Double Sales

Outline in “Double Sales”

Article 1544, New Civil Code

By: Atty. Ed Reyes III

(For Section 4-c. Univ. of San Agustin

School of Law, SY 2015-2016 2^nd sem,

Civil Law Review II)

I.Main Rule

Primus tempore, potior jure (First in time, priority in right).

Corollary to Legal truism that: “You cannot give what you do not have”.

II. Article 1544;

Rules only apply when the following requisites concur:

a)     The two (or more) sales transactions must constitute valid sales

b)    The two (or more) sales transactions must pertain to exactly the same subject matter

c)     The two (or more) buyers at odds over the rightful ownership of the subject matter must each represent conflicting interests; and

d)    The two (or more) buyers at odds over the rightful ownership of the subject matter must each have bought from the very same seller[1]

III. Two Sales Must be Valid Transactions

3.1. Espiritu v. Valerio, 9 SCRA 761 (1963)- Where one sale involved a forged signature of the seller, Art. 1544 does not apply.

3.2. Carbonell v. Court of Appeals[2]; Coronel v. Court of Appeals[3]

- Art 1544 applies to Conditional Deeds of Sale (Because fulfillment of condition retroacts)

BUT NOT TO Contracts to Sell

- Remedy when a property was subject of contract to sell but sold via absolute sale is for damages

IV. Same Subject matter

4.1. Sale v. Right of Redemption

V. Same seller

-         Buyer 1 bought the thing from Mr. X who in turn bought it from Mr. Seller, while Buyer 2 bought the same subject matter from Mr. Seller, Art. 1544 DOES NOT APPLY- Rule on successors-in-interest and predecessors-in-interest have no place in Art. 1544[4]

VI. Registration v. Actual Possession

-         “As between two purchasers, the one who has registered the sale in his favor, has a preferred right over the other who has not registered his title, even if the latter is in actual possession of the immovable property”.[5]

6.1. Registration; Meaning

-         Tolentino: Deed of sale must be inscribed in the registry of property, and the register of deeds made a memorandum upon said document to the effect that “the foregoing instrument annotated, etc.” and another note to the same effect was made thereon about five months later, a marginal memorandum of the said annotations being made on the original document itself, it was held that what was done with respect to said entries or annotations and marginal notes amounted to a registration of the sale”.[6]

-         Villanueva- “Registration” means any entry made in the books of the registry, including both registration in its ordinary and strict sense, and cancellation, annotation, and even marginal notes. It is the entry made in the registry which records solemnly and permanently the right of ownership and other real rights”.[7]

VII. Purchaser in Good Faith; Concept

6.1. Burden of proof or onus is on person asserting that he is a purchaser in good faith. Mere reliance on presumption of good faith is not enough. [8]

6.2. Requisite of Full payment – “payment of FULL and FAIR PRICE for the same at the time of such purchase or before he has notice of the claim or interest of some other person in the property”.[9]

6.3. Obligation to Investigate Known Facts.

- Mirror principle circumscribed

6.4. Length of time required for buyer to keep good faith pristine

-“ This is the price exacted by Article 1544 of the Civil Code for the second buyer being able to displace the first buyer: That before the second buyer can obtain priority over the first, he must show that he acted in good faith throughout (i.e. ignorance of the first sale and of the first buyer’s rights)- from the time of acquisition until the tile is transferred to him by registration or failing registration, by delivery of possession). The second buyer must show CONTINUING good faith and innocence or lack of knowledge of the first sale until his contract ripens into full ownership through prior registration as provided by law”.[10]

VIII. Does Art. 1544 contemplate of a race to the ROD between 1^st and 2^nd buyers?

7.1. Does “bad faith” on the part of the first buyer foreclose his right to register the first sale?

-“The governing principle here is prius tempore, potior jure (first in time, stronger in right). Knowledge gained by the first buyer of the second sale cannot defeat the first buyer’s rights except only as provided the Civil Code and that is where the second buyer first registers in good faith the second sale ahead of first buyer. Such knowledge of the first buyer does not bar her from availing of her rights under the law, among them, to register first her purchase as against the second buyer. But in CONVERSO, knowledge gained by the second buyer of the first sale defeats his rights even if he is first to register the second sale, since such knowledge taints his prior registration with bad faith”[11].   

IX. First buyer is winner of the race without doing anything but only by the fact that he is the first buyer.

Reasons:

a)     First in time, priority in right

b)    Knowledge by second buyer of the first sale is equivalent to registration in favor of first buyer

c)     Knowledge of the first sale makes the second buyer one in bad faith, and only good faith second buyer is qualified to run the race[12]

X. First buyer can practically watch the second buyer: 1. Transact, haggle with same seller; 2. make installment payments; 3. Same seller to execute deed of sale; and 4. Second buyer to bring the deed of sale to Register of Deeds. AND YET STILL, second buyer cannot dislodge the first buyer. Until and unless, the second buyer goes through the entire process of REGISTRATION and maintains innocence or good faith all throughout. Then and only then is the first buyer defeated.

-END of Story.

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[1] Cesar Villanueva, Law on Sales p. 277, Cheng v. Genato, 300 SCRA 722 (1988)

[2] 69 SCRA 99 (1976)

[3] 263 SCRA 15 (1996)

[4] Cesar Villanueva, p. 282, ibid.

[5] Tolentino, Civil Code of the Philippines, Volume V p. 97 citing Mendiola v. Pacalda, 10 Phil. 705

[6] P. 98 Tolentino, Id.

[7] P. 295 Villanueva, Id. Citing Cheng v. Genato, 300 SCRA 722 (1998)

[8] Mathay v. Court of Appeals, 295 SCRA 556 (1998)

[9] Ibid.

[10] Carbonel v. Court of Appeals, Ibid

[11] Id.

[12] Villanueva, Ibid.

DELIVERY IN SALES CONTRACTS

OUTLINE/ LECTURE ON ISSUES ON DELIVERY IN SALES CONTRACTS

By: Atty. Eduardo T. Reyes, III

(Prepared for Law 4-C, 

University of San Agustin Law School,

 Civil Law Review II, SY 2016-2017)

I. Foundational Considerations in Sales Transactions

DIMENSION 1	DIMENSION 2	DIMENSION 3
Negotiation	Perfection; Meeting of the Minds	Consummation
Contract to Sell	Conditional Sale/ Absolute Sale	Delivery
Positive Suspensive Condition	Rescission (Arts. 1191 & 1592, New Civil Code)
	Effect of Maceda Law

-Contract to Sell, Conditional Sale & Absolute Sale; Distinguished

- Rescission (Check discussion on Art 1191 on need for Judicial Rescission and exception thereto in the lecture hand-out in Obligations & Contracts).

