Professional Documents
Culture Documents
Oblicon Reviewer Summary The Law On Obligations and Contracts
Oblicon Reviewer Summary The Law On Obligations and Contracts
page 3
thing (that is one which is specific; a thing identified
yet the owner of the property before the delivery.
by its individuality) which an obligor is supposed to
deliver to another.
� ACTUAL DELIVERY – actual delivery of a thing from the
• Reason: the obligor cannot take care of the whole
hand of the grantor to the hand of the grantee (presonally),
class/genus
or manifested by certain possessory acts executed by the
grantee with the consent of the grantor (realty).
DUTIES OF DEBTOR:
� CONSTRUCTIVE TRADITION – representative of symbolical
in essence and with intention to deliver the ownership.
• Preserve or take care of the things due.
𝖮 DILIGENCE OF A GOOD FATHER – a good father
FRUITS:
does not abandon his family, he is always ready
1. NATURAL – spontaneous products of the soil,
to provide and protect his family; ordinary care
the young and other products of animals;
which an average and reasonably prudent man
2. INDUSTRIAL – produced by lands of any
would do.
cultivation or labor;
𝖮 ANOTHER STANDARD OF CARE – extraordinary
3. CIVIL – those derived by virtue of juridical relation.
diligence provided in the stipulation of parties.
𝖮 FACTORS TO BE CONSIDERED – diligence
1165. When what is to be delivered is a determinate
depends on the nature of obligation and
thing, the creditor … may compel the debtor to make
corresponds with the circumstances of the
delivery. If the thing is indeterminate or generic, he
person, time, and place.
may ask that the obligation be complied with at the
expense of the debtor. If the obligor delays or has
** Debtor is not liable if his failure to deliver the thing is due
promised to deliver the same ting to two or more
to fortuitous events or force majeure… without negligence or
persons who do not have the same interest, he shall be
fault in his part.
responsible for any fortuitous event until he has
effected the delivery.
• Deliver the fruits of a thing
• Deliver the accessions/accessories
DETERMINATE THING
• Deliver the thing itself
● something which is susceptible of
• Answer for damages in case of non-fulfillment or breach
particular designation or specification;
● obligation is extinguished if the thing is lost due to
1164. The creditor has a right to the fruits of the
fortuitous events.
thing from the time the obligation to deliver it arises.
INDETERMINATE THING
However, he shall acquire no real right over it until
● something that has reference only to a class or
the same has been delivered to him.
genus;
● obligation to deliver is not so extinguished by
REAL RIGHT (jus in re) – right pertaining to person over a
fortuitous events.
specific thing, without a passive subject individually
determined against whom such right may be personally
REMEDIES FOR FAILURE OF DELIVERY (determinate thing)
enforced.
1. Complaint for specific performance – an action to
- a right enforceable against the whole world
compel the fulfillment of the obligation.
2. Complaint for rescission of the obligation – action
PERSONAL RIGHT (jus ad rem) – a right pertaining to a
to rescind
person to demand from another, as a definite passive
3. Complaint for damages – action to claim for
subject, the fulfillment of a prestation to give, to do or not to
compensation of damages suffered
do.
- a right enforceable only against a definite person or
• As a general rule, “no person shall be responsible for
group of persons.
those events which could not be foreseen, or which,
though foreseen, are inevitable, except:
• Before the delivery, the creditor, in obligations to
1. in cases expressly specified by the law
give, has merely a personal right against the debtor
2. when it is stipulated by the parties
– a right to ask for delivery of the thing and the
3. when the nature of the obligation
fruits thereof.
requires assumption of risk
• Once the thing and the fruits are delivered, then
• An indeterminate thing cannot be object of
he acquires a real right over them.
destruction by a fortuitous event because genus
• Ownership is transferred by delivery which could be
never perishes.
either actual or constructive. (Art. 1477) �
• The remedy of the buyer when there is no delivery
1166. The obligation to give a determinate thing
despite demand is to file a complaint for “SPECIFIC
includes that of delivering all its accessions and
PERFORMANCE AND DELIVERY” because he is not
page 4
accessories, even though they may not have been
mentioned.
ORDINARY DELAY – mere failure to perform an obligation at
ACCESSIONS – fruits of the thing or additions to or
the appointed time.
improvements upon the principal
LEGAL DELAY (DEFAULT) – tantamount to non-fulfillment of
- those which are naturally or artificially attached to the
the obligation and arises after an extrajudicial or judicial
thing
demand was made upon the debtor.
ACCESSORIES – things included with the principal for the
KINDS OF DEFAULT:
latter’s embellishment, better use, or completion
a) MORA SOLVENDI – delay on the
part of the debtor to fulfill his
obligation;
When does right to fruits arise? – from the time the obligation REQUISITES:
to deliver arises 1. failure of the obligor to perform obligation on
● Conditional – from the moment the condition the DATE agreed upon;
happens 2. demand (j/ej) by the creditor;
● With a term/period – upon the expiration of the 3. failure to comply with such demand
term/period
● Simple – from the perfection of the contract EFFECTS:
1) debtor – liable for damages and
1167. If a person obliged to do something fails to do it, interests
the same shall be executed at his cost. This same rule 2) debtor – liable for the loss of a thing
shall be observed if he does it in contravention of the due to a fortuitous event
tenor of the obligation … it may be decreed that what
has been poorly done be undone. KINDS:
1) mora solvendi ex re – default in real
THREE SITUATIONS: obligations (to give)
a) Debtor’s failure to perform an obligation 2) mora solvendi ex persona – default in
𝖮 creditor may do the obligation, or by another, personal obligations (to do)
at the expense of the debtor;
𝖮 recover damages b) MORA ACCIPIENDI – delay on the
b) Performance was contrary to the terms agreed part of the creditor to accept the
upon performance of the obligation;
𝖮 order of the court to undo the same at the Effects:
expense of the debtor 1. creditor – liable for damages
c) Performance in a poor manner 2. creditor – bears the risk of loss of the thing
𝖮 order of the court to undo the same at the 3. debtor – not liable for interest from the time of
expense of the debtor creditor’s delay
4. debtor – release himself from the obligation
1168. When the obligation consists in NOT DOING
and the obligor does what has been forbidden him, it c) COMPENSATIO MORAE – delay of the
shall also be undone at his expense. obligors in reciprocal obligation.
Effect: the default of one compensates the default of
1169. Those obliged to deliver or to do something the other; their respective liabilities shall be offset
incur in delay from the time the obligee judicially or equitable.
extrajudicially demands from them the fulfillment of
their obligation. ● Default / Delay in negative obligation is not
However, the demand by the creditor shall not be possible. (In negative obligation, only fulfillment and
necessary in order that delay may exists: violation are possible)
• When the law or obligation so expressly declares; 1170. Those who in the performance of their
• When from the nature of the contract, time us obligations are guilty of fraud, negligence, or delay,
the essence and motivating factor for its and those who in any manner contravene the tenor
establishment; thereof, are liable for damages.
• When demand would be useless (prestation
is impossible); FRAUD (dolo) – deliberate intentional evasion of the faithful
• In reciprocal obligations, from the moment one fulfillment of an obligation;
of the parties fulfills his obligation; NEGLIGENCE (culpa or fault) – voluntary act or omission of
• When the debtor admits he is in default diligence, there being no malice, which prevents the normal
page 5
fulfillment of an obligation; NATURE OF Direct, Incidental to the
DELAY (mora) – default or tardiness in the performance of an NEGLIGENCE substantive and performance of the
obligation after it has been due and demandable; independent obligation.
CONTRAVENTION OF TERMS OF OBLIGATION (violatio)– GOOD FATHER OF Complete and Not complete and
violation of terms and conditions stipulated in the obligation; THE FAMILY proper defense proper defense in the
this must not be due to a fortuitous event. DEFENSE (parents, selection of
guardian, employees.
employers)
1171. Responsibility arising from fraud is demandable PRESUMPTION OF No presumption There is presumption
in all obligations. Any waiver of an action for future NEGLIGENCE – injured party – defendant must
fraud is void. must prove prove that there was
negligence of the no negligence in the
• To allow such waiver will necessarily render the defendant. carrying out of the
obligatory force of contracts illusory. terms of the contract.
• The law does not prohibit waiver of an action
for damages based on fraud already committed.
1173. The fault or negligence of the obligor consists in
• Any deliberate deviation from the normal way of
the omission of that diligence which is required by the
fulfilling the obligation may be a proper basis
nature of the obligation and corresponds with the
for claim for damages against the guilty party.
circumstances of the persons, of he time and of the
place… If the law or contract does not state the
INCIDENTAL FRAUD – committed in the performance of an
diligence which is to be observed in the performance,
obligation already existing because of a contract.
that which is expected if a good father of a family shall
CAUSAL FRAUD – employed in the execution of contract in
be required.
order to secure consent; remedy is annulment bec of vitiation
of consent.
FRAUD distinguished from NEGLIGENCE
1172. Responsibility arising from negligence in the FRAUD NEGLIGENCE
performance of every kind of obligation is also There is deliberate intention There is no deliberate
demandable, but such liability may be regulated by the to cause damage. intention to cause damage.
courts, according to circumstances. Liability cannot be Liability may be mitigated.
mitigated.
Court’s discretion because: Waiver for future fraud is Waiver for future negligence
(a) negligence depends upon the void. may be allowed in certain
circumstances of a case – good or bad cases:
faith of the obligor may be considered 1. gross – can never be
as well as the conduct or misconduct of excused in advance;
the obligee; against public policy
(b) it is not as serious as fraud. 2. simple – may be
excused in certain cases
Negligence – lack of foresight or knowledge
Imprudence – lack of skill or precaution DILIGENCE – the attention and care required of a person in a
given situation and is opposite of negligence.
TEST OF NEGLIGENCE
Did the defendant, in doing the alleged negligent act, use the NEGLIGENCE – consists in the omission of that diligence
reasonable care and caution which an ordinary prudent man which is required by the nature of the particular obligation
would have used in the same situation? and corresponds with the circumstances of the persons, of the
time, and of the place.
TWO TYPES OF NEGLIGENCE:
KINDS of DILIGENCE:
Basis 1. Culpa 2. Culpa 1. DILIGENCE OF A GOOD FATHER – a good father
Aquiliana Contractual does not abandon his family, he is always ready
(Quasi-delict) (Breach of to provide and protect his family; ordinary care
contract) which an average and reasonably prudent man
DEFINITION Negligence Negligence in the would do.
between parties performance of 2. Diligence required by the law governing the
not so related by contractual obligation particular obligation
pre-existing 3. Diligence stipulated by the parties
contract
page 6
1174. Except in cases expressly specified by the law, or
USURY LAW – makes the usurers criminally liable if the
when it is otherwise declared by stipulation, or when
interest charged on loans are more that the limit prescribed
the nature of the obligation requires the assumption of
by law.
risk, no person shall be responsible for those events
• This law is repealed – Circular No. 905 of the
which could not be foreseen, or which, though
Central Bank has expressly removed the interest
foreseen, were inevitable.
ceilings prescribed by the USURY LAW.
FORTUITOUS EVENT – an occurrence or happening which
1176. The receipt of the principal by the creditor
could not be foreseen or even if foreseen, is inevitable;
without reservation with respect to the interest, shall
absolutely independent of human intervention; act of God.
give rise to the presumption that said interest has been
paid.
FORCE MAJEURE - an event caused by the legitimate or
The receipt of a later installment of a debt without
illegitimate acts of persons other than the obligor; there is
reservation as to prior installments, shall likewise raise
human intervention.
the presumption that such installments have been paid.
● conditions which exempt obligor from liability:
• These are mere presumptions.
1. event is independent of the will of obligor
• To be sure – write the interest and the dates
2. it must either be unforeseeable or unavoidable
covered by such payment in the receipt.
3. occurrence must render it impossible for the
debtor to fulfill the obligation in a normal matter
1177. The creditors, after having pursued the property
4. the obligor is free of partiipation in injury to creditor.
in possession of the debtor to satisfy their claims, may
exercise all the rights and bring all the actions of the
REQUISITES OF FORTUITOUS EVENT:
latter for the same purpose, save those which are
1. Independent of the human will (or at least of
inherent in his person; they may also impugn the acts
the obligor’s)
which the debtor may have done to defraud them.
2. Unforeseen or unavoidable
3. Of such character as to render it impossible for
REMEDIES AVAILABLE TO CREDITORS FOR THE
the obligor to comply with his obligation in a
SATISFACTION OF THEIR CLAIMS:
normal manner
1. Exact fulfillment with right to damages
4. Obligor – free from any
2. Exhaustion of the debtor’s properties still in his
participation/aggravation of the injury to
possession – writ of attachment (before
the obligee (no negligence or imprudence)
judgment) or writ of execution (for final judgment
not yet executed)
EXEPTIONS:
3. ACCION SUBROGATORIA – an action where the
1. When it is expressly stipulated that he shall be
creditor whose claims had not been fully
liable even if non-performance of the obligation is
satisfied, may go after the debtors (3rd person) of
due to fortuitous events;
the defendant debtor.
2. When the nature of the obligation requires
4. ACCION PAULIANA – an action where the creditor
the assumption of risk;
files an action in court for the RESCISSION of acts or
3. When the obligor is in delay;
contracts entered into by the debtor designed to
4. When the obligor has promised the same thing
defraud the former.
to two or more persons who do not have the
same interest;
1178. Subject to the laws, all rights acquired in virtue
5. When the possessor is in bad faith and the thing
of an obligation are transmissible, if there has been no
lost or deteriorated due to fortuitous event;
stipulation to the contrary.
6. When the obligor contributed to the loss of the thing.
EXCEPTIONS:
1175. Usurious transactions shall be governed by
a) Those not transmissible by their nature like
special laws.
purely personal rights;
b) Those not transmissible by provision of law;
USURY – contracting for or receiving interest in excess of the
c) Those not transmissible by stipulation of parties.
amount allowed by law for the loan or use of money, goods,
etc.
CHAPTER 3
DIFFERENT KINDS OF OBLIGATIONS
SIMPLE LOAN – one of the parties delivers to another, money
or other consumable thing upon the condition that the same
Section 1 – Pure and Conditional Obligations
amount of the same kind and quality shall be paid.
1179. Every obligation whose performance does not
page 7
depend upon a future or uncertain event, or upon a
constitutes the condition; if such condition does not take
past event unknown to the parties, is demandable at
place, it would be as of the conditional obligation had never
once.
existed.
Every obligation which contains a resolutory condition
(e.g. promise to give a car after graduating from law school
shall also be demandable, without prejudice to the
as cum laude)
effects of the happening of the event.
Resolutory Condition – the rights and obligations already
CONDITION – an event which is both future and uncertain
existing are under threat of extinction upon the happening or
upon which the existence or extinguishment of an obligation
fulfillment of such condition.
is made to depend.
(e.g. donation by reason of marriage – the celebration of
marriage is a resolutory condition; if the marriage did not
PURE OBLIGATION – an obligation which does not contain
push through, the donation may be revoked)
any condition or term upon which the fulfillment is made to
depend; immediately demandable by the creditors and the
1182. When the fulfillment of the condition depends
debtor cannot be excused from not complying with his
upon the sole will of the debtor, the conditional
prestation.
obligation shall be void. If it depends upon chance or
upon the will of a third person, the obligation shall take
CONDITIONAL OBLIGATION – an obligation subject to a
effect in conformity with the provisions of this Code.
condition.
a) Suspensive Obligation – its fulfillment gives
• Applies only to suspensive conditions.
rise to an obligation; the demandability of the
obligation or the effectivity of the contract can
take place only after the condition has been
3 KINDS OF CONDITIONS UNDER THIS ARTICLE:
fulfilled.
1. POTESTATIVE – a suspensive condition
b) Resolutory Obligation – its happening
which depends upon the will of one of the
extinguishes the obligation which is
contracting parties = if at the sole will of
already existing;
the debtor, it is void; if at the creditor’s, still
valid. this is to prevent the establishment of
1180. When the debtor binds himself to pay when his
illusory obligations.
means permit him to do so, the obligation shall be
2. CASUAL – the condition depends upon
deemed to be one with a period, subject to the
chance or the will of a third person;(i.e.
provisions of Article 1197.
cellphone warranty)
3. MIXED – the condition depends partly upon
• Speaks of a period depending on the will of the
the will of the parties and partly upon
DEBTOR. If its purpose is to delay, immediate
chance or the will of a third person;
action is allowed. The court fixes the terms.
(example ni Atty. De Chavez: passing the
bar)
PERIOD – a future and certain event upon the arrival of
which, the obligation subject to it either arises or is
1183. Impossible conditions, those contrary to good
extinguished.
customs or public policy and those prohibited by law
shall annul the obligation which depends upon them. If
INDICATIONS OF A TERM OR PERIOD:
the obligation is divisible, that part thereof which is not
When the debtor binds himself to pay –
affected by the impossible or unlawful condition shall
• when his means permit him to do so
be valid.
• little by little
The condition not to do an impossible thing shall be
• as soon as possible
considered as not having been agreed upon.
• from time to time
• as soon as I have the money
POSSIBLE CONDITION – if it is capable of realization or
• in partial payment
actualization according to nature, law, public policy or good
• when in the position to pay
customs.
1181. In conditional obligations, the acquisition of
2 KINDS OF IMPOSSIBLE CONDITIONS:
rights, as well as the extinguishment or loss of those
1. Physically Impossible – cannot exist or cannot be done in
already acquired, shall depend upon the happening of
its nature;
the event which constitutes the condition.
2. Legally Impossible – contrary to law, good customs, or
public policy.
Suspensive Condition – the acquisition of rights by the
creditor depends upon the happening of the event which
When a conditional obligation is VOID – impossible conditions
page 8
annul the obligation which depends upon them; the obligor knows 1184 1185
his obligation cannot be fulfilled, he has no intention to comply with (POSITIVE SUSPENSIVE) (NEGATIVE SUSPENSIVE)
his obligation. Jose obliges himself to give Jose obliges himself to give the
the pregnant woman Maria pregnant woman Maria P5000 if
When a conditional obligation is VALID – if the condition is P5000 if she would give birth she would NOT give birth on
negative (not to do an impossible thing), it is disregarded and on or before December 30. December 30.
the obligation is rendered pure and valid. a. Jose is LIABLE if Maria a. Jose is NOT LIABLE if Maria
gives birth on or before gives birth on December 30.
Only the affected obligation is void, if the obligation is December 30.
divisible, and the part thereof not affected by the impossible b. Jose is NOT LIABLE if b. Jose is LIABLE if Maria DID
condition is valid. Maria gives birth after NOT give birth on December 30
December 30. – if Maria gives birth BEFORE or
Only the condition is void if there is already a pre-existing AFTER December 30.
obligation and it does not depend upon the fulfillment of the c. If Maria would have a c. If Maria would have a
condition which is impossible. miscarriage before December miscarriage before December
30, the obligation is 30, the obligation is deemed
1184. The condition that some event happen at a EXTINGUISHED. FULFILLED.
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.
1186. The condition shall be deemed fulfilled when the
obligor voluntarily prevents its fulfillment.
Positive condition – refers to the fulfillment of an event or
- This provision speaks of the DOCTRINE OF
performance of an act
CONSTRUCTIVE FULFILLMENT
Negative condition – refers to the non-fulfillment or non-
- REQUISITES:
performance of an act.
1. The condition is SUSPENSIVE;
2. The obligor ACTUALLY PREVENTS the fulfillment
POSITIVE SUSPENSIVE CONDITION
of the condition;
The obligation is extinguished:
3. He acts VOLUNTARILY.
1. As soon as the TIME EXPIRES without the
event taking place;
• Malice or fraud is not required, as long as his
2. As soon as it has become certain that the EVENT
purpose is to prevent the fulfillment of the
WILL NOT TAKE PLACE although the time specified
condition.
has not yet expired.
• No person shall profit by his own wrong.
** TIME is the condition – should happen for the obligation to
1187. The effects of a conditional obligation to give,
extinguish.
once the condition has been fulfilled, shall retroact to
the day of the constitution of the obligation.
1185. The condition that some event will not happen at
Nevertheless, when the obligation imposes reciprocal
a determinate time shall render the obligation effective
prestations upon the parties, the fruits and interests
from the moment the time indicated has elapsed, or if it
during the pendency of the condition shall be deemed
has become evident that the event cannot occur.
to have been mutually compensated. If the obligation
If no time has been fixed, the condition shall be
is unilateral, the debtor shall appropriate the fruits and
deemed fulfilled at such time as may have probably
interests received, unless from the nature and
been contemplated, bearing in mind the nature of the
circumstances of the obligation it should be inferred
obligation.
that the intention of the person constituting the same
was different.
** This is a condition of non-happening of a future event.
In obligations to do and not to do, the courts shall
determine, in each case, the retroactive effect of the
The obligation shall become effective and binding:
condition that has been complied with.
a) From the moment the time indicated has elapsed
without the event taking place;
• Applies only to fulfilled suspensive conditions.
b) From the moment it has become evident that the
• Retroactive statute
event cannot occur, although the time indicated
• The effects of the obligation is deemed to commence
has not yet elapsed.
not from the fulfillment of the obligation but from
the day of its constitution (similar to the legitimation
1184 -vs- 1185
of a natural child)
page 9
• The article does not require the delivery of fruits or
1190. When the conditions have for their purpose the
payment of interests accruing (accumulating)
extinguishment of an obligation to give, the parties,
before the fulfillment of the suspensive condition.
upon the fulfillment of said conditions, shall return to
each other what they have received.
• Obligations to do or not to do – the retroactive
In case of the loss, deterioration or improvement of
effect shall be determined by the court using its
the thing, the provisions which, with respect to the
sound discretion without disregarding the intentions
debtor, are laid down in the preceding article shall be
of the parties.
applied to the party who is bound to return.
As for the obligations to do and not to do, the
1188. The creditor may, before the fulfillment of the
provisions of the second paragraph of Article 1187
condition, bring the appropriate actions for the
shall be observed as regards the effect of the
preservation of his right.
extinguishment of the obligation.
The debtor may recover what during the same time he
has paid by mistake in case of a suspensive condition.
• Refers to the fulfillment of a resolutory condition.
• When the resolutory condition happened,
Preservation of the rights of CREDITOR – the debtor may
the obligation is considered as if it did not
render nugatory (not serious, ignore) the obligation upon the
exist.
happening of the obligation.
• The parties are bound to return or restore whatever
● Action for prohibition restraining the alienation of
they have received from each other – “reciprocal
the
restitution”
thing pending the happening of the suspensive
• Donation by reason of marriage – if the marriage
condition;
does not happen, such donation should be
● Action to demand security if the debtor has become
returned to the donor.
insolvent;
• Loss, deterioration and improvement – governed by
● Action to set aside alienations made by the debtor
1189.
in fraud of creditors;
• In obligations to do and not to do, the courts shall
● Actions against adverse possessors to interrupt the
determine, in each case, the retroactive effect of
running prescriptive period.
the condition that has been complied with.
● To have his rights annotated in the registry.
1191. The power to rescind obligations is implied in
Rights of the DEBTOR – entitled to recover what has been
reciprocal ones, in case one of the obligors should not
paid by mistake prior to the happening of the suspensive
comply with what is incumbent upon him.
condition.
The injured party may choose between the fulfillment
and the rescission of the obligation, with the payment
1189. When the conditions have been imposed with
of damages in either case. He may also seek rescission,
the intention of suspending the efficacy of an
even after he has chosen fulfillment, if the latter should
obligation to give, the following rules shall be observed
become impossible.
in case of the improvement, loss or deterioration of the
The court shall decree the rescission claimed, unless
thing during the pendency of the condition:
there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights
LOSS
of third persons who have acquired the thing, in
(1) debtor without fault – obligation
accordance with Articles 1385 and 1388 and the
is extinguished
Mortgage Law.
(2) debtor with fault – obligation to pay
damages
RECIPROCAL – arise from same causse; each is a debtor and
creditor of the other
DETERIORATION
1. debtor without fault – impairment is RESCISSION – resolution or cancellation of the contract
to be borne by the creditor • Applies only to reciprocal obligations where two
2. debtor with fault – creditor chooses: parties are mutually debtor and creditor of each
rescission of obligation, fulfillment, other in the same transaction. The cause must be
indemnity identical ad the obligations must arise
simultaneously.
IMPROVEMENT • The party who can demand rescission should be the
1. by nature or time – improvement: inure to the party who is ready, willing, and able to comply with
benefit of the creditor his own obligations while the other is not capable to
2. at the expense of the debtor – granted to perform his own.
the usufructuary
REMEDIES:
page 10
1. Specific performance or fulfillment of obligation with Term – length of time sure to come
damages; Condition – fact or event uncertain to come
2. Rescission of contract with damages.
Basis Period/Term Condition
Effect of rescission: the parties must surrender whatever they 1. TIME Always refers to Can refer to past
have received from the other, and the obligation to pay is FUTURE events unknown to
extinguished. the parties
2. FULFILLMENT Sure to happen at May or may not
If there is an express stipulation of automatic rescission an exact date or happen.
between parties – such resolution shall take place only after indefinite time but
the creditor has notified the debtor of his choice of rescission sure to come.
subject to judicial scrutiny. 3. INFLUENCE Merely fixes the May cause the arising
time for the or cessation of the
1192. In case both parties have committed a breach of demandability or obligation.
the obligation, the liability of the first infractor shall be performance of
equitably tempered by the courts. If it cannot be obligation.
determined which of the parties first violated the
contract, the same shall be deemed extinguished, and
REQUISITES:
each shall bear his own damages.
3. Future
4. Certain, sure to come
FIRST INFRACTOR KNOWN
5. Physically or legally possible
The liability of the first infractor should be equitably reduced.
– equitably offset each other’s damages.
1194. In case of loss, deterioration or improvement of
the thing before the arrival of the day certain, the rules
FIRST INFRACTOR CANNOT BE DETERMINED
in Article 1189 shall be observed.
The court shall declare the extinguishment of the obligation
and each shall bear his own damages.
1195. Anything paid or delivered before the arrival of
the period, the obligor being unaware of the period or
Section 2 – Obligations with a Period
believing that the obligation has become due and
demandable, may be recovered, with the fruits and
1193. Obligations for whose fulfillment a day certain
interests.
has been fixed, shall be demandable only when that
day comes.
• The payment or delivery is done before the arrival of
Obligations with a resolutory period take effect at once,
the period.
but terminate upon arrival of the day certain.
A day certain is understood to be that which must
CONSEQUENCES:
necessarily come, although it may not be known when.
1. If he was not aware of the period or he
If the uncertainty consists in whether the day will come
believes that the obligation has become
or not, the obligation is conditional, and it shall be
due and demandable – he can recover what
regulated by the rules of the preceding Section.
he paid or delivered including fruits and
interests;
PERIOD / TERM – consists in a space or length of time upon
2. If he was aware and he paid voluntarily –
the arrival of which, the demandability or the extinguishment
he cannot recover the delivery made; it is
of an obligation is determined; it may be definite (exact date
deemed a waiver of the benefit of the term
or time is known) or indefinite (arrival of date is unknown but
and the obligation is considered already
sure to come).
matured.
- Future + Certain event
• The presumption is that the debtor knew that the
GENERAL CLASSIFICATIONS:
debt was not yet due. He has the burden of
a) EX DIE / SUSPENSIVE PERIOD – from a day
proving that he was unaware of the period.
certain give rise to the obligation;
suspensive effect.
1196. Whenever in an obligation a period is
b) IN DIEM / RESOLUTORY PERIOD – arrival of a
designated, it is presumed to have been established for
term certain terminated the obligation;
the benefit of both the creditor and the debtor, unless
resolutory effect.
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.
page 11
• PRESUMPTION: Obligation with a period is for the
• If the obligation does not state and intend a period,
benefit of both the creditor and debtor.
the court is not authorized to fix a period.
• EXCEPTION: when it appears that the period is for
• The court must fix the duration of the period to
the benefit of one or the other
prevent the possibility that the obligation may never
be fulfilled or to cure a defect in a contract whereby
• This cannot apply when the court was authorized by
it is made to depend solely upon the will of one of
the parties to fix a reasonable term.
the parties.
• The benefit of the term may be the subject
Court cannot fix the period:
of stipulation of the parties.
1. If there is a period agreed upon by the
1. Term is for the benefit of the debtor alone –
parties and it has already lapsed or expired.
he cannot be compelled to pay
2. From the very moment the parties give
prematurely, but he can if he desires to do
their acceptance and consent to the period
so.
fixed by the court, it becomes a law
- Example: A obliges himself to pay B within 5 years. A
governing their contract.
cannot be compelled to pay prematurely, but he can pay
anytime within 5 years (A will benefit because he can pay
1198. The debtor shall lose every right to make use of
anytime he wants as long as it is within 5 years; B will
the period:
not benefit from the interests if A decides to pay early).
(1) When after the obligation has been contracted,
2. Term is for the benefit of the creditor – He
he becomes insolvent, unless he gives a guaranty or
may demand fulfillment even before the
security for the debt;
arrival of the term but the debtor cannot
(2) When he does not furnish to the creditor
require him to accept payment before the
the guaranties or securities which he has
expiration of the stipulated period.
promised;
- Example: A borrows money from B and is obliged to make
(3) When by his own acts he has impaired said
the payment on December 5. B may compel A to make the
guaranties or securities after their establishment, and
payment before December 5, but A may not compel B to
when through a fortuitous event they disappear,
receive the payment before December 5 (B will benefit from
unless he immediately gives new ones equally
the interests that will accrue before December 5).
satisfactory;
(4) When the debtor violates any undertaking,
• The creditor may have reasons other than the
in consideration of which the creditor agreed to
maturity of interest, that’s why, unless the creditor
the period;
consents, the debtor has no right to accelerate the
(5) When the debtor attempts to abscond.
time of payment even if the premature tender
includes an offer to pay the principal and interest
The period is disregarded and the obligation becomes pure
in full.
and immediately demandable: [IGIVA]
1197. If the obligation does not fix a period, but from
• [I] When debtor becomes insolvent;
its nature and the circumstances it can be inferred that
• The insolvency need not be judicially
a period was intended, the courts may fix the duration
declared. It is sufficient that debtor could
thereof.
not pay his debts due to lack of money or
The courts shall also fix the duration of the period
funds.
when it depends upon the will of the debtor.
