offense, and the principle of rebus sic stantibus to be
the debtor shall not be exempted from the released from the obligatory force of the Trans- Pacific Industrial Supplies Inc.
payment of its price, whatever may be the cause contract of lease. borrowed P1.3M from the Associated Bank,
for the loss, unless the thing having been offered Ar. 1266 CC: The debtor in obligations to do with promissory notes, a chattel mortgage and
by him to the person who should receive it, the shall also be released when the prestation land mortgaged as security.
latter refused without justification to accept it. becomes legally or physically impossible The mortgaged lands were sold, and the
(1185) without the fault of the obligor. proceeds amounting to P1,386,614.20 was
Art. 1269. The obligation having been Rebus sic stantibus – a tacit condition, said to applied to the re-structured loan; and so the
extinguished by the loss of the thing, the attach to all treaties, that they shall cease to be bank returned the duplicate original copies of
creditor shall have all the rights of action which obligatory as soon as the state of facts and the promissory notes with the word “PAID.”
the debtor may have against third persons by conditions upon which they were founded has However, the bank demanded from
reason of the loss. (1186) substantially changed. (said to be the basis of Trans-Pacific payment of P492,100 representing
NOTE: Art 1267 of CC) accrued interest,did not release the mortgage
* There is no such thing as loss of a generic Held: over 2 parcels of land and claimed that the
thing OCCENA v JABSON PNCC cannot take refuge in the article, since it release of the promissory notes were erroneous.
October 29, 1976 is applicable only to obligations “to do”, and not Initially Trans-Pacific expressed its willingness
Tropical Homes Inc. agreed to develop a obligations “to give”. to pay, but later refused and instituted an
subdivision on the land owned by Jesus and An obligation “to do” includes all kinds of work action for specific performance against the
Efigenia Occeña, wherein Tropical Homes or service; while an obligation “to give” is a bank to deliver the mortgaged land. Trial Court
would be paid only 40% of the sale of the prestation which consists in the delivery of a ruled in favor of Trans Pacific. CA reversed.
subdivision lots. movable or an immovable thing in order to Art 1271 CC: The delivery of a private
Tropical Homes seeks revision of the contract create a real right, or for the use of the document evidencing a credit, made voluntarily
on the Basis of Art 1267 of the Civil Code (CC). recipient, or for its simple possession, or in by the creditor to the debtor implies the
They are asking for modification of the terms order to return it to its owner. renunciation of the action which the former had
and conditions of the subdivision contract, due Rebus sic stantibus also does not apply because against the latter.
to increase in costs. the assassination of Ninoy in 1983 and the If in order to nullify this waiver it should be
Art. 1267 CC: When the service has become so announcement of Pres. Marcos of the snap claimed to be inofficious, the debtor and his
difficult as to be manifestly beyond the elections to be held in Feb 1986 which already heirs may uphold it by proving that the delivery
contemplation of the parties, the obligor may caused political turmoil in the country preceded of the document was made in virtue of payment
also be released therefrom, in whole or in part. the contract. (i.e. PNCC signed the contract of the debt. (1188)
Held: knowing fully well these antecedent events) Issue: WON Trans-Pacific’s obligation is fully
The CC authorizes the release of an obligor At any rate, the unforeseen event and causes paid?
when the service has become so difficult as to be mentioned by the petitioner are not the legal or Held:
manifestly beyond the contemplation of the physical impossibilities contemplated by said The presumption is art 1271 is not conclusive
parties but does not authorize the Courts to article. but merely prima facie. Trans-Pacific failed to
modify or revise the subdivision contract Disposition: Petition denied. CA affirmed. prove that it fully discharged its obligation.
between the parties or to fix a different sharing CONDONATION OR REMISSION There is sufficient evidence to overthrow the
ratio from that contractually stipulated with the Arts 1270-1274 presumption of payment generated by the
force of law. Art. 1270. Condonation or remission is delivery of the documents such as
Tropical Homes complaint for modification of essentially gratuitous, and requires the Trans-Pacific’s admission in their earlier letter.
the contract has no basis in law and must be acceptance by the obligor. It may be made CONFUSION OR MERGER
dismissed. expressly or impliedly. Art. 1275. The obligation is extinguished from
PNCC v CA One and the other kind shall be subject to the the time the characters of creditor and debtor
May 5, 1997 rules which govern inofficious donations. are merged in the same person. (1192a)
Philippine National Construction Corporation Express condonation shall, furthermore, • Merger or confusion is the meeting in one
(PNCC) signed a lease contract on the land comply with the forms of donation. (1187) person of the qualities of creator and debtor
owned by the Raymundos for a 5 year term, to Art. 1271. The delivery of a private document with respect to the same
commence when PNCC gets the necessary evidencing a credit, made voluntarily by the obligation. It erases the plurality of subjects of
industrial clearance to operate the rock creditor to the debtor, implies the renunciation the obligation. Further, the purposes for which
crushing business PNCC intends to put up. of the action which the former had against the the obligation may have been created are
latter. considered as fully realized by the merger of the
qualities of debtor and creditor in the same Compensation Distinguished from Merger. In each other and their relationship is a principal
person. compensation, there are at least two persons one, that is, they are principal debtor and
• Requisites of merger or confusion are: (1) It who stand as principal creditors and debtor of creditor of each other.
must take place between the creditor and the each other, in merger, there is only one person • Second Requisite—That both debts consist in
principal debtor, (2) the very same obligation involved in whom the characters of creditor and such a sum of money, or if the things due are
must be involved, for if the debtor acquires debtor are merged. In merger, there is only one consumable, they be of the same kind, and also
rights from the creditor, but not the particular obligation, while in compensation, there are two of the same quality if the latter has been stated.
obligation in question in question there will be obligations involved. >>When the debts consist of money, there is not
no merger, (3) the confusion must be total or as Art. 1279. In order that compensation may be much of a problem when it comes to
regards the entire obligation. proper, it is necessary: compensation to the concurrent amount. It is a
• The effect of merger is to extinguish the (1) That each one of the obligors be bound matter of mathematical computation. When the
obligation. principally, and that he be at the same time a debt consist of things, it is necessary that the
Art. 1276. Merger which takes place in the principal creditor of the other; things are consumable which must be
person of the principal debtor or creditor (2) That both debts consist in a sum of money, understood as ‘fungible’ and therefore
benefits the guarantors. Confusion which takes or if the things due are consumable, they be of susceptible of substitution. More than that they
place in the person of any of the latter does not the same kind, and also of the same quality if must be of the same kind. If the quality has
extinguish the obligation. (1193) the latter has been stated; been states, the things must be of the same
• The extinguishment of the principal obligation (3) That the two debts be due; quality.
through confusion releases the guarantor’s (4) That they be liquidated and demandable; • Third Requisite—That the two debts are due.
because the obligation of the latter is merely (5) That over neither of them there be any >> A debt is ‘due’ when its period of
accessory. When the merger takes place in the retention or controversy, commenced by third performance has arrived. If it is a subject to a
person of a guarantor, the obligation is not persons and communicated in due time to the condition, the condition must have already been
extinguished. debtor. (1196) fulfilled. However, in voluntary compensation,
Art. 1277. Confusion does not extinguish a joint • For compensation to take place, the parties the parties may agree upon the compensation of
obligation except as regards the share must be mutually debtors and creditors (1) in debts which are not yet due.
corresponding to the creditor or debtor in their own right, and (2) as principals. Where • Fourth Requisite—That they be liquidated
whom the two characters concur. (1194) there is no relationship of mutual creditors and and demandable. >> A debt is considered
COMPENSATION debtors, there can be no compensation. Because ‘liquidated’ when its amount is clearly fixed. Of
Art. 1278. Compensation shall take place when the 1st requirement that the parties be mutually if it is not yet specially fixed, a simple
two persons, in their own right, are creditors debtors and creditors in their own right, there mathematical computation will determine its
and debtors of each other. (1195) can be no compensation when one party is amount or value. It is ‘unliquidated’ when the
• Compensation is a mode of extinguishing to occupying a representative capacity, such as a amount is not fixed because it is still subject to a
the concurrent amount, the obligations of those guardian or an administrator. The 2nd dispute or to certain condition.
persons who in their own right are reciprocally requirement is that the parties should be It is not enough that the debts be liquidated. It
debtors and creditors of each other. It is the mutually debtors and creditors as principals. is also essential that the same be demandable. A
offsetting of two obligations which are This means that there can be no compensation debt is demandable if it is not yet barred by
reciprocally extinguished if they are of equal when one party is a principal creditor in one prescription and it is not illegal or invalid.
value. Or extinguished to the concurrent obligation but is only a surety or guarantor in • Fifth Requisite—That over neither of them
amount if of different values. the other. there be any retention or controversy,
• Kinds of Compensation: • The things due in both obligations must be commenced by third persons and
fungible, or things which can be substituted for communicated in due time to the debtor. >> A
• As to their effects each other. debt of a
• compensation may be total (when the two • Both debts must be due to permit thing cannot be a subject of compensation if the
obligations are of the same amount); or compensation. same had been subject of a garnishment of
• partial (when the amounts are not equal). • Demandable means that the debts are which the debtor was timely notified. When a
• As to origin enforceable in court, there being no apparent credit or property had been properly garnished
• it may be legal; defenses inherent in them. The obligations must of attached, it cannot be disposed of without the
• facultative; be civil obligations, including those that are approval of the court.
• conventional; purely natural. An obligation is not Art. 1280. Notwithstanding the provisions of the
• or judicial. demandable, therefore, and not subject to preceding article, the guarantor may set up
• It is legal when it takes place by operation of compensation, in the following cases: (1) when compensation as regards what the creditor may
law because all requisites are present. there is a period which has not yet arrived, owe the principal debtor. (1197)
• It is facultative when it can be claimed by one including the cases when one party is in a state • The liability of the guarantor is only
of the parties, who, however, has the right to of suspension of payments; (2) when there is a subsidiary; it is accessory to the principal
object to it, such as when one of the obligations suspensive condition that has not yet happened; obligation of the debtor. If the principal debtor
has a period for the benefit of one party alone (3) when the obligation cannot be sued upon, as has a credit against the creditor, which can be
and who renounces that period so as to make in natural compensated, it would mean the extinguishment
the obligation due. obligation. of the guaranteed debt, either totally or
• It is conventional when the parties agree to • A debt is liquidated when its existence and partially. This extinguishment benefits the
compensate their mutual obligations even if amount is guarantor, for he can be held liable only to the
some requisite is lacking. determined. Compensation can only take place same extent as the debtor.
• It is judicial when decreed by the court in a between certain and liquidated debts. From Dean Pineda:
case where there is a counterclaim. From Dean Pineda: Exception to the Rule On Compensation; Right
From Dean Pineda: of Guarantor to Invoke Compensation Against
Compensation Distinguished From Payment. In The five requisites of a legal compensation are Creditor. The general rule is that for
compensation, there can be partial enumerated in the Article. All requisites must compensation to operate, the parties must be
extinguishment of the obligation; in payment, be present before compensation can be related reciprocally as principal creditors and
the performance must be completer, unless effectual. debtors of each other. Under the present
waived by the creditor. Payment involves • First Requisite—That each of the obligators Article, the guarantor is allowed to set up
delivery of action, while compensation (legal be bound principally and that he be at the same compensation against the creditor.
compensation) takes place by operation of law time a principal creditor of the other. >>The
without simultaneous delivery. parties must be mutual creditor and debtor of
Art. 1281. Compensation may be total or he informs the assignor that he reserved his therefore, a matter of morality, the depositary
partial. When the two debts are of the same right to the compensation. or borrower performs his obligation.
amount, there is a total compensation. (n) • Assignment before compensation. The • With respect to future support, to allow its
• Total Compensation—debts are of the same assignment may be made before compensation extinguishment by compensation would defeat
amount. has taken place, either because at the time of its exemption from attachment and execution. ,
• Partial Compensation—Debts are not of the assignment one of the debts is not yet due or and may expose the recipient to misery and
same amount; liquidated, or because of some other cause starvation. Common humanity and public
operative only up to the concurrent amount. which impedes the compensation. As far as the policy forbid this consequence. Support under
Art. 1282. The parties may agree upon the debtor is concerned, the assignment does not this provision should be understood, not only
compensation of debts which are not yet due. take effect except from the time he is notified referring to legal support, to include all rights
(n) thereof. If the notice of assignment is which have for their purpose the subsistence of
• Voluntary compensation is not limited to simultaneous to the transfer, he can set up the debtor, such as pensions and gratuities.
obligations which are not yet due. The parties compensation of debts prior to the assignment. Art. 1288. Neither shall there be compensation
may compensate by agreement any obligations, If notice was given to him before the if one of the debts consists in civil liability
in which the objective requisites provided for assignment, this takes effect at the time of the arising from a penal offense. (n)
legal compensation are not present. It is assignment; therefore the same rule applies. If • If one of the debts consists in civil liability
necessary, however, that the parties should have he consents to the assignment, he waives arising from a penal offense, compensation
the capacity to dispose of the credits which they compensation even of debts already due, unless would be improper and inadvisable because the
compensate, because the extinguishment of the he makes a reservation. satisfaction of such obligation is imperative.
obligations in this case arises from their wills • But if the debtor was notified of the • The person who has the civil liability arising
and not from law. assignment, but he did not consent, and the from crime is the only party who cannot set up
credit assigned to a third person matures after the compensation; but the offended party
Art. 1283. If one of the parties to a suit over an that which pertains to the debtor, the latter may entitled to the indemnity can set up his claim in
obligation has a claim for damages against the set up compensation when the assignee attempts compensation of his debt.
other, the former may set it off by proving his to enforce the assigned credit, provided that the Art. 1289. If a person should have against him
right to said damages and the amount thereof. credit of the debtor became due before the several debts which are susceptible of
(n) assignment. But it f the assigned credit matures compensation, the rules on the application of
Art. 1284. When one or both debts are earlier than that of the debtor, the assignee may payments shall apply to the order of the
rescissible or voidable, they may be immediately enforce it, and the debtor cannot compensation. (1201)
compensated against each other before they are set up compensation, because the credit is not • It can happen that a debtor may have several
judicially rescinded or avoided. (n) yet due. debts to a creditor. And vice versa. Under these
• Although a rescissible or voidable debt can be • If the debtor did not have knowledge of the circumstances, Articles 1252 to 1254 shall
compensated before it is rescinded or annulled, assignment, he may set up by way of apply.
the moment it is rescinded or annulled, the compensation all credits maturing before he is Art. 1290. When all the requisites mentioned in
decree of rescission or annulment is retroactive, notified thereof. Hence, if the assignment is Article 1279 are present, compensation takes
and the compensation must be considered as concealed, and the assignor still contracts new effect by operation of law, and extinguishes
cancelled. Recission of annulment requires obligation in favor of the debtor, such both debts to the concurrent amount, even
mutual restitution; the party whose obligation is obligation maturing before the latter learns of though the creditors and debtors are not aware
annulled or rescinded can thus recover to the the assignment will still be allowable by way of of the compensation.
extent that his credit was extinguished by the compensation. The assignee in such case would • Legal compensation takes place from the
compensation, because to that extent he is have a personal action against the assignor. moment that the requisites of the articles 1278
deemed to have made a payment. Art. 1286. Compensation takes place by and 1270 co-exist; its effects arise on the very
Art. 1285. The debtor who has consented to the operation of law, even though the debts may be day which all its requisites concur.
assignment of rights made by a creditor in favor payable at different places, but there shall be an • Voluntary of conventional compensation takes
of a third person, cannot set up against the indemnity for expenses of exchange or effect upon the agreement of the parties.
assignee the compensation which would pertain transportation to the place of payment. (1199a) • Facultative compensation takes place when the
to him against the assignor, unless the assignor • This article applies to legal compensation and creditor declares his option to set it up.
was notified by the debtor at the time he gave not to voluntary compensation. • Judicial compensation takes place upon final
his consent, that he reserved his right to the judgment.
compensation. Art. 1287. Compensation shall not be proper • Effects of Compensation.
If the creditor communicated the cession to him when one of the debts arises from a depositum (1) Both debts are extinguished to the
but the debtor did not consent thereto, the latter or from the obligations of a depositary or of a concurrent amount;
may set up the compensation of debts previous bailee in commodatum. (2) interests stop accruing on the extinguished
to the cession, but not of subsequent ones. Neither can compensation be set up against a obligation of the part extinguished;
If the assignment is made without the creditor who has a claim for support due by (3) the period of prescription stops with respect
knowledge of the debtor, he may set up the gratuitous title, without prejudice to the to the obligation or part extinguished;
compensation of all credits prior to the same provisions of paragraph 2 of Article 301. (4) all accessory obligations of the principal
and also later ones until he had knowledge of (1200a) obligation which has been extinguished are also
the assignment. (1198a) • The prohibition of compensation when one of extinguished.
• Assignment after Compensation. When the debts arises from a depositum (a contract by • Renunciation of Compensation. Compensation
compensation has already taken place before virtue of which a person [depositary] receives can be renounces, either at the time an
the assignment, inasmuch as it takes place ipso personal property belonging to another obligation is contracted or afterwards.
jure, there has already been an extinguishment [depositor], with the obligation of safely keeping Compensation rests upon a potestative right,
of one of the other of the obligations. A it and returning the same) or commodatum (a and a unilateral decision of the debtor would be
subsequent assignment of an extinguished gratuitous contract by virtue of which one of sufficient renunciation. Compensation can be
obligation cannot produce any effect against the the parties delivers to the other a renounced expressly of impliedly.
debtor. The only exception to this rule is when non-consumable personal property so that the • No Compensation. Even when all the
the debtor consents to the assignment of the latter may use it for a certain time and return requisites for compensation occur, the
credit; his consent constitutes a waiver of the it) is based on justice. A deposit of compensation may not take place
compensation, unless at the time he gives commodatum is given on the basis of confidence
consent, in the depositary of the borrower. It is in the following cases: (1) When there is
renunciation of the effects of compensation by a
party; and (2) when the law prohibits • In implied novation, all that is required is •
compensation. incompatibility between the original and the Payment by the new debtor gives him the rights
(Unless otherwise indicated, commentaries are subsequent contracts. No specific form is mentioned in 1236 and 1237.
sourced from the Civil Code book IV by required. The test of incompatibility is whether • If the novation is by delegacion and the new
Tolentino). they can stand together. debtor pays the obligation, he could demand
NOVATION • In order that there may be an implied from the old debtor what he has paid.
HOW OBLIGATIONS ARE MODIFIED novation arising from the incompatibility of the Subrogation may take place by virtue of 1302.
Art 1291. Obligations may be modified by: old and the new obligations, • If the novation is by expromision, the new
(1) Changing their object or principal condition debtor can recover only insofar as the payment
(2) Substituting the person of the debtor the change must refer to the object, the cause or has been beneficial to the old debtor. There can
(3) Subrogating a third person in the rights of a the be no subrogation because of the express
creditor principal conditions of the obligation. provisions of 1237.
• Novation is the extinguishment of an • An obligation is not novated by unimportant PROVISIONS RELEVANT TO ART. 1293
obligation by a substitution or change of the modifications Art. 1236
obligation by a subsequent one which which do not alter its essence. The creditor is not bound to accept payment
extinguishes or modifies the first either by: • The determination of whether the changes in or performance by a third person who has no
changing the object or principal conditions any given interest in the fulfillment of the obligation,
by substituting the person of the debtor contract or obligation are sufficient to bring unless there is a stipulation to the contrary.
subrogating a third person in the rights of the about a novation, must depend upon the facts Whoever pays for another may demand from
creditor and circumstances of each case. The distinction the debtor what he has paid, except that if he
• Novation is a juridical act of dual function. At between a principal and an accidental condition paid without the knowledge or against the will
the time it extinguishes an obligation it creates a in the contract or obligation is relative. of the debtor, he can recover only insofar as the
new one in lieu of the old NOVATION BY SUBSTITUTION OF payment has been beneficial to the debtor.
• Classification of Novation DEBTOR Art 1237
• as to nature Art 1293. Novation which consists in Whoever pays on behalf of the debtor
1. Subjective or personal – either passive or substituting a new debtor in the place of the without the knowledge or against the will of the
active. Passive if there is substitution of the original one, may be made even without the latter, cannot compel the creditor to subrogate
debtor. Active if a third person is subrogated in knowledge or against the will of the latter, but him in his rights, such as those arising from a
the rights of the creditor. not without the consent of the creditor.
2. Objective or real – substitution of the object Payment by the new debtor gives him the rights mortgage, guaranty or penalty.
with another or changing the principal mentioned in Arts 1236 and 1237. It is presumed that there is legal subrogation:
conditions • There are two forms of novation which consist 1. When a creditor pays another creditor who is
3. Mixed – Combination of subjective and in the substitution of debtor: expromision and preferred, even without the debtor’s knowledge
objective delegacion 2. When a third person, not interested in the
1. 2. • Expromision – change does not emanate from obligation, pays with the express or tacit
• the debtor and may be made even without his approval of the debtor.
1. 1. knowledge, since it consists in a third person 3. When, even without the knowledge of the
•• assuming the obligation. Requires the consent debtor, a person
•• of the third person and the creditor. interested in the fulfillment of the obligation
• • Delegacion – the debtor offers and the creditor pays, without
• as to form accepts the third person who consents to the 1. When the insolvency was prior to the
Express – parties declare that the old obligation substitution. The consent of these three is delegacion and is publicly known;
is substituted by the new necessary. 1. When the old debtor knew of such insolvency
Implied – an incompatibility exists between the • Release of old debtor. It is not enough to at the time he delegated the obligation.
old and the new obligation that cannot stand extend the juridical relation to a third person. It • The knowledge of the creditor that the new
together is necessary that the old debtor is released from debtor was insolvent at the time of delegacion,
as to effect the obligation and the third person (the new will bar him from recovering from the old
Partial – when there is only a modification or debtor) takes his place. Without such release, debtor.
change in some principal conditions of the there is no novation. Art 1302
obligation • Consent of creditor. An indispensable element prejudice to the effects of confusion as to the
Total – when the old obligation is completely whether in expromision or in delegacion. latter’s share.
extinguished Requisites of Novation: • Substitution of one debtor for another may SUBSTITUTION BY EXPROMISION
A previous valid obligation delay or prevent the fulfillment of the obligation (Without the knowledge of the debtor)
Agreement of all parties by reason of the inability or insolvency of the Art 1294. If the substitution is without the
Extinguishment of the old contract – may be new debtor. Hence, the creditor should agree to knowledge or against the will of the debtor, the
express of implied accept the new debtor’s insolvency or non-fulfillment of
Validity of the new one substitution in order that it may be binding the obligation shall not give rise to any liability
NOVATION IS NOT PRESUMED on him. on the part of the original debtor.
