PART I

PRESCRIPTION (BOOK III TITLE V)Arts. 1106-1155

Prescriptionmeans by which one acquires ownership and other real rights through the lapse of time in the manner and under the conditions laid down by law. -means by which rights and actions are lost.- mode of acquiring or losing ownership

Under the Civil Code Prescription covers both acquisitive and extinctive prescription.(US vs. Serapio 23 Phil 597)

Common Law Prescription is equivalent to acquisitive prescription, that is acquisition of right through lapse of time. While limitation refers to the time within which an action may be brought or extinctive prescription.

A. Acquisitive Prescription Art. 1117

1. Requisites for Ordinary Acquisitive Prescription

a. Capacity to acquire by prescription;(no prescription between husband and wife, between parent and child during minority of the latter, between guardian and ward during the continuance of guardianship, between co-owners, etc.)b. The object must be susceptible of prescription;(property of the State or any of its subdivisions, except patrimonial property, movables possessed through a crime by the offender, lands under the Torrens System of registration with a torrens certificate of title, are not susceptible of prescription).c. Possession must be in the concept of owner, public, peaceful, continuous and uninterrupted (Art. 1118, NCC);d. Possession must be by virtue of a title and in good faith;

Good faith for purposes of prescription consists in a reasonable belief that the person from whom the possessor received the thing was the owner thereof, and could transfer the ownership (Article 1127, NCC); or that it consists in the ignorance of the possessor of any flaw which would invalidate his title or mode of acquisition. (Article 526, NCC).

Just title for purposes of prescription exists when the adverse claimant came into possession of the property through one of the modes recognized by law for the acquisition of ownership or other real rights, but the grantor was not the owner or could not transmit any right. (Article 1129, NCC).

e. The period of possession must be four (4) years for movable property and ten (10) years for immovable property

2. Requisites for Extraordinary Acquisitive Prescription

a. Capacity to acquire by prescription;(no prescription between husband and wife, between parent and child during minority of the other, between guardian and ward during the continuance of guardianship, between co-owners, etc.)b. The object must be susceptible of prescription;(property of the State or any of its subdivisions, except patrimonial property, movables possessed through a crime by the offender, lands covered by the Torrens System, are not susceptible of prescription).c. Possession must be in the concept of owner, public, peaceful, continuous and uninterrupted (Art. 1118, NCC);d. Possession may be without title and in bad faith;e. The period of possession must be eight (8) years for movable property and thirty (30) years for immovable property

3.What Cannot Be Required By Acquisitive Prescriptiona. Those not within the commerce of men (Art. 1113);b. Property of the State or any of its subdivisions not patrimonial in character (Art. 1113);c.Movables possessed through a crime (Art. 1133)d.Lands registered under the Torrens system (Sec. 47 of PD 1529)

A. Extinctive Prescription orPrescription of Actions/Statutes of Limitations

1. Characteristics2. Requisites3. PeriodsImprescriptible Actions:

(1)action to demand a right of way (Article 1143, Civil Code);(2)action to abate a public or private nuisance (Article. 1143, Civil Code);(3)action to declare ordinary contract void (Article 1410, Civil Code);(4)petition to declare contract of marriage void (Article 39, Family Code);(5)petition for probate of will;(6)action for partition of co-ownership so long as co-owner has not expressly repudiated co-ownership (Article 494, Civil Code);(7)action for present or future support, but no support in arrears;(8)action by beneficiary to recover property placed in trust so long as trustee has not expressly repudiated the trust;(9)action by registered owner to recover property brought under the Torrens System (Section 47, P.D. 1539);(10)action by the state to recover lands of public dominion;(11)action to recover movables possessed through a crime against the offender (Article 1133, Civil Code).(12)action for quieting of title so long as plaintiff is in possession of the property (Cabrera vs. CA 267 SCRA 339);

Other Actions

a. To Recover Movables Art. 1140 (8 years)b. To Recover Immovables Art. 1141 (30 years)

c.Other Actions Arts. 1142-1149 1) Within 10 years upon a written contract, upon an obligation created by law and upon a judgment, Mortgage (Art.1142) (Art. 1144)2) Within 6 years upon an oral contract; quasi-contract3) Witihin 5 years other actions whose periods are not fixed in the Code or other law4) Within 4 years upon injury to rights of plaintiff; quasi-delict5) Within 1 year forcible entry and detainer; defamationB. Distinction Between Acquisitive and Extinctive Prescription

1. As to elements: the first requires a positive fact, the possession by one who is not the owner, while the second requires a negative fact, the inaction of the owner;2. As to purpose the first is for the purpose of acquisition of rights, while the second is for the purpose of extinction of rights;3. As to extent the first is applicable only to real rights which are susceptible of possession, while the second is applicable to all kinds of rights, real or personal;4. As to effect the first results in the acquisition and extinction of a real right while the second merely results in the extinction of a real or personal right.5. As to interruption

Acquisitive prescription (Arts.1120 to 1125) Naturally (possession ceases for over 1 year) Civilly (through summons to the possessor except for the cases provided under Art. 1124) Express or tacit (recognition by possessor of the owners right)

Extinctive prescription (Art. 1155) Filed in court Written extra-judicial demand by creditor Written acknowledgment by debtor

Case Studies:

Morales vs. CFI (97 SCRA 872)

Re: Article 1106 NCC There are two kinds of prescription provided in the Civil Code. One is acquisitive, i.e; the acquisition of ownership and other real rights by the lapse of time (Article 1109, par. 1), other names for acquisitive prescription are adverse possession and usucapcion. The other kind is extinctive prescription whereby rights and actions are lost by the lapse of time (Arts. 1106 par. 2 and 1139). Another name for extinctive prescription is limitation of action.

(Note: Limitation of action or statute of limitation is one of the grounds for a Motion to Dismiss under Rule 16, Revised Rules of Court). Petitioner filed an action for recovery of possession, ownership of a parcel of land against private respondents, who in their answer, set up, among others, the affirmative defense that petitioners (as plaintiff) cause of action is barred by extinctive prescription or statute of limitations. During the hearing on the affirmative defense of extinctive prescription or statute of limitation, the evidence proved that the recovery action was filed after 10 years but before 30 years from the time private respondents took possession of the land. The CFI dismissed the complaint, which was reversed/set aside and the case remanded for trial to the CFI. The action has not prescribed or been barred by the statute of limitations pursuant to Article 1141, NCC which provides that real actions to recover immovables prescribe in 30 years. The law requires that one who asserts ownership by ordinary acquisitive prescription of real estate,good faith and just title are never presumed but must be proved pursuant to Article 1131 NCC. Hence, ordinary acquisitive prescription, unlike extinctive prescription or statute of limitations, is not among the grounds for a motion to dismiss (Rule 16, Rev- Rules of Court) but the same must be threshed out and proved in full blown trial.

Hrs. of Arzadon-Crisologo vs. Raon (532 SCRA 391)

Re: Article 1137 (extraordinary acquisitive prescription) and Article 1123 (civil interruption of possession). Prescription as a mode of acquiring ownership and other real rights over immovable is concerned with the lapse of time in the manner and under the conditions laid down by law, namely: that the possession should be in the concept of owner, public, peaceful, uninterrupted and adverse. Article 1137, NCC on acquisitive prescription provides: ownership and other real rights over immovables also prescribe through uninterrupted adverse possession thereof for thirty years without need of title or good faith.Notice of adverse claim does not interrupt the running of acquisitive prescription. It does not take place of judicial summons under Art. 1123. Extraordinary acquisitive prescription may bestow ownership on possessor

Hrs. of Maningding vs. CA (276 SCRA 601)

A donation, though void for lack of formal requisites, could be a basis for adverse possession for extraordinary acquisitive prescription. While a donation propter nuptias is void for failure to comply with formal requisites, it could still constitute a legal basis for adverse possession.

Vda. De Cabrera vs. CA (267 SCRA 339)

(Article 1143) An action for reconveyance of a parcel of land based on implied or constructive trust ordinarily prescribed in ten (10) years, the point of reference being the date of registration of the issuance of the certificates of title over the property (Article 1144); but this rule applies only when the plaintiff is not in possession of the property; however, if the person claiming to be the owner thereof is in actual possession of the property, the right to seek reconveyance which in effect seeks to quiet title to the property, does not prescribe.

Hrs. of Flores Restar vs. Hrs. of Cichon (475 SCRA 731)

While an action to demand partition does not prescribe, a co-owner may acquire ownership thereof by clear repudiation of the co-ownership and the co-owners are appraised of their rights.

Tenales vs. IAC (143 SCRA 223)

Statute of limitations are statutes of repose, the object of which is to suppress fraudulent and stale claims from springing up at great distances of time and surprising parties and their representatives when all the proper vouchers and evidences are lost or the facts have become obscure from the lapse of time or the defective memory or death or removal of witnesses. Suchstatutes apply with full force even to most meritorious claims. The purpose of these statutes is to protect the diligent and vigilant, not those who sleep on their rights.