• [G] When the debtor does not furnish guaranties or
In every case, the courts shall determine such period
securities;
as may under the circumstances have been probably
• [I] When guaranties or securities given have been
contemplated by the parties. Once fixed by the courts,
impaired or have disappeared;
the period cannot be changed by them.
𝖮 If security was lost through debtor’s fault -
impairment
JUDICIAL PERIOD – period designated by the court.
𝖮 If security was lost through fortuitous event -
CONTRACTUAL PERIOD – period fixed by the parties in their
disappearance
contract.
• [V] When debtor violates an undertaking;
If such undertaking is the reason for the creditor to agree
Court will fix a period:
with such period.
1. When no period is mentioned, but it is inferable from
• [A] When debtor attempts to abscond (escape).
the nature and circumstances of the obligation that
Mere attempt to abscond is sufficient. It is an indication of
a period was intended by the parties.
bad faith.
2. When the period is dependent upon the will of
the debtor.
Section 3 – Alternative Obligations
page 12
1199. A person alternatively bound by different
● There being but one prestation available,
prestations shall completely perform one of
this prestation becomes a simple obligation.
them.
The creditor cannot be compelled to receive part of one
1203. If through the creditor's acts the debtor cannot
and part of the other undertaking.
make a choice according to the terms of the obligation,
the latter may rescind the contract with damages.
OBLIGATIONS WITH PLURAL PRESTATIONS:
1. CONJUNCTIVE/COMPOUND OBLIGATION - an
(1) If the debtor could not make a choice due to
obligation where the debtor has to perform ALL the
the creditor’s act of making the prestations
several prestations in the contract to extinguish
impossible, debtor may RESCIND the
the obligation.
contract with damages - rescission takes
2. ALTERNATIVE OBLIGATION – an obligation where
place at the initiative of the debtor.
the debtor is required to fulfill ONLY ONE of the
(2) If the debtor is being prevented to choose
several prestations to extinguish the obligation.
only a particular prestation, and there are
3. FACULTATIVE OBLIGATION – an obligation where
others available, he is free to choose from
the debtor is bound to perform ONLY ONE prestation,
them, after notifying the creditor of his
with a reserved right to choose another prestation as
decision.
SUBSTITUTE for the principal.
1204. The creditor shall have a right to indemnity for
1200. The right of choice belongs to the debtor, unless
damages when, through the fault of the debtor, all the
it has been expressly granted to the creditor.
things which are alternatively the object of the
The debtor shall have no right to choose those
obligation have been lost, or the compliance of the
prestations which are impossible, unlawful or which
obligation has become impossible.
could not have been the object of the obligation.
The indemnity shall be fixed taking as a basis the value
of the last thing which disappeared, or that of the
Implied grant to the creditor is not allowed. If it does not
service which last became impossible.
appear on the agreement as to whom among them has the
Damages other than the value of the last thing or
right to choose, it is the debtor who can choose.
service may also be awarded.
1201. The choice shall produce no effect except from
● If the impossibility of all the objects of the
the time it has been communicated.
alternative obligation is caused by the debtor, the
creditor is entitled to damages.
1. The choice shall not produce any legal effect
● If such impossibility is caused by a fortuitous event,
until it has been duly communicated to the
the obligation is extinguished and the debtor is
other party.
released from responsibility, unless the contrary is
2. It can be done in writing, verbally, impliedly,
stipulated by the parties.
or any unequivocal means.
3. Once the choice has been communicated to the
● The creditor cannot claim for damages if the debtor
can still perform the remaining prestations.
other party:
● The damages that may be recovered is based on the
1. The obligation is now LIMITED only to the
last thing which disappeared or the service which
PRESTATION CHOSEN, with all the
became impossible. This last one is converted into a
natural consequences flowing therefrom;
simple obligation.
2. The choice is IRREVOCABLE.
a. The performance of prestation without announcing
1205. When the choice has been expressly given to the
the choice to the creditor is NOT BINDING.
creditor, the obligation shall cease to be alternative
b. The consent of the other party is NOT REQUIRED in
from the day when the selection has been
making the choice – that will in effect frustrate the
communicated to the debtor.
clear intention of the law and the nature of the
Until then the responsibility of the debtor shall be
alternative obligation.
governed by the following rules:
c. If there is delay in the making of choice – punish the
one who is supposed to exercise the right of choice
A. only one thing lost – fortuitous event – creditor
for the delay he caused – court may order the
chooses from the remainder – debtor delivers the
debtor to make a choice, or creditor to make the
choice to creditor;
choice within certain period, or court makes the
B. only one remains – debtor delivers the same to
choice.
the creditor;
C. only one thing lost – fault of the debtor
1202. The debtor shall lose the right of choice when
1. creditor may choose any one of the
among the prestations whereby he is alternatively
remainders;
bound, only one is practicable.
page 13
2. creditor may choose the price or value of the one which was considered as joint obligation.
lost;
3. may choose 1 or 2 plus damages CONSEQUENCES OF SOLIDARITY:
D. all things lost – fault of the debtor – creditor 1. Passive Solidarity – full payment made by anyone of
may choose the price of ANYONE of the things, the solidary debtors extinguishes the obligation. The
with damages if warranted. one who paid can claim reimbursement from his co-
debtors as regards their corresponding shares in the
The same rules shall be applied to obligations to do or obligation.
not to do in case one, some or all of the prestations A, B, & C are solidary debtors of D in the sum of P900.
should become impossible. D can demand payment of the entire obligation when it
becomes due, from any one of the debtors or from all of them
● This article applies only when the right of choice at the same time.
has been expressly granted to the creditor. If C paid the whole P900 to D, he may claim reimbursement
from A and B.
1206. When only one prestation has been agreed
upon, but the obligor may render another in 2.Active Solidarity – full payment to any of the
substitution, the obligation is called facultative. creditors extinguishes the obligation. The creditor
The loss or deterioration of the thing intended as a who received the entire amount will be liable to pay
substitute, through the negligence of the obligor, does the corresponding shares of his co-creditors in
not render him liable. But once the substitution has accordance with their internal agreement.
been made, the obligor is liable for the loss of the
Garfield owes the sum of P40,000 to Mickey, Minnie, Donald,
substitute on account of his delay, negligence or fraud.
and Pluto, who are solidary creditors. Garfield can pay
anyone of them. If Mickey received the P40,000, he is liable
● If loss or deterioration happened before
to pay the corresponding shares of his co-creditors.
substitution is made, obligor is not liable; after
substitution is communicated, he is liable for loss
(through delay, negligence or fraud) MIXED SOLIDARITY
page 14
● Each of the creditors shall be entitled to demand only converted into monetary obligation for indemnity
the payment of his proportionate share of the credit. for damages. Batman and Robin will be liable only
● Each of the debtors may be compelled to pay only for P 750,000.00 each.
his proportionate share of the debt.
● The credits or debts shall be considered distinct from ● The act of one is not binding (others must concur)
one another.
1210. The indivisibility of an obligation does not
CONSEQUENCES OF JOINT OBLIGATION: necessarily give rise to solidarity. Nor does solidarity of
1. Each debtor – liable for a proportionate part of the itself imply indivisibility.
entire debt;
Thales, Socrates, Plato, & Aristotle owe P100 to Bruce Lee ● Solidarity is expressed in the stipulations of the
= 4 debts and 1 credit party, law governing the obligation, or the nature
Each of them owes Bruce Lee P25 of the obligation.
Bruce Lee cannot collect the entire P100 from any one of
them. INDIVISIBLE OBLIGATION – an obligation where the
2. Each creditor – entitled to a proportionate part of the prestation or object to be delivered cannot be performed by
credit; parts without altering its essence or substance.
Piggy owes P100 to Froggy and Fishy
= 1 debt and 2 credits Basis Indivisibility Solidarity
Froggy can only collect 50 from 1. Nature Refers to the Refers to the tie
Piggy, Same with Fishy prestation of the existing between
3. Demand made by one creditor upon one contract parties of the
debtor produces the effects of default only as obligation (who is
between them, but not with respect to the liable)
others; 2. Number of Does not require Requires plurality of
Bubbles demanded payment from Buttercup; Buttercup subjects / parties plurality of parties parties
was in default. This does not mean that the others are in 3. Effect of breach Obligation is The liability, even if
default too because Bubbles did not demand from them. of obligation converted into converted into
4. The interruption of prescription caused by the monetary indemnity for
demand made by one creditor upon one debtor will obligation for damages, remains
not benefit the co-creditors; indemnity for solidary.
damages – each
Wittgenstein extended the period in which Tarski should have
debtor is liable
paid his debt to him. This does not mean that the same
only for his part in
extension applies to Tarski's debt to Davidson.
the indemnity.
5. The insolvency of one debtor will not increase the
liability of his co-debtors, nor will it allow a creditor
to demand anything from the co-creditors. 1211. Solidarity may exist although the creditors and
If Husserl and Merleau-Ponty are debtors of Sartre for the debtors may not be bound in the same manner and
P1,000,000.00 and Husserl becomes insolvent, the liability by the same periods and conditions.
of Merleau-Ponty will only be P500,000.00 representing his
proportional share of ½ in the whole obligation. ● The solidarity of the debtors is not affected even if
different terms and conditions are made applicable
1209. If the division is impossible, the right of the to them.
creditors may be prejudiced only by their collective ● Enforcement of the terms and conditions may be
acts, and the debt can be enforced only by proceeding made at different times. The obligations which have
against all the debtors. If one of the latter should be matured can be enforced while those still undue will
insolvent, the others shall not be liable for his share. have to be awaited. Enforcement can be made
against any one of the solidary debtors although it
JOINT INDIVISIBLE OBLIGATION – an obligation where can happen that a particular obligation chargeable
solidarity is not provided and the prestation or object is not to a particular debtor is not yet due. He will be
susceptible of division; its fulfillment requires the concurrence answerable for all the prestations which fall due
of all debtors, while doing each one’s parts. although chargeable to the other co-debtors.
Batman and Robin jointly obliged themselves to deliver a Sad Face, Happy, and Fanny got a loan of P150 from Smiley.
brand new Toyota Fortuner worth P1,500,000.00 to They signed a promissory note solidarily binding themselves
Superman. The object, a vehicle, is indivisible. They must to pay Smiley under the following terms:
deliver the thing jointly. In case of breach, the obligation is Sad Face will pay P50 with 3% on December 30,
page 15
2006
Happy will pay P50 with 4% on December 30, 2007 1215. Novation, compensation, confusion or remission
Fanny will pay P50 with 5% on December 30, 2008 of the debt, made by any of the solidary creditors or
On December 31, 2006, Smiley can collect his P50 with 3% with any of the solidary debtors, shall extinguish the
from any one of the debtors, but not the whole P150 because obligation, without prejudice to the provisions of
it is not yet entirely due. The maturity of the other amounts Article 1219.
should still be awaited. If maturity comes, Smiley can collect The creditor who may have executed any of these acts,
from any of the debtors, because they are expressly solidary as well as he who collects the debt, shall be liable to
in liabilities, and not affected by the secondary stipulations. the others for the share in the obligation
corresponding to them.
1212. Each one of the solidary creditors may do
whatever may be useful to the others, but not anything NOVATION – obligations are modified by:
which may be prejudicial to the latter. 1. Changing their object or principal conditions;
2. Substituting the person of the debtor; and
● Every solidary creditor is benefited by the useful acts 3. Subrogating (placing) a third person in the rights of
of any one of them. the creditor. [Art. 1291, CC]
● If a solidary creditor performs an act which is not
fair COMPENSATION – takes place when two persons, in their own
to his co-creditors, the act may have valid legal right, become creditors and debtors of each other
effects or the obligation of the debtor due to them - the amount of one is covered by the amount of the other
may be extinguished, but the performing creditor Erap borrowed P100 from Fernando.
shall be liable to his co-creditors. Fernando borrowed P75 from Erap.
Erap’s obligation to Fernando is now P25 only, because the
● Question: May solidary creditors perform an act original obligation was offset by Fernando’s supposed-to-be
that is beneficial to others? obligation to Erap.
1213. A solidary creditor cannot assign his rights CONFUSION – takes place when the characters of creditor
without the consent of the others. and debtor are merged in the same person.
Tito pays his debt to Vic with a check payable to “cash”.
Assign – transfer of right Vic paid his debt to Joey with the same check.
Joey paid his debt to Tito, with the same check Tito issued to
● The assignee does not become a solidary creditor, Vic.
and any payment made upon him by the debtor does Tito becomes paid by his own check. He becomes the debtor
not extinguish the obligation. He is considered a and the creditor of himself at the same time.
STRANGER, and his acts are not binding to the
solidarity. REMISSION – the gratuitous abandonment by the creditor of
his right; acceptance of the obligor is necessary.
● DOCTRINE OF MUTUAL AGENCY - In solidary
obligations, the act of one is act of the others. ● These 4 modes of extinguishing obligations are acts
● Exceptions to the doctrine: prejudicial to the other solidary co-creditors
1. Art. 1212 – a creditor may not perform an because these have the effect of extinguishing the
act prejudicial to other creditors debt or obligation which is due to all of them.
2. Art. 1213 – a creditor cannot transfer his ● The only recourse of the co-creditors is to let the one
right without consent who executed any of those acts be liable for the
shares corresponding to all his co-creditors (in their
1214. The debtor may pay any one of the solidary internal agreement).
creditors; but if any demand, judicial or extrajudicial,
has been made by one of them, payment should be 1216. The creditor may proceed against any one of the
made to him. solidary debtors or some or all of them
simultaneously. The demand made against one of
● The debtor can pay any one of the solidary creditors. them shall not be an obstacle to those which may
Such payment when accepted by any of the solidary subsequently be directed against the others, so long
creditors will extinguish the obligation. as the debt has not been fully collected.
● To avoid confusion on the payment of the
obligation, the debtor is required to ay only to the ● When there is passive solidarity, the creditor can
demanding creditor and that payment is sufficient to proceed against:
effect the extinguishment of the obligation. 1. Any of the solidary debtors;
● In case two or more demands made by the other
creditors, the first demand must be given priority.
page 16
2. Some of the solidary debtors;
● Atty De Chavez: Ito ay provision sa tanga...
3. All of the solidary debtors, simultaneously.
(siyempre, 'pag nagbayad na, wala nang obligation,
wala na ding ire-remit...)
Extrajudicial demands - first demand shall not prevent
subsequent demands on the other co-debtors, if co-debtor
● Any belated (delayed) remission by the creditor of
first to have been required to fulfill obligation did not act on
the share of any of the debtor has no effect on
it.
the internal relationship of the co-debtors.
1217. Payment made by one of the solidary debtors
extinguishes the obligation. If two or more solidary Payment before remission: A, B, and C solidarily owe D
debtors offer to pay, the creditor may choose P1,500.00. B paid the entire obligation. After which, D
which offer to accept. remitted the share of C. B can collect P500.00 each from A
He who made the payment may claim from his co- and C even if the share of C in the obligation had been
debtors only the share which corresponds to each, with remitted.
the interest for the payment already made. If the
payment is made before the debt is due, no interest for Remission before payment: A, B, and C solidarily owe D
the intervening period may be demanded. P1,500.00. D remitted the share of C. Thereafter, B paid the
When one of the solidary debtors cannot, because of entire obligation. B can collect P500.00 from A but not from
his insolvency, reimburse his share to the debtor C. However, B may ask D to give back P500, which is
paying the obligation, such share shall be borne by all the supposed-to-be share of C.
his co-debtors, in proportion to the debt of each.
● After the prior payment of the entire obligation,
Payment – consists in the delivery of the thing or the there is nothing to remit because the obligation had
rendition (rendering) of the service whish is the object of the been extinguished.
obligation.
1220. The remission of the whole obligation,
Interest – compensation for the use of borrowed money obtained by one of the solidary debtors, does not
entitle him to reimbursement from his co-debtors.
Partial payment – the solidary debtor who made the partial
payment is entitles to be reimbursed only for such amount of ● There is nothing to be reimbursed because he
money which he had paid and which exceeds his own share in did not spend any money, the remission being a
the obligation. gratuitous act.
If one of the debtors is insolvent and could not pay his share 1221. If the thing has been lost or if the prestation
in the obligation, all solidary debtors including the paying has become impossible without the fault of the
debtor shall share proportionately in the settlement of the solidary debtors, the obligation shall be extinguished.
corresponding share of the insolvent debtor. [In short, his co- If there was fault on the part of any one of them, all
debtors will save his ass.] shall be responsible to the creditor, for the price and
the payment of damages and interest, without
1218. Payment by a solidary debtor shall not entitle prejudice to their action against the guilty or negligent
him to reimbursement from his co-debtors if such debtor.
payment is made after the obligation has prescribed or If through a fortuitous event, the thing is lost or the
become illegal. performance has become impossible after one of the
solidary debtors has incurred in delay through the
No reimbursement if: judicial or extrajudicial demand upon him by the
creditor, the provisions of the preceding paragraph
1. Obligation PRESCRIBES shall apply.
● The creditor did not make any demand for more
than 10 years. Loss of the thing or impossibility of prestation –
2. Obligation becomes ILLEGAL 1. NO FAULT – solidary debtors –
● Law has been passed, making such prestation illegal. obligation is extinguished
2. FAULT of any one of them – all are
1219. The remission made by the creditor of the liable because of their mutual
share which affects one of the solidary debtors does agency
not release the latter from his responsibility towards 3. FORTUITOUS EVENT – delay on the
the co-debtors, in case the debt had been totally paid part of the debtors – all will be
by anyone of them before the remission was effected. liable
page 17
solidary debtors, all (including the innocent) debtors
● The unfulfilled undertaking (duty) is converted into a
will share in the payment of the PRINCIPAL
monetary obligation which is not divisible.
prestation. The damages and interest imposed will
● The guilty debtor is liable for damages.
be borne by the guilty debtor.
● Obligation to deliver is converted into an obligation
1225. For the purposes of the preceding articles,
to pay indemnity when there us loss or impossibility
obligations to give definite things and those which are
of performance.
not susceptible of partial performance shall be deemed
to be indivisible.
1222. A solidary debtor may, in actions filed by the
When the obligation has for its object the execution of
creditor, avail himself of all defenses which are derived
a certain number of days of work, the accomplishment
from the nature of the obligation and of those which
of work by metrical units, or analogous things which
are personal to him, or pertain to his own share. With
by their nature are susceptible of partial performance,
respect to those which personally belong to the others,
it shall be divisible.
he may avail himself thereof only as regards that part
However, even though the object or service may
of the debt for which the latter are responsible.
be physically divisible, an obligation is indivisible if
so provided by law or intended by the parties.
DEFENSES OF A SOLIDARY DEBTOR:
In obligations not to do, divisibility or indivisibility
shall be determined by the character of the prestation
1. Defense arising from the nature of the obligation –
in each particular case.
such as payment, prescription, remission, statute of
frauds, presence of vices of consent, etc.
The following are considered INDIVISIBLE obligations:
2. Defenses which are personal to him or which
1. Obligation to give definite things
pertains to his own share alone – such as minority,
2. Obligations which are not susceptible of
insanity and others purely personal to him.
partial performance
3. Defenses personal to the other solidary creditors but
3. Even though the object or service may be
only as regards that part of the debt for which the
physically divisible, it is indivisible if:
other creditors are liable.
a. the law so provides
b. when the parties intended it to be indivisible
Section 5 – Divisible and Indivisible Obligations
The following obligations are deemed DIVISIBLE:
1223. The divisibility or indivisibility of the things that
1. When the object of the obligation is the execution
are the object of obligations in which there is only
of a certain number of days of work
one debtor and only one creditor does not alter or
2. When the object of the obligation is the
modify the provisions of Chapter 2 of this Title.
accomplishment of work measured in units
3. When the object of the obligation is susceptible of
DIVISIBILITY – refers to the susceptibility of an obligation to
partial compliance
be performed partially.
4. When the object of the obligation is such that
● Obligation to deliver 100 sacks of rice or a particular
the debtor is required to pay in installments
type
INDIVISIBILITY – refers to the non-susceptibility of an
● If the contract is divisible, and a part of it is illegal,
obligation to partial performance.
the illegal part is void, and the rest shall be valid
● Obligation to deliver a particular computer set
and enforceable.
● If the contract is indivisible, and a part of it is illegal,
If a thing could be divided into parts and as divided, its value
the entire contract is void.
is impaired disproportionately, that thing is INDIVISIBLE.
● Partial performance of an indivisible obligation is
tantamount to non-performance.
1224. A joint indivisible obligation gives rise to
indemnity for damages from the time anyone of the
Section 6 – Obligations with a Penal Clause
debtors does not comply with his undertaking. The
debtors who may have been ready to fulfill their
1226. In obligations with a penal clause, the penalty
promises shall not contribute to the indemnity beyond
shall substitute the indemnity for damages and the
the corresponding portion of the price of the thing or
payment of interests in case of noncompliance, if there
of the value of the service in which the obligation
is no stipulation to the contrary. Nevertheless,
consists.
damages shall be paid if the obligor refuses to pay the
penalty or is guilty of fraud in the fulfillment of the
JOINT INDIVISIBLE OBLIGATION – the object is indivisible
obligation.
but the liability of the parties is joint.
The penalty may be enforced only when it is
demandable in accordance with the provisions of this
page 18
Code.
and penalty are extinguished
PENALTY CLAUSE
1228. Proof of actual damages suffered by the creditor
● Purposes: Jurado book
is not necessary in order that the penalty may be
● This is an accessory obligation attached to the
demanded.
principal obligation, which imposes an additional
liability in case of breach of the principal obligation.
d. As long as the agreement or contract is breached.
● It pushes the debtor to perform his obligation
e. The mere non-fulfillment of the principal
faithfully and without delay – within the period
obligation entitles the creditor to the penalty
agreed upon, or else, he suffers a fixed civil
stipulated.
penalty without need of proving the damages of
f. The purpose of the penalty clause is precisely
the other party.
to avoid proving damages.
The penalty imposable is a substitute for the indemnity for:
1229. The judge shall equitably reduce the penalty
a. damages
when the principal obligation has been partly or
b. payment of interest in case of breach of obligation
irregularly complied with by the debtor. Even if there
1. unless the contrary is stipulated!
has been no performance, the penalty may also be
reduced by the courts if it is iniquitous or
EXCEPTIONS – additional damages may be recovered from
unconscionable.
the following acts:
4. If the debtor refuses to pay the penalty
JUDICIAL REDUCTION OF PENALTY
5. If the debtor is guilty of fraud in the
● Principal obligation – partly complied with by the
fulfillment of the obligation
debtor (but not in indivisible obligation, because it
6. If there is express stipulation that the other
is tantamount to non-compliance)
damages or interests are demandable to the
● Principal obligation – complied not in accordance
penalty in the penal clause
with the tenor of the agreement (refers to irregular
performance)
1227. The debtor cannot exempt himself from the
● Penalty – iniquitous or unconscionable
performance of the obligation by paying the penalty,
save in the case where this right has been expressly
𝖮 Judge’s power to reduce penalties are limited to
reserved for him. Neither can the creditor demand the
private contracts.
fulfillment of the obligation and the satisfaction of the
penalty at the same time, unless this right has been
INIQUITOUS OR UNCONSCIONABLE – when it is revolting to
clearly granted him. However, if after the creditor has
the conscience or common sense; grossly disproportionate to
decided to require the fulfillment of the obligation, the
the damages suffered.
performance thereof should become impossible
without his fault, the penalty may be enforced.
PENALTY NOT ENFORCEABLE:
1. Impossible performance of principal
● A debtor cannot evade from payment of his principal
obligation due to fortuitous events
obligation by choosing to pay the penalty stipulated,
2. Creditor prevented the debtor from
except when the debtor is EXPRESSLY granted with
fulfilling the obligation
the right to substitute the penalty for the principal
3. Penalty is contrary to good morals or good
obligation. – an obligation with penalty clause
customs
cannot be turned to facultative obligation unless
4. Both parties are guilty of breach of contract
expressly stipulated in the contract.
5. Breach of contract by the creditor
● The creditor cannot demand the stipulated fulfillment
6. None of the parties committed any willful
of the principal obligation and the penalty at the
or culpable violation of the agreement
same time, except
a. when the creditor was clearly given the right
1230. The nullity of the penal clause does not carry
to enforce both the principal obligation and
with it that of the principal obligation.
penalty;
The nullity of the principal obligation carries with it
b. when the creditor has demanded fulfillment of
that of the penal clause.
the obligation but cannot be fulfilled due to the
1. debtor’s fault – creditor may demand
Because the penal clause is only an accessory to the principal
for penalty
obligation, it cannot exist alone.
2. creditor’s fault – he cannot claim the
If the penal clause is void, the principal obligation remains
penalty
enforceable.
3. fortuitous event – principal obligation
The nullity of penal clause does not mean the nullity of the
page 19
principal.
b.) integrity – prestation must be fulfilled completely
For example:
In case of non-payment of P10,000, P1,000 per day as
• Time of payment – the payment or performance
must be on the date stipulated (may be made even
penalty shall be imposed. It is a void contract but it is not an
on Sundays or on any holiday, although some states
excuse that you don't have to pay the principal which is
like the Negotiable Instruments Law states that
P10,000.
payment in such case may be made on the next
succeeding business day)
CHAPTER 4
EXTINHGUISHMENT OF OBLIGATIONS
• The burden of proving that the obligation has been
extinguished by payment devolves upon the debtor
who offers such a defense to the claim of the plaintiff
GENERAL PROVISIONS
creditor
1231. Obligations are exringuished:
• The issuance of a receipt is a consequence of usage
and good faith which must be observed (although
5. by payment or performance
our Code has no provision on this) and the refusal of
6. by loss of the thing due
the creditor to issue a receipt without just cause is a
7. by condonation or remission
ground for consignation under Art 1256 ( if a receipt
8. by confusion or merger of the rights of
has been issued by payee, the testimony alone of
creditor and debtor
payer would be insufficient to prove alleged
9. by compensation
payments)
10. by novation
Other causes of extinguishment of obligations, such as
1234. If the obligation has been substantially
annulment, rescission, fulfillment of a resolutory
performed in good faith, the obligor may recover as
condition, and prescription, are governed elsewhere in
though there had been a strict and complete
this Code.
fulfillment, less damages suffered by the obligee.
1232. Payment means not only the delivery of money
• In order that there may be substantial performance
of an obligation, there must have been an attempt in
but also the performance, in any other manner of an
good faith to perform, without any willful or
obligation.
intentional departure therefrom
Payment means not only delivery of money but also the
• The non-performance of a material part of a contract
will prevent the performance from amounting to a
performance.
substantial compliance
• It is the fulfillment of the prestation due that
• A party who knowingly and willfully fails to perform
his contract in any respect, or omits to perform a
extinguishes the obligation by the realization of the
material part of it cannot be permitted under the
purposes for which it was constituted
protection of this rule to compel the other party to
• It is a juridical act which is voluntary, licit and made
with the intent to extinguish an obligation perform; and the trend of the more recent decisions
is to hold that the percentage of omitted or irregular
• Requisites:
performance may in and of itself be sufficient to
1. person who pays
show that there has not been a substantial
2. the person to whom payment is made
performance
3. the thing to be paid
4. the manner, time and place of payment etc • The party who has substantially performed may
enforce specific performance of the obligation of the
• The paying as well as the one receiving should have
other party or may recover damages for their breach
the requisite capacity
upon an allegation of performance, without proof of
• Kinds:
complete fulfillment.