Art 1292. In order that an obligation may be • The consent of the creditor may be • Intent of the law is to release the old debtor
extinguished by another which substitutes the expressed or implied. from any further liability in passive subjective
same, it is imperative that it is so declared in • Consent of debtor. Not necessary in case of novation, except in the exceptional cases in art
unequivocal terms, or that the old and the new expromision. Needed in delegacion because the 1295 which applies to delegacion.
obligations be on every point incompatible with initiative comes from the old debtor. In both • If the novation is by expromision, no liability
each other cases, the consent of the new debtor is necessary for the new debtor’s insolvency can be enforced
• Novation must be clearly proved since its because he is to assume the obligation. against the old debtor, because the latter did not
existence cannot be presumed. • The consent of the new debtor is as essential as have the initiative in making the change, which
• In an express novation, contracting parties that of the creditor for the novation to become might have been made without his knowledge.
disclose that their object in making the new effective. SUBSTITUTION BY DELEGACION
contract is to extinguish the old contract. • Effect on debtors. The novation has the effect Art 1295. The insolvency of the new debtor,
Otherwise, the old contract remains in force of releasing the original debtor from the who has been proposed by the original debtor
and a new contract is added to it, and each gives obligation and of making the new debtor liable and accepted by the creditor, shall not revive
rise to an obligation still in force. therefor. the action of the latter against the original
obligor, except when said insolvency was • However, the defect is not completely cured if • Requires the intervention and consent of three
already existing and of public knowledge, or the novation takes place by expromision, where persons: the original creditor, the
known to the debtor, when he delegated his the old debtor has not intervened or consented. new creditor and the debtor
debt. • Prescription. When a debt is already barred • Legal subrogation
• Provides two exemptions by which the by prescription, it cannot be enforced by the • Takes place without agreement but by
creditor is permitted to sue the old debtor: creditor. operation of law because of certain acts
EFFECT OF NOVATION TO ACCESSORY • BUT a new contract, recognizing and • This is the subrogation referred to in art
OBLIGATIONS assuming the prescribed debt, would be valid 1302
Art 1296. When the principal obligation is and enforceable CONVENTIONAL SUBROGATION
extinguished in consequence of a novation, • The prescription, being available only to the Art 1301. Conventional subrogation of a third
accessory obligations may subsist only insofar debtor, person requires the consent of the original
as they may benefit third person who did not can be waived by him. He does so by voluntarily parties and of the third person
give their consent. promising to pay the prescribed debt. The • Consent of all parties is essential
• The extinguishment of the principal obligation novation of prescribed debt is thus valid. • Original creditor – because his right is
by novation extinguishes the obligation to pay Art 1299. If the original obligation was subject extinguished
interests, unless otherwise stipulated. to a suspensive or resolutory condition, the new • New creditor – because he becomes a party to
• This article is specially applicable to obligation shall be under the same condition, a
substitution of debtors. unless it is otherwise stipulated. new relation
• Exemption provided in this article with • If old obligation is conditional and new • Debtor – because the old obligation is
respect to third persons. Although technically it obligation is pure extinguished
is an accessory obligation, it is in reality a • If the intention is merely to suppress the and he becomes liable under the new obligation
distinct obligation in favor of a third person, condition, • Under our Code, conventional subrogation is
and cannot be extinguished by novation without there is no novation not identical to assignment of credit.
the • If the intention is to extinguish the original • Conventional subrogation
consent of the latter. obligation itself by the creation of a new • Debtor’s consent is necessary
ORIGINAL OBLIGATION SUBSISTS IF THE obligation, the latter does not arise except from • Extinguishes the obligation and gives rise
NEW OBLIGATION IS VOID the fulfillment of the condition of the original to a new one
Art 1297. If the new obligation is void, the obligation. • Nullity of the old obligation may be cured
original one shall subsist, unless the parties • If the suspensive condition of the original by subrogation such that the new
intended that the former relations should be obligation is not performed, that obligation does obligation may be perfectly valid
extinguished in any event. not come into existence, and the cause for the • Assignment of Credit
• If the new obligation is not entirely void but new obligation would then be wanting. • Debtor’s consent is not required
merely voidable, the novation becomes effective. • If the condition of the old obligation is • Refers to the same right which passes from
• BUT if the action to annul is brought, and the resolutory, its happening would resolve the old one to another
obligation is set aside, it will be deemed as if obligation and place it in the same category as a • Nullity of an obligation is not remedied by
there had been no novation. The original void obligation or one which has been the assignment of the creditor’s right to another
obligation subsists, unless the parties intended extinguished. LEGAL SUBROGATION
to definitely extinguish it at all events. • Where the original obligation is conditional, Art 1302. It is presumed that there is legal
• If the original obligation is pure and the new the novation itself must be held to be subrogation:
obligation is subject to a suspensive condition conditional also. (1) When a creditor pays another another
• Note: the parties may by their express will creditor who is preferred, even without the
• If the intention is merely to attach the substitute a pure obligation for a conditional debtor’s knowledge;
condition to the original obligation, then there is one. (2) When a third person, not interested in the
no novation. • If both obligations are conditional obligation, pays with the express or tacit
• If the new conditional obligation is intended to • If the conditions in the two obligations are not approval of the debtor;
substitute the original pure obligation, the incompatible with each other, and they can (3) When, even without the knowledge of the
novation itself, and the consequent stand together, they must all be fulfilled in debtor, a person interested in the fulfillment of
extinguishment of the original obligation, is order that the novation may become effective the obligation pays, without prejudice to the
subject to the condition. If the condition is not and the new obligation be enforceable. effects of confusion as to the latter’s share
fulfilled before one of the parties withdraws • If only the conditions affecting the old •
from the proposed conditional contract, there is obligation are fulfilled, those affecting the new Payment to Preferred Creditor
no novation at all. obligation are not, or vice-versa, then there is • Example: X has two obligations: (1) a
• After a novation has taken place, thru a no novation. mortgage debt in favor of Pedro and (2) a
change of the object of the obligation, the old • If the conditions of the old and new obligation simple unsecured obligation in favor of Jose.
obligation can no longer be enforced. If the new are incompatible with each other, there is an • If Jose pays the mortgage obligation to Pedro,
obligation is extinguished by the loss of the obvious intention to substitute the new even without the knowledge of Juan, then Jose
object, the creditor cannot demand the object of conditional obligation for the old conditional would be subrogated in the rights of Pedro
the original obligation. obligation. • It is not material what amount Jose actually
NOVATION IS VOID IF ORIGINAL SUBROGATION pays to Pedro; so long as Pedro accepts such
OBLIGATION IS VOID Art 1300. Subrogation of a third person in the amount as full payment of the mortgage credit,
Art 1298. The novation is void if the original rights of the creditor is either legal or there will be subrogation.
obligation was void, except when annulment conventional. The former is not presumed, • However, the debtor in cases like this, can still
may be claimed only by the debtor, or when except in cases expressly mentioned in this set up against the new creditor the defenses
ratification validates acts which are voidable. Code; the latter must be clearly established in which he could have used against the original
• When the original obligation has been ratified order that it may take effect. creditor, such as:
before novation, the novation is effective. • Compensation;
• Even if there has been no previous ratification • SUBROGATION is the transfer of all the • Payments already made; or
at the time of novation, if the nullity can be rights of the creditor to a third person, who • Vice or defect of the original
claimed only by the debtor, the consent of the substitutes him in all his rights. obligation
debtor to the novation will render the novation • Subrogation may either be conventional or Payment with Debtor’s Approval
effective because such consent is impliedly a legal. • Conventional • Example: (1) a third person pays the creditor
waiver of the action for nullity. • Takes place by agreement of the parties
without the consent of the debtor, he is only the ground that the subsequent agreement of • The presence of animus novandi (intent) is
entitled to reimbursement from the debtor for the parties impliedly novated the judgment undeniable for there is a later decision expressly
the amount paid by him. obligation. superseding the earlier one.
• If amount paid < credit : even if the creditor ISSUE: WON the subsequent agreement of the • The later decision was the result of a
has accepted it as full payment, the third person parties impliedly novated the judgment compromise, it had the effect of res judicata.
is entitled to obligation. The parties, therefore, were bound by it.
• RULING: Doctrine:
• NO. The subsequent agreement of the parties When, after judgment has become final, facts
reimbursement only for what he actually paid. did not novate the judgment obligation by and circumstances transpire which render its
• The third person cannot proceed against implication. execution impossible or unjust, the interested
sureties, guarantors or mortgages and pledges • Implied novation entails incompatibility of the party may ask the court to modify or alter the
• Example: (2) a third person pays with the old and the new obligations. judgment to harmonize the same with justice
consent (expressly or tacitly) of the debtor, • The mere reduction of the amount due does and the facts.
• There will be subrogation and the payor can not constitute sufficient incompatibility, ZAPANTE v DE ROTAECHE
exercise all the rights of the creditor rising from especially in the light of the explanation of the Ramon Echevarria, as legal representative of a
the very obligation itself, whether against the petitioner that the reduced indebtedness was commercial firm, commenced an action against
debtor or against third persons. result of the partial payments made by the Zapanta for the purpose of recovering a sum of
• Payment by Interested Party respondent before the execution of the money. Judgment was rendered in favor of
• Persons who have an interest in the fulfillment subsequent agreement. plaintiff firm. Zapanta and the firm entered
of into an agreement which contained a provision
the obligation are those who would be benefited • The stipulation for the payment of the that “said commercial firm shall be at liberty to
by the extinguishment of the obligation. Ex: obligation under the terms of the chattel enter suit against him” with reference to the
• Co-debtors mortgage serves only to provide an express and judgment. By virtue of the agreement, Zapanta
• Sureties specific method for its extinguishment, which is continued to make payments but left a certain
• Guarantors payment in two equal installments. The chattel amount of balance. For failure of Zapanta to
• Owners of property mortgaged or pledged mortgage simply gave a method and more time comply with the provisions of the agreement,
to secure the obligation to enable him to fully satisfy the judgment the defendant sued for the purpose of
• Example: Solidary debtor pays the obligation, indebtedness. recovering the balance. A writ of execution was
he is subrogated in the rights of the creditor. • The chattel mortgage agreement in no manner issued. The sheriff attached and sold practically
• The scope of this subrogation, however, should introduced any substantial modification or all the property which the plaintiff had.
not be misunderstood. The payor cannot take alteration of the judgment. Issue: WON the provision of the agreement
advantage of the solidarity and recover the • Instead of extinguishing the obligation of the “said commercial firm shall be at liberty to
amount in excess of his share of the obligation respondent arising from the agreement, the enter suit against him,” had the effect of
from any of his co- debtors. deed of chattel mortgage expressly ratified and extinguishing the rights of the defendant which
• The solidarity terminates by his payment and confirmed the existence of the same. resulted from the judgment rendered against
the obligation among the co-debtors becomes Doctrine: him.
joint. • Only those essential and principal changes Ruling:
EFFECT OF SUBROGATION introduced by the new obligation producing an • The agreement does not expressly extinguish
Art 1303. Subrogation transfers to the person alteration or modification of the essence of the the obligations existing in said judgment. On
subrogated the credit with all the rights thereto old obligation result in implied novation. the contrary, it expressly recognizes the
appertaining, either against the debtor or • When the new obligation merely reiterates or obligations existing between the parties in said
against third persons, be they guarantors or ratifies the old obligation, such does not judgment and expressly provides a method by
possessors of mortgages, subject to stipulation effectuate any substantial incompatibility which the same shall be extinguished.
in a conventional subrogation between the two obligations. • The contract, instead of containing provisions
• DORMITORIO v FERNANDEZ “absolutely incompatible” with the obligations
Subrogation transfers to the third person or The case involves two decisions rendered by the of the judgment, expressly ratifies such
new creditor the entire credit, with all the respondent Judge Fernandez. In dispute is a obligations and contains provisions for
corresponding rights, either against the debtor certain lot bought by Lazalita from the satisfying them.
or against third persons. Municipality of Victorias. Lazalita had been in
• If a suspensive condition is attached to the continuous possession of the lot and had • Court ruled in favor of defendant. When the
credit transferred, that condition must be introduced valuable improvements therein. It plaintiff failed to comply with the conditions of
fulfilled in order that the new creditor may turned out that the lot bought by Lazalita was said contract, the defendant had a right to
exercise his right. BUT prestations which could converted into a municipal road and that the lot resort to the methods provided by law for the
not have been required of the original creditor in his possession is actually the lot bought by satisfaction of the obligations created by the
cannot be demanded of the new one. Dormitorio. The first order issued by judgment.
PARTIAL SUBROGATION Respondent Judge was favorable to Dormitorio. Doctrine:
Art 1304. A creditor, to whom partial payment Lazalita appealed and brought an action • In order that an obligation be extinguished by
has been made, may exercise his right for the against the Municipality of Victorias. The novation, the law requires that the novation or
remainder, and he shall be preferred to the parties executed an “Agreed Stipulation of extinguishment shall be expressly declared or
person who has been subrogated in his place in Facts” which provides Lazalita the option to be that the old and new obligations shall be
virtue of the partial payment of the same credit. paid a just amount to acquire another lot or for absolutely incompatible.
CASES: Victorias to give Lazalita another lot. In his TAN SIUCO v HABANA
MILLAR v CA second order, respondent Judge set aside the The plaintiff Tan Siuco entered into a written
Millar obtained a favorable judgment ordering first order on the basis of the “Agreed contract with defendant Habana for the
respondent Gabriel to pay him a certain sum. A Stipulation of Facts.” construction of a certain building. At different
writ of execution was issued and the jeep of Ruling: times during the construction, modifications,
respondent Gabriel was seized. The parties • Court upheld the judgment of the respondent alterations and changes were requested by the
entered into an agreement (a chattel mortgage) Judge in setting aside his first order in defendant. Before any change was made, the
whereby, to secure the payment of the judgment accordance with the Agreed Stipulation of question of plaintiff’s compensation was
debt, agreed to mortgage the vehicle in favor of Facts. mentioned and that in referring to such
the petitioner. Respondent Gabriel failed to changes, the defendant said “pase cuenta”
pay. The CA ruled in favor of the respondent on (bring in your bill). After the construction, the
plaintiff seeks to recover an amount over and virtue of novation must be proved by clear and contract does not contain any express
above the agreed original amount. The trial convincing evidence. stipulation by the parties intending it to
court ruled in favor of the plaintiff on the • In the absence of an express release, nothing supersede the existing loan agreement between
ground that, in legal effect, the written contract less than a showing of complete incompatibility the petitioners and the bank. Respondent bank
was annulled and set aside by the action and between the two has correctly postulated that the mortgage is
conduct of the parties. That the whole combined but an accessory contract to secure the loan.
actions and conduct of the parties amounted to obligations – “agreement of counter-guaranty” Doctrine:
a novation. For such reason, plaintiff is entitled and the compromise agreement – would justify An obligation to pay a sum of money is not
to recover on a quantum meruit. a finding of novation by implication. extinctively novated by a new instrument which
Issue: WON the actions and conduct of the • No such incompatibility exists in this case merely changes the terms of payment or adding
parties had novated the written agreement between the two obligations that would sustain compatible covenants or where the old contract
entered by them the defense of novation. is merely supplemented by the new one.
Ruling: GARCIA JR. v CA Additional information from the case
• The law states that there must be an express Western Minolco Corporation (WMC) obtained • Extinctive novation requires:
intention to novate – animus novandi. A from Philippine Investments Systems 1. a previous valid obligation
novation is never presumed. Organization (PISO) two loans. Garcia and 1. the agreement of all parties to the new
• When the defendant said “pase cuenta” (bring Kahn executed a surety agreement binding contract
in your bill), the court reasoned that defendant themselves jointly and severally for the 2. the extinguishment of the obligation
intended that plaintiff should bring in his bill payment of the loan. Upon failure of WMC to 3. validity of the new obligation
for the reasonable value of any alterations and pay after repeated demands, demand was made • In order that an obligation may be
changes which were made at his request. on Garcia pursuant to the surety agreement. extinguished by another which substitutes the
• There is no claim or pretense that anything Garcia likewise failed to pay. Lasal same, it is imperative that it be so declared in
was said by either party about terminating or Development Corporation (to which the credit unequivocal terms or that the old and the new
rescinding the contract. The statement “bring in had been assigned by PISO) sued Garcia for the obligation be on every point incompatible with
your bill” was never intended to apply to the recovery of the debt. each other.
original contract and should be confined and RULING:
limited to a bill for the amount of any changes, • The Court did not sustain the claim of • The incompatibility should take place in any
alterations, petitioner that the various communications of the essential elements of the obligation:
or modifications made at defendant’s request. made by WMC with DBP, together with the 1. the juridical relation or tie
• Thus, plaintiff was never released from the memorandum of agreement, are sufficient to • Ex: from a mere commodatum to a lease of
original contract. He was entitled to recover establish the new obligation made by WMC things
upon a quantum meruit, and as to what was the with all its creditors. 1. the object or principal condition
reasonable value of the • While it is true that, as a general rule, no form • Ex: change of the nature of the prestation
building as it was constructed. Doctrine: of words or writing is necessary to give effect to 1. the subjects
• The intention of the parties to novate must be a novation. Nevertheless, since the parties • Ex: substitution of the debtor or the
very clear and expressed. involved are corporations, it must first be subrogation of the creditor
GUERRERO v CA proved that that the contracts were executed by • Extinctive novation does not necessarily imply
Jose Robles borrowed a sum of money from authorized persons. This point was not that the new agreement should be complete by
Chan Too, to ensure payment of which the Alto sufficiently proven. Thus, such communications itself; certain terms and conditions may be
Surety and Insurance Co. executed a bond, cannot be considered to give rise to a valid new carried, expressly or by implication, over to the
whereby it bound itself jointly and severally obligation. new obligation.
with Robles for the payment of the loan to Chan DOCTRINE: BROADWAY CENTRUM v TROPICAL
Too. In consideration of the issuance of the • Novation requires the validity of a new FOOD
bond, Robles, Vicente Legarda and herein obligation. Petitioner Broadway Centrum and private
petitioner Guerrero executed an “Agreement of • A valid new obligation is an essential requisite respondent Tropical Hut executed a contract of
Counter-Guaranty with Mortgage and Pledge,” for lease. Tropical Hut was experiencing low sales
undertaking jointly and severally to indemnify the novation of a previous valid obligation. volume and was proposing for a reduction in
ALTO for any damage, loss, payments. The • In the case of juridical persons particularly a rentals. Broadway, recognizing that the low
agreement contains a provision which states: corporation, a valid obligation must be given sales volume was the result of the temporary
“indemnities will be paid to the surety company effect through persons with authority to enter closure of a major thoroughfare, executed a
as soon as demand is received from the creditor into “provisional and temporary” agreement with
or as soon as it becomes liable to make payment contract/agreement in behalf of the corporation. Broadway which temporarily reduced the
xxx.” Robles failed to pay his indebtedness to LIGUTAN v CA rentals of Tropical conditioned upon good faith
Chan Too. Judgment was rendered by the lower Petitioners Ligutan obtained a loan from implementation by Tropical of the six principal
court against Robles and ALTO on the basis of respondent Security Bank and Trust Company. suggestions of Broadway to improve operations
a compromise agreement executed by the The obligation matured and petitioners failed to of Tropical. Months after, Broadway informed
parties. This case is instituted by ALTO against pay. Despite demands, petitioners still defaulted Tropical that rental will be increased gradually.
petitioner Guerrero on the basis of the on their obligation. The bank filed a complaint Tropical was adamant that it cannot afford any
“Agreement of Counter-Guaranty with for recovery of the due amount. During the increase in rentals.
Mortgage and Pledge.” pendency of the case, petitioners executed a real Issue: WON the provisional and temporary
Issue: WON the petitioner was released from estate mortgage to secure the existing agreement had novated the contract of lease.
his obligation under the counter-guaranty indebtedness of petitioners with the bank. Ruling: Basis in law
agreement by virtue of novation. ISSUE: WON the subsequent execution of the • Novation is the extinguishment of an
Ruling: real estate mortgage as security for the existing obligation by the substitution of that obligation
• NO, the petitioner was not released under his loan would have resulted in the extinguishment with a subsequent one, which terminates it,
obligation by virtue of the counter-guaranty of the original contract because of novation. either by:
agreement. RULING: • changing its object or principal conditions; or
• A perusal of the terms of the counter-guaranty • The subsequent execution of the real estate • by substituting a new debtor in place of the old
agreement reveals that it is one of indemnity. mortgage did not result in the extinguishment of one; or
• Based on the terms of said agreement, the the original contract. • by subrogating a third person to the rights of
liability of the petitioner has likewise matured • Petitioners acknowledge that the real estate the
upon demand. The release of his obligation by mortgage creditor.
• Novation through a change of the object or INTERNATIONAL CORPORATE BANK v their service with Cosmos is terminated as well
principal conditions of an existing obligation is CA1 as the employment of its people. The employees
referred to as an objective (or real) novation. Nature: Petition to review the decision of the filed a complaint for illegal dismissal before the
• If objective novation is to take place, it is Court of Appeals Facts (as established by the Labor Arbitrator.
essential that the new obligation expressly CA): Cosmos, in a letter, agreed for the resumption
declare that the old obligation is to be VISCO & SIP mortgaged its machineries, plant of the service. However, Ace-Agro refused to do
extinguished or that the new obligation be on and equipment to 11 banks to continue its so due to the pending labor case and desired to
every point incompatible with the old one. operation. Unfortunately, they failed and enter into a compromise agreement for its losses
• The rule that novation is never presumed is defaulted in the payment. for the inactivity. Then, Ace-Agro filed a
not to be avoided by merely referring to partial In the meantime, Emeterio Ramos came in and complaint with RTC for breach of contract and
novation. The will to novate, whether totally or took control of the companies; still it was not damages.
partially, must appear by express agreement of viable. Hence, the banks formed a consortium In the meantime, the labor case was resolved
the parties, by their acts which are too clear and to take over the management. Mr. Ramos against Cosmos and Ace-Agro.
unequivocal to be mistaken. refused to transfer the management until he is RTC, then, rendered its decision in favor of
Applying the law to the case reimbursed for the cash advances he made for Ace-Agro; Cosmos appealed. The CA reversed
• The provisional and temporary agreement did the companies. the decision finding favor for Cosmos.
not extinguish or alter the obligations of The banks and Mr. Ramos reached an Issue:
Tropical and the rights of Broadway under the agreement that Mr. Ramos shall be reimbursed WON there was extinguishment of obligations
lease contract. with non-interest bearing notes and that the due to the fire that occurred in the Cosmos
1. The agreement was by its own terms a banks shall discount these notes up to 1/3 of the plant.
“provisional and temporary agreement” total verified claim. The banks failed; hence a Held:
conditioned upon good faith implementation of compromise agreement was entered into with • No, although force majeure may extinguish a
six suggestions made by Broadway to improve the banks stating that Ramos shall be issued contract, in this case it is not applicable.
the operations of Tropical. The non-interest bearing notes with the sum of • SC held that the termination of contract that
non-specification by Broadway of the period of P500,000 and will discount two-thirds (2/3) of Ace-Agro was speaking of was at most a
time during which the reduced rentals would the said notes in 30 days after the signing of the temporary termination due to the fact that
remain in effect, only meant that Broadway compromise agreement. Ramos complied with there were still other bottles to be cleaned and
retained for itself the discretionary right to his obligations and the banks enabled Ramos to boxes to be repaired.
return to the original contractual rates negotiate the said notes in the sum of P350,000. • The Court found that Ace-Agro’s refusal of
whenever Broadway felt it appropriate to do so. However, two notes were not discounted the offer of Cosmos to resume operations
1. The formal notarized lease contract made it because the banks foreclosed and acquired because it wanted an extension of the contract
clear that a temporary and provisional VISCO’s assets and sold them to National Steel to make up for the period of inactivity was
reduction of rentals was not to be construed as Corp. unjustifiable. Incurrence of additional cost is no
alteration or waiver of any of the terms of the Ramos filed a complaint before RTC for basis for its refusal.
lease contract itself. recovery of P1,495,292.70 as the remaining • Hence, the petition for review is DENIED and
balance. RTC favored Ramos and ordered the the decision of the CA is AFFIRMED.