Nielson & Company, Inc vs. Lepanto Consolidated Mining Co. ( 18 SCRA 1040)

Laches is different from prescription. Prescription is concerned with the fact of delay, whereas laches is concerned with the effect of delay. Prescription is a matter of time; laches is principally a question of inequity of permitting a claim to be enforced, this inequity being founded on some change in the condition of the property or the relation of the parties. Prescription is statutory; laches is not. Laches applies in equity; whereas prescription applies at law. Prescription is based on fixed time, laches is not

C. Interruption Art. 1155

3 Ways In Which Prescription of Action (Extinctive Prescription) Is Interrupted:

a. Filed before the courtb. Written extra-judicial demandc. Written acknowledgment of debt by debtor

Interruption of Possession vs. Suspension of Prescription

Interruption of Possession -all benefits acquired so far from possession ceases. When the prescription runs again, it is a new one. Suspension of Prescription- the past period is included after prescription is resumed.

OBLIGATIONS (BOOK IV TITLE I)Arts. 1156-1304

I. General Provisions (Chapter 1) Arts. 1156-1162

Obligation juridical necessity to give, to do or not to do

Elements of an Obligation

Sources of Obligations Art. 11571. Law. (Not Presumed Art. 1158)2. Contracts3. Quasi-Contracts4. Acts or Omissions Punished By Law5. Quasi-Delicts

Case Studies:

Pelayo vs. Lauron (12 Phil 453)

(Re: Article 1158, Civil Code) Medical services rendered by a physician for delivery of the child are chargeable to the husband, not to the parents-in-law of the wife, even if it was the parents-in-law who brought the daughter-in-law to the physician.

Cruz vs. Northern Theatrical Enterprises (95 Phil 739)

While it is to the interest of the employer to give legal help to, and defend, its employees charged criminally in court, in order to show that he was not guilty of any crime either deliberately or through negligence, because should the employee be finally held criminally liable and he is found to be insolvent, the employer would be subsidiarily liable, such legal assistance might be regarded as a moral obligation but it does not at present count with the sanction of man-made laws. If the employer is not legally obliged to give legal assistance to its employee and provide him with a lawyer, naturally said employee may not a recover from his employer the amount he may have paid a lawyer hired by him.

PARTIES WHO MAY BE HELD RESPONSIBLE FOR DAMAGES. If despite the absence of any criminal responsibility on the part of the employee he was accused of homicide, the responsibility for the improper accusation may be laid at the door of the heirs of the deceased at whose instance the action was filed by the State through the Fiscal. This responsibility can not be transferred to his employer, who in no way intervened, much less initiated the criminal proceedings and whose only connection or relation to the whole affair was that it employed plaintiff to perform a specific duty or task, which was performed lawfully and without negligence.

II. Nature and Effect of Obligations (Chapter 2) Arts. 1163-1178

A. Obligation To Give (Art. 1165)

1. A Determinate Or Specific ThingIndividualized and can be identified or distinguished from others of its kind2. An Indeterminate Or Generic ThingIndicated only by its kind, without being distinguished from others of the same kind.

Case Study:

Adorable vs. CA (319 SCRA 200)(Real right distinguished from Personal right)

Re: (Art. 1164)Areal right, like rights of ownership and possession is the power belonging to a person over a specific thing, without a passive subject individually determined against whom such right may be personally exercised; it gives a person a direct and immediate juridical power over a thing, which can be exercised not only against a determinate person, but against the whole world. A personal right on the other hand, is the power belonging to one person to demand of another, as a definite passive subject, the fulfillment of a prestation to give, to do, or not to do.

B. Obligation To Do Or Not To Do (Arts. 1167 & 1168) C. Breaches Of Obligations1. Complete Failure To Perform2. Default, Delay Or Mora No Default Unless Creditors Makes A Demand;Exceptions (Art. 1169)

Delay, default or Mora: delay in the fulfillment of obligations; it is non-fulfillment with respect to time

Different Kinds of Mora:a. Mora solvendib.Mora accipiendic. Compensatio morae

Requisites of Default: That the obligation be demandable and liquidated That the debtor delays performance That the creditor demands performance judicially or extrajudicially, subject to the exceptions provided by law.

3.Fraud In The Performance Of Obligation a. Waiver Of Future Fraud Is Void (Art. 1171)

Fraud: (Dolo) (Art. 1171)The deliberate and intentional evasion of the normal fulfillment of obligations. It implies malice or dishonesty and it cannot cover cases of mistake/error in judgment

Fraud: (Dolo) (Art. 1138)

Fraud in the negotiation, perfection or consummation of the contract entitles the aggrieved party the remedy of rescission plus damages

Case Study:

Sps. Tongson vs. Emergency Pawnshop Bula, Inc. (610 SCRA 150)

Fraud in the negotiation, perfection or consummation of contract entitles aggrieved party to the remedy of rescission plus damages.

4. Negligence (Culpa) In The Performance Of Obligation (Art. 1173)a. Diligence Normally Required Is Ordinary Diligence Or Diligence Of A Good Father Of A Family; Exceptions Common Carriers Requiring Extraordinary Diligence (Arts. 1998-2002)

3 Different Kinds of Negligence As Source of Obligation: Culpa contractual Culpa aquiliana (quasi delict) Culpa criminal

Test of Negligence - if defendant did not use ordinary care and caution which an ordinary prudent man would have used in the same situation

Case Studies:

Valencia vs. RFC and CA (103 Phil. 444)

(Re: Article 1186, Civil Code) The condition to put up a bond by the winning bidder to construct a building, may be waived by the owner, and failure of winning bidder to put up a bond, will make winning bidder liable for breach of contract and damages, because of failure of winning bidder to proceed with the construction.Thus, pursuant to Article 1186, Civil Code, the condition shall be deemed fulfilled when the obligor (the winning bidder) voluntarily prevents its fulfillment.

Picart vs. Smith (37 Phil 805)

(Re: Article 1157, numbers 4 and 5, Civil Code) The principal issue is whether or not petitioners, heirs of deceased Arsenio Virata, can prosecute a civil action for damages based on quasi-delict against both Maximo Borilla (driver employee) and Victorio Ochoa (owner-employer) that bumped Arsenio Virata, while the criminal action for homicide thru reckless imprudence was still pending against Maximo Borilla, the driver-employees. Yes, pursuant to Article 2177, Civil Code; however, the plaintiff cannot recover damages twice for the same act or omission of the defendant.

5. Contravention Of The Tenor Of Obligation6. Legal Excuse For Breach Of Obligation Fortuitous Event; Requisites (Art. 1174)Case Studies:

Co vs. CA (291 SCRA 111)

Under Articles 1174 and 1262 of the New Civil Code, liability attaches even if the loss was due to a fortuitous event if "the nature of the obligation requires the assumption of risk." Carnapping is a normal business risk for those engaged in the repair of motor vehicles. For just as the owner is exposed to that risk so is the repair shop since the car was entrusted to it. Failure of repair shops to first register with the Department of Trade and Industry (DTI) and to secure an insurance policy for the "shop covering the property entrusted by its customer for repair, service or maintenance" constitutes negligence per se. Carnapping per se cannot be considered as a fortuitous event. To be considered a fortuitous event or an act of God or was done solely by third parties, neither the claimant nor the person alleged to be negligent must not have any participation. The law adopts the standard of a discreet pater familias of Roman Law the degree of care exercised by a reasonable man under the circumstances.

Nakpil & Sons vs. CA (144 SCRA 596)

(Re: Article 1174 Force Majeure or Fortuitous Event) To exempt the obligor from liability under Article 1174 of the Civil Code, for a breach of an obligation due to an act of God, (force majeure/caso fortuito) the following must concur:

(a)The cause of the breach of the obligation must be independent of the will of the obligor;(b)The event must either be unforeseeable or unavoidable;(c)The event must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner; and(d)The debtor must be free from any participation in, or aggravation of the injury to the creditor (see also Republic vs. Luzon Stevedoring Corporation).

The Supreme Court, interpreted the provision of Article 1174, Civil Code, the general provision on force majeure or fortuitous event which states generally, x x x no person shall be responsible for those events which could not be foreseen, or which though foreseen is inevitable.

Republic vs. Luzon Stevedoring Corp (21 SCRA 279)

(Re: Article 1174, Civil Code, Caso Fortuito or Force Majeure) For caso forfuito or force majeure (which in law are identical insofar as they exempt an obligor from liability) by definition, are extraordinary events not foreseeable or avoidable, events that could not be foreseen or which, though foreseen, were inevitable. It is not enough that the event should not have been foreseen or anticipated, as is commonly believed, but it must be one impossible to foresee or to avoid. The mere difficulty to foresee the happening is not impossibility to see the same. The very measures adopted by appellant prove that the possibility of danger was not only foreseeable, but actually foreseen, and not caso fortuito.

