law 101-obligations and contracts course outline [mrst] s2 ay 2012-2013

UniversityofthePhilippinesCollegeofLaw

Law101:ObligationsandContracts

CourseOutline♦Prof.MaryRoseS.Tan

Semester2,AY20122013ContactInformation: [email protected] +639178871555CourseSchedule: TuesdaysandThursdays,6:30p.m.to9:00p.m.

Room311‐315AttendanceRequirement: CollegeofLawrulesonattendanceshallbestrictlyapplied.

Studentsmayonlybeabsentforanycauseforamaximumof8sessions.

Assessment: (1)Classparticipation 25% (2)Midtermexamination 25% (3)FinalExam 50%PrescribedTextbook: Tolentino,CivilCodeofthePhilippines,Vol.IVINTRODUCTION

A. CourseOverviewB. CommonLawTraditionandtheCivilLawTradition

Agabin,P.A.,Mestizo:TheStoryofthePhilippineLegalSystem(2011),Chapter7,pp.169216

PARTONE:OBLIGATIONS

A. GeneralProvisions

1. Definition(Article1156,CivilCode)

2. Elementsa. ActiveSubjectb. PassiveSubjectc. ObjectorPrestationd. EfficientCauseorJuridicalTie

♦BasedontheCourseOutlineofProf.EduardoLabitag.

Law101:ObligationsandContractsProf.MaryRoseS.TanSemester2,AY20122013

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3. NaturalObligations

a. Definition(Art.1423,CC)b. Examples(Articles1424to1430)c. DifferencebetweenNaturalandCivilObligation(Art.1423)d. Distinguishedfrommoralobligations

Villaroelv.Estrada,71Phil.140(1940)Fisherv.Robb,69Phil101(1939)

e. ConversiontoCivilObligation• bynovation• byratification

4. SourcesofObligations(Art.1157)

a. Law(Art.1158)b. Contracts(Art.1159,1305)c. Quasi‐contracts(Art.1160,2142)

• Kinds:i. Negotiorumgestio(Art.2144)ii. Solutioindebiti(Art.2154)iii. Others(Art.2164to2175)

d. DelictsorCrime(Art.1161)e. Quasi‐delicts(Art.1162,2176)

• Distinctionbetweencrimesandquasi‐delicts• Vicariousliability(Art.2180,Art.218‐219,FamilyCode)• Civilliabilityarisingfromcrime(Art.1161;Rule111,RevisedRulesof

CriminalProcedure)

Barredov.Garcia,73Phil607(1942)Mendozav.Arrieta,91SCRA113(1975)

5. ClassificationofObligations

a. PureandConditionalObligations(Art.1179‐1192)b. WithaPeriodoraTerm(Art.1193‐1198)c. AlternativeandFacultative(Art.1199‐1206)d. JointandSolidary(Art.1207‐1222)e. DivisibleandIndivisible(Art.1223‐1225)f. WithaPenalClause(Art.1226‐1230)


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B. NatureandEffectsofObligations1. KindsofPrestation

a. Togive

i. specificthing

• topreservethething(Art.1163)• todelivertheaccessionsandaccessories(Art1166)• todeliverthefruits(Art.1164,par.1)• todeliverthethingitself(Art.1244)

ii. genericthing(Art.1246)

b. Todo(Art.1244)c. Nottodo(Art.1244)

2. BreachofObligation

a. Concept

SongFov.HawaiianPhilippines,47Phil.821(1928)Velardeetal.v.CourtofAppeals,361SCRA56(2001)Angelesv.Calasanz,135SCRA323(1985)DeltaMotorCorporationv.Genuino,170SCRA29(1989)VermenRealtyv.CourtofAppeals,224SCRA549(1993)

b. ModesofBreach

• Delayormora(Art.1169)i. morasolvendi

CetusDevelopmentv.CourtofAppeals,176SCRA72(1989)AerospaceChemicalIndustriesv.CourtofAppeals,315SCRA92(1999)SantosVenturaHocormaFoundationv.Santos,441SCRA472(2004)Vazquezv.AyalaCorporation,443SCRA231(2004)Abellav.Francisco,55SCRA447(1931)delaCruzv.Legaspi,98SCRA43(1955)

ii. moraaccipiendi(Seealso1268)Villaroelv.ManilaMotorCo.,Inc.,104Phil.926(1958)

iii. compensationmoraeCentralBankv.CourtofAppeals,139SCRA46(1985)

• Fraudordolo(Art.1171)doloincidenteanddolocausante


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Woodhousev.Halili,93Phil.526(1953)Geraldezv.CourtofAppeals(1994)

• Negligence(Art.1172,1173)culpav.doloculpaaquilianov.culpacontractualstandardofcarerequired

Gutierrezv.Gutierrez,56Phil.177(1932)Vasquezv.Borja,74Phil.560(1944)deGuiav.ManilaElectricCorporation,40Phil706(1920)USv.Barias,23Phil434(1912)Sarmientov.SpousesCabrido,401SCRA122(2003)Crisostomov.CourtofAppeals,409SCRA528(2003)

• Contraventionofthetenor(Art.1172)Chavesv.Gonzales,32SCRA547(1970)Telefastv.Castro,158SCRA445(1988)Arrietav.NARIC,10SCRA79(1964)Magatv.Medialdea,206Phil341(1983)

c. Remediesincaseofbreachi. Performance

• Specificperformance(Art.1165;Section10,Rule39,RulesofCourt)• Substitutedperformance

‐ inanobligationtogivegenericthing(Art.1165,par.2)‐ undoingofpoorworkinanobligationtodo(Art.1167)

Chavesv.Gonzales,32SCRA547(1970)Tanguiligv.CourtofAppeals,266SCRA78(1997)

‐ undoinginanobligationnottodo(Art1168)

ii. Rescission(Art.1191‐1192)iii. Damages(Art.1170)

d. SubsidiaryRemediesofCreditor

i. AccionSubrogatoria(Art.1177)ii. AccionPauliana(Art.1177;1381,par.3)


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KheHongChengv.CourtofAppeals,355SCRA701(2001)Siguanv.Lim,318SCRA725(1999)iii. OtherSpecificRemedies(Art.1652,1729,1608,1893)

e. FortuitousEvent(Art.1174)i. Effect:ExtinguishmentofLiabilityii. ExceptionstoExtinguishment(Art.1174,1165par.3,552,1942,