1. normal –when the debtor voluntarily performs the
• The other party, on the other hand, may by an
prestation stipulated
independent action before he is sued, or by a
2. abnormal – when he is forced by means of a judicial
counterclaim after commencement of a suit against
proceeding either to comply with prestation or to pay
him, recover from the first party the damages which
indemnity
he has sustained by the latter’s failure to completely
fulfill his obligation
1233. A debt shall not be understood to have been
paid unless the thing or service in which the oligatoin
1235 – When the oblige accepts the performance,
consists has been completely delivered or rendered, as
knowing its incompleteness or irregularity, and without
the case may be.
expressing any protest or objection, the obligation is
• States 2 requisites of payment:
deemed fully complied with
a.) identity of prestation - the very thing or service due must
● A person entering into a contract has a right to insist
be delivered or released
on its performance in all particulars, according to its
page 20
meaning and spirit. But if he chooses to waive any of
intend to be reimbursed by the debtor is deemed to be
the terms introduced for his own benefit, he may do
a donation, which requires the debtor’s consent/ but
so.
the payment is in any case valid as to the creditor who
● But he is not obliged to accept anything else in place
has accepted it
of that which he has contracted for and if he does
ART 1239. In obligations to give, payment made by one
not waive this right, the other party cannot recover
who does not have the free disposal of the thing due
against him without performing all the stipulations
and capacity to alienate it shall not be valied, without
on is part
prejudice to the provisions of article 1427 under the
● To constitute a waiver, there must be an intentional
Title on “Natural Obligations”
relinquishment of a known right. A waiver will not
● consignation will not be proper here. In case the
result from a mere failure to assert a claim for
creditor accepts the payment, the payment will not
defective performance/payment. There must have
be valid except in the case provided in article 1427
been acceptance of the defective performance with
actual knowledge if the incompleteness or defect,
1240. Payment shall be made to the person in whose
under circumstances that would indicate an intention
favor the obligation has been constituted, or his
to consider the performance as complete and
successor in interest, or any person authorized to
renounce any claim arising from the defect
receive it
● A creditor cannot object because of defects in
● the authority of a person to receive payment for the
performance resulting from his own acts or directions
creditor may be
a.) legal – conferred by law (e.g.,guardian of the
1236. The creditor is not bound to accept payment or
incapacitated, administrator of the estate of the deceased)
performance by a third person who has no interest in
b.) conventional – when the authority has been given by
the fulfillment of the obligation, unless there is a
the creditor himself (e.g., agent who is appointed to collect
stipulation to the contrary. Whoever pays for another
from the debtor
may demand from the debtor what he has paid, except
• payment made by the debtor to a wrong party does
that if he paid without the knowledge or against the
not extinguish the obligation as to the creditor
will of the debtor, he can recover only insofar as the
(void), if there is no fault or negligence which can be
payment has been beneficial to the debtor
imputed to the latter (even when the debtor acted in
● Reason for this article: whenever a third person pays
utmost good faith, or through error induced by the
there is a modification of the prestation that is due.
fraud of the 3rd person). It does not prejudice the
● Generally, the 3rd person who paid another’s debt is
creditor and the accrual of interest is not suspended
entitled to recover the full amount he paid. The law,
by it
however limits his recovery to the amount by which
the debtor has been benefited, if the debtor has no
1241. Payment to a person who is incapacitated to
knowledge of, or has expressed his opposition to
administer his property shall be valid if he has kept the
such payment
thing delivered, or insofar as the payment has been
● If the debt has been remitted, paid compensated or
beneficial to him. Payment made to a third person shall
prescribed, a payment by a third person would
also be valid insofar as it has redounded to the benefit
constitute a payment of what is not due; his remedy
of the creditor. Such benefit to the creditor need not be
would be against the person who received the
proved in the following cases:
payment under such conditions and not against the
(1) If after the payment, the third person acquires the
debtor who did not benefit from the payment
creditor's rights;
● payment against debtor’s will – even if payment of
(2) If the creditor ratifies the payment to the third
the third party is against the will of the debtor, upon
person;
payment by the third party, the obligation between
(3) If by the creditor's conduct, the debtor has been led
the debtor and creditor is already extinguished
to believe that the third person had authority to receive
the payment. (1163a)
1237. Whoever pays on behalf of the debtor without
● payment shall be considered as having benefited the
the knowledge or against the will of the latter, cannot
incapacitated person if he made an intelligent and
compel the creditor to subrogate him in his rights, such
reasonable use thereof, for purposes necessary or
as those arising from a mortgage, guaranty or penalty
useful to him, such as that which his legal
• This article gives to the third person who paid only a
representative would have or could have done under
simple personal action for reimbursement, without
similar circumstances, even if at the time of the
the securities, guaranties and other rights recognized
complaint the effect of such use no longer exists
in the creditor, which are extinguished by the
(e.g., taxes on creditor’s property, money to
payment
extinguish a mortgage on creditor’s property)
● the debtor is not released from liability by a payment
1238. Payment made by a third person who does not
to one who is not the creditor nor one authorized to
page 21
receive the payment, even if the debtor believed in
1245. Dation in payment, whereby property is
good faith that he is the creditor, except to the
alienated to the creditor in satisfaction of a debt in
extent that the payment inured to the benefit of the
money, shall be governed by the law of sales. (n)
creditor
● in addition to those mentioned above, payment to a
• This is the delivery and transmission of ownership of
a thing by the debtor to the creditor as an accepted
third person releases the debtor:
equivalent of the performance of the obligation.
a.) when, without notice of the assignment of credit, he
• The property given may consist not only of a thing
pays to the original creditor
but also of a real right (such as a usufruct)
b.) when in good faith he pays to one in possession of the
• Considered as a novation by change of the object
credit
● even when the creditor receives no benefit from the • Where the debt is money, the law on sale shall
payment to a third person, he cannot demand govern; in this case, the act is deemed to be a sale
payment anew, if the mistake of the debtor was due with the amount of the obligation to the extent that
to the fault of the creditor it is extinguished being considered as price
• Difference between Dation and Cession (see Art.
1242. Payment made in good faith to any person in 1255)
possession of the credit shall release the debtor.
1246. When the obligation consists in the delivery of an
(1164)
● the person in possession of the credit is neither the indeterminate or generic thing, whose quality and
circumstances have not been stated, the creditor
creditor nor one authorized by him to receive
cannot demand a thing of superior quality. Neither can
payment, but appears under the circumstances of
the debtor deliver a thing of inferior quality. The
the case, to be the creditor. He appears to be the
purpose of the obligation and other circumstances shall
owner of the credit, although in reality, he may not
be taken into consideration. (1167a)
be the owner (e.g., an heir who enters upon the
● If there is disagreement between the debtor and the
hereditary estate and collects the credits thereof, but
creditor as to the quality of the thing delivered, the
who is later deprived of the inheritance because of
court should decide whether it complies with the
incapacity to succeed)
● it is necessary not only that the possession of the obligation, taking into consideration the purpose and
other circumstances of the obligation
credit be legal, but also that the payment be in good
● Both the creditor and the debtor may waive the
faith
benefit of this article
● see Art. 1244
1243. Payment made to the creditor by the debtor after
the latter has been judicially ordered to retain the debt
1247. Unless it is otherwise stipulated, the
shall not be valid. (1165)
• the payment to the creditor after the credit has been extrajudicial expenses required by the payment shall
be for the account of the debtor. With regard to judicial
attached or garnished is void as to the party who
costs, the Rules of Court shall govern. (1168a)
obtained the attachment or garnishment, to the
● This is because the payment is the debtor’s duty and
extent of the amount of the judgment in his favor.
it inures to his benefit in that he is discharged from
• The debtor upon whom garnishment order is served
the burden of the obligation
can always deposit the money in court by way of
consignation and thus relieve himself from further
1248. Unless there is an express stipulation to that
liability
effect, the creditor cannot be compelled partially to
receive the prestations in which the obligation consists.
1244. The debtor of a thing cannot compel the creditor
Neither may the debtor be required to make partial
to receive a different one, although the latter may be of
payments.
the same value as, or more valuable than that which is
However, when the debt is in part liquidated and in
due. In obligations to do or not to do, an act or
part unliquidated, the creditor may demand and the
forbearance cannot be substituted by another act or
debtor may effect the payment of the former without
forbearance against the obligee's will. (1166a)
waiting for the liquidation of the latter. (1169a)
• Upon agreement of consent of the creditor, the
● The creditor who refuses to accept partial prestations
debtor may deliver a different thing or perform a
does not incur delay except when there is abuse of
different prestation in lieu of that stipulated. In this
right or if good faith requires acceptance
case there may be dation in payment or novation
● This article does not apply to obligations where there
• The defects of the thing delivered may be waived by
are several subjects or where the various parties are
the creditor, if he expressly so declares or if, with
bound under different terms and conditions
knowledge thereof, he accepts the thing without
protest or disposes of it or consumes it
1249. The payment of debts in money shall be made in
the currency stipulated, and if it is not possible to
page 22
deliver such currency, then in the currency which is
expenses in this case because the debtor cannot be
legal tender in the Philippines. The delivery of
made to shoulder the expenses which the creditor
promissory notes payable to order, or bills of exchange
incurs in performing a duty imposed by law and
or other mercantile documents shall produce the effect
which is for his benefit.
of payment only when they have been cashed, or when
• But if the debtor changes his domicile in bad faith or
through the fault of the creditor they have been
after he has incurred in delay, then the additional
impaired.
expenses shall be borne by him
In the meantime, the action derived from the original
• When the debtor has been required to remit money
obligation shall be held in the abeyance. (1170)
to the creditor, the latter bears the risks and the
● LEGAL TENDER means such currency which in a
expenses of the transmission. In cases however
given jurisdiction can be used for the payment of
where the debtor chooses this means of payment, he
debts, public and private, and which cannot be
bears the risk of loss.
refused by the creditor
● so long as the notes were legal tender at the time
SUBSECTION 1
they were paid or delivered, the person accepting
APPLICATION OF PAYMENTS
them must suffer the loss if thereafter they became
valueless
1252. He who has various debts of the same kind in
● the provisions of the present article have been
favor of one and the same creditor, may declare at the
modified by RA No. 529 which states that payments
time of making the payment, to which of them the
of all monetary obligations should now be made in
same must be applied. Unless the parties so stipulate,
currency which is legal tender in the Phils. A
or when the application of payment is made by the
stipulation providing payment in a foreign currency
party for whose benefit the term has been constituted,
is null and void but it does not invalidate the entire
application shall not be made as to debts which are not
contract
yet due.
● A check, whether a manager’s check or an ordinary
If the debtor accepts from the creditor a receipt in
check is not legal tender and an offer of the check in
which an application of the payment is made, the
payment of debt is not a valid tender of payment
former cannot complain of the same, unless there is a
cause for invalidating the contract. (1172a)
1250. In case an extraordinary inflation or deflation of
the currency stipulated should supervene, the value of
• Requisites:
1. 1 debtor and 1 creditor only
the currency at the time of the establishment of the
2. 2 or more debts of the same kind
obligation shall be the basis of payment, unless there is
3. all debts must be due
an agreement to the contrary. (n)
4. amount paid by the debtor must not be
• Applies only where a contract or agreement is
sufficient to cover the total amount of all
involved. It does not apply where the obligation to
the debts
pay arises from law, independent of contracts
• Extraordinary inflation of deflation may be said to be • It is necessary that the obligations must all be due.
Exceptions: (1) whe there is a stipulation to the
that which is unusual or beyond the common
contrary; and (2) the application of payment is made
fluctuations in the value of the currency, which
by the party for whose benefit the term or period has
parties could not have reasonably foreseen or which
been constituted (relate to Art. 1196).
was manifestly beyond their contemplation at the
time when the obligation was constituted
• It is also necessary that all the debts be for the same
kind, generally of a monetary character. This
includes obligations which were not originally of a
1251. Payment shall be made in the place designated in
monetary character, but at the time of application of
the obligation. There being no express stipulation and
payment, had been converted into an obligation to
if the undertaking is to deliver a determinate thing, the
pay damages by reason of breach or
payment shall be made wherever the thing might be at
nonperformance.
the moment the obligation was constituted. In any
other case the place of payment shall be the domicile of
• If the debtor makes a proper application of payment
but the creditor refuses to accept it because he
the debtor.
• If the debtor changes his domicile in bad faith or wants to apply it to another debt, such creditor will
incur in delay
after he has incurred in delay, the additional
expenses shall be borne by him. These provisions
• RIGHT OF DEBTOR TO MAKE APPLICATION. If at the
time of payment, the debtor does not exercise his
are without prejudice to venue under the Rules of
right to apply it to any of his debts, the application
Court.(1171a)
• Since the law fixes the place of payment at the shall be understood as provided by law, unless the
creditor makes the application and his decision is
domicile of the debtor, it is the duty of the creditor
accepted by the debtor. This application of payment
to go there and receive payment; he should bear the
can be made by the creditor only in the receipt
page 23
issued at the time of payment (although the
made in that order.
application made by creditor may be contested by
the debtor if the latter’s assent to such application
SUBSECTION 2
was vitiated by such causes as mistake, violence,
PAYMENT BY CESSION
intimidation, fraud, etc)
• The debtor and the creditor by agreement, can
1255. The debtor may cede or assign his property to his
validly change the application of payment already
creditors in payment of his debts. This cession, unless
made without prejudice to the rights of third persons
there is stipulation to the contrary, shall only release
acquired before such agreement
the debtor from responsibility for the net proceeds of
the thing assigned. The agreements which, on the
1253. If the debt produces interest, payment of the
effect of the cession, are made between the debtor and
principal shall not be deemed to have been made until
his creditors shall be governed by special laws.
the interests have been covered. (1173)
(1175a)
• Interest paid first before principal
• Cession is a special form of payment whereby the
• Applies both to compensatory interest (that debtor abandons or assigns all of his property for the
stipulated as earnings of the amount due under the
benefit of his creditors so that the latter may obtain
obligation) and to interest due because of delay or
payment of their credits from the proceeds of the
mora on the part of the debtor
property.
• SC held that this provision applies only in the • Requisites:
absence of a verbal or written agreement to the
1. plurality of debts
contrary (merely directory, not mandatory)
2. partial or relative insolvency of the debtor
3. acceptance of cession by the creditors
1254. When the payment cannot be applied in
• Kinds of Cession:
accordance with the preceding rules, or if application
1. Contractual (Art. 1255)
can not be inferred from other circumstances, the debt
2. Judicial (Insolvency Law)
which is most onerous to the debtor, among those due,
• Must be initiated by debtors
shall be deemed to have been satisfied. If the debts
due are of the same nature and burden, the payment
• Requires two or more creditors, debtors insolvent,
cession accepted by creditors
shall be applied to all of them proportionately. (1174a)
● As to which of 2 debts is more onerous is • Such assignment does not have the effect of making
the creditors the owners of the property of the
fundamentally a question of fact, which courts must
debtor unless there is an agreement to that effect
determine on the basis of the circumstances of each
case
● Debts are not of the same burden (1st par.)– Rules: • Difference between Dation and Cession
1. Oldest are more onerous than new ones DATION CESSION
2. One bearing interest more onerous than one may be 1 creditor many creditors
that does not
3. secured debt more onerous than unsecured does not require insolvency requires partial or relative
one insolvency
4. principal debt more onerous than guaranty delivery of a thing delivery of all the property
5. solidary debtor more onerous than sole
debtor transfer of ownership of the no transfer of ownership (only
6. share in a solidary obligation more onerous property of possession and
to a solidary debtor administration)
7. liquidated debt more onerous than a novation
unliquidated
● Debts are of the same burden (2nd par.)– the payment extinguishes the effect is merely to release
payment shall be applied to all of them pro rata or obligation (to the extent of debtor from the net proceeds
proportionately. the value of the thing of the property; hence, partial
● Example: debtor owes his creditor several debts, all delivered) extinguishment of obligation.
of them due, to wit: (1) unsecured debt, (2) a debt
secured with mortgage of the debtor's property, (3) SUBSECTION 3
a debt with interest, (4) a debt in which the debtor is TENDER OF PAYMENT AND CONSIGNATION
solidarily liable with another. Partial payment was
made by the debtor, without specification as to 1256. If the creditor to whom tender of payment has
which the payment should be applied. been made refuses without just cause to accept it, the
The most onerous is (4), followed by (2), then debtor shall be released from responsibility by the
(3), then (1). Consequently, payment shall be consignation of the thing or sum due.
Consignation alone shall produce the same effect in the
page 24
following cases:
1. That there was previous tender of payment, without
(1) When the creditor is absent or unknown, or does
which the consignation is ineffective
not appear at the place of payment;
2. That the tender of payment was of the very thing
(2) When he is incapacitated to receive the payment at
due, or in case of money obligations that legal
the time it is due;
tender currency was offered
(3) When, without just cause, he
3. That the tender of payment was unconditional and
refuses to give a receipt;
4. That the creditor refused to accept payment without
(4) When two or more persons claim the same right to
just cause
collect;
(5) When the title of the obligation has been lost.
● Exception to requirement for tender of payment:
(1176a)
[AIR-TT]
• Tender of payment : manifestation made by the
1. [A] When creditor is absent or unknown or does not
debtor to the creditor of his desire to comply with his
appear at place of payment
obligation; The act of the debtor of offering to the
2. [I] When he is incapacitated to receive payment
creditor the thing or amount due
3. [R] When he refuses to give receipt, without just
• Consignation : Deposit of the object or the amount
cause
due with the proper court after refusal or inability of
4. [T] When two or more persons claim same right to
the creditor to accept the tender of payment
collect
• Tender of payment by certified check is valid; a mere 5. [T] When title of the obligation has been lost
check would also be valid for tender of payment if
the creditor makes no prompt objection, but this
● The 1st and 2nd Special Requisites of Consignation
does not estop the latter from later demanding
are embodied in Article 1256.
payment in cash ● As to the 2nd requisite ([L] – legal cause) the
• When a tender of payment is made in such a form following musst be present:
that the creditor could have immediately realized
(a) the tender of payment must have been made prior
payment if he had accepted the tender, followed by
to the consignation
a prompt attempt of the debtor to deposit the
(b) that it must have been unconditional [e.g. where the
means of payment in court by way of consignation,
debtor tendered a check for P3,250 to the creditor as
the accrual of interest on the obligation will be
payment of a debt conditioned upon the signing by
suspended from the date of such tender. But when
the latter of a motion to dismiss a complaint for legal
the tender of payment is not accompanied by the
separation, such tender of payment is invalid.]
means of payment, and the debtor did not take any
(c) that the creditor must have refused to accept the
immediate step to make a consignation, then the
payment without just cause [it is not necessary for
interest is not suspended from the time of such
the court where the thing or the amount is deposited
tender.
to determine whether the refusal of the creditor to
accept the same was with or without just cause. The
● GENERAL REQUISITES OF VALID CONSIGNATION vs
question will be resolved anyway in a subsequent
SPECIAL REQUISITES
proceeding. Hence, the mere refusal of the creditor
General Req : relative to payment (Arts. 1232 -
to accept the tender of payment will be sufficient
1251)
(Manresa)]
Special Req : very nature of consignation (Arts.
1256 – 1258)
1257. In order that the consignation of the thing due
may release the obligor, it must first be announced to
● Special Requisites of consignation: [DLN-DN]
the persons interested in the fulfillment of the
1. [D] There was a debt due
obligation.
2. [L] The consignation of the obligation was made
The consignation shall be ineffectual if it is not made
because of some legal cause provided in the present
strictly in consonance with the provisions which
article
regulate payment. (1177)
3. [N] That previous notice of the consignation has
• The lack of notice does not invalidate the
been given to persons interested in the performance
consignation but simply makes the debtor liable for
of the obligation
the expenses
4. [D] The amount or thing due was placed at the
• The tender of payment and the notice of
disposal of the court
consignation sent to the creditor may be made in the
5. [N] After the consignation had been made the
same act. In case of absent or unknown creditors,
persons interested had been notified thereof
the notice may be made by publication
● If the reason for consignation is the unjust refusal of
• 1st paragraph of this article – pertains to the 3rd
the creditor to accept payment, it must be shown:
Special Requisite of Consignation ([N] Previous
page 25
Notice)
be borne by the creditor, because the risks of the
- Tender of Payment vs Previous Notice : the former
thing are transferred to the creditor from the
is a friendly and private act manifested only to the
moment of deposit 4.) any increment or increase in
creditor; the latter is manifested also to other
value of the thing after the consignation inures to
persons interested in the fulfillment of the obligation.
the benefit of the creditor.
• 2nd paragraph of this article – pertains to the General
• When the amount consigned does not cover the
Requisites of Consignation (Arts. 1232-1251), which
entire obligation, the creditor may accept it,
must be complied with
reserving his right to the balance. If no reservations
are made, the acceptance by the creditor of the
1258. Consignation shall be made by depositing the
amount consigned may be regarded as a waiver of
things due at the disposal of judicial authority, before
further claims under the contract
whom the tender of payment shall be proved, in a
proper case, and the announcement of the consignation
1261. If, the consignation having been made, the
in other cases.
creditor should authorize the debtor to withdraw the
The consignation having been made, the interested
same, he shall lose every preference which he may
parties shall also be notified thereof. (1178)
have over the thing. The co-debtors, guarantors and
● 1st paragraph hereof - 4th Special Requisite of
sureties shall be released. (1181a)
Consignation ([D] Disposal of the Court)
● When the consignation has already been made and
- this is complied with if the debtor depostis the
the creditor has accepted it or it has been judicially
thing or amount with the Clerk of Court
declared as proper, the debtor cannot withdraw the
● 2nd paragraph hereof - 5th Special Requisite of
thing or amount deposited unless the creditor
Consignation ([N] Subsequent Notice)
consents thereto. If the creditor authorizes the
- this is to enable the creditor to withdraw the goods
debtor to withdraw the same, there is a revival of
or money deposited.
the obligation, which has already been extinguished
by the consignation, and the relationship of debtor
1259. The expenses of consignation, when properly
and creditor is restored to the condition in which it
made, shall be charged against the creditor. (1179)
was before the consignation. But third persons,
• The consignation is properly made when:
solidary co-debtors, guarantors and sureties who are
1.) after the thing has been deposited in court, the creditor
benefited by the consignation are not prejudiced by
accepts the consignation without objection and without any
the revival of the obligation between the debtor and
reservation of his right to contest it because of failure to
the creditor
comply with any of the requisites for consignation; and
2.) when the creditor objects to the consignation but the
SECTION 2
court, after proper hearing, declares that the consignation
LOSS OF THE THING DUE
has been validly made
1262. An obligation which consists in the delivery of a
*in these cases, the creditor bears the expenses of the
determinate thing shall be extinguished if it should be
consignation lost or destroyed without the fault of the debtor, and
before he has incurred in delay.
1260. Once the consignation has been duly made, the When by law or stipulation, the obligor is liable even
debtor may ask the judge to order the cancellation of for fortuitous events, the loss of the thing does not
the obligation. Before the creditor has accepted the extinguish the obligation and he shall be responsible
consignation, or before a judicial declaration that the for damages. The same rule applies when the nature of
consignation has been properly made, the debtor may the obligation requires the assumption of risk.
withdraw the thing or the sum deposited, allowing the
obligation to remain in force. (1180) 1263: In an obligation to deliver a generic thing, the
• Consignation has a retroactive effect and the loss or destruction of anything of the same kind does
payment is deemed to have been made at the time not extinguish the obligation. (n)
of the deposit of the thing in court or when it was
placed at the disposal of the judicial authority 1264. The courts shall determine whether, under the
• The effects of consignation are: 1.) the debtor is circumstances, the partial loss of the object of the
released in the same manner as if he had performed obligation is so important as to extinguish the
the obligation at the time of the consignation obligation. (n)
because this produces the same effect as a valid
payment, 2.) the accrual of interest on the obligation 1265. Whenever the thing is lost in the possession of
is suspended from the moment of consignation, 3.) the debtor, it shall be presumed that the loss was due
the deteriorations or loss of the thing or amount to his fault, unless there is proof to the contrary, and
consigned occurring without fault of the debtor must without prejudice to the provisions of article 1165. This
presumption does not apply in case of earthquake,
page 26
flood, storm, or other natural calamity. (1183a)
been offered by him to the person who should receive
it, the latter refused without justification to accept it.
● 3rd paragraph of Art. 1165: whe the obligor delays,
(1185)
or has promised to deliver the same thing to two or
more persons who do not have the same interest, he
Example: X hit Y; Y claim damages for X and X run after the
shall be liable for any fortuitious event until he has
insurance. The insurance is not the 3rd party
effected the delivery
● Hence, in cases where Art. 1165, par. 3 is applicable,
1269. The obligation having been extinguished by the
even if the debtor can prove that the loss of the
loss of the thing, the creditor shall have all the rights of
thing in his possession was not through his fault or
action which the debtor may have against third persons
that it was through a fortuitous event, he shall still
by reason of the loss. (1186)
be liable to the creditor for damages.
NOTE:
1266. The debtor in obligations to do shall also be
* There is no such thing as loss of a generic thing
released when the prestation becomes legally or
physically impossible without the fault of the obligor.
1270. Condonation or remission is essentially
(1184a)
gratuitous, and requires the acceptance by the obligor.
LEGAL IMPOSSIBILITY : may either be - It may be made expressly or impliedly.
1. direct (when the law prohibits the performance or One and the other kind shall be subject to the rules
execution of the work agreed upon, i.e. when it is which govern inofficious donations. Express
immoral or dangerous) condonation shall, furthermore, comply with the forms
2. indirect (the law imposes duties of a superior of donation. (1187)
character upon the obligor which are incompatible
with the work agreed upon, although the latter may 1271. The delivery of a private document evidencing a
be perfectly licit, as where the obligor is drafted for credit, made voluntarily by the creditor to the debtor,
military service or for a civil function) implies the renunciation of the action which the former
had against the latter.
PHYSICAL IMPOSSIBILTY : examples – death of the debtor; If in order to nullify this waiver it should be claimed to
when there is an accident... be inofficious, the debtor and his heirs may uphold it by
proving that the delivery of the document was made in
1267. When the service has become so difficult as to be virtue of payment of the debt. (1188)
manifestly beyond the contemplation of the parties, the
obligor may also be released therefrom, in whole or in 1272. Whenever the private document in which the
part. (n) debt appears is found in the possession of the debtor, it
shall be presumed that the creditor delivered it
DOCTRINE OF UNFORESEEN EVENT voluntarily, unless the contrary is proved. (1189)
(rebus sic stantibus)
It refers to obligation "to do" (personal obligation) 1273. The renunciation of the principal debt shall
Parties are presumed to have the risk extinguish the accessory obligations; but the waiver of
It does not apply aleatory contracts (insurance contract) the latter shall leave the former in force. (1190)
Excluded highly speculative business (stock exchange)
Monatory obligations are excluded (governed by 1357) 1274. It is presumed that the accessory obligation of
pledge has been remitted when the thing pledged, after
Requisites: its delivery to the creditor, is found in the possession of
1. event or change in the circumstances could have the debtor, or of a third person who owns the thing.
been foreseen of the time of the execution
(1191a)
contract
2. it makes the performance of the contract extremely
SECTION 4
difficult but not impossible
CONFUSION OR MERGER OF RIGHTS
3. the event must not be due to the act of any of the
parties
1275. The obligation is extinguished from the time the
4. the contract is for a future prestation. If the
characters of creditor and debtor are merged in the
contract is of immediate fulfillment, the gross
inequality of the reciprocal prestations may be same person. (1192a)
involve desion or want of cause. • Merger or confusion is the meeting in one person of
the qualities of creator and debtor with respect to
1268. When the debt of a thing certain and determinate the same obligation. It erases the plurality of
proceeds from a criminal offense, the debtor shall not subjects of the obligation. Further, the purposes for
be exempted from the payment of its price, whatever which the obligation may have been created are
may be the cause for the loss, unless the thing having
page 27
considered as fully realized by the merger of the
the obligations has a period for the benefit
qualities of debtor and creditor in the same person.
of one party alone and who renounces that
• Requisites of merger or confusion are:
period so as to make the obligation due.
(1) It must take place between the creditor and the
■ It is conventional when the parties agree to
principal debtor,
compensate their mutual obligations even if
(2) the very same obligation must be involved, for if
some requisite is lacking.
the debtor acquires rights from the creditor, but not
■ It is judicial when decreed by the court in a
the particular obligation in question in question there
case where there is a counterclaim.
will be no merger,
(3) the confusion must be total or as regards the
From Dean Pineda:
entire obligation.
Compensation Distinguished From Payment. In
• The effect of merger is to extinguish the obligation.
compensation, there can be partial extinguishment of the
obligation; in payment, the performance must be completer,
1276. Merger which takes place in the person of the
unless waived by the creditor. Payment involves delivery of
principal debtor or creditor benefits the guarantors.
action, while compensation (legal compensation) takes place
Confusion which takes place in the person of any of the
by operation of law without simultaneous delivery.
latter does not extinguish the obligation. (1193)
Compensation Distinguished from Merger. In
• The extinguishment of the principal obligation
compensation, there are at least two persons who stand as
through confusion releases the guarantor’s because
principal creditors and debtor of each other, in merger, there
the obligation of the latter is merely accessory.
is only one person involved in whom the characters of creditor
When the merger takes place in the person of a
and debtor are merged. In merger, there is only one
guarantor, the obligation is not extinguished.
obligation, while in compensation, there are two obligations
involved.
1277. Confusion does not extinguish a joint obligation
except as regards the share corresponding to the
1279. In order that compensation may be proper, it is
creditor or debtor in whom the two characters concur.
necessary:
(1194)
(1) That each one of the obligors be bound principally,
and that he be at the same time a principal creditor of
SECTION 5
the other;
COMPENSATION
(2) That both debts consist in a sum of money, or if the
things due are consumable, they be of the same kind,
1278. Compensation shall take place when two
and also of the same quality if the latter has been
persons, in their own right, are creditors and debtors of
stated;
each other. (1195)
(3) That the two debts be due;
● Compensation is a mode of extinguishing to the
(4) That they be liquidated and demandable;
concurrent amount, the obligations of those persons
(5) That over neither of them there be any retention or
who in their own right are reciprocally debtors and
controversy, commenced by third persons and
creditors of each other. It is the offsetting of two
communicated in due time to the debtor. (1196)
obligations which are reciprocally extinguished if
● For compensation to take place, the parties must be
they are of equal value. Or extinguished to the
mutually debtors and creditors (1) in their own right,
concurrent amount if of different values.
and (2) as principals. Where there is no relationship
• Kinds of Compensation:
of mutual creditors and debtors, there can be no
• As to their effects
compensation. Because the 1st requirement that the
• compensation may be total (when parties be mutually debtors and creditors in their
the two obligations are of the same
own right, there can be no compensation when one
amount); or
party is occupying a representative capacity, such as
• partial (when the amounts are not a guardian or an administrator. The 2nd requirement
equal).
is that the parties should be mutually debtors and
• As to origin creditors as principals. This means that there can be
1. it may be legal;
no compensation when one party is a principal
2. facultative;
creditor in one obligation but is only a surety or
3. conventional;
guarantor in the other.
4. or judicial.
● The things due in both obligations must be fungible,
■ It is legal when it takes place by operation or things which can be substituted for each other.
of law because all requisites are present. ● Both debts must be due to permit compensation.
■ It is facultative when it can be claimed by ● Demandable means that the debts are enforceable in
one of the parties, who, however, has the court, there being no apparent defenses inherent in
right to object to it, such as when one of them. The obligations must be civil obligations,
page 28
including those that are purely natural. An obligation
When a credit or property had been properly
is not demandable, therefore, and not subject to
garnished of attached, it cannot be disposed of
compensation, in the following cases: (1) when there
without the approval of the court.
is a period which has not yet arrived, including the
cases when one party is in a state of suspension of
1280. Notwithstanding the provisions of the preceding
payments; (2) when there is a suspensive condition
article, the guarantor may set up compensation as
that has not yet happened; (3) when the obligation
regards what the creditor may owe the principal
cannot be sued upon, as in natural obligation.
debtor. (1197)
● A debt is liquidated when its existence and amount is
● The liability of the guarantor is only subsidiary; it is
determined. Compensation can only take place
accessory to the principal obligation of the debtor. If
between certain and liquidated debts.
the principal debtor has a credit against the creditor,
which can be compensated, it would mean the
From Dean Pineda:
extinguishment of the guaranteed debt, either totally
The five requisites of a legal compensation are
or partially. This extinguishment benefits the
enumerated in the Article. All requisites must be present
guarantor, for he can be held liable only to the same
before compensation can be effectual.
extent as the debtor.