D. Remedies Available To Creditor In Cases Of Breach1.Specific Performancea. Substituted Performance by a third person in Obligation to deliver generic thing and in obligation to do, unless a purely personal act2. Rescission (resolution in reciprocal obligations)3. Damages, in any event4. Subsidiary Remedies Of Creditors (Art. 1177)a. Accion subrogatoriab. Accion paulianac. Accion directa (Arts. 1652lessors right to sue directly sublessee, 1608- vendors right to sue directly assignee of vendee in pacto de retro sale, 1729-laborers/material suppliers right to sue directly owner, 1893-principals right to sue directly sub-agent)

III. Kinds of Obligations (Chapter 3) Arts. 1179-1230

A.Pure and Conditional Obligations - (Section 1)Arts. 1179-1192

Pure Obligation without a condition or term (Arts. 1179-1180)- demandable at once

Conditional Obligation with a condition (Art. 1181)

1. Classifications ofConditions:

a. Potestative /Casual/Mixed

i. Potestative it depends exclusively on the will of one of the parties

a. Potestative on part of Debtor If also suspensive void If also resolutory - validb. Potestative of the part of the Creditor - valid

2 Kinds of Potestative Conditions:

Simple Potestative (valid) If a decide to sell my house, the first offer will be to you (the right of first refusal) Purely Potestative (void) I will sell my house to you if I like

ii. Casual its fulfillment depends upon chance or the will or a third personiii. Mixed its fulfillment depends upon the will of a party; the obligation upon chance or the will or a third person. b. Suspensive vs. Resolutory

Suspensive Condition happening of condition gives rise to obligationResolutory Condition happening of condition extinguishes obligation

1. Effect Of The Happening Of ASuspensive Condition (Art. 1187); Resolutory Condition

Kind of ObligationCondition FulfilledRetroactivity

To giveSuspensiveRetroacts to day of constitution of obligation

To do or not to doSuspensiveCourts shall determine retroactive effect

To give, to do or not to doResolutoryNo retroactivity

2. Effect Of Loss Of Specific Thing Or Deterioration or improvement of specific thing before suspensive condition (Art. 1189); if this occurs in resolutory condition in obligation to do or not to do (1190, par. 3)

EventParty ResponsibleEffect On Obligation

iv. Thing LostNo fault of debtorExtinguished

Fault of debtorDebtor Pays Damages

v. Thing deterioratesNo fault of debtorImpairment borne by Creditor

Fault of debtorCreditor may choose between rescission and fulfillment with damages in either case

vi. Thing ImprovesDue to nature/timeImprovement to creditor

Due to debtorDebtor has rights of usufructuary for the improvements

6. Power To Rescind In Reciprocal Obligations (Art. 1191)

Reciprocal Obligations - arise from the same cause, and in which each is a debtor and a creditor of the other, such that the obligation of one is dependent upon the obligation of the other. They are to be performed simultaneously so that the performance of one is conditioned upon the performance of the other.

Art. 1191 Does Not Apply In:

In sale of immovable property with a proviso that in case buyer fails to pay, seller can rescind. Art. 1592 applies which grants the buyer the right to pay as long as there is no judicial or notarial demand for rescission.

In contracts of lease because while Art. 1191 grants the court the power to fix a longer period for compliance, Art. 1659 (on lease) such discretionary power is not granted to the courts.

In contract to sell of immovable property; hence no judicial nor notarial demand is needed to resolve(rescind) the contract. Relate to Maceda Law (RA 6552). Failure to pay installment or balance of the full purchase price is a positive suspensive condition, the failure of which is not a breach casual or serious but simply an event which prevented the obligation of vendor to convey title . The transfer of ownership and title would occur after full payment of purchase price.

Art. 1191 Applies In:

In a lease contract which provides that in case of non-payment of rentals, the lessor can eject without judicial proceedings, because such provision is valid as even under Art. 1191, lease contract being reciprocal contract, can be rescinded in the event of non-fulfillment (Consing vs. Jamandre 64 SCRA 1)

In a sale of movable properties in which case, no judicial approval is necessary if buyer does not pay price on date stipulated.

Case Studies:

Consing vs. Jamandre (64 SCRA 1)

(Re: Article 1191, Civil Code) The contract between sublessor and sublessee authorizing sublessor to take possession of leased premises in case of breach of contract without judicial action, is valid and binding.This stipulation is in the nature of a resolutory condition; judicial permission to cancel agreement is not necessary as judicial permission is needed only in the absence of a special provision granting the power of cancellation. The sublessee cannot complain of deprivation of rights without due process of law.

Liu vs. Loy, Jr. (405 SCRA 316)

Although the law allows the extra-judicial cancellation of a contract to sell upon failure of the party to comply with his obligation, notice of such cancellation must still be given to the party who is at fault. The notice of cancellation to the other party is one of the requirements for a valid cancellation of a contract to sell, aside from the existence of a lawful cause, citing the case of Lim v. Court of Appeals, G.R. No. 85733, 23 February 1990, 182 SCRA 564, 571.There was no valid cancellation of the contract to sell, not even an implied one where there was no written notice of the cancellation given to Benito Liu or Frank Liu.. The letter does not mention anything about rescinding or canceling the contract to sell.

B.Obligations With A Period - (Section 2)Arts. 1193-1198

1. Suspensive Period;a suspensive period is for the benefit of both debtor and of creditor, unless given in favor of one of them. If given to debtor alone, debtor losses benefit of period in any of the 5 cases in Art. 1198 obligation retroact to the day of its constitution

2. Resolutory Period

3. Definite Or Indefinite Period

a. When Courts May Fix The Period (Art. 1197) when period depends on will of debtor when from nature or circumstances, it can be inferred that period was intended

Case Study:

Borromeo vs. CA (47 SCRA 65)

The complaint by the creditor may embody the fixing of the period within which the debtor was to pay andalso the collection of the amount that until then was not paid. An action combining both features was approved by the Supreme Court. In Tiglao v. The Manila Railroad Company:(98 Phil. 181 (1956). "The duration of the term should be fixed in a separate action for that express purpose but thereare good reasons for not adhering to technicalities in its desire to do substantial justice." (Ibid, 184.) Defendant does not claim that if a separate action were instituted to fix the duration of the term of its obligation, it could present better proofs than those already adduced in the present case. Such separate action would, therefore, be a mere formality and would serve no purpose other than to delay." (Ibid, 185.) There is no legal obstacle then to the action for collection filed by the creditor.

b. Creditor Must Ask Court To Set The Period, before he can demand payment

c.Debtors Shall Lose Right To Make Use Of Period When: He becomes insolvent after obligation contracted He Does Not Furnish Guaranties/Securities promised, Has Impaired Guaranties; Does Not Furnish Equally Satisfactory Guaranties When Originals Lost Thru Fortuitous Event; Violates Any Undertaking In Consideration For Which Creditor Guaranteed Period (Art. 1198)

Case Study:

Song Fo vs. Oria (33 Phil 3)

Re: Article 1198, paragraph 3 and Article 1504, Civil Code) Song Fo sold to Oria a motor launch for P16,500.00 payable in quarterly installments at P1,000.00 with the motor launch as security for payment of the purchase price. The motor launch was delivered to Oria in Manila but was shipwrecked en route to Samar. Ownership of launch was transferred to Oria upon delivery in Manila (Article 1504 and 712, Civil Code) and according to the principle of res perit domino (things perish for or at the risk of their owner), Oria bears the loss even thru fortuitous event. Hence, all the other quarterly installments even if not due becomes demandable. (Article 1198, par. 3, Civil Code) which provides that debtor shall use the right to make use of the period when the security of the obligation disappear thru fortuitous event.

C.Alternative Obligations - (Section 3)Arts. 1199-1206

Alternative Obligation one where out of 2 or more prestations which may be given, only one is due. Right to choice given to debtor unless expressly granted to creditor

Facultative Obligation one where only one prestation has been agreed upon but the obligor may render another in substitution. Right to choose given only to debtor

Case Study:

Agoncillo vs. Javier (38 Phil. 424)

(Re: Article 1200, Civil Code) Alternative Obligations: The agreement to convey the house and lot in the event of failure to pay a debt in payment, is simply an undertaking that if the debt is not paid in money, it will be paid in another way, or a case of alternative obligations, and therefore valid. It is not pacto commissorio, which is prohibited under Article 2088, Civil Code, which provides: The creditor cannot appropriate the things given by way of pledge or mortgage or dispose of them. Any stipulation to the contrary shall be void. (Note: It is the automatic transfer of the ownership of the mortgaged property upon default that is prohibited as pactum commissorio.)

When Choice is Given to Debtor And Loss/Impossibility Happened Before Choice Is Made

EventConsequence

Debtor cannot make a choice bec. Of creditors faultDebtor may rescind contract with damages

All things are lost because of fault of debtor/compliance has become impossibleCreditor may ask for damages

When Choice is Given To Creditor and Before Creditor Communicates His Choice To Debtor:

EventObligation of Debtor

1oss of the 1 thing lost thru fortuitous eventDeliver what creditor chooses from among remaining, or the only one remaining

Loss of 1 thing thru fault of debtorDeliver what creditor chooses from among remaining or the price of that which disappeared with damages

Loss of all things thru fault of debtorDeliver the price of what creditor would have chosen with damages

E.Joint and Solidary Obligations - (Section 4)Arts. 1207-1225

1. Joint (Divisible) Obligation - Concurrence Of Two Or More Creditors And/Or Two Or More Debtors In One And The Same Obligationa. Joint Obligation Is Presumed, unless otherwise providedby law or the nature of obligation (Art. 1207)b. Obligation Presumed To Be Divided into as many equal shares as there are creditors or debtorsc. Each Credit Is Distinct From One Another, therefore a joint debtor cannot be required to pay for the share of another co-debtor, although he may pay if he wants to (Art. 1209)d. Insolvency Of A Joint Debtor, others not liable for his share (Art. 1209)

Case Study:

Oriental Commercial Corp vs. Abeto (60 Phil 723)

When it is not provided in a judgment that the defendants are liable to pay jointly and severally a certain sum of money, none of them may be compelled to satisfy in full said judgment even ifin the contract of suretyship executed by the parties, the obligation contracted by the sureties was joint and several in character. The final judgment, which superseded the action for the enforcement of said contract, declared the obligation to be merely joint, and the same cannot be executed otherwise. (De Leon vs. Nepomuceno and De Jesus, 37 Phil., 180; Sharruf vs. Tayabas Land Co. and Ginainati, 37 Phil., 655.)