1979,2001,2147)JuanNakpil&Sonsv.CourtofAppeals,144SCRA597(1986)Republicv.LuzonStevedoringCo.,21SCRA279(1967)Dioquinov.Laureano,33SCRA65(1970)Austriav.CourtofAppeals,39SCRA527(1971)NationalPowerCorporationv.CourtofAppeals,161SCRA334(1988)Yobidov.CourtofAppeals,281SCRA1(1997)BacolodMurciaMillingv.CourtofAppeals,182SCRA24Philcomsatv.GlobeTelecom,430SCRA(2004)

f. UsuriousTransactions(Art.1175,1413,1961)PD858;PD1685CentralBankCircular416MonetaryBoardCircularNo.905;No.2209EasternShippingLinesv.CourtofAppeals,234SCRA781(1994)CrisminaGarmentsv.CourtofAppeals,304SCRA356(1999)KengHuaProductsv.CourtofAppeals,286SCRA257(1998)SecurityBankv.RegionalTrialCourtMakati,263SCRA453(1996)Almedav.CourtofAppeals,256SCRA292(1996)AngelWarehousingv.Chelsea,23SCRA19(1968)FirstMetroInvestmentv.EstedelSol,369SCRA(2001)

C. DifferentKindsofObligations

1. PureandConditionalObligations

• PureObligations(Art.1179,par.1)• ConditionalObligations(Art.1181)

‐ Concept‐ Conditionv.PeriodorTerm

Gaitev.Fonacier,2SCRA830(1961) Gonzalesv.HeirsofTomasandPaulaCruz,314SCRA585(1999)


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• KindsofConditions

a. Astotheeffectontheobligation(Art1181)

Gonzalesv.HeirsofTomasandPaulaCruz,supra.

i. SuspensiveConditionorConditionprecedent• Retroactiveeffectwhenconditionisfulfilled(Art.1187)

Coronelv.CourtofAppealsandAlcaraz,263SCRA15(1996)

• Rightsofthecreditoranddebtorbeforefulfillmentofthecondition(Art.1188)

ii. ResolutoryConditionorConditionsubsequent Parksv.ProvinceofTarlac,49Phil.142(1927) CentralPhilippineUniversityv.CourtofAppeals,245SCRA511(1995) Quijadav.CourtofAppeals,299SCRA695(1998)

b. Astothecauseororigin(Art1182)

i. Potestative

• Effectoffulfillmentofconditiondependssolelyonthewillofthe

debtor• Debtor’spromisetopaywhenhecanisnotacondition(Art1180)

LaoLimv.CourtofAppeals,191SCRA150(1990)

ii. Causal NagaTelephoneCo.v.CourtofAppeals,230SCRA351(1994)

iii. Mixed Osmenav.Rama,14Phil.99(1909) Hermosav.Longora,93Phil.971(1953) Taylorv.UyTiengPiao,43Phil.873(1922) SmithBellv.Matti,44Phil.875(1922) RustanPulpandPaperMills,214SCRA665(1993) Romerov.CourtofAppeals,250SCRA250SCRA223(1995)

c. Astopossibility(Art.1183)RomanCatholicArchdioceseofManilav.CourtofAppeals,198SCRA300(1991)


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d. Astomode:positiveornegative(Art.1184‐1185)

• Rulesincaseofloss,deteriorationorimprovementpendingthehappeningof

thecondition(Art.1189–1190)HeirsofTimoteoMorenov.MactanCebuInternationalAirportAuthority,413SCRA502(2003)

a. Definitionofloss,deteriorationandimprovementb. Effectoflossordeterioration

• Withoutdebtor’sfault• Withdebtor’sfault

c. Effectofimprovement

• Bynatureortime• Duetodebtor’seffortandexpense

• Effectofpreventionofthefulfillmentoftheconditionbytheobligor(Art

1186)Taylorv.UyTiengPiao,supra.Herrerav.Leviste,135SCRA129(1985)

2. ReciprocalObligations(Art.1191‐1192)

a. Conceptb. Alternativeremediesofinjuredpartiesoncaseofbreach

i. actionforspecificperformance• effectwhenfulfillmentnolongerpossible

ii. actionforrescission

• requisites• howmade• effects

SongFov.HawaiianPhilippines,47Phil.821(1925)Boysawv.InterphilPromotions,148SCRA365(1987)UniversityofthePhilippinesv.delosAngeles,35SCRA365(1989)DeErquiagav.CourtofAppeals,178SCRA1(1989)Angelesv.Calasanz,135SCRA323(1985)JamesG.Ongv.CourtofAppeals,310SCRA1(1999)Iringanv.CourtofAppeals,366SCRA41(2001)VisayanSawMillv.CourtofAppealsandRJTrading,219SCRA378(1993)Deiparinev.CourtofAppealsandTrinidad,221SCRA503(2003)GraceParkEngineeringCo.Inc.v.Dimaporo,107SCRA266(1981)Roquev.Lapuz,96SCRA741(1980)Suriav.IntermediateAppellateCourt,151SCRA661(1987)


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• Read:Art1786,1788,1484‐86,RepublicActNo.6552

3. ObligationswithaPeriod(Art.1193,1180)

a. ComparePeriod/Termv.Conditionb. KindsofPeriod

i. Astoeffect

• Suspensive(Art1193,par.1)• Resolutory(Art1193,par.2)

ii. Astoexpression• Express• Implied

iii. Astodefiniteness• Definite• Indefinite

iv. Astosource• Voluntary• Legal• Judicial

c. Rulesincaseofloss,deteriorationorimprovementbeforearrivalofthe

period(Art.1194and1189)

d. EffectofPaymentinAdvance(Art.1195;1197,par.3)

e. BenefitofPeriod(Art1196)i. Forwhosebenefit

• Creditor• Debtor• Both

ii. Effectsiii. Presumption(Art.1196)Lachicav.Araneta,47OfficialGazetteNo.11,5699(1949)PoncedeLeonv.Syjuco,90Phil311(1951)Bucev.CourtofAppeals,332SCRA151(2000)iv. Whendebtorlosesrighttomakeuseofperiod(Art.1198)

f. WhenCourtMayFixAPeriodi. Periodisimpliedii. Perioddependsonsolewillofthedebtor