2. The course of negotiations between Broadway banks to pay him. Banks appealed but CA Doctrine:
and Tropical before the execution of the affirmed the RTC ruling. A force majeure scenario can extinguish an
provisional and temporary agreement clearly Issue: obligation; however, this was not entirely true
indicated that what they were negotiating was a WON there was constructive fulfillment of the to the case due to the abovementioned reason.
temporary and provisional reduction of rentals. condition to grant 2/3 discount on the notes to II. CONTRACTS
3. The agreement was bereft of any sign of Ramos of the compromise agreement. GENERAL PROVISIONS
mutual recognition that the reduced rentals had Held: Art. 1305. A contract is a meeting of the minds
so permanently replaced the contract • The SC ruled that the constructive fulfillment between two persons whereby one binds
stipulations on rentals. in the mind of the banks cannot stand as it was himself, with respect to the other to give
• Only evidence of the clearest and most explicit a last ditch effort to exculpate itself; that something or to render some service.
kind will suffice for the purpose of novation. instead of rehabilitating the company, they * Definition:
OTHER CAUSES foreclosed its properties and sold it to National • Sanchez Roman – a juridical convention
1. Prescription Steel Corp. manifested in legal form, by virtue of which one
2. Death – applied to purely personal character, • The case is DISMISSED. or more persons bind themselves in favor of
apart from its ACE-AGRO DEVELOPMENT CORP. v CA another or others, or reciprocally, to the
extinctive effect in some contract such as Nature: Petition for review on certiorari of a fulfillment of a prestation to give, to do or not to
partnership and agency; in general, obligations decision of the Court of Appeals do.
are transmissible to heirs or to the estate. Facts: * Other Terms:
3. Renunciation on the part of the creditor – as Ace-Agro is engaged in the business of cleaning • Perfect promise – distinguished from a
a rule does not extinguish obligations, but in softdrink bottles and repairing wooden shells of contract, in that the latter establishes and
some contracts lack of interest of the creditor Cosmos Bottling Corp. Ace-Agro determines the obligations arising therefrom;
amounts to abuse of right; so the debtor must while the former tends only to assure and pave
be relieved. does this inside Cosmos’ plant in San Fernando, the way for the celebration of a contract in the
4. Compromise Pampanga. They entered into a service contract future.
5. Fulfillment of resolutory conditions which they renewed every year. • Imperfect Promise – mere unaccepted offer
6. Arrival of resolutory periods Then, a fire broke out in Cosmos’ plant • Pact – a special part of the contract,
7. Rescission & Nullity of contracts destroying, inter alia, Ace- Agro’s area. Hence, sometimes incidental
8. Mutual dissent of the parties Ace-Agro could not clean bottles. On May 15, and separable for the principal agreement
9. Will of one of the parties/Unilateral Dissent – 1990, Ace-Agro asked Cosmos if it could resume • Stipulation – similar to a pact; when the
agency & its service; but petitioner was advised that on contract is an
partnership account of the fire, which had “practically instrument, it refers to the essential and
10. Change of Civil Status burned all...old softdrink bottles and wooden dispositive part, as distinguished from the
11. Force Majeure shells,” Cosmos was terminating their contract. exposition of the facts and antecedents upon
12. Abandonment – under Art 662 Ace-Agro asked for reconsideration but which it is based.
CASES: received no reply. Hence, Ace-Agro issued a * Number of Parties:
memorandum to their employees stating that
• The Code states “two persons”; what is meant defendant's letter, plaintiffs wrote them on 4. Purpose – transfer of ownership, conveyance
actually is “two parties”. For a contract to exist, October 24, 1986 asking that they specify the & rendition of
there must be two parties. terms and conditions of the offer to sell service
• A party can be one or more persons. When Asuncion et al. did not receive any reply, 5. Subject-matter – things & services
they sent another letter dated January 28, 1987 6. Nature of the obligation produced – bilateral
* Husband & Wife: with the same request; that since defendants & unilateral
• Husbands and wives cannot sell to each other failed to specify the terms and conditions of the 7. Cause – onerous & gratuitous or lucrative
as a protection of the conjugal partnership. offer to sell and because of information received 8. Name – Nominate & Innominate
• They can however enter into a contract of that the spouses was about to sell the property, * Kinds of Innominate Contracts
agency. * Auto-contracts: Asuncion et al. were compelled to file the 1. do ut des (I give that you may give)
• It means one person contracts himself. complaint to compel defendants to sell the 2. do ut facias (I give that you may do)
• As a general rule, it is accepted in our law. property to them. It was later sold to Buen 3. facio ut facias (I do that you may do)
The existence Realty. 4. facio ut des (I do that you may give)
of a contract does not depend on the number of RTC found that defendants' offer to sell was Art. 1306. The contracting parties may establish
persons never accepted by the plaintiffs for the reason such stipulations, clauses, terms & conditions as
but on the number of parties. that the parties did not agree upon the they may deem convenient, provided they are
• There is no general prohibition against not contrary to law, morals, good customs,
auto-contracts; terms and conditions of the proposed sale, public order, or public policy.
hence, it should be held valid. * Contracts of hence, there was no contract of sale at all. * Freedom to contract:
Adhesion: Nonetheless, the lower court ruled that should • Any person has the liberty to enter into a
• Contracts prepared by another, containing the defendants subsequently offer their contract so long as they are not contrary to law,
provisions that he desires, and asks the other property for sale at a price of P11-million or morals, good customs, public order or public
party to agree to them if he wants to enter into a below, plaintiffs will have the right of first policy.
contract. refusal. • The legislature, under the constitution, is
Example: transportation tickets Upon appeal, the CA affirmed RTC with some prohibited from enacting laws to prescribe the
• It is valid contract according to Tolentino modifications Issue: terms of a legal contract.
because the other party can reject it entirely. • WON there exists a contract between * Validity of Stipulations:
* Characteristics of Contracts: • 3 elements: Asuncion et al. and the Cu Unjieng spouses in • Any and all stipulations not contrary to law,
1. Essential elements – without which there is no relation to the property in Binondo. morals, good customs, public order or public
contract; they are a) consent, b) subject matter Held: policy is valid
and c) cause • No, there was no contract as there was no * Trust Receipts:
2. Natural elements – exist as part of the acceptance by the spouses. • Trust receipts, as contracts, in a certain
contract even if the parties do not provide for • CA decision is AFFIRMED. Doctrine: manner partake of the nature of a conditional
them, because the law, as suppletory to the 1. Among the sources of an obligation is a sale as provided by the Chatter
contract, creates them contract (Art. 1157, Civil Code), which is a
3. Accidental elements – those which are agreed meeting of minds between two persons whereby Mortgage Law, that is, the importer becomes
by the parties and which cannot exist without one binds himself, with respect to the other, to the absolute owner of the imported
stipulated give something or to render some service (Art. merchandise as soon as he had paid its price.
* Stages of a Contract: • 3 stages: 1305, Civil Code). * Other Stipulations:
1. Preparation, conception, or generation – 2. A contract undergoes various stages that • Other valid stipulations: Venue of Action,
period of negotiation and bargaining, ending at include its negotiation or preparation, its Escalation clauses, & Limitation of carrier’s
the moment of agreement of the parties perfection and, finally, its consummation. liability
2. Perfection or birth of the contract – the Negotiation covers the period from the time the * Compromises:
moment when the parties come to agree on the prospective contracting parties indicate interest • Compromises create reciprocal concessions so
terms of the contract in the contract to the time the contract is that parties avoid litigation.
3. Consummation or death – the fulfillment or concluded (perfected). The perfection of the • The Court must approve it and once
performance of the terms agreed upon in any contract takes place upon the concurrence of approved, the parties are enjoined to comply
contract the essential elements thereof. A contract which strictly and in good faith with the agreement.
CASES: is consensual as to perfection is so established * Juridical Qualification:
ANG YU ASUNCION, ARTHUR GO & KEH upon a mere meeting of minds, i.e., the • Juridical Qualification is different from
TIONG v CA & BUEN REALTY concurrence of offer and acceptance, on the validity. It is the law that determines juridical
DEVELOPMENT CORPORATION object and on the cause thereof. qualification.
Nature: Petition to Review the decision of the 3. A contract which requires, in addition to the • The contract is to be judged by its character
Court of Appeals above, the delivery of the object of the and courts will look into the substance and nor
Facts: agreement, as in a pledge or commodatum, is to the mere from of the transaction.
Asuncion, et al. were tenants or lessees of commonly referred to as a real contract. * Limitations on Stipulation:
residential and commercial spaces owned by Cu 4. Until the contract is perfected, it cannot, as 1. An act or a contract is illegal per se is on that
Unjieng spouses in Ongpin Street, Binondo, an independent source of obligation, serve as a by universally recognized standards us
Manila. They have occupied said spaces since binding juridical relation. In sales, particularly, inherently or by its nature, bad, improper,
1935 and have been religiously paying the to which the topic for discussion about the case immoral or contrary to good conscience.
rental and complying with all the conditions of at bench belongs, the contract is perfected when * Contrary to law:
the lease contract a person, called the seller, 1. Freedom of contract is restricted by law for
On several occasions before October 9, 1986, obligates himself, for a price certain, to deliver the good of the public.
the spouses informed Asuncion et al. that they and to transfer ownership of a thing or right to 2. It is fundamental postulate that however
are offering to sell the premises and are giving another, called the buyer, over which the latter broad the freedom of the contracting parties
them priority to acquire the same. During the agrees. may be, it does not go so far as to countenance
negotiations, Bobby Cu Unjieng offered a price * Classification of contracts: disrespect for or failure to observe a legal
of P6-million while the other made a counter 1. Degree of dependence – preparatory, prescription. The Statute takes precedence.
offer of P5-million. principal & accessory Examples:
Asuncion, thereafter, asked the defendants to 2. Perfection – consensual & real 1. A promissory note which represents a
put their offer in writing to which request 3. Solemnity or Form – common form & special gambling debt is unenforceable in the hands of
defendants acceded and that in reply to form the assignee.
2. Stipulations to pay usurious interests are received some kind of social and practical WON the above quoted provision of the
void. confirmation. contract between plaintiff and the defendant,
3. A contract between to public service Examples: whereby the former waived his right to transfer
companies to divide the territory is void because 1. a promise to marry or nor to marry, to secure to another school without refunding to the latter
it impairs the control of the legal separation, or to adopt a child the equivalent of his scholarships in cash, is
Public Service Commission. 2. a promise to change citizenship, profession, valid or not.
4. Agreement to declare valid a law or religion or domicile Held:
ordinance is void. 3. a promise not to hold public office or which • It is not valid.
CASES: limits the performance of official duties • The SC held that inconsistent with sound
Associacion de Agricultures de Talisay-SIlay, 4. a promise to enter a particular political party policy and good
Inc. Trino Montinola, Fernando Cuenca, or separate from it morals or tends clearly to undermine the
Eduardo Ledesma, Emilio Jison, Nilo Lizares, 5. contracts which limit in an excessive manner security of individual rights. The nature of the
Nicolas Jalandoni & Sec. of Labor the personal or economic freedom of a person issue before us, and its far reaching effects,
vs. 6. to make an act dependent on money or some transcend personal equations and demand a
Talisay-Silay Milling Co., Inc., & Luzon Surety pecuniary value, when it is of such a nature that determination of the case from a high
Co., Inc., PNB & The Sugar Quota it should not depend thereon; payment to kill impersonal plane.
Administrator another. • The decision of the CA is REVERSED. The
Nature: Appeal from the decision of the Court * Contrary to Public Order: university was ordered to reimburse Ramos for
of First Instance of Manila • Public order means the public weal or public his payment as well as other costs.
Facts: policy. It represents the public, social, and legal Doctrine:
In this long and complex case which includes, interest in private law that which is permanent Scholarships are awarded in recognition of
labor and constitutional issues, the most and essential in institutions, which, even if merit not to keep outstanding students in school
important for us is that the Planters and the favoring some individual to whom the right to bolster its prestige. In the understanding of
Milling Company entered into a contract prior pertains, cannot be left to his own will. that university scholarships award is a business
to RA 809 which was enacted as a social justice • A contract is said to be against public order if scheme designed to increase the business
measure designed to make the profits of the the court finds that the contract as to the potential of an education institution. Thus
sugar industry redound to the laborers. consideration or the thing to be done, conceived it is not only inconsistent with sound
Prior to the law, the several Planters were contravenes some established interest of society, policy but also good morals.
under contract with the Milling Company and or is inconsistent with sound policy and good * Attorney’s Fees:
received higher percentages than the majority morals, or tends clearly to undermine the • Even if there is a stipulation, a client can
who were not. The law however, provides for a security of individual rights. dismiss his lawyer and the latter can only claim
uniform sharing between the Planters and the Examples: compensation based on quantum meruit.
Company in varying degrees depending on the 1. Common carrier cannot stipulate for • The fees must be reasonable depending on the
amount of sugar production every year rather exemption for liability unless such exemption is difficulty of the case, the skills involved, etc.
than the base of 60% to the Planters and 40% justifiable and reasonable and the contract is Art. 1307. Innominate contracts shall be
to the Company since Planters and Milling freely and fairly made. regulated by the stipulations of the parties, by
Companies are differently situated. 2. Payment to intermediaries in securing import the provisions of Titles I & II of this Book, by
Issue: licenses or quota allocations. the rules governing the most analogous
• In the multitude of issues raised, the most 3. Contract of scholarship stipulating that the nominate contracts, and by the customs of the
important for us is WON RA 908 can supersede student must remain in the same school and place.
the contracts entered into by some Planters and that he waives his right to transfer to another * Innominate Contracts:
the Milling Company. school without refunding the school do ut des (I give that you may give) – An
Held: CASES: agreement in which A will give one thing to B,
CUI v ARELLANO UNIVERSITY so that B will give another thing to A.
• Yes, the SC upheld that the law shall prevail Nature: Appeal from the decision of the Court do ut facias (I give that you may do) – An
since it was enacted for social justice and police of First Instance of Manila agreement under which A will give something to
power measure for the promotion of labor Facts: B, so that B may do something for A.
conditions in sugar plantations; hence whatever Emeterio Cui enrolled and got a scholarship facio ut facias (I do that you may do) – An
rational degree of constraint it exerts on from Arellano University, College of Law. His agreement under which A does something for B,
freedom of contract and existing contractual uncle was the dean there. He was made to sign a so that B may render some other service for A.
obligations is constitutionally permissible. contract that stipulates a waiver to transfer to facio ut des (I do that you may give) – An
• The obvious objective of the Act is more to another university without refunding Arellano agreement under which A does something for B,
induce the centrals to enter into written the equivalent of scholarship cash. so that B may give something to A.
agreements with the planters in their respective He had maintained his scholarship until his * Analogous contracts:
districts providing for better sharing ratios than senior year when his uncle moved to Abad • Innominate contracts, in the absence of
the old 60-40 scheme, rather than to directly fix Santos University to become the Law dean stipulations and specific provisions of law on
for them such ratio in the manner prescribed in there. the matter, are to be governed by rules
Section 1. Were it the intent of the Act to Ramos followed suit and graduated in the latter applicable to the most analogous contracts.
definitely fix said sharing ratios, without regard university. To secure permission to take the bar Art. 1308. The contract must bind both
to the contractual agreements between the he needed the transcripts of his records in contracting parties; its validity or compliance
parties, it would have been worded accordingly defendant Arellano University. He petitioned cannot be left to the will of one of them.
in the clearest terms, considering that such Arellano to issue to him the needed transcripts. * Mutuality of Contract:
fixing would amount to a curtailment of the The university refused until • The binding effect of contract on both parties
freedom of contract and may, therefore, be is based on the principles:
upheld only when the legislative intent is after he had paid back the P1,033 87 which 1. that obligations arising from contracts have
manifest and the exertion of police power in the defendant refunded to him as above stated. As the force of law between the contracting parties
premises is reasonably justified. he could not take the bar examination without 1. that there must be mutuality between the
• Decision of CFI Manila MODIFIED. RA 809 those transcripts, plaintiff paid to defendant the parties based on their essential equality, to
not unconstitutional. said sum under protest. This is the sum which which is repugnant to have one party bound by
* Contrary to Morals: plaintiff seeks to recover from defendant in this the contract leaving the other free therefrom.
• Morals mean good customs or those generally case.
accepted principles of morality which have Issue:
A contract containing a condition which makes • A contract cannot be binding upon and cannot compensated by any kind of obligation
its fulfillment dependent exclusively upon the be enforced against one who is not a party to it, whatever
uncontrolled will of one of the contracting even if he has knowledge of such contract and 5. that the third person must have
parties is void. has acted with knowledge thereof. communicated his
* Unilateral Cancellation: • Important Latin maxim: Res inter alio acta acceptance to the obligor before its revocation
Just as nobody can be forced to enter into a aliis necque nocet prodest. 6. neither of the contracting parties bears the
contract, in the same manner once a contract is * Third persons affected: legal
entered into, no party can renounce it • representation or authorization of the third
unilaterally or without the consent of the other. There are exceptions to the rule. They are: party
Nobody is allowed to enter into a contract, and 1. A contract creating a real right affects third * Beneficiaries:
while the contract is in effect, leaves, denounces persons who may have some right over the • A stipulation may validly be made in favor of
or disavows the contract to the prejudice of the thing. indeterminate persons, provided that they can
other. (article 1312) be determined in some manner at the time when
* When Stipulated: 2. A contract may reduce the properties of a the prestation from the stipulation has to be
• However, when the contract so stipulates that debtor performed.
one may terminate the contract upon a and thus diminish the available security for the * Test of Beneficial Stipulation:
reasonable period is valid. claims of creditors. (article 1313) • To constitute a valid stipulation pour autrui, it
• Judicial action for the rescission of the must be the purpose and intent of the
contract is no longer necessary when the 3. In some cases as in composition in insolvency stipulating parties to benefit the third person,
contract so stipulates that it may be revoked and in suspension of payments, certain and it is not sufficient that the third person may
and cancelled for the violation of any of its agreements are made binding by law on be incidentally benefited by the stipulation.
terms and conditions. This right of rescission creditors who may not have agreed thereto. • Test of Beneficial Stipulation: intention of the
may be waived. * Enforcement of contract: parties as disclosed by their contract.
* Express Agreement: • Only a party to the contract can maintain an • To apply this, it matters not whether the
• The article reflects a negative form of action to enforce the obligations arising under stipulation is in the nature of a gift or whether
rescission as valid. said contract. there is an obligation owing from the promisee
• Negative Form of Rescission – a case which is * Annulment of contracts: to the third person.
frequent in certain contracts, for in such case • A third person cannot ask for a contract’s * Acceptance of Third Party:
neither is the article violated, nor is there any annulment because he is not party to it. • Stipulation pour autrui has no binding effect
lack of equality of the persons contracting; such • Exception: when it is prejudicial to his rights, unless it is accepted by the third party.
as cancellation of a contract due to the third person may ask for its rescission. • Acceptance is optional to the third person: he
default or non-payment or failure to do service. * Contracts bind heirs: is not obliged to accept it.
Art. 1309. The determination of the • General rule: rights and obligations under a • It may be in any form, express or implied,
performance may be left to a third person, contract are transmissible to heirs. written or oral
whose decision shall not be binding until it has • Heirs are not third persons because there is • There is no time limit to acceptance until the
been made known to both contracting parties. privity of interest between them and their stipulation is
• A third person may be called upon to decide predecessor. revoked before the third person’s acceptance.
whether or not performance has been done for * Intransmissible Contracts:
the fulfillment of the contract. Such decision • Exceptions: * Rights of Parties:
becomes binding when the contracting parties 1. contracts of purely personal in nature – * Contracts in Fraud of Creditors
have been informed of it. partnership • The original parties, before acceptance of the
Art. 1310. The determination shall be and agency third persons, still have the right to revoke or
obligatory if it is evidently inequitable. In such 2. contracts for payment of money debts are modify the contract.
case, the courts shall decide what is equitable charged * Dependence on Contract:
under the circumstances. not to the heirs but to the estate of the decedent • Right of the third person emanates from the
• However, when the decision cannot be arrived * Stipulations for Third Parties: contract; defenses are also available against the
due to inequity, the courts shall decide what is • Second paragraph creates an exception to the contract.
equitable for the parties involved. first. • If after the third person has accepted the
Art 1311. Contracts take effect only between the • When there is such stipulation pour autrui, it stipulation and the parties failed to perform or
parties, their assigns and heirs, except in case can be defaulted, he can sue wither for specific
where the rights and obligations arising from enforced. performance or resolution, with indemnity for
the contracts are not transmissible by their • 2 Divisions: damages, as authorized by article 1191.
nature, or by stipulation or by provision of law. 1. those where the stipulation is intended for the * Who may revoke:
The heir is not liable beyond the value of the sole benefit of such third person • General Rule: it pertains to the other
property he received from the decedent. 2. those where an obligation is due from the contracting party or promisee, who may
If a contract should contain some stipulation in promisee to the third person and the former exercise it without the consent of the promisor.
favor of a third person, he may demand its seeks to discharge it by means of such But it may be agreed that the revocation should
fulfillment provided he communicated his stipulation have the consent of the promisor.
acceptance to the obligor before its revocation. * Requisites of Article: • The right of revocation cannot be exercised by
A mere incidental benefit or interest of a person • To apply the second paragraph, the following the heirs or assignees of the promisee; they
is not sufficient. The contracting parties must are necessary: might not want to honor the decedent’s
have clearly and deliberately conferred a favor 1. stipulation in favor of a third persons promise.
upon a third person. 2. stipulation in favor of a third persons should * Collective contracts:
* Parties bound by contract: be a 1. Definition: contracts where the law
• Generally, only the parties that agreed on the part, not the whole, of the contract authorizes the will of the majority to bind a
contracts are bound by the contract. 3. clear and deliberate conferment of favor minority to an agreement notwithstanding the
• Transmission is possible to the heirs or upon a opposition of the latter, when all have a
assignees if so stipulated and in certain third person by the contracting parties and not common interest in the juridical act.
contracts. a Art 1312. In contracts creating real rights, third
* Third persons not bound: mere incidental benefit or interest persons who come into possession of the object
• It is s general rule that third parties are not 4. stipulation should not be conditioned or of the contract are bound thereby, subject to the
bound by the acts of another.
provisions of the Mortgage Law and the Land Facts: • When ratified, he is estopped to question the
Registration laws. This is a suit filed by plaintiff George W. legality of the transaction.
* Real Rights in Property Batchelder to compel defendant Central Bank • Kinds of ratification: 1. express
1. A real right directly affects property subject of the Philippines, now appellant, to resell to 2. implied
to it; hence, whoever is in possession of such him $170,210.60 at the preferred rate of • The ratification has a retroactive effect from
property must respect that real right. exchange of two Philippine pesos for one the moment of its celebration, not from its
Art 1313. Creditors are protected in cases of American dollar, more specifically P2.00375, or, ratification.
contracts intended to defraud them. in the alternative, to pay to him the difference • Before ratification, the contract is in a state of
1. When a debtor enters into a contract in fraud between the peso cost of such amount at the suspense; its effectivity depends on its
of his creditors, such as when he alienated market rate prevailing on the date of the ratification. The other party must not do
property gratuitously without leaving enough satisfaction of the judgment in his favor and the anything prior to ratification that shall
for his creditors (article 1387), the creditor may peso cost of $170,210.60 at said preferred rate. prejudice the rights of the other party.
ask for its rescission. The CFI found for Batchelder and order CB to • When not ratified, the person who entered
Art 1314. Any third person who induces resell the amount involved at the preferred rate into a contract in behalf of another without
another to violate his contract shall be liable for as against RA 2609 which granted CB the authority becomes liable to the other party, if he
damages to the other contracting party. power, inter alia, to decontrol the foreign did not inform the latter that he does not have
* Interference of Third Persons: exchange any representation or authority.
1. If a third person induced a party to violate rate. The lower court further held that the • When such deficiency or lack of authority has
his side of the contract, the other party may sue issuance by the CB of a monetary policy creates been relayed to the other, he cannot claim for
the third person for damages. a contractual obligation with those who shall damages against he person without authority.
2. Requisites: sell or buy dollars. ESSENTIAL REQUISITES OF CONTRACTS
1. the existence of a valid contract Issue: Art. 1318. There is no contract unless the
1. knowledge by the third person of the • WON the issuance of a monetary policy by it, following requisites concur:
existence of a contract thereafter implemented by the appropriate (1) Consent of the contracting parties;
2. interference by the third person in the resolutions, as to the rate of exchange at which (2) Object certain which is the subject matter of
contractual relation without legal justification dollars after being surrendered and sold to it the contract;
1. Jurisprudential basis: Manila Railroad Co. could be re-acquired, creates a contractual (3) Cause of the obligation which is established.
vs. Compañia Transatlantica obligation. (1261)
• ...the process must be accomplished by Held: • There must be at least 2 parties to every
distinguishing clearly between the right of • No, there was no contract. contract. The number of parties, however,
action arising from the improper interference • Decision of CFI is REVERSED. and the should not be confused with the number of
with the contract by a stranger thereto, complaint of the persons.
considered as an independent act generative of plaintiff dismissed, without prejudice to his • A single person can represent 2 parties, and
civil liability, and the right of action ex taking the appropriate action to enforce one party can be composed of 2 or more
contractu against a party to the contract whatever rights he possesses against defendant persons.
resulting form the breach thereof. Central Bank in accordance with its valid and • Consent presupposes capacity. There is no
* Extent of Liability: binding rules and regulations. effective consent in law without the capacity to
• The extent of liability of a third person Doctrine: give such consent.
interfering is limited to the damage that the All commentators on the Civil Code have SECTION 1. – Consent
other party incurred. agreed that the birth or perfection of a Art. 1319. Consent is manifested by the meeting
• Liability is solidary, the offending party and consensual contract, Article 1315, commences of the offer and the acceptance upon the thing
the third person, because in so far as the third from the moment the parties come to an and the cause which are to constitute the
person is concerned, he commits a tortious act agreement on a definite subject matter and contract. The offer must be certain and the
or a quasi-delict, for which solidary valid consideration acceptance absolute. A qualified acceptance
responsibility arises. What was done by the Central Bank was merely constitutes a counter-offer.
to issue in pursuance of its rule-making power Acceptance made by letter or telegram does not
Art 1315. Contracts are perfected by mere the resolutions relied upon by plaintiff, which bind the offerer except from the time it came to
consent, and from that moment the parties are for him should be impressed with a contractual his knowledge. The contract, in such a case, is
bound not only to the fulfillment of what has character. presumed to have been entered into in the place
been expressly stipulated but also to all the Art 1316. Real contracts, such as deposit, pledge where the offer was made. (1262a)
consequences which, according to their nature, or commodatum, are not perfected until the • Consent is the conformity of the parties on the
may be in keeping with good faith, usage and delivery of the object of the obligation. terms of the contract, the acceptance by one of
law. * Perfection of real contracts: the offer made by the other.
