IMPORTANT CIVIL CODE PROVISIONS AND CONCEPTS IN CIV 2!

1. a. LEGAL COMPENSATION

Article 1279 provides that in order that compensation may be proper, it is necessary:

(1) that each one of the obligors be bound principally, and that he be at the same time a principal
creditor of the other;
(2) that both debts consist in a sum of money, or if the things due are consumable, they be of the
same kind, and also of the same quality if the latter has been stated;
(3) that the two debts be due;
(4) that they be liquidated and demandable;
(5) that over neither of them there be any retention or controversy, commenced by third persons
and communicated in due time to the debtor.

b. NOVATION

A novation arises when there is a substitution of an obligation by a subsequent one that

extinguishes the first, either by changing the object or the principal conditions, or by substituting the person
of the debtor, or by subrogating a third person in the rights of the creditor.

For a valid novation to take place, there must be, therefore:

(a) a previous valid obligation;
(b) an agreement of the parties to make a new contract;
(c) an extinguishment of the old contract; and
(d) a valid new contract.

In short, the new obligation extinguishes the prior agreement only when the substitution is
unequivocally declared, or the old and the new obligations are incompatible on every point. A compromise
of a final judgment operates as a novation of the judgment obligation upon compliance with either of these
two conditions.

To be clear, novation is not presumed. This means that the parties to a contract should expressly
agree to abrogate the old contract in favor of a new one. In the absence of the express agreement, the old
and the new obligations must be incompatible on every point. (Franco v. Gonzales, June 27, 2012, J. Bersamin)

 Starbright Sales vs. Philippine Realty Corp., January 18, 2013, J. Abad

The Court believes that the April 17, 1988 letter between Licup and Msgr. Cirilos, the representative
of the propertys owners, constituted a perfected contract. When Msgr. Cirilos affixed his signature on that
letter, he expressed his conformity to the terms of Licups offer appearing on it. There was meeting of the
minds as to the object and consideration of the contract.

But when Licup ordered a stop-payment on his deposit and proposed in his April 26, 1988 letter to
Msgr. Cirilos that the property be instead transferred to SSE, a subjective novation took place.

A subjective novation results through substitution of the person of the debtor or through
subrogation of a third person to the rights of the creditor. To accomplish a subjective novation through

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change in the person of the debtor, the old debtor needs to be expressly released from the obligation and
the third person or new debtor needs to assume his place in the relation.

Novation serves two functions one is to extinguish an existing obligation, the other to substitute a
new one in its place requiring concurrence of four requisites: 1) a previous valid obligation; 2) an agreement
of all parties concerned to a new contract; 3) the extinguishment of the old obligation; and 4) the birth of a
valid new obligation.

Notably, Licup and Msgr. Cirilos affixed their signatures on the original agreement embodied in
Licups letter of April 26, 1988. No similar letter agreement can be found between SSE and Msgr. Cirilos.

The proposed substitution of Licup by SSE opened the negotiation stage for a new contract of sale
as between SSE and the owners. The succeeding exchange of letters between Mr. Stephen Cu, SSEs
representative, and Msgr. Cirilos attests to an unfinished negotiation. Msgr. Cirilos referred to his
discussion with SSE regarding the purchase as a pending transaction.

Cu, on the other hand, regarded SSEs first letter to Msgr. Cirilos as an updated proposal. This
proposal took up two issues: which party would undertake to evict the occupants on the property and how
much must the consideration be for the property. These are clear indications that there was no meeting of
the minds between the parties. As it turned out, the parties reached no consensus regarding these issues,
thus producing no perfected sale between them.

 Ace Foods, Inc. v. Micropacific Techonologies, Co., Ltd., December 11, 2013, J. Perlas-Bernabe

To be sure, novation, in its broad concept, may either be extinctive or modificatory. It is extinctive
when an old obligation is terminated by the creation of a new obligation that takes the place of the
former; it is merely modificatory when the old obligation subsists to the extent it remains compatible with
the amendatory agreement. In either case, however, novation is never presumed, and the animus novandi,
whether totally or partially, must appear by express agreement of the parties, or by their acts that are too
clear and unequivocal to be mistaken.

In the present case, it has not been shown that the title reservation stipulation appearing in the
Invoice Receipt had been included or had subsequently modified or superseded the original agreement of
the parties. The fact that the Invoice Receipt was signed by a representative of ACE Foods does not, by
and of itself, prove animus novandi.