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Aranetav.PhilippineSugarEstateDevelopmentCo.,20SCRA330(1967) CentralPhilippineUniversityv.CourtofAppeals,supra. Deudorv.J.M.Tuason,2SCRA129(1961)

4. AlternativeObligations

a. Concept(Art.1199)b. RightofChoice(Art.1200)c. EffectofNoticeofChoiced. WhenNoticeProducesEffect(Art.1201)e. Effectoflossorimpossibilityofoneorallprestations(Art.1202to1205)f. FacultativeObligation(Art.1206)

i. Conceptii. DistinguishedfromAlternativeObligationsiii. EffectofSubstitution

5. JointandSolidaryObligations

a. JointObligations

i. Concept

• Requisites• Wordsusedtoindicatejointobligations

ii. Presumption(Art.1207,1208)iii. Effects(Art.1207,1208)

• Extentofliabilityofdebtor• Extentofrightofcreditor• Incaseofnovations,compensation,confusion(Art1277)or

remission

b. SolidaryObligations

i. Concept

• Requisites• Wordsusedtoindicatesolidaryobligations

ii. Kinds

• Astosource(Art.1208)o Legal(Art.1915,1945,2194,Art119oftheRPC)o Conventionalo Real


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• Astopartiesboundo Activeo Passiveo Mixed

• Astouniformityo Uniformo Varied/non‐uniform(Art.1211)

Ynchaustiv.Yulo,34Phil.978(1916)

Inciongv.CourtofAppeals,257SCRA578(1996)RCBCv.CourtofAppeals,178SCRA739(1989)LafargeCementPhil.V.ContinentalCement,443SCRA522(2004)iii. Effects

• Solidarycreditorinrelationto:o commondebtor

righttodemand(Art.1214‐1216;1217,par.1) incaseofnovation,compensation,confusion,

remissionbyacreditor(Art.1215,par.1)o solidaryco‐creditors

incaseofnovation,compensation,confusion,remissionbyaco‐creditor(Art1215,par.2)

prejudicialactsprohibited(Art.1212) assignmentofrightsnotallowed(Art.1213)

• Solidarydebtorinrelationto:

o commoncreditor obligationtoperform(Art.1207) incaseofnovation,compensation,confusion,

remissionbyacreditor(Art.1215,par.1)o solidaryco‐debtor

incaseofpaymentbyaco‐debtor(Art.1217‐1220) incaseoffortuitousevent(Art.1221)

Jaucianv.Querol,38Phil.718(1918) RehabilitationFinanceCorporationv.CourtofAppeals, OfficialGazetteNo.6,p.2467 Quiombingv.CourtofAppeals,189SCRA325(1990) Inciongv.CourtofAppeals,257SCRA578(1996)

iv. DefensesAvailabletoaSolidaryDebtorAgainsttheCreditor(Art.1222)• Types

o thosederivedfromthenatureoftheobligationso personaldefenseso defensespertainingtohisshareso thosepersonallybelongingtotheotherco‐debtors


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• Effects

Ynchaustiv.Yulo,supra. Alipiov.CourtofAppeals,341SCRA441(2000)

c. JointIndivisibleObligations

i. Concept• Distinguishedfromjointobligations• Distinguishedfromsolidaryobligations

ii. Indivisibilitydistinguishedfromsolidarity(Art.1210)iii. Effects(Art.1209,1224)

6. DivisibleandIndivisibleObligations

a. DivisibleObligations

i. Conceptii. Effects(Art.1223,1233)

b. IndivisibleObligations

i. Concept:distinguishedfromsolidaryobligations

ii. Kinds

• Natural(Art.1225,par.1)• Legal(Art.1225,par.3)• Conventional(Art.1225,par.3)

iii. Presumptionsofdivisibilityandindivisibility(Art.1225)

iv. Divisibilityandindivisibilityinobligationsnottodo(Art.1225,par.3)

v. Effects(Art.1223,1223,1224)

vi. CessationofIndivisibility7. ObligationswithaPenalClause

a. Concept

• Principalv.AccessoryObligation• Distinguishedfromconditionalobligations• Distinguishedfromalternativeobligations• Distinguishedfromfacultativeobligations• Distinguishedfromguaranty


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b. KindsofPenalClause

• Astoeffect

o Subsidiaryo Complimentary

• Astosourceo Conventionalo Legal

• Astopurposeo Punitiveo Reparatory

c. DemandabilityofPenalty(Art.1226,par.2)

d. EffectsofPenalClause:GeneralRuleandExceptions

• Substituteforindemnityfordamagesandpaymentofinterest(Art.1226) MakatiDevelopmentCorp.v.EmpireInsuranceCo.20SCRA557(1967) Tanv.CourtofAppeals,367SCRA571(2001) CountryBankersInsurancev.CourtofAppeals,201SCRA458(1991)

• Notexemptdebtorfromperformance(Art.1227)

• Creditorcannotdemandbothperformanceandpenaltyatthesametime(Art.1227)

• Creditorcannotcollectotherdamagesinadditiontopenalty(Art.1226)

e. Whenpenaltyshallbeequitablyreduced(Art.1229)

f. NullityofPrincipalObligationofPenalClause(Art.1230)

D. ExtinguishmentofObligations(Art.1231)1. PaymentorPerformance(Art.1232)

a. Concept(Art.1232)

b. Requisites

i. Whocanpay

• GeneralRule


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• Exceptions:

o thirdpersonwhoisaninterestedparty;effects(Art.1302[3])o thirdpersonwhoisnotaninterestedpartybutwiththeconsentof

debtor(Art.1302[2],1236,par.1)

o thirdpersonwhoisnotaninterestedpartyandwithouttheconsentofthedebtor,withouttheknowledgeoragainstthewillofthedebtor(Art.1236,par.2;Art.1237,1236,par.1)

o thirdpersonwhodoesnotintendtobereimbursed(Art1238)

• inanobligationtogive(Art.1239,1427)

• incaseofactivesolidarity(Art.1214)

ii. Towhompaymentcanbemade

• Generalrule(Art.1240)

• Exceptions:

o incapacitatedperson(Art.1241,par.1)

o thirdperson(Art.1241,par.2)

o whenproofofbenefitnotrequired(Art.1241,par.3;Art.1242)

o incaseofactivesolidarity(Art.1214)

iii. Whatistobepaid(Identity)