6. First Requisite—That each of the obligators be bound
principally and that he be at the same time a
From Dean Pineda:
principal creditor of the other. >>The parties must
Exception to the Rule On Compensation; Right of
be mutual creditor and debtor of each other and
Guarantor to Invoke Compensation Against Creditor. The
their relationship is a principal one, that is, they are
general rule is that for compensation to operate, the parties
principal debtor and creditor of each other.
must be related reciprocally as principal creditors and debtors
• Second Requisite—That both debts consist in such a
of each other. Under the present Article, the guarantor is
sum of money, or if the things due are consumable,
allowed to set up compensation against the creditor.
they be of the same kind, and also of the same
quality if the latter has been stated. >>When the
1281. Compensation may be total or partial. When the
debts consist of money, there is not much of a
two debts are of the same amount, there is a total
problem when it comes to compensation to the
compensation. (n)
concurrent amount. It is a matter of mathematical
• Total Compensation—debts are of the same amount.
computation. When the debt consist of things, it is
necessary that the things are consumable which
• Partial Compensation—Debts are not of the same
amount; operative only up to the concurrent
must be understood as ‘fungible’ and therefore
amount.
susceptible of substitution. More than that they must
be of the same kind. If the quality has been states,
1282. The parties may agree upon the compensation of
the things must be of the same quality.
debts which are not yet due. (n)
● Third Requisite—That the two debts are due. >> A
debt is ‘due’ when its period of performance has
• Voluntary compensation is not limited to obligations
which are not yet due. The parties may compensate
arrived. If it is a subject to a condition, the condition
by agreement any obligations, in which the objective
must have already been fulfilled. However, in
requisites provided for legal compensation are not
voluntary compensation, the parties may agree upon
present. It is necessary, however, that the parties
the compensation of debts which are not yet due.
should have the capacity to dispose of the credits
• Fourth Requisite—That they be liquidated and
which they compensate, because the extinguishment
demandable. >> A debt is considered ‘liquidated’
of the obligations in this case arises from their wills
when its amount is clearly fixed. Of if it is not yet
and not from law.
specially fixed, a simple mathematical computation
will determine its amount or value. It is
1283. If one of the parties to a suit over an obligation
‘unliquidated’ when the amount is not fixed because
has a claim for damages against the other, the former
it is still subject to a dispute or to certain condition.
may set it off by proving his right to said damages and
It is not enough that the debts be liquidated. It is also
the amount thereof. (n)
essential that the same be demandable. A debt is
Art. 1284. When one or both debts are rescissible or
demandable if it is not yet barred by prescription and it is not
voidable, they may be compensated against each other
illegal or invalid.
before they are judicially rescinded or avoided. (n)
• Fifth Requisite—That over neither of them there be
• Although a rescissible or voidable debt can be
any retention or controversy, commenced by third
compensated before it is rescinded or annulled, the
persons and communicated in due time to the
moment it is rescinded or annulled, the decree of
debtor. >> A debt of a thing cannot be a subject of
rescission or annulment is retroactive, and the
compensation if the same had been subject of a
compensation must be considered as cancelled.
garnishment of which the debtor was timely notified.
Recission of annulment requires mutual restitution;
page 29
the party whose obligation is annulled or rescinded
• If the debtor did not have knowledge of the
can thus recover to the extent that his credit was
assignment, he may set up by way of compensation
extinguished by the compensation, because to that
all credits maturing before he is notified thereof.
extent he is deemed to have made a payment.
Hence, if the assignment is concealed, and the
assignor still contracts new obligation in favor of the
1285. The debtor who has consented to the assignment
debtor, such obligation maturing before the latter
of rights made by a creditor in favor of a third person,
learns of the assignment will still be allowable by
cannot set up against the assignee the compensation
way of compensation. The assignee in such case
which would pertain to him against the assignor,
would have a personal action against the assignor.
unless the assignor was notified by the debtor at the
time he gave his consent, that he reserved his right to
1286. Compensation takes place by operation of law,
the compensation.
even though the debts may be payable at different
If the creditor communicated the cession to him but
places, but there shall be an indemnity for expenses of
the debtor did not consent thereto, the latter may set
exchange or transportation to the place of payment.
up the compensation of debts previous to the cession,
(1199a)
but not of subsequent ones.
● This article applies to legal compensation and not to
If the assignment is made without the knowledge of
voluntary compensation.
the debtor, he may set up the compensation of all
credits prior to the same and also later ones until he
1287. Compensation shall not be proper when one of
had knowledge of the assignment. (1198a)
the debts arises from a depositum or from the
• Assignment after Compensation. When compensation
obligations of a depositary or of a bailee in
has already taken place before the assignment,
commodatum.
inasmuch as it takes place ipso jure, there has
Neither can compensation be set up against a creditor
already been an extinguishment of one of the other
who has a claim for support due by gratuitous title,
of the obligations. A subsequent assignment of an
without prejudice to the provisions of paragraph 2 of
extinguished obligation cannot produce any effect
Article 301. (1200a)
against the debtor. The only exception to this rule is
E. The prohibition of compensation when one of the
when the debtor consents to the assignment of the
debts arises from a depositum (a contract by virtue
credit; his consent constitutes a waiver of the
of which a person [depositary] receives personal
compensation, unless at the time he gives consent,
property belonging to another [depositor], with the
he informs the assignor that he reserved his right to
obligation of safely keeping it and returning the
the compensation.
same) or commodatum (a gratuitous contract by
• Assignment before compensation. The assignment
virtue of which one of the parties delivers to the
may be made before compensation has taken place,
other a non-consumable personal property so that
either because at the time of assignment one of the
the latter may use it for a certain time and return it)
debts is not yet due or liquidated, or because of
is based on justice. A deposit of commodatum is
some other cause which impedes the compensation.
given on the basis of confidence in the depositary of
As far as the debtor is concerned, the assignment
the borrower. It is therefore, a matter of morality,
does not take effect except from the time he is
the depositary or borrower performs his obligation.
notified thereof. If the notice of assignment is
• With respect to future support, to allow its
simultaneous to the transfer, he can set up
extinguishment by compensation would defeat its
compensation of debts prior to the assignment. If
exemption from attachment and execution. , and
notice was given to him before the assignment, this
may expose the recipient to misery and starvation.
takes effect at the time of the assignment; therefore
Common humanity and public policy forbid this
the same rule applies. If he consents to the
consequence. Support under this provision should be
assignment, he waives compensation even of debts
understood, not only referring to legal support, to
already due, unless he makes a reservation.
include all rights which have for their purpose the
• But if the debtor was notified of the assignment, but
subsistence of the debtor, such as pensions and
he did not consent, and the credit assigned to a third
gratuities.
person matures after that which pertains to the
debtor, the latter may set up compensation when the
1288. Neither shall there be compensation if one of the
assignee attempts to enforce the assigned credit,
debts consists in civil liability arising from a penal
provided that the credit of the debtor became due
offense. (n)
before the assignment. But it f the assigned credit
● If one of the debts consists in civil liability arising
matures earlier than that of the debtor, the assignee
from a penal offense, compensation would be
may immediately enforce it, and the debtor cannot
improper and inadvisable because the satisfaction of
set up compensation, because the credit is not yet
such obligation is imperative.
due.
• The person who has the civil liability arising from
page 30
crime is the only party who cannot set up the
creditor
compensation; but the offended party entitled to the
indemnity can set up his claim in compensation of
• Novation is the extinguishment of an obligation by a
substitution or change of the obligation by a
his debt.
subsequent one which extinguishes or modifies the
Art. 1289. If a person should have against him several
first either by:
debts which are susceptible of compensation, the rules
changing the object or principal conditions
on the application of payments shall apply to the order
by substituting the person of the debtor
of the compensation. (1201)
subrogating a third person in the rights of the creditor
• It can happen that a debtor may have several debts
● Novation is a juridical act of dual function. At the
to a creditor. And vice versa. Under these
time it extinguishes an obligation it creates a new
circumstances, Articles 1252 to 1254 shall apply.
one in lieu of the old
• Classification of Novation
1290. When all the requisites mentioned in Article 1279
are present, compensation takes effect by operation of
• as to nature
1. Subjective or personal – either
law, and extinguishes both debts to the concurrent
passive or active. Passive if there is
amount, even though the creditors and debtors are not
substitution of the debtor. Active if
aware of the compensation.
a third person is subrogated in the
• Legal compensation takes place from the moment
rights of the creditor.
that the requisites of the articles 1278 and 1270 co-
2. Objective or real – substitution of
exist; its effects arise on the very day which all its
the object with another or
requisites concur.
changing the principal conditions
• Voluntary of conventional compensation takes effect
upon the agreement of the parties. 3. Mixed – Combination of subjective
and objective
• Facultative compensation takes place when the • as to form
creditor declares his option to set it up.
• Judicial compensation takes place upon final • Express – parties declare that the old obligation is
judgment. substituted by the new
• Effects of Compensation: • Implied – an incompatibility exists between the old
and the new obligation that cannot stand together
(1) Both debts are extinguished to the concurrent amount;
(2) interests stop accruing on the extinguished obligation of
• as to effect
2. Partial – when there is only a modification or change
the part extinguished;
in some principal conditions of the obligation
(3) the period of prescription stops with respect to the
1. Total – when the old obligation is completely
obligation or part extinguished;
extinguished
(4) all accessory obligations of the principal obligation which
has been extinguished are also extinguished.
• Requisites of Novation:
- A previous valid obligation
• Renunciation of Compensation. Compensation can be
● Agreement of all parties
renounces, either at the time an obligation is
● Extinguishment of the old contract – may be express
contracted or afterwards. Compensation rests upon a
of implied
potestative right, and a unilateral decision of the
● Validity of the new one
debtor would be sufficient renunciation.
TITLE II.
Compensation can be renounced expressly of
CONTRACTS
impliedly.
• No Compensation. Even when all the requisites for CHAPTER 1
compensation occur, the compensation may not take GENERAL PROVISIONS
place in the following cases: (1) When there is
renunciation of the effects of compensation by a GENERAL PROVISIONS
party; and (2) when the law prohibits compensation.
(Unless otherwise indicated, commentaries are sourced from Art. 1305. A contract is a meeting of the minds
the Civil Code book IV by Tolentino). between two persons whereby one binds himself, with
respect to the other to give something or to render
SECTION 6 some service.
NOVATION * relate to Art. 1159 of CC
HOW OBLIGATIONS ARE MODIFIED * Definition:
4. Sanchez Roman – a juridical convention manifested
1291. Obligations may be modified by: in legal form, by virtue of which one or more persons bind
(1) Changing their object or principal condition themselves in favor of another or others, or reciprocally, to
(2) Substituting the person of the debtor the fulfillment of a prestation to give, to do or not to do.
(3) Subrogating a third person in the rights of a * Other Terms:
page 31
c) Perfect promise – distinguished from a contract, in that the
contracts
latter establishes and determines the obligations arising
* Freedom to contract:
therefrom; while the former tends only to assure and pave
7. Any person has the liberty to enter into a contract so
the way for the celebration of a contract in the future.
long as they are not contrary to law, morals, good customs,
d) Imperfect Promise – mere unaccepted offer
public order or public policy.
e) Pact – a special part of the contract, sometimes
8. The legislature, under the constitution, is prohibited
incidental and separable for the principal agreement
from enacting laws to prescribe the terms of a legal contract.
f) Stipulation – similar to a pact; when the contract is an
* Validity of Stipulations:
instrument, it refers to the essential and dispositive part, as
3. Any and all stipulations not contrary to law, morals,
distinguished from the exposition of the facts and
good customs, public order or public policy is valid
antecedents upon which it is based.
* Trust Receipts:
* Number of Parties:
5. Trust receipts, as contracts, in a certain manner
• The Code states “two persons”; what is meant actually is
partake of the nature of a conditional sale as provided by
“two parties”. For a contract to exist, there must be two
the Chatter Mortgage Law, that is, the importer becomes the
parties.
absolute owner of the imported merchandise as soon as he
• A party can be one or more persons.
had paid its price.
* Husband & Wife:
* Other Stipulations:
c. Husbands and wives cannot sell to each other as a protection
(3) Other valid stipulations: Venue of Action, Escalation clauses,
of the conjugal partnership.
& Limitation of carrier’s liability
d. They can however enter into a contract of agency.
* Compromises:
* Auto-contracts:
3. Compromises create reciprocal concessions so that
4. It means one person contracts himself.
parties avoid litigation.
5. As a general rule, it is accepted in our law. The existence
4. The Court must approve it and once approved, the
of a contract does not depend on the number of persons
parties are enjoined to comply strictly and in good faith with
but on the number of parties.
the agreement.
6. There is no general prohibition against auto-
* Juridical Qualification:
contracts; hence, it should be held valid.
4. Juridical Qualification is different from validity. It is
* Contracts of Adhesion:
the law that determines juridical qualification.
5) Contracts prepared by another, containing
5. The contract is to be judged by its character and
provisions that he desires, and asks the other party to agree
courts will look into the substance and nor to the mere
to them if he wants to enter into a contract.
from of the transaction.
Example: transportation tickets
* Limitations on Stipulation:
f. It is valid contract according to Tolentino because the
3. An act or a contract is illegal per se is on that
other party can reject it entirely.
by universally recognized standards us inherently or by
* Characteristics of Contracts:
its nature, bad, improper, immoral or contrary to good
4. 3 elements:
conscience.
1. Essential elements – without which there is no contract;
* Contrary to law:
they are a) consent, b) subject matter and c) cause
3. Freedom of contract is restricted by law for the
2. Natural elements – exist as part of the contract even if
good of the public.
the parties do not provide for them, because the law, as
4. It is fundamental postulate that however broad the
suppletory to the contract, creates them
freedom of the contracting parties may be, it does not go
3. Accidental elements – those which are agreed by
so far as to countenance disrespect for or failure to observe
the parties and which cannot exist without stipulated
a legal prescription. The Statute takes precedence.
Examples:
* Stages of a Contract:
3. A promissory note which represents a gambling debt
4. 3 stages:
is unenforceable in the hands of the assignee.
1. Preparation, conception, or generation – period of
4. Stipulations to pay usurious interests are void.
negotiation and bargaining, ending at the moment
5. A contract between to public service companies
of agreement of the parties
to divide the territory is void because it impairs the control
2. Perfection or birth of the contract – the moment when
of the Public Service Commission.
the parties come to agree on the terms of the contract
6. Agreement to declare valid a law or ordinance is
3. Consummation or death – the fulfillment or performance
void.
of the terms agreed upon in any contract
* Contrary to Morals:
d) Morals mean good customs or those generally accepted
1306. The contracting parties may establish such
principles of morality which have received some kind of social
stipulations, clauses, terms & conditions as they may
and practical confirmation.
deem convenient, provided they are not contrary to
Examples:
law, morals, good customs, public order, or public
d. a promise to marry or nor to marry, to secure legal
policy.
separation, or to adopt a child
● This article embodies the principle of autonomy of
e. a promise to change citizenship, profession, religion or
page 32
domicile
will of one of them.
f. a promise not to hold public office or which limits the
performance of official duties
* Principle of Mutuality of Contract:
g. a promise to enter a particular political party or separate
3. The binding effect of contract on both parties
from it
is based on the principles:
h. contracts which limit in an excessive manner the
𝖮 that obligations arising from contracts have
personal or economic freedom of a person
the force of law between the contracting parties
i. to make an act dependent on money or some
pecuniary value, when it is of such a nature that it should
𝖮 that there must be mutuality between the
not depend thereon; payment to kill another. parties based on their essential equality, to which is
* Contrary to Public Order: repugnant to have one party bound by the contract leaving
4. Public order means the public weal or public the other free therefrom.
policy. It represents the public, social, and legal interest A contract containing a condition which makes its fulfillment
in private law that which is permanent and essential in dependent exclusively upon the uncontrolled will of one of the
institutions, which, even if favoring some individual to whom contracting parties is void.
* Unilateral Cancellation:
the right pertains, cannot be left to his own will.
5. A contract is said to be against public order if the Just as nobody can be forced to enter into a contract, in the
court finds that the contract as to the consideration or the same manner once a contract is entered into, no party can
thing to be done, contravenes some established interest of renounce it unilaterally or without the consent of the other.
society, or is inconsistent with sound policy and good morals, Nobody is allowed to enter into a contract, and while the
or tends clearly to undermine the security of individual contract is in effect, leaves, denounces or disavows the
rights. Examples: contract to the prejudice of the other.
* When Stipulated:
(d) Common carrier cannot stipulate for exemption for liability
F. However, when the contract so stipulates that one
unless such exemption is justifiable and reasonable and
may terminate the contract upon a reasonable period is
the contract is freely and fairly made.
valid.
(e) Payment to intermediaries in securing import licenses or
G. Judicial action for the rescission of the contract is
quota allocations.
no longer necessary when the contract so stipulates that it
(f) Contract of scholarship stipulating that the student must
may be revoked and cancelled for the violation of any of its
remain in the same school and that he waives his right to
terms and conditions. This right of rescission may be waived.
transfer to another school without refunding the school
* Express Agreement:
Art. 1307. Innominate contracts shall be regulated by The article reflects a negative form of rescission as valid.
the stipulations of the parties, by the provisions of Negative Form of Rescission – a case which is frequent in certain
Titles I & II of this Book, by the rules governing the contracts, for in such case neither is the article violated, nor
most analogous nominate contracts, and by the is there any lack of equality of the persons contracting; such
customs of the place. as cancellation of a contract due to default or non-payment or
failure to do service.
INNOMINATE CONTRACTS – those which lack individuality
Art. 1309. The determination of the performance may
and are not regulated by special provisions of law.
be left to a third person, whose decision shall not be
binding until it has been made known to both
* Innominate Contracts:
contracting parties.
do ut des (I give that you may give) – An agreement in which
● Exception to Art. 1308 (Mutuality of Contract)
A will give one thing to B, so that B will give another thing to
A. ● A third person may be called upon to decide whether
do ut facias (I give that you may do) – An agreement under or not performance has been done for the fulfillment of the
which A will give something to B, so that B may do something contract. Such decision becomes binding when the contracting
for A. parties have been informed of it.
facio ut facias (I do that you may do) – An agreement under
Art. 1310. The determination shall be obligatory if it is
which A does something for B, so that B may render some
other service for A. evidently inequitable. In such case, the courts shall
decide what is equitable under the circumstances.
facio ut des (I do that you may give) – An agreement under
which A does something for B, so that B may give something
● Exception to Art. 1308 (Mutuality of Contract)
to A. 11. However, when the decision cannot be arrived due to
* Analogous contracts: inequity, the courts shall decide what is equitable for the
3) Innominate contracts, in the absence of stipulations and parties involved.
specific provisions of law on the matter, are to be governed
by rules applicable to the most analogous contracts. Art 1311. Contracts take effect only between the
parties, their assigns and heirs, except in case where
Art. 1308. The contract must bind both contracting the rights and obligations arising from the contracts
parties; its validity or compliance cannot be left to the are not transmissible by their nature, or by stipulation
or by provision of law. The heir is not liable beyond the
value of the property he received from the decedent.
page 33
If a contract should contain some stipulation in (5) 2 Divisions:
favor of a third person, he may demand its fulfillment
1. hose where the stipulation is intended for the
provided he communicated his acceptance to the
sole benefit of such third person
obligor before its revocation. A mere incidental benefit
2. those where an obligation is due from
or interest of a person is not sufficient. The contracting
the promisee to the third person and the former seeks
parties must have clearly and deliberately conferred a
to discharge it by means of such stipulation
favor upon a third person.
* Requisites of Article:
● 1st paragraph of this article embodies the principle of
(d) To apply the second paragraph, the following are necessary:
relativity of contract
1. stipulation in favor of a third persons
2. stipulation in favor of a third persons should be a part, not
● Four exceptional instances where a contract may
the whole, of the contract
produce effect on third persons: Art. 1311-1314
3. clear and deliberate conferment of favor upon a third person
by the contracting parties and not a mere incidental benefit
* Parties bound by contract:
or interest
3. Generally, only the parties that agreed on
4. stipulation should not be conditioned or
the contracts are bound by the contract.
compensated by any kind of obligation whatever
4. Transmission is possible to the heirs or assignees if
5. that the third person must have communicated his
so stipulated and in certain contracts.
acceptance to the obligor before its revocation
* Third persons not bound:
6. neither of the contracting parties bears the legal
4. It is s general rule that third parties are not bound by the acts
representation or authorization of the third party
of another.
* Beneficiaries:
5. A contract cannot be binding upon and cannot be enforced
4. A stipulation may validly be made in favor of
against one who is not a party to it, even if he has knowledge
indeterminate persons, provided that they can be determined
of such contract and has acted with knowledge thereof.
in some manner at the time when the prestation from the
6. Important Latin maxim: Res inter alio acta aliis necque
stipulation has to be performed.
nocet prodest.
* Test of Beneficial Stipulation:
* Third persons affected:
4. To constitute a valid stipulation pour autrui, it must
c) There are exceptions to the rule. They are:
be the purpose and intent of the stipulating parties to benefit
1. A contract creating a real right affects third
the third person, and it is not sufficient that the third person
persons who may have some right over the thing.
may be incidentally benefited by the stipulation.
(article 1312)
5. Test of Beneficial Stipulation: intention of the parties
2. A contract may reduce the properties of a debtor
as disclosed by their contract.
and thus diminish the available security for the claims of
6. To apply this, it matters not whether the stipulation
creditors. (article 1313)
is in the nature of a gift or whether there is an obligation
3. In some cases as in composition in insolvency
owing from the promisee to the third person.
and in suspension of payments, certain agreements are made
* Acceptance of Third Party:
binding by law on creditors who may not have agreed
5. Stipulation pour autrui has no binding effect unless it
thereto.
is accepted by the third party.
* Enforcement of contract:
6. Acceptance is optional to the third person: he is
d) Only a party to the contract can maintain an action to enforce
not obliged to accept it.
the obligations arising under said contract.
7. It may be in any form, express or implied, written or
* Annulment of contracts:
oral
7. A third person cannot ask for a contract’s annulment
8. There is no time limit to acceptance until the
because he is not party to it.
stipulation is revoked before the third person’s acceptance.
8. Exception: when it is prejudicial to his rights, the
* Rights of Parties:
third person may ask for its rescission.
c. The original parties, before acceptance of the third
* Contracts bind heirs:
persons, still have the right to revoke or modify the contract.
• General rule: rights and obligations under a contract are
* Dependence on Contract:
transmissible to heirs.
(e) Right of the third person emanates from the contract;
• Heirs are not third persons because there is privity of
defenses are also available against the contract.
interest between them and their predecessor.
(f) If after the third person has accepted the stipulation and the
* Intransmissible Contracts:
parties failed to perform or defaulted, he can sue wither for
4. Exceptions:
specific performance or resolution, with indemnity for
1. contracts of purely personal in nature –
damages, as authorized by article 1191.
partnership and agency
* Who may revoke:
2. contracts for payment of money debts are
(b) General Rule: it pertains to the other contracting party or
charged not to the heirs but to the estate of the
promisee, who may exercise it without the consent of the
decedent
promisor. But it may be agreed that the revocation should
* Stipulations for Third Parties:
have the consent of the promisor.
(3) Second paragraph creates an exception to the first.
(c) The right of revocation cannot be exercised by the heirs or
(4) When there is such stipulation pour autrui, it can be enforced.
assignees of the promisee; they might not want to honor the
page 34
decedent’s promise.
law.
* Collective contracts:
* embodies the Principle of Consensuality:
(c) Definition: contracts where the law authorizes the will of the
4. Perfection of a contract, in general: the moment
majority to bind a minority to an agreement notwithstanding
from which it exists; the juridical tie between the parties
the opposition of the latter, when all have a common
arises from that time.
interest in the juridical act.
5. Perfection of Consensual Contracts: the mere
consent which is the meeting of the minds of the parties
Art 1312. In contracts creating real rights, third
upon the terms of the contract
persons who come into possession of the object of the
1. consent may not be expressly given.
contract are bound thereby, subject to the provisions
* Binding Effect of Consensual Contracts:
of the Mortgage Law and the Land Registration laws.
2. The binding force of such contracts are not limited to
* Real Rights in Property
what is expressly stipulated, but extends to all
● A real right directly affects property subject to it;
consequences which are the natural effect of the contract,
hence, whoever is in possession of such property must
considering its true purpose, the stipulations it contains, and
respect that real right.
the object involved.
Art 1313. Creditors are protected in cases of contracts
Art 1316. Real contracts, such as deposit, pledge or
intended to defraud them.
commodatum, are not perfected until the delivery of
* Contracts in Fraud of Creditors
the object of the obligation.
● When a debtor enters into a contract in fraud of his
● Exception to Art. 1315 or Principle of Consensuality
creditors, such as when he alienated property gratuitously
without leaving enough for his creditors (article 1387), the
* Perfection of real contracts:
creditor may ask for its rescission.
Real contract is not perfect by mere consent. The delivery of
the thing is required.
Art 1314. Any third person who induces another to
Delivery is demanded, neither arbitrary nor formalistic.
violate his contract shall be liable for damages to the
other contracting party.
Art 1317. No one may contract in the name of another
* see Arts. 1177 and 1380
without being authorized by the latter, or unless he has
* Interference of Third Persons:
by law a right to represent him.
● If a third person induced a party to violate his side of
A contract entered into in the name of another by
the contract, the other party may sue the third person for
one who has no authority or legal representation, or
damages.
who has acted beyond his powers, shall be
● Requisites:
unenforceable, unless it is ratified, expressly or
● the existence of a valid contract
impliedly, by the person on whose behalf it has been
● knowledge by the third person of the existence of a executed, before it is revoked by the other contracting
contract party.
● interference by the third person in the contractual
* Ratification necessary:
relation without legal justification • A contract entered into in behalf of another who has
not authorized it is not valid or binding on him unless he
Jurisprudential basis: Manila Railroad Co. vs. Compañia ratifies the transaction.
Transatlantica • When ratified, he is estopped to question the legality of
1.....................................the process must be accomplished by the transaction.
distinguishing clearly between the right of action arising from • Kinds of ratification:
the improper interference with the contract by a stranger 1. express
thereto, considered as an independent act generative of civil 2. implied
liability, and the right of action ex contractu against a party ● The ratification has a retroactive effect from the
to the contract resulting form the breach thereof. moment of its celebration, not from its ratification.
* Extent of Liability: ● Before ratification, the contract is in a state of
(3) The extent of liability of a third person interfering is limited to suspense; its effectivity depends on its ratification. The other
the damage that the other party incurred. party must not do anything prior to ratification that shall
(4) Liability is solidary, the offending party and the third prejudice the rights of the other party.
person, because in so far as the third person is concerned, ● When not ratified, the person who entered into a
he commits a tortious act or a quasi-delict, for which contract in behalf of another without authority becomes
solidary responsibility arises. liable to the other party, if he did not inform the latter that
he does not have any representation or authority.
Art 1315. Contracts are perfected by mere consent, and ● When such deficiency or lack of authority has been
from that moment the parties are bound not only to the relayed to the other, he cannot claim for damages against he
fulfillment of what has been expressly stipulated but person without authority.
also to all the consequences which, according to their
nature, may be in keeping with good faith, usage and CHAPTER 2
page 35
● CONSENT (cum sentire) : agreement of wills.
ESSENTIAL REQUISITES OF CONTRACTS ● CONSENT (as applied to contracts) : concurrence of
the wills of the contracting parties with respect to the object
GENERAL PROVISIONS and the cause which shall constitute the contract
● Requisites:
Art. 1318. There is no contract unless the following 𝖮 consent must be manifested by the concurrence
requisites concur: of the offer and the acceptance (Arts. 1319-1326);
(1) Consent of the contracting parties; 𝖮 contracting parties must possess the
(2) Object certain which is the subject matter of necessary legal capacity (Arts. 1327-1329); and
the contract; 𝖮 consent must be intelligent, free,
(3) Cause of the obligation which is established. spontaneous and real (Arts. 1330-1346)
(1261) ● Forms: Consent may either be express or implied.
● There must be at least 2 parties to every contract. There is also a presumptive consent, which is the basis of
The number of parties, however, should not be confused quasi-contracts.
with the number of persons. ● Manifestation: Consent is manifested by the
● A single person can represent 2 parties, and one concurrence of offer and acceptance with respect to the
party can be composed of 2 or more persons. object and the cause of the contract. Once there is such a
● Consent presupposes capacity. There is no manifestation, the period or stage of negotiation is
effective consent in law without the capacity to give such terminated. If consensual, the contract is perfected.
consent. ● A unilateral proposition must be definite
● REQUISITES of CONTRACT IN GENERAL: (distinguished from mere communications), complete (stating
- may either be = the essential and non-essential conditions desired by the
■ ESSENTIAL= without which there would be offeror), and intentional (serious) when accepted by another
no contract; party for such proposition to form a valid contract.
𝖮 COMMON = present in all contracts ● According to Tolentino, however, a unilateral promise
= Consent, object and cause [COC] is not recognized by our Code as having obligatory force. To
𝖮 SPECIAL =present only in certain be so, there must be an acceptance that shall convert it into a
contracts (e.g. delivery in real contracts or form in solemn contract.
ones) ● Mental reservation—when a party makes a
𝖮 EXTRAORDINARY = peculiar to a declaration but secretly does not desire the effects of such
specific contract (e.g. price in a contract of sale) declaration. The mental reservation of the offeror, unknown
■ NATURAL = derived from the nature of the to the other, cannot affect the validity of the offer.
contract, and as a consequence, ordinarily accompany the ● Complex offers: In cases where a single offer
same, although they can be excluded by the contracting involves two or more contracts, the perfection where there
parties if they so desire is only partial acceptance will depend upon the relation of
■ ACCIDENTAL = those which exist only when the contracts between themselves, whether due to their
the contracting parties expressly provide for them for nature, or due to the intent of the offeror.
the purpose of limiting or modifying the normal effects of ● Simultaneous offers: As a rule, the offer and the
the contract. acceptance must be successive in order that a contract may
arise. When there are crossed offers, however, no contract is
● In descending order, the law imposes the essential formed unless one of the parties accepts the offer received
elements, presumes the natural and authorizes the by him.
accidental. ● Acceptance must not qualify the terms of the offer
● Conversely, the will of the contracting parties to produce a contract. It should be unequivocal,
conforms to the first, accepts or repudiates the second and ● Successive agreements: If the intention of one or
establishes the third. both parties is that there be concurrence on all points, the
contract is not perfected if there is a point of disagreement—
SECTION 1 even if there is already agreement on the essential elements
of the contract.