* Perfection of Consensual Contracts: Real contract is not perfect by mere consent. • Requisites: 1) plurality of subjects; 2)
• Perfection of a contract, in general: the The delivery of the thing is required. capacity; 3) intelligent and free will; 4) express
moment from which it exists; the juridical tie Delivery is demanded, neither arbitrary nor or tacit manifestation of the will; and 5)
between the parties arises from that time. formalistic. conformity of the internal will and its
• Perfection of Consensual Contracts: the mere manifestation.
consent which is the meeting of the minds of the Art 1317. No one may contract in the name of • Forms: Consent may either be express or
parties upon the terms of the contract another without being authorized by the latter, implied. There is also a presumptive consent,
• consent may not be expressly given. * Binding or unless he has by law a right to represent him. which is the basis of quasi- contracts.
Effect of Consensual Contracts: A contract entered into in the name of another • Manifestation: Consent is manifested by the
• The binding force of such contracts are not by one who has no authority or legal concurrence of offer and acceptance with
limited to what is expressly stipulated, but representation, or who has acted beyond his respect to the object and the cause of the
extends to all consequences which are the powers, shall be unenforceable, unless it is contract. A binding agreement may originate
natural effect of the contract, considering its ratified, expressly or impliedly, by the person even from advertisements addressed to the
true purpose, the stipulations it contains, and on whose behalf it has been executed, before it general public, mostly in the case of the offer or
the object involved. is revoked by the other contracting party. rewards.
CASES: * Ratification necessary: • A unilateral proposition must be definite
BATCHELDER v CB • A contract entered into in behalf of another (distinguished from mere communications),
Nature: Appeal from the decision of the Court who has not authorized it is not valid or binding complete (stating the essential and non-essential
of First Instance of Manila on him unless he ratifies the transaction. conditions desired by the offeror), and
intentional (serious) when accepted by another the consumption of the things sent to the incapacity in order that a contract entered into
party for such proposition to form a valid offeree, or the fact of immediately carrying out by a mentally defective person may be annulled;
contract. of the contract offered. it is enough that the insanity existed at the time
Art. 1321. The person making the offer may fix the contract was made.
• According to Tolentino, however, a unilateral the time, place, and manner of acceptance, all of • Being deaf-mute is not by itself alone a
promise is not recognized by our Code as which must be complied with. (n) disqualification for giving consent. The law
having obligatory force. To be so, there must be • The offer with a period lapses upon the refers to the deaf-mute who does not know how
an acceptance that shall convert it into a termination of the period. Thus the acceptance, to write.
contract. to become effective, must be known to the Art. 1328. Contracts entered into during a lucid
• Mental reservation—when a party makes a offeror before the period lapses. interval are valid. Contracts agreed to in a state
declaration but secretly does not desire the Art. 1322. An offer made through an agent is of drunkenness or during a hypnotic spell are
effects of such declaration. The mental accepted from the time acceptance is voidable. (n)
reservation of the offeror, unknown to the communicated to him. (n) • The use of intoxicants does not necessarily
other, cannot affect the validity of the offer. • An intermediary who has no power to bind mean a complete loss of understanding. The
• Complex offers: In cases where a single offer either the offeror or the offeree is not an agent; same may be said of drugs. But a person, under
involves two or more contracts, the perfection his situation is similar to that of a letter carrier. the influence of superabundance of alcoholic
where there is only partial acceptance will Art. 1323. An offer becomes ineffective upon the drinks or excessive use of drugs, may have no
depend upon the relation of the contracts death, civil interdiction, insanity, or insolvency capacity to contract.
between themselves, whether due to their of either party before acceptance is conveyed. • In hypnotism and somnambulism, the utter
nature, or due to the intent of the offeror. (n) want of understanding is a common element.
• Simultaneous offers: As a rule, the offer and • The disappearance of either party or his loss • Art. 1329. The incapacity declared in Article
the acceptance must be successive in order that of capacity before perfection prevents the 1327 is subject to the modifications determined
a contract may arise. When there are crossed contractual tie from being formed. by law, and is understood to be without
offers, however, no contract is formed unless Art. 1324. When the offerer has allowed the prejudice to special disqualifications established
one of the parties accepts the offer received by offeree a certain period to accept, the offer may in the laws. (1264)
him. be withdrawn at any time before acceptance by • The Rules of Court provide a list of
• Acceptance must not qualify the terms of the communicating such withdrawal, except when incompetents who need guardianship: persons
offer to produce a contract. It should be the option is founded upon a consideration, as suffering from the penalty of civil interdiction,
unequivocal, something paid or promised. (n) hospitalized lepers, prodigals, deaf and dumb
• Successive agreements: If the intention of one • It is not the moment of sending but the time of who are unable to write and read, those of
or both parties is that there be concurrence on receipt of the revocation or acceptance which is unsound mind (even though they have lucid
all points, the contract is not perfected if there controlling. intervals), and persons not being of unsound
is a point of disagreement —even if there is mind but by reason of age, disease, weak mind,
already agreement on the essential elements of • The delay in transmission is at the risk of the and other similar causes cannot, without
the contract. sender, because he is the one who selects the outside aid, take care of themselves and manage
• Meanwhile, if there is no declaration that time and the manner of making the their property—becoming an easy prey for
agreement on an accessory or subordinate transmission. deceit and exploitation.
matter is necessary, the contract will be • Contract of Option: This is a preparatory • Special disqualification: Persons declared
perfected as soon as there is concurrence on the contract in which one party grants to the other, insolvent or bankrupt, husband and wife
object and the cause. for a fixed period and under specified (incapacity to sell property to each other).
• Intermediary: If he carries the offer and the conditions, the power to decide whether or not • The incapacity to give consent to contracts
acceptance in written form, the rule applicable to enter into a principal contract. It must be renders the contract merely voidable, while
to acceptance by letter will apply (see supported by an independent consideration, special disqualification makes it void.
illustration below). If carries the offer verbally, and the grant must be exclusive. Art. 1330. A contract where consent is given
and the acceptance is also verbal, the perfection Art. 1325. Unless it appears otherwise, business through mistake, violence, intimidation, undue
of the contract will be at the moment he makes advertisements of things for sale are not definite influence, or fraud is voidable. (1265a)
the acceptance known to the offeror. offers, but mere invitations to make an offer. (n) • Requisites of consent: 1) It should be
• By correspondence: When the offer to buy was • Sales advertisements: A business intelligent or with an exact notion of the matter
written or prepared in Tokyo, and the advertisement of things for sale may or may not to which it refers; 2) It should be free; and 3) It
acceptance thereof in Manila was sent by the constitute a definite offer. It is not a definite should be spontaneous.
offeree by airmail to and received by the offeror offer when the object is not determinate.
in Tokyo, the contract is presumed to have been • When the advertisement does not have the • Defects of the will: intelligence is vitiated by
entered into in Tokyo. necessary specification of essential elements of error; freedom by violence, intimidation, or
• Effect of silence: Modern jurists require the the future contract, it cannot constitute of an undue influence; and spontaneity by fraud.
following in order that silence may produce the offer. The advertiser is free to reject any offer Art. 1331. In order that mistake may invalidate
effect of tacit acceptance—1) that there is a that may be made. consent, it should refer to the substance of the
duty or the possibility to express oneself; 2) that Art. 1326. Advertisements for bidders are thing which is the object of the contract, or to
the manifestation of the will cannot be simply invitations to make proposals, and the those conditions which have principally moved
interpreted in any other way; 3) that there is a advertiser is not bound to accept the highest or one or both parties to enter into the contract.
clear identity in the effect of the silence and the lowest bidder, unless the contrary appears. (n) Mistake as to the identity or qualifications of
undisclosed will. • In judicial sales, however, the highest bid must one of the parties will vitiate consent only when
• The general rule, however, is that silence is necessarily be accepted. such identity or qualifications have been the
ambiguous and does not authorize any definite Art. 1327. The following cannot give consent to principal cause of the contract.
conclusion. Circumstances will have to be taken a contract: (1) Unemancipated minors; A simple mistake of account shall give rise to its
into consideration. (2) Insane or demented persons, and deaf-mutes correction. (1266a)
• Withdrawal of offer: Both the offer and the who do not know how to write. (1263a) • Ignorance and error are 2 different states of
acceptance can be revoked before the contract • Unemancipated minors cannot enter into valid mind. Ignorance means the complete absence of
is perfected. contracts, and contracts entered into by them any notion about a particular matter, while
Art. 1320. An acceptance may be express or are not binding upon them, unless upon error or mistake means a wrong or false notion
implied. (n) reaching majority they ratify the same. about such matter.
• Implied acceptance may arise from acts or • Insane persons: It is not necessary that there • Annulment of contract on the ground of error
facts which reveal the intent to accept, such as be a previous of declaration of mental is limited to cases in which it may reasonably be
said that without such error the consent would • Violence refers to physical force or manipulations, concealments, or
not have been given. compulsion, while misrepresentations, for the purpose of leading
• An error as to the person will invalidate intimidation refers to moral force or another party into error and thus executing a
consent when the consideration of the person compulsion. particular act.
has been the principal cause of the same. • Requisites of violence: 1) That the physical • Fraud produces qualified error; it induces in
• Mistake as to qualifications, even when there force employed must be irresistible or of such the other party an inexact notion of facts. The
is no error as to person, is a cause vitiating degree that the victim has no other course, will of another is maliciously misled by means
consent, if such qualifications have been the under the circumstances, but to submit; and 2) of false appearance of reality.
principal cause of the contract. that such force is the determining cause in • “Insidious words or machinations” include
• A mistake as to the motive of a party does not giving false promises; exaggeration of hopes or
affect the contract; to give it such effect would the consent to the contract. benefits; abuse of confidence; and fictitious
destroy the stability of contractual relations. • Requisites of intimidation: 1) that the names, qualifications, or authority.
When the motive has, however, been expressed intimidation must be • Kinds of fraud: 1) dolo causante—which
and was a condition of the consent given, the determining cause of the contract, or must determines or is the essential cause of the
annulment is proper—because an accidental have caused the consent to be given; 2) that the consent; 2) dolo incidente— which does not
element is, by the will of the parties, converted threatened act be unjust or unlawful; 3) that the have such a decisive influence and by itself
into a substantial element. threat be real and serious, there being an cannot cause the giving of consent, but refers
Art. 1332. When one of the parties is unable to evident disproportion between the evil and the only to some particular or accident of the
read, or if the contract is in a language not resistance which all men can offer; and 4) that it obligation.
understood by him, and mistake or fraud is produces a reasonable and well-grounded fear • Dolo causante can be a ground for annulment;
alleged, the person enforcing the contract must from the fact that the person from whom it dolo incident cannot be a ground for
show that the terms thereof have been fully comes has the necessary means or ability to annulment.
explained to the former. (n) inflict the threatened injury. • The result of fraud is error on the part of the
Art. 1333. There is no mistake if the party Art. 1336. Violence or intimidation shall annul victim.
alleging it knew the doubt, contingency or risk the obligation, although it may have been • Requisites of fraud: 1) it must have been
affecting the object of the contract. (n) employed by a third person who did not take employed by one contracting party upon the
• To invalidate consent, the error must be part in the contract. (1268) other; 2) it must have induced the other party to
excusable. It must be a real error and not one Art. 1337. There is undue influence when a enter into the contract; 3) it must have been
that could have been avoided by the party person takes improper advantage of his power serious; 4) and it must have resulted in damage
alleging it. The error must arise from facts over the will of another, depriving the latter of a or
unknown to him. reasonable freedom of choice. The following injury to the party seeking annulment.
• A mistake that is caused by manifest circumstances shall be considered: the Art. 1339. Failure to disclose facts, when there
negligence cannot invalidate a juridical act. confidential, family, spiritual and other is a duty to reveal them, as when the parties are
Art. 1334. Mutual error as to the legal effect of relations between the parties, or the fact that bound by confidential relations, constitutes
an agreement when the real purpose of the the person alleged to have been unduly fraud. (n)
parties is frustrated, may vitiate consent. (n) influenced was suffering from mental weakness, • Silence or concealment, by itself, does not
• Three requisites under this article: 1) the or was ignorant or in financial distress. (n) constitute fraud, unless there is a special duty to
error must be as to the legal effect of an • In intimidation, there must be an unlawful or disclose certain facts, or unless according to
agreement; 2) it must be mutual; and 3) the real unjust act which is threatened and which causes good faith and the usages of commerce, the
purpose of the parties is frustrated. consent to be given, while in undue influence communication should be made.
• The legal effects include the rights and there need not be an unjust or unlawful act. In • Thus, the innocent non-disclosure of a fact
obligations of the parties, not as stipulated in both cases, there is moral coercion. does not affect the formation of the contract or
the contract, but as provided by the law. The • Moral coercion may be effected through operate to discharge the parties from their
mistake as to these effects, therefore, means an threats, expressed or implied, or through agreement.
error as to what the law provides should spring harassing tactics.
as consequences from the contract in question. • Undue influence is any means employed upon Art. 1340. The usual exaggerations in trade,
• An error as to the nature or character is a party which, under the circumstances, he when the other party had an opportunity to
always essential, and makes the act juridically could not well resist, and which controlled his know the facts, are not in themselves
inexistent. volition and induced him to give his consent to fraudulent. (n)
Art. 1335. There is violence when in order to the contract—which otherwise he would not • Tolerated fraud includes minimizing the
wrest consent, serious or irresistible force is have entered into. defects of the thing, exaggeration of its good
employed. • A contract of adhesion is one in which one of qualities, and giving it qualities that it does not
There is intimidation when one of the the parties imposes a ready-made form of have. This is lawful misrepresentation known as
contracting parties is compelled by a reasonable contract, which the other party may accept or dolus bonus. This is also called lawful
and well-grounded fear of an imminent and reject, but which the latter cannot modify. astuteness.
grave evil upon his person or property, or upon These are contracts where all the terms are • These misrepresentations are usually
the person or property of his spouse, fixed encountered in fairs, markets, and almost all
descendants or ascendants, to give his consent. by one party and the other has merely “to take commercial transactions. They do not give rise
To determine the degree of intimidation, the it or leave to an action for damages, either because of their
age, sex and condition of the person shall be it.” insignificance or because the stupidity of the
borne in mind. • A contract of adhesion is construed strictly victim is the real cause of his loss.
A threat to enforce one's claim through against the one • The thinking is that where the means of
competent authority, if the claim is just or legal, who drew it. Public policy protects the other knowledge are at hand and equally available to
does not vitiate consent. (1267a) party against oppressive and onerous both parties, one will not be heard to say that he
• Duress is that degree of constraint or danger conditions. has been deceived.
either actually inflicted (violent) or threatened Art. 1338. There is fraud when, through Art. 1341. A mere expression of an opinion does
and impending insidious words or machinations of one of the not signify fraud, unless made by an expert and
contracting parties, the other is induced to enter the other party has relied on the former's
(intimidation), sufficient to overcome the mind into a contract which, without them, he would special knowledge. (n)
and will of a not have agreed to. (1269) • An opinion of an expert is like a statement of
person of ordinary firmness. • Fraud is every kind of deception, whether in fact, and if false, may be considered a fraud
the form of insidious machinations, giving rise to annulment.
Art. 1342. Misrepresentation by a third person public order; 3) it must be possible ; and 4) it • The quantity of the of the object may be
does not vitiate consent, unless such must be determinate as to its kind. indeterminate, so long as the right of the
misrepresentation has created substantial Art. 1347. All things which are not outside the creditor is not rendered illusory.
mistake and the same is mutual. (n) commerce of men, including future things, may SECTION 3. - Cause of Contracts
• The general rule is that the fraud employed by be the object of a contract. All rights which are • The cause of the contract is the “why of the
a third person upon one of the parties does not not intransmissible may also be the object of contract,” the immediate and most proximate
vitiate consent and cause the nullity of a contracts. purpose of the contract, the essential reason
contract. No contract may be entered into upon future which impels the contracting parties to enter
• Exception: If one of the parties is in collusion inheritance except in cases expressly authorized into it and which explains and justifies the
with the third person, or knows of the fraud by by law. creation of the obligation through such
the third person, and he is benefited thereby, he • All services which are not contrary to law, contract.
may be considered as an accomplice to the morals, good customs, public order or public • The cause as to each party is the undertaking
fraud, and the contract becomes voidable. policy may likewise be the object of a contract. or prestation to be performed by the other. The
Art. 1343. Misrepresentation made in good faith (1271a) object of the contract is the subject matter
is not fraudulent but may constitute error. (n) • Things which are outside the commerce of thereof (e.g., the land which is sold in a sales
Art. 1344. In order that fraud may make a man: contract). Consideration, meanwhile, is the
contract voidable, it should be serious and 1. Services which imply an absolute submission reason, motive, or inducement by which a man
should not have been employed by both by those who render them, sacrificing their is moved to bind himself by an agreement.
contracting parties. liberty, their independence or beliefs, or
Incidental fraud only obliges the person disregarding in any manner the equality and • Requisites: 1) it must exist; 2) it must be true;
employing it to pay damages. (1270) dignity of persons, such as perpetual servitude and 3) it must be licit.
• Fraud is serious when it is sufficient to or slavery; Art. 1350. In onerous contracts the cause is
impress, or to lead an ordinarily prudent 1. Personal rights, such as marital authority, the understood to be, for each contracting party,
person into error; that which cannot deceive a status and capacity of a person, and honorary the prestation or promise of a thing or service
prudent person cannot be a ground for nullity. titles and distinctions; by the other; in remuneratory ones, the service
• Besides being serious, the fraud must be the 2. Public offices, inherent attributes of the or benefit which is remunerated; and in
determining cause of the contract. It must be public authority, and political rights of contracts of pure beneficence, the mere
dolo causante. individuals, such as the right of suffrage; liberality of the benefactor. (1274)
• When both parties use fraud reciprocally, 3. Property, while they pertain to the public • In onerous contracts, the cause need not be
neither one has an action against the other; the dominion, such as the roads, plazas, squares, adequate or an exact equivalent in point of
fraud of one compensates that of the other. and rivers; actual value, especially in dealing with objects
Neither party can ask for the annulment of the 4. Sacred things, common things, like the air which have a rapidly fluctuating price. There
contract. and the sea, and res nullius, as long as they have are equal considerations.
Art. 1345. Simulation of a contract may be not been appropriated. • A remuneratory contract is one where a party
absolute or relative. The former takes place • Even future things can be the object of gives something to another because of some
when the parties do not intend to be bound at contracts, as long as they have the possibility or service or benefit given or rendered by the
all; the latter, when the parties conceal their potentiality of coming into existence. latter to the former, where such service or
true agreement. (n) • The law, however, generally does not allow benefit was not due as a legal obligation. The
• Simulation is the declaration of a fictitious contracts on future inheritance. A contract consideration of one is greater than the other’s.
will, deliberately made by agreement of the entered into by a fideicommissary heir with • A gratuitous contract is essentially an
parties, in order to produce, for the purposes of respect to his eventual rights agreement to give donations. The generosity or
deception, the appearance of a juridical act would be valid provided that the testator has liberality of the benefactor is the cause of the
which does not exist or is different from that already died. The right of a fideicommissary contract. There is nothing to equate.
which was really executed. heir comes from the testator and not from the Art. 1351. The particular motives of the parties
Art. 1346. An absolutely simulated or fictitious fiduciary. in entering into a contract are different from
contract is void. A relative simulation, when it Art. 1348. Impossible things or services cannot the cause thereof. (n)
does not prejudice a third person and is not be the object of contracts. (1272) • Cause is the objective, intrinsic, and juridical
intended for any purpose contrary to law, • Things are impossible when they are not reason for the existence of the contract itself,
morals, good customs, public order or public susceptible of existing, or they are outside the while motive is the psychological, individual, or
policy binds the parties to their real agreement. commerce of man. Personal acts or services personal purpose of a party to the contract.
(n) impossible when they beyond the ordinary • As a general principle, the motives of a party
• In absolute simulation, there is color of a strength or power of man. do not affect the validity or existence of a
contract, without any substance thereof, the • The impossibility must be actual and contract. Exceptions: When motive
parties not having any intention to be bound. contemporaneous with the making of the predetermines the purpose of the contract, such
• In relative simulation, the parties have an contract, and not subsequent thereto. as
agreement which they conceal under the guise • The impossibility is absolute or objective when 1. When the motive of a debtor in alienating
of another contract. Example: a deed of sale nobody can perform it; it is relative or property is to defraud his creditors, the
executed to conceal donation. subjective when due to the special conditions or alienation is rescissible;
• 2 juridical acts under relative simulation: qualifications of the debtor it cannot be 1. When the motive of a person in giving his
ostensible act, that which the parties pretend to performed. consent is to avoid a threatened injury, as in the
have executed; hidden act, that which consists • The absolute or objective impossibility case of intimidation, the contract is voidable;
the true agreement between the parties. nullifies the contract; the relative or subjective and
SECTION 2. - Object of Contracts does not. 2. When the motive of a person induced him to
Art. 1349. The object of every contract must be act on the basis of fraud or misrepresentation
• The object of a contract is its subject matter. determinate as to its kind. The fact that the by the other party, the contract is voidable.
It is the thing, right, or service which is the quantity is not determinate shall not be an Art. 1352. Contracts without cause, or with
subject-matter of the obligation arising from obstacle to the existence of the contract, unlawful cause, produce no effect whatever.
the contract. provided it is possible to determine the same, The cause is unlawful if it is
• Requisites: 1) It must be within the commerce without the need of a new contract between the contrary to law, morals, good customs, public
of man; 2) it must be licit, or not contrary to parties. (1273) order or public policy. (1275a)
law, morals, good customs, public policy, or • The thing must have definite limits, not Art. 1353. The statement of a false cause in
uncertain or arbitrary. contracts shall render them void, if it should not
be proved that they were founded upon another to sell and to buy ensues, and the offeree ipso Maximo sold the entire property to Evaristo,
cause which is true and lawful. (1276) facto assumes the obligations of a purchaser.” – Petronila, Pacifico, and Miguel Narciso—who
• Where the cause stated in the contract is false, J. Antonio, concurring opinion. first took possession of the eastern half and
the latter may nevertheless be sustained by HILL VS VELOSO later demanded Miguel and Candida to vacate
proof of another licit cause. July 24, 1915 the
Art. 1354. Although the cause is not stated in Maximina Veloso claimed that she was tricked
the contract, it is presumed that it exists and is by her son-in-law Domingo Franco into signing western half. The spouses moved to declare the
lawful, unless the debtor proves the contrary. a blank document, unknowingly binding her to deeds of sale over the western half of the
(1277) a debt of P6,319 to Michael & Co. She thought, property null and void.