• GeneralRule

• Specificcases:

o Togiveaspecificthing(Art.1244)

o Togiveagenericthing(Art.1246)

o Topaymoney(Art.1249,1250;R.A.529,R.A.4100,R.A.8183)


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Arrietav.NARIC,supra Kalalov.Luz,34SCRA377(1970) St.PaulFireandMarineInsurancev.Macondray,70SCRA122(1976) Papav.A.V.Valencia,284SCRA643(1998) PhilippineAirlinesv.CourtofAppeals,181SCRA557(1990)

• PaymentofInterest(Art.1956)

iv. Howpaymentistobemade(Integrity)• GeneralRule(Art.1233)

o Partialpaymentisnotallowed;exceptions(Art.1248)

• Substantialperformanceingoodfaith(Art.1234)

• Estoppel(Art.1235)

• Presumptionsinpaymentofinterestsandinstallments(Art.1176)

v. Whenispaymenttobemade

• GeneralRule(Art1169)• Nodemand,nodelay;Exceptions

vi. Wherepaymentistomade

• Placeexpresslydesignated(Art.1251,par.1)• Whenplaceofpaymentisnotexpresslydesignated(Art.1251,

paragraphs2to4)

vii. Whopaysforexpensesformakingpayment(Art.1247)

c. ApplicationofPaymentsi. Concept(Art.1252)ReparationsCommissionv.UniversalDeepFishing,83SCRA764(1978)

Paculdov.Regalado,345SCRA134(2000)

ii. Requisites

iii. RulesinApplicationofPayments(Art.1252‐1253)• Ifrulesarenotapplicableorcannotbeinferred(Art.1254)• Meaningofthe“mostonerousdebtor”


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d. PaymentbyCessioni. Concept(Art.1255)ii. Requisitesiii. Effectsiv. ComparedtoAssignmentofReceivables

e. DationinPaymenti. Concept(Art.1245)

• DistinguishedfromPaymentbyCessionDevelopmentBankofthePhilippinesv.CourtofAppeals,284SCRA14(1998)ii. Requisitesiii. EffectsFilinvestCreditCorporationv.PhilippineAcetylene,111SCRA421(1982)

f. TenderofPaymentandConsignation

i. TenderofPayment• Concept• Requisites

ii. Consignation

• ConceptandPurpose

• Requisiteso Whentenderandrefusalnotrequired(Art.1256,par.2)o Twonoticerequirement(Art.1257,par.1;Art.1258,par.

2);Effectsofnon‐compliance

• Effects(Art.1260,par1)o Withdrawalbydebtorbeforeacceptancebycreditoror

approvalofcourt(Art.1260,par.2)o Withdrawalbydebtorafterproperconsignation(Art.

1261) Withcreditorapproval Withoutcreditorapproval

• ExpensesofConsignation


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DeGuzmanv.CourtofAppeals,137SCRA730(1985)TLGInternationalContinentalEnterprising,Inc.v.Flores,47SCRA437(1972)McLaughlinv.CourtofAppeals,144SCRA693(1986)Socov.Militante,123SCRA160(1983)Sottov.Mijares,28SCRA17(1969)Reisenbeckv.CourtofAppeals,209SCRA657(1992)RuralBankofCaloocanv.CourtofAppeals,104SCRA151(1981)Licuananv.Diaz,175SCRA530(1989)Chanv.CourtofAppeals,230SCRA685(1994)MeatPackingCorp.v.Sandiganbayan,359SCRA409(2001)

2. LossorImpossibility

a. LossoftheThingDue

i. Concept(Art.1189,par.2)

ii. Kinds• Total• Partial

iii. Requisites(Art.1262)

iv. Presumption(Art.1266,1267)

v. Effects

• Inanobligationtogiveaspecificthing(Art.1262,1268)• Inanobligationtogiveagenericthing(Art.1263)• Incaseofpartialloss(Art1264)• Actionagainstthirdpersons(Art.1269)

b. ImpossibilityofPerformance

i. Concept(Art.1266,1267)

ii. Kinds• Total• Partial

iii. Requisites(Art.1266)

iv. Effects

• Inobligationstodo(Art.1266‐1267;Art.1262,par.2)


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• Impossibilitydistinguishedfromdifficulty

• Incaseofpartialimpossibility(art.1264) Occeñav.CourtofAppeals,73SCRA637(1976) NagaTelephoneCompanyv.CourtofAppeals,230SCRA351(1994) PNCCv.CourtofAppeals,272SCRA183(1997)

3. CondonationorRemission

a. Conceptb. Kinds

• Totalorpartial• Expressorimplied(Art.1270,par.1)

c. Requisites(Art.1270,par.2)

Yamv.CourtofAppeals,303SCRA1(1999)

d. Presumptions(Art.1271‐1271;1274)

e. Effects• Ingeneral• Incaseofjointorsolidaryobligations

f. GoverningRules(Art.1270)

g. RenunciationofPrincipalorAccessoryObligation(Art.1273)

4. ConfusionorMerger

a. Concept

b. Requisites

c. Effects

• Ingeneral(Art.1275)• Incaseofjointorsolidaryobligations(Art.1277)

d. ConfusioninPrincipalorAccessoryObligations(Art.1276)

5. Compensation

a. Concept(Art.1278);distinguishedfromConfusion


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b. Kinds

i. TotalorPartialii. Legaliii. Conventional(Art.1279,Art.1282)iv. Judicial(Art.1283)v. Facultative

c. LegalCompensation

i.Requisites(Art.1279‐1280):DuedistinguishedfromdemandableGantionv.CourtofAppeals,28SCRA235(1969)BankofthePhilippineIslandsv.Reyes,255SCRA571(1996)PhilippineNationalBankv.SapphireShipping,259SCRA174(1996)CKHIndustrialDevelopmentv.CourtofAppeals,272SCRA333(1997)Mirasolv.CourtofAppeals,351SCRA44(2001)AssociatedBankv.Tan,446SCRA282(2004)Villanuevav.Tantuico,182SCRA263(1990)Perezv.CourtofAppeals,127SCRA636(1984)SilahisMarketingCorp.v.IntermediateAppellateCourt,180SCRA21(1989)BankofthePhilippineIslandsv.CourtofAppeals,255SCRA___(1996)ii.Effects(Art.1290,1289)

d. WhenCompensationisnotallowed(Art.1287‐1288)

e. CompensationofDebtsPayableinDifferentPlaces(Art.1286)

f. EffectofNullityofDebtstobeCompensated(Art.1284)

g. EffectsofAssignmentofCredit

i. withconsentofdebtor(Art.1285,par.1)ii. withknowledgebutwithoutconsentofdebtor(Art.1285,par.2)iii. withoutknowledgeofdebtor(Art.1285,par.3)