CONSENT ● Meanwhile, if there is no declaration that
agreement on an accessory or subordinate matter is
Art. 1319. Consent is manifested by the meeting of the
necessary, the contract will be perfected as soon as there is
offer and the acceptance upon the thing and the cause
concurrence on the object and the cause.
which are to constitute the contract. The offer must be
● Intermediary: If he carries the offer and the
certain and the acceptance absolute. A qualified
acceptance in written form, the rule applicable to acceptance
acceptance constitutes a counter-offer.
by letter will apply (see illustration below). If carries the
Acceptance made by letter or telegram does not bind
offer verbally, and the acceptance is also verbal, the
the offerer except from the time it came to his
perfection of the contract will be at the moment he makes
knowledge. The contract, in such a case, is presumed
the acceptance known to the offeror.
to have been entered into in the place where the offer
was made. (1262a)
page 36
● By correspondence: When the offer to buy was
Art. 1325. Unless it appears otherwise, business
written or prepared in Tokyo, and the acceptance thereof in
advertisements of things for sale are not definite
Manila was sent by the offeree by airmail to and received by
offers, but mere invitations to make an offer. (n)
the offeror in Tokyo, the contract is presumed to have been
● Sales advertisements: A business advertisement of
entered into in Tokyo.
things for sale may or may not constitute a definite offer. It
● Effect of silence: Modern jurists require the following
is not a definite offer when the object is not determinate.
in order that silence may produce the effect of tacit
● When the advertisement does not have the
acceptance—1) that there is a duty or the possibility to
necessary specification of essential elements of the
express oneself; 2) that the manifestation of the will cannot
future contract, it cannot constitute of an offer. The
be interpreted in any other way; 3) that there is a clear
advertiser is free to reject any offer that may be made.
identity in the effect of the silence and the undisclosed will.
● The general rule, however, is that silence is
Art. 1326. Advertisements for bidders are simply
ambiguous and does not authorize any definite invitations to make proposals, and the advertiser is not
conclusion. Circumstances will have to be taken into bound to accept the highest or lowest bidder, unless
consideration. the contrary appears. (n)
● Withdrawal of offer: Both the offer and the d) In judicial sales, however, the highest bid must necessarily be
acceptance can be revoked before the contract is perfected. accepted.
Art. 1320. An acceptance may be express or implied.
Art. 1327. The following cannot give consent to a
(n)
contract:
● Implied acceptance may arise from acts or facts (1) Unemancipated minors;
which reveal the intent to accept, such as the consumption of (2) Insane or demented persons, and deaf-mutes
the things sent to the offeree, or the fact of immediately who do not know how to write. (1263a)
carrying out of the contract offered.
● Unemancipated minors cannot enter into valid
contracts, and contracts entered into by them are not binding
Art. 1321. The person making the offer may fix the
upon them, unless upon reaching majority they ratify the
time, place, and manner of acceptance, all of
same.
which must be complied with. (n)
● Insane persons: It is not necessary that there be a
3. The offer with a period lapses upon the termination of the
previous of declaration of mental incapacity in order that a
period. Thus the acceptance, to become effective, must be
contract entered into by a mentally defective person may be
known to the offeror before the period lapses.
annulled; it is enough that the insanity existed at the time
the contract was made.
Art. 1322. An offer made through an agent is accepted
from the time acceptance is communicated to him. (n)
● Being deaf-mute is not by itself alone a
disqualification for giving consent. The law refers to the deaf-
● An intermediary who has no power to bind either the
mute who does not know how to write.
offeror or the offeree is not an agent; his situation is similar
to that of a letter carrier.
Art. 1328. Contracts entered into during a lucid
interval are valid. Contracts agreed to in a state of
Art. 1323. An offer becomes ineffective upon the
drunkenness or during a hypnotic spell are voidable.
death, civil interdiction, insanity, or insolvency of
(n)
either party
before acceptance is conveyed. (n) • The use of intoxicants does not necessarily mean a
● The disappearance of either party or his loss of complete loss of understanding. The same may be said of
capacity before perfection prevents the contractual tie drugs. But a person, under the influence of superabundance
from being formed. of alcoholic drinks or excessive use of drugs, may have no
capacity to contract.
Art. 1324. When the offerer has allowed the offeree a • In hypnotism and somnambulism, the utter want of
certain period to accept, the offer may be withdrawn at understanding is a common element.
any time before acceptance by communicating such f) Art. 1329. The incapacity declared in Article 1327 is
withdrawal, except when the option is founded upon a subject to the modifications determined by law, and
consideration, as something paid or promised. (n) is understood to be without prejudice to special
c) It is not the moment of sending but the time of receipt of disqualifications established in the laws. (1264)
the revocation or acceptance which is controlling. ● The Rules of Court provide a list of incompetents
d) The delay in transmission is at the risk of the sender, who need guardianship: persons suffering from the penalty
because he is the one who selects the time and the manner of civil interdiction, hospitalized lepers, prodigals, deaf and
of making the transmission. dumb who are unable to write and read, those of unsound
e) Contract of Option: This is a preparatory contract in which mind (even though they have lucid intervals), and persons
one party grants to the other, for a fixed period and under not being of unsound mind but by reason of age, disease,
specified conditions, the power to decide whether or not to weak mind, and other similar causes cannot, without outside
enter into a principal contract. It must be supported by an aid, take care of themselves and manage their property—
independent consideration, and the grant must be exclusive. becoming an easy prey for deceit and exploitation.
● Special disqualification: Persons declared insolvent or
page 37
bankrupt, husband and wife (incapacity to sell property to ● mistake that is caused by manifest negligence
each other). cannot invalidate a juridical act.
● The incapacity to give consent to contracts renders
the contract merely voidable, while special disqualification Art. 1334. Mutual error as to the legal effect of an
makes it void. agreement when the real purpose of the parties is
frustrated, may vitiate consent. (n)
Art. 1330. A contract where consent is given through ● Three requisites under this article: 1) the error must
mistake, violence, intimidation, undue influence, or be as to the legal effect of an agreement; 2) it must be
fraud is voidable. (1265a) mutual; and 3) the real purpose of the parties is frustrated.
6. Requisites of consent: 1) It should be intelligent or ● The legal effects include the rights and obligations of
with an exact notion of the matter to which it refers; 2) It the parties, not as stipulated in the contract, but as provided
should be free; and 3) It should be spontaneous. by the law. The mistake as to these effects, therefore, means
7. Defects of the will: intelligence is vitiated by error; an error as to what the law provides should spring as
freedom by violence, intimidation, or undue influence; consequences from the contract in question.
and spontaneity by fraud. ● An error as to the nature or character is always
essential, and makes the act juridically inexistent.
Art. 1331. In order that mistake may invalidate
consent, it should refer to the substance of the thing Art. 1335. There is violence when in order to
which is the object of the contract, or to those wrest consent, serious or irresistible force is
conditions which have principally moved one or both employed.
parties to enter into the contract. There is intimidation when one of the contracting
Mistake as to the identity or qualifications of one of the parties is compelled by a reasonable and well-grounded
parties will vitiate consent only when such identity or fear of an imminent and grave evil upon his person or
qualifications have been the principal cause of the property, or upon the person or property of his spouse,
contract. descendants or ascendants, to give his consent.
A simple mistake of account shall give rise to To determine the degree of intimidation, the age,
its correction. (1266a) sex and condition of the person shall be borne in
● Ignorance and error are 2 different states of mind. mind.
Ignorance means the complete absence of any notion about A threat to enforce one's claim through competent
a particular matter, while error or mistake means a wrong or authority, if the claim is just or legal, does not vitiate
false notion about such matter. consent. (1267a)
● Annulment of contract on the ground of error is g. Duress is that degree of constraint or danger either
limited to cases in which it may reasonably be said that actually inflicted (violent) or threatened and impending
without such error the consent would not have been (intimidation), sufficient to overcome the mind and will of a
given. person of ordinary firmness.
● An error as to the person will invalidate consent h. Violence refers to physical force or compulsion, while
intimidation refers to moral force or compulsion.
when the consideration of the person has been the principal i. Requisites of violence: 1) That the physical force
cause of the same. employed must be irresistible or of such degree that the
● Mistake as to qualifications, even when there is no victim has no other course, under the circumstances, but to
error as to person, is a cause vitiating consent, if such submit; and 2) that such force is the determining cause in
qualifications have been the principal cause of the giving the consent to the contract.
contract. Requisites of intimidation: 1) that the intimidation
● A mistake as to the motive of a party does not affect j. must be the determining cause of the contract, or must have
the contract; to give it such effect would destroy the stability caused the consent to be given; 2) that the threatened act be
of contractual relations. When the motive has, however, been unjust or unlawful; 3) that the threat be real and serious,
expressed and was a condition of the consent given, there being an evident disproportion between the evil and the
annulment is proper—because an accidental element is, by resistance which all men can offer; and 4) that it produces a
the will of the parties, converted into a substantial element. reasonable and well-grounded fear from the fact that the
person from whom it comes has the necessary means or
Art. 1332. When one of the parties is unable to read, or ability to inflict the threatened injury.
if the contract is in a language not understood by him,
and mistake or fraud is alleged, the person enforcing Art. 1336. Violence or intimidation shall annul the
the contract must show that the terms thereof have obligation, although it may have been employed by a
been fully explained to the former. (n) third person who did not take part in the contract.
(1268)
Art. 1333. There is no mistake if the party alleging it Art. 1337. There is undue influence when a person
knew the doubt, contingency or risk affecting the takes improper advantage of his power over the will of
object of the contract. (n) another, depriving the latter of a reasonable freedom
● To invalidate consent, the error must be excusable. of choice. The following circumstances shall be
It must be a real error and not one that could have been considered: the confidential, family, spiritual and other
avoided by the party alleging it. The error must arise from relations between the parties, or the fact that the
facts unknown to him.
page 38
person alleged to have been unduly influenced was ● hus, the innocent non-disclosure of a fact does not
suffering from mental weakness, or was ignorant or in affect the formation of the contract or operate to discharge
financial distress. (n) the parties from their agreement.
• In intimidation, there must be an unlawful or unjust act
which is threatened and which causes consent to be given, Art. 1340. The usual exaggerations in trade, when the
while in undue influence there need not be an unjust or other party had an opportunity to know the facts, are
unlawful act. In both cases, there is moral coercion. not in themselves fraudulent. (n)
• Moral coercion may be effected through c) Tolerated fraud includes minimizing the defects of the thing,
threats, expressed or implied, or through harassing exaggeration of its good qualities, and giving it qualities that
tactics. it does not have. This is lawful misrepresentation known as
• Undue influence is any means employed upon a party dolus bonus. This is also called lawful astuteness.
which, under the circumstances, he could not well resist, and d) These misrepresentations are usually encountered in fairs,
which controlled his volition and induced him to give his markets, and almost all commercial transactions. They do not
consent to the contract—which otherwise he would not have give rise to an action for damages, either because of their
entered into. insignificance or because the stupidity of the victim is the real
• A contract of adhesion is one in which one of the parties cause of his loss.
imposes a ready-made form of contract, which the other e) The thinking is that where the means of knowledge are at
party may accept or reject, but which the latter cannot hand and equally available to both parties, one will not be
modify. These are contracts where all the terms are fixed by heard to say that he has been deceived.
one party and the other has merely “to take it or leave it.”
• A contract of adhesion is construed strictly against the Art. 1341. A mere expression of an opinion does not
one who drew it. Public policy protects the other party signify fraud, unless made by an expert and the other
against oppressive and onerous conditions. party has relied on the former's special knowledge. (n)
c. An opinion of an expert is like a statement of fact, and if
Art. 1338. There is fraud when, through insidious false, may be considered a fraud giving rise to annulment.
words or machinations of one of the contracting
parties, the other is induced to enter into a contract Art. 1342. Misrepresentation by a third person does not
which, without them, he would not have agreed to. vitiate consent, unless such misrepresentation has
(1269) created substantial mistake and the same is mutual.
● Fraud is every kind of deception, whether in the (n)
form of insidious machinations, manipulations, concealments, ● The general rule is that the fraud employed by a
or misrepresentations, for the purpose of leading another third person upon one of the parties does not vitiate consent
party into error and thus executing a particular act. and cause the nullity of a contract.
● Fraud produces qualified error; it induces in the ● Exception: If one of the parties is in collusion with
other party an inexact notion of facts. The will of another the third person, or knows of the fraud by the third person,
is maliciously misled by means of false appearance of and he is benefited thereby, he may be considered as an
reality. accomplice to the fraud, and the contract becomes
● “Insidious words or machinations” include false voidable.
promises; exaggeration of hopes or benefits; abuse of
confidence; and fictitious names, qualifications, or Art. 1343. Misrepresentation made in good faith is
authority. not fraudulent but may constitute error. (n)
● Kinds of fraud: 1) dolo causante—which
determines or is the essential cause of the consent; 2) dolo Art. 1344. In order that fraud may make a contract
incidente— which does not have such a decisive influence voidable, it should be serious and should not have been
and by itself cannot cause the giving of consent, but refers employed by both contracting parties.
only to some particular or accident of the obligation. Incidental fraud only obliges the person employing it
● Dolo causante can be a ground for annulment; to pay damages. (1270)
dolo incident cannot be a ground for annulment. ● Fraud is serious when it is sufficient to impress, or to
● The result of fraud is error on the part of the victim. lead an ordinarily prudent person into error; that which
● Requisites of fraud: 1) it must have been employed cannot deceive a prudent person cannot be a ground for
by one contracting party upon the other; 2) it must have nullity.
induced the other party to enter into the contract; 3) it must ● Besides being serious, the fraud must be the
have been serious; 4) and it must have resulted in damage or determining cause of the contract. It must be dolo causante.
injury to the party seeking annulment. ● When both parties use fraud reciprocally, neither one
has an action against the other; the fraud of one
Art. 1339. Failure to disclose facts, when there is a compensates that of the other. Neither party can ask for the
duty to reveal them, as when the parties are bound by annulment of the contract.
confidential relations, constitutes fraud. (n)
● Silence or concealment, by itself, does not Art. 1345. Simulation of a contract may be absolute or
constitute fraud, unless there is a special duty to disclose relative. The former takes place when the parties do
certain facts, or unless according to good faith and the not intend to be bound at all; the latter, when the
usages of commerce, the communication should be made.
page 39
parties conceal their true agreement. (n)
● Simulation is the declaration of a fictitious will,
deliberately made by agreement of the parties, in order to
produce, for the purposes of deception, the appearance of
a juridical act which does not exist or is different from that
which was really executed.
page 40
SECTION 2. - Object of Contracts
Art. 1349. The object of every contract must be
● The object of a contract is its subject matter. It is
determinate as to its kind. The fact that the quantity is
the thing, right, or service which is the subject-matter of the
not determinate shall not be an obstacle to the
obligation arising from the contract.
existence of the contract, provided it is possible to
● Requisites: 1) It must be within the commerce of
man; 2) it must be licit, or not contrary to law, morals, good determine the same, without the need of a new
contract between the parties. (1273)
customs, public policy, or public order; 3) it must be •
The thing must have definite limits, not uncertain or
possible ; and 4) it must be determinate as to its kind.
arbitrary.
• The quantity of the of the object may be
Art. 1347. All things which are not outside the
indeterminate, so long as the right of the creditor is not
commerce of men, including future things, may be the
object of a contract. All rights which are not rendered illusory.
SECTION 3. - Cause of Contracts
intransmissible may also be the object of contracts. •
The cause of the contract is the “why of the
No contract may be entered into upon future
contract,” the immediate and most proximate purpose of the
inheritance except in cases expressly authorized by
contract, the essential reason which impels the contracting
law.
3. All services which are not contrary to law, parties to enter into it and which explains and justifies the
morals, good customs, public order or public policy may • creation of the obligation through such contract.
likewise be the object of a contract. (1271a) The cause as to each party is the undertaking or
• Things which are outside the commerce of man: prestation to be performed by the other. The object of the
1. Services which imply an absolute submission by contract is the subject matter thereof (e.g., the land which is
those who render them, sacrificing their liberty, their sold in a sales contract). Consideration, meanwhile, is the
independence or beliefs, or disregarding in any manner the reason, motive, or inducement by which a man is moved to
equality and dignity of persons, such as perpetual servitude • bind himself by an agreement.
or slavery; Requisites: 1) it must exist; 2) it must be true; and
1. Personal rights, such as marital authority, the status 3) it must be licit.
and capacity of a person, and honorary titles and distinctions; Art. 1350. In onerous contracts the cause is understood
2. Public offices, inherent attributes of the public to be, for each contracting party, the prestation or
authority, and political rights of individuals, such as the right promise of a thing or service by the other; in
of suffrage; remuneratory ones, the service or benefit which is
3. Property, while they pertain to the public dominion, remunerated; and in contracts of pure beneficence, the
mere liberality of the benefactor. (1274)
such as the roads, plazas, squares, and rivers; 6. n onerous contracts, the cause need not be
4. Sacred things, common things, like the air and the adequate or an exact equivalent in point of actual value,
sea, and res nullius, as long as they have not been especially in dealing with objects which have a rapidly
appropriated. fluctuating price. There are equal considerations.
• Even future things can be the object of contracts, as 7. A remuneratory contract is one where a party gives
long as they have the possibility or potentiality of coming into something to another because of some service or benefit
existence. given or rendered by the latter to the former, where such
● The law, however, generally does not allow contracts service or benefit was not due as a legal obligation. The
on future inheritance. A contract entered into by a consideration of one is greater than the other’s.
fideicommissary heir with respect to his eventual rights would 8. A gratuitous contract is essentially an agreement to
be valid provided that the testator has already died. The right give donations. The generosity or liberality of the benefactor is
of a fideicommissary heir comes from the testator and the cause of the contract. There is nothing to equate.
not from the fiduciary. Art. 1351. The particular motives of the parties in
Art. 1348. Impossible things or services cannot be the entering into a contract are different from the cause
object of contracts. (1272) thereof. (n)
• Things are impossible when they are not susceptible • Cause is the objective, intrinsic, and juridical reason
of existing, or they are outside the commerce of man. for the existence of the contract itself, while motive is the
Personal acts or services impossible when they beyond the psychological, individual, or personal purpose of a party to
ordinary strength or power of man. the contract.
• The impossibility must be actual and • As a general principle, the motives of a party do not
contemporaneous with the making of the contract, and not affect the validity or existence of a contract. Exceptions:
subsequent thereto. When motive predetermines the purpose of the contract, such
• The impossibility is absolute or objective when as
nobody can perform it; it is relative or subjective when due to ● When the motive of a debtor in alienating property is
the special conditions or qualifications of the debtor it cannot to defraud his creditors, the alienation is rescissible;
be performed. 1. When the motive of a person in giving his consent is
• The absolute or objective impossibility nullifies the to avoid a threatened injury, as in the case of intimidation,
contract; the relative or subjective does not. the contract is voidable; and
page 41
2. When the motive of a person induced him to act on
promise and may, accordingly, withdraw it. Pending notice of
the basis of fraud or misrepresentation by the other party,
his withdrawal, his accepted promise partakes of the nature
the contract is voidable.
of an offer to sell which, if accepted as in the case at bar,
Art. 1352. Contracts without cause, or with unlawful
results in a perfected contract of sale. Decision: for Sanchez.
cause, produce no effect whatever. The cause is
“An option implies the legal obligation to keep the offer to sell
unlawful if it is contrary to law, morals, good customs,
open for the time specified. It could be withdrawn before
public order or public policy. (1275a)
acceptance, if there was no consideration for the option. But
Art. 1353. The statement of a false cause in contracts
once the offer to sell is accepted, a bilateral promise to sell
shall render them void, if it should not be proved that
and to buy ensues, and the offeree ipso facto assumes the
they were founded upon another cause which is true
obligations of a purchaser.” – J. Antonio, concurring opinion.
and lawful. (1276)
HILL VS VELOSO
• Where the cause stated in the contract is false, the
July 24, 1915
latter may nevertheless be sustained by proof of another licit
Maximina Veloso claimed that she was tricked by her son-in-
cause.
law Domingo Franco into signing a blank document,
Art. 1354. Although the cause is not stated in the
unknowingly binding her to a debt of P6,319 to Michael & Co.
contract, it is presumed that it exists and is lawful,
She thought, according to her, she was made to sign to
unless the debtor proves the contrary. (1277)
acknowledge an obligation to pay for the guardianship of the
• Unless the contrary is proved, a contract is
minor children of Potenciano Veloso (her brother?). And that
presumed to have a good and sufficient consideration. This
she learned of the true nature of the document (a promissory
presumption applies when no cause is stated in the contract.
note to Michael & Co.) only after Franco’s death. But, clearly,
Art. 1355. Except in cases specified by law, lesion or
her signatures on the promissory note were obtained by
inadequacy of cause shall not invalidate a contract,
means of fraud.
unless there has been fraud, mistake or undue
HELD: Granted there was deceit in executing the Promissory
influence. (n)
Note to Michael & Co., still the deceit and error alleged could
• In case of lesion or inadequacy of cause, the general
not annul the consent of Veloso nor exempt her from the
rule is that the contract is not subject to annulment.
obligation incurred. The deceit, in order that it may annul the
• In cases provided by law, however, such as those consent, must be that which the law defines as a cause.
mentioned in Art 1381, the lesion is a ground for rescission of “There is deceit when by words or insidious machinations on
the contract. the part of one of the contracting parties, the other is induced
• Gross inadequacy naturally suggests fraud and is to execute a contract which without them he would not have
evidence thereof, so that it may be sufficient to show it when made.” (Art 1269, Civil Code)
taken in connection with other circumstances. Franco was not one of the contracting parties who may have
CASES deceitfully induced the other contracting party, Michael & Co.,
SANCHEZ VS RIGOS to execute the contract. The one and the other of the
June 14, 1972 contracting parties, to whom the law refers, are the active
Nicolas Sanchez and Severina Rigos executed an “Option to and passive subjects of the obligation, the party of the first
Purchase” whereby Rigos “agreed, promised, and committed’ part and the party of the second part who execute the
to sell to Sanchez a parcel of land for P1,510. The contract. The active subject and the party of the first part of
understanding was that the Option will be deemed the Promissory Note in question was Michael & Co., and the
“terminated and elapsed” if Sanchez fails to exercise his right passive subject and party of the second part were Veloso and
to buy said property within 2 years from the execution of the Franco. Veloso and Franco, therefore, composed a single
agreement. Sanchez did tender several payments within the contracting party in contractual relation with or against
specified period but Rigos rejected said payments, arguing Michael & Co.
that the Option was a unilateral promise to sell and was Franco, like any other person who might have induced Veloso
unsupported by any valuable consideration and by force of into signing the Promissory Note under the influence of
the Civil Code. And therefore, pointed out Rigos, the Option deceit, would be but a third person. Under the Civil Code,
was null and void. deceit by a third person does not in general annul consent.
HELD: The Option was not a contract to buy and sell. It did This deceit may give rise to more or less extensive and
not impose upon Sanchez the obligation to purchase Rigos’ serious responsibility on the part of the third person (Franco)
property. It merely granted Sanchez an option to buy. There and a corresponding right of action for the contracting party
is nothing in the contract to indicate that Rigos’ agreement or prejudiced (Veloso). [Veloso will probably just have to file an
promise was supported by a consideration “distinct from the action against the estate of Franco.]
price” stipulated for the sale of land. Veloso ordered to pay Michael & Co.
Under Arts 1324 and 1479 of the Civil Code, however, a MAPALO VS MAPALO
unilateral promise to sell—although not binding as a contract May 19, 1966
in itself for lack of a separate consideration—nevertheless Spouses Miguel and Candida Mapalo—simple and illiterate
generates a bilateral contract of purchase and sale upon farmers—donated the eastern half of their property to
acceptance. Maximo Mapalo, Miguel's brother, who was about to get
In other words, since there may be no valid contract without married. Maximo, however, deceived Miguel and Maxima into
a cause or consideration, the promisor is not bound by his signing a deed of absolute sale over the entire property in
his favor.
page 42
Maximo and his notary public led the spouse to believe that
October 24, 2000
the deed of sale covered only the eastern half of the property.
Spouses Macario Mariano and Irene Peña-Mariano owned 6
The deed even stated an alleged consideration of P500, which
parcels of land. When Macario died and left no will, his share
the spouses never received. Thirteen years later, Maximo sold
over the properties passed on to his children and Irene.
the entire property to Evaristo, Petronila, Pacifico, and Miguel
Irene, who was appointed the heirs’ lawful representative and
Narciso—who first took possession of the eastern half and
agent, subsequently executed an Affidavit of Merger whereby
later demanded Miguel and Candida to vacate the western
she merged unto her name the land titles covering all the
half. The spouses moved to declare the deeds of sale over the
properties in question. Over the years, she remarried and
western half of the property null and void.
disposed of all 6 parcels of land in favor of one Raul Santos.
HELD: Consent in the case at bar was admittedly given, albeit
The children learned of all this only after Irene’s death.
under the influence of fraud. Accordingly, said consent,
ISSUE: Whether the supposed contracts of sale of various
although defective, did exist. In such case, the defect in the
pieces of real property entered into between Irene as vendor
consent would provide a ground for annulment of a voidable
and the respective vendees were bona fide contracts, legal,
contract, not a reason for nullity ab initio.
and binding upon the children—who were registered co-
As for the cause or consideration, liberality did not exist as
owners of said real properties.
regards the western portion of the Mapalo property. There
HELD: Even with a duly executed written document
was no donation with regard to the same. Under the Civil
purporting to be a contract of sale, the Court cannot rule that
Code, contracts without a cause or consideration produce no
the subject contracts of sale are valid, when the evidence
effect whatsoever. The alleged consideration of P500 in the
presented in the courts below show that there had been no
deed of sale was totally absent as it was not received by the
meeting of the minds between the supposed seller and
spouses. Decision: for Miguel and Candida.
corresponding buyers of the parcels of land in the case at bar.
SANTOS VS COURT OF APPEALS
The case is replete with evidence tending to show that there
August 1, 2000
was really no intention to sell the subject properties as far as
Rosalinda Santos sold her property in Parañaque to Carmen
the children were concerned.
Caseda. Caseda gave an initial payment and took possession
MMDA vs JANCOM
of the property, which she then leased out. Caseda, however,
Facts: Jancom won the bid to operate the waste disposal site
suffered from bankruptcy and failed to pay the remaining
in San Mateo, Rizal under the Build-Operate-Transfer (BOT)
balance. Santos re-possessed the property and collected the
scheme.Aafter a series of meetings and consultations
rentals from the tenants thereof. Caseda sold her fishpond in
between the negotiating teams of EXECOM and JANCOM, the
Batangas and raised money enough to pay the balance.
BOT Contract for the waste-to-energy project was signed
Santos, however, wanted a higher price now taking into
between JANCOM and the Philippine Government, represented
consideration the real estate boom in Metro Manila. Caseda
by the Presidential Task Force on Solid Waste Management
filed a petition either to have Santos execute the final deed of
through DENR Secretary Victor Ramos, CORD-NCR Chairman
conveyance over the property or, in default thereof, to
Dionisio dela Serna, and MMDA Chairman Prospero Oreta. The
reimburse the amount she had already paid.
BOT contract was submitted to President Ramos for approval
HELD: Taking into consideration the essential requisites of a
but this was too close to the end of his term which expired
contract, the Court concluded that there was no transfer of
without him signing the contract. President Ramos, however,
ownership simultaneous with the delivery of the property
endorsed the contract to incoming President Joseph E.
purportedly sold to Caseda. The records clearly showed that,
Estrada. However, due to the clamor of residents of Rizal
notwithstanding the fact that Caseda took possession of the
province, President Estrada had, in the interim, also ordered
property, the title had remained always in the name of
the closure of the San Mateo landfill. Due to these
Santos. Thus, the contract between Santos and Caseda was a
circumstances, the Greater Manila Solid Waste Management
contract to sell—ownership is reserved by the vendor and is
Committee adopted a resolution not to pursue the BOT
not to pass until full payment of the purchase price.
contract with JANCOM. MMDA decided to hold a new bidding
Since the case at bar involves a contract to sell, a judicial
for other waste management in other locations. Jancom won
rescission of the agreement is not necessary. In a contract to
a court order compelling the MMDA to push through with their
sell, the payment of the purchase price is a positive
contract.
suspensive condition. Failure to pay the price agreed upon is
Issue: Was there a valid contract despite the lack of signature
not a mere breach, casual or serious, but a situation that
by the President and valid notice of award?
prevents the obligation of the vendor to convey title from
Held: Yes
acquiring an obligatory force. Thus, if the vendor should eject
Ratio:
the vendee for failure to meet the condition precedent, he is
1. Article 1315 of the Civil Code, provides that a contract is
enforcing the contract and not rescinding it.
perfected by mere consent. Consent, on the other hand, is
For comparative purposes, in a contract of sale, non-payment
manifested by the meeting of the offer and the acceptance
of the price is a negative resolutory condition. The vendor has
upon the thing and the cause which are to constitute the
lost ownership of the thing sold and cannot recover it unless
contract (See Article 1319, Civil Code).
the contract is rescinded and set aside.
2. In the case at bar, the signing and execution of the
Decision: For Santos.
contract by the parties clearly show that, as between the
SANTOS VS HEIRS OF JOSE MARIANO AND ERLINDA
parties, there was a concurrence of offer and acceptance with
MARIANO-VILLANUEVA
respect to the material details of the contract, thereby giving
page 43
rise to the perfection of the contract.
obligation contracted to pay the sum lost in a monte game.