- Effect of Maceda Law

Article 1478. The parties may stipulate that ownership in the thing shall not pass to the purchaser until he has fully paid the price.

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

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

            In Ong v. Court of Appeals[1], these different kinds of sales transactions were distinguished in this fashion, viz:

            “In a contract of sale, the title to the property passes to the vendee upon the delivery of the thing sold; while in a contract to sell, ownership is, by agreement, reserved in the vendor and is not to pass to the vendee until full payment of the purchase price. In a contract to sell, the payment of the purchase price is a positive suspensive condition, the failure of which is not a breach, casual or serious, but a situation that prevents the obligation  of the vendor to convey title from acquiring an obligatory force. The non-fulfillment of the condition of full payment rendered the contract to sell ineffective and without force and effect. It must be stressed that the breach contemplated in Article 1191 of the New Civil Code is the obligor’s failure to comply with an obligation already extant, not a failure of a condition to render binding that obligation. Failure to pay, in this instance, is not even a breach but merely an event which prevents the vendor’s obligation to convey title from acquiring binding force.”

“A contract to sell may not even be considered as a conditional contract of sale where the seller likewise reserves title to the property subject of the sale until the fulfillment of a suspensive consition, because in a conditional contract of sale, the first element of consent is present, although it is conditioned upon the happening of a contingent event which may or may not occur. If the suspensive condition is not fulfilled, the perfection of the contract of sale is completely abated. However, if the suspensive condition is fulfilled, the contract of sale is thereby perfected, such that if there had already been previous delivery of the property subject of the sale to the buyer, ownership thereto automatically transfers to the buyer by operation of law without any further act of having to be performed by the seller.

            In contract to sell, upon the fulfillment of the suspensive condition which is the full payment of the purchase price, ownership will not automatically transfer to the buyer although the property may have been previously deliverd to him. The prospective buyer has to convey title to the prospective buyer by entering into a contract of absolute sale.[2]”

            Art.15387. the vendor is bound to deliver the thing sold and its accessions and accessories in the conditions in which they were upon the perfection of the contract.

            All the fruits shall pertain to the vendee from the day on which the contract was perfected.

II. TRADITION OR DELIVERY – Art. 1497 When the thing sold “ placed in the contract and   possession of the vendee.

1497 to 1501

Actual vs. Constructive delivery

Art. 1498 – Were the execution of the deed of conveyance in a public instrument is equivalent to the delivery of the property. (Sabio v.  International Corporate Bank,  364SCRA 365 [2001])

                               Exceptions: 1. “when there is a stipulation in the instrument to the contrary”

2. Doctrine in Addison V. Felix (38 Phil. 404 (1918). “  It is the duty of the seller to deliver the thing sold, and that symbolic delivery by the execution by the execution of public instrument is equivalent to actual delivery  only when the thing sold is subject to the control of the seller, so that “at the moment  of sale, its material delivery could have been made.”

-  Doctrine reiterated in Power Commercial and Industrial Corp. v. CA, 274 SCRA 597, (1997).

                       

Exception to Exception: If the sale have been made under the express   agreement of imposing upon buyer the obligation of recovering possession from third part possessors.

I. Performance or Consummation

            Art. 1458, By the Contract of Sale one of the contracting parties obligates himself to transfer the ownership of and to deliver the determinate thing, and the other to pay therefore a price certain in money or its equivalent.

           

            Art. 1495, The vendor is bound to transfer the ownership of and deliver, as well as warrant the thing which is the object of the sale.

            Art. 1163, every person obliged to give a determinate thing is also obliged to take care of it with the proper diligence  of a good father , of a family, unless the law on the stipulation of the parties requires anther standard of care.

(Buyer and Sale)

Art. 1164, The creditors has the right to the fruit of the thing from the time n the obligation to deliver arises. However, he shall acquire no real right over it until the same has been delivered to him.

(Doctrine of Self – Help)

Consequence of Delivery: Art. 429 the owner or lawful processor of a thing has the right to exclude any person from the enjoyment and disposal thereof. For this purpose, he may use such force as may be reasonably necessary to repel or prevent an actual or threatened unlawful physical invasion or usurpation of his property.

III. Symbolic Delivery, Constitution Possessorium, Tradition Brevi Manu, Tradition Longa   Manu.

IV. Delivery by Negotiable Document of Title

V. Delivery through Courier

      5.1 Art. 1523 – Delivery is allowed for the contract to be made to a carrier – equivalent to delivery to buyer.

Exception:

      Art. 1503 (1) (2) (3)

(1)  Sale with Reservation of Title.

(2) Goods are shipped and Bill of Lading is Deliverable to seller or his agent (Implies that the title is reserved by seller.)

(3) Goods are Shipped and Bill of Lading is deliverable to buyer or his agent BUT possess of bill of lading is retained by seller.

5.2 F. A. S.  Sales – seller pays all charges and is subject to risk until the goods are placed   “alongside the vessel.”

       F. O. B. – Free or Board – seller shall bear all expenses

                             FOB at the point of Shipment

                             FOB at the point of destination

Then ownership is deemed transferred to owner.

     C.I. F. Cost Insurance Freight

                 - Buyer pays CIF – Delivery and Carrier is enough.

VI. Completeness of Delivery

     Art. 1522 – Quantity Issues of Sale and Goods (Personal Property)

(a) Seller delivers quatity less than promised

a.1 buyer may reject

a.2 if buyer accept or retains he must pay the full price.

(b) if however buyer has used or disposed of goods delivered before he knows that seller is not going to perform

                        (c) seller delivers larger Quantity

                            - buyer may accept goods covered by contract and reject the rest

                            - if buyer accepts whole goods, he must pay based on contracts rates.

                            - if indivisible, buyer may reject whole of goods.

                        (d) if Mixed: those covered by contracts and those not described.

                                    - buyer may accept and reject those not described

                                    - if indivisible, buyer may reject the goods altogether.