6. Novation

a. Concept(Art.1291)• Changeindebtor• Changeinobject• Changeinthirdpersonwhoissubrogated• Changeincreditorwithitsconsentoratitsinstanceisnotnovation


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b. Kindsi. Astoform:expressorimpliedii. Astoorigin:conventionalorlegaliii. Astoobject

• objectiveorreal• subjectiveorpersonal• mixed

c. Requisites(Art.1292)

Millarv.CourtofAppeals,38SCRA642(1971)Dormitoriov.Fernandez,72SCRA388(1976)MagdalenaEstatev.Rodriguez,18SCRA967(1966)Reyesv.SecretaryofJustice,264SCRA35(1996)Cochingyanv.RBSuretyandInsurance,151SCRA339(1987)BroadwayCentrumCondominiumCorporationv.TropicalHut,224SCRA302(1993)Molinov.SecurityDinersInternational,363SCRA358(2001)Garciav.Llamas,417SCRA292(2003)CaliforniaBusLinesv.StateInvestment,418SCRA297(2003)Babstv.CourtofAppeals,350SCRA341(2001)

d. Effects(Art.1296)

e. EffectsoftheStatusoftheOriginalandNewObligationi. nullityorvoidabilityoforiginalobligation(Art.1298)ii. nullityorvoidabilityofnewobligation(Art.1297)iii. suspensiveorresolutoryconditionororiginalobligation(Art.1299)

f. ObjectiveNovation

g. SubjectiveNovation

i. Bychangeofdebtor

• Expromision

o Requisites(Art.1293)o Effects(Art.1294)

• Delegacion

o Requisites(Art.1293)o Effects(Art.1295)

Garciav.Llamas,417SCRA292(2003) Quintov.People,305SCRA709(1999)


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ii. Bychangeofcreditor–subrogationofathirdpersonintherightsofthecreditor(Art.1300)• Conventionalsubrogation

o Requisites(Art.1301)o Distinguishedfromassignmentofcredito Effects(Art.1303‐1304)

Licarosv.Gatmaitan,(2001)

• LegalSubrogation

o Requisiteso Whenpresumed(Art.1302)

o Effects(Art.1303‐1304)

AstroElectronicsCorp.v.PhilippineExportandForeignLoanGuaranteeCorporation(2003)


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PARTTWO:CONTRACTSI. Introduction

A. ConceptandDefinition(Art.1305)

B. ClassificationofContracts

1. Accordingtosubjectmatter:thingsorservices2. Accordingtoname:nominateandinnominatecontracts(Art.1307)3. Accordingtoperfection:bymereconsent(Art.1315)orbydeliveryofobject

(Art.1316)4. Accordingtoitsrelationtoothercontracts:preparatory;principal;oraccessory5. Accordingtoform:informalorformal6. Accordingtopurpose7. Accordingtonatureoflegaltiecreated:unilateral,bilateralorreciprocal8. Accordingtocause:onerousorgratuitous9. Accordingtorisk:commutativeoraleatory

Dizonv.Gaborro,83SCRA688(1978)

C. Characteristics

1. ObligatoryForcebetweentheParties(Art.1308)a. GeneralRule:FreedomtoContract(Art.1306)

Gabrielv.MontedePiedad,71Phil.497(1941)PakistanInternationalAirlinesv.Ople,190SCRA90(1990)

b. Exceptions:i. Whenitisinequitable(Art.1310)ii. Specialdisqualifications:

• Art.87,FamilyCode• Articles1490and1491• Article1782

iii. Whatmaynotbestipulated• ContrarytoLaw

(a) pactumcommisorium(Art.2088)(b) pactumleonina(Art.1799)(c) pactumdenonalienado(Art.2130)(d) otherlimitations:LaborCode,CorporationCode

• Contrarytomorals• Contrarytogoodcustoms• Contrarytopublicorder• Contrarytopublicpolicy


22

Cuiv.Arellano,2SCRA205(1961)Arroyov.Berwin,36Phil386(1917)FilipinasCompañiadeSegurosv.Mandanas,17SCRA391(1966)Bustamantev.Rosel,319SCRA413(1999)

c. Effectofcontractastothirdparties

i. Performancemaybedeterminedbythirdparties(Art.1309)ii. Whenpossessionoftheobjectofthecontractiswithathirdperson(Art.1312)iii. Creditorsofcontractingparties(Art1313,1177,1381)iv. Interferencebythirdparties(Art.1314)

Daywaltv.LaCorporacióndelosPadresAgustinosRecoletos,etal.,

39Phil.587(1919)SoPingBunv.CourtofAppeals,314SCRA751(1999)Lagonv.CourtofAppeals,453SCRA616(2005)

2. Mutuality(Art.1308to1310;1473)GSISv.CourtofAppeals,228SCRA183(1993)ProfessionalAcademicPlans,Inc.etal.v.Crisostomo,453SCRA342(2005)

3. RelativityorPrivityofContracts(Art.1311)

a. Contractstakeeffectonlybetweentheparties,theirassignsandheirsManilaRailroadCo.v.LaCompaniaTransatlantica,38Phil.875(1918)DKCHoldingsCorp.CourtofAppeals,329SCRA666(2000)

b. Noonemaycontractinthenameofanother(Art.1317)GutierrezHermanosv.Orense,28Phil.571(1914)

c. Stipulationsinfavorofthirdpersons(Art.1311,par.2)Florentinov.Encarnacion,79SCRA192(1977)Coquiav.FieldmenInsuranceCo.,26SCRA178(1968)Constantinov.Espiritu,39SCRA178(1968)Youngv.CourtofAppeals,169SCRA213(1989)MarmontResortv.Guiang,168SCRA373(1988)MandarinVillav.CourtofAppeals,257SCRA538(1996)


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II. EssentialRequisitesofContracts