• Unless the contrary is proved, a contract is according to her, she was made to sign to HELD: Consent in the case at bar was
presumed to have a good and sufficient acknowledge an obligation to pay for the admittedly given, albeit under the influence of
consideration. This presumption applies when guardianship of the minor children of fraud. Accordingly, said consent, although
no cause is stated in the contract. Potenciano Veloso (her brother?). And that she defective, did exist. In such case, the defect in
Art. 1355. Except in cases specified by law, learned of the true nature of the document (a the consent would provide a ground for
lesion or inadequacy of cause shall not promissory note to Michael & Co.) only after annulment of a voidable contract, not a reason
invalidate a contract, unless there has been Franco’s death. But, clearly, her signatures on for nullity ab initio.
fraud, mistake or undue influence. (n) the promissory note were obtained by means of As for the cause or consideration, liberality did
• In case of lesion or inadequacy of cause, the fraud. not exist as regards the western portion of the
general rule is that the contract is not subject to HELD: Granted there was deceit in executing Mapalo property. There was no donation with
annulment. the Promissory Note to Michael & Co., still the regard to the same. Under the Civil Code,
• In cases provided by law, however, such as deceit and error alleged could not annul the contracts without a cause or consideration
those mentioned in Art 1381, the lesion is a consent of Veloso nor exempt her from the produce no effect whatsoever. The alleged
ground for rescission of the contract. obligation incurred. The deceit, in order that it consideration of P500 in the deed of sale was
• Gross inadequacy naturally suggests fraud may annul the consent, must be that which the totally absent as it was not received by the
and is evidence thereof, so that it may be law defines as a cause. “There is deceit when by spouses. Decision: for Miguel and Candida.
sufficient to show it when taken in connection words or insidious machinations on the part of SANTOS VS COURT OF APPEALS
with other circumstances. one of the contracting parties, the other is August 1, 2000
CASES induced to execute a contract which without Rosalinda Santos sold her property in
SANCHEZ VS RIGOS June 14, 1972 them he would not have made.” (Art 1269, Civil Parañaque to Carmen Caseda. Caseda gave an
Nicolas Sanchez and Severina Rigos executed Code) initial payment and took possession of the
an “Option to Purchase” whereby Rigos Franco was not one of the contracting parties property, which she then leased out. Caseda,
“agreed, promised, and committed’ to sell to who may have deceitfully induced the other however, suffered from bankruptcy and failed
Sanchez a parcel of land for P1,510. The contracting party, Michael & Co., to execute the to pay the remaining balance. Santos
understanding was that the Option will be contract. The one and the other of the re-possessed the property and collected the
deemed “terminated and elapsed” if Sanchez contracting parties, to whom the law refers, are rentals from the tenants thereof. Caseda sold
fails to exercise his right to buy said property the active and passive subjects of the obligation, her fishpond in Batangas and raised money
within 2 years from the execution of the the party of the first part and the party of the enough to pay the balance. Santos, however,
agreement. Sanchez did tender second part who execute the contract. The wanted a higher price now taking into
active subject and the party of the first part of consideration the real estate boom in Metro
several payments within the specified period the Promissory Note in question was Michael & Manila. Caseda filed a petition either to have
but Rigos rejected said payments, arguing that Co., and the passive subject and party of the Santos execute the final deed of conveyance
the Option was a unilateral promise to sell and second part were Veloso and Franco. Veloso over the property or, in default thereof, to
was unsupported by any valuable consideration and Franco, therefore, composed a single reimburse the amount she had already paid.
and by force of the Civil Code. And therefore, contracting party in contractual relation with HELD: Taking into consideration the essential
pointed out Rigos, the Option was null and void. or against Michael & Co. requisites of a contract, the Court concluded
HELD: The Option was not a contract to buy Franco, like any other person who might have that there was no transfer of ownership
and sell. It did not impose upon Sanchez the induced Veloso into signing the Promissory simultaneous with the delivery of the property
obligation to purchase Rigos’ property. It Note under the influence of deceit, would be but purportedly sold to Caseda. The records clearly
merely granted Sanchez an option to buy. There a third person. Under the Civil Code, deceit by showed that, notwithstanding the fact that
is nothing in the contract to indicate that Rigos’ a third person does not in general annul Caseda took possession of the property, the title
agreement or promise was supported by a consent. This deceit may give rise to more or had remained always in the name of Santos.
consideration “distinct from the price” less extensive and serious responsibility on the Thus, the contract between Santos and Caseda
stipulated for the sale of land. part of the third person (Franco) and a was a contract to sell—ownership is reserved by
Under Arts 1324 and 1479 of the Civil Code, corresponding right of action for the the vendor and is not to pass until full payment
however, a unilateral promise to sell—although contracting party prejudiced (Veloso). [Veloso of the purchase price.
not binding as a contract in itself for lack of a will probably just have to file an action against Since the case at bar involves a contract to sell,
separate consideration—nevertheless generates the estate of Franco.] a judicial rescission of the agreement is not
a bilateral contract of purchase and sale upon Veloso ordered to pay Michael & Co. necessary. In a contract to sell, the payment of
acceptance. MAPALO VS MAPALO the purchase price is a positive suspensive
In other words, since there may be no valid May 19, 1966 condition. Failure to pay the price agreed upon
contract without a cause or consideration, the Spouses Miguel and Candida Mapalo—simple is not a mere
promisor is not bound by his promise and may, and illiterate farmers —donated the eastern breach, casual or serious, but a situation that
accordingly, withdraw it. Pending notice of his half of their property to Maximo Mapalo, prevents the obligation of the vendor to convey
withdrawal, his accepted promise partakes of Miguel's brother, who was about to get title from acquiring an obligatory force. Thus, if
the nature of an offer to sell which, if accepted married. Maximo, however, deceived Miguel the vendor should eject the vendee for failure to
as in the case at bar, results in a perfected and Maxima into signing a deed of absolute sale meet the condition precedent, he is enforcing
contract of sale. Decision: for Sanchez. over the entire property in his favor. Maximo the contract and not rescinding it.
“An option implies the legal obligation to keep and his notary public led the spouse to believe For comparative purposes, in a contract of sale,
the offer to sell open for the time specified. It that the deed of sale covered only the eastern non-payment of the price is a negative
could be withdrawn before acceptance, if there half of the property. The deed even stated an resolutory condition. The vendor has lost
was no consideration for the option. But once alleged consideration of P500, which the ownership of the thing sold and cannot recover
the offer to sell is accepted, a bilateral promise spouses never received. Thirteen years later, it unless the contract is rescinded and set aside.
Decision: For Santos. of the offer and the acceptance upon the thing a monte game, a game of chance, and therefore
SANTOS VS HEIRS OF JOSE MARIANO and the cause which are to constitute the expressly prohibited by law. As the law does not
AND ERLINDA MARIANO-VILLANUEVA contract (See Article 1319, Civil Code). allow an action for the recovery of money won
October 24, 2000 2. In the case at bar, the signing and execution in such games (art. 1798 of the Civil Code), it
Spouses Macario Mariano and Irene of the contract by the parties clearly show that, follows that the action brought by Palma can
Peña-Mariano owned 6 parcels of land. When as between the parties, there was a concurrence not be maintained, nor can any judgment be
Macario died and left no will, his share over the of offer and acceptance with respect to the rendered by the courts directing the payment of
properties passed on to his children and Irene. material details of the contract, thereby giving the sum claimed in the complaint.
Irene, who was appointed the heirs’ lawful rise to the perfection of the contract. The undertaking expressed in the note executed
representative and agent, subsequently executed 3. To illustrate, when petitioners accepted by a third person in favor of the woman,
an Affidavit of Merger whereby she merged private respondents’ bid proposal (offer), there Salazar, by order of Cañizares does not
unto her name the land titles covering all the was, in effect, a meeting of the minds upon the constitute a ratification or confirmation of the
properties in question. Over the years, she object (waste management project) and the obligation contracted to pay the sum lost in a
remarried and disposed of all 6 parcels of land cause (BOT scheme). Hence, the perfection of monte game.
in favor of one Raul Santos. The children the contract. Furthermore, it has not been proven that
learned of all this only after Irene’s death. 4. Despite the lack of valid notice of award, the Canizares gave his consent to the subrogation
ISSUE: Whether the supposed contracts of sale defect was cured by the subsequent execution of Thus, the obligation of the supposed debtor,
of various pieces of real property entered into the contract entered into and signed by because of its vicious origin, is not enforceable
between Irene as vendor and the respective authorized representatives of the parties; in court, it follows that no recovery can be had
vendees were bona fide contracts, legal, and 5. In any event, petitioners, as successors of in this suit.
binding upon the children—who were those who previously acted for the government Dumez vs. NLRC
registered co-owners of said real properties. (Chairman Oreta, et al), are estopped from Facts:
HELD: Even with a duly executed written assailing the validity of the notice of award Petitioner is a French company which hires
document purporting to be a contract of sale, issued by the latter. As private respondents Filipino workers through a ECCOI, a company
the Court cannot rule that the subject contracts correctly observed, in negotiating on the terms existing in the Philippines. Dumez needed 4
of sale are valid, when the evidence presented in and conditions of the BOT contract and Senior Draftsmen who were willing to work for
the courts below show that there had been no eventually signing said contract, the $600/month at Saudi Arabia. Private
meeting of the minds between the supposed government had led private respondents to respondent Jose was among the draftsmen that
seller and corresponding buyers of the parcels believe that the notice of award given to them were hired by ECCOI in behalf of Dumez. The
of land in the case at bar. satisfied all the requirement of the law. employment agreement of Jose showed that his
The case is replete with evidence tending to 6. There being a perfected contract, MMDA monthly base salary would be $680. This
show that there was really no intention to sell cannot revoke or renounce the same without the discrepancy was discovered when Dumez began
the subject properties as far as the children consent of the other. From the moment of preparing the papers related to respondent’s
were concerned. perfection, the parties are bound not only to the first month salary. The discrepancy was
MMDA vs JANCOM fulfillment of what has been expressly stipulated reported to ECCOI who in turn claimed that it
but also to all the consequences which, was a mere typographical error. Meanwhile,
Facts: Jancom won the bid to operate the waste according to their nature, may be in keeping Jose insisted on being paid $680 per month as
disposal site in San Mateo, Rizal under the with good faith, usage, and law (Article 1315, stated in his employment agreement. Dumez
Build-Operate-Transfer (BOT) scheme.Aafter a Civil Code). The contract has the force of aw eventually dismissed Jose on the grounds of
series of meetings and consultations between the between the parties and they are expected to “surplus employee, excess of manpower and
negotiating teams of EXECOM and JANCOM, abide in good faith by their respective retrenchment.” A case was filed by Jose before
the BOT Contract for the waste-to-energy contractual commitments, not weasel out of the POEA and then before the NLRC who
project was signed between JANCOM and the them. Just as nobody can be forced to enter into ordered Dumez to pay the respondent’s salary
Philippine Government, represented by the a contract, in the same manner, once a contract for the unexpired portion of 1 year.
Presidential Task Force on Solid Waste is entered into, no party can renounce it Issue: WON there existed a valid contract
Management through DENR Secretary Victor unilaterally or without the consent of the other. between Dumez and Jose?
Ramos, CORD-NCR Chairman Dionisio dela It is a general principle of law that no one may Ratio:
Serna, and MMDA Chairman Prospero Oreta. be permitted to change his mind or disavow and The amount of monthly salary base was a prime
The BOT contract was submitted to President go back upon his own acts, or to proceed consideration of the parties in signing the
Ramos for approval but this was too close to the contrary thereto, to the prejudice of the other employment contract. Mutual mistake,
end of his term which expired without him party. Nonetheless, it has to be repeated that however, prevented the proposed contract from
signing the contract. President Ramos, however, although the contract is a perfected one, it is arising.
endorsed the contract to incoming President still ineffective or unimplementable until and The mutual mistake here should be
Joseph E. Estrada. However, due to the clamor unless it is approved by the President. distinguished from a mistake which vitiates
of residents of Rizal province, President Palma vs Canizares consent in a voidable contract.
Estrada had, in the interim, also ordered the Facts: The element of consent was not present at all in
closure of the San Mateo landfill. Due to these Saturnina Salazar and Juan Canizares took this case. There was no concurrence of the offer
circumstances, the Greater Manila Solid Waste part in a game of chance. Canizares lost and as and acceptance upon the subject matter and the
Management Committee adopted a resolution a result thereof, became indebted to Salazar in cause which are to constitute the contract.
not to pursue the BOT contract with JANCOM. the amount of $5,000. This was evidenced in a In a situation wherein one or both parties
MMDA decided to hold a new bidding for other promissory note signed by the brother-in-law of consider that certain matters or specifics, in
waste management in other locations. Jancom Canizares. Canizares paid 500, leaving a addition to the subject matter and the causa
won a court order compelling the MMDA to balance of 4500. Salazar meanwhile, received should be stipulated and agreed upon, the area
push through with their contract. 4500 from Palma. She indorsed the note to of agreement must extend to all points that the
Issue: Was there a valid contract despite the Palma who demanded the sum from Canizares. parties deem material or there is no contract.
lack of signature by the President and valid Issue: Is Canizares under obligation to pay Somoso vs. CA
notice of award? Palma? Held: No Facts:
Held: Yes The spouses Somosa purchased from Conpinco
Ratio: Ratio: one unit VHS (23k) with accessories and one
1. Article 1315 of the Civil Code, provides that a Held: NO unit Cinema Vision (124.5k) with complete
contract is perfected by mere consent. Consent, It is indubitable that the indebtedness of 5,000 accessories. They made partial payments which
on the other hand, is manifested by the meeting pesos expressed in the note referred to arose in were evidenced by provisional receipts.
However, by Aurgust 27, 1979, no further This is a petition for a writ of certiorari to set otherwise the contract of antichresis shall be
payments were made. On November of the aside certain orders of the CFI of Quezon City void.
same year, petitioner demanded that Conpinco dismissing a complaint for breach of contract Note: Antichresis: a contract whereby the
pull out the VHS unit because “it was not the and damage, etc. creditor acquires the right to receive the fruits
unit requested for demonstration.” Petitioner Facts: of an immovable of his debtor, with the
also requested the return of the 15k deposit. In • Marlene Dauden-Hernaez is a motion picture obligation to apply them to the payment of the
response, conpinco sent petitioners a collection actress who has filed a complaint against interest, if owing and thereafter to the principal
letter for the Cinema Vision and for the private resp Hollywood Far East Productions of his credit (Art. 2132).
National VHS. Petitioners are claiming that Inc and its President Ramon Valuenzela to a. Contracts that the law requires to be proved
there was no perfected contract of sale between recover P14, 700 representing a balance due to by some writing (memorandum) of its terms as
them and respondent Conpinco as there was no said actress for her services as leading actress in in those covered by the old Statute of Frauds,
meeting of the minds of the parties upon the two motion pictures produced by the company now Art. 1403(2) of the CC. (This is needed for
thing which is the object of the contract and and to recover damages. enforceability of the contract by an action in
upon the price of the said thing. Petitioners • Her petition was dismissed by the lower court court).
claim they only requested a demonstration. because “it was defective because not evidenced • The basis error in the court’s decision lies in
Issue: WON there was a contract? Held: YES by any written document, either public or overlooking that in our contractual system it is
Ratio: private considering that the claim is more than not enough that the law should require that the
P500 ” thereby violating Article 1356 and 1358 contract be in writing, as it does in Art. 1358.
The claims of petitioners are belied by the two of the Civil Code. The law MUST further PRESCRIBE that
documents of sale signed by the spouses as Issue: without the writing the contract is not valid or
buyers which documents were notarized. WON the court below abused its discretion in enforceable by action.
The acts of petitioners before and after the ruling that a contract for personal services • Order set aside and case remanded to court of
delivery of the National VHS negates any claim involving more than P500 was either invalid or origin for further proceedings.
that the set was delivered for demonstration unenforceable under the last par of 1358 of the Alano et al vs. Babasa (1908)
purposes only and that there was no meeting of CC. Facts:
the minds between the parties as to the subject Held: • Juana Cantos assisted by her husband Jose
of the sale and its price. (delivery of checks as • Yes. The court below abused its discretion. Alano filed a complaint against the defendant
partial downpayment etc.) There was a misunderstanding of the role of the Jose Babasa alleging that the complainant
Yuvienco vs. Dacuycuy written form in contracts, as ordained in the Cantos has the right to repurchase the land
Facts: present CC. which her father pledged to guarantee a debt of
Petitioners were selling a parcel of land located • The contractual system of our CC still follows P1300 in favor of Fulgencio Babasa and Maria
in Tacloban. They expressed willingness to sell that of the Spanish Code of 1889 and of the Cantos, the parents of the defendant (relative
the property at 6.5M to private respondents as “Ordenamiento de Alcala” (ah so Leghis) of siguro ng complainant yung defendant, pinsan
long as the latter would make known its upholding the spirit and intent of the parties siguro).
decision to buy not later than July 31, 1978. The over formalities, hence, in general, contracts are • The contract entered into on July 18, 1883
private respondents reply, thru a letter stated valid and binding from their perfection stipulated a condition that the creditors should
“we agree to buy property proceed to Tacloban regardless of the enjoy the usufruct of said land from the date of
to negotiate details.” The respondents are now contract and that for seven years to take
filing a complaint for specific performance form, whether they be oral of written as possession of the land as if their own and that
which the petitioners want dismissed on the provided by Art 1315 (Contracts are perfected after 7 years, the debtor is entitled to redeem
ground of lack of cause of action. The judge by mere consent xxx) and by 1356 ( Contracts the land by paying the debt.
ruled negatively on the motion to dismiss. shall be obligatory in whatever form they may • Petitioner claims that they talked to defendant
Issue: WON the facts show the existence of a have been entered into xxx). and that in the beginning engaged to permit its
perfected contract of sale? • The essential requisites are present in the redemption later on offered to definitely
Held: NO contract- C-O-C. purchase said land at an increase price but
Ratio: • However 1356 also provides two exceptions: plaintiff did not agree.
Art. 1319 CC: Consent is manifested by the a. Contracts for which the law itself requires • Defendant made a general denial and alleged
meeting of the offer and the acceptance upon that they be in some particular form (writing) that the land described had been sold with right
the thing and the cause which are to constitute in order to make them valid and enforceable of repurchase and that the parents of the
the contract.The offer must be certain and the (the so-called solemn contracts). plaintiff had lived years after the expiration of
acceptance absolute. A qualified acceptance Ex. the 7-year period provided and that they never
constitutes a counter- offer. Acceptance made 1. donation of immovable property (in public exercised the right to repurchase.
by letter or telegram does not bind the offerer ins) (Art. 749) 2. donation of movables worth Issue:
except from the time it came to his knowledge. more than P5,000 (Art. 748) 3. contracts to pay
The contract, in such a case, is presumed to interest in loans (mutuum) (Art. 1956). 4. WON the plaintiff can repurchase the said land
have been entered into in the place where the agreements contemplated in: taking into consideration that the Civil Code
offer was made. 4.1. Art 1744: Stipulation bet the common was enacted in Dec. 1889 which provides a
The telegram instructing Atty Gamboa to carrier and the shipper or the owner limiting different prescriptive period.
“proceed to Tacloban to negotiate details” is the the liability of the former for the loss Held:
key that negates and makes it legally impossible destruction or deterioration of the goods to a No. Her action has already prescribed.
for the court to hold that respondents’ degree less than extraordinary diligence xxx • The contract was entered into on July 18, 1883
acceptance of petitioners offer, was the 4.2. Art 1773: A contract of partnership is void, and the 7 year expiration has commenced on
“absolute” one that Art. 1319 requires. whenever immovable property is contributed June 19, 1890 and at that time the CC became
“to negotiate” is practically the opposite of the thereto, if an inventory of said property is not effective already thus the provisions of the Code
idea that an agreement has been reached. made, signed by the parties, and attached to the can be applied on the case.
There was a failure of any meeting of the minds public instrument. • Art. 1939 shall be the applicable to the case
of the parties. It was because of their past 4.3. Art. 1874: When a sale of a piece of land or which states that: Prescription, which began to
failure to arrive at an agreement that any interest therein is through an agent, the run before the publication of this code, shall be
petitioners had to put an end to the uncertainty authority of the latter shall be in writing; governed by the prior laws; but if, after this
by writing the letter dating July 12, 1978. otherwise, the sale shall be void. code became operative, all the time required in
FORM OF CONTRACTS 4.4. Art. 2134: The amount of the principal and the same for prescription has elapsed, it shall be
Dauden-Hernaez vs. De los Angeles (1969) of the interest shall be specified in writing;
effectual, even if according to said prior laws a defendants could not acquire it through properties and that they have been allowed to
longer period of time may be required. prescription. temporarily operated the properties under the
• Excerpt from the contract: “it has been agreed Issue: direct control and supervision of plaintiff
to between us that we shall convey to him the WON the lower court was correct in rendering and/or its representatives with the express
said land from this day, and that he will cause the judgment for the plaintiff. understanding that defendants acknowledge
the same to be worked from this date as if it Held: and recognize plaintiff’s ownership and right to
were his own property for a period of seven • Judgment affirmed. repossess and take custody of said properties.
years; that we shall have the right to redeem it • This agreement was approved by Branch XXI
for the said sum of P1,000 at the expiration of No. One sells or buys the property as he sees it, of this Court and a decision was rendered
seven years in such a manner that said land in its actual setting and by its physical metes enjoining the parties thereto to faithfully
shall be under his care as long as we do not pay and bounds, and not by the mere lot number comply with the terms and conditions. But the
the redemption money”. assigned to it in the certificate or title. Pajarillaga’s still did not comply with the
• In the absence of an express agreement, the • The portion correctly referred to as lot A was compromise agreement thus the sheriff levied
right to redeem the thing sold shall only last already in the possession of Atilano II who had on 27 pieces of heavy equipment.
and may only be exercised within 4 years constructed his residence therein even before • The Pajarillaga’s claim that there was fraud
counted from the date of the contract (in this the sale in his favor. because they signed the Compromise agreement
case, it shall be counted from 1889 when the • The sale was a simple mistake in the drafting without the help of their counsel and that it was
said code went into effect). It has already of the document. The mistake did not vitiate the just one-sided in favor of FNCB, thus, filed for
expired when the action was brought in 1907. consent of the parties or affect the validity and an annulment of the compromise agreement
• Relevance of case under the title: It is a binding effect of the contract between them. and the simulated lease agreement. (RTC and
contract of sale with right to repurchase and it • The new CC provides a remedy for such a CA ruled in favor of the Pajarilla’s)
is valid, perfect and efficient because the three situation by means of reformation of the Issue:
requisites are present and is also binding instrument. This remedy is available when, WON annulment should be the proper remedy
notwithstanding the fact that it has been drawn there having been a meeting of the minds of the for the Pajarillaga spouses.
up as a private document, and the legalization parties to a contract, their true intention is not Held:
of a contract by means of a public writing and expressed in the instrument purporting to • No. According to the Court, their action for
its entry in the register are not essential embody the agreement by reason of mistake, annulment of the simulated lease agreement
solemnities or requisites for its validity and fraud, inequitable conduct or accident (1359). was seasonably filed in 1979, within 10 years
efficacy as between the contracting parties, but • In this case, the deed of sale executed in 1920 from the date of its execution in 1974 (1144
just conditions of form which the law imposes in need no longer be reformed. The parties have CC). However the trial court and the CA should
order that it may be effective and recorded retained possession of their respective have treated it as an action for reformation of
agreement may be respected by the latter. properties conformably to the real intention of contract.