2.Joint (Indivisible) Obligation a. Obligation Cannot Be Performed In Parts but debtors are bound jointlyb. In Case Of Failure Of One Joint Debtor To Perform his part (share), there is default but only debtor guilty shall be liable for damages

3. Solidary Obligation

a. Anyone Of The Solidary Creditors May Collect or demand payment of whole obligation; there is mutual agency among solidary creditors (Arts. 1214, 1215)b. Any Of The Solidary Debtor May Be Required To Pay The Whole obligation; there is mutual guaranty among solidary debtors (Arts. 1216, 1217, 1222)c. Each One Of Solidary Creditors May Do Whatever maybe useful to the others, but not anything prejudicial to them (Art. 1212); however, any novation, compensation, confusion or remission of debt executed by any solidary creditor shall extinguish the obligation without prejudice to his liability for the shares of the other solidary creditorsIn solidary obligations, the credits/debts are still divided among creditors/debtors but there is mutual representation (agency) among each debtor/creditor respectively. Solidarity is the vinculum that binds creditors to debtors only; among debtors and creditors themselves, once payment is made, there is no solidarity.

Surety a person who binds himself solidarily with the principal debtor

Obligations In Which The Law Requires Solidarity: If 2 or more heirs take possession of the estate, they are solidarily liable for the loss/destruction All partners are liable solidarily for everything chargeable to the partnership under Arts. 1822 (quasi-delict) and 1823 (crimes) Principal and agent are liable solidarily to third persons if principal allowed the latter to act as though he had authority 2 or more principals are liable solidarily to a common agent for all the consequences of the agency. 2 or more bailees of the same thing are liable solidarily to the bailor. 2 or more officious managers are liable solidarily. 2 or more payees in a negotiorum gestio are solidarily liable. 2 or more joint tortfeasor are liable solidarily. 2 or more principals/accomplices/accessories in each respective class in the commission of the crime are liable solidarily.

Case Studies:

Stronghold Insurance vs. Republic Asahi Glass Corp (492 SCRA 179)

Respondent creditor may sue, separately or together, the principal debtor and the petitioner herein, in view of the solidary nature of their liability. The death of the principal debtor will not work to convert, decrease or nullify the substantive right of the solidary creditor. Despite the death of the principal debtor, respondent creditor may still sue petitioner alone, in accordance with the solidary nature of the latter's liability under the performance bond. As a surety, petitioner is solidarily liable with principal debtor in accordance with the Civil Code, which provides as follows: "Art. 2047.By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so. "If a person binds himself solidarily with the principal debtor, the provisions of Section 4, 17 Chapter 3, Title I of this Book shall be observed. In such case the contract is called a surety. Art. 1216.The creditor may proceed against any one of the solidary debtorsor some or all of them simultaneously. The demand made against one of them shall not be an obstacle to those which may subsequently be directed against the others, so long as the debt has not been fully collected."

Kay Products Inc vs. CA (464 SCRA 544)

In labor cases, corporate directors and officers are solidarily liable with the corporation for the termination of employment of corporate employees done with malice or in bad faith (Uichico v. National Labor Relations Commission, G.R. No. 121434, 2 June 1997, 273 SCRA 35.). The president of a corporation, who actively manages the business, falls within the meaning of an "employer" as contemplated by the Labor Code, and may be held jointly and severally liable for the obligations of the corporation to its dismissed employees Naguiat v. NLRC (G.R. No. 116123, 13 March 1997, 269 SCRA 564.)

E.Divisible and Indivisible Obligations - (Section 5)Arts. 1223-1225

Divisible Obligation one capable of partial performance

F. Obligations with a Penal Clause (Section 6) Arts. 1226, 1228-1230

Purposes of a Penal Clause:1. Insurance: To insure the performance of the obligation;2. Compensation: to liquidate the amount of damages to be awarded the injured party in case of breach of the obligation

3. Punitive: to punish the obligor in case of breach of the principal obligation

Although the same as liquidated damages (Art. 2226), a penalty in its punitive aspect is different because the creditor can recover damages in addition to the penalty when the debtor refuses to pay the penalty or when the debtor is guilty of fraud

Case Study:

IBAA vs. Spouses Salazar (159 SCRA 133)

(Re: Penal Clause, Article 1226, Civil Code). The Civil Code permits the agreement upon a penalty apart from the interest. The penalty does not include the interest, and as such, the two are different and distinct things which may be demanded separately.

IV. Extinguishment Of Obligations (Chapter 4) Arts. 1231-1304

A.Payment Or Performance - (Section 1)Arts. 1232-1261

Case Studies:

BPI vs. Roxas (536 SCRA 168)

In International Corporate Bank v. Spouses Gueco, (404 SCRA 353 (2001), it was held that a cashier's check is really the bank's own check and may be treated as a promissory note with the bank as the maker. The check becomes the primary obligation of the bank which issues it and constitutes a written promise to pay upon demand. In New Pacific Timber & Supply Co. Inc. v. Seeris, (G.R. No. 41764, December 19, 1980, 101 SCRA 686), this Court took judicial notice of the "well-known and accepted practice in the business sector that a cashier's check is deemed as cash" because the mere issuance of a cashier's check is considered acceptance thereof.

New Pacific Timber vs. Seneris (101 SCRA 686)

(Re: Article 1249, Civil Code) Article 1249 provides: The delivery of promissory notes, bills of exchange or other mercantile documents shall produce the effect of payment only when they have been encashed or when thru the fault of the debtor they have been impaired. A cashiers check is deemed as cash when certified by drawee bank which for all intents and purposes, the payee becomes the depositor of the drawee bank. The certification implies that the check is drawn upon sufficient funds in the hands of the drawee bank; that they have been set apart for its satisfaction and that they shall be so applied whenever the check is presented for payment.:

Roman Catholic Bishop of Malolos Inc vs. IAC (191 SCRA 411)

(Re: Article 1249, Civil Code) A certified personal check is not legal tender; a check whether managers check or ordinary check, is not a legal tender and an offer of a check in payment of a debt, is not a valid tender of payment; hence, if creditor refused to accept, the subsequent consignation did not operate to discharge private respondent from his obligation to petitioner.

See also R.A. 8183 An Act Repealing RA 529 (Uniform Currency Law)1. Extraordinary Inflation Or Deflation Art. 1250

Case Study:

Citibank vs. Sabeniano (514 SCRA 441)

(Re: Article 1250, Civil Code) Extraordinary inflation or deflation exists when there is a decrease or increase in the purchasing power of the Philippine currency which is unusual or beyond the common fluctuation in the value of said currency, and such increase or decrease could not have been reasonably foreseen or was manifestly beyond the contemplation of the parties at the time of the establishment of the obligation.Article 1250 of the Civil Code is based on equitable considerations. But only the Bangko Sentral ng Pilipinas (BSP) and not the court ,can declare the existence of extraordinary inflation. .

Comm. Of Public Highways vs. Burgos (96 SCRA 831)

Article 1250 of the New Civil Code seems to be the only provision in our statutes which provides for payment of an obligation in an amount different from what has been agreed upon by the parties because of the supervention of extra-ordinary inflation or deflation. It applies only to cases where a contract or agreement is involved and does not apply where the obligation to pay arises from law, independent of contract. The taking of private property by the Government in the exercise of its power of eminent domain does not give rise to a contractual obligation.

Ramos vs. CA (275 SCRA 167)

(Re: Article 1250, Civil Code) But petitioner's last contention (that private respondents failed to pay increased rent despite supervening inflation or devaluation of the Philippine peso) is untenable. The provision of Art. 1250 requires for its application a declaration of inflation by the Central Bank. Without such declaration creditors cannot demand an increase of what is due them. (Mobil Oil Philippines, Inc. v. Court of Appeals, 180 SCRA 651 (1989).

Filipino Pipe & Foundry Corp. vs. NAWASA (161 SCRA 32)

Extraordinary inflation exists when "there is a decrease or increase in the purchasing power of the Philippine currency which is unusual or beyond the common fluctuation in the value of said currency, and such decrease or increase could not have been reasonably foreseen or was manifestly beyond the contemplation of the parties at the time of the establishment of the obligation. (Tolentino Commentaries and Jurisprudence on the Civil Code Vol. IV, p. 284.) The price index of commodities, which is the usual evidence of the value of the currency has been rising. There is a worldwide occurrence, but this is hardly proof that the inflation is extraordinary in the sense contemplated by Article 1250 of the Civil Code, which was adopted by the Code Commission to provide "a just solution" to the 'uncertainty and confusion as a result of contracts entered into or payments made during the last war." (Report of the Code Commission, 132-133.)