A. Consent:Requisites(Art.1319)1. PerfectionofContract:OfferandAcceptance

a. Offer• mustbecertain(Art.1319)• whatmaybefixedbytheofferor(At.1321)• whenmadethroughanagent(Art.1322)• whenofferbecomesineffective(Art.1323)• businessadvertisementsofthingsforsale(Art.1325)• advertisementsforbidders(Art.1326)

b. Acceptance

• mustbeabsolute(Art.1319)• kinds:

o express(Art.1320)o implied(Art.1320)o qualified(Art.1319)

• periodofacceptance(Art.1324)• optioncontract(Art.1324)

Sanchezv.Rigos,45SCRA368(1972)c. TerminationofOfferd. PerfectionofContract

• Fourtheorieswhencontractisperfected:o Manifestationtheoryo Expeditiontheoryo Receptiontheoryo Cognitiontheory(Art.1319[2])

Rosenstockv.Burke,46Phil.217(1924)Malbarosav.CourtofAppeals,402SCRA168(2003)SanLorenzoDevelopmentCorporationv.CourtofAppeals,449SCRA99(2005)MMDAv.Jancom,G.R.No.147465,January30,2002

2. LegalCapacityoftheParties

a. Minors,insaneordementedpersons,anddeaf‐muteswhodonotknowhowtowrite(Art.1327)

b. Whenofferoracceptanceismadeduringalucidinterval,intoxication,duringhypnoticspell(Art.1328)

c. Corporations(Sections23and36,CorporationCode)


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3. VicesofConsent:ConsentmustbeIntelligent,Free,SpontaneousandReal

(Art.1330to1346)a. MistakeorError

i. MistakeofFact• Astosubstanceoftheobject• Astoprincipalconditions• Astoidentityorqualificationsoftheparties• Astoquantity,asdistinguishedfromsimplemistakeofaccount

Asiainv.Jalandoni,45Phil296(1923)HeirsofWilliamSevillav.Sevilla,402SCRA501(2003)Andresv.ManufacturersHanoverandTrust,177SCRA618SpousesTheisv.CourtofAppeals,268SCRA167(1997)

ii. MistakeorErrorofLaw• GeneralRule:Ignoranceofthelawexcusesnoone(Art.3)• Exception:MutualErrorofLaw(Art.1334)

iii. Mistakewhenonepartyisunabletoread(Art.1332)

Dumasugv.Modelo,34Phil252(1916)Hemedesv.CourtofAppeals,316SCRA347(1990)Lustanv.CourtofAppeals,266SCRA663(1997)Katipunanv.Katipunan,375SCRA199(2002)Leonardov.CourtofAppeals,438SCRA201(2004)iv. Inexcusablemistake(Art.1333)

b. ViolenceorIntimidation(Art.1335)Martinezv.HSBC,15Phil.252(1910)Leev.CourtofAppeals,201SCRA405(1991)c. UndueInfluence(Art.1337)d. FraudorDolo(Art.1338)• Kinds:

i. Dolocausante(Art.1338)ii. Doloincidente(Art.1344[2])

Hillv.Veloso,31Phil.161(1915)Woodhousev.Halili,supra.Geraldezv.CourtofAppeals,230SCRA320(1994)Sierrav.CourtofAppeals,211SCRA785(1992)


25

• FailuretoDiscloseFactswhenthereisadutytorevealthem(Art.1339)Tuasonv.Marquez,45Phil381(1923)RuralBankofSta.Mariav.CourtofAppeals,314SCRA255(1999)• Usualexaggerationsintrade:opportunitytoknowthefacts(Art.1340)Azarragav.Gay,52Phil.599(1928)Trinidadv.IntermediateAppellateCourt,204SCRA524(1991)• Mereexpressionofopinion(Art.1341);Effects(Art.1344)Songcov.Sellner,37Phil.254(1917)e. Misrepresentation

i. byathirdperson(Art.1342)ii. madeingoodfaith(Art.1343)iii. activeorpassive

Mercadov.Espiritu,37Phil.215(1917)Braganzav.VillaAbrille,105Phil.456(1959)

4. SimulationofContractsRodriguezv.Rodriguez,28SCRA229(1914)Suntayv.CourtofAppeals,251SCRA430(1995)Pangadiletal.v.CourtofFirstInstance,G.R.No.L32437,August31,1982Umaliv.CourtofAppeals,G.R.No.89561,September13,1990a. Kinds:AbsoluteandRelative(Art.1345)b. Effects(Art.1346)

B. Object

• Mustbedeterminateastoitskind(Art.1379)• WhatmayNOTbeobjectsofcontracts(Art.1347)

a. Allthingsoutsidethecommerceofmanb. Allintransmissiblerightsc. Thoseserviceswhicharecontrarytolaw,morals,goodcustoms,public

order,orpublicpolicyd. Futureinheritance,exceptwhenauthorizedbylawe. Impossiblethingsorservices(Art.1348)

Blasv.Santos,1SCRA899(1961)JLTAgro,Inc.v.Balansag,453SCRA211,G.R.No.141882,March11,2005


26

C. Cause1. MeaningofCause(Art.1350)

a. inonerouscontractsb. inremuneratorycontractsc. incontractsofpurebeneficence

2. DistinguishedfromMotive(Art.1351)3. Presumption:ExistenceandLawfulnessofCause(Art.1354)

4. DefectiveCausesandEffects:

a. AbsenceofCauseorUnlawfulCause(Art.1352)b. StatementofFalseCause(Art.1355)c. InadequacyofCauseorLesion(Art.1355)

Liguezv.CourtofAppeals,102Phil.577(1957)Carantesv.CourtofAppeals,76SCRA514(1977)SpousesBuenaventurav.CourtofAppeals,416SCRA263

III. FormofContracts

A. GeneralRule:Contractsareobligatoryinwhateverform,providedallessential

requisitesarepresent(Art.1356)

B. Exception:Whenthelawrequiresthecontracttobeinaspecificforminorderforittobevalidorenforceable(Art.1356)

• Kindofformalitiesrequiredbylaw:

1. Forvalidity(Articles748,749,1874,2134,1771,1773)2. Tomakeiteffectiveastothirdparties(Articles1357and1358)3. Forpurposesofprovingexistenceofcontract(StatuteofFraudsinArt.1403)

Hernandezv.JudgedelosAngeles,27SCRA1276(1969)Resuenav.CourtofAppeals,G.R.No.128338,March28,2005

IV. InterpretationofContracts

A. ComparewithRulesofStatutoryConstructionB. PrimacyofIntention(Articles1370,1372)

Borromeov.CourtofAppeals,47SCRA65(1972)Kasilagv.Rodriguez,69Phil.217(1939)Santiv.CourtofAppeals,G.R.No.93625,227SCRA541(1993)

C. DeterminingIntention(Art.1371)Rapanutv.CourtofAppeals,246SCRA323(1995)


27

D. RulesofContractInterpretation

1. UndertheCivilCode

a. Whenitcontainsstipulationswhichadmitofseveralmeanings(Art.1373)

OilandNaturalGasCommissionv.CourtofAppeals,G.R.No.114323, July23,1998

b. Whenitcontainsvariousstipulations,someofwhicharedoubtful(Art.1374)SpousesRigorv.ConsolidatedOrixLeasingandFinanceCorporation,G.R.