Thus, absent any clear indication that the title reservation stipulation was actually agreed upon, the
Court must deem the same to be a mere unilateral imposition on the part of MTCL which has no effect on
the nature of the parties’ original agreement as a contract of sale. Perforce, the obligations arising thereto,
among others, ACE Foods’s obligation to pay the purchase price as well as to accept the delivery of the
goods, remain enforceable and subsisting.1

c. CO-SIGNATORY IN THE PROMISSORY NOTE

It will further be observed that petitioners undertaking as co-maker immediately follows the terms
and conditions stipulated between respondent corporation, as creditor, and the principal obligors. A surety
is usually bound with his principal by the same instrument, executed at the same time and upon the same
consideration; he is an original debtor, and his liability is immediate and direct.
Thus, it has been held that where a written agreement on the same sheet of paper with and
immediately following the principal contract between the buyer and seller is executed simultaneously

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therewith, providing that the signers of the agreement agreed to the terms of the principal contract, the
signers were sureties jointly liable with the buyer.
A surety usually enters into the same obligation as that of his principal, and the signatures of both
usually appear upon the same instrument, and the same consideration usually supports the obligation for
both the principal and the surety.
There is no merit in petitioners contention that the complaint was prematurely filed because the
principal debtors cannot as yet be considered in default, there having been no judicial or extrajudicial
demand made by respondent corporation. Petitioner has agreed that respondent corporation may demand
payment of the loan from her in case the principal maker defaults, subject to the same conditions expressed
in the promissory note. (Palmares v. CA, March 31, 1998, J. Regalado)

2. Art. 1324. When the offerer has allowed the offeree a certain period to accept, the offer may be withdrawn
at any time before acceptance by communicating such withdrawal, except when the option is founded upon
a consideration, as something paid or promised. (n)

Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.

An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the
promissor if the promise is supported by a consideration distinct from the price. (1451a)

Art. 1483. Subject to the provisions of the Statute of Frauds and of any other applicable statute, a contract
of sale may be made in writing, or by word of mouth, or partly in writing and partly by word of mouth, or
may be inferred from the conduct of the parties. (n)

Art. 1403. The following contracts are unenforceable, unless they are ratified:

(1) Those entered into in the name of another person by one who has been given no authority or legal
representation, or who has acted beyond his powers;

(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases
an agreement hereafter made shall be unenforceable by action, unless the same, or some note or
memorandum, thereof, be in writing, and subscribed by the party charged, or by his agent; evidence,
therefore, of the agreement cannot be received without the writing, or a secondary evidence of its contents:

(a) An agreement that by its terms is not to be performed within a year from the making
thereof;

(b) A special promise to answer for the debt, default, or miscarriage of another;

(c) An agreement made in consideration of marriage, other than a mutual promise to

marry;

(d) An agreement for the sale of goods, chattels or things in action, at a price not less than
five hundred pesos, unless the buyer accept and receive part of such goods and chattels,
or the evidences, or some of them, of such things in action or pay at the time some part of
the purchase money; but when a sale is made by auction and entry is made by the
auctioneer in his sales book, at the time of the sale, of the amount and kind of property
sold, terms of sale, price, names of the purchasers and person on whose account the sale is
made, it is a sufficient memorandum;

(e) An agreement of the leasing for a longer period than one year, or for the sale of real
property or of an interest therein;

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 (f) A representation as to the credit of a third person.

(3) Those where both parties are incapable of giving consent to a contract.

3. Art. 1874. When a sale of a piece of land or any interest therein is through an agent, the authority of the
latter shall be in writing; otherwise, the sale shall be void. (n)

4. Art. 1841. When any partner retires or dies, and the business is continued under any of the conditions
set forth in the preceding article, or in Article 1837, second paragraph, No. 2, without any settlement of
accounts as between him or his estate and the person or partnership continuing the business, unless
otherwise agreed, he or his legal representative as against such person or partnership may have the value
of his interest at the date of dissolution ascertained, and shall receive as an ordinary creditor an amount
equal to the value of his interest in the dissolved partnership with interest, or, at his option or at the option
of his legal representative, in lieu of interest, the profits attributable to the use of his right in the property
of the dissolved partnership; provided that the creditors of the dissolved partnership as against the separate
creditors, or the representative of the retired or deceased partner, shall have priority on any claim arising
under this article, as provided Article 1840, third paragraph. (n)

Art. 1785. When a partnership for a fixed term or particular undertaking is continued after the termination
of such term or particular undertaking without any express agreement, the rights and duties of the partners
remain the same as they were at such termination, so far as is consistent with a partnership at will.

A continuation of the business by the partners or such of them as habitually acted therein during the term,
without any settlement or liquidation of the partnership affairs, is prima facie evidence of a continuation
of the partnership. (n)

Art. 1833. Where the dissolution is caused by the act, death or insolvency of a partner, each partner is liable
to his co-partners for his share of any liability created by any partner acting for the partnership as if the
partnership had not been dissolved unless:

(1) The dissolution being by act of any partner, the partner acting for the partnership had
knowledge of the dissolution; or

(2) The dissolution being by the death or insolvency of a partner, the partner acting for the
partnership had knowledge or notice of the death or insolvency.