2. Special Forms Of Paymentsa. Dacion In Payment (Dacion En Pago) Art. 1245b. Application of Payments (Subsection 1)Arts. 1252-1254

Requisites of Application of Payments: Two or more debts between same debtor and creditor Debts must be of the same kind All debts must be due Payment must not be enough to extinguish all debtsc. Payment by Cession (Subsection 2)Arts. 1255When debtor cedes or assigns hs.is property to his creditors in payment of his debt

Kinds of Payment by Cession: Contractual (Art. 1255); Voluntary and Involuntary Liquidation of Individual & Corporate Debtors (RA 10142 (fria) law).

d. Tender of Payment & Consignation (Subsection 3) Arts. 1256-1261

Tender of Payment (Extra-Judicial) manifestation made by a debtor of his desire to comply with his obligation with the offer of immediate compliance

Requisites of Consignation (Judicial): Existence of a valid debt; Valid prior tender of payment to creditor by debtor unless tender is excused; Prior notice of consignation to creditor by debtor; Actual consignation in court by debtor; Subsequent notice of consignation to creditor by debtor.

Case Study:

Immaculata vs. Navarro (160 SCRA 211)

The right to redeem is a RIGHT, not an obligation, therefore, there is no consignation required (De Jesus v. Garcia, C.A. 47 O.G. 2406; Rosales v. Reyes, 25 Phil. 495, Vda. de Quirino v. Palarca, L-28269, Aug. 16, 1969) to preserve the right to redeem (Villegas v. Capistrano, 9 Phil. 416).

B.Loss Of The Thing Due - (Section 2)Arts. 1262-1268 (broadly means legal or physical impossibility of performance)

Exceptions To Rule That Loss of Determinate Thing By Fortuitous Event Extinguishes The Obligation: When the law expressly provides When by express stipulation the obligor is made liable even if loss is by fortuitous event When the nature of the obligation requires the assumption of risk When the fault/negligence of the obligor concurs with the fortuitous event When the loss occurs after the debtor has incurred in delay (Art. 1169) When the debtor has promised to deliver the same thing to 2 or more persons who do not have the same rights When the obligation to deliver a determinate thing arises from a criminal act

Case Studies:

Ortigas & Co vs. Feati Bank & Trust Co. (94 SCRA 533)

(Re: Article 1266, Civil Code) A contractual stipulation annotated on the title that the land purchased shall be used exclusively for residential purposes is extinguished and ceases to be binding between parties upon the enactment of an ordinance or resolution of the Municipal Council reclassifying the area as commercial. The resolution or Ordinance, under the general welfare clause, is a valid exercise of the police power of the LGU and is superior to the contractual stipulations between the parties on the use of the land even if said conditions are annotated on the title.

Naga Telephone Co Inc. vs. CA (230 SCRA 351)

(Re: Article 1267, Civil Code) The term service in Article 1267 is understood to mean performance of the obligation which in the present case, is the obligation of allowing petitioners to use posts of respondent for ten (10) free telephone connections, which has become very onerous against the respondent. Article 1267, Civil Code, provides: When the service has become so difficult has to be manifestly beyond the contemplation of the parties, the obligor may also be released therefrom in whole or in part. This is the doctrine of unforeseen event, and is based on the discredited theory rebus sic stantibus in Public International Law. Under the theory, the parties stipulate in the light of certain prevailing conditions, and one of these conditions cease to exist, the contract also ceases to exist. Considering practical needs and the demands of equity and good faith, the disappearance of the basis of the contract gives right to relief in favor of the party prejudiced.

C.Condonation Or Remission Of Debt - (Section 3)Arts. 1270-1274Condonation/Remission the gratuitous abandonment by the creditor of his right. It is an act of liberality by virtue of which the oblige, without receiving any price or its equivalent, renounces the enforcement of the obligation as a result of which it is extinguished in its entirety or in part.

1. Express Formality of Donation art. 12702. Implied Arts. 1271, 1272, 1274

D.Confusion Or Merger of Rights - (Section 4)Arts. 1275-1277

Confusion/Merger the meeting in one person of the qualifies of creditor and debtor which respect to the same obligation extinguishes obligation

E.Compensation - (Section 5)Arts. 1278-1290

Compensation takes place when 2 persons, in their own right, are creditors and debtors of each other

Kinds Arts. 1278, 1279a. Legal Compensation Arts. 1286-1290b.Agreement Art. 1282c. Voluntary Art. 1282d. Judicial Art. 1283e.Facultative

Case Studies:

Gullas vs. PNB (62 Phil 519)

Gullas, who had a checking account with PNB, endorsed and encashed a check with PNB. The check was later dishonored and PNB applied the balance of the checking account of Gullas by way of compensation with the obligation of Gullas as endorser of the dishonored check. There can be compensation where the depositor in a bank has an indebtedness in favor of the bank. This old ruling in the Gullas case is further strengthened by Article 1980 (new) Civil Code, which provides:Fixed, savings and current deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loan.

Bank of the Phil Islands vs. CA (232 SCRA 302)

Article 1980 of the Civil Code provides that "[f]ixed, savings, and current deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loan." In Serrano vs. Central Bank of the Philippines, (96 SCRA 96 [1980]. See also, Guingona vs. City Fiscal of Manila, 128 SCRA 577 [1984]; People vs. Ong, 204 SCRA 942 [1991]), we held that bank deposits are in the nature of irregular deposits; they are really loans because they earn interest. The relationship then between a depositor and a bank is one of creditor and debtor. The deposit under the questioned account was an ordinary bank deposit; hence, it was payable on demand of the depositor. (10 Am Jur 2d, Banks, S 356)

Obligations /Debts That Are Not Compensable Debts arising from contracts of depositum Debts arising from contracts of commodatum Claims for support due by gratuitous title Obligations arising from criminal offenses Certain obligations in favor of the government such as taxes, fees, duties and others of similar nature

Case Studies:

Garcia vs. Lim Chu Sing (59 Phil 562)(Re: Article 1279, Civil Code) A stockholders shares of stock of the Mercantile Bank of China do not constitute an indebtedness of the bank to the stockholder and therefore there can be no compensation with the latters indebtedness to the bank. Stockholders are not creditors of the corporation. The capital stock of the corporation is a trust fund as security of creditors of the corporation who presumably deal with it on the credit of its capital stock.

PNB vs. CA (259 SCRA 174)

A local bank, while acting as local correspondent bank, does not have the right to intercept funds being coursed through it by its foreign counterpart for transmittal and deposit to the account of an individual with another local bank, and apply the said funds to certain obligations owed to it by the said individual.Petitioner bank wasnot legally justified in making the compensation or set-off against the two remittances coursed through it in favor of private respondent to recover on the double credits it erroneously made in 1980 and 1981, based on the principle of solutio indebiti.

F.Novation - (Section 6)Arts. 1291-1304

Novationis the substitution of change of an obligation by another, resulting in its extinguishment or modification, either by changing its object of principal conditions, or by substituting the person of the debtor, or by subrogating a third person in the rights of a creditor.

An extension of the period of payment no novation Agreement to shorten period of payment novation because of incompatibility between old and new obligations

4 Essential Requisites of Novation: A previous valid obligation Agreement of the parties to the new obligation Extinguishment of the old obligation Validity of the new obligation

2 Kinds of Novation By Substitution of Debtors:

Expromision (First Kind) substitution of debtors with the consent of creditors at the instance of new debtors . New debtor and creditor must consent.Expromision (Second Kind) substitution of debtors without the knowledge or against the will of the old debtor. Insolvency/non-fulfillment of new debtor will not give rise to any liability on the part of old debtor. Delegacion substitution of debtors with the consent of the creditor (delegatario) at the instance of the old debtor (delegante) with the concurrence of the new debtor (delegado). New and old debtors and creditor must consent.

Subrogation: Transfer to the person subrogated the credit with all the rights thereto appertaining, either against the debtor or against third persons, be they guarantors or possessors of mortgage, subject to stipulations in conventional subrogation

2 Forms of Subrogation Of Creditors

Conventional Subrogation takes place by the agreement of the original creditor, the third person substituting the original creditor and debtor (Art. 1301) Legal Subrogation takes place by operation of law (Art. 1302)

When creditor pays another creditor who is preferred even without debtors knowledge When a 3rd person, not interested in obligation, pays with express/tacit approval of debtor When, even without knowledge of debtor, a person interested in the fulfillment of obligation pays, without prejudice to effect of confusion in latters share

Conventional SubrogationAssignment of Credit

governed by Arts. 1301, 1303, 1304;governed by Arts. 1624 & 1627

extinguishes the obligation and creates a new onecredit is not extinguished

Requires debtors consentDoes not require debtors consent

Defect of old credit/right may be cured and new obligation becomes entirely validDefect in credit/right is not cured

Case Studies:

Magdalena Estate vs. Rodriguez (18 SCRA 967);Dungo vs. Lopena (6 SCRA 1007) Re: Article 1292, Civil Code:

Novation is never presumed; it must be established that the old and the new contracts are incompatible on every point, or that the will to novate appear by express agreement of the parties. There is no implied novation, if in the second contract a bond is filed or a third person assumes payment of the obligation and the creditor accepts partial payment from the third person, so long as the creditor did not agree that the first debtor shall be released from the obligation.

People vs. Nery (10 SCRA 244)

Re: Article 1292, Civil Code Accused who was charged for estafa for misappropriating the proceeds of diamond rings consigned to her for sale, cannot escape criminal liability by the defense of novation. The promissory note executed by the accused in favor of complainant executed pending trial at the RTC did not convert the relationship between parties to a contract of loan from a contract of agency to sell. The novation theory may perhaps apply prior to the filing of the criminal information in court by the State Prosecutors because up to that time the original trust relation may be converted by the parties into an ordinary creditor-debtor situation, thereby placing complainant in estoppel to insist on the original trust. A crime being an offense against the State, only the latter can renounce it.