VII. Sale of Immovable

            Art. 1539

-        Sale with statement of area per unit or measure

-        Seller is obliged to deliver that area stated in contract

-        If not possible buyer may choose: proportional reduction of price

     Rescission

At least 1/10th for rescission: (provided that lack of area is NOT LESS than 1/10 of area stated)

                                                   (Quantity Test)

          In an August 2016 case, it was ruled that:

            “What defines land; Land sold in LUMP SUM

            At any rate, we have consistently held that what really defines a piece of land is not the area, calculated with more or less certainty , mentioned in   the description, but its boundaries laid down, as enclosing the land and indicating its limits. Where land is sold for a lump sum and not so much per unit or measure, number, the boundaries of the land stated in the contract determine the effects and scope of the sale, and not its area. This is consistent with Article 1542 of the Civil Code which provides:

X x x”[3].

          Art. 1543- Actions arising from Articles 1539 & 1542 prescribe in 6 months from the day of delivery.

QUANTITY TEST

-        If Subject Matter delivered is NOT OF THE SAME QUALITY as agreed upon

-        Proportional reduction of price

Rescission (provided that inferior value of thing sold exceeds one tenth of the price agreed upon.

-        More than 1/10.

VIII. Time and Place of Delivery

  Gen. Rule: Stipulation in Contract

  In case of silence:

                        Time: Reasonable Time

                        Place: Art. I521 in rel. to Art. 1251

                                    Place of Business or if none

                                    Domicile of Seller/Debtor

IX. Condition and Warranties

            (Subject and another outline)

X. Extinguishment of Sales

-        Conventional Redemption – latest case law Cebu State College of Science and Technology (CSCST) etc. v Luis & Misterio, G.R. No. 179025, June 17, 2015.

-        Legal Redemption

(Subject of another Outline)

   

           

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[1] 310 SCRA 1, 108 SCAD 706 (1999)

[2] See Homesite and Housing Corp. v. Court of Appeals, 133 SCRA 77 [1984]) and Coronel et al v. Court of Appeals, et al., G.R. No. 103577, October 7, 1996

[3] Anita U. Lorensana v. Rodolfo Lelina, G.R. No. 187850, August 17, 2016

SPECIAL SUPPLEMENT ON NATURAL OBLIGATIONS, ESTOPPEL & TRUST

Civil Law Review
Atty. Eduardo T. Reyes, III
University of San Agustin
College of Law

I. X executes a will but it was declared void and the heirs paid a legacy to a friend of their father, can it be revoked and legacy returned?

-General rule: Article 1430. “When a will is declared void because it has not been executed in accordance with the formalities required by law, but one of the intestate heirs, after the settlement of the debts of the deceased, pays a legacy in compliance with a clause in the defective will, the payment is effective and irrevocable.

-What if heir had no knowledge that the will was void?

II. Estoppel; Landlord- Tenant

“It is clear from the above-quoted provision that [w]hat a tenant is estopped from denying x x x is the title of his landlord at the time of the commencement of the landlord-tenant relation. If the title asserted is one that is alleged to have been acquired subsequent to the commencement of that relation, the presumption will not apply. Hence, the tenant may show that the landlords title has expired or been conveyed to another or himself; and he is not estopped to deny a claim for rent, if he has been ousted or evicted by title paramount.

Thus, we declared in Borre v. Court of Appeals that:

The rule on estoppel against tenants is subject to a qualification. It does not apply if the landlords title has expired, or has been conveyed to another, or has been defeated by a title paramount, subsequent to the commencement of lessor-lessee relationship [VII Francisco, The Revised Rules of Court in the Philippines 87 (1973)]. In other words, if there was a change in the nature of the title of the landlord during the subsistence of the lease, then the presumption does not apply. Otherwise, if the nature of the landlords title remains as it was during the commencement of the relation of landlord and tenant, then estoppel lies against the tenant. (Emphasis supplied.)


While petitioner appears to have already lost ownership of the property at the time of the commencement of the tenant-landlord relationship between him and respondent, the change in the nature of petitioners title, as far as respondent is concerned, came only after the commencement of such relationship or during the subsistence of the lease. This is precisely because at the time of the execution of the second and third contracts of lease, respondent was still not aware of the transfer of ownership of the leased property to China Bank. It was only in November 2003 or less than two months before the expiration of said contracts when respondent came to know of the same after it was notified by said bank. This could have been the reason why respondent did not anymore pay petitioner the rents for the succeeding months of December 2003 and January 2004. Thus, it can be said that there was a change in the nature of petitioners title during the subsistence of the lease that the rule on estoppel against tenants does not apply in this case. Petitioners reliance on said conclusive presumption must, therefore, necessarily fail since there was no error on the part of the CA when it entertained respondents assertion of a title adverse to petitioner.”
-Enrico Santos v. NSO, G.R. No. 171129, April 6, 2011

III. Express Trust v. Implied Trust (Oral Evidence).
Art. 1443, NCC- “No express trusts concerning an immovable or any interest therein may be proved by parol evidence.”

“Petitioner contends that private respondent is attempting to enforce an unenforceable express trust over the disputed real property. Petitioner is in error when she contends that an express trust was created by private respondent when he transferred the property to his son. Judge Abraham P. Vera, in his order dated March 31, 1993 in Civil Case No. Q-92-14352, declared:
[e]xpress trust are those that are created by the direct and positive acts of the parties, by some writing or deed or will or by words evidencing an intention to create a trust. On the other hand, implied trusts are those which, without being expressed, are deducible from the nature of the transaction by operation of law as matters of equity, independently of the particular intention of the parties. Thus, if the intention to establish a trust is clear, the trust is express; if the intent to establish a trust is to be taken from circumstances or other matters indicative of such intent, then the trust is implied (Cuaycong vs. Cuaycong, 21 SCRA 1191 [1967].
In the cases at hand, private respondent contends that the pieces of property were transferred in the name of the deceased Alexander for the purpose of taking care of the property for him and his siblings.Such transfer having been effected without cause of consideration, a resulting trust was created.
A resulting trust arises in favor of one who pays the purchase money of an estate and places the title in the name of another, because of the presumption that he who pays for a thing intends a beneficial interest therein for himself. The trust is said to result in law from the acts of the parties. Such a trust is implied in fact (Tolentino, Civil Code of the Philippines, Vol. 4, p. 678).
If a trust was then created, it was an implied, not an express trust, which may be proven by oral evidence (Article 1457, Civil code), and it matters not whether property is real or personal (Paras, Civil Code of the Philippines, Annotated, Vol. 4, p. 814).
Petitioners assertion that private respondents action is barred by the statute of limitations is erroneous. The statue of limitations cannot apply in this case. Resulting trusts generally do not prescribe (Caladiao vs. Vda. De Blas, 10 SCRA 691 [1964]), except when the trustee repudiates the trust. Further, an action to reconvey will not prescribe so long as the property stands in the name of the trustee (Manalang, et. al. vs. Canlas, et. al., 94 Phil. 776 [1954]). To allow prescription would be to permit a trustee to acquire title against his principal and the true owner.”
-[G.R. No. 112872. April 19, 2001] THE INTESTATE ESTATE OF ALEXANDER T. TY, represented by the Administratrix, SYLVIA S. TY, petitioner, vs. COURT OF APPEALS, HON. ILDEFONSO E. GASCON, and ALEJANDRO B. TY, respondents.[G.R. No. 114672. April 19, 2001] SYLVIA S. TY, in her capacity as Administratrix of the Intestate Estate of Alexander T. Ty, petitioner, vs. COURT OF APPEALS and ALEJANDRO B. TY, respondents.
IV. Do actions to recover immovable based on trust Prescribe?