REFORMATION OF INSTRUMENTS Atilano the parties to that sale, and all they should do is • For when the true intention of the parties to a
vs. Atilano (1969) to execute mutual deeds of conveyance. contract is not expressed in the instrument
Facts: Investors Finance Corporation vs. CA (1991) purporting to embody
• In 1916, Eulogio Atilano I acquired by Facts:
purchase from Villanueva lot no. 535 in • Before April 30, 1974 resp Richmann Tractors their agreement by reason of mistake, fraud,
Zamboanga, obtained the transfer certificate of Inc, with Pajarillaga as president were the inequitable conduct or accident, the remedy of
title in his name and in 1920 divided the said lot owners of certain construction equipment and the aggrieved party is to ask for the
into 5 parts identified as lots Nos. 535-A, 535-B, being in need of financing (for operation of reformation, not annulment, of the instrument
535-C, 535-D, 535-D, 535-E. their construction and logging business) went to to the end that their true agreement may be
• On May 18, after the subdivision of the said Investor’s Finance Corporation (or FNCB expressed therein.
lot, he executed a deed of sale cover lot E in Finance) with their equipment as collateral. In • If the true transaction between FNCB and
favor of his brother Eulogio Atiliano II, who the documents which were executed, it was Pajarillaga or Richman Tractors—an loan with
obtained lot E, and the three other lots were made to appear that FNCB was the owner of chattel mortgage—had been reflected in the
sold to other persons. Atilano I retained for the equipments and that private resp were documents, instead of a simulated financial
himself only the remaining portion of the land merely leasing them. As a consideration for the leasing, the creditor-mortgagee (FNCB), upon
presumably Lot A. lease, private resp were to pay monthly the mortgagor’s default in paying the debt,
• In 1952, Atilano II died, thus his widow and amortizations over a period of 36 mos). would have been entitled to seize the mortgaged
children obtained the transfer certificate over E • On April 30, 1974, petitioner FNCB Finance machinery and equipment from Pajarillaga for
in their names as co-owners but in 1959 they and respondent Richmann Tractors executed a the purpose of foreclosing the chattel mortgage
decided to subdivide the lot and they then Lease Agreement covering various properties therein. The mortgagors would have had no
discovered upon the results of the survey that described in the Lease Schedules attached to the cause of action for actual, moral and exemplary
the land they were actually occupying was lot A Lease Agreement. As security for the payment damages arising from the replevin of their
and not E. of resp Richmann’s obligations under the Lease mortgaged machinery and equipment by the
• Because of this, they demanded that Lot E be Agreement, resp Pajarillaga’s executed a creditor, FNCB.
surrendered to them and offered to surrender Continuing Guaranty dated April 30, 1974. INTERPRETATION OF CONTRACTS
Lot A to the descendants of Atilano I but they • Richmann also applied for and was granted Borromeo v CA 1972
refused. It is understandable that they wanted credit financing facilities by petitioner in the Facts: Jose A. Villamor, the debtor, borrowed
Lot E because it has an area of 2612 sqm as amount of almost 1M payable in installments. from Canuto O. Borromeo, the original
compared to 1808 sqm of lot A. • Private respondents defaulted in their creditor, a large sum of money for which he
• Defendants (Atilano II descendants) answered respective obligations. FNCB demanded for the mortgaged his house and lot. Said mortgage,
that it was just an involuntary error and that obligations to be fulfilled and thereafter filed a however, was not properly drawn up and
the intention of the parties was to convey the lot complaint for seizure. registered, so that the mortgaged house and lot
correctly identified as A. Atilano I had been • A writ of replevin was issued for the seizure of ended up attached to a separate civil action
possessing and had his house on the portion the heavy equipment and machineries subject of initiated by a certain Mr. Miller against
designated as E and in fact increased the area the lease agreement and when served upon the Villamor. When Villamor was being pressed to
by purchasing the adjacent lot from its owner Pajarillaga’s, they panicked and proceeded to settle his obligation with Borromeo, the former
Carpio. the office of the FNCB and its counself and assured his creditor that he would still pay the
• RTC rendered judgment for the plaintiff on thereafter signed a Compromise agreement debt and executed a written document
the sole ground that since the property was which states among others that the Pajarillaga’s promising to pay his debt to Borromeo even
registered under the Land Registration Act, the acknowledge that plaintiff is the owner of all the after the lapse of ten years, the legal
prescriptive period for recovery of debts. The in cash.. is a clear confirmation of the fact that Art. 1382. Payments made in a state of
creditor never instituted any action against the petitioner paid in cash the cost of the sugar.. on insolvency for obligations to whose fulfillment
debtor within the ten years following the the very day that the contract was signed.. the debtor could not be compelled at the time
execution of the said document Action to they were effected, are also rescissible. (1292)
recover the sum from the debtor was filed only Riviera Filipina v CA 2002 Art. 1383. The action for rescission is
after ten years and was rejected by CA for 2 Facts Riviera Filipina, Inc. entered into a subsidiary; it cannot be instituted except when
main reasons: (1)ten-year prescriptive period contract of lease with Juan Reyes involving the party suffering damage has no other legal
for recovery of debts had elapsed, (2) document 1,018 square meters of real property owned by means to obtain reparation for the same. (1294)
promising to pay even after ten years was void Reyes. Paragraph 11 of the lease contract Art. 1384. Rescission shall be only to the extent
because promise was illegal, it being violative of expressly provided that “lessee shall have the necessary to cover the damages caused. (n)
principle “that a person cannot renounce future right of first refusal should the lessee decide to Art. 1385. Rescission creates the obligation to
prescription”. sell the property during the term of the lease.” return the things which were the object of the
Issue: WON written document promising to pay When Reyes decided to sell the property in contract, together with their fruits, and the
after ten years is void for being illegal. 1988, he entered into a series of negotiations price with its interest; consequently, it can be
Held: No. In the interpretation of the written with Riviera Filipina but the parties failed to carried out only when he who demands
document or contract wherein Villamor agree on the price for the subject property. rescission can return whatever he may be
promised to pay his debt even after ten years, Riviera Filipina, Inc. clearly expressed its obliged to restore.
CA relied too heavily on the words employed in refusal to go beyond the price of 5,000 per Neither shall rescission take place when the
said document without taking the intention of square meter. Another interested party offered things which are the object of the contract are
the parties into consideration. Reference to to purchase the same property for 5,300 per legally in the possession of third persons who
the prescriptive period of ten years is square meter. Riviera Filipina was well- did not act in bad faith.
susceptible to the construction that only after informed that there were other interested In this case, indemnity for damages may be
the lapse thereof could the demand be made for buyers but did not know of specific price demanded from the person causing the loss.
the payment of the obligation. offered by other party. Riviera Filipina now (1295)
Prescriptive period to file action thus started to filing suit against Reyes and 3rd party
run only after ten years had lapsed. This is purchaser, contending that their right of first Art. 1386. Rescission referred to in Nos. 1 and 2
consistent with the actions and intent of the two refusal was violated because they were not given of Article 1381 shall not take place with respect
parties. the opportunity to match the offer of 5,300 per to contracts approved by the courts. (1296a)
In declaring the said contract to be void, CA square meter. Art. 1387. All contracts by virtue of which the
ran counter to the well-settled maxim that Issue WON right of first refusal in the contract debtor alienates property by gratuitous title are
between two possible interpretations, that of lease may be interpreted as to require that presumed to have been entered into in fraud of
which saves rather than destroys is to be the lessee have specific knowledge of the price creditors, when the donor did not reserve
preferred. offered by other interested parties, thereby sufficient property to pay all debts contracted
Lim Yhi Luya v CA 1980 amounting to a right to match. before the donation.
Facts: Lim Yhi Luya entered into a contract of Held No. “Intention of the parties shall be Alienations by onerous title are also presumed
sale with private respondent, Hind Sugar accorded primordial consideration and in case fraudulent when made by persons against
Company, wherein the latter sold to the former of doubt, their contemporaneous and whom some judgment has been issued. The
4,085 piculs of sugar. The terms of the contract subsequent acts shall be principally decision or attachment need not refer to the
which was drawn by the respondent company considered.” property alienated, and need not have been
explicitly stated “cash upon signing of this The actions of the two principal parties obtained by the party seeking the rescission.
contract”. Much of the sugar was properly involved in the contract of lease shaped their In addition to these presumptions, the design to
delivered to the plaintiff in the next few months understanding and interpretation of the “right defraud creditors may be proved in any other
except for a remaining 350 piculs of sugar. of first refusal” to mean simply that should manner recognized by the law of evidence.
When plaintiff filed an action to compel the Reyes decide to sell the property during the (1297a)
delivery of the remaining 350 piculs, private term of the lease, such sale should first be Art. 1388. Whoever acquires in bad faith the
respondent company contended that no offered to Riviera. Riviera's stubborn approach things alienated in fraud of creditors, shall
payment had yet been made by the plaintiff, in its negotiations with Reyes showed crystal indemnify the latter for damages suffered by
contrary to the terms stipulated in their clear that there was never any need to disclose them on account of the alienation, whenever,
contract. Plaintiff had no receipt to prove that such information. due to any cause, it should be impossible for
payment had been made but contends that the DEFECTIVE CONTRACTS: RESCISSIBLE him to return them.
terms stipulated in the contract is sufficient CONTRACTS If there are two or more alienations, the first
proof that payment had been made at around Art. 1380. Contracts validly agreed upon may acquirer shall be liable first, and so on
the time the contract was signed. be rescinded in the cases established by law. successively. (1298a)
Issue: WON the statement “cash upon signing (1290) Art. 1389. The action to claim rescission must
of this contact” in the contract of sale drawn up Art. 1381. The following contracts are be commenced within four years.
by the respondent company may be interpreted rescissible: For persons under guardianship and for
as sufficient proof that payment had in fact (1) Those which are entered into by guardians absentees, the period of four years shall not
been made. whenever the wards whom they represent suffer begin until the termination of the former's
Held: Yes. Although the contract is ambiguous lesion by more than one-fourth of the value of incapacity, or until the domicile of the latter is
enough to admit of several valid interpretations, the things which are the object thereof; known. (1299)
the interpretation to be taken shall not favor the (2) Those agreed upon in representation of Notes:
respondent company since it is the party who absentees, if the latter suffer the lesion stated in * 4 years from when? Example insane , from
caused the ambiguity in its preparation. (see the preceding number; lucid interval ba?
Art 1377) The ambiguity raised by the use of (3) Those undertaken in fraud of creditors * 1st remedy (since subsidiary action ang
the words or phrases in the questioned when the latter cannot in any other manner rescission) is to ask for the amount of lesion to
provision must be resolved and interpreted collect the claims due them; be repaired.
against the respondent company. (4) Those which refer to things under litigation UFC V CA
Respondent company's act of delivering to the if they have been entered into by the defendant May 13, 1970
petitioner four delivery orders covering all the without the knowledge and approval of the Magdalo V. Francisco, Sr. invented the Mafran
4,035 piculs of sugar, viewed in the light of the litigants or of competent judicial authority; sauce, a food seasoning made out of banana
established fact that all sugar transactions (5) All other contracts specially declared by law (ketchup?) and had the formula patented and
between petitioner and respondent are always to be subject to rescission. (1291a) the name registered as his own trademark.
In May 1960, Francisco Sr. entered into a J. J.B.L. Reyes: Reynoso sold the land to Guzman, Bocaling and
contract with Universal Food Corporation A rescission for breach of contract under Art Co. for P400K.
entitled “Bill of Assignment” wherein Francisco 1191 CC is not predicated on injury to The Bonnevies filed an action for annulment of
assigned the USE of the Mafran sauce formula economic interests of the party plaintiff, but on the sale, and that Reynoso be required to sell
to UFC (right to mass produce and sell) in the breach of faith by the defendant, that the property to them which CFI granted and
exchange for a permanent assignment as violates the reciprocity between the parties. It is CA affirmed.
Second Vice President and Chief Chemist with not a subsidiary action, and Art 1191 may be Held: The CA correctly held that the Contract
a salary of P300/month, and becoming a scanned without disclosing anywhere that the of Sale was not voidable but Rescissible.
member of the Board of Directors. action for rescission thereunder is subordinated Doctrine:
On November 30, 1960 UFC dismissed to anything other than the culpable breach of Under Art. 1380 to 1381 (3) of the Civil Code, a
Francisco and the staff working on the Mafran his obligations by the defendant. This rescission contract otherwise valid may nonetheless be
sauce on the pretense of scarcity and high prices is a principal action retaliatory in character, it subsequently rescinded by reason of injury to
of raw materials; but 5 days later, the President being unjust that a party be held bound to third persons like creditors. The status of
and General Manager of UFC Tirso T. Reyes, fulfill his promise, when the other violates his. creditors could be validly accorded the
ordered the Auditor/Superintendent and the Hence the reparation of damages for the breach Bonnevies for they had substantial interests that
Assistant Chief Chemist to produce the Mafran is purely secondary. were prejudiced by the sale of the subject
sauce in full swing, to recall the laborers In Art 1381, the cause of action is subordinated property to the petitioner without recognizing
dismissed (except for Francisco Sr.) and to hire to the existence o f that prejudice because it is their right of first priority under the Contract
additional daily laborers. The Mafran sauce the raison d’ etre as well as the measure of the of Lease.
produced was of inferior quality because of the right to rescind. Hence, when the defendant According to Tolentino, rescission is a remedy
absence of Francisco Sr. who alone knew the makes good the damage caused, the action granted by law to the contracting parties and
exact formula. cannot be maintained or continued, as expressly even to third persons, to secure reparation for
GM Reyes also admitted that “I consider the provided in Art. 1383 and 1384. But the damages caused to them by a contract, even if
two months we paid him (Francisco Sr.) is the operation of these 2 articles is limited to the this should be valid, by means of the restoration
separation pay.” cases of rescission for lesion enumerated in of things to their condition at the moment prior
Thus Francisco Sr. filed an action for Rescission Article 1381 of the CC, and does not apply to to the celebration of said contract.
of the contract. Lower court dismissed the case. cases under Art. 1191. It is a relief allowed for the protection of one of
CA reversed: rescinded the contract and Equitorial V Mayfair, ibid. (case #14 sa page 1 the contracting parties and even third persons
ordered UFC to 1. Return the Mafran Sauce syllabus) from all injury and damage the contract may
formula and trademark 2. Pay Francisco Sr. his Nov. 21, 1996 cause, or to protect some incompatible and
salary since Dec 1960 until the return of the In 1967, Carmelo entered a contract of lease preferent right created by the contract.
Mafran formula and trademark and 3. Pay with Mayfair Theater for a portion of Rescission implies a contract which, even if
attorney’s fees and costs. Carmelo’s property with a stipulation (par. 8) initially valid, produces a lesion or pecuniary
Held: CA correctly observed that UFC schemed of an exclusive option by Mayfair to purchase damage to someone that justifies its invalidation
and maneuvered to ease out and dismiss the property in case Carmelo decides to sell it. for reasons of equity
Francisco Sr. from the service as chief chemist, In 1974, Mr. Pascal of Carmelo called Mr. Yang Voidable Contracts Voidable Contracts
in flagrant violation of the Bill of Assignment; of Mayfair because another party was willing to • Contracts that are voidable or annullable:
and that the notice of recall was to placate buy the property. a. When either party is incapable of giving
Francisco Sr. Therefore in addition UFC is 4. Despite Mayfair giving notice of interest to buy; consent to
Enjoined from using in any manner said Carmelo sold the property to Equatorial on a contract
Mafran sauce trademarkand formula and 5. 1978. b. When consent is vitiated by mistake, violence,
pay legal interest on Francisco Sr.’s salary. Mayfair then brought suit for the annulment of Binding, unless annulled by a proper court
Doctrine: the sale of the leased premises to Equatorial. action
The general rule is that rescission of a contract RTC dismissed the petition and found par. 8 to Ratifiable (Art. 1390)
will not be permitted for a slight or casual be an option clause that cannot bind Carmelo • Prescription for action of annulment: 4 years
breach, but only for such substantial and for lack of separate and distinct consideration. to
fundamental breach as would defeat the very CA reversed; par. 8 – right of first refusal begin:
object of the parties making the agreement. The according to art. 1479 par. 2. when vice is due to intimidation, violence or
question of Held: Par. 8 is a right of first refusal, so the undue influence – from the time defect of
contract between Carmelo and Equatorial must consent ceases mistake or fraud – from the time
whether a breach of a contract is substantial be rescinded. of discovery entered into by minors or those
depends upon the attendant circumstances. Ratio: the right was incorporated for Mayfair’s incapable of giving consent – the moment
Recall: Art 1191 CC: The power to rescind protection; Mayfair should be given the right to guardianship ceases (Art. 1391)
obligations is implied in reciprocal ones, in case match the P11.3M price. Equatorial is a buyer • Ratification
one of the obligors should not comply with what in bad faith. extinguishes action for annulment (Art. 1392)
is incumbent upon him. Doctrine: same with Guzman, Bocaling V may be express or tacit (Art. 1393)
The injured party may choose between the Bonnevie • tacit ratification – the execution of an act
fulfillment and the rescission of the obligation Guzman, Bocaling V Bonnevie which necessarily implies an intention to waive
with the payment of damages in either case. He March 2, 1992 his right by the party, who, knowing of the
may also seek rescission even after he has Africa Valdez de Reynoso, the administratrix of reason which renders the contract voidable, has
chosen fulfillment, if the latter should become a parcel of land leased it to the Bonnevies for a right to invoke annulment.
impossible. P4,000 per month with a stipulation that the may be effected by the guardian of the
The Court shall decree the rescission claimed, Bonnevies will be given first priority to incapacitated person (Art. 1394)
unless there be just cause authorizing the fixing purchase the land should Reynoso decide to sell does not require the conformity of the person
of a period. it. who does not have a right to bring an action for
This is understood to be without prejudice to According to Reynoso, she notified the annulment (Art. 1395)
the rights of third persons who have acquired Bonnevies via registered mail on Nov 3, 1976 cleanses the contract from all its defects from
the thing, in accordance with Art 1385 and Art her intention to sell the property for P600K, the
1388 of the Mortgage Law. moment it was constituted (Art. 1396) •
Tolentino: Art 1191 Rescission is used, instead giving them 30 days to exercise their right, Annulment
of Resolution which is more apt. which she failed to prove. The Bonnevies allege Who may institute (Art. 1397)
Difference of Art 1191 to Art 1381: that they didn’t receive any letter. • By all who are obliged principally or
subsidiarily Uy Soo Lim filed a case to annul the contract Facts:
• Exceptions: alleging that undue influence was exerted on • Maxima Castro, accompanied by Valencia,
• Persons capable cannot allege the incapacity him, and that his youth was taken advantage of. applied to RBC for an industrial loan of 3
of those with whom they contracted Issue: WON Uy Soo Lim can file for annulment thousand
• Persons who exerted violence, undue Held: No. • The Valencia spouses applied for a 3 thousand
influence, who employed fraud or caused Ratio: peso loan as well, which was also granted
mistake – action for annulment cannot be based • Although he was a minor at the time of the • Both loans being granted, Castro was made to
on these flaws execution of the contract, he failed to repudiate sign a promissory note, as a principal in the
Gives rise to the responsibility of restoring to it immediately upon reaching the age of first, and as a co- maker in the Valencia note.
each other things subject matter of the contract, majority They were secured by a real- estate mortgage
with fruits, price with its interest, except in • He also tacitly ratified the contract when he on Castro’s house and lot.
cases provided by law (Art. 1398) disposed of the greater part of the proceeds • Castro received a Notice of Sheriff’s Sale in
• Service – value thereof will serve as the basis when he became of age and after he had full satisfaction of the obligation covering the two
for damages knowledge of facts upon which he is trying to promissory notes
• Incapacitated persons not obliged to make disclaim • Only then did she realize that the mortgage
restitutions except insofar as he has been • If he were seeking to annul the contract, he was encumbrance not just for her 3k loan, but
intimidation, undue influence, fraud would also have asked that payments to him by also for the 3k loan of the Valencias; she was
the defendants be stopped.Instead, he made to sign without knowledge of this fact
benefited by the thing or price received by proceeded to secure, spend and dispose of every • She filed a suit for annulment from the second
him (Art. 1399) cent of the proceeds) promissory note and the mortgage covering
• If objects cannot be returned because • Art. 1393 – express or tacit ratification this, and the annulment of the foreclosure sale.
these were lost through his fault, he shall return • Art. 1398 – responsibility of restoring to each Issue: WON fraud can be alleged to free Castro
the fruits received and the value of the thing at other things from responsibility with respect to the 2nd
the time of the loss, with interests from the same subject matter of the contract promissory note
date (Art. 1400) • Art. 1401 – extinguishment of action for Held: Yes Ratio:
• As long as one of the contracting parties does annulment: if • The mistake committed by both Castro and
not restore what in virtue of the annulment object is lost through the fault or fraud of the bank which led to the vitiation of consent is
decree he is bound to return, the other cannot person who has the right to institute the due to the Valencias fraud and
be compelled to comply with what is incumbent proceedings misrepresentation
upon him. (Art. 1402) Sps. Theis v. CA • A contract may be annulled on the ground of
Extinguishment of action (Art. 1401) Facts: vitiated consent due to fraud by a third person
• if object is lost through the fault or fraud of • Carlsons Dev’t. Corp. owned three adjacent even without the connivance with one of the
person who has the right to institute the lots contracting parties
proceedings • The bank committed a mistake in not ensuring
• if action based on incapacity of any one of 1. Lot covered by TCT 15515 2. Lot covered by the extent of the coverage of the mortgage.
contracting parties, loss of thing shall not be an TCT 15516 3. Lot covered by TCT 15684 MWSS v. CA
obstacle to the success of action, unless loss or • A fourth lot was adjacent to Lot 15684, which Facts:
fraud took place through the plaintiff’s fault was not owned by Carlsons Dev’t. • 1965: MWSS leased around 128 hectares of
CASES • 1985: Carlsons constructed a two-storey house land to CHGCCI for 25 years renewable for
Uy Soo Lim v. Tan Unchuan Facts: on the third lot (erroneously indicated to be another 15 years with a stipulation allowing for
• An action for annulment of a contract covered by TCT 15515) the exercise of a right of first refusal should it
whereby Uy Soo Lim sold to Pastrano all his • Lots 15515 and 15516 mistakenly surveyed to be put up for sale
interest in the estate of the late Santiago be located on lot number 4 • President Marcos issued an LOI directing
Pastrano • The fourth lot was sold to Sps. Theis by MWSS to cancel the lease and to dispose the
• Santiago migrated to the Philippines when he Carlsons Dev’t., covered by said TCTs. The property. MWSS and CHGCCI agreed on the
was 13. Married Candida Vivares, had two Theis did not immediately occupy the lot; went sale
children with her – Francisca (defendant in the to Germany instead. Upon return, they
suit and wife of co-defendant) and Concepcion. discovered that the lot was owned by another • MWSS approved the sale in favor of
• Santiago returned to China and had illicit • Theis insisted on buying lot number 4, which Silhouette, CHGCCI’s assignee for 25M.
relations with Chan Quieg. Came back to the was not possible as it was not owned by • Silhouette entered a deed of sale with Ayala
Philippines and never saw her again. Received a Carlsons; instead, Carlsons Dev’t. offered lots 1 (1984)
letter from her saying that she borne him a son and 2, which was refused. • 1993: MWSS filed an action seeking the
named Uy Soo Lim. • This time, Theis insisted on lot number 3; declaration of nullity of the MWSS-Silhouette
• Believing that Uy Soo Lim being his only son, counter-offer by Carlson to return purchase sale due to Silhouette’s
he dictated his will leaving to him 7/9 of his price x 2, refused. fraudulent acts and Marcos’s undue influence
properties to the son. • Carlsons filed an action for annulment on the over MWSS Issue: WON the sale can be
• Claimants to the estate: ground of mistake declared null and void
• Candida – 1⁄2 as widow Issue: WON Carlsons can seek for annulment Held: No.