3. To illustrate, when petitioners accepted private
Furthermore, it has not been proven that Canizares gave his
respondents’ bid proposal (offer), there was, in effect, a
consent to the subrogation
meeting of the minds upon the object (waste management
Thus, the obligation of the supposed debtor, because of its
project) and the cause (BOT scheme). Hence, the perfection
vicious origin, is not enforceable in court, it follows that no
of the contract.
recovery can be had in this suit.
4. Despite the lack of valid notice of award, the defect was
Dumez vs. NLRC
cured by the subsequent execution of the contract entered
Facts:
into and signed by authorized representatives of the parties;
Petitioner is a French company which hires Filipino workers
5. In any event, petitioners, as successors of those who
through a ECCOI, a company existing in the
previously acted for the government (Chairman Oreta, et al),
Philippines. Dumez needed 4 Senior Draftsmen who were
are estopped from assailing the validity of the notice of award
willing to work for $600/month at Saudi Arabia. Private
issued by the latter. As private respondents correctly
respondent Jose was among the draftsmen that were hired by
observed, in negotiating on the terms and conditions of the
ECCOI in behalf of Dumez. The employment agreement of
BOT contract and eventually signing said contract, the
Jose showed that his monthly base salary would be
government had led private respondents to believe that the
$680. This discrepancy was discovered when Dumez began
notice of award given to them satisfied all the requirement of
preparing the papers related to respondent’s first month
the law.
salary. The discrepancy was reported to ECCOI who in turn
6. There being a perfected contract, MMDA cannot revoke or
claimed that it was a mere typographical error. Meanwhile,
renounce the same without the consent of the other. From
Jose insisted on being paid $680 per month as stated in his
the moment of perfection, the parties are bound not only to
employment agreement. Dumez eventually dismissed Jose on
the fulfillment of what has been expressly stipulated but also
the grounds of “surplus employee, excess of manpower and
to all the consequences which, according to their nature, may
retrenchment.” A case was filed by Jose before the POEA and
be in keeping with good faith, usage, and law (Article 1315,
then before the NLRC who ordered Dumez to pay the
Civil Code). The contract has the force of aw between the
respondent’s salary for the unexpired portion of 1 year.
parties and they are expected to abide in good faith by their
Issue: WON there existed a valid contract between Dumez
respective contractual commitments, not weasel out of them.
and Jose?
Just as nobody can be forced to enter into a contract, in the
Held: NO
same manner, once a contract is entered into, no party can
Ratio:
renounce it unilaterally or without the consent of the other. It
The amount of monthly salary base was a prime consideration
is a general principle of law that no one may be permitted to
of the parties in signing the employment contract. Mutual
change his mind or disavow and go back upon his own acts,
mistake, however, prevented the proposed contract from
or to proceed contrary thereto, to the prejudice of the other
arising.
party. Nonetheless, it has to be repeated that although the
The mutual mistake here should be distinguished from a
contract is a perfected one, it is still ineffective or
mistake which vitiates consent in a voidable contract.
unimplementable until and unless it is approved by the
The element of consent was not present at all in this
President.
case. There was no concurrence of the offer and acceptance
Palma vs Canizares
upon the subject matter and the cause which are to constitute
Facts:
the contract.
Saturnina Salazar and Juan Canizares took part in a game of
In a situation wherein one or both parties consider that
chance. Canizares lost and as a result thereof, became
certain matters or specifics, in addition to the subject matter
indebted to Salazar in the amount of $5,000. This was
and the causa should be stipulated and agreed upon, the area
evidenced in a promissory note signed by the brother-in-law
of agreement must extend to all points that the parties deem
of Canizares. Canizares paid 500, leaving a balance of 4500.
material or there is no contract.
Salazar meanwhile, received 4500 from Palma. She indorsed
Somoso vs. CA
the note to Palma who demanded the sum from Canizares.
Facts:
Issue: Is Canizares under obligation to pay Palma?
The spouses Somosa purchased from Conpinco one unit VHS
Held: No
(23k) with accessories and one unit Cinema Vision (124.5k)
Ratio:
with complete accessories. They made partial payments which
It is indubitable that the indebtedness of 5,000 pesos
were evidenced by provisional receipts. However, by Aurgust
expressed in the note referred to arose in a monte game, a
27, 1979, no further payments were made. On November of
game of chance, and therefore expressly prohibited by law.
the same year, petitioner demanded that Conpinco pull out
As the law does not allow an action for the recovery of money
the VHS unit because “it was not the unit requested for
won in such games (art. 1798 of the Civil Code), it follows
demonstration.” Petitioner also requested the return of the
that the action brought by Palma can not be maintained, nor
15k deposit. In response, conpinco sent petitioners a
can any judgment be rendered by the courts directing the
collection letter for the Cinema Vision and for the National
payment of the sum claimed in the complaint.
VHS. Petitioners are claiming that there was no perfected
The undertaking expressed in the note executed by a third
contract of sale between them and respondent Conpinco as
person in favor of the woman, Salazar, by order of Cañizares
there was no meeting of the minds of the parties upon the
does not constitute a ratification or confirmation of the
thing which is the object of the contract and upon the price of
page 44
the said thing. Petitioners claim they only requested a
for her services as leading actress in two motion pictures
demonstration.
produced by the company and to recover damages.
Issue: WON there was a contract? •
Her petition was dismissed by the lower court
Held: YES
because “it was defective because not evidenced by any
Ratio:
written document, either public or private considering that
The claims of petitioners are belied by the two documents of
the claim is more than P500 ” thereby violating Article 1356
sale signed by the spouses as buyers which documents were
and 1358 of the Civil Code.
notarized.
Issue:
The acts of petitioners before and after the delivery of the
WON the court below abused its discretion in ruling that a
National VHS negates any claim that the set was delivered for
contract for personal services involving more than P500 was
demonstration purposes only and that there was no meeting
either invalid or unenforceable under the last par of 1358 of
of the minds between the parties as to the subject of the sale
the CC.
and its price. (delivery of checks as partial downpayment
Held:
etc.) • Yes. The court below abused its discretion. There
Yuvienco vs. Dacuycuy
was a misunderstanding of the role of the written form in
Facts:
contracts, as ordained in the present CC.
Petitioners were selling a parcel of land located in follows that of the Spanish Code of 1889 and of the
Tacloban. They expressed willingness to sell the property at “Ordenamiento de Alcala” (ah so Leghis) of upholding the
6.5M to private respondents as long as the latter would make spirit and intent of the parties over formalities, hence, in
known its decision to buy not later than July 31, 1978. The general, contracts are valid and binding from their
private respondents reply, thru a letter stated “we agree to perfection regardless of the form, whether they be oral of
buy property proceed to Tacloban to negotiate details.” The written as provided by Art 1315 (Contracts are perfected by
respondents are now filing a complaint for specific mere consent xxx) and by 1356 ( Contracts shall be
performance which the petitioners want dismissed on the obligatory in whatever form they may have been entered
ground of lack of cause of action. The judge ruled negatively into xxx).
on the motion to dismiss. 𝖮 The essential requisites are present in the
Issue: WON the facts show the existence of a perfected contract- C-O-C.
contract of sale? ● However 1356 also provides two exceptions:
Held: NO a. Contracts for which the law itself requires that they
Ratio: be in some particular form (writing) in order to make them
Art. 1319 CC: Consent is manifested by the meeting of the valid and enforceable (the so-called solemn contracts).
offer and the acceptance upon the thing and the cause which Ex.
are to constitute the contract. The offer must be certain and 1. donation of immovable property (in public ins) (Art. 749)
the acceptance absolute. A qualified acceptance constitutes a 2. donation of movables worth more than P5,000 (Art. 748)
counter-offer. Acceptance made by letter or telegram does 3. contracts to pay interest in loans (mutuum) (Art. 1956).
not bind the offerer except from the time it came to his 4. agreements contemplated in:
knowledge. The contract, in such a case, is presumed to have 4.1. Art 1744: Stipulation bet the common carrier and the
been entered into in the place where the offer was made. shipper or the owner limiting the liability of the former for the
The telegram instructing Atty Gamboa to “proceed to loss destruction or deterioration of the goods to a degree less
Tacloban to negotiate details” is the key that negates and than extraordinary diligence xxx
makes it legally impossible for the court to hold that 4.2. Art 1773: A contract of partnership is void, whenever
respondents’ acceptance of petitioners offer, was the immovable property is contributed thereto, if an inventory of
“absolute” one that Art. 1319 requires. said property is not made, signed by the parties, and
“to negotiate” is practically the opposite of the idea that an attached to the public instrument.
agreement has been reached. 4.3. Art. 1874: When a sale of a piece of land or any interest
There was a failure of any meeting of the minds of the therein is through an agent, the authority of the latter shall be
parties. It was because of their past failure to arrive at an in writing; otherwise, the sale shall be void.
agreement that petitioners had to put an end to the 4.4. Art. 2134: The amount of the principal and of the
uncertainty by writing the letter dating July 12, 1978. interest shall be specified in writing; otherwise the contract of
FORM OF CONTRACTS antichresis shall be void.
Dauden-Hernaez vs. De los Angeles (1969) Note: Antichresis: a contract whereby the creditor acquires
This is a petition for a writ of certiorari to set aside certain the right to receive the fruits of an immovable of his debtor,
orders of the CFI of Quezon City dismissing a complaint for with the obligation to apply them to the payment of the
breach of contract and damage, etc. interest, if owing and thereafter to the principal of his credit
Facts: (Art. 2132).
• Marlene Dauden-Hernaez is a motion picture actress a. Contracts that the law requires to be proved by
who has filed a complaint against private resp Hollywood Far some writing (memorandum) of its terms as in those
East Productions Inc and its President Ramon Valuenzela to covered by the old Statute of Frauds, now Art. 1403(2) of the
recover P14, 700 representing a balance due to said actress CC. (This is needed for enforceability of the contract by
● he contractual system of our CC still an action in court).
page 45
● The basis error in the court’s decision lies in
contract (in this case, it shall be counted from 1889 when the
overlooking that in our contractual system it is not enough
said code went into effect). It has already expired when the
that the law should require that the contract be in writing, as
action was brought in 1907.
it does in Art. 1358. The law MUST further PRESCRIBE that •
Relevance of case under the title: It is a contract of
without the writing the contract is not valid or enforceable by
sale with right to repurchase and it is valid, perfect and
action.
efficient because the three requisites are present and is also
5. Order set aside and case remanded to court of origin
binding notwithstanding the fact that it has been drawn up as
for further proceedings.
a private document, and the legalization of a contract by
Alano et al vs. Babasa (1908)
means of a public writing and its entry in the register are not
Facts:
essential solemnities or requisites for its validity and efficacy
(e) Juana Cantos assisted by her husband Jose Alano filed a
as between the contracting parties, but just conditions of
complaint against the defendant Jose Babasa alleging that the
form which the law imposes in order that it may be effective
complainant Cantos has the right to repurchase the land
and recorded agreement may be respected by the latter.
which her father pledged to guarantee a debt of P1300 in •
Judgment affirmed.
favor of Fulgencio Babasa and Maria Cantos, the parents of
REFORMATION OF INSTRUMENTS
the defendant (relative siguro ng complainant yung
defendant, pinsan siguro). Atilano vs. Atilano (1969)
Facts:
(f) The contract entered into on July 18, 1883 stipulated a •
In 1916, Eulogio Atilano I acquired by purchase from
condition that the creditors should enjoy the usufruct of said
Villanueva lot no. 535 in Zamboanga, obtained the transfer
land from the date of contract and that for seven years to
take possession of the land as if their own and that after 7 certificate of title in his name and in 1920 divided the said lot
years, the debtor is entitled to redeem the land by paying the into 5 parts identified as lots Nos. 535-A, 535-B, 535-C, 535-
D, 535-D, 535-E.
debt. •
(g) Petitioner claims that they talked to defendant and that in the On May 18, after the subdivision of the said lot, he
beginning engaged to permit its redemption later on offered executed a deed of sale cover lot E in favor of his brother
to definitely purchase said land at an increase price but Eulogio Atiliano II, who obtained lot E, and the three other
plaintiff did not agree. lots were sold to other persons. Atilano I retained for himself
(h) Defendant made a general denial and alleged that the land • only the remaining portion of the land presumably Lot A.
described had been sold with right of repurchase and that the In 1952, Atilano II died, thus his widow and children
parents of the plaintiff had lived years after the expiration of obtained the transfer certificate over E in their names as co-
the 7-year period provided and that they never exercised the owners but in 1959 they decided to subdivide the lot and they
right to repurchase. then discovered upon the results of the survey that the land
they were actually occupying was lot A and not E.
Issue: • Because of this, they demanded that Lot E be
WON the plaintiff can repurchase the said land taking into
consideration that the Civil Code was enacted in Dec. 1889 surrendered to them and offered to surrender Lot A to the
which provides a different prescriptive period. descendants of Atilano I but they refused. It is
Held: understandable that they wanted Lot E because it has an area
No. Her action has already prescribed. of 2612 sqm as compared to 1808 sqm of lot A.
• Defendants (Atilano II descendants) answered that it
• The contract was entered into on July 18, 1883 and
the 7 year expiration has commenced on June 19, 1890 and was just an involuntary error and that the intention of the
at that time the CC became effective already thus the parties was to convey the lot correctly identified as A. Atilano
provisions of the Code can be applied on the case. I had been possessing and had his house on the portion
• Art. 1939 shall be the applicable to the case which designated as E and in fact increased the area by purchasing
the adjacent lot from its owner Carpio.
states that: Prescription, which began to run before the •
publication of this code, shall be governed by the prior laws; RTC rendered judgment for the plaintiff on the sole
but if, after this code became operative, all the time required ground that since the property was registered under the Land
in the same for prescription has elapsed, it shall be effectual, Registration Act, the defendants could not acquire it through
even if according to said prior laws a longer period of time prescription.
may be required. Issue:
• Excerpt from the contract: “it has been agreed to WON the lower court was correct in rendering the judgment
for the plaintiff.
between us that we shall convey to him the said land from
Held:
this day, and that he will cause the same to be worked from
No. One sells or buys the property as he sees it, in its actual
this date as if it were his own property for a period of seven
setting and by its physical metes and bounds, and not by the
years; that we shall have the right to redeem it for the said
mere lot number assigned to it in the certificate or title.
sum of P1,000 at the expiration of seven years in such a •
The portion correctly referred to as lot A was already
manner that said land shall be under his care as long as we
do not pay the redemption money”. in the possession of Atilano II who had constructed his
residence therein even before the sale in his favor.
• In the absence of an express agreement, the right to •
The sale was a simple mistake in the drafting of the
redeem the thing sold shall only last and may only be
exercised within 4 years counted from the date of the document. The mistake did not vitiate the consent of the
page 46
parties or affect the validity and binding effect of the contract
their counsel and that it was just one-sided in favor of FNCB,
between them.
thus, filed for an annulment of the compromise agreement
• The new CC provides a remedy for such a situation
and the simulated lease agreement. (RTC and CA ruled in
by means of reformation of the instrument. This remedy is
favor of the Pajarilla’s)
available when, there having been a meeting of the minds of
Issue:
the parties to a contract, their true intention is not expressed
WON annulment should be the proper remedy for the
in the instrument purporting to embody the agreement by
Pajarillaga spouses.
reason of mistake, fraud, inequitable conduct or accident
Held:
(1359).
f. No. According to the Court, their action for annulment of the
• In this case, the deed of sale executed in 1920 need
simulated lease agreement was seasonably filed in 1979,
no longer be reformed. The parties have retained possession
within 10 years from the date of its execution in 1974 (1144
of their respective properties conformably to the real
CC). However the trial court and the CA should have treated
intention of the parties to that sale, and all they should do is
it as an action for reformation of contract.
to execute mutual deeds of conveyance.
g. For when the true intention of the parties to a contract is not
Investors Finance Corporation vs. CA (1991)
expressed in the instrument purporting to embody their
Facts:
agreement by reason of mistake, fraud, inequitable conduct
• Before April 30, 1974 resp Richmann Tractors Inc, or accident, the remedy of the aggrieved party is to ask for
with Pajarillaga as president were the owners of certain the reformation, not annulment, of the instrument to the end
construction equipment and being in need of financing (for that their true agreement may be expressed therein.
operation of their construction and logging business) went to h. If the true transaction between FNCB and Pajarillaga or
Investor’s Finance Corporation (or FNCB Finance) with their Richman Tractors—an loan with chattel mortgage—had been
equipment as collateral. In the documents which were reflected in the documents, instead of a simulated financial
executed, it was made to appear that FNCB was the owner of leasing, the creditor-mortgagee (FNCB), upon the
the equipments and that private resp were merely leasing mortgagor’s default in paying the debt, would have been
them. As a consideration for the lease, private resp were to entitled to seize the mortgaged machinery and equipment
pay monthly amortizations over a period of 36 mos). from Pajarillaga for the purpose of foreclosing the chattel
• On April 30, 1974, petitioner FNCB Finance and mortgage therein. The mortgagors would have had no cause
respondent Richmann Tractors executed a Lease Agreement of action for actual, moral and exemplary damages arising
covering various properties described in the Lease Schedules from the replevin of their mortgaged machinery and
attached to the Lease Agreement. As security for the equipment by the creditor, FNCB.
payment of resp Richmann’s obligations under the Lease INTERPRETATION OF CONTRACTS
Agreement, resp Pajarillaga’s executed a Continuing Guaranty Borromeo v CA 1972
dated April 30, 1974. Facts: Jose A. Villamor, the debtor, borrowed from Canuto O.
• Richmann also applied for and was granted credit Borromeo, the original creditor, a large sum of money for
financing facilities by petitioner in the amount of almost 1M which he mortgaged his house and lot. Said mortgage,
payable in installments. however, was not properly drawn up and registered, so that
• Private respondents defaulted in their respective the mortgaged house and lot ended up attached to a separate
obligations. FNCB demanded for the obligations to be fulfilled civil action initiated by a certain Mr. Miller against Villamor.
and thereafter filed a complaint for seizure. When Villamor was being pressed to settle his obligation with
• A writ of replevin was issued for the seizure of the Borromeo, the former assured his creditor that he would still
heavy equipment and machineries subject of the lease pay the debt and executed a written document promising to
agreement and when served upon the Pajarillaga’s, they pay his debt to Borromeo even after the lapse of ten years,
panicked and proceeded to the office of the FNCB and its the legal prescriptive period for recovery of debts. The
counself and thereafter signed a Compromise agreement creditor never instituted any action against the debtor within
which states among others that the Pajarillaga’s acknowledge the ten years following the execution of the said document
that plaintiff is the owner of all the properties and that they Action to recover the sum from the debtor was filed only after
have been allowed to temporarily operated the properties ten years and was rejected by CA for 2 main reasons: (1)ten-
under the direct control and supervision of plaintiff and/or its year prescriptive period for recovery of debts had elapsed, (2)
representatives with the express understanding that document promising to pay even after ten years was void
defendants acknowledge and recognize plaintiff’s ownership because promise was illegal, it being violative of principle
and right to repossess and take custody of said properties. “that a person cannot renounce future prescription”.
• This agreement was approved by Branch XXI of this Issue: WON written document promising to pay after ten
Court and a decision was rendered enjoining the parties years is void for being illegal.
thereto to faithfully comply with the terms and conditions. But Held: No. In the interpretation of the written document or
the Pajarillaga’s still did not comply with the compromise contract wherein Villamor promised to pay his debt even after
agreement thus the sheriff levied on 27 pieces of heavy ten years, CA relied too heavily on the words employed in
equipment. said document without taking the intention of the parties into
• The Pajarillaga’s claim that there was fraud because consideration. Reference to the prescriptive period of ten
they signed the Compromise agreement without the help of years is susceptible to the construction that only after the
lapse thereof could the demand be made for the payment of
page 47
the obligation.
offer of 5,300 per square meter.
Prescriptive period to file action thus started to run only after
Issue WON right of first refusal in the contract of lease may
ten years had lapsed. This is consistent with the actions and
be interpreted as to require that the lessee have specific
intent of the two parties.
knowledge of the price offered by other interested parties,
In declaring the said contract to be void, CA ran counter to
thereby amounting to a right to match.
the well-settled maxim that between two possible
Held No. “Intention of the parties shall be accorded primordial
interpretations, that which saves rather than destroys is to be
consideration and in case of doubt, their contemporaneous
preferred.
and subsequent acts shall be principally considered.”
Lim Yhi Luya v CA 1980
The actions of the two principal parties involved in the
Facts: Lim Yhi Luya entered into a contract of sale with
contract of lease shaped their understanding and
private respondent, Hind Sugar Company, wherein the latter
interpretation of the “right of first refusal” to mean simply
sold to the former 4,085 piculs of sugar. The terms of the
that should Reyes decide to sell the property during the term
contract which was drawn by the respondent company
of the lease, such sale should first be offered to Riviera.
explicitly stated “cash upon signing of this contract”. Much of
Riviera's stubborn approach in its negotiations with Reyes
the sugar was properly delivered to the plaintiff in the next
showed crystal clear that there was never any need to
few months except for a remaining 350 piculs of sugar. When
disclose such information.
plaintiff filed an action to compel the delivery of the remaining
DEFECTIVE CONTRACTS:
350 piculs, private respondent company contended that no
RESCISSIBLE CONTRACTS
payment had yet been made by the plaintiff, contrary to the
Art. 1380. Contracts validly agreed upon may be
terms stipulated in their contract. Plaintiff had no receipt to
rescinded in the cases established by law. (1290)
prove that payment had been made but contends that the
Art. 1381. The following contracts are rescissible:
terms stipulated in the contract is sufficient proof that
(1) Those which are entered into by guardians
payment had been made at around the time the contract was
whenever the wards whom they represent suffer lesion
signed.
by more than one-fourth of the value of the things
Issue: WON the statement “cash upon signing of this contact”
which are the object thereof;
in the contract of sale drawn up by the respondent company
(2) Those agreed upon in representation of absentees,
may be interpreted as sufficient proof that payment had in
if the latter suffer the lesion stated in the preceding
fact been made.
number;
Held: Yes. Although the contract is ambiguous enough to
(3) Those undertaken in fraud of creditors when the
admit of several valid interpretations, the interpretation to be
latter cannot in any other manner collect the claims
taken shall not favor the respondent company since it is the
due them;
party who caused the ambiguity in its preparation. (see Art
(4) Those which refer to things under litigation if they
1377) The ambiguity raised by the use of the words or
have been entered into by the defendant without the
phrases in the questioned provision must be resolved and
knowledge and approval of the litigants or of
interpreted against the respondent company.
competent judicial authority;
Respondent company's act of delivering to the petitioner four
(5) All other contracts specially declared by law to be
delivery orders covering all the 4,035 piculs of sugar, viewed
subject to rescission. (1291a)
in the light of the established fact that all sugar transactions
Art. 1382. Payments made in a state of insolvency for
between petitioner and respondent are always in cash.. is a
obligations to whose fulfillment the debtor could not be
clear confirmation of the fact that petitioner paid in cash the
compelled at the time they were effected, are also
cost of the sugar.. on the very day that the contract was
rescissible. (1292)
signed..
Art. 1383. The action for rescission is subsidiary; it
Riviera Filipina v CA 2002
cannot be instituted except when the party suffering
Facts Riviera Filipina, Inc. entered into a contract of lease
damage has no other legal means to obtain reparation
with Juan Reyes involving 1,018 square meters of real
for the same. (1294)
property owned by Reyes. Paragraph 11 of the lease contract
Art. 1384. Rescission shall be only to the extent
expressly provided that “lessee shall have the right of first
necessary to cover the damages caused. (n)
refusal should the lessee decide to sell the property during
Art. 1385. Rescission creates the obligation to return
the term of the lease.” When Reyes decided to sell the
the things which were the object of the contract,
property in 1988, he entered into a series of negotiations with
together with their fruits, and the price with its
Riviera Filipina but the parties failed to agree on the price for
interest; consequently, it can be carried out only when
the subject property. Riviera Filipina, Inc. clearly expressed
he who demands rescission can return whatever he
its refusal to go beyond the price of 5,000 per square meter.
may be obliged to restore.
Another interested party offered to purchase the same
Neither shall rescission take place when the things
property for 5,300 per square meter. Riviera Filipina was
which are the object of the contract are legally in the
well- informed that there were other interested buyers but did
possession of third persons who did not act in bad
not know of specific price offered by other party. Riviera
faith.
Filipina now filing suit against Reyes and 3rd party purchaser,
In this case, indemnity for damages may be demanded
contending that their right of first refusal was violated
from the person causing the loss. (1295)
because they were not given the opportunity to match the
Art. 1386. Rescission referred to in Nos. 1 and 2 of
page 48
Article 1381 shall not take place with respect to
rescinded the contract and ordered UFC to 1. Return the
contracts approved by the courts. (1296a)
Mafran Sauce formula and trademark 2. Pay Francisco Sr. his
Art. 1387. All contracts by virtue of which the debtor
salary since Dec 1960 until the return of the Mafran formula
alienates property by gratuitous title are presumed to
and trademark and 3. Pay attorney’s fees and costs.
have been entered into in fraud of creditors, when the
Held: CA correctly observed that UFC schemed and
donor did not reserve sufficient property to pay all
maneuvered to ease out and dismiss Francisco Sr. from the
debts contracted before the donation.
service as chief chemist, in flagrant violation of the Bill of
Alienations by onerous title are also presumed
Assignment; and that the notice of recall was to placate
fraudulent when made by persons against whom some
Francisco Sr. Therefore in addition UFC is 4. Enjoined from
judgment has been issued. The decision or attachment
using in any manner said Mafran sauce trademark and
need not refer to the property alienated, and need not
formula and 5. pay legal interest on Francisco Sr.’s salary.
have been obtained by the party seeking the rescission.
Doctrine:
In addition to these presumptions, the design to
The general rule is that rescission of a contract will not be
defraud creditors may be proved in any other manner
permitted for a slight or casual breach, but only for such
recognized by the law of evidence. (1297a)
substantial and fundamental breach as would defeat the very
Art. 1388. Whoever acquires in bad faith the things
object of the parties making the agreement. The question of
alienated in fraud of creditors, shall indemnify the
whether a breach of a contract is substantial depends upon
latter for damages suffered by them on account of the
the attendant circumstances.
alienation, whenever, due to any cause, it should be
Recall: Art 1191 CC: The power to rescind obligations is
impossible for him to return them.
implied in reciprocal ones, in case one of the obligors should
If there are two or more alienations, the first acquirer
not comply with what is incumbent upon him.
shall be liable first, and so on successively. (1298a)
The injured party may choose between the fulfillment and the
Art. 1389. The action to claim rescission must be
rescission of the obligation with the payment of damages in
commenced within four years.
either case. He may also seek rescission even after he has
For persons under guardianship and for absentees, the
chosen fulfillment, if the latter should become impossible.
period of four years shall not begin until the
The Court shall decree the rescission claimed, unless there be
termination of the former's incapacity, or until the
just cause authorizing the fixing of a period.
domicile of the latter is known. (1299)
This is understood to be without prejudice to the rights of
Notes:
third persons who have acquired the thing, in accordance with
* 4 years from when? Example insane , from lucid interval
Art 1385 and Art 1388 of the Mortgage Law.
ba?
Tolentino: Art 1191 Rescission is used, instead of Resolution
* 1st remedy (since subsidiary action ang rescission) is to ask
which is more apt.
for the amount of lesion to be repaired.
Difference of Art 1191 to Art 1381:
UFC V CA
J. J.B.L. Reyes:
May 13, 1970
A rescission for breach of contract under Art 1191 CC is not
Magdalo V. Francisco, Sr. invented the Mafran sauce, a food
predicated on injury to economic interests of the party
seasoning made out of banana (ketchup?) and had the
plaintiff, but on the breach of faith by the defendant, that
formula patented and the name registered as his own
violates the reciprocity between the parties. It is not a
trademark.
subsidiary action, and Art 1191 may be scanned without
In May 1960, Francisco Sr. entered into a contract with
disclosing anywhere that the action for rescission thereunder
Universal Food Corporation entitled “Bill of Assignment”
is subordinated to anything other than the culpable breach of
wherein Francisco assigned the USE of the Mafran sauce
his obligations by the defendant. This rescission is a principal
formula to UFC (right to mass produce and sell) in exchange
action retaliatory in character, it being unjust that a party be
for a permanent assignment as Second Vice President and
held bound to fulfill his promise, when the other violates his.
Chief Chemist with a salary of P300/month, and becoming a
Hence the reparation of damages for the breach is purely
member of the Board of Directors.
secondary.
On November 30, 1960 UFC dismissed Francisco and the staff
In Art 1381, the cause of action is subordinated to the
working on the Mafran sauce on the pretense of scarcity and
existence o f that prejudice because it is the raison d’ etre as
high prices of raw materials; but 5 days later, the President
well as the measure of the right to rescind. Hence, when the
and General Manager of UFC Tirso T. Reyes, ordered the
defendant makes good the damage caused, the action cannot
Auditor/Superintendent and the Assistant Chief Chemist to
be maintained or continued, as expressly provided in Art.
produce the Mafran sauce in full swing, to recall the laborers
1383 and 1384. But the operation of these 2 articles is limited
dismissed (except for Francisco Sr.) and to hire additional
to the cases of rescission for lesion enumerated in Article
daily laborers. The Mafran sauce produced was of inferior
1381 of the CC, and does not apply to cases under Art. 1191.
quality because of the absence of Francisco Sr. who alone
Equitorial V Mayfair, ibid. (case #14 sa page 1 syllabus)
knew the exact formula.
Nov. 21, 1996
GM Reyes also admitted that “I consider the two months we
In 1967, Carmelo entered a contract of lease with Mayfair
paid him (Francisco Sr.) is the separation pay.”