As a rule no. The action to compel the trustee to convey the property registered in his name for the benefit of the cestui que trust  does not prescribe. (Caladiao v. Santos Vda. De Blas, 10 SCRA 691; Diaz v. Gorricho, 103 Phil. 261). If at all, it is only when the trustee repudiates the trust that the period of prescription commences to run. The prescriptive period is 10 years from the repudiation of the trust (Heirs of Maria de La Cruz v. CA, 182 SCRA 638) or issuance of a title (Gonzales v. CA, G.R. No. 66479, Nov. 21, 1991).

OBLIGATIONS AND CONTRACTS Part 1

Atty. EDUARDO T. REYES, III

Civil Law Review

Lecture Series No. 11

College of Law

University of San Agustin

(Prelim Lecture Outline - Part 1)
Please click Older Posts at the bottom
to view Parts 2, 3 and 4

BOOK IV
Obligations and Contracts

TITLE I
Obligations

Preliminary comments:

1. 3 parts of study of subject “obligations”

a. Principles

b. kinds of obligations

c. mode of extinguishment

2. Classifications of Obligations

a. Pure or Conditional (Arts. 1179- 1192)

b. With a Period (Arts. 1193-1198)

c. Facultative or Alternative (Arts. 1199-1206)

d. Joint or Solidary (Arts. 1207-1222)

e. Divisible and Indivisible (Arts. 1223-1225)

f. With a Penal Clause (Arts. 1226-1230) 

CHAPTER 1
General Provisions

Article 1156. An obligation is a juridical necessity to give, to do or not to do. (n)

Comments:

1. Is an obligation synonymous with a right? In Makati Stock Exchange, Inc. et al. v. Miguel V. Campos, et al.[1], it was enunciated that “A right is a claim or title to an interest in anything whatsoever that is enforceable by law. An obligation is defined in the Civil Code as a juridical necessity to give, to do or not to do. For every right enjoyed by any person, there is a corresponding obligation on the part of another person to respect such right.”

2. See Article 1169. On the need for judicial or extrajudicial demand in order to render the debtor in delay or default. This reinforces the rule that the obligee may choose to waive the due date because it is a right and not an obligation. In sum, while a right may be waived, an obligation cannot be waived by the debtor. (Villegas v. Capistrano, 9 Phil. 416).

3. Illustration of the rule. The right of legal redemption is a right and not an obligation. So the redemptioner need not consign the tendered amount in court because mere tender is enough. This is different in case of a DEBT which is an obligation. In order to extinguish the obligation through payment, mere tender is not enough as it must be coupled with consignation.

Article 1157. Obligations arise from:

(1) Law;

(2) Contracts;

(3) Quasi-contracts;

(4) Acts or omissions punished by law; and

(5) Quasi-delicts. (1089a)

Comment: Only the “law” as a source of obligation CREATES  a right. All the others are merely DERIVED from, or RECOGNIZED by law.

Article 1158. Obligations derived from law are not presumed. Only those expressly determined in this Code or in special laws are demandable, and shall be regulated by the precepts of the law which establishes them; and as to what has not been foreseen, by the provisions of this Book. (1090)

Article 1159. Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. (1091a)

Article 1160. Obligations derived from quasi-contracts shall be subject to the provisions of Chapter 1, Title XVII, of this Book. (n)

Comment:

1. Is a quasi-contract an “implied contract”?

Article 1161. Civil obligations arising from criminal offenses shall be governed by the penal laws, subject to the provisions of article 2177, and of the pertinent provisions of Chapter 2, Preliminary Title, on Human Relations, and of Title XVIII of this Book, regulating damages. (1092a)

Article 1162. Obligations derived from quasi-delicts shall be governed by the provisions of Chapter 2, Title XVII of this Book, and by special laws. (1093a)

Comment:

1. As a rule, In quasi-delict, or tort, there must be NO PRE-EXISTING CONTRACTUAL RELATIONS between the parties because if there is, the violation constitutes as a breach of contract and not a tort. However, by way of exception, when the act or omission complained of would constitute an actionable tort, independently of the contract, then there could be a tort notwithstanding the subsistence of a contract between the parties[2]. 

CHAPTER 2

Nature and Effect of Obligations

Article 1163. Every person obliged to give something is also obliged to take care of it with the proper diligence of a good father of a family, unless the law or the stipulation of the parties requires another standard of care. (1094a)

Comments:

1. “Protectiveness” of Pater Familias in Roman Law.

2. This article refers to an “obligation to give a DETERMINATE OBJECT” because if INDETERMINATE, genus nunquam perit.

3. “Ordinary diligence”. Is there a “ fixed standard”? No. In Francisco v. Chemical Bulk Carriers Inc.,[3] the Court ruled that “to determine the diligence which must be required of all persons, we use as basis the ABSTRACT AVERAGE STANDARD corresponding to a normal orderly person. 

Article 1164. The creditor has a right to the fruits of the thing from the time the obligation to deliver it arises. However, he shall acquire no real right over it until the same has been delivered to him. (1095)

Comments:

1. Personal right v. Real Right

2.Pursuant to the second paragraph of Article 712, thus: “Ownership and other real rights over property are acquired and transmitted by law, by donation, by testate and intestate succession, and in consequence of certain contracts, by tradition”.