Guingona vs. City Fiscal of Manila (128 SCRA 577)

Time and savings deposits with the bank are contracts of simple loan or mutuum.The relationship between the depositor and bank is that of creditor and debtor. But even if bank failed to pay the time and savings deposits of depositor, violating paragraph 1(b) of Article 315 of the Revised Penal Code, there was no criminal liability. When the bank was placed under receivership by the Central Bank, petitioners Guingona and Martin assumed the obligation of the bank to depositor, thereby resulting in the novation of the original contractual obligation arising from deposit into a contract of loan and converting the original trust relation between the bank and depositor into an ordinary debtor-creditor relation between the petitioners and private respondent. Hence, the failure of the bank or petitioners Guingona and Martin to pay the deposits of depositor would not constitute a breach of trust but would merely be a failure to pay the obligation as a debtor.

For Mid-Term Examinations: .(5 weeks = 20 lecture hours)Possible Exam Date: Feb. 27, 2012

CONTRACTS (BOOK IV TITLE II)Arts.1305-1422

I. General Provisions (Chapter 1) Arts. 1305-1317

Perfect Promise tends only to assure and pave the way for the celebration of the contract in the future, whereas a contract establishes and determines the obligations arising therefrom;

Imperfect Promise (Policitation) is a mere unaccepted offer

Pact a special part of the contract, merely incidental and separable from the principal agreement

Stipulation refers to the essential and dispositive part of the contract, as distinguished from the exposition of the facts and antecedents on which it is based

Contract juridical convention manifested in legal form, by virtue of which one or more persons bind themselves in favor of another or others, or reciprocally, to the fulfillment of the prestation to give to do or not to do (Sanchez Roman)

Stages of a Contract:1. Preparation, Conception or Generation period of negotiation and bargaining, ending at the moment of agreement between the parties2. Perfection or Birth of the Contract the moment when the parties come to agree on the terms of the contract;3. Consummation or Death the fulfillment or performance of the terms agreed upon in the contract (Soler vs. CA, 358 SCRA 63)

Theories When Or The Moment Of Perfection Of A Contract:1. Manifestation theory the contract is perfected from the moment the acceptance is declared or made (Art. 54 Code of Commerce)2. Expedition Theory the contract is perfected from the moment the offeree transmits the letter/notification of acceptance to the offeror, as when the letter is placed in mailbox (U.S.A.)3. Reception Theory contract is perfected when the acceptance is in the hand of the offeror, even if the offeror has no actual knowledge of it because of absence, sickness, etc.4. Cognition Theory contract is perfected from the moment the acceptance comes to the knowledge of the offeror. (Art. 1319) (Note: Cognition Theory is adopted by New Civil Code)

Four (4) Essential Characteristics of Contracts:1. Obligatory force of Contracts that is once a contract is perfected, it shall have obligatory force upon both contracting parties (Arts. 1159, 1315, 1356)2. Autonomy or Freedom of Contracts contracting parties are free to enter into a contract, to establish such terms, conditions, stipulations and clauses as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy.3. Mutuality of Contracts the essential equality of contracts whereby the parties are mutually bound by the contract; hence its validity or compliance cannot be left to the will of one of them (Art. 1308)4. Relativity of Contracts contracts take effect only between the parties, their heirs and assigns (Art. 1311) There are exceptions to the principle of relativity of contracts

Case Studies:

Almeda vs. CA (256 SCRA 292)

The binding effect of any agreement between parties to a contract is premised on two settled principles: (1) that any obligation arising from contract has the force of law between the parties; and (2) that there must be mutuality between the parties based on their essential equality. Any contract which appears to be heavily weighed in favor of one of the parties so as to lead to an unconscionable result is void. Any stipulation regarding the validity or compliance of the contract which is left solely to the will of one of the parties, is likewise, invalid.

Floirendo vs. Metrobank (532 SCRA 43)

Increases of interest rate unilaterally imposed by respondent bank without petitioner's assent are violative of the principle of mutuality of contracts ordained in Article 1308 of the Civil Code.The provision in the promissory note authorizing respondent bank to increase, decrease or otherwise change from time to time the rate of interest and/or bank charges "without advance notice" to petitioner, "in the event of change in the interest rate prescribed by law or the Monetary Board of the Central Bank of the Philippines," does not give respondent bank unrestrained freedom to charge any rate other than that which was agreed upon. Here, the monthly upward/downward adjustment of interest rate is left to the will of respondent bank alone. It violates the essence of mutuality of the contract.

UCPB vs. Beluso(530 SCRA 567)

The provision stating that the interest shall be at the "rate indicative of DBD retail rate or as determined by the Branch Head" is indeed dependent solely on the will of petitioner UCPB and violates Art. 1308 of the Civil Code.Here, petitioner UCPB has two choices on what the interest rate shall be: (1) a rate indicative of the DBD retail rate; or (2) a rate as determined by the Branch Head.. If either of these two choices presents an opportunity for UCPB to fix the rate at will, the bank can easily choose such an option, thus making the entire interest rate provision violative of the principle of mutuality of contracts.

Singson Encarnacion vs. Baldomar (77 Phil 470)

The continuance and fulfillment of the contract of lease cannot be made to depend solely and exclusively upon the free and uncontrolled choice of the lessees between continuing paying the rentals or not, completely depriving the owner of all say in the matter. If this were allowed, so long as defendants elected to continue the lease by continuing the payment of the rentals, the owner would never be able to discontinue it; conversely, although the owner should desire the lease to continue, the lessees could effectively thwart his purpose if they should prefer to terminate the contract by the simple expedient of stopping payment of the rentals. This, of course, is prohibited by article 1256 (now Art. 1308) of the Civil Code.

Laolim vs. CA (191 SCRA 150)

The disputed stipulation "for as long as the defendant needed the premises and can meet and pay said increases" is a purely potestative condition because it leaves the effectivity and enjoyment of leasehold rights to the sole and exclusive will of the lessee. The continuance, effectivity and fulfillment of a contract of lease cannot be made to depend exclusively upon the free and uncontrolled choice of the lessee between continuing the payment of the rentals or not, completely depriving the owner of any say in the matter. Mutuality does not obtain in such a contract of lease and no equality exists between the lessor and the lessee since the life of the contract is dictated solely by the lessee.

Jespajo Realty Corp. vs. CA (390 SCRA 27)

The contention of the petitioner that a provision in a contract that the lease period shall subsist for 'an indefinite period provided the lessee is up-to-date in the payment of his monthly rentals' is contrary to Art. 1308 of the Civil Code is not plausible. As expounded by the Court in the case of Philippine Banking Corporation vs. Lui She (21 SCRA 52, 58 (1967)):"We have had occasion to delineate the scope and application of Article 1308 in the early case of Taylor v. Uy Tieng Piao. (43 Phil. 873 (1922). We said in that case: 'Article 1256 [now Art. 1308] of the Civil Code in our opinion creates no impediment to the insertion in a contract for personal service of a resolutory condition permitting the cancellation of the contract by one of the parties. Such a stipulation, as can be readily seen, does not make either the validity or the fulfillment of the contract dependent upon the will of the party to whom is conceded the privilege of cancellation; for where the contracting parties have agreed that such option shall exist, the exercise of the option is as much in the fulfillment of the contract as any other act which may have been the subject of agreement. . . . .'" (Supra note 18 at p. 58.)

Allied Banking vs. CA (284 SCRA 357)

The option which gives the lessee the sole option to renew the lease and which is provided in the same lease agreement, is fundamentally part of the consideration in the contract and is no different from any other provision of the lease carrying an undertaking on the part of the lessor to act conditioned on the performance by the lessee. It is a purely executory contract and at most confers a right to obtain a renewal if there is compliance with the conditions on which the right is made to depend. The right of renewal constitutes a part of the lessee's interest in the land and forms a substantial and integral part of the agreement. The fact that such option is binding only on the lessor and can be exercised only by the lessee does not render it void for lack of mutuality. After all, the lessor is free to give or not to give the option to the lessee.

Garcia vs. Rita Legarda Inc. (21 SCRA 555)

Where in a contract to sell subdivided lots in monthly installments, there has been a stipulation that in case of vendee's default in the payment of installments he should have a month of grace and an additional period of ninety days to pay all the amounts due otherwise the vendor should have the right to declare the contract cancelled and of no effect, such stipulation is valid and not violative of Art. 1308 of the new Civil Code. The validity or compliance thereof is not entirely left to the will of one of the contracting parties, but it merely gives the vendor the right to declare such contract cancelled and of no effect. Indeed, the power thus granted cannot be said to be immoral, much less unlawful, for it could not be arbitrarily exercised without the other party committing the breach of contract for nonpayment of the installments agreed upon. Obviously, all that said party had to do to prevent the other from exercising the power to cancel was for him to comply with his part of the contract.