5. Action for Collection of Sum of Money

Art. 1829. On dissolution the partnership is not terminated, but continues until the winding up of
partnership affairs is completed. (n)

Art. 1835. The dissolution of the partnership does not of itself discharge the existing liability of any
partner.

A partner is discharged from any existing liability upon dissolution of the partnership by an agreement to
that effect between himself, the partnership creditor and the person or partnership continuing the
business; and such agreement may be inferred from the course of dealing between the creditor having
knowledge of the dissolution and the person or partnership continuing the business.

The individual property of a deceased partner shall be liable for all obligations of the partnership
incurred while he was a partner, but subject to the prior payment of his separate debts. (n)

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6. PACTUM COMMISSORIUM

Art. 2088. The creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of
them. Any stipulation to the contrary is null and void. (1859a)

Villars purchase of the subject property did not violate the prohibition on pactum commissorium. The power
of attorney provision above did not provide that the ownership over the subject property would
automatically pass to Villar upon Galass failure to pay the loan on time. What it granted was the mere
appointment of Villar as attorney-in-fact, with authority to sell or otherwise dispose of the subject property,
and to apply the proceeds to the payment of the loan.
The real nature of a mortgage is described in Article 2126 of the Civil Code, to wit:

Art. 2126. The mortgage directly and immediately subjects the property upon
which it is imposed, whoever the possessor may be, to the fulfillment of the obligation for
whose security it was constituted.

Simply put, a mortgage is a real right, which follows the property, even after subsequent transfers
by the mortgagor. A registered mortgage lien is considered inseparable from the property inasmuch as it
is a right in rem.[41]

The sale or transfer of the mortgaged property cannot affect or release the mortgage; thus the
purchaser or transferee is necessarily bound to acknowledge and respect the encumbrance. [42] In fact, under
Article 2129 of the Civil Code, the mortgage on the property may still be foreclosed despite the transfer, viz:

Art. 2129. The creditor may claim from a third person in possession of the
mortgaged property, the payment of the part of the credit secured by the property which
said third person possesses, in terms and with the formalities which the law establishes.

(Garcia v. Villar, June 27, 2012, J. Leonardo-De Castro)

7. Art. 2183. The possessor of an animal or whoever may make use of the same is responsible for the damage
which it may cause, although it may escape or be lost. This responsibility shall cease only in case the
damage should come from force majeure or from the fault of the person who has suffered damage. (1905)

8. OPTION CONTRACT

 Sanchez v. Rigos, 45 SCRA 368 (1972)

"ART. 1479. A promise to buy and sell a determinate thing for a price certain is
reciprocally demandable.

An accepted unilateral promise to buy or sell a determinate thing for a price

certain is binding upon the promisor if the promise is supported by a consideration
distinct from the price."

"ART. 1324. When the offerer has allowed the offeree a certain period to accept,
the offer may be withdrawn any time before acceptance by communicating such

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 withdrawal, except when the option is founded upon consideration as something
paid or promised."

However, this Court itself, in the case of Atkins, Kroll and Co., Inc. v. Cua Hian Tek, decided later
that Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co., saw no distinction between Articles 1324
and 1479 of the Civil Code and applied the former where a unilateral promise to sell similar to the one sued
upon here was involved, treating such promise as an option which, although not binding as a contract in
itself for lack of a separate consideration, nevertheless generated a bilateral contract of purchase and sale
upon acceptance.

Since there may be no valid contract without a cause or consideration, the promisor is not bound by his
promise and may, accordingly, withdraw it. Pending notice of its withdrawal, his accepted promise
partakes, however, of the nature of an offer to sell which, if accepted, results in a perfected contract of sale.

This view has the advantage of avoiding a conflict between Articles 1324 — on the general principles on
contracts — and 1479 — on sales — of the Civil Code, in line with the cardinal rule of statutory construction
that, in construing different provisions of one and the same law or code, such interpretation should be
favored as will reconcile or harmonize said provisions and avoid a conflict between the same. Indeed, the
presumption is that, in the process of drafting the Code, its author has maintained a consistent philosophy
or position.

Moreover, the decision in Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co., holding that Art.
1324 is modified by Art. 1479 of the Civil Code, in effect, considers the latter as an exception to the former,
and exceptions are not favored, unless the intention to the contrary is clear, and it is not so, insofar as said
two (2) articles are concerned. What is more, the reference, in both the second paragraph of Art. 1479 and
Art. 1324, to an option or promise supported by or founded upon a consideration, strongly suggests that
the two (2) provisions intended to enforce or implement the same principle.

Upon mature deliberation, the Court is of the considered opinion that it should, as it hereby reiterates the
doctrine laid down in the Atkins, Kroll & Co. case, and that, insofar as inconsistent therewith, the view
adhered to in the Southwestern Sugar & Molasses Co. case should be deemed abandoned or modified.