            IN CONTRAST. Check out Article 1477 which states that: “The ownership of the thing sold shall be transferred to the vendee upon the actual or constructive delivery thereof”. Thus, a sale is only a “title” but the mode of transmitting ownership “as a consequence of such contract of sale”, is by tradition or delivery.

            -See Articles 429 & 430, NCC on the Doctrine of Self-Help.

Article 1165. When what is to be delivered is a determinate thing, the creditor, in addition to the right granted him by article 1170, may compel the debtor to make the delivery.

If the thing is indeterminate or generic, he may ask that the obligation be complied with at the expense of the debtor.

If the obligor delays, or has promised to deliver the same thing to two or more persons who do not have the same interest, he shall be responsible for any fortuitous event until he has effected the delivery. (1096)

Article 1166. The obligation to give a determinate thing includes that of delivering all its accessions and accessories, even though they may not have been mentioned. (1097a)

Article 1167. If a person obliged to do something fails to do it, the same shall be executed at his cost.

This same rule shall be observed if he does it in contravention of the tenor of the obligation. Furthermore, it may be decreed that what has been poorly done be undone. (1098)

Comments:

1. This appertains to an “obligation to do”.

2.There could be no legal compulsion to compel the debtor to perform a specific act because that would amount to involuntary servitude.

3. Check out Art. 1165 on an obligation to “deliver a determinate thing” (not and obligation to give), the debtor may be compelled to so deliver.

4.  Remedy: “The activity shall be performed at the debtor’s expense or cost”.

5. In the PERFORMANCE of the obligation, the debtor is required to comply with: a. Identity of obligation. This means that obligations must be complied with precisely. What is obliged and what is performed must be IDENTICAL. b. Integrity of obligation. Means that compliance must be complete.

Article 1168. When the obligation consists in not doing, and the obligor does what has been forbidden him, it shall also be undone at his expense. (1099a)

Article 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation.

However, the demand by the creditor shall not be necessary in order that delay may exist:

(1) When the obligation or the law expressly so declare; or

(2) When from the nature and the circumstances of the obligation it appears that the designation of the time when the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the contract; or

(3) When demand would be useless, as when the obligor has rendered it beyond his power to perform.

In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins. (1100a)

Comments:

1. Rule: Default can only arise upon demand, judicially or extrajudicially.

2. For exception to apply, “law must EXPRESSLY SO DECLARE”. “In order that the debtor may be in default, it is necessary that : (a) the obligation be demandable and already liquidated; (b) the debtor delays performance; (c) the creditor requires the performance judicially or extra judicially, unless demand is not necessary—i.e., when there is an express stipulation to that effect; where the law so provides then the period is the controlling motive or the principal inducement for the creation of the obligation; and where demand would be useless. Moreover, it is not sufficient that the law or obligation fixes a date for performance; it must further state expressly that after the period lapses, default will commence.

            Thus, it is only when demand to pay is unnecessary in case of the afore-mentioned circumstances, or when required, such demand is made and subsequently refused that the mortgage can be considered in default and the mortgagee obtain the right to file an action to collect the debt or foreclose the mortgage.

            It is ESSENTIAL that the mortgage contract is in accord with Article 1169 of the Civil Code to expressly declare that: (a) demand shall not be necessary in order that the mortgagor may be in default; (b) that default shall commence upon mere failure to pay on maturity date of the loan”[4].

Article 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages. (1101)

Comments:

1. Phrase “those who in any manner contravene the tenor thereof” is a catch- all provision.

2. “Fraud”. “While fraud cannot be presumed, it need not be proved by direct evidence and can well be inferred from attendant circumstances. Fraud by its nature is not a thing acceptable of ocular observation or readily demonstrable physically; it must of necessity be proved in many cases by inferences from circumstances shown to have been involved in the transaction in question”[5].

Article 1171. Responsibility arising from fraud is demandable in all obligations. Any waiver of an action for future fraud is void. (1102a)

Article 1172. Responsibility arising from negligence in the performance of every kind of obligation is also demandable, but such liability may be regulated by the courts, according to the circumstances. (1103)

Article 1173. The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of the obligation and corresponds with the circumstances of the persons, of the time and of the place. When negligence shows bad faith, the provisions of articles 1171 and 2201, paragraph 2, shall apply.

If the law or contract does not state the diligence which is to be observed in the performance, that which is expected of a good father of a family shall be required. (1104a)

Article 1174. Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be responsible for those events which could not be foreseen, or which, though foreseen, were inevitable. (1105a)

Article 1175. Usurious transactions shall be governed by special laws. (n)

Comments:

1. Usury is now legally non-existent. Parties may agree on rate of interest.

2. However, courts have the power to declare an interest rate agreed upon if unconscionable. Examples: Medel v. CA[6], 66% p.a. or 5.5% per month on a P500,000 loan; Toring v. Spouses Ganzon-Olan[7], 3.81% per month on a P10 Million loan; Chua v. Timan[8]

3. Legal interest is only chargeable when:

            3.1. There is an agreement that interest will be paid but there is no agreement as to the rate thereof

            3.2. From the time of delay or default in an obligation consisting of payment of sum of money, even if no interest was agreed upon

            3.3. From the time decision in favour of creditor for enforcement of obligation for sum of money becomes final and executory

            3.4. Interest due shall also earn legal interest from the time it has been judicially or extra judicially demanded.

Article 1176. The receipt of the principal by the creditor without reservation with respect to the interest, shall give rise to the presumption that said interest has been paid.

The receipt of a later installment of a debt without reservation as to prior installments, shall likewise raise the presumption that such installments have been paid. (1110a)

Article 1177. The creditors, after having pursued the property in possession of the debtor to satisfy their claims, may exercise all the rights and bring all the actions of the latter for the same purpose, save those which are inherent in his person; they may also impugn the acts which the debtor may have done to defraud them. (1111)

Comments:

1. Principal remedies: a. Specific performance (Arts. 1165 to 1167) b. Substitute Performance (Art. 1165) and c. Equivalent Performance (Arts. 1168 and 1170)

2. Subsidiary Remedies.

2.1. Subrogatory action or accion subrogatoria. (Art. 1177)The creditor will file a case in behalf of the debtor with respect to another obligation that is due to the debtor.