136423,August20,2002

c. Whenitcontainswordswithdifferentmeanings(Art.1375)

d. Whenitcontainsambiguitiesandomissionofstipulations(Art.1376)Chuav.CourtofAppeals,G.R.No.119255,April9,2003

e. Withrespecttothepartywhocausedtheobscurity(Art.1377)RizalCommercialBankingCorporationv.CourtofAppeals,G.R.No.

133107,March25,1999

f. Whenitisimpossibletosettledoubtsusingtheabove‐citedrules(Art.1378)• IngratuitouscontractsGacosv.CourtofAppeals,G.R.Nos.8596263,August3,1992• Inonerouscontracts

g. Whendoubtsarecastupontheprincipalobjectsothatthetrueintentioncannotbeknown(Art.1378)

2. UndertheRulesofCourt(Rule130,Sections10to19)

V. ReformationofInstruments

A. Requisites(Art.1359)1. Meetingoftheminds2. Trueintentionofthepartiesarenotexpressedintheinstrument3. Failuretoexpresstrueintentionduetomistake,fraud,inequitableconduct,or

accident


28

Garciav.Bisaya,97Phil.609(1955)Bentirv.Leande,330SCRA591(2000)Quirosv.Arjona,G.R.No.158901,March9,2004

B. WhenReformationisnotallowed(Art.1366)

C. ImpliedRatification(Art.1367)

D. Whomayaskforreformation(Art.1368)

E. Procedureforreformation(Art.1369)Atilanov.Atilano,28SCRA2232(1969)Carantesv.CourtofAppeals,76SCRA514(514)Sarmingv.Dy,383SCRA131(2002)

VI. DefectiveContracts

A. RescissibleContracts

1. Kinds(Art.1381)

2. Characteristicsa. Thedefectconsistsininjuryordamageeithertooneofthecontracting

partiesoftoathirdpersonb. Contractisvalidbeforerescissionc. Attackmayonlybedirecton,notcollaterallyd. Attackmaybedonebycontractingpartyorbyathirdpersonwhoisinjured

ordefraudede. Validatedonlybyprescriptionandnotbyratification

3. Definition(Art.1380):DistinguishedfromRescissioninArt.1191(Resolution)

UniversalFoodCorporationv.CourtofAppeals,33SCRA1(1970)SpousesCannuv.SpousesGalang,G.R.No.139523,May26,2005Iringanv.CourtofAppeals,G.R.No.129107,September26,2001Riverav.delRosario,G.R.No.144934,January15,2004EquatorialRealtyv.MayfairTheatre,G.R.No.133879,November21,2001

4. Requisites

a. Contractisrescissible

b. Partyaskingforrescissionhasnootherlegalmeanstoobtainreparation(Art.1383)UnionInsuranceSocietyofCantonv.CourtofAppeals,G.R.No.100319,

August8,1996


29

c. Heisabletoreturnwhathemaybeobligedtorestoreifrescissionisgranted

(Art.1385)

Riverav.delRosario,G.R.No.144934,January15,2004

5. EffectofRescission(Art.1385)

a. Astothirdpersonswhoacquiredthingingoodfaith(Art.1385[2]and[3]b. Astothirdpersonswhoacquiredthingsinbadfaith,whenalienationwasin

fraudofcreditors(Art.1388)

6. ExtentofRescission(Art.1384)Siguanv.Lim,318SCRA725(1999)

7. BadgesofFraud(Art.1387)Oriav.McMicking,21Phil,243(1912)Siguanv.Lim,318SCRA725(1999)Suntayv.CourtofAppeals,251SCRA430(1995)ChinaBankingCorporationv.CourtofAppeals,G.R.No.129644,March7,2000MRHoldingsLimitedv.Carlos,G.R.No.138104,April11,2002

B. VoidableorAnnullableContracts

1. Kinds(Art1390)2. Characteristics

a. Thereisadefectinconsentofoneofthecontractingpartiesb. Bindinguntilannulledbyacompetentcourtc. Maybevalidatedbyratificationorprescription

Felipev.HeirsofAldon,120SCRA628(1983)

3. Annulment

a. DistinguishedfromRescissionb. Grounds(Art.1390)c. WhoMayorMayNotInstituteActionforAnnulment(Art.1397)

Singsongv.IsabelaSawmill,88SCRA623(1979)SamahanngMagsasakasaSanJosepv.Valisno,430SCRA629(2004)Malabananv.GawChing,181SCRA84(1990)Armentiav.Patriarca,18SCRA1253(1966)


30

d. Prescription(Art.1391)Carantesv.CourtofAppeals,76SCRA514(514)

e. Effect:MutualRestitution(Art.1398and1402)Cadwallader&Co.v.Smith,Bell&Co.,7Phil.461(1907)Velardeetal.v.CourtofAppeals,361SCRA56(2001)Inesv.CourtofAppeals,247SCRA312(1995)ArraRealtyCorporationv.GuaranteeDevelopmentCorporation,438

SCRA441(2004)

i. Whenonthepartiesisincapacitated(Art1399)Katipunanv.Katipunan,375SCRA199(2002)

ii. Whenthethingislostthroughthefaultofthepartyobligedtoreturnthesam(Art.1400)

f. ExtinguishmentofActionforAnnulmenti. byratification(Art.1392)ii. Whenthethingislostthroughthefaultofthepersonwhohastherightto

filetheaction(Art.1401)