Case Studies (Exceptions to Principle of Relativity of Contracts):

Coquia vs. Fieldmens Insurance Co. (26 SCRA 178)(Stipulation pour autrui)

Although, in general, only parties to a contract may bring an action based thereon, this rule is subject to exceptions, one of which is found in the second paragraph of Article 1311 of the Civil Code of the Philippines, reading: "If a contract should contain some stipulation in favor of a third person, he may demand its fulfillment provided he communicated his acceptance to the obligor before its revocation. A mere incidental benefit or interest of a person is not sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a third person." This is a restatement of a well-known principle concerning contracts pour autrui, the enforcement of which may be demanded by a third party for whose benefit it was made, although not a party to the contract, before the stipulation in his favor has been revoked by the contracting parties.

The insurance policy contains stipulations pursuant to which the insurance company "will indemnify any authorized Driver who is driving the Motor Vehicle" of the Insured and, in the event of death of said driver, the Company shall, likewise, "indemnify his personal representatives," and the Company "may, at its option, make indemnity payable directly to the claimants or heirs of claimants . . . in other words, third parties. This is typical of contracts pour autrui. This character being made more manifest by the fact that the deceased driver paid fifty percent (50%) of the corresponding premiums, which were deducted from his weekly commissions. Under these conditions, it is clear that the sole heirs of the deceased have a direct cause of action against the Company (Uy Tam v. Leonard, 30 Phil. 471, 485-486; Kauffman v. Philippine National Bank, 42 Phil. 182, 187, 189), and, since they could have maintained this action by themselves, without the assistance of the insured it goes without saying that they could and did properly join the latter in filing the complaint herein (Guingon v. Capital Insurance & Surety Co., Inc., L-22042, Aug. 17, 1967).

Mandarin Villa Inc. vs. CA (257 SCRA 538)(Stipulation pour autrui)

While private respondent may not be a party to the said agreement, the above-quoted stipulation conferred a favor upon the private respondent, a holder of credit card validly issued by BANKARD. This is a stipulation pour autrui and under Article 1311 of the Civil Code, private respondent may demand its fulfillment provided he communicated his acceptance to the petitioner before its revocation. In this case, private respondent's offer to pay by means of his BANKARD credit card constitutes not only an acceptance of the said stipulation but also an explicit communication of his acceptance to the obligor.

Kaufman vs. PNB (42 Phil 182)(Stipulation pour autrui)

A person in whose favor a bank sells telegraphic exchange on a foreign country may, in case payment is refused by the bank of destination, maintain an action against the bank selling the exchange, without regard to whether such payee was an immediate party to the purchase of the exchange or not. A stipulation in favor of a third person cannot be revoked by the obligated party alone, without the conformity of the other contracting party.

II. Essential Requisites (Chapter 2) - Arts. 1318-1354

a. Consent (Section 1) Arts. 1319-1346

Option - contract granting a person the privilege to buy or not to buy certain objects at any time within the agreed period at a fixed price.

Right of First Refusal identity of terms and conditions offered to lessee and prospective buyers

Right of First Refusal vs. Option (Arts. 1324 and 1479)In a contract of lease with 30-day exclusive option to purchase (leased premises), the proviso is valid even if there is no agreed purchase price the consideration is the contract of lease itself. This is not covered by Art. 1324 and 1479 which requires consideration distinct from the prucahse pri

Two Kinds Of Vices of Consent: Vices of Declaration simulated contracts (Arts. 1345/1346) Vices of the Will mistake, violence, intimidation, undue influence, and fraud (Art. 1330)

Classes of Fraud:1. In general: criminal fraud and civil fraud2. Civil fraud: b. Fraud in the performance of an existing obligation (Art. 1170)c. Fraud employed by the party to a contract in securing the consent of the other party (Art. 1338)

Classifications of Fraud In Securing The Consent Of Other Party:1. Dolo causante (causal fraud) deceptions or misrepresentations of a serious character employed by one party without which the other party would not have entered into the contract2. Doloincidente (incidental fraud)incidental deceptions or misrepresentations without which the other party would still have entered into the contract

Case Studies:

Vales vs. Villa (35 Phil 769)

All men are presumed to be sane and normal and subject to be moved by substantially the same motives. When of age and sane, they must take care of themselves. In their relations with others in the business of life, wits, sense, intelligence, training, ability and judgment meet and clash and contest, sometimes with gain and advantage to all, sometimes to a few only, with loss and injury to others. In these contests men must depend upon themselves upon their own abilities, talents, training, sense, acumen, judgment.x x x The foolish may lose all they have to the wise; but that does not mean that the law will give it back to them again. Courts cannot follow one every step of his life and extricate him from bad bargains, protect him from unwise investments, relieve him from one-sided contracts, or annul the effects of foolish acts. Courts cannot constitute themselves guardians of persons who are not legally incompetent. Courts operate not because one person has been defeated or overcome by another, but because he has been overcome illegally. Men may do foolish things, make ridiculous contracts, use miserable judgment, and lose money by them indeed, all they have in the world; but not for that alone can the law intervene and restore. There must be, in addition, a violation of law, the commission of what the law knows as an actionable wrong, before the courts are authorized to lay hold of the situation and remedy it.

Sanchez vs. Rigos (45 SCRA 368)

X x x an option to sell can still be withdrawn, even if accepted, if the same is not supported by any consideration, and the reaffirmance of the doctrine in Atkins, Kroll & Co., Inc. vs. Cua Hian Tek, (102 Phil 948) holding that "an option implies . . . the legal obligation to keep the offer (to sell) open for the time specified;" that it could be withdrawn before acceptance, if there was no consideration for the option, but once the "offer to sell" is accepted, a bilateral promise to sell and to buy ensues, and the offeree ipso facto assumes the obligations of a purchaser In other words, if the option is given without a consideration, it is a mere offer to sell, which is not binding until accepted. If, however, acceptance is made before a withdrawal, it constitutes a binding contract of sale. The concurrence of both acts the offer and the acceptance could in such event generate a contract.While the law permits the offeror to withdraw the offer at any time before acceptance even before the period has expired, some writers hold the view, that the offeror can not exercise this right in an arbitrary or capricious manner. This is upon the principle that an offer implies an obligation on the part of the offeror to maintain it for such length of time as to permit the offeree to decide whether to accept or not, and therefore cannot arbitrarily revoke the offer without being liable for damages which the offeree may suffer. A contrary view would remove the stability and security of business transactions. (I Gasperi 302, 6 Planiol & Ripert 180).

Sabalvaro vs. Erlanger (64 Phil 588)

CONSENT IN A CONTRACT. Plaintiff allegedly signed the document in question for fear of being dismissed from the corporation, but it does not appear that he has been intimidated by somebody. This does not prove that his consent was obtained by means of intimidation, and if he were to allege that it was for fear of incurring the displeasure of his employers that he signed the document in question, the answer would be the provision of article 1267 of the Civil Code that: "Fear of displeasing persons to whom obedience and respect are due shall not annul a contract." (Doctrine of Reverential Fear)

Villegas vs. CA (499 SCRA 276)

(Re: Article 1324) Where a time is stated in an offer for its acceptance, the offer is terminated at the expiration of the time given for its acceptance. The offer may also be terminated when the person to whom the offer is made either rejects the offer outright or makes a counter-offer of his own. (Minneapolis & S.L. Railway v. Columbus Rolling Mill, 119 US 149, 30 L Ed. 376 (1886))

Equatorial Realty vs. Mayfair Theater Inc. (264 SCRA 483)

(Re: Article 1324) Where an action for annulment (rescission would have been proper) was granted, setting aside a contract of sale by the lessor in favor of a third person, in violation of the Right Of First Refusal, in the contract of lease between lessor and lessee. The court made a distinction between option and the right of first refusal in that in an option, an option money is necessary, but not in the right of first refusal.

Tang vs. CA (90 SCRA 236)

(Re: Article 1332) A deliberate concealment on the part of the insured of material facts about his physical condition and history entitles the insurer to rescind the contract.Under Article 1332, the obligation to show that the terms of the contract had been fully explained to the party who is unable to read or understand the language of the contract, when fraud or mistake is alleged, devolves in the party seeking to enforce it. Where fraud or mistake is not alleged, and the one seeking to enforce the contract is the illiterate party, the party against whom the action is brought and who is seeking to avoid the performance of the contract is under no obligation to prove that the terms of the contracts were fully explained to the other party. In a life insurance contract, where the insurer is seeking to avoid its performance on the ground of concealment on the part of the insured, the insurer is not under obligation to prove that the terms of the contract were fully explained to the insured who was an illiterate. But even if we were to say that the insurer is the one seeking the performance of the contract by avoiding paying the claim, Article 1332 is inapplicable where there has been no imputation of mistake or fraud by the insured whose personality is represented by the beneficiary.

B. Object of Contracts (Section 2) Arts. 1347-1349

Object vs. Cause In a bilateral contract like sale, the object is the thing sold because it is the starting point of negotiation; the cause for the vendor is the price paid, while the cause for the vendee is the acquisition of the thing sold.

May include future things and transmissible rights.

2 Exceptions To Prohibition of Contracts Of Future Inheritance:a. Art. 84 of Family Code on donations of future spouses to each other in donations propter nuptias (formalities of a will must be followed)b. Art. 1080 NCC. A person may partition intervivos his estate so long as legitime is not impaired.

C. Cause of Contracts(Section 3) Arts. 1350-1355

Cause of Contract why of the contract the immediate and most proximate purpose of the contract, the essential reason which impels the contracting parties to enter into it.