2.2. Rescissory action or accion pauliana. (Arts. 1177 & 1381 [3]). – the creditor will impugn the acts of the debtor that is in fraud of creditors.

3. DISTINGUISHED from SUBROGATION in Novation per Arts. 1291 (3) & 1300. In novation, the third person steps into the shoes of the creditor; In Art. 1177, creditor steps into the shoes of DEBTOR to sue a third person.

4. Requisites of SUBROGATORY ACTION.

            4.1. The creditor has a right of credit against the debtor

            4.2. The credit must be due and demandable

            4.3. There must be failure of the debtor to collect from third persons (debtor of the debtor), whether wilfully or through negligence

            4.4. The assets in the hands of the debtor are INSUFFICIENT – the creditor need not bring a separate action to show this exhaustion or insolvency of the debtor but he can prove the same in the very action to exercise the subrogatory action; and,

            4.5. The right and actions are not purely personal or inherent in the person of the debtor.

5. Requisites of RESCISSORY ACTION (Action Pauliana)

            5.1. That plaintiff asking for rescission, has a credit prior to the alienation, although demandable later. (Credit or transaction must PRECEDE the alienation).

            5.2. That debtor has made a subsequent contract conveying a patrimonial benefit to a third person

            5.3. That creditor has NOT OTHER LEGAL REMEDY (subsidiary remedy) to satisfy his claim, but would benefit by rescission of the conveyance to the third person

            5.4. That the act being impugned is FRAUDULENT

            5.5. That third person who received the property conveyed, if by onerous title, has been an accomplice in the fraud.

6. 3 kinds of RESCISSION under the Civil Code

            a. Accion Pauliana

            b. Article 1191 (Resolution)

            c. Arts. 1380 & 1381- which are based on prejudice or economic damage

7. “The accion pauliana is an action of LAST RESORT. For so long as the creditor still has a remedy at law for the enforcement of his claim against the debtor, the creditor will not have any cause of action against the debtor for rescission of the contracts entered into by and between the debtor and another person or persons. Indeed, an accion pauliana presupposes a judgment and the issuance by the trial court of a writ of execution for the satisfaction of the judgment and the failure of the Sheriff to enforce and satisfy the judgment of the court[9]”.   

Article 1178. Subject to the laws, all rights acquired in virtue of an obligation are transmissible, if there has been no stipulation to the contrary. (1112)

CHAPTER 3
Different Kinds of Obligations

SECTION 1
Pure and Conditional Obligations

Article 1179. Every obligation whose performance does not depend upon a future or uncertain event, or upon a past event unknown to the parties, is demandable at once.

Every obligation which contains a resolutory condition shall also be demandable, without prejudice to the effects of the happening of the event. (1113)

Article 1180. When the debtor binds himself to pay when his means permit him to do so, the obligation shall be deemed to be one with a period, subject to the provisions of article 1197. (n)

Article 1181. In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event which constitutes the condition. (1114)

Article 1182. When the fulfillment of the condition depends upon the sole will of the debtor, the conditional obligation shall be void. If it depends upon chance or upon the will of a third person, the obligation shall take effect in conformity with the provisions of this Code. (1115)

Article 1183. Impossible conditions, those contrary to good customs or public policy and those prohibited by law shall annul the obligation which depends upon them. If the obligation is divisible, that part thereof which is not affected by the impossible or unlawful condition shall be valid.

The condition not to do an impossible thing shall be considered as not having been agreed upon. (1116a)

Comments:

1. Here, the effect of an impossible, etc. condition shall be to ANNUL the obligation which depends upon them. Compare with Articles 727 & 873, NCC.

Article 1184. The condition that some event happen at a determinate time shall extinguish the obligation as soon as the time expires or if it has become indubitable that the event will not take place. (1117)

Article 1185. The condition that some event will not happen at a determinate time shall render the obligation effective from the moment the time indicated has elapsed, or if it has become evident that the event cannot occur.

If no time has been fixed, the condition shall be deemed fulfilled at such time as may have probably been contemplated, bearing in mind the nature of the obligation. (1118)

Comments:

1. Positive obligation (Art 1184). Obligation is EXTINGUISHED : a. When time expires and b. It becomes indubitable that the event will not take place

2. Negative obligation (Art. 1185). Obligation is BECOMES EFFECTIVE: a. When time elapses and b. It is evident that the event will not occur.

Article 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment. (1119)

Article 1187. The effects of a conditional obligation to give, once the condition has been fulfilled, shall retroact to the day of the constitution of the obligation. Nevertheless, when the obligation imposes reciprocal prestations upon the parties, the fruits and interests during the pendency of the condition shall be deemed to have been mutually compensated. If the obligation is unilateral, the debtor shall appropriate the fruits and interests received, unless from the nature and circumstances of the obligation it should be inferred that the intention of the person constituting the same was different.

In obligations to do and not to do, the courts shall determine, in each case, the retroactive effect of the condition that has been complied with. (1120)

Comment:

Rule: In reciprocal obligations- mutual compensation.

This rule applies only to consensual contract not to real contracts such as deposit or commodatum which are perfected only by delivery.

Exception: a. Unilateral obligations- debtor gets the fruts

                       

Article 1188. The creditor may, before the fulfillment of the condition, bring the appropriate actions for the preservation of his right.

The debtor may recover what during the same time he has paid by mistake in case of a suspensive condition. (1121a)

Article 1189. When the conditions have been imposed with the intention of suspending the efficacy of an obligation to give, the following rules shall be observed in case of the improvement, loss or deterioration of the thing during the pendency of the condition:

(1) If the thing is lost without the fault of the debtor, the obligation shall be extinguished;

(2) If the thing is lost through the fault of the debtor, he shall be obliged to pay damages; it is understood that the thing is lost when it perishes, or goes out of commerce, or disappears in such a way that its existence is unknown or it cannot be recovered;

(3) When the thing deteriorates without the fault of the debtor, the impairment is to be borne by the creditor;

(4) If it deteriorates through the fault of the debtor, the creditor may choose between the rescission of the obligation and its fulfillment, with indemnity for damages in either case;

(5) If the thing is improved by its nature, or by time, the improvement shall inure to the benefit of the creditor;

(6) If it is improved at the expense of the debtor, he shall have no other right than that granted to the usufructuary. (1122)

Article 1190. When the conditions have for their purpose the extinguishment of an obligation to give, the parties, upon the fulfillment of said conditions, shall return to each other what they have received.