Theater for a portion of Carmelo’s property with a stipulation
Thus Francisco Sr. filed an action for Rescission of the
(par. 8) of an exclusive option by Mayfair to purchase the
contract. Lower court dismissed the case. CA reversed:
property in case Carmelo decides to sell it.
page 49
In 1974, Mr. Pascal of Carmelo called Mr. Yang of Mayfair
𝖮 When either party is incapable of giving consent
because another party was willing to buy the property.
to a contract
Despite Mayfair giving notice of interest to buy; Carmelo sold
the property to Equatorial on 1978.
𝖮 When consent is vitiated by mistake, violence,
intimidation, undue influence, fraud
Mayfair then brought suit for the annulment of the sale of the
● Binding, unless annulled by a proper court
leased premises to Equatorial.
RTC dismissed the petition and found par. 8 to be an option action
● Ratifiable (Art. 1390)
clause that cannot bind Carmelo for lack of separate and • Prescription for action of annulment: 4 years to
distinct consideration. begin:
CA reversed; par. 8 – right of first refusal according to art. ● hen vice is due to intimidation, violence or
1479 par. 2. undue influence – from the time defect of consent ceases
Held: Par. 8 is a right of first refusal, so the contract between● mistake or fraud – from the time of
Carmelo and Equatorial must be rescinded. discovery
Ratio: the right was incorporated for Mayfair’s protection; ● entered into by minors or those incapable of
Mayfair should be given the right to match the P11.3M price. giving consent – the moment guardianship ceases (Art. 1391)
Equatorial is a buyer in bad faith. • Ratification
Doctrine: same with Guzman, Bocaling V Bonnevie ● extinguishes action for annulment (Art.
Guzman, Bocaling V Bonnevie 1392)
March 2, 1992 ● may be express or tacit (Art. 1393)
Africa Valdez de Reynoso, the administratrix of a parcel of • tacit ratification – the execution of
land leased it to the Bonnevies for P4,000 per month with a an act which necessarily implies an intention to waive his
stipulation that the Bonnevies will be given first priority to right by the party, who, knowing of the reason which renders
purchase the land should Reynoso decide to sell it. the contract voidable, has a right to invoke annulment.
According to Reynoso, she notified the Bonnevies via ● ay be effected by the guardian of the
registered mail on Nov 3, 1976 her intention to sell the incapacitated person (Art. 1394)
property for P600K, giving them 30 days to exercise their ● does not require the conformity of the
right, which she failed to prove. The Bonnevies allege that person who does not have a right to bring an action for
they didn’t receive any letter. annulment (Art. 1395)
Reynoso sold the land to Guzman, Bocaling and Co. for ● cleanses the contract from all its defects
P400K. from the moment it was constituted (Art. 1396)
The Bonnevies filed an action for annulment of the sale, and • Annulment
that Reynoso be required to sell the property to them which ● Who may institute (Art. 1397)
CFI granted and CA affirmed. • By all who are obliged principally or
Held: The CA correctly held that the Contract of Sale was not subsidiarily
voidable but Rescissible. • Exceptions:
Doctrine: Persons capable cannot
•
Under Art. 1380 to 1381 (3) of the Civil Code, a contract
allege the incapacity of those with whom they contracted
otherwise valid may nonetheless be subsequently rescinded•
Persons who exerted
by reason of injury to third persons like creditors. The status
of creditors could be validly accorded the Bonnevies for they violence, undue influence, who employed fraud or caused
had substantial interests that were prejudiced by the sale of mistake – action for annulment cannot be based on these
the subject property to the petitioner without recognizing flaws
their right of first priority under the Contract of Lease. ● Gives rise to the responsibility of restoring
to each other things subject matter of the contract, with
According to Tolentino, rescission is a remedy granted by law
fruits, price with its interest, except in cases provided by law
to the contracting parties and even to third persons, to secure
(Art. 1398)
reparation for damages caused to them by a contract, even if
• Service – value thereof will serve
this should be valid, by means of the restoration of things to
as the basis for damages
their condition at the moment prior to the celebration of said
contract.
• Incapacitated persons not obliged
It is a relief allowed for the protection of one of the to make restitutions except insofar as he has been benefited
contracting parties and even third persons from all injury and by the thing or price received by him (Art. 1399)
damage the contract may cause, or to protect some • If objects cannot be returned
incompatible and preferent right created by the contract. because these were lost through his fault, he shall return the
Rescission implies a contract which, even if initially valid, fruits received and the value of the thing at the time of the
produces a lesion or pecuniary damage to someone that loss, with interests from the same date (Art. 1400)
justifies its invalidation for reasons of equity • As long as one of the contracting
Voidable Contracts parties does not restore what in virtue of the annulment
Voidable Contracts decree he is bound to return, the other cannot be compelled
● Contracts that are voidable or annullable: to comply with what is incumbent upon him. (Art. 1402)
● Extinguishment of action (Art. 1401)
page 50
• if object is lost through the fault or
Facts:
fraud of person who has the right to institute the proceedings •
Carlsons Dev’t. Corp. owned three adjacent lots
• if action based on incapacity of any 1. Lot covered by TCT 15515
one of contracting parties, loss of thing shall not be an 2. Lot covered by TCT 15516
obstacle to the success of action, unless loss or fraud took 3. Lot covered by TCT 15684
place through the plaintiff’s fault ● A fourth lot was adjacent to Lot 15684, which was
CASES not owned by Carlsons Dev’t.
Uy Soo Lim v. Tan Unchuan ● 1985: Carlsons constructed a two-storey house on
Facts: the third lot (erroneously indicated to be covered by TCT
● An action for annulment of a contract whereby Uy 15515)
Soo Lim sold to Pastrano all his interest in the estate of the ● Lots 15515 and 15516 mistakenly surveyed to be
late Santiago Pastrano located on lot number 4
● Santiago migrated to the Philippines when he was ● The fourth lot was sold to Sps. Theis by Carlsons
13. Married Candida Vivares, had two children with her – Dev’t., covered by said TCTs. The Theis did not immediately
Francisca (defendant in the suit and wife of co-defendant) occupy the lot; went to Germany instead. Upon return, they
and Concepcion. discovered that the lot was owned by another
● Santiago returned to China and had illicit relations ● Theis insisted on buying lot number 4, which was not
with Chan Quieg. Came back to the Philippines and never saw possible as it was not owned by Carlsons; instead, Carlsons
her again. Received a letter from her saying that she borne Dev’t. offered lots 1 and 2, which was refused.
him a son named Uy Soo Lim. ● This time, Theis insisted on lot number 3; counter-
● Believing that Uy Soo Lim being his only son, he offer by Carlson to return purchase price x 2, refused.
dictated his will leaving to him 7/9 of his properties to the ● Carlsons filed an action for annulment on the ground
son. of mistake
● Claimants to the estate: Issue: WON Carlsons can seek for annulment on the ground
𝖮 Candida – ½ as widow of mistake
𝖮 Francisca and Concepcion – that Uy Soo Lim was Held: Yes
not entitled for not being a son, legitimate or illegitimate Ratio:
𝖮 Chan Quieg – ½ as widow (their marriage was ● Carlsons’ mistake was made in good faith
valid under the laws of China) 𝖮 When mistake was discovered, offers were made
● Uy Soo Lim appointed Choa Tek Hee as adviser and to offset the damage caused by the mistake
agent and executed a power of attorney in favor of him to ● The nature of mistake as to vitiate consent must be
represent him in the negotiations that which speaks of the substance of the contract
● Compromise was reached – Uy Soo Lim to divest his 𝖮 Consent being an essential element of contracts,
interest in the estate for P82,000.00, Francisca declared the when it is given by mistake, the validity of contractual
sole owner of all the properties. relations becomes legally impaired
● Uy Soo Lim filed a case to annul the contract alleging Rural Bank of Caloocan v. CA
that undue influence was exerted on him, and that his youth Facts:
was taken advantage of. 5. Maxima Castro, accompanied by Valencia, applied to
Issue: WON Uy Soo Lim can file for annulment RBC for an industrial loan of 3 thousand
Held: No. 6. The Valencia spouses applied for a 3 thousand peso loan
Ratio: as well, which was also granted
e) Although he was a minor at the time of the execution of the 7. Both loans being granted, Castro was made to sign a
contract, he failed to repudiate it immediately upon reaching promissory note, as a principal in the first, and as a co-maker
the age of majority in the Valencia note. They were secured by a real-estate
f) He also tacitly ratified the contract when he disposed of the mortgage on Castro’s house and lot.
greater part of the proceeds when he became of age and 8. Castro received a Notice of Sheriff’s Sale in satisfaction
after he had full knowledge of facts upon which he is trying to of the obligation covering the two promissory notes
disclaim 1. Only then did she realize that the mortgage was
g) If he were seeking to annul the contract, he would also have encumbrance not just for her 3k loan, but also for the 3k loan
asked that payments to him by the defendants be of the Valencias; she was made to sign without knowledge of
stopped. Instead, he proceeded to secure, spend and dispose this fact
of every cent of the proceeds) 2. She filed a suit for annulment from the second
h) Art. 1393 – express or tacit ratification promissory note and the mortgage covering this, and the
i) Art. 1398 – responsibility of restoring to each other things annulment of the foreclosure sale.
subject matter of the contract Issue: WON fraud can be alleged to free Castro from
j) Art. 1401 – extinguishment of action for annulment: if object responsibility with respect to the 2nd promissory note
is lost through the fault or fraud of person who has the right Held: Yes
to institute the proceedings Ratio:
Sps. Theis v. CA
page 51
• The mistake committed by both Castro and the bank (a) An agreement that by its terms is not to be
which led to the vitiation of consent is due to the Valencias performed within a year from the making thereof;
fraud and misrepresentation (b) A special promise to answer for the debt, default,
• A contract may be annulled on the ground of vitiated or miscarriage of another;
consent due to fraud by a third person even without the (c) An agreement made in consideration of marriage,
connivance with one of the contracting parties other than a mutual promise to marry;
• The bank committed a mistake in not ensuring the (d) An agreement for the sale of goods, chattels or
extent of the coverage of the mortgage. things in action, at a price not less than five hundred
MWSS v. CA pesos, unless the buyer accept and receive part of such
Facts: goods and chattels, or the evidences, or some of them,
g. 1965: MWSS leased around 128 hectares of land to CHGCCI of such things in action or pay at the time some part of
for 25 years renewable for another 15 years with a stipulation the purchase money; but when a sale is made by
allowing for the exercise of a right of first refusal should it be auction and entry is made by the auctioneer in his sales
put up for sale book, at the time of the sale, of the amount and kind of
h. President Marcos issued an LOI directing MWSS to cancel the property sold, terms of sale, price, names of the
lease and to dispose the property. MWSS and CHGCCI agreed purchasers and person on whose account the sale is
on the sale made, it is a sufficient memorandum;
i. MWSS approved the sale in favor of Silhouette, CHGCCI’s (e) An agreement of the leasing for a longer period
assignee for 25M. than one year, or for the sale of real property or of an
j. Silhouette entered a deed of sale with Ayala (1984) interest therein;
k. 1993: MWSS filed an action seeking the declaration of nullity (f) A representation as to the credit of a third person.
of the MWSS-Silhouette sale due to Silhouette’s fraudulent (3) Those where both parties are incapable of giving
acts and Marcos’s undue influence over MWSS consent to a contract.
Issue: WON the sale can be declared null and void 4. Unenforceable contracts cannot be enforced unless it is first
Held: No. ratified in the manner provided by law. An unenforceable
Ratio: contract does not produce any effect unless it is ratified.
• All the essential requisites being present, the Unenforceable contracts cannot be sued upon unless ratified
contract can only be voidable, and not void, as all the (Paras, 2003).
essential requisites of the contract are present. 5. As to defectiveness, an unenforceable contract is nearer to
• Being voidable at the most, prescriptive period of absolute nullity than voidable or rescissible contracts.
four years from the time of the discovery of the mistake and 6. There are 3 kinds of unenforceable contracts:
from the time the undue influence ceases should be observed. a) unauthorized contracts;
• If the vice of consent is based on Marcos’s undue b) those that fail to comply with the Statute of Frauds;
influence, the four years should be counted from the moment c) those where both parties are incapable of giving consent to
the undue influence ceased, which is in 1986 a contract.
• If mistake is alleged, prescriptive period of four UNAUTHORIZED CONTRACTS
years to begin from the discovery of the same, it should’ve e) When a person enters into a contract for and in the name of
begun from the date of the execution of the sale of the another, without authority to do so, the contract does not
documents, deemed to have taken place on the date of bind the latter, unless he ratifies the same. The agent, who
registration of the deeds with the Register of Deeds as has entered into the contract in the name of the purported
registration is constructive notice to the world principal, but without authority from him, is liable to third
• Furthermore, there was ratification on the part of persons upon the contract; it must have been the intention of
MWSS, both impliedly (making demands for payment) and the parties to bind someone, and, as the principal was not
expressly (signing of the contract of sale itself) made. bound, the agent should be. Ex: Without my authority, my
UNENFORCEABLE CONTRACTS2 brother sold my car, in my name to X. The contract is
UNENFORCEABLE CONTRACTS unauthorized and cannot affect me unless I ratify the same
Art. 1403. The following contracts are unenforceable, expressly or implicitly, as by accepting the proceeds of the
unless they are ratified: sale. (Paras)
(1) Those entered into in the name of another person
• Mere lapse of time, no matter how long, is not the
by one who has been given no authority or legal ratification required by law of an unenforceable contract
representation, or who has acted beyond his powers; (Tipton v. Velasco, 6 Phil 67, as cited in Paras).
(2) Those that do not comply with the Statute of Frauds STATUTE OF FRAUDS
as set forth in this number. In the following cases an 4. eaning: descriptive of statutes which require certain
agreement hereafter made shall be unenforceable by classes of contracts to be in writing.
action, unless the same, or some note or memorandum, 5. Purpose: to prevent fraud and perjury in the
thereof, be in writing, and subscribed by the party enforcement of obligations depending for their evidence upon
charged, or by his agent; evidence, therefore, of the the unassisted memory of witnesses by requiring certain
agreement cannot be received without the writing, or a enumerated contracts and transactions to be evidenced by a
secondary evidence of its contents: writing signed by the party to be charged.
page 52
6. Application: This statute does not deprive the parties
question whether the promise is an original or a collateral
the right to contract with respect to matters therein involved,
one. If the promise is original or independent, as to when the
but merely regulates the formalities of the contract necessary
promisor is primarily liable, it is outside the Statute. If the
to render it unenforceable. The statute of frauds, however,
promise is collateral, the promise must be in writing.
simply provides for the manner in which contracts under it
3. Consideration of marriage. Applies to promises by a
shall be proved. It does not attempt to make such contracts
3rd person to one of the parties contemplating the marriage.
invalid if not executed in writing but only makes ineffective
Thus, a promise made by the father of a prospective bride to
the action for specific performance. The statute of frauds is
give a gift to the prospective husband is covered by the
not applicable to contracts which are either totally or partially
statute.
performed, on the theory that there is a wide field for the
4. Sale of personalty. Price of the property must be at
commission of frauds in executory contracts which can only
least P500 and covers both tangible and intangible property.
be prevented by requiring them to be in writing, a fact which
The Statute will not apply where there has been part payment
is reduced to a minimum in executed contracts because the
of the purchase price. If there is more than one item, which
intention of the parties becomes apparent by their execution,
exceeds P500, the operation of the statute depends upon
and execution concludes, in most cases, the rights of the
WON there is a single inseparable contract or several one. If
parties.
inseparable, Statute applies. If the contract is separable, then
7. A note or memorandum is evidence of the
each article is taken separately, and the application of the
agreement, and is used to show the intention of the parties.
statute to it depends upon its price. Meaning of “things in
No particular form of language or instrument is necessary to
action”: incorporated or intangible personal property (Paras)
constitute a memorandum or note as a writing under the
5. Lease or sale of realty. Evidence to prove an oral
Statute of Frauds.
General Rules of Application (mainly Paras): contract of sale of real estate must be disregarded if timely
objections are made to its introduction. But the statute does
• Applies only to executory contracts. But it is not
not forbid oral evidence to prove a consummated sale of real
enough for a party to allege partial performance in order to
property.
render the Statute inapplicable; such partial performance
6. Representation as to Credit. Limited to those which
must be duly proved, by either documentary or oral evidence;
operate to induce the person to whom they are made to enter
• Cannot apply if the action is neither for damages
into contractual relations with the 3rd person, but not those
because of the violation of an agreement nor for the specific representations tending to induce action for the benefit of the
performance of said agreeement; person making them. The statute does not cover
• Exclusive, i.e. it applies only to the agreements or representations deceitfully made.
contracts enumerated herein; INCAPACITATED PARTIES
• Defense of the Statute may be waived;
● Ratification by one party converts the contract into a
• Personal defense, i.e. a contract infringing it cannot voidable contract- voidable at the option of the party who has
be assailed by third persons; not ratified.
• contracts infringing the Statute are not void; they Art. 1404. Unauthorized contracts are governed by
are merely unenforceable; Article 1317 and the principles of agency in Title X of
• The Statute of Frauds is a rule of exclusion, i.e. oral this Book.
evidence might be relevant to the agreements enumerated 1. Art. 1317. No one may contract in the name
therein and might therefore be admissible were it not for the of another without being authorized by the latter, or unless
fact that the law or the statute excludes oral evidence; he has by law a right to represent him.
• The Statute does not determine the credibility or • A contract entered into in the name of another by
one who has no authority or legal representation, or who has
weight of evidence. It merely concerns itself with the
acted beyond his powers, shall be unenforceable, unless it is
admissibility thereof;
ratified, expressly or impliedly, by the person on whose behalf
• The Statute does not apply if it is claimed that the
it has been executed, before it is revoked by the other
contract does not express the true agreement of the parties.
contracting party. (1259a)
As long as true or real agreement is not covered by the
Statute, it is provable by oral evidence. (6) Requisites for a Person to contract in the name of another: a)
THE SPECIFIC AGREEMENTS UNDER THE STATUTE OF he must be duly authorized (expressly or impliedly) or b) he
FRAUDS must have by law a right to represent him (like the guardian,
1. Performance within a year. The 'making' of an or the administrator) or c) the contract must be subsequently
agreement, for the purpose of determining WON the period ratified (expressly or impliedly, by word or by deed). (Paras).
for performance brings the agreement within the Statute, Art. 1405. Contracts infringing the Statute of Frauds,
means the day on which the agreement is made, and the referred to in No. 2 of Article 1403, are ratified by the
time begins to run from the day the contract is entered into, failure to object to the presentation of oral evidence to
and not from the time that performance of it is entered upon. prove the same, or by the acceptance of benefit under
There must be intention that the performance should not be them.
performed within a year. - Two ways of ratification of contracts infringing the
2. Guaranty of Another's Debt. Test as to whether a Statute are: a) failure to object to the presentation of oral
promise is within the Statute: lies in the answer to the evidence; b) acceptance of benefits under them, since the
Statute does not apply to contracts which are partially
page 53
executed. Cross examination of the witnesses testifying orally
ones merely indicative for an adequate understanding
on the contract amounts to a waiver or to a failure to object.
of all the essential elements of the entire agreement,
(Abrenica v. Gonda,as cited by Paras; Maam Rowie also made
may be said to the contract itself, except as to the
reference to this in one of her short kwentos).
form.
Art. 1406. When a contract is enforceable under the
Coronel v. Constantino, 2003
Statute of Frauds, and a public document is necessary
Honoria Aguinaldo owned real property. When she died, ½ of
for its registration in the Registry of Deeds, the parties
the property was inherited by Emilia Meking vda. De Coronel
may avail themselves of the right under Article 1357.
and sons-Benjamin, Catalino and Ceferino; the other half by
• Art. 1357. If the law requires a document or
Florentino Constantino and Aurea Buensuceso. Emilia Meking
other special form, as in the acts and contracts enumerated in
sold the property to Jess Santos and Priscilla Bernardo, who
the following article, the contracting parties may compel each
later sold it to Constantino. In 1991, Constantino filed a
other to observe that form, once the contract has been
complaint for declaration of ownership, quieting of title and
perfected. This right may be exercised simultaneously with
damages. CA ruled for Constantino.
the action upon the contract. (1279a)
Issues/Held:
● The right of one party to have the other execute the
1) WON the contract of sale executed by Emilia, in her own
public document needed for convenience in registration, is behalf is unenforceable with respect to the shares of her co-
given only when the contract is both valid and enforceable. heirs-children
(Paras) Yes. It has been shown that the contract was not signed by
Art. 1407. In a contract where both parties are petitioner Benjamin and the shares of Catalino and Cferino in
incapable of giving consent, express or implied the subject property were not sold by them. Since it cannot
ratification by the parent, or guardian, as the case may be disputed that Benjamin did not sign the document, the
be, of one of the contracting parties shall give the contract is unenforceable against him.
contract the same effect as if only one of them were 2) WON the minor children can ratify unauthorized actions of
incapacitated. their parents.
If ratification is made by the parents or guardians, as Yes. But in this case, no evidence was presented to show that
the case may be, of both contracting parties, the the 3 brothers were aware of the sale made by their mother.
contract shall be validated from the inception. Unaware of such sale, the 3 could not be considered to have
f) Self-explanatory, hehe. Both Paras and Tolentino, walang remained silent and knowingly chose not to file an action for
comments. However, we should take note of the retroactive annulment of the sale. Their alleged silence and inaction may
effect of a ratified contract. not be interpreted as an act of ratification on their part. And
Art. 1408. Unenforceable contracts cannot be assailed there is also no evidence that the 3 brothers benefited from
by third persons. the sale.
• The defense of the Statute is personal to the party to Doctrine:
the agreement. Thus, it cannot be set up by strangers to the Ratification means that one under disability voluntarily
agreement. adopts and gives sanction to some unauthorized act or
- Just as strangers cannot attack the validity of voidable defective proceeding, which without his sanction would
contracts, so also can they not attack a contract because of not be binding on him. It is this voluntary choice,
its unenforceability. Indeed the Statute of Frauds cannot be knowingly made, which amounts to a ratification of
set up as a defense by strangers to the transaction. (Ayson v. what was theretofore unauthorized, and becomes the
CA, 97 Phil. 965). authorized act of the party so making the ratification.
CASES: Regal Films,Inc. v. Concepcion, 2001
Yuvienco v. Dacuycuy, 1981 Gabby Concepcion, thru his manager Lolit Solis, entered into
See facts in previous discussion. Under this heading, the a contract with Regal for services to be rendered by
question is WON the claim for specific performance of the respondent in petitioner's movies. Petitioner undertook to
private respondents is enforceable under the Statute of give 2 parcels of land of land to respondent, on top of talent
Frauds. fee. In 1994, actor, and manager, filed an action against the
Held: No, since the agreement does not appear in any note or movie outfit, alleging that he was entitled to rescind the
writing or memorandum signed by either of the petitioners or contract, owing to Regal's failure to honor the contract.
any of the respondents. Thus, such oral contract involving the Petitioner alleged that there was an agreement, and an
“sale of real property” comes squarely under the Statute of addendum to the original contract. In September 1994, Solis
Frauds. moved for the dismissal of the complaint averring that there
Doctrine: already was an amicable settlement. Concepcion opposed
In any sale of real property on installments, the Statute saying that he had no consent and the contract was grossly
of Frauds read together with the perfection disadvantageous to him. By 1995, and after the confluence of
requirements of Article 1475 of the Civil Code must be events (read: Manila Filmfest scam), Regal intimated that it
understood and applied in the sense that the idea of was willing to release Concepcion from the contracts rather
payment on installments must be in the requisite of a than pursue the addendum. Concepcion then filed a motion
note or memorandum therein contemplated. Under the indicating that he was willing to honor the addendum. The
Statute of Frauds, the contents of the note or Court held that Concepcion's attempt to ratify the addendum
memorandum, whether in one writing or in separate came too much late as Regal already revoked it.
page 54
Issue3:
unenforceable
1) WON a contract entered into in the name of another is
Held: No. The document was merely a memorandum of the
unenforceable if consent was not given by the party in whose
receipt by the former of the latter's offer. The requisites of a
behalf it was executed
valid contract of sale are lacking in said receipt and therefore
Yes. A contract entered into in the name of another by one
the 'sale' is neither valid nor enforceable. No written
who ostensibly might have but who in reality, had no real
agreement was reached. Under the Statute of Frauds, an
authority or legal representation, or who having such
agreement for the sale of real property or of an interest
authority, acted beyond his powers, would be unenforceable.
therein, to be enforceable, must be in writing and subscribed
2) Assuming that the addendum was unenforceable, WON it is
by the party charged or by an agent therof.
susceptible to ratification by the person in whose behalf it was
Cenido v. Apacionado, 1999
executed
Bonifacio Aparato owns a parcel of unregistered land. He sold
Yes. But ratification should be made before its revocation by
it to spouses Apacionado, who took care of him for 20 years
the other contracting party.
prior to his death. In the contract (Pagpapatunay) purporting
National Power Corp v. National Merchandising Corp.,
to the sale, it can be gleaned that because the Apacionados
1982
took care of him, Bonifacio sold it for P10,000 and her signed
In 1956, National Power Corp (NPC) and National
it with his full knowledge and consent, and there were 2
Merchandising Corp (Namerco), the latter as representative of
witnesses to the signing of the contract. It was not notarized.
the International Commodities Corp of New York, entered into
One Renato Cenido claimed ownership over the property and
a contract for the purchase by the NPC of from the New York
alleged that he was Aparato's illegitimate son and he was
firm of 4 thousand long tons of crude sulfur. A performance
recognized as such by Bonifacio's brother, Gavino, and the
bond was executed by Domestic Insurance Company (DIC) to
two partitioned his estate among themselves. Cenido caused
guarantee Namerco's obligation. Under the contract, seller
the issuance to his name of a Tax Declaration over the
would deliver the sulfur within 60 days from notice of
subject property.
establishment in its favor of a letter of credit. Failure to do
Issue:
would make the seller and surety liable for damages. The
1) WON the document is valid
New York firm advised Namerco that it might not secure the
Yes. The private conveyance of the house and lot is therefore
availability of a vessel and DIC disclaimed responsibility for
valid between Aparato and the spouses. It is a private
the terms of the contract. Namerco did not disclose such
document but this fact does not detract from its validity.
instructions from its principal and proceeded with the
Generally, contracts are obligatory, in whatever form such
perfection of the contract. When the sulfur was not delivered,
contracts may have been entered into, provided all the
NPC sued DIC and Namerco. The court dismissed the action
essential requisites for their validity are present. When
against DIC for lack of jurisdiction.
however the law requires that a contract be in some form for
Issue:
it to be valid or enforceable, that requirement must be
1) WON Namerco exceeded its authority and in effect, acted
complied with. Under Article 1358 requires that certain acts
in its own name
and contracts must be in a public document. Under Art. 1403,
Yes. The agent took chances, despite the principal's
sales of real property must be in writing. Since the
instructions and thus, it acted on its own name.
Pagpapatunay is in writing, it is enforceable under the
2) WON the stipulation for liquidated damages is
Statute. But since it is not a public document, it does not
unenforceable since the contract was allegedly unenforceable
comply with Art. 1358. However, the requirement of Art.
No. Article 1403 refers to unenforceability of the contract
1358 is not for the validity but for its efficacy.
against the principal. In this case, the contract containing the
Villanueva v. CA, 1997
stipulation for liquidated damages is not being enforced
The Villanuevas are the tenants of the Dela Cruzes. In 1986,
against its principal but against the agent and its surety.
the latter proposed the sale of the property and they agreed
Article 18974 implies that the agent who acts in excess of his
at the price of P550,000. The Dela Cruzes asked for P10,000
authority is personally liable to the party with whom he
which would form part of the sale price. Sometime thereafter,
contracted. Since Namerco exceeded the limits of its
the Dela Cruzes told the Villanuevas that they are selling the
authority, it virtually acted in its own name and it is
other half of the property to the Sabios, another tenant of the
therefore, bound by the contract of sale, which, however is
Dela Cruzes. The Villanuevas agreed to such an arrangement
not enforceable against its principal.
and they, together with the Sabios, decided to pay only
Jovan Land v. CA, 1997
P265,000 each corresponding to the value of ½ of the
Eugenio Quesada owns Q Building in Manila and wanted to
property. In 1987, the Dela Cruzes sold the portion which the
sell it. Thru co-petitioner Mendoza, Jovan Land Pres. Joseph
Villanuevas were supposed to buy to the spouses Pile. The
Sy learned of this development and sent offers to Quesada.
Villanuevas then instituted this action.
The owner rejected the offers. In his third written offer, Sy
Issue: 1) WON there was a perfected contract of sale between
enclosed a check worth P12M with a similar check for P1M as
the petitioners and the Dela Cruzes
earnest money. Annotated on this 3rd letter-offer was the
Held: No. Sale is a consensual contract. In this case, what is
phrase 'received original, '9-4-89' beside which appears the
clear from the evidence is that there was no meeting of the
signature of Quesada. Petitioner then filed action for specific
minds as to the price, expressly or impliedly, directly or
performance.
indirectly. No contract was presented in evidence.
Issue: WON the 'contract of sale' as alleged by Sy was
2) WON the Statute of Frauds is applicable though it was a
page 55
contract of sale that was partly executed
Rellosa vs Gaw Chee Hun
No. The Statute applies only to executory contracts, but there
Petitioner Dionisio Rellosa sold to Gaw Chee Han a parcel of
is no perfected contract in this case, therefore there is no
land together with the house erected thereon situated in
basis for the application of the Statute. The application of
Manila. The vendor remained in possession of property under
such statute presupposes the existence of a perfected
a contract of lease. Alleging that the sale was executed
contract and requires only that a note or memorandum be
subject to the condition that the vendee (Chinese) would
executed in order to compel judicial enforcement thereof.
obtain the Japanese Military Administration’s approval, and
What took place was only prolonged negotiation to buy and
that even if said condition was met, the sale would still be
sell.
void under article XIII of the Constitution, the vendor prayed
VOID OR INEXISTENT CONTRACTS
for annulment of the contracts of sale and lease. Defendant
What contracts are void or inexistent?
answered the complaint putting up the defense of estoppel
The following contracts are void or inexistent from the
and that the sale was binding not being contrary to public
beginning:
policy, law and morals. TC declared the contracts valid and
• Those whose cause, object or purpose is contrary to
binding and dismissed complaint. CA affirmed decision in toto.
law, morals, good customs, public order or public policy;
The SC sustained that the sale in question was indeed
• Those which are absolutely simulated or fictitious;
entered into in violation of the Constitution, what’s left to be
• Those whose cause or object did not exist at the determined is, can petitioner have the sale declared null and
time of the transaction; void and recover the property considering the effect of the
• Those whose object is outside the commerce of men;
law governing rescission in contracts? SC answered in the
• Those which contemplate an impossible service; negative. The sale in question is null and void, but plaintiff is
• Those where the intention of the parties relative to barred from taking the present action under the principle of
the principal object cannot be ascertained; pari delicto.