4. Ratificationa. Requisites

i. Contractisvoidableii. Ratificationismadewithknowledgethatcontractisvoidableiii. Atthetimeofratification,thecausefornullityhasalreadyceasedtoexist

b. Formsi. Expressortacit(Art.1393)ii. Bythepartiesthemselvesorbytheguardianinbehalfofanincapacitated

party(Art.1394)

c. Effects

i. actiontoannulisextinguished(Art.1392)UySooLimv.TanUnchuan,38Phil.552(1918)ii. contractiscleansedretroactivelyfromallitsdefects(Art.1396)


31

C. UnenforceableContracts1. Characteristics

a. Validbutcannotbeenforcesbyaproperactionincourtb. Canberatifiedc. Cannotbeassailedbythirdpersons

2. Kinds(Art.1403)

a. Unauthorizedcontracts(Art.1404)

b. ContractscoveredbyStatuteofFrauds

i. PurposeofStatuteofFraudsAsiaProductionCo.Inc.v.JudgePano,205SCRA458(1992)WesternMindanaoCo.v.Medalle,79SCRA703(1977)Limketkai&Sonsv.CourtofAppeals,250SCRA523(1995)Babaov.Perez,102Phil.756(1957)Reissv.Memije,15Phil.350(1910)Villanuevav.CourtofAppeals,267SCRA89(1997)

ii. HowRatified(Art.1405)PhilippineNationalBankv.PhilippineVegetableOilCo.49Phil.857(1927)Carbonnellv.Poncioetal,103Phil.655(1958)FirstPhilippineInternationalBankv.CourtofAppeals,252SCRA259(196)

iii. RightofthePartieswhenaContractisenforceablebutapublicdocumentisnecessaryforitsregistration(Art.1406)

c. Contractsexecutedbypartieswhoarebothincapableofgivingconsent

i. Effectofratificationbytheparentsorguardianofoneoftheparties(Art.1407)

ii. Effectofratificationbytheparentsorguardianofbothparties(Art.1407)

D. VoidorInexistentContracts

1. Characteristics

• Voidfromthebeginning• Producesnoeffectwhatsoever• Cannotberatified(Art.1409)


32

Tongoyv.CourtofAppeals,123SCRA99(1983)Cuiv.Arellano,2SCRA205(1961)Chavezv.PresidentialCommissiononGoodGovernment,307SCRA372(1999)Guiangv.CourtofAppeals,291SCRA372(1998)Castillov.Galvan,85SCRA526(1978)

2. Kindsa. VoidContracts

i. Thosewhosecause,objectorpurposeiscontrarytolaw,morals,good

customs,publicorderorpublicpolicy• Whentheactconstitutesacriminaloffense(Art.1411)• Whentheactisunlawfulbutdoesnotconstituteacriminaloffense

(Art.1412)o Inparidelictorule

Menchavezv.Teves,449SCRA380(2005)Angelv.AledoandModales,420SCRA645(2004)

• Whenthepurposeisillegalandmoneyispaidorpropertydeliveredtherefore(Art.1414)

• Whenthecontractisillegalandoneofthepartiesisincapableofgivingconsent(Art.1415)

Liguezv.CourtofAppeals,102Phil.577(1957)Rellosav.GawCheenHum,93Phil827(1953)

• Whentheagreementisnotperseillegalbutprohibited(Art.1416)

PhilippineBankingCorporationv.LuiShe,21SCRA52(1967)Frenzelv.Catito,406SCRA55(2003)AcabalandNicolasv.Acabal,454SCRA555(2005)

• Whentheamountpaidexceedthemaximumfixedbylaw9Art.1417)

• Whenbyvirtueofacontractalabourerundertakestoworklongerthanthemaximumnumberofhoursofworkfixedbylaw(Art.1418)

• Whenthecontractisdivisible(Art.1420)• Whenthecontractisthedirectresultofapreviouslillegalcontract

(Art.1422)


33

ii. Thosewhoseobjectisoutsidethecommerceofman

iii. Thosewhichcontemplateanimpossibleservice

iv. Thosewheretheintentionofthepartiesrelativetotheprincipal

objectofthecontractcannotbeascertained

v. Thoseexpresslyprohibitedbylaw

b. InexistentContractsi. thosewhichareabsolutelysimulatedorfictitious(Articles1345to1346)

ii. thosewhosecauseorobjectdidnotexistatthetimeofthetransaction

3. NoWaiverofDefenseofIllegality(Art.1409)

4. ActionorDefensefortheDeclarationoftheInexistenceofaContract• Noprescriptionperiod(Art.1410)• Notavailabletothirdpersonsnotdirectlyaffected(At.1421)


34

PARTTHREE:SPECIFICEXAMPLESOFOBLIGATIONSObligationsCreatedbyLaw

A. Estoppel1. Definition(Art.1431)

Kalalov.Luz,34SCRA337(1970)

2. Kinds

a. Technicalestoppeli. byrecordii. bydeed(Art.1433)

b. Equitableestoppelorestoppelinpais(Art.1433)

3. PersonsBound(Art.1439)

ManilaLodgeNo.761BenevolentandProtectiveOrderoftheElksv.Court

ofAppeals,73SCRA168(1976)

4. Application(Art.1434to1438)Miguelv.Catalino,26SCRA234(1969)Read:Annotation32SCRA542Mendozav.ReyesandCourtofAppeals,G.R.No.L31618,August17,1983

B. Trusts1. Definition(Art.1442)

2. Parties(Art.1440)

a. Trustorb. Trusteec. Beneficiaryorcestuiquetrust

Salaov.Salao,70SCRA168(1976)

3. Kinds(Art.1441)

a. Expresstrusts

i. Proofrequired(Art.1443)ii. Form(Art.1444)iii. Wantoftrustee(Art.1445)iv. Acceptancebythebeneficiary(Art.1441)


35

b. ImpliedTrusts

i. Howestablished(Art1441)ii. Howproved(Art.1457)iii. Specificcases(Art.1448to1456)Fabianv.Fabian,22SCRA231(1968)Buenov.Reyes,27SCRA1179(1969)Tamayov.Callejo,46SCRA27(1972)HeirsofSanjorjov.Quijano,G.R.No.140457,January19,2005)AznarBrothersRealtyCompanyv.Aying,G.R.No.144773,May16,2005.

‐o‐


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law 101-obligations and contracts course outline [mrst] s2 ay 2012-2013

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