In case of the loss, deterioration or improvement of the thing, the provisions which, with respect to the debtor, are laid down in the preceding article shall be applied to the party who is bound to return.

As for the obligations to do and not to do, the provisions of the second paragraph of article 1187 shall be observed as regards the effect of the extinguishment of the obligation. (1123)

Article 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.

This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with articles 1385 and 1388 and the Mortgage Law. (1124)

Comments:

1. “reciprocal obligations” meaning, must have arisen from the same cause.

  

2.As a rule, Article 1191 refers to a JUDICIAL RESCISSION ( properly RESOLUTION). The default should be remedied via a court action. This can be judged from 3^rd paragraph of Art. 1191 which mentions that “ the court shall decree the rescission x x x”.

3. However, “there is nothing in Article 1191 which prohibits the parties from entering into an agreement that a violation of the terms of the contract would cause its cancellation even without court intervention[10]”.

Article 1192. In case both parties have committed a breach of the obligation, the liability of the first infractor shall be equitably tempered by the courts. If it cannot be determined which of the parties first violated the contract, the same shall be deemed extinguished, and each shall bear his own damages. (n)

SECTION 2
Obligations with a Period

Article 1193. Obligations for whose fulfillment a day certain has been fixed, shall be demandable only when that day comes.

Obligations with a resolutory period take effect at once, but terminate upon arrival of the day certain.

A day certain is understood to be that which must necessarily come, although it may not be known when.

If the uncertainty consists in whether the day will come or not, the obligation is conditional, and it shall be regulated by the rules of the preceding Section. (1125a)

Article 1194. In case of loss, deterioration or improvement of the thing before the arrival of the day certain, the rules in article 1189 shall be observed. (n)

Article 1195. Anything paid or delivered before the arrival of the period, the obligor being unaware of the period or believing that the obligation has become due and demandable, may be recovered, with the fruits and interests. (1126a)

Article 1196. Whenever in an obligation a period is designated, it is presumed to have been established for the benefit of both the creditor and the debtor, unless from the tenor of the same or other circumstances it should appear that the period has been established in favor of one or of the other. (1127)

Article 1197. If the obligation does not fix a period, but from its nature and the circumstances it can be inferred that a period was intended, the courts may fix the duration thereof.

The courts shall also fix the duration of the period when it depends upon the will of the debtor.

In every case, the courts shall determine such period as may under the circumstances have been probably contemplated by the parties. Once fixed by the courts, the period cannot be changed by them. (1128a)

Article 1198. The debtor shall lose every right to make use of the period:

(1) When after the obligation has been contracted, he becomes insolvent, unless he gives a guaranty or security for the debt;

(2) When he does not furnish to the creditor the guaranties or securities which he has promised;

(3) When by his own acts he has impaired said guaranties or securities after their establishment, and when through a fortuitous event they disappear, unless he immediately gives new ones equally satisfactory;

(4) When the debtor violates any undertaking, in consideration of which the creditor agreed to the period;

(5) When the debtor attempts to abscond. (1129a)

Comment:

            1. Under para. 1, “insolvency” refers to mere failure to pay and not technical insolvency.

SECTION 3
Alternative Obligations

ARTICLE 1199. A person alternatively bound by different prestations shall completely perform one of them.

The creditor cannot be compelled to receive part of one and part of the other undertaking. (1131)

Article 1200. The right of choice belongs to the debtor, unless it has been expressly granted to the creditor.

The debtor shall have no right to choose those prestations which are impossible, unlawful or which could not have been the object of the obligation. (1132)

Article 1201. The choice shall produce no effect except from the time it has been communicated. (1133)

Article 1202. The debtor shall lose the right of choice when among the prestations whereby he is alternatively bound, only one is practicable. (1134)

Article 1203. If through the creditor's acts the debtor cannot make a choice according to the terms of the obligation, the latter may rescind the contract with damages. (n)

Article 1204. The creditor shall have a right to indemnity for damages when, through the fault of the debtor, all the things which are alternatively the object of the obligation have been lost, or the compliance of the obligation has become impossible.

The indemnity shall be fixed taking as a basis the value of the last thing which disappeared, or that of the service which last became impossible.

Damages other than the value of the last thing or service may also be awarded. (1135a)

Article 1205. When the choice has been expressly given to the creditor, the obligation shall cease to be alternative from the day when the selection has been communicated to the debtor.

Until then the responsibility of the debtor shall be governed by the following rules:

(1) If one of the things is lost through a fortuitous event, he shall perform the obligation by delivering that which the creditor should choose from among the remainder, or that which remains if only one subsists;

(2) If the loss of one of the things occurs through the fault of the debtor, the creditor may claim any of those subsisting, or the price of that which, through the fault of the former, has disappeared, with a right to damages;

(3) If all the things are lost through the fault of the debtor, the choice by the creditor shall fall upon the price of any one of them, also with indemnity for damages.

The same rules shall be applied to obligations to do or not to do in case one, some or all of the prestations should become impossible. (1136a)

Article 1206. When only one prestation has been agreed upon, but the obligor may render another in substitution, the obligation is called facultative.

The loss or deterioration of the thing intended as a substitute, through the negligence of the obligor, does not render him liable. But once the substitution has been made, the obligor is liable for the loss of the substitute on account of his delay, negligence or fraud. (n)

SECTION 4
Joint and Solidary Obligations

Article 1207. The concurrence of two or more creditors or of two or more debtors in one and the same obligation does not imply that each one of the former has a right to demand, or that each one of the latter is bound to render, entire compliance with the prestation. There is a solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity. (1137a)

Article 1208. If from the law, or the nature or the wording of the obligations to which the preceding article refers the contrary does not appear, the credit or debt shall be presumed to be divided into as many shares as there are creditors or debtors, the credits or debts being considered distinct from one another, subject to the Rules of Court governing the multiplicity of suits. (1138a)

Article 1209. If the division is impossible, the right of the creditors may be prejudiced only by their collective acts, and the debt can be enforced only by proceeding against all the debtors. If one of the latter should be insolvent, the others shall not be liable for his share. (1139)

Article 1210. The indivisibility of an obligation does not necessarily give rise to solidarity. Nor does solidarity of itself imply indivisibility. (n)

Article 1211. Solidarity may exist although the creditors and the debtors may not be bound in the same manner and by the same periods and conditions. (1140)

Article 1212. Each one of the solidary creditors may do whatever may be useful to the others, but not anything which may be prejudicial to the latter. (1141a)

Article 1213. A solidary creditor cannot assign his rights without the consent of the others. (n)

Article 1214. The debtor may pay any one of the solidary creditors; but if any demand, judicial or extrajudicial, has been made by one of them, payment should be made to him. (1142a)

Article 1215. Novation, compensation, confusion or remission of the debt, made by any of the solidary creditors or with any of the solidary debtors, shall extinguish the obligation, without prejudice to the provisions of article 1219.