RIGHT OF FIRST REFUSAL

 Equatorial vs. Mayfair, 264 SCRA 483 (1996)

We agree with the respondent Court of Appeals that the aforecited contractual stipulation provides for a
right of first refusal in favor of Mayfair. It is not an option clause or an option contract. It is a contract of a right
of first refusal.

It also correctly reasoned that as such, the requirement of a separate consideration for the option, has no
applicability in the instant case.

An option is a contract granting a privilege to buy or sell within an agreed time and at a determined price.
It is a separate and distinct contract from that which the parties may enter into upon the consummation of
the option. It must be supported by consideration. In the instant case, the right of first refusal is an integral
part of the contracts of lease. The consideration is built into the reciprocal obligations of the parties.

To rule that a contractual stipulation such as that found in paragraph 8 of the contracts is governed by
Article 1324 on withdrawal of the offer or Article 1479 on promise to buy and sell would render in effectual
or "inutile" the provisions on right of first refusal so commonly inserted in leases of real estate nowadays.

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The Court of Appeals is correct in stating that Paragraph 8 was incorporated into the contracts of lease for
the benefit of Mayfair which wanted to be assured that it shall be given the first crack or the first option to
buy the property at the price which Carmelo is willing to accept. It is not also correct to say that there is no
consideration in an agreement of right of first refusal. The stipulation is part and parcel of the entire contract
of lease. The consideration for the lease includes the consideration for the right of first refusal. Thus,
Mayfair is in effect stating that it consents to lease the premises and to pay the price agreed upon provided
the lessor also consents that, should it sell the leased property, then, Mayfair shall be given the right to
match the offered purchase price and to buy the property at that price.

As stated in Vda. De Quirino vs. Palarca, in reciprocal contract, the obligation or promise of each party is
the consideration for that of the other.

The respondent Court of Appeals was correct in ascertaining the true nature of the aforecited paragraph 8
to be that of a contractual grant of the right of first refusal to Mayfair.

 Ang Yu vs. CA, December 2, 1994

An unconditional mutual promise to buy and sell, as long as the object is made determinate and the price is
fixed, can be obligatory on the parties, and compliance therewith may accordingly be exacted.5

An accepted unilateral promise which specifies the thing to be sold and the price to be paid, when coupled with a
valuable consideration distinct and separate from the price, is what may properly be termed a perfected contract
of option. This contract is legally binding, and in sales, it conforms with the second paragraph of Article
1479 of the Civil Code, viz:

Art. 1479. . . .

An accepted unilateral promise to buy or to sell a determinate thing for a price certain is
binding upon the promissor if the promise is supported by a consideration distinct from
the price. (1451a)6

Observe, however, that the option is not the contract of sale itself. The optionee has the right, but not the
obligation, to buy. Once the option is exercised timely, i.e., the offer is accepted before a breach of the
option, a bilateral promise to sell and to buy ensues and both parties are then reciprocally bound to comply
with their respective undertakings.

In the law on sales, the so-called "right of first refusal" is an innovative juridical relation. Needless to point
out, it cannot be deemed a perfected contract of sale under Article 1458 of the Civil Code. Neither can the
right of first refusal, understood in its normal concept, per se be brought within the purview of an option
under the second paragraph of Article 1479, aforequoted, or possibly of an offer under Article 1319 of the
same Code.

An option or an offer would require, among other things, a clear certainty on both the object and the cause
or consideration of the envisioned contract. In a right of first refusal, while the object might be made
determinate, the exercise of the right, however, would be dependent not only on the grantor's eventual
intention to enter into a binding juridical relation with another but also on terms, including the price, that
obviously are yet to be later firmed up. Prior thereto, it can at best be so described as merely belonging to
a class of preparatory juridical relations governed not by contracts (since the essential elements to establish
the vinculum juris would still be indefinite and inconclusive) but by, among other laws of general
application, the pertinent scattered provisions of the Civil Code on human conduct.

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Even on the premise that such right of first refusal has been decreed under a final judgment, like here, its
breach cannot justify correspondingly an issuance of a writ of execution under a judgment that merely
recognizes its existence, nor would it sanction an action for specific performance without thereby negating
the indispensable element of consensuality in the perfection of contracts. It is not to say, however, that the
right of first refusal would be inconsequential for, such as already intimated above, an unjustified disregard
thereof, given, for instance, the circumstances expressed in Article 19 of the Civil Code, can warrant a
recovery for damages.

The final judgment in Civil Case No. 87-41058, it must be stressed, has merely accorded a "right of first
refusal" in favor of petitioners. The consequence of such a declaration entails no more than what has
heretofore been said. In fine, if, as it is here so conveyed to us, petitioners are aggrieved by the failure of
private respondents to honor the right of first refusal, the remedy is not a writ of execution on the judgment,
since there is none to execute, but an action for damages in a proper forum for the purpose.