••• on the ground of mistake Ratio:
• Francisca and Concepcion – that Uy Soo Lim Held: Yes Ratio: • All the essential requisites being present, the
was not entitled for not being a son, legitimate • Carlsons’ mistake was made in good faith contract can only be voidable, and not void, as
or illegitimate • When mistake was discovered, offers were all the essential requisites of the contract are
• Chan Quieg – 1⁄2 as widow (their marriage made to present.
was valid under the laws of China) offset the damage caused by the mistake • Being voidable at the most, prescriptive period
Uy Soo Lim appointed Choa Tek Hee as adviser • The nature of mistake as to vitiate consent of four years from the time of the discovery of
and agent and executed a power of attorney in must be that the mistake and from the time the undue
favor of him to represent him in the which speaks of the substance of the contract influence ceases should be observed.
negotiations • Consent being an essential element of • If the vice of consent is based on Marcos’s
Compromise was reached – Uy Soo Lim to contracts, when it is given by mistake, the undue influence, the four years should be
divest his interest in the estate for P82,000.00, validity of counted from the moment the undue influence
Francisca declared the sole owner of all the contractual relations becomes legally impaired ceased, which is in 1986
properties. Rural Bank of Caloocan v. CA
• If mistake is alleged, prescriptive period of • When a person enters into a contract for and 5. Personal defense, i.e. a contract infringing it
four years to begin from the discovery of the in the name of the another, without authority to cannot be
same, it should’ve begun from the date of the do so, the contract does not bind the latter, assailed by third persons;
execution of the sale of documents, deemed to unless he ratifies the same. The agent, who has 6. contracts infringing the Statute are not void;
have taken place on the date of registration of entered into the contract in the name of the they are
the deeds with the Register of Deeds as purported principal, but without authority merely unenforceable;
registration is constructive notice to the world from him, is liable to third persons upon the 7. The Statute of Frauds is a rule of exclusion,
• Furthermore, there was ratification on the contract; it must have been the intention of the i.e. oral
part of MWSS, both impliedly (making parties to bind someone, and, as the principal evidence might be relevant to the agreements
demands for payment) and expressly (signing of was not bound, the agent should be. Ex: enumerated therein and might therefore be
the contract of sale itself) made. Without my authority, my brother sold my car, admissible were it not for the fact that the law
UNENFORCEABLE CONTRACTS2 in my name to X. The contract is unauthorized or the statute excludes oral evidence;
UNENFORCEABLE CONTRACTS and cannot affect me unless I ratify the same 8. The Statute does not determine the credibility
Art. 1403. The following contracts are expressly or implicitly, as by accepting the or weight of evidence. It merely concerns itself
unenforceable, unless they are ratified: proceeds of the sale. (Paras) with the admissibility thereof;
(1) Those entered into in the name of another • Mere lapse of time, no matter how long, is not 9. The Statute does not apply if it is claimed
person by one who has been given no authority the ratification required by law of an that the contract does not express the true
or legal representation, or who has acted unenforceable contract (Tipton v. Velasco, 6 agreement of the parties. As long as true or real
beyond his powers; Phil 67, as cited in Paras). agreement is not covered by the Statute, it is
(2) Those that do not comply with the Statute of provable by oral evidence.
Frauds as set forth in this number. In the THE SPECIFIC AGREEMENTS UNDER THE
following cases an agreement hereafter made STATUTE OF FRAUDS STATUTE OF FRAUDS
shall be unenforceable by action, unless the • Meaning: descriptive of statutes which require 1. Performance within a year. The 'making' of
same, or some note or memorandum, thereof, certain classes of contracts to be in writing. an agreement, for the purpose of determining
be in writing, and subscribed by the party • Purpose: to prevent fraud and perjury in the WON the period for performance brings the
charged, or by his agent; evidence, therefore, of enforcement of obligations depending for their agreement within the Statute, means the day on
the agreement cannot be received without the evidence upon the unassisted memory of which the agreement is made, and the time
writing, or a secondary evidence of its contents: witnesses by requiring certain enumerated begins to run from the day the contract is
(a) An agreement that by its terms is not to be contracts and transactions to be evidenced by a entered into, and not from the time that
performed within a year from the making writing signed by the party to be charged. performance of it is entered upon. There must
thereof; • Application: This statute does not deprive the be intention that the performance should not be
(b) A special promise to answer for the debt, parties the right to contract with respect to performed within a year.
default, or miscarriage of another; matters therein involved, but merely regulates 2. Guaranty of Another's Debt. Test as to
(c) An agreement made in consideration of the formalities of the contract necessary to whether a promise is within the Statute: lies in
marriage, other than a mutual promise to render it unenforceable. The statute of frauds, the answer to the question whether the promise
marry; however, simply provides for the manner in is an original or a collateral one. If the promise
(d) An agreement for the sale of goods, chattels which contracts under it shall be proved. It does is original or independent, as to when the
or things in action, at a price not less than five not attempt to make such contracts invalid if promisor is primarily liable, it is outside the
hundred pesos, unless the buyer accept and not executed in writing but only makes Statute. If the
receive part of such goods and chattels, or the ineffective the action for specific performance. promise is collateral, the promise must be in
evidences, or some of them, of such things in The statute of frauds is not applicable to writing.
action or pay at the time some part of the contracts which are either totally or partially 3. Consideration of marriage. Applies to
purchase money; but when a sale is made by performed, on the theory that there is a wide promises by a 3rd person to one of the parties
auction and entry is made by the auctioneer in field for the commission of frauds in contemplating the marriage. Thus, a promise
his sales book, at the time of the sale, of the executory contracts which can only be made by the father of a prospective bride to
amount and kind of property sold, terms of sale, prevented by requiring them to be in writing, a give a gift to the prospective husband is covered
price, names of the purchasers and person on fact which is reduced to a minimum in executed by the
whose account the sale is made, it is a sufficient contracts because the intention of the parties statute.
memorandum; becomes apparent by their execution, and 4. Sale of personalty. Price of the property must
(e) An agreement of the leasing for a longer execution concludes, in most cases, the rights of be at least
period than one year, or for the sale of real the parties. P500 and covers both tangible and intangible
property or of an interest therein; • A note or memorandum is evidence of the property. The Statute will not apply where
(f) A representation as to the credit of a third agreement, and is used to show the intention of there has been part payment of the purchase
person. the parties. No particular form of language or price. If there is more than one item, which
(3) Those where both parties are incapable of instrument is necessary to constitute a exceeds P500, the operation of the statute
giving consent to a contract. memorandum or note as a writing under the depends upon WON there is a single
• Unenforceable contracts cannot be enforced Statute of Frauds. inseparable contract or several one. If
unless it is first ratified in the manner provided General Rules of Application (mainly Paras): inseparable, Statute applies. If the contract is
by law. An unenforceable contract does not 1. Applies only to executory contracts. But it is separable, then each article is taken separately,
produce any effect unless it is ratified. not enough for a party to allege partial and the application of the statute to it depends
Unenforceable contracts cannot be sued upon performance in order to render the Statute upon its price. Meaning of “things in action”:
unless ratified (Paras, 2003). inapplicable; such partial performance must be incorporated or intangible personal property
• As to defectiveness, an unenforceable contract duly proved, by either documentary or oral (Paras)
is nearer to absolute nullity than voidable or evidence; 5. Lease or sale of realty. Evidence to prove an
rescissible contracts. 2. Cannot apply if the action is neither for oral contract of sale of real estate must be
• There are 3 kinds of unenforceable contracts: damages because of the violation of an disregarded if timely objections are made to its
a) unauthorized contracts; agreement nor for the specific performance of introduction. But the statute does not forbid
b) those that fail to comply with the Statute of said agreeement; oral evidence to prove a consummated sale of
Frauds; 3. Exclusive, i.e. it applies only to the real property.
c) those where both parties are incapable of agreements or contracts enumerated herein; 6. Representation as to Credit. Limited to those
giving consent to a contract. 4. Defense of the Statute may be waived; which operate to induce the person to whom
UNAUTHORIZED CONTRACTS they are made to enter into contractual
relations with the 3rd person, but not those contracting parties, the contract shall be remained silent and knowingly chose not to file
representations tending to induce action for the validated from the inception. an action for annulment of the sale. Their
benefit of the person making them. The statute • Self-explanatory, hehe. Both Paras and alleged silence and inaction may not be
does not cover representations deceitfully made. Tolentino, walang comments. However, we interpreted as an act of ratification on their
INCAPACITATED PARTIES should take note of the retroactive effect of a part. And there is also no evidence that the 3
• Ratification by one party converts the contract ratified contract. brothers benefited from the sale.
into a voidable contract- voidable at the option Art. 1408. Unenforceable contracts cannot be
of the party who has not ratified. assailed by third persons. Doctrine:
Art. 1404. Unauthorized contracts are governed • The defense of the Statute is personal to the Ratification means that one under disability
by Article 1317 and the principles of agency in party to the agreement. Thus, it cannot be set voluntarily adopts and gives sanction to some
Title X of this Book. up by strangers to the agreement. unauthorized act or defective proceeding, which
• Art. 1317. No one may contract in the name of • Just as strangers cannot attack the validity of without his sanction would not be binding on
another without being authorized by the latter, voidable contracts, so also can they not attack a him. It is this voluntary choice, knowingly
or unless he has by law a right to represent him. contract because of its unenforceability. Indeed made, which amounts to a ratification of what
• A contract entered into in the name of another the Statute of Frauds cannot be set up as a was theretofore unauthorized, and becomes the
by one who has no authority or legal defense by strangers to the transaction. (Ayson authorized act of the party so making the
representation, or who has acted beyond his v. CA, 97 Phil. 965). ratification.
powers, shall be unenforceable, unless it is CASES: Regal Films,Inc. v. Concepcion, 2001
ratified, expressly or impliedly, by the person Yuvienco v. Dacuycuy, 1981 Gabby Concepcion, thru his manager Lolit
on whose behalf it has been executed, before it See facts in previous discussion. Under this Solis, entered into a contract with Regal for
is revoked by the other contracting party. heading, the question is WON the claim for services to be rendered by respondent in
(1259a) specific performance of the private respondents petitioner's movies. Petitioner undertook to give
• Requisites for a Person to contract in the is enforceable under the Statute of Frauds. 2 parcels of land of land to respondent, on top
name of another: a) he must be duly authorized Held: No, since the agreement does not appear of talent fee. In 1994, actor, and manager, filed
(expressly or impliedly) or b) he must have by in any note or writing or memorandum signed an action against the movie outfit, alleging that
law a right to represent him (like the guardian, by either of the petitioners or any of the he was entitled to rescind the contract, owing to
or the administrator) or c) the contract must be respondents. Thus, such oral contract involving Regal's failure to honor the contract. Petitioner
subsequently ratified (expressly or impliedly, by the “sale of real property” comes squarely alleged that there was an agreement, and an
word or by deed). (Paras). under the Statute of Frauds. addendum to the original contract. In
Art. 1405. Contracts infringing the Statute of Doctrine: September 1994, Solis moved for the dismissal
Frauds, referred to in No. 2 of Article 1403, are In any sale of real property on installments, the of the complaint averring that there already
ratified by the failure to object to the Statute of Frauds read together with the was an amicable settlement. Concepcion
presentation of oral evidence to prove the same, perfection requirements of Article 1475 of the opposed saying that he had no consent and the
or by the acceptance of benefit under them. Civil Code must be understood and applied in contract was grossly disadvantageous to him.
• Two ways of ratification of contracts the sense that the idea of payment on By 1995, and after the confluence of events
infringing the Statute are: a) failure to object to installments must be in the requisite of a note or (read: Manila Filmfest scam), Regal intimated
the presentation of oral evidence; b) acceptance memorandum therein contemplated. Under the that it was willing to release Concepcion from
of benefits under them, since the Statute does Statute of Frauds, the contents of the note or the contracts rather than pursue the addendum.
not apply to contracts which are partially memorandum, whether in one writing or in Concepcion then filed a motion indicating that
executed. Cross examination of the witnesses separate ones merely indicative for an adequate he was willing to honor the addendum. The
testifying orally on the contract amounts to a understanding of all the essential elements of Court held that Concepcion's attempt to ratify
waiver or to a failure to object. (Abrenica v. the entire agreement, may be said to the the addendum came too much late as Regal
Gonda,as cited by Paras; Maam Rowie also contract itself, except as to the form. already revoked it.
made reference to this in one of her short Coronel v. Constantino, 2003 Issue3:
kwentos). Honoria Aguinaldo owned real property. When 1) WON a contract entered into in the name of
Art. 1406. When a contract is enforceable under she died, 1⁄2 of the property was inherited by another is unenforceable if consent was not
the Statute of Frauds, and a public document is Emilia Meking vda. De Coronel and sons- given by the party in whose behalf it was
necessary for its registration in the Registry of Benjamin, Catalino and Ceferino; the other half executed
Deeds, the parties may avail themselves of the by Florentino Constantino and Aurea Yes. A contract entered into in the name of
right under Article 1357. Buensuceso. Emilia Meking sold the property to another by one who ostensibly might have but
• Art. 1357. If the law requires a document or Jess Santos and Priscilla Bernardo, who later who in reality, had no real authority or legal
other special form, as in the acts and contracts sold it to Constantino. In 1991, Constantino representation, or who having such authority,
enumerated in the following article, the filed a complaint for declaration of ownership, acted beyond his powers, would be
contracting parties may compel each other to quieting of title and damages. CA ruled for unenforceable.
observe that Constantino. 2) Assuming that the addendum was
form, once the contract has been perfected. This Issues/Held: unenforceable, WON it is susceptible to
right may be exercised simultaneously with the 1) WON the contract of sale executed by Emilia, ratification by the person in whose behalf it was
action upon the contract. (1279a) in her own behalf is unenforceable with respect executed
to the shares of her co-heirs-children Yes. But ratification should be made before its
• The right of one party to have the other Yes. It has been shown that the contract was not revocation by the other contracting party.
execute the public document needed for signed by petitioner Benjamin and the shares of National Power Corp v. National
convenience in registration, is given only when Catalino and Cferino in the subject property Merchandising Corp., 1982
the contract is both valid and enforceable. were not sold by them. Since it cannot be In 1956, National Power Corp (NPC) and
(Paras) disputed that Benjamin did not sign the National Merchandising Corp (Namerco), the
Art. 1407. In a contract where both parties are document, the contract is unenforceable against latter as representative of the International
incapable of giving consent, express or implied him. Commodities Corp of New York, entered into a
ratification by the parent, or guardian, as the 2) WON the minor children can ratify contract for the purchase by the NPC of from
case may be, of one of the contracting parties unauthorized actions of their parents. the New York firm of 4 thousand long tons of
shall give the contract the same effect as if only Yes. But in this case, no evidence was presented crude sulfur. A performance bond was executed
one of them were incapacitated. to show that the 3 brothers were aware of the by Domestic Insurance Company (DIC) to
If ratification is made by the parents or sale made by their mother. Unaware of such guarantee Namerco's obligation. Under the
guardians, as the case may be, of both sale, the 3 could not be considered to have contract, seller would deliver the sulfur within
60 days from notice of establishment in its favor and alleged that he was Aparato's illegitimate • Those which are absolutely simulated or
of a letter of credit. Failure to do would make son and he was recognized as such by fictitious;
the seller and surety liable for damages. The Bonifacio's brother, Gavino, and the two • Those whose cause or object did not exist at
New York firm advised Namerco that it might partitioned his estate among themselves. Cenido the time of
not secure the availability of a vessel and DIC caused the issuance to his name of a Tax the transaction;
disclaimed responsibility for the terms of the Declaration over the subject property. • Those whose object is outside the commerce of
contract. Namerco did not disclose such Issue: men;
instructions from its principal and proceeded 1) WON the document is valid • Those which contemplate an impossible
with the perfection of the contract. When the Yes. The private conveyance of the house and service;
sulfur was not delivered, NPC sued DIC and lot is therefore valid between Aparato and the • Those where the intention of the parties
Namerco. The court dismissed the action spouses. It is a private document but this fact relative to the
against DIC for lack of jurisdiction. does not detract from its validity. Generally, principal object cannot be ascertained;
Issue: contracts are obligatory, in whatever form such • Those expressly prohibited or declared void
1) WON Namerco exceeded its authority and in contracts may have been entered into, provided by law. (a-g,
effect, acted in its own name all the essential requisites for their validity are Art 1409, NCC).
Yes. The agent took chances, despite the present. When however the law requires that a • Those which are the direct results of previous
principal's instructions and thus, it acted on its contract be in some form for it to be valid or illegal
own name. enforceable, that requirement must be complied contracts (Art 1422, NCC).
2) WON the stipulation for liquidated damages with. Under Article 1358 requires that certain Liguez vs Hon. Court of Appeals
is unenforceable since the contract was acts and Petitioner Conchita Liguez was the recipient of
allegedly unenforceable contracts must be in a public document. Under a donation of the parcel of land subject of this
No. Article 1403 refers to unenforceability of Art. 1403, sales of real property must be in petition. Donation was allegedly made by and in
the contract against the principal. In this case, writing. Since the Pagpapatunay is in writing, it view of the desire of one Salvador Lopez, a
the contract containing the stipulation for is enforceable under the Statute. But since it is married man of mature years, to have sexual
liquidated damages is not being enforced not a public document, it does not comply with relations with her, Liguez back then a minor,
against its principal but against the agent and Art. 1358. However, the requirement of Art. only 16 years of age. After the donation, Liguez
its surety. Article 18974 implies that the agent 1358 is not for the validity but for its efficacy. and Lopez cohabited and lived as husband and
who acts in excess of his authority is personally Villanueva v. CA, 1997 wife until Lopez was killed. It was found that
liable to the party with whom he contracted. The Villanuevas are the tenants of the Dela the donation was part of the land belonging to
Since Namerco exceeded the limits of its Cruzes. In 1986, the latter proposed the sale of the conjugal partnership of Lopez and his legal
authority, it virtually acted in its own name and the property and they agreed at the price of wife Maria Ngo. CA held that the donation was
it is therefore, bound by the contract of sale, P550,000. The Dela Cruzes asked for P10,000 inoperative and null and void because (1) the
which, however is not enforceable against its which would form part of the sale price. husband had no right to donate conjugal
principal. Sometime thereafter, the Dela Cruzes told the property to Liguez; and (2) because the
Jovan Land v. CA, 1997 Villanuevas that they are selling the other half donation was tainted with illegal causa or
of the property to the Sabios, another tenant of consideration, of which the donor and donee
Eugenio Quesada owns Q Building in Manila the Dela Cruzes. The Villanuevas agreed to were participants.
and wanted to sell it. Thru co-petitioner such an arrangement and they, together with SC reversed CA decision.
Mendoza, Jovan Land Pres. Joseph Sy learned the Sabios, decided to pay only P265,000 each Doctrine: SC held that the CA erred in applying
of this development and sent offers to Quesada. corresponding to the value of 1⁄2 of the the pari delicto rule in this case. Both parties to
The owner rejected the offers. In his third property. In 1987, the Dela Cruzes sold the donation here not having equal guilt; there had
written offer, Sy enclosed a check worth P12M portion which the Villanuevas were supposed to been no finding that Liguez had full knowledge
with a similar check for P1M as earnest money. buy to the spouses Pile. The Villanuevas then of the terms of the bargain entered into by and
Annotated on this 3rd letter-offer was the instituted this action. between Lopez and her parents. Moreover, the
phrase 'received original, '9-4-89' beside which Issue: 1) WON there was a perfected contract of rule that parties to illegal contracts will not be
appears the signature of Quesada. Petitioner sale between the petitioners and the Dela aided by the law should also be understood as
then filed action for specific performance. Cruzes barring the parties from pleading illegality of
Issue: WON the 'contract of sale' as alleged by Held: No. Sale is a consensual contract. In this the bargain either as a cause of action or as a
Sy was unenforceable case, what is clear from the evidence is that defense. Thus, the heirs of Lopez cannot set up
Held: No. The document was merely a there was no meeting of the minds as to the this plea, as Lopez himself, even if he were
memorandum of the receipt by the former of price, expressly or impliedly, directly or living, had no right to such pleading.
the latter's offer. The requisites of a valid indirectly. No contract was presented in The right of the husband to donate community
contract of sale are lacking in said receipt and evidence. property is strictly limited by law. However,
therefore the 'sale' is neither valid nor 2) WON the Statute of Frauds is applicable donation made in contravention of the law is
enforceable. No written agreement was reached. though it was a contract of sale that was partly not void in its entirety, but only in so far as it
Under the Statute of Frauds, an agreement for executed prejudices the interest of the wife, whether
the sale of real property or of an interest No. The Statute applies only to executory donation is gratuitous or onerous.
therein, to be enforceable, must be in writing contracts, but there is no perfected contract in Rellosa vs Gaw Chee Hun
and subscribed by the party charged or by an this case, therefore there is no basis for the Petitioner Dionisio Rellosa sold to Gaw Chee
agent therof. application of the Statute. The application of Han a parcel of land together with the house
Cenido v. Apacionado, 1999 such statute presupposes the existence of a erected thereon situated in Manila. The vendor
Bonifacio Aparato owns a parcel of perfected contract and requires only that a note remained in possession of property under a
unregistered land. He sold it to spouses or memorandum be executed in order to compel contract of lease. Alleging that the sale was
Apacionado, who took care of him for 20 years judicial enforcement thereof. What took place executed subject to the condition that the
prior to his death. In the contract was only prolonged negotiation to buy and sell. vendee (Chinese) would obtain the Japanese
(Pagpapatunay) purporting to the sale, it can be VOID OR INEXISTENT CONTRACTS Military Administration’s approval, and that
gleaned that because the Apacionados took care What contracts are void or inexistent? even if said condition was met, the sale would
of him, Bonifacio sold it for P10,000 and her The following contracts are void or inexistent still be void under article XIII of the
signed it with his full knowledge and consent, from the beginning: Constitution, the vendor prayed for annulment
and there were 2 witnesses to the signing of the • Those whose cause, object or purpose is of the contracts of sale and lease. Defendant
contract. It was not notarized. One Renato contrary to law, morals, good customs, public answered the complaint putting up the defense
Cenido claimed ownership over the property order or public policy; of estoppel and that the sale was binding not
being contrary to public policy, law and morals. contrary to the expressed will of one of the the Dept of Transportation and
TC declared the contracts valid and binding contracting parties (Santos’), rather it was Communications (DOTC) from implementing
and dismissed complaint. CA affirmed decision voided because of its illegal causa. Based on the contracts and agreements executed by the
in toto. testimonies gathered, the contracts were Philippine Givernment through the DOTC and
The SC sustained that the sale in question was entered into in an effort to circumvent the the MIAA and the Phil Intl Air Terminals Co.,
indeed entered into in violation of the Constitutional prohibition against the transfer Inc (PIATCO).