The creditor who may have executed any of these acts, as well as he who collects the debt, shall be liable to the others for the share in the obligation corresponding to them. (1143)

Article 1216. The creditor may proceed against any one of the solidary debtors or 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. (1144a)

Article 1217. Payment made by one of the solidary debtors extinguishes the obligation. If two or more solidary debtors offer to pay, the creditor may choose which offer to accept.

He who made the payment may claim from his co-debtors only the share which corresponds to each, with the interest for the payment already made. If the payment is made before the debt is due, no interest for the intervening period may be demanded.

When one of the solidary debtors cannot, because of his insolvency, reimburse his share to the debtor paying the obligation, such share shall be borne by all his co-debtors, in proportion to the debt of each. (1145a)

Article 1218. Payment by a solidary debtor shall not entitle him to reimbursement from his co-debtors if such payment is made after the obligation has prescribed or become illegal. (n)

Article 1219. The remission made by the creditor of the share which affects one of the solidary debtors does not release the latter from his responsibility towards the co-debtors, in case the debt had been totally paid by anyone of them before the remission was effected. (1146a)

Article 1220. The remission of the whole obligation, obtained by one of the solidary debtors, does not entitle him to reimbursement from his co-debtors. (n)

Article 1221. If the thing has been lost or if the prestation has become impossible without the fault of the solidary debtors, the obligation shall be extinguished.

If there was fault on the part of any one of them, all shall be responsible to the creditor, for the price and the payment of damages and interest, without prejudice to their action against the guilty or negligent debtor.

If through a fortuitous event, the thing is lost or the performance has become impossible after one of the solidary debtors has incurred in delay through the judicial or extrajudicial demand upon him by the creditor, the provisions of the preceding paragraph shall apply. (1147a)

Article 1222. A solidary debtor may, in actions filed by the creditor, avail himself of all defenses which are derived from the nature of the obligation and of those which are personal to him, or pertain to his own share. With respect to those which personally belong to the others, he may avail himself thereof only as regards that part of the debt for which the latter are responsible. (1148a)

SECTION 5
Divisible and Indivisible Obligations

Article 1223. The divisibility or indivisibility of the things that are the object of obligations in which there is only one debtor and only one creditor does not alter or modify the provisions of Chapter 2 of this Title. (1149)

Article 1224. A joint indivisible obligation gives rise to indemnity for damages from the time anyone of the debtors does not comply with his undertaking. The debtors who may have been ready to fulfill their promises shall not contribute to the indemnity beyond the corresponding portion of the price of the thing or of the value of the service in which the obligation consists. (1150)

Article 1225. For the purposes of the preceding articles, obligations to give definite things and those which are not susceptible of partial performance shall be deemed to be indivisible.

When the obligation has for its object the execution of a certain number of days of work, the accomplishment of work by metrical units, or analogous things which by their nature are susceptible of partial performance, it shall be divisible.

However, even though the object or service may be physically divisible, an obligation is indivisible if so provided by law or intended by the parties.

In obligations not to do, divisibility or indivisibility shall be determined by the character of the prestation in each particular case. (1151a)

SECTION 6
Obligations with a Penal Clause

Article 1226. In obligations with a penal clause, the penalty shall substitute the indemnity for damages and the payment of interests in case of noncompliance, if there is no stipulation to the contrary. Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is guilty of fraud in the fulfillment of the obligation.

The penalty may be enforced only when it is demandable in accordance with the provisions of this Code. (1152a)

Article 1227. The debtor cannot exempt himself from the performance of the obligation by paying the penalty, save in the case where this right has been expressly reserved for him. Neither can the creditor demand the fulfillment of the obligation and the satisfaction of the penalty at the same time, unless this right has been clearly granted him. However, if after the creditor has decided to require the fulfillment of the obligation, the performance thereof should become impossible without his fault, the penalty may be enforced. (1153a)

Article 1228. Proof of actual damages suffered by the creditor is not necessary in order that the penalty may be demanded. (n)

Article 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable. (1154a)

Article 1230. The nullity of the penal clause does not carry with it that of the principal obligation.

The nullity of the principal obligation carries with it that of the penal clause. (1155)

Comments:

-        Read Teresita I. Buenaventura v. Metropolitan Bank and Trust Company, G.R. No. 167082, August 03, 2016

1. Verily,a penal clause is an accessory undertaking attached to a principal obligation. It has for its purposes, firstly, to provide for liquidated damages; and secondly, to strengthen the coercive force of the obligation by the threat of greater responsibility in the event of breach of obligation. Under Article 1226 of the Civil Code, a penal clause is a substitute indemnity for damages and the payment of interests in case of non-compliance, unless there is a stipulation to the contrary.

2. Difference between “stipulated monetary interest v. Stipulated penalty charge or “compensatory interest”.

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[1] G.R. No. 138814, April 16, 2009, citing Lawyer’s Journal, 31 January 1951, p. 47

[2] See Far Eastern Bank and Trust Co. v. CA, 241 SCRA 71 [1995]

[3] G.R. No. 193577, September 9, 2011

[4] Maybank Philippines, Inc. v. Spouses Oscar and Nenita Tarrosa, G.R. No. 213014, October 14, 2015

[5] See Republic of the Philippines v. Mega Pacific e Solutions, Inc. et al., G.R. No. 184666, June 27, 2016

[6] 359 Phil. 820 (1998)

[7] G.R. NO. 168782, October 10, 2008, 568 SCRA 376

[8] G.R. No. 170452, August 13, 2008, 562 SCRA 146

[9] Anchor Saving Bank v. Furigay et al, G.R. No. 191178, March 13, 2013

[10] Heirs of the Late Justice J.B.L. Reyes v. Court of Appeals, 338 SCRA 282 (2000); Pangilinan v. Court of Appeals, 279 SCRA 590 (1997); Jison v. Court of Appeals, 164 SCRA 339