Distinction Between Motive and Cause (Art. 1351)

CauseMotive

the direct proximate reason of a contractthe indirect or remote reasons;

the objective or juridical reason of a contractthe psychological or personal reasons

cause for a certain contract is always the samemotives will differ or vary upon who are the parties

can affect the validity of a contractcannot affect validity of contract

Case Studies:Uy vs. CA (314 SCRA 69)

The realization by the buyer of the mistake as regards the quality of the land resulted in the negation of the motive/cause thus rendering the contract inexistent. Under Article 1318 of the Civil Code, there is no contract unless there is consent, object certain andcause. Cause is the essential reason which moves the contracting and is the essential reason for the contract, should be distinguished from motive, which is the particular reason of a contracting party which does not affect the other party.Ordinarily, a party's motives for entering into the contract do not affect the contract. When the motive predetermines the cause, the motive may be regarded as the cause. In Liguez vs. Court of Appeals, this Court, speaking through Justice J.B.L. Reyes, held: . . . It is well to note, however, that Manresa himself (Vol. 8, pp. 641-642), while maintaining the distinction and upholding the inoperativeness of the motives of the parties to determine the validity of the contract, expressly excepts from the rule, those contracts that are conditioned upon the attainment of the motives of their party. The same view is held by the Supreme Court of Spain, in its decisions of February 4, 1941, and December 4, 1946, holding that the motive may be regarded as causa when it predetermines the purpose of the contract.

Hrs. of Balite vs. Lim (446 SCRA 56)

(Re: Article 1345) Article 1345 of the Civil Code provides that the simulation of a contract may either be absolute or relative. In absolute simulation, there is a colorable contract but without any substance, because the parties have no intention to be bound by it. An absolutely simulated contract is void, and the parties may recover from each other what they may have given under the "contract". On the other hand, if the parties state a false cause in the contract to conceal their real agreement, such a contract is relatively simulated. Here, the parties' real agreement binds them.

Velez vs. Ramas (40 Phil 787)

(Re: Article 1352) A promise given in consideration of a promise on the part of the obligee to refrain from instituting a criminal prosecution is void on account of the illicit character of the consideration.

Mactal vs. Melegrito (1 SCRA 763)

(Re: Article 1352) Where the defendant admits his indebtedness, and the dismissal of the estafa case against him merely furnished the occasion for the execution of a promissory note acknowledging said indebtedness, the consideration is the pre-existing obligation and not the dismissal of the criminal case, hence the promissory note is valid and enforceable.

Ong vs. Ong (139 SCRA 133)

Although the cause is not stated in the contract it is presumed that it is existing unless the debtor proves the contrary (Article 1354 of the Civil Code). One of the disputable presumptions is that there is a sufficient cause of the contract (Section 5, (r), Rule 131, Rules of Court). It is a legal presumption of sufficient cause or consideration supporting a contract even if such cause is not stated therein (Article 1354, New Civil Code of the Philippines which cannot be overcome by a simple assertion of lack of consideration especially when the contract itself states that consideration was given, and the same has been reduced into a public instrument with all due formalities and solemnities. To overcome the presumption of consideration the alleged lack of consideration must be shown by preponderance of evidence in a proper action. (Samanilla vs. Cajucom, et al., 107 Phil. 432). Bad faith and inadequacy of the monetary consideration do not render a conveyance inexistent, for the assignor's liberality may be sufficient cause for a valid contract (Article 1350, Civil Code), whereas fraud or bad faith may render either rescissible or voidable, although valid until annulled, a contract concerning an object certain entered into with a cause and with the consent of the contracting parties, as in the case at bar."

Liguez vs. CA (102 Phil 577)

(Re: Article 1350). Under Article 1274, of the Civil Code of 1889 (now Art. 1350, NCC), liberality of the donor is deemed causa only in those contracts that are of "pure" beneficience that is to say, contracts designed solely and exclusively to procure the welfare of the beneficiary, without any intent of producing any satisfaction for the donor; contacts, in other words, in which the idea of self-interest is totally absent on the part of the transferor. Article 1274 (now Art. 1350, NCC) provides that in remuneratory contracts, the consideration is the service or benefit for which the remuneration is given; causa is not liberality in these cases because the contract or conveyance is not made out of pure beneficience, but "solvendi animo".The motive of the parties may be regarded as causa when it predetermines the purpose of the contract.

E. Razon Inc. vs. Phil Ports Authority (151 SCRA 233)

(Re: Article 1352) The invalidity of the transfer of shares of stock springs not from vitiated consent nor absolute want of monetary consideration, but for its having had an unlawful cause that of obtaining a government contract in violation of law. While the general rule is that the causa of the contract must not be confused with the motives of the parties, this case squarely fits into the exception that the motive may be regarded as causa when it predetermines the purpose of the contract.(Liguez v. Court of Appeals, 102 Phil. 577). On the part of Romualdez, the motive was to be able to contract with the government which he was then prohibited by law from doing, and on petitioner Razon's part, to be able to renew his management contract..

III. Form of Contracts (Chapter 3) Arts. 1356-1358

Kinds of ContractsA. Consensual perfected by mere consentB. Real perfected upon deliveryC. Formal or Solemn Donations Real Property (Art. 749) Personal Property exceeding P5T (Art. 748) Stipulation To Charge Interest Art. 1956 Sale Of Large Cattle Agency To Sell Real Property Or An Interest Therein Art. 1874 Antichresis Art. 2134 Partnership Where Real Property Contributed Arts. 1771, 1773 Stipulation Limiting Common Carriers Duty Of Extraordinary Diligence To Ordinary Diligence Art. 1744 Chattel Mortgage

Case Studies:

Tan vs. Lim (296 SCRA 455)

(Re: Article 1356 in relation to Article 1403, No. 2 Statute of Frauds).There is no provision of law requiring a note or memorandum for a contract of partition to be valid. Contracts are obligatory in whatever form they may have been entered into provided all essential requirements are present. A note, transfer certificate of title, subdivision plan or memorandum are not necessary for the enforceability/validity of anoral contract of partition. A contract of partition is not one of the contracts mentioned in Article 1403 of the Civil Code which lists the limited instances when written proof of a contract is essential for enforceability.

Dauden-Hernaez vs. De Los Angeles (27 SCRA 1276)

(Re: Article 1356). Form (oral and written) is irrelevant to the binding effect inter partes of a contract that possesses the three validating elements of consent, subject matter and causa, Article 1356 of the Civil Code establishes only two exceptions, to wit: (a) Contracts of which the law itself requires that they be in some particular form (writing) in order to make them valid and enforceable (the so-called solemn contracts). Of these the typical example are the donation of immovable property (Article 749) and donation of movables worth more than P5,000.00 (Article 743); contracts to pay interest on loans (mutuum) (Article 1956); and the agreements contemplated by Articles 1744, 1773, 1874 and 2134 of the present Civil Code. (b) Contracts that the law requires to be proved by some writing (memorandum) of its terms, as in those covered by the old Statute of Frauds, now Article 1403(2) of the Civil Code. Their existence not being provable by mere oral testimony (unless wholly or partly executed), these contracts are exceptional in requiring a writing embodying the terms thereof for their enforceability by action in court. The contract sued upon by petitioner (compensation for services) need not be in written form. It is true that it appears included in Article 1358, last clause, providing that "all other contracts where the amount involved exceeds five hundred pesos must appear in writing, even a private one." But Article 1358 nowhere provides that the absence of written form in this case will make the agreement invalid or unenforceable. On the contrary, Article 1357 clearly indicates that contracts covered by Article 1358 are binding and enforceable by action or suit despite the absence of writing.

Valencia vs. Tantoco (99 Phil 824)

A recital in a public document celebrated with all the legal formalities under the safeguard of a notarial certificate is "evidence against the parties" and "a high degree of proof is necessary to overcome the legal presumption that such recital is true." The biased, interested testimony of plaintiff can not overcome the evidentiary force of the provisional contract of lease which was ratified before a notary public, and, hence, a public document.

IV. Reformation Of Instruments (Chapter 4) Arts. 1359-1369

This is the remedy if there is a meeting of minds of the parties but true intention is not expressed in the instrument because of mistake, fraud, inequitable conduct or accident

Code Commission: Equity dictates the reformation of an instrument in order that the true intention of the contracting parties may be expressed. The rigor of the legalistic rule that a written instrument should be the final and inflexible criterion and measure of the rights and obligations of the parties, is thus tempered, to forestall the effects of mistake, fraud or inequitable conduct.

No Reformation Allowed In: Simple donations inter vivos where no condition imposed Wills When the real agreement is void

V. Interpretation of Contracts (Chapter 5) Arts. 1370 - 1379

Case Studies:

Manila Electric Company vs. Board of Public Utility Commissioners (30 Phil 387)

The franchise granted by the city of Manila to the Manila Electric Railroad and Light Company is a contract, and the construction placed thereon by the parties, for a long period of time, should have great weight in a controversy between them as to its scope and meaning. That a proposed statute was amended in the course of its enactment may be considered by this court; and the statute as amended may be compared with the original draft, in order to determine the proper construction of the law as finally passed.

Phil. Trust Co vs. Lucio Echaus Tan Siua (52 Phil 852)

In a mortgage on real property executed by the defendant in favor of the plaintiff ban