oblicon: notes/transcriptions 2

Central Bank Circular 905

- suspended or rendered the Usury Law inoperative

(Jan. 1, 1983; Security Bank vs. RTC)

- parties can now agree on any interest rate

Art. 1306

-The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to

law,

morals,

good customs,

public order, or public policy. (Liberality principle/freedom to stipulate provisions)

Cauton vs CA

The stipulated interest rates are illegal if they are unconscionable.

Mendel vs Ca : 5.5% per month

Solangon vs. Slazar: 6% per month

Moratory

-accrues on the date stipulated in the contract

Compensatory

- accrues on extrajudicial or on judicial demand (if no demand letter was sent)

Eastern Shipping Lines, Inc. v CA

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extra judicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.

Art. 2212
-Interest due shall earn legal interest from the time it is judicially demanded, although the obligation may be silent upon this point.

David vs CA       

In cases where no interest had been stipulated by the parties, no accrued conventional interest could further earn interest (compound interest) upon judicial demand.

1176- Presumptions

Recision

Art. 1191
 -  based on breach of the obligation/ faith

-      For reciprocal obligations

-      Also called resolution

-      Contemplates judicial action – court determines if there are grounds to terminate the contract

Exceptions:

*extra judicial rescission is stipulated in the contract/ agreed upon by the parties

* there is no delivery (transfer of ownership) yet

!!!Gen. rule: if property has been delivered, rescission needs judicial action

 If seller forces defaulting obligor to give up property, Grave coercion would be committed.

Art. 1380 – based on economic injury – somebody considered by the law as incapacitated to enter into a contract, minors or wards,  is capacitated by somebody else  (ex. Guardian).

Ex. Guardian sells his ward’s property for a price 50% lower than the market value.

Ward suffers a Lecion (nalugi)  – if > than 25%

Can be rescinded by guardian if guardianship has been terminated

Can be rescinded by ward if he is of age

Important rules

1.       Non conjuctive

Injured party can ask for/ choose between specific performance (+damages) or rescission (+damages), not both.

2.       Rescission in 1191 can only be availed if the breach is substantial. If the breach is slight, the contract can’t be cancelled.

DBP vs CA

Regular and substantial payments were made. Late payments were accepted without protest. The breach of obligation was slight.

Central Bank vs. Bichara

Non-payment of purchase price at the stipulated date without a valid and good reason is a substantial breach

3.       Rescission can only be demanded if the injured party is ready and able to comply with his obligation

4.       Rescission abrogates the contract from its inception and requires restitution of benefits received

What has been delivered must be returned

As if no contract has been entered into

5.       Rescission can be carried out only when the one demanding can return whatever he may be obliged to restore

Lim vs CA

Only the injured party can exercise rescission under 1191.

Golden Road vs CA

Ernest money should be returned since it forms part of the purchase price.

Unless there is a forfeiture provision in the contract. (In case of.... by reason of fault of the buyer... the [ernest money amount] the will be forfeited in favor of the seller)

(Article 1182)

Potestative – depends upon the will of one of the contracting parties.

Potestative on the part of the debtor.

If suspensive – the obligation is VOID. Even if the condition is fulfilled, the obligation is not demandable.

If resolutory– the obligation is VALID.

Potestative on the part of the creditor.

The obligation is valid whether the condition is suspensive or resolutory.

(Article 1183)
If the condition is not to do an impossible thing, it shall be deemed as not having been agreed upon. Thus, the obligation is immediately demandable.

(Article 1187)
Effect of fulfillment of suspensive condition  GENERAL RULE:

            The effect of the fulfillment of the suspensive condition retroacts to the day of the constitution of the obligation.

 EXCEPTIONS: There shall be no retroactive effect with respect to the fruits and interest as follows:

1.      In reciprocal obligations, the fruits and interest shall be deemed to have been mutually compensated (each party shall keep the fruits and interest received by him prior to the fulfillment of the condition).

2.      In unilateral obligations, the debtor keeps the fruits and interests received before the fulfillment of the condition.

(Article 1888)
Rights of the parties before the fulfillment of the condition

§  Creditor - He may bring the appropriate actions for the preservation of his rights, such as registering his claim with the Register of Deeds, if appropriate, to notify all third persons.

§  Debtor - He may recover what he has paid by mistake.

(Article 1189)

Rules in cases of loss, deterioration or improvement of determinate thing before the fulfillment of the suspensive condition

Loss of the thing

• Without debtor’s fault – obligation is extinguished.
• With debtor’s fault – debtor is obliged to pay damages.

A thing is considered lost when it perishes, or goes out of commerce or disappears in such a way that its existence is unknown or cannot be recovered.

2. Deterioration of the thing
• Without debtor’s fault – impairment shall be borne by the creditor.
• With debtor’s fault – the creditor may choose between the following remedies:

                                                              i.      Rescission  + damages

                                                            ii.      Fulfillment  + damages

(Article 1991)

remedies are alternative, not cumulative subject, however, to the exception that he may seek rescission even after he has chosen fulfillment, if the latter should become impossible.

(Article 1193)

A day certain is that which must necessarily come although it may not be known when. An example is the death of a person, which will necessarily come.

Period distinguished from condition

1. As to fulfillment

A condition is an event that may or may not happen; a period is an event that must necessarily come, at a date known beforehand, or at a time that cannot be determined.

2. As to time

A condition may refer to the future or to a past event unknown to the parties; a period always refers to the future.

3. As to influence on the obligation

A condition causes an obligation to arise or to cease; a period merely fixes the time for the efficaciousness of an obligation.

4. As to effect, when left to debtor’s will

A period, the duration of which depends upon the will of the debtor, empowers the court to fix the duration thereof, while a condition, which depends upon the sole, will of the debtor, makes the obligation null and void.

5. As to retroactivity of effects

The arrival of the period does not produce retroactive effect, while the happening of a condition has retroactive effects.

(Article 1196)

Presumption as to who has the benefit of the period

Therefore, the debtor cannot be compelled to perform, and the creditor cannot be compelled to accept performance, before the term expires.

(Article 1198)

When debtor loses his right to make use of the period if it is his benefit; the creditor may demand immediate payment:

1. When he becomes insolvent, unless he gives a guarantee or security for the debt.
2. When he fails to furnish the guaranties or securities that he has promised.
3. When he impairs the said guaranties or securities by his own acts, or when through fortuitous event they disappear, unless he gives new ones equally satisfactory.
4. When he violates any undertaking in consideration of which the creditor agreed to the period.
5. When he attempts to abscond.