• Those expressly prohibited or declared void by law. Doctrine: The contracting parties here were prevented from
(a-g, Art 1409, NCC). seeking relief because they both have voluntarily entered into
• Those which are the direct results of previous illegal the contract knowing that what they were doing violated the
contracts (Art 1422, NCC). Constitution (they are presumed to know the law). Well
Cases established is the doctrine that where the parties are in pari
Liguez vs Hon. Court of Appeals delicto, no affirmative relief of any kind will be given to one
Petitioner Conchita Liguez was the recipient of a donation of against the other. It is true that this doctrine is subject to one
the parcel of land subject of this petition. Donation was important limitation, namely, “whenever public policy is
allegedly made by and in view of the desire of one Salvador considered as advanced by allowing either party to sue for
Lopez, a married man of mature years, to have sexual relief against the transaction.” The cases in which this
relations with her, Liguez back then a minor, only 16 years of limitation may apply only “include the class of contracts which
age. After the donation, Liguez and Lopez cohabited and lived are intrinsically contrary to public policy—contracts in which
as husband and wife until Lopez was killed. It was found that the illegality itself consists in their opposition to public policy,
the donation was part of the land belonging to the conjugal and any other species of illegal contracts (example: usurious
partnership of Lopez and his legal wife Maria Ngo. CA held contracts, marriage-brokerage contracts). The present case
that the donation was inoperative and null and void because does not fall under the exception because it is not intrinsically
(1) the husband had no right to donate conjugal property to contrary to public policy as its illegality consists in its being
Liguez; and (2) because the donation was tainted with illegal against the Constitution.
causa or consideration, of which the donor and donee were Phil Banking Corp vs Lui She
participants. Justina Santos and her sister Lorenza were the owners of a
SC reversed CA decision. piece of land in Manila. The sisters lived in one of the houses
Doctrine: SC held that the CA erred in applying the pari while they leased the other house to a Chinese named Wong
delicto rule in this case. Both parties to donation here not Heng and his family. When Lorenza died with no other heir,
having equal guilt; there had been no finding that Liguez had Justina became the sole owner of the property. As she was
full knowledge of the terms of the bargain entered into by and then already about 90 years, Wong was her trusted man,
between Lopez and her parents. Moreover, the rule that trusting him with receiving rentals for her other properties
parties to illegal contracts will not be aided by the law should and paying for her other expenses. In grateful
also be understood as barring the parties from pleading acknowledgement, Justina entered into a number of contracts
illegality of the bargain either as a cause of action or as a with Wong (a lease covering more than the current portion
defense. Thus, the heirs of Lopez cannot set up this plea, as occupied by Wong, a contract of option to buy leased
Lopez himself, even if he were living, had no right to such premises payable in ten years, another contract extending the
pleading. lease term to 99 years, and another fixing the term of the
The right of the husband to donate community property is option to 50 years).
strictly limited by law. However, donation made in This petition was filed alleging that the contracts were
contravention of the law is not void in its entirety, but only in obtained by Wong “through fraud, misrepresentation,
so far as it prejudices the interest of the wife, whether inequitable conduct, undue influence and abuse of
donation is gratuitous or onerous. confidence…” and the Court was asked to cancel the
registration of the contracts.
page 56
TC rendered decision declaring all of the contracts null and
Petitioner seek to prohibit the Manila International Airport
void except for the first contract of lease. Both parties
Authority (MIAA) and the Dept of Transportation and
appealed.
Communications (DOTC) from implementing contracts and
SC modified TC’s decision in that it also declared the first
agreements executed by the Philippine Givernment through
contract of lease as null and void along with the rest.
the DOTC and the MIAA and the Phil Intl Air Terminals Co.,
Doctrine: SC cancelled the contract of lease in this case not
Inc (PIATCO).
on the basis of it allegedly being contrary to the expressed
DOTC engaged the services of Aeroport de Paris (ADP) to
will of one of the contracting parties (Santos’), rather it was
conduct a comprehensive study of the Ninoy Aquino Intl
voided because of its illegal causa. Based on the testimonies
Airport (NAIA) and determine whether the present airport can
gathered, the contracts were entered into in an effort to
cope with the traffic development up to 2010. A group of
circumvent the Constitutional prohibition against the transfer
business leaders formed Asia’s Emerging Dragor Corp (AEDC)
of lands to aliens. It became clear that the arrangement was
to explore the possibility of investing in the construction and
a virtual transfer of ownership whereby the owner divests
operation of a new airport terminal. AEDC submitted an
himself in stages not only of the right to enjoy the land, but
unsolicited proposal to the Government through DOTC/MIAA
also of the right to dispose of it—rights the sum total of which
for the development of NAIA International Passenger Terminal
is ownership. Thus, this illicit purpose became the illegal
III (NAIA IPT III). A committee called the Prequalification Bids
causa rendering the contracts void.
and Awards Committee (PBAC) was constituted by the DOTC
Francisco vs. Herrera
for the implementation of the NAIA IPT III project. A
Eligio Herrera Sr., father of respondent is the owner of two
consortium headed by People’s Air Cargo and Warehousing
parcels of land. Petitioner Julian Francisco brought from said
Co., Inc. (Paircargo), among others, submitted their proposal
land owner the first parcel, and later on, also the second.
to PBAC. PBAC found Paircargo as the most qualified to
Contending that the contract price was inadequate, the
undertake the project. Sometime after this determination,
children of Herrera tried to negotiate to increase the purchase
Paircargo incorporated with PIATCO. AEDC, along with a slew
price. When Francisco refused, the Herreras filed a complaint
of other petitioners, filed with the RTC Pasig a petition to
for annulment of sale alleging that the sale was null and void
declare the 1997 Concession Agreement between the
on the ground that at the time of sale, Eligio Sr was
Government and PIATCO null and void for being contrary to
incapacitated to give consent to the contract because he was
the Constitution, the BOT (Build-Operate-Transfer) Law and
afflicted with senile dementia, characterized by deteriorating
its Implementing Rules and Regulations.
mental and physical condition.
SC declared the assailed agreement as void for being contrary
TC, later on affirmed by CA, declared the contract to be null
to public policy. A close comparison of the draft Concession
and void, ordered Francisco to return the lots in question and
Agreement attached to the Bid Documents and the 1997
the Herreras to return to the former the purchase price paid.
Concession Agreement reveals that the documents differ in at
Francisco appealed, contesting that the CA erred in
least two very important respects. While the Court concedes
completely ignoring the basic difference between a void and
that a winning bidder is not precluded from modifying certain
merely voidable contract. Issue before the SC thereby is:
provisions of the contract bidded upon, such changes must
whether the assailed contracts of sale are void or merely
not constitute substantial or material amendments that would
voidable and hence capable of being ratified.
alter the basic parameters of the contract and would
SC reversed the CA decision, the assailed contracts are only
constitute a denial to the other bidders of the opportunity to
voidable and were in fact ratified, therefore valid and binding.
bid on the same terms
Doctrine: A void or inexistent contract is one which has no
Doctrine: It is inherent in public biddings that there shall be
force and effect from the beginning. These are of two types:
fair competition among the bidders. Any contract that
(1)those where one of the essential requisites as
circumvents this concept shall be declared null as being
provided for by Art 1318 is wanting;
contrary to public policy.
(2) those declared to be so under Art 1409.
III. NATURAL OBLIGATIONS
By contrast, a voidable or annullable contract is one in which
1. Definition
the essential requirements for validity under Art 1318 are
Natural obligations are those based on equity and natural law,
present, but vitiated. Such contracts may be rendered
which are not enforceable by means of court action, but
perfectly valid by ratification, which can be express or
which, after voluntary fulfillment by the obligor, authorize the
implied.
retention by the oblige of what has been delivered or
Art 1327 provides that insane or demented persons cannot
rendered by reason thereof. In other words, they refer to
enter into contracts, But, if ever they do, the legal effect is
those obligations without sanction, susceptible of voluntary
that the contract is voidable or annullable as provided for in
performance, but not through compulsion by legal means.
Art 1390. Hence, the contract in above case is merely
voidable. Ratification in this case is implied and consisted in 2. vs Civil Obligations
Eligio’s children receiving payments on behalf of their father Natural Obligations Civil Obligations
and their non-immediate filing of an action for reconveyance Basis Equity and natural law Positive law
as in fact they only filed it after Francisco did not agree to Enforceability Not enforceable by court Enforceable by
them increasing the purchase price. action action
Agan, Jr. vs Philippine International Air Terminals Co.,
Inc.
3. vs Moral Obligations
page 57
is with the ratio of the Mindanao Development
Natural ObligationsCA & Ang Bansing
Moral case below
ObligatioNnotse:
press Trusts—created by the parties, or by the trustor cf th
Existence of juridical tie There exists a juridical tie No jur idicAaul plied Trusts—created by operation of the law; two
between the parties not whatsoever•.
thoritytive.
enforceable by court Ex Resulting trust (also bare or passive trusts)
• intention oftent to create a trust but it is not effective as an
action.
Im
st (cf Art. 1451).
Effect of fulfillment Voluntary fulfillment Voluntary fu lfillkminednst
produces legal •
effects not produc e trust isdoes
Constructive Trust—no intention to create a
present, but a trust is nevertheless created by law to
which the courts which the co legal effects
prevent unjust
—s enrichment or oppression (cf 1456)
recognize and protect. and protect. urtThe
trheecoregn is law of trusts has been much more frequently
applied in inEngland and in the US than in Spain, so we may
ze from American precedents in determining the
draw freely
express tru
4. Example
• effects of trusts.
CHAPTER 2
One example would be the one that is regulated in Art 1424
1. of the NCC. According to this article, when a right to sue upon EXPRESS TRUSTS
an obligation has lapsed by extinctive prescription, the obligor • Formalities Re Express Trusts:
who voluntarily performs the contract cannot recover what he Express trusts are to be written for enforceability
has delivered or the value of the service he has rendered. and not for validity as to between the parties; hence, by
IV. TRUSTS analogy, can be included under the Statute of Frauds.
What is a trust? By implication, since the article applies to immovable
1. Trust is a legal relationship between one person property only, trust over personal property on oral agreement
having an equitable ownership in property and another person is valid and enforceable between the parties.
owning the legal title to such property, the equitable • 3rd Persons—trust must be made in a public
ownership of the former entitling him to the performance of instrument and REGISTERED in the Registry of Property, if it
certain duties and the exercise of certain powers by the latter concerns Real Property.
(Tolentino) • How an Express Trust is Created:
1. It is the right to beneficial enjoyment of property, . By conveyance to the trustee by an act inter vivos or
2. the legal title of which is vested in another. It is a fiduciary mortis causa (as in a will).
3. relationship concerning property which obliges the person • . By admission of the trustee that he holds the
holding it to deal with the property for the benefit of another property, only as a trustee.
(Paras). . Clear Intent—there must be a clear intention to
• Characteristics of a Trust (Paras) create a trust.
It is a fiduciary relationship. 1. Capacity—The trustor must be capacitated to convey
• Created by law or agreement. property (hence, a minor cannot create an express or
Where the legal title is held by one, the equitable 2 conventional trust of any kind).
• title or beneficial title is held by another. . Administration of the trust. The trustee must:
Trust distinguished from Guardianship or Executorship: 3. File a bond
In a trust, the trustee or holder has LEGAL title to . Make an inventory of the real and personal
• the property. 4 property in trust
A guardian, administrator or executor does not have. . Manage and dispose of the estate and
Trust distinguished from a Stipulation Pour Autrui faithfully discharge his trust in relation thereto, according to
● A trust may exist because of a legal provision or 5 the law or terms of the trust as long as they are legal and
possible.
because of an agreement; a stipulation pour autrui can arise a . Render a true and clear account.
only in the case of contracts. b
. Not acquire property held in trust by
A trust refers to specific property; a stipulation pour prescription as long as the trust is admitted.
autrui refers to a specific property or to other things. Effect if Trustee Declines
7.
c The trust ordinarily continues even if the trustee
8. declines. Why? The Court will appoint a new trustee unless
Co-Ownership as Trust otherwise provided for in the trust instrument (Sec. 3, Rule
9. A Co-Ownership is a form of trust, with each co- 98, Rules of Court). A new trustee has to be appointed;
owner being a trustee for each of the others. otherwise the trust will not exist.
d Beneficiary necessarily has to accept either
CHAPTER 1
e
1. GENERAL PROVISIONS expressly, impliedly or presumably. Acceptance is presumed if
2.
Parties to a Trust the granting of benefit is purely gratuitous (no onerous
trustor or settler –he establishes the trust (may at condition).
●
the same time be the beneficiary)
trustee –hold the property in trust for the benefit of
another
beneficiary or cestui que trust –the person for whose
benefit the trust has been created. page 58
How Express Trusts are ended:
the property was registered under only one of them. The
1. Mutual agreement by all parties.
registered owner leased the property, collected rents and
2. Expiration of the Term
when asked for accounting, refused to on account that he was
3. Fulfillment of the resolutory condition
the owner. Nope, he is a mere trustee and is therefore
4. Rescission or annulment
obliged render proper accounting. The beneficiaries are all
5. Loss of subject matter of the trust
members of the club.
6. Order of the court
7. Merger ● This is a resulting trust in view of the owner’s
8. Accomplishment of the purpose of the trust. intention to create a trust.
CHAPTER 3
𝖮 Example:
IMPLIED TRUSTS ■ A bought from B a parcel of land and it was
• Trusts are recognized only if they are not in conflict conveyed to A on A’s statement or declaration that he would
with the Civil Code, Code of Commerce, Rules of Court and hold it in behalf of C. Here, A is merely a trustee and C is the
Special Laws. beneficiary.
• This is a resulting trust because a trust is intended. 5. This is a constructive trust the purpose of the law to
• Example: prevent unjust enrichment to the prejudice of the true owner.
1. Example:
• A buys a piece of land from B. A
1. A owe’s B. To guarantee his debt, A sold her
pays the price so that he (A) may have the beneficial interest
parcel of land to B. Here, a trust is created. If A pays his debt
in the land BUT the legal title is given to C. C is the trustee
when it becomes due, A may demand the resale of property
and A is the beneficiary.
to her.
• This is again a resulting trust where the donee • This is a constructive trust and this article applies to
becomes the trustee of the real beneficiary. any trustee, guardian or persons holding a fiduciary
• Example: relationship (eg, an agent).
• A donated land to B. But it was • Example:
agreed that B is supposed to have only 1/3 of the products of • An agent using his principal’s
said land. There is a trust here and B is the trustee. money purchases land in his own name. He also registers it
• This is a constructive trust, the reason of the law under his name. Here, he will only be considered a trustee
being to prevent unjust enrichment. and the principal is the beneficiary. The principal can bring an
• Example: action for conveyance of the property to himself, so long as
• A wants to buy land from B but A the rights of innocent third persons are not adversely
has no money. So A asks C to pay for the land. The land is affected.
then given in C’s name. This is supposed to be C’s security • This is a constructive trust.
until the debt of A is paid. Here, an implied trust is created. C 1. Example:
is a trustee and the beneficiary is A. When A has the money, ▪ A was given a car by B although it
he may redeem the property from C and compel a should have been given to C. A is considered merely a trustee
conveyance to A. of the car for the benefit of C.
NOTE: This is not the same as mortgage. Mortgage is NOTE: The mistake referred to in this article is one
when A borrows money from C and A later buys land in made my a third person, not one who is a party to the
his own name. A then executes a mortgage on the land contract. If made by any of the parties, then no trusts
in favor of C. This is not an implied trust. is created.
Trust Receipts DO TRUSTS PRESCRIBE?
• Partakes of a nature of a conditional sale…the 5. Express trusts DO NOT. Implied Trusts—resulting
importer being the absolute owner of the imported trusts do not prescribe but constructive trusts do prescribe
merchandise as soon as he has paid its price; until the owner (see Salao v. Salao in the cases below)
or the person who advanced payment has been paid in full, or • This article applies whether it is real or personal
if the merchandise has already been sold, the proceeds property. Even if it is oral evidence, said evidence must be
turned over to him, the ownership continues to be vested in trustworthy oral evidence, for oral evidence may be easily
such person.” fabricated.
• This is a resulting trust for a trust is intended. CASES
• Example: Salao v. Salao
• A inherited a piece of land from his Facts:
father, but A caused the legal title to be put in the name of X, • Spouses Manuel Salao and Valentina Ignacio has 4
a brother. Here a trust is impliedly established, with X as children—Patricio (who died survived by son Valentin),
trustee and A as beneficiary. Alejandra, Juan and Ambrosia. Spouses died leaving partition
• This is a resulting trust in view of the intent to create of different fishponds to the three surviving children and
a trust. nephew Valentin.
• Example: • Main contention in this case is the Calunuran
fishpond which the plaintiffs assert were co-owned by Juan,
• A group of Chinese wanted to buy
Ambrosia and Valentin and that Juan and Ambrosia were just
a lot with a house on it to be used a clubhouse. The name of
page 59
holding in trust the part of Valentin. Plaintiffs here are the
heirs of Valentin against the heirs of Juan and and from 1929 to present (1960), has been paying real estate
taxes thereon.
Ambrosia. Plaintiffs say that they are enforcing a trust that •
Plaintiffs filed this action for reconveyance averring
Juan Salao violated.
Issue: that the certificate of sale was gained through
fraud. Defendants aver that Pablo did not really own the land
• WON there was a trust between Juan and Ambrosia
in question at the time of his death and the present action for
Salao with Valentin Salao?
reconveyance has already prescribed.
Held:
Issue:
5. No, there was no trust—either express or implied -
WON defendants have acquired the property by
(resulting and constructive trust)
acquisitive prescription?
Ratio:
Held: Yes
• A trust is defined as the right, enforceable solely on
Ratio:
equity, to the beneficial enjoyment of property, the legal title 5. The Friar Lands Act governs the sale of land to Pablo
to which is vested in another, but the word “trust” is Fabian wherein title of the land sold is reserved to the Gov’t
frequently employed to indicate duties, relations and until the purchaser makes full payment of all required
responsibilities which are not strictly technical trusts. installments and the interest thereon. The equitable and
• Not a scintilla of documentary evidence was beneficial title really went to the purchaser the moment he
presented by the plaintiffs to prove that there was an express paid the first installment and was given a certificate of
trust over the Calunuran fishpond in favor of Valentin sale. Pending the completion of the purchase price, the
Salao. Purely parol evidence was offered by them to prove purchaser is entitled to all the benefits and advantages which
the alleged trust. Their claim that in the oral partition in 1919 may accrue to the land as well as suffer the loss. He was
of the two fishponds was assigned to Valentin Salao is legally therefore the owner of the land and as such the legal rights to
untenable—Article 1443—parol evidence cannot be used to the land passed onto his four daughters. Therefore, Silbina
prove an express trust. and Teodora were just trustees of the land in question upon
• How about an implied trust? It was not proven by the principle that if property is acquired through fraud, the
any competent evidence. It is quite improbable because the person obtaining it is considered a trustee of an implied trust
alleged estate of Manuel Salao was likewise not satisfactorily for the benefit of the person from whom the property comes.
proven. The Court found it incredible that 47 hectares of 6. However, laches may bar an action to enforce a constructive
Calunuran fishpond would be adjudicated merely by word of trust such as the one in the case at bar. Defendants
mouth. The plaintiffs also never bothered (for nearly 40 herein have been in possession of the land in question since
years) to procure any documentary evidence to establish their 1928 up to present publicly and continuously under claim of
supposed interest or participation in the two ownership; they have cultivated it, harvested and
fishponds. Prescription and laches applies. appropriated the fruits for themselves. The statute of
• There was no resulting trusts because there was limitations is within four years from the discovery of the fraud
never any intention on the part of Juan Salao, Ambrosia and —this may start when they first registered the land (not
Valentin to create a trust—the registration of the fishpond mentioned in the case when).
were registered in the names of Juan and Ambrosia and was 7. The court also used sec. 41 of Act 190 saying that 10 years of
not vitiated by fraud or mistake. actual adverse possession by any person claiming to be the
• Even if there was an implied trust, laches and owner for that time of any land or interest in land,
prescription has barred their action—they slept on their rights uninterruptedly continued for ten years by occupancy,
(vigilanti prospiciunt jura or the law protects him who is descents, grants, or otherwise, in whatever way such
watchful of his rights). There was not mention of a period for occupancy may have commenced or continued shall vest in
laches or prescription to apply. every actual occupant or possessor of such land in full and
• Plaintiffs failed to measure up to the yardstick that a complete title.
trust must be proven by clear, satisfactory and convincing 8. Plaintiffs’ action has prescribed and defendants have acquired
evidence. It cannot rest on vague and uncertain evidence or the land by acquisitive prescription.
on loose, equivocal or indefinite declarations. Doctrine/s:
Doctrine: 4. Prescription bars an action for constructive trusts—
• Prescription applies to constructive trusts. Parol within 4 years, and actual possession and occupancy of land
evidence cannot be accepted in an express trust but can be entitles one to acquire such land.
accepted in an implied trust if it is trustworthy. 5. Property gained through fraud is considered held in
Fabian v. Fabian trust (Art. 1456)
Facts: Bueno v. Reyes
• Pablo Fabian bought Lot 164 from the Phil. Gov’t. He Facts
died leaving four children who are the plaintiffs in this ● Francisco H. Reyes claimed property in Laoag as
case. Silbina Fabian and Teodora Fabian, niece of Pablo belonging to him and his two brothers—Juan and Mateo
Fabian, executed an affidavit saying that they are legal heirs (defendants herein). Plaintiffs are the heirs of Jorge Bueno
and as such a sale certificate was issued to them. In 1929, whom they say was the original owner. One of his children is
they took physical possession of the land, enjoyed its fruits Eugenia who was supposedly the wife of Francisco Reyes.
page 60
● Francisco Reyes was entrusted to file an answer in a
Domantay but the action for reconveyance has already
cadastral proceeding in acquiring that certain property in
prescribed in 10 years (1915—when title was issued to
Laoag. He was entrusted with obtaining a title thereto for and
him; this case was instituted 1952).
in behalf of all the heirs of Jorge Bueno, including the wife
Issue:
Eugenia Bueno.
9. WON the action for reconveyance has prescribed.
● Plaintiffs say that either in bad faith or by mistake,
Held: No
Francisco Reyes filed an answer and obtained title to the Ratio:
property in his name and the defendant’s. Plaintiffs allege • While it may have been a constructive, implied trust,
that they only have discovered these things this year. its substance was substantially affected when Mariano
● CFI and defendants proceeded on the theory that the Tamayo and Domantay executed a public instrument whereby
action for reconveyance was predicated on an implied trust Mariano explicitly acknowledged that his parents had sold to
and as such, the action prescribes in 10 years (1936— Domantay the parcel of land and stipulating that Domantay is
Francisco Reyes acquired title on the land; 1962—time of the the absolute owner. This action made it an express trust
petition of reconveyance, total of 23 years). which is subsisting, not subject to the statute of limitations
Issues: until repudiated, in which event the period of prescription
• WON the trust was express or implied. WON the begins to run only from the time of the repudiation. This took
action for reconveyance has prescribed. place in June 1952 when Mariano rejected Callejo’s
Held: demand. Prescription does not attach since the action for
2. The trust was implied and remanded to lower court reconveyance was instituted a few days after the express
for further proceedings to determine whether there has been trust was repudiated.
constructive notice. Doctrine:
Ratio ● Express trusts do not prescribe unless repudiated in
• The trust given to Francisco Reyes was supposed to which event the period of prescription starts from the
be an express trust but it never materialized. This was an repudiation.
implied trust arising by operation of the law. This was Mindanao Dev’t Authority v. CA & Ang Bansing
specifically a constructive trust since the allegation avers that Facts
the property was taken by mistake or fraud (Art. j. Francisco Ang Bansing owned a 300,000 sq.m. piece of
1456). Hence, prescription can supervene. Remember that an land in Davao wherein he sold part of it to Juan Cruz who
express trust is imprescriptible. Under Sec. 40 of the Old subsequently sold it also to the Commonwealth of the
CivPro, action for recovery of property prescribes in 10 years. Philippines. In the contract between Juan Cruz and Ang
• From what time should the prescriptive period Bansing, it is stipulated that Juan Cruz will agree to work for
start? The cadastral proceeding where Reyes and his brothers the titling of the entire area of land under his own expenses
obtained title thereto cannot be taken as constructive notice and the expenses for the titling of the portion sold to him.
since it is an action in rem. Case remanded to trail court for k. The President of the Philippines issued Proclamation no.
further proceedings to establish when the prescriptive period 459 transferring the ownership of certain parcels of lands in
started. Davao to the Mindanao Dev’t Authority (MDA) subject to
Doctrine/s: private rights, if any. MDA filed a complaint against Ang
5. Constructive implied trusts prescribe 10 years from Bansing for reconveyance alleging that the stipulation in the
the time defendants are given constructive notice. Express contract between Juan Cruz and Ang Bansing made Ang
trusts do not prescribe. Constructive notice can be the actual Bansing a trustee thereby obligating Ang Bansing to deliver
registration of the land since this is a notice to the whole the portion of land sold to Juan Cruz.
world. l. Ang Bansing alleges that any ownership right over the
Tamayo v. Callejo property has prescribes since it has already been 30 years.
Facts m. CFI found that there was an express trust. CA says there was
2. Mariano and Marcos Tamayo appealed from the no express trust.
decision of the CA granting the petition of Aurelio Callejo that Issue:
a certain piece of land belonged to Callejo. • WON there was an express trust created between Juan
3. Spouses Vicente and Cirila Tamayo owned a piece of Cruz and Ang Bansing.
land in Pangasinan. Vicente died leaving to his sons the Held: Nada
property (wife waived her portion). Before he died, he sold Ratio:
part of the land to Domantay who in turn subsequently sold it • Trusts are either express or implied. A trusts
to Aurelio Callejo. When Mariano sold a part of his land to necessarily includes the following: (1) competent trustor and
someone and a surveyor went to check it out, the surveyor trustee, (2) an ascertainable trust res, and (3) sufficiently
was denied access by Callejo, saying that that part of the land certain beneficiaries.
is his. Thus, this petition. • The stipulation alluded to is nothing but a condition
4. Mariano Tamayo’s defense is that the land in dispute that Ang Bansig shall pay the expenses for the registration of
is outside the perimeter of the certificate of title and he also his land and for Juan Cruz to shoulder the expenses for the
alleged prescription. Tamayo argues that if the land bought registration of the land sold to him. The stipulation does not
by Domantay was erroneously included in his certificate of categorically create an obligation on the part of Ang Bansing
title, then it created an implied trust between him and to hold the property in trust for Juan Cruz.
page 61
• There is no express trust as there was no violation of an existing statute and in evasion of its express
unequivocal disposition of property making himself a trustee provision, no trust can result in favor of the party who is
for the benefit of another. The intent to create a trust must guilty of the fraud.
be definitive and particular. Using Ramos v. CA, the Court held that “if the purpose of the
• Even if we consider it as an implied trust, it has payor of the consideration having title placed in the name of
already prescribed because more than 28 years has passed. the another was to evade some rule of common or statute
Acton for reconveyance has prescribed. law, the Courts will not assist the payor in achieving his
Doctrine: improper purpose by enforcing a resultant
• Trusts are created unequivocally and with the clear
intent to create a trust.
Tala Realty v. Banco Filipino Savings and Mortgage
Bank
Facts
2. Tala Realty Services is the absolute owner of several
parcels of land by virtue of a Deed of Sale executed between
Tala and respondent Bank. At issue here is one of those
parcels of land-the Bulacan property. On the same day that
Tala acquired the property, Tala and the Bank executed a
lease contract renewable in 20 years and subsequently
changed to 11 years, renewable for 9 years. After 11 years,
Tala reminded the Bank that the contract will expire soon and
negotiated for a renewable of the lease agreement.
3. There was no final agreement and in the end when
the Bank was not able to comply with the requirements of
Tala, Tala filed complaints for ejectment and/or unlawful
detainer.
4. The Bank’s defense story was that it undertook an
expansion program where they will buy a head office but if
they do so, they would exceed the limit of real estate
investment set by the General Bankings Act. To avoid the
limit set by law, they reduced their branch site holdings by
leasing instead of owning branch sites. Thus they entered into
a “warehousing agreement” with Tala wherein it is stipulated
that the properties will be reconveyed to the Bank at the
Bank’s demand or pleasure. This was not written in the
contract but the Bank was confident that Tala will honor this
agreement.
Issue:
• WON the conveyance of property was a trust under
the “warehousing agreement.”
Held: No
Ratio:
• It is clear that the Bank transferred ownership to
Tala when the former sold it to the latter. The Bank counters
that it was not really a sale because what Tala paid was
actually the advance rentals that the Bank gave to Tala and
therefore the contract should be understood as a
“warehousing agreement” whereby Tala holds the property
for the bank (just like a trust). Not meritorious.
• While there may have been a contract of sale and
lease back of the property which created an implied trust
“warehousing agreement” for the reconveyance of the
property, under the law, this implied trust is inexistent and
void for being contrary to law (the “warehousing agreement”
was meant to curtail the limitations set by the General
Bankings Act which prohibits a Bank from owning more than
the limit of real estate investment).
• An implied trust could not have been formed
between the Bank and Tala “where the purchase is made in
page 62