Constitution, what’s left to be determined is, of lands to aliens. It became clear that the
can petitioner have the sale declared null and arrangement was a virtual transfer of DOTC engaged the services of Aeroport de
void and recover the property considering the ownership whereby the owner divests himself in Paris (ADP) to conduct a comprehensive study
effect of the law governing rescission in stages not only of the right to enjoy the land, of the Ninoy Aquino Intl Airport (NAIA) and
contracts? SC answered in the negative. The but also of the right to dispose of it—rights the determine whether the present airport can cope
sale in question is null and void, but plaintiff is sum total of which is ownership. Thus, this with the traffic development up to 2010. A
barred from taking the present action under the illicit purpose became the illegal causa group of business leaders formed Asia’s
principle of pari delicto. rendering the contracts void. Emerging Dragor Corp (AEDC) to explore the
Doctrine: The contracting parties here were Francisco vs. Herrera possibility of investing in the construction and
prevented from seeking relief because they both Eligio Herrera Sr., father of respondent is the operation of a new airport terminal. AEDC
have voluntarily entered into the contract owner of two parcels of land. Petitioner Julian submitted an unsolicited proposal to the
knowing that what they were doing violated the Francisco brought from said land owner the Government through DOTC/MIAA for the
Constitution (they are presumed to know the first parcel, and later on, also the second. development of NAIA International Passenger
law). Well established is the doctrine that where Contending that the contract price was Terminal III (NAIA IPT III). A committee
the parties are in pari delicto, no affirmative inadequate, the children of Herrera tried to called the Prequalification Bids and Awards
relief of any kind will be given to one against negotiate to increase the purchase price. When Committee (PBAC) was constituted by the
the other. It is true that this doctrine is subject Francisco refused, the Herreras filed a DOTC for the implementation of the NAIA IPT
to one important limitation, namely, “whenever complaint for annulment of sale alleging that III project. A consortium headed by People’s
public policy is considered as advanced by the sale was null and void on the ground that at Air Cargo and Warehousing Co., Inc.
allowing either party to sue for relief against the the time of sale, Eligio Sr was incapacitated to (Paircargo), among others, submitted their
transaction.” The cases in which this limitation give consent to the contract because proposal to PBAC. PBAC found Paircargo as
may apply only “include the class of contracts he was afflicted with senile dementia, the most qualified to undertake the project.
which are intrinsically contrary to public characterized by deteriorating mental and Sometime after this determination, Paircargo
policy—contracts in which the illegality itself physical condition. incorporated with PIATCO. AEDC, along with
consists in their opposition to public policy, and TC, later on affirmed by CA, declared the a slew of other petitioners, filed with the RTC
any other species of illegal contracts (example: contract to be null and void, ordered Francisco Pasig a petition to declare the 1997 Concession
usurious contracts, marriage-brokerage to return the lots in question and the Herreras Agreement between the Government and
contracts). The present case does not fall under to return to the former the purchase price paid. PIATCO null and void for being contrary to the
the exception because it is not intrinsically Francisco appealed, contesting that the CA Constitution, the BOT
contrary to public policy as its illegality consists erred in completely ignoring the basic (Build-Operate-Transfer) Law and its
in its being against the Constitution. difference between a void and merely voidable Implementing Rules and Regulations.
contract. Issue before the SC thereby is: SC declared the assailed agreement as void for
Phil Banking Corp vs Lui She whether the assailed contracts of sale are void being contrary to public policy. A close
or merely voidable and hence capable of being comparison of the draft Concession Agreement
Justina Santos and her sister Lorenza were the ratified. attached to the Bid Documents and the 1997
owners of a piece of land in Manila. The sisters SC reversed the CA decision, the assailed Concession Agreement reveals that the
lived in one of the houses while they leased the contracts are only voidable and were in fact documents differ in at least two very important
other house to a Chinese named Wong Heng ratified, therefore valid and binding. respects. While the Court concedes that a
and his family. When Lorenza died with no Doctrine: A void or inexistent contract is one winning bidder is not precluded from modifying
other heir, Justina became the sole owner of the which has no force and effect from the certain provisions of the contract bidded upon,
property. As she was then already about 90 beginning. These are of two types: such changes must not constitute substantial or
years, Wong was her trusted man, trusting him (1) those where one of the essential requisites as material amendments that would alter the basic
with receiving rentals for her other properties provided for by Art 1318 is wanting; parameters of the contract and would constitute
and paying for her other expenses. In grateful (2) those declared to be so under Art 1409. a denial to the other bidders of the opportunity
acknowledgement, Justina entered into a By contrast, a voidable or annullable contract is to bid on the same terms
number of contracts with Wong (a lease one in which the essential requirements for Doctrine: It is inherent in public biddings that
covering more than the current portion validity under Art 1318 are present, but there shall be fair competition among the
occupied by Wong, a contract of option to buy vitiated. Such contracts may be rendered bidders. Any contract that circumvents this
leased premises payable in ten years, another perfectly valid by ratification, which can be concept shall be declared null as being contrary
contract extending the lease term to 99 years, express or implied. to public policy.
and another fixing the term of the option to 50 Art 1327 provides that insane or demented III. NATURAL OBLIGATIONS
years). persons cannot enter into contracts, But, if ever 1. Definition
This petition was filed alleging that the they do, the legal effect is that the contract is Natural obligations are those based on equity
contracts were obtained by Wong “through voidable or annullable as provided for in Art and natural law, which are not enforceable by
fraud, misrepresentation, inequitable conduct, 1390. Hence, the contract in above case is means of court action, but which, after
undue influence and abuse of confidence...” and merely voidable. Ratification in this case is voluntary fulfillment by the obligor, authorize
the Court was asked to cancel the registration implied and consisted in Eligio’s children the retention by the oblige of what has been
of the contracts. receiving payments on behalf of their father and delivered or rendered by reason thereof. In
TC rendered decision declaring all of the their non-immediate filing of an action for other words, they refer to those obligations
contracts null and void except for the first reconveyance as in fact they only filed it after without
contract of lease. Both parties appealed. Francisco did not agree to them increasing the sanction, susceptible of voluntary performance,
SC modified TC’s decision in that it also purchase price. but not through compulsion by legal means.
declared the first contract of lease as null and Agan, Jr. vs Philippine International Air 2. vs Civil Obligations
void along with the rest. Terminals Co., Inc. 3. vs Moral Obligations
Doctrine: SC cancelled the contract of lease in Petitioner seek to prohibit the Manila Natural Obligations
this case not on the basis of it allegedly being International Airport Authority (MIAA) and Civil Obligations
Basis 2. the trust property or the trust estate or the How Express Trusts are ended:
Equity and natural law subject matter 1. Mutual agreement by all parties.
Positive law of the trust. 2. Expiration of the Term
Enforceability Note: cf this with the ratio of the Mindanao 3. Fulfillment of the resolutory condition 4.
Not enforceable by court action Development Authority v. CA & Ang Bansing Rescission or annulment
Enforceable by court action case below 5. Loss of subject matter of the trust
Natural Obligations 1. Express Trusts—created by the parties, or by 6. Order of the court
Moral Obligations intention of the trustor 7. Merger
Existence of juridical tie 2. Implied Trusts—created by operation of the 8. Accomplishment of the purpose of the trust.
There exists a juridical tie between the parties law; two kinds CHAPTER 3 IMPLIED TRUSTS
not enforceable by court action. a. Resulting trust (also bare or passive • Trusts are recognized only if they are not in
No juridical tie whatsoever. trusts)—there is intent to create a trust but it is conflict with the Civil Code, Code of
Effect of fulfillment not effective as Commerce, Rules of Court and Special Laws.
Voluntary fulfillment produces legal effects an express trust (cf Art. 1451). • This is a resulting trust because a trust is
which the courts recognize and protect. b. Constructive Trust—no intention to create a intended. • Example:
Voluntary fulfillment does not produce legal trust is • A buys a piece of land from B. A pays the
effects which the courts recognize and protect. present, but a trust is nevertheless created by price so that he (A) may have the beneficial
4. Example law to prevent unjust enrichment or oppression interest in the land BUT the legal title is given
One example would be the one that is regulated (cf 1456) to C. C is the trustee and A is the beneficiary.
in Art 1424 of the NCC. According to this • The law of trusts has been much more • This is again a resulting trust where the donee
article, when a right to sue upon an obligation frequently applied in England and in the US becomes the trustee of the real beneficiary.
has lapsed by extinctive prescription, the than in Spain, so we may draw freely from • Example:
obligor who voluntarily performs the contract American precedents in determining the effects • A donated land to B. But it was agreed that
cannot recover what he has delivered or the of trusts. B is supposed to have only 1/3 of the products of
value of the service he has rendered. CHAPTER 2 said land. There is a trust here and B is the
IV. TRUSTS What is a trust? EXPRESS TRUSTS trustee.
1. Trust is a legal relationship between one Formalities Re Express Trusts: • This is a constructive trust, the reason of the
person having an equitable ownership in 1. Express trusts are to be written for law being to prevent unjust enrichment.
property and another person owning the legal enforceability and not for validity as to between • Example:
title to such property, the equitable ownership the parties; hence, by analogy, can be included • AwantstobuylandfromBbutAhasno money.So
of the former entitling him to the performance under the Statute of Frauds. A asks C to pay for the land.The land is then
of certain duties and the exercise of certain 2. By implication, since the article applies to given in C’s name. This is supposed to be C’s
powers by the latter (Tolentino) immovable property only, trust over personal security until the debt of A is paid. Here, an
1. It is the right to beneficial enjoyment of property on oral agreement is valid and implied trust is created. C is a trustee and the
property, the legal title of which is vested in enforceable between the parties. beneficiary is A. When A has the money, he
another. It is a fiduciary 3. 3rd Persons—trust must be made in a public may redeem the property from C and compel a
instrument and REGISTERED in the Registry conveyance to A.
relationship concerning property which obliges of Property, if it concerns Real Property. NOTE: This is not the same as mortgage.
the person holding it to deal with the property How an Express Trust is Created: Mortgage is when A borrows money from C
for the benefit of another (Paras). 1. By conveyance to the trustee by an act inter and A later buys land in his own name. A then
Characteristics of a Trust (Paras) vivos or mortis causa (as in a will). executes a mortgage on the land in favor of C.
1. It is a fiduciary relationship. 2. By admission of the trustee that he holds the This is not an implied trust.
2. Created by law or agreement. property, only as a trustee.
3. Where the legal title is held by one, the Trust Receipts
equitable title or 3. Clear Intent—there must be a clear intention • Partakes of a nature of a conditional sale...the
beneficial title is held by another. to create a trust. importer being the absolute owner of the
Trust distinguished from Guardianship or 4. Capacity—The trustor must be capacitated to imported merchandise as soon as he has paid its
Executorship: convey property (hence, a minor cannot create price; until the owner or the person who
• In a trust, the trustee or holder has LEGAL an express or conventional trust of any kind). advanced payment has been paid in full, or if
title to the property. 5. Administration of the trust. The trustee must: the merchandise has already been sold, the
• A guardian, administrator or executor does a. File a bond proceeds turned over to him, the ownership
not have. Trust distinguished from a Stipulation b. Make an inventory of the real and personal continues to be vested in such person.”
Pour Autrui property in trust • This is a resulting trust for a trust is intended.
• A trust may exist because of a legal provision c. Manage and dispose of the estate and • Example:
or because of an agreement; a stipulation pour faithfully discharge his trust in relation thereto, • A inherited a piece of land from his father, but
autrui can arise only in the case of contracts. according to the law or terms of the trust as A caused the legal title to be put in the name of
• A trust refers to specific property; a long as they are legal and possible. X, a brother. Here a trust is impliedly
stipulation pour autrui refers to a specific d. Render a true and clear account. established, with X as trustee and A as
property or to other things. e. Not acquire property held in trust by beneficiary.
Co-Ownership as Trust prescription • This is a resulting trust in view of the intent to
• A Co-Ownership is a form of trust, with each as long as the trust is admitted. create a trust.
co-owner being a trustee for each of the others. Effect if Trustee Declines • Example:
CHAPTER 1 • The trust ordinarily continues even if the • A group of Chinese wanted to buy a lot
GENERAL PROVISIONS Parties to a Trust trustee declines. Why? The Court will appoint a with a house on it to be used a clubhouse. The
1. trustor or settler –he establishes the trust new trustee unless otherwise provided for in the name of the property was registered under only
(may at the same time be the beneficiary) trust instrument (Sec. 3, Rule 98, Rules of one of them. The registered owner leased the
2. trustee –hold the property in trust for the Court). A new trustee has to be appointed; property, collected rents and when asked for
benefit of another otherwise the trust will not exist. accounting, refused to on account that he was
3. beneficiary or cestui que trust –the person for • Beneficiary necessarily has to accept either the owner. Nope, he is a mere trustee and is
whose benefit the trust has been created. expressly, impliedly or presumably. Acceptance therefore obliged render proper accounting.
Elements of a Trust: is presumed if the granting of benefit is purely The beneficiaries are all members of the club.
1. parties to the trust gratuitous (no onerous condition).
• This is a resulting trust in view of the owner’s employed to indicate duties, relations and the interest thereon. The equitable and
intention to create a trust. responsibilities which are not strictly technical beneficial title really went to the purchaser the
• Example: trusts. moment he paid the first installment and was
• A bought from B a parcel of land and it was • Not a scintilla of documentary evidence was given a certificate of sale. Pending the
conveyed to A on A’s statement or declaration presented by the plaintiffs to prove that there completion of the purchase price, the purchaser
that he would hold it in behalf of C. Here, A is was an express trust over the Calunuran is entitled to all the benefits and advantages
merely a trustee and C is the beneficiary. fishpond in favor of Valentin Salao. Purely which may accrue to the land as well as suffer
• This is a constructive trust the purpose of the parol evidence was offered by them to prove the the loss. He was therefore the owner of the land
law to prevent unjust enrichment to the alleged trust. Their claim that in the oral and as such the legal rights to the land passed
prejudice of the true owner. partition in 1919 of the two fishponds was onto his four daughters. Therefore, Silbina and
• Example: assigned to Valentin Salao is legally Teodora were just trustees of the land in
• A owe’s B. To guarantee his debt, A sold untenable—Article 1443—parol evidence question upon the principle that if property is
her parcel of land to B. Here, a trust is cannot be used to prove an express trust. How acquired through fraud, the person obtaining it
created.If A pays his debt when it becomes due, about an implied trust? It was not proven by is considered a trustee of an implied trust for
A may demand the resale of property to her. any competent evidence. It is quite improbable the benefit of the person from whom the
• This is a constructive trust and this article because the alleged estate of Manuel Salao was property comes.
applies to any trustee, guardian or persons likewise not satisfactorily proven. The Court • However, laches may bar an action to enforce
holding a fiduciary relationship (eg, an agent). found it incredible that 47 hectares of a constructive trust such as the one in the case
• Example: Calunuran fishpond would be adjudicated at bar. Defendants herein have been in
• An agent using his principal’s money merely by word of mouth.The plaintiffs also possession of the land in question since 1928 up
purchases land in his own name. He also never bothered (for nearly 40 years) to procure to present publicly and continuously under
registers it under his name. Here, he will only any documentary evidence to establish their claim of ownership; they have cultivated it,
be considered a trustee and the principal is the supposed interest or participation in the two harvested and appropriated the fruits for
beneficiary. The principal can bring an action fishponds. Prescription and laches applies. themselves. The statute of limitations is within
for conveyance of the property to himself, so • There was no resulting trusts because there four years from the discovery of the fraud—this
long as the rights of innocent third persons are was never any intention on the part of Juan may start when they first registered the land
not adversely affected. Salao, Ambrosia and Valentin to create a (not mentioned in the case when).
• This is a constructive trust. • Example: trust—the registration of the fishpond were • The court also used sec. 41 of Act 190 saying
• A was given a car by B although it should have registered in the names of Juan and Ambrosia that 10 years of actual adverse possession by
been given to C. A is considered merely a and was not vitiated by fraud or mistake. any person claiming to be the owner for that
trustee of the car for the benefit of C. • Even if there was an implied trust, laches and time of any land or interest in land,
NOTE: The mistake referred to in this article is prescription has barred their action—they slept uninterruptedly continued for ten years by
one made my a third person, not one who is a on their rights (vigilanti prospiciunt jura or the occupancy, descents, grants, or otherwise, in
party to the contract. If made by any of the law protects him who is watchful of his rights). whatever way such occupancy may have
parties, then no trusts is created. There was not mention of a period for laches or commenced or continued shall vest in every
DO TRUSTS PRESCRIBE? prescription to apply. actual occupant or possessor of such land in full
• Express trusts DO NOT. Implied • Plaintiffs failed to measure up to the yardstick and complete title.
Trusts—resulting trusts do not prescribe but that a trust must be proven by clear, • Plaintiffs’ action has prescribed and
constructive trusts do prescribe (see Salao v. satisfactory and convincing evidence. It cannot defendants have acquired the land by
Salao in the cases below) rest on vague and uncertain evidence or on acquisitive prescription.
• This article applies whether it is real or loose, equivocal or indefinite declarations. Doctrine/s:
personal property. Even if it is oral evidence, Doctrine: • Prescription bars an action for constructive
said evidence must be trustworthy oral • Prescription applies to constructive trusts. trusts—within 4 years, and actual possession
evidence, for oral evidence may be easily Parol evidence cannot be accepted in an express and occupancy of land entitles one to acquire
fabricated. trust but can be accepted in an implied trust if such land.
it is trustworthy. • Property gained through fraud is considered
CASES Fabian v. Fabian held in trust (Art. 1456)
Salao v. Salao Facts: Facts: Bueno v. Reyes
• Spouses Manuel Salao and Valentina Ignacio • Pablo Fabian bought Lot 164 from the Phil. Facts
has 4 children —Patricio (who died survived by Gov’t. He died leaving four children who are • Francisco H. Reyes claimed property in Laoag
son Valentin), Alejandra, Juan and the plaintiffs in this case. Silbina Fabian and as belonging to him and his two brothers—Juan
Ambrosia.Spouses died leaving partition of Teodora Fabian, niece of Pablo Fabian, and Mateo (defendants herein). Plaintiffs are
different fishponds to the three surviving executed an affidavit saying that they are legal the heirs of Jorge Bueno whom they say was the
children and nephew Valentin. heirs and as such a sale certificate was issued to original owner. One of his children is Eugenia
• Main contention in this case is the Calunuran them. In 1929, they took physical possession of who was supposedly the wife of Francisco
fishpond which the plaintiffs assert were the land, enjoyed its fruits and from 1929 to Reyes.
co-owned by Juan, Ambrosia and Valentin and present (1960), has been paying real estate taxes • Francisco Reyes was entrusted to file an
that Juan and Ambrosia were just holding in thereon. answer in a cadastral proceeding in acquiring
trust the part of Valentin. Plaintiffs here are the • Plaintiffs filed this action for reconveyance that certain property in Laoag. He was
heirs of Valentin against the heirs of Juan and averring that the certificate of sale was gained entrusted with obtaining a title thereto for and
Ambrosia. Plaintiffs say that they are enforcing through fraud. Defendants aver that Pablo did in behalf of all the heirs of Jorge Bueno,
a trust that Juan Salao violated. not really own the land in question at the time including the wife Eugenia Bueno.
Issue: WON there was a trust between Juan of his death and the present action for • Plaintiffs say that either in bad faith or by
and Ambrosia Salao with Valentin Salao? reconveyance has already prescribed. mistake, Francisco Reyes filed an answer and
Held: Issue: obtained title to the property in his name and
• No, there was no trust—either express or • WON defendants have acquired the property the defendant’s. Plaintiffs allege that they only
implied (resulting and constructive trust) by acquisitive prescription? have discovered these things this year.
Ratio: Held: Yes Ratio: • CFI and defendants proceeded on the theory
• A trust is defined as the right, enforceable • The Friar Lands Act governs the sale of land that the action for reconveyance was predicated
solely on equity, to the beneficial enjoyment of to Pablo Fabian wherein title of the land sold is on an implied trust and as such, the action
property, the legal title to which is vested in reserved to the Gov’t until the purchaser makes prescribes in 10 years (1936— Francisco Reyes
another, but the word “trust” is frequently full payment of all required installments and
acquired title on the land; 1962—time of the notice.Express trusts do not prescribe. • Trusts are created unequivocally and with the
petition of reconveyance, total of 23 years). Constructive notice can be the actual clear intent to create a trust.
Issues: registration of the land since this is a notice to Tala Realty v. Banco Filipino Savings and
• WON the trust was express or implied. WON the whole world. Mortgage Bank
the action for reconveyance has prescribed. Tamayo v. Callejo Facts
Held: Facts • Tala Realty Services is the absolute owner of
• The trust was implied and remanded to lower • Mariano and Marcos Tamayo appealed from several parcels of land by virtue of a Deed of
court for further proceedings to determine the decision of the CA granting the petition of Sale executed between Tala and respondent
whether there has been constructive notice. Aurelio Callejo that a certain piece of land Bank. At issue here is one of those parcels of
belonged to Callejo. land-the Bulacan property. On the same day
The trust given to Francisco Reyes was • Spouses Vicente and Cirila Tamayo owned a that Tala acquired the property, Tala and the
supposed to be an express trust but it never piece of land in Pangasinan.Vicente died leaving Bank executed a lease contract renewable in 20
materialized. This was an implied trust arising to his sons the property (wife waived her years and subsequently changed to 11 years,
by operation of the law. This was specifically a portion). Before he died, he sold part of the land renewable for 9 years. After 11 years, Tala
constructive trust since the allegation avers that to Domantay who in turn subsequently sold it to reminded the Bank that the contract will expire
the property was taken by mistake or fraud Aurelio Callejo. When Mariano sold a part of soon and negotiated for a renewable of the lease
(Art. 1456). Hence, prescription can supervene. his land to someone and a surveyor went to agreement.
Remember that an express trust is check it out, the surveyor was denied access by • There was no final agreement and in the end
imprescriptible. Under Sec. 40 of the Old Callejo, saying that that part of the land is his. when the Bank was not able to comply with the
CivPro, action for recovery of property Thus, this petition. requirements of Tala, Tala filed complaints for
prescribes in 10 years. • Mariano Tamayo’s defense is that the land in ejectment and/or unlawful detainer.
From what time should the prescriptive period dispute is outside the perimeter of the certificate • The Bank’s defense story was that it
start? The cadastral proceeding where Reyes of title and he also alleged prescription. Tamayo undertook an expansion program where they
and his brothers argues that if the land bought by Domantay was will buy a head office but if they do so, they
obtained title thereto cannot be taken as erroneously included in his certificate of title, would exceed the limit of real estate investment
constructive notice since it is an action in rem. then it created an implied trust between him set by the General Bankings Act. To avoid the
Case remanded to trail court for further and limit set by law, they reduced their branch site
proceedings to establish when the prescriptive holdings by leasing instead of owning branch
period started. • The President of the Philippines issued sites. Thus they entered into a “warehousing
Domantay but the action for reconveyance has Proclamation no. 459 transferring the agreement” with Tala wherein it is stipulated
already prescribed in 10 years (1915—when ownership of certain parcels of lands in Davao that the properties will be reconveyed to the
title was issued to him; this case was instituted to the Mindanao Dev’t Authority (MDA) Bank at the Bank’s demand or pleasure. This
1952). subject to private rights, if any. MDA filed a was not written in the contract but the Bank
Issue: complaint against Ang Bansing for was confident that Tala will honor this
• WON the action for reconveyance has reconveyance alleging that the stipulation in the agreement.
prescribed. contract between Juan Cruz and Ang Bansing Issue:
Held: No Ratio: made Ang Bansing a trustee thereby obligating • WON the conveyance of property was a trust
• While it may have been a constructive, implied Ang Bansing to deliver the portion of land sold under the “warehousing agreement.”
trust, its substance was substantially affected to Juan Cruz. Held: No Ratio:
when Mariano Tamayo and Domantay executed • Ang Bansing alleges that any ownership right • It is clear that the Bank transferred ownership
a public instrument whereby Mariano explicitly over the property has prescribes since it has to Tala when the former sold it to the latter.
acknowledged that his parents had sold to already been 30 years. The Bank counters that it was not really a sale
Domantay the parcel of land and stipulating • CFI found that there was an express trust. CA because what Tala paid was actually the
that Domantay is the absolute owner. This says there advance rentals that the Bank gave to Tala and
action made it an express trust which is was no express trust. therefore the contract should be understood as
subsisting, not subject to the statute of Issue: a “warehousing agreement” whereby Tala holds
limitations until repudiated, in which event the • WON there was an express trust created the property for the bank (just like a trust). Not
period of prescription begins to run only from between Juan Cruz and Ang Bansing. meritorious.
the time of the repudiation. This took place in Held: Nada Ratio:
June 1952 when Mariano rejected Callejo’s • Trusts are either express or implied. A trusts • While there may have been a contract of sale
demand.Prescription does not attach since the necessarily includes the following: (1) and lease back of the property which created an
action for reconveyance was instituted a few competent trustor and trustee, (2) an implied trust “warehousing agreement” for the
days after the express trust was repudiated. ascertainable trust res, and (3) sufficiently reconveyance of the property, under the law,
Doctrine: certain beneficiaries. this implied trust is inexistent and void for
• Express trusts do not prescribe unless • The stipulation alluded to is nothing but a being contrary to law (the “warehousing
repudiated in which event the period of condition that Ang Bansig shall pay the agreement” was meant to curtail the limitations
prescription starts from the repudiation. expenses for the registration of his land and for set by the General Bankings Act which
Mindanao Dev’t Authority v. CA & Ang Juan Cruz to shoulder the expenses for the prohibits a Bank from owning more than the
Bansing registration of the land sold to him. The limit of real estate investment).
Facts stipulation does not categorically create an • An implied trust could not have been formed
• Francisco Ang Bansing owned a 300,000 sq.m. obligation on the part of Ang Bansing to hold between the Bank and Tala “where the
piece of land in Davao wherein he sold part of it the property in trust for Juan Cruz. purchase is made in violation of an existing
to Juan Cruz who subsequently sold it also to • There is no express trust as there was no statute and in evasion of its express provision,
the Commonwealth of the Philippines. In the unequivocal disposition of property making no trust can result in favor of the party who is
contract between Juan Cruz and Ang Bansing, himself a trustee for the benefit of another. The guilty of the fraud.
it is stipulated that Juan Cruz will agree to intent to create a trust must be definitive and • Using Ramos v. CA, the Court held that “if the
work for the titling of the entire area of land particular. purpose of the payor of the consideration
under his own expenses and the expenses for the • Even if we consider it as an implied trust, it having title placed in the name of the another
titling of the portion sold to him. has already prescribed because more than 28 was to evade some rule of common or statute
Doctrine/s: years has passed. Acton for reconveyance has law, the Courts will not assist the payor in
• Constructive implied trusts prescribe 10 years prescribed. achieving his improper purpose by enforcing a
from the time defendants are given constructive Doctrine:
resultant trust for him in accordance with the
‘clean hands’ doctrine.”
Doctrine:
• Implied trusts as a result of controverting the
law are inexistent and void.